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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 30, 1999
ASYMETRIX LEARNING SYSTEMS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
000-24289 91-1276003
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(Commission (IRS Employer
File Number) Identification No.)
110-110TH AVENUE NE, BELLEVUE, WASHINGTON 98004
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(Address of principal executive offices) (Zip Code)
(425) 462-0501
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(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name or former address, if changed since last report)
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Item 5: Other Events.
Asymetrix Learning Systems, Inc. entered into a Securities Purchase
Agreement dated as of September 30, 1999, with Marshall Capital, Inc. and Vulcan
Ventures, pursuant to which these investors purchased an aggregate of 10,000
shares of Series A Convertible Preferred Stock of Asymetrix for an aggregate
purchase price of $10.0 million. These shares of Preferred Stock are currently
convertible into an aggregate of approximately 1,290,323 shares of Common Stock
of Asymetrix. The conversion price, which is currently $7.75 per $1,000 of
Preferred Stock purchased, is subject to adjustment and could be reduced to no
lower than $6.82 per share, if the average closing price of Asymetrix Common
Stock for the 20 trading days ending on the effective date (the "Effective
Date") of a registration statement covering the resale of those shares is below
$7.75 per share. Based on the minimum conversion price of $6.82 per share, the
maximum number of shares issuable upon the conversion would be 1,466,275 shares
of common stock.
All of the shares of Preferred Stock will automatically convert into Common
Stock on the Effective Date. If the Effective Date does not occur prior to
March 29, 1999, Asymetrix would be required to pay premium with respect to the
shares at a rate per annum equal to 5% of the purchase price of the shares. This
premium, it becomes payable, would be payable on a quarterly basis.
The Preferred Stock does not have voting rights, however, Asymetrix must
obtain the consent of the holders of the Preferred Stock in order to take
certain actions, such as issuing additional shares of Preferred Stock that are
senior to this stock, amending the terms of this Preferred Stock or issue any
additional shares of Series A Convertible Preferred Stock.
The Preferred Stock has a liquidation preference in the amount of its
stated value, which is $10.0 million in the aggregate, plus any accrued but
unpaid premium.
In connection with this transaction, Asymetrix also issued warrants to
purchase an aggregate of 967,742 shares of Common Stock to these investors and a
warrant to purchase 30,000 shares of Common Stock as a finder's fee. These
warrants are exercisable for a period of five years and have an exercise price
of $9.30 per share.
These warrants may only be exercised for cash, unless the shares issuable
upon exercise are not covered by an effective registration statement, in which
case, they may be exercised on a "net exercise" basis, without the payment of
additional cash consideration to Asymetrix.
The number of shares issuable upon exercise of the warrants is subject to
adjustment for stock splits, stock dividends and similar transactions. In the
event Asymetrix issues securities for a purchase price of less than the exercise
price, the exercise price will be adjusted on a "weighted average" basis to
account for dilution. This anti-dilution provision does not apply to issuances
in connection with employee stock options, employee stock purchase plans,
mergers or acquisitions, strategic investments or underwritten offerings.
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Item 7: Financial Statements and Exhibits.
(c) Exhibits
99.01 Securities Purchase Agreement, dated as of September 30, 1999 by and
among Asymetrix, Marshall Capital Management, Inc. and Vulcan
Ventures
99.02 Registration Rights Agreement, dated as of September 30, 1999 by and
among Asymetrix, Marshall Capital Management, Inc. and Vulcan
Ventures
99.03 Form of Warrant issued as of October 6, 1999 to Marshall Capital
Management, Inc. and Vulcan Ventures (included as Exhibit A of
Exhibit 99.01)
99.04 Certificate of Designation, Preferences and Rights of the Series A
Convertible Preferred Stock of Asymetrix filed on October 5, 1999
with the Delaware Secretary of State
99.05 Asymetrix Press Release, dated October 11, 1999
99.06 Asymetrix Press Release, dated October 12, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASYMETRIX LEARNING SYSTEMS, INC.
Date: October 12, 1999 By: /s/ John D. Atherly
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John D. Atherly
Vice President, Finance and Administration
and Chief Financial Officer
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99.01 Securities Purchase Agreement, dated as of September 30, 1999 by and
among Asymetrix, Marshall Capital Management, Inc. and Vulcan Ventures
99.02 Registration Rights Agreement, dated as of September 30, 1999 by and
among Asymetrix, Marshall Capital Management, Inc. and Vulcan Ventures
99.03 Form of Warrant issued as of October 6, 1999 to Marshall Capital
Management, Inc. and Vulcan Ventures (included as Exhibit A of Exhibit
99.01)
99.04 Certificate of Designation, Preferences and Rights of the Series A
Convertible Preferred Stock of Asymetrix filed on October 5, 1999 with
the Delaware Secretary of State
99.05 Asymetrix Press Release, dated October 11, 1999
99.06 Asymetrix Press Release, dated October 12, 1999.
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Exhibit 99.01
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
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September 30, 1999, by and between ASYMETRIX LEARNING SYSTEMS, INC., a Delaware
corporation (the "Company"), and each of the entities whose names appear on the
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signature pages hereof. Such entities are each referred to herein as a
"Purchaser" and, collectively, as the "Purchasers".
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The Company wishes to sell to each Purchaser, and each Purchaser
wishes to buy, on the terms and subject to the conditions set forth in this
Agreement, shares (the "Preferred Shares") of the Company's Series A Convertible
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Preferred Stock, par value $.01 per share (the "Preferred Stock"), and related
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Warrants in the form attached hereto as Exhibit A (the "Warrants"). The
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Preferred Shares are convertible pursuant to the terms of the Certificate of
Designation relating to the Preferred Stock, the form of which is attached
hereto as Exhibit B (the "Certificate of Designation") into shares (the
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"Conversion Shares") of the Company's common stock, par value .01 per share (the
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"Common Stock"). Amounts of Premium (as defined in the Certificate of
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Designation, "Premium") that have accrued on Preferred Shares and remain unpaid
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at the end of a calendar quarter may, in certain circumstances, be paid in
shares of Common Stock (the "Premium Shares"). The Warrants are exercisable into
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shares of Common Stock (the "Warrant Shares") in accordance with their terms.
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The Preferred Shares, the Conversion Shares, the Premium Shares, the Warrants
and the Warrant Shares are collectively referred to herein as the "Securities".
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Any capitalized term used herein that is not otherwise defined shall have the
meaning specified therefor in the Certificate of Designation.
The sale of the Preferred Shares and the Warrants by the Company
hereunder will be effected in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D ("Regulation D") as
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promulgated by the Securities and Exchange Commission (the "Commission") under
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the Securities Act of 1933, as amended (the "Securities Act"). The Company has
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agreed to effect the registration of the Conversion Shares, the Premium Shares
and the Warrant Shares under the Securities Act pursuant to a Registration
Rights Agreement of even date herewith by and between the Company and each
Purchaser (the "Registration Rights Agreement").
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The Company and each Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANTS.
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1.1 Agreement to Purchase and Sell. Upon the terms and subject to
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the satisfaction or waiver of the conditions set forth herein, the Company
agrees to sell and each Purchaser agrees to
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purchase (A) the number of Preferred Shares set forth below such Purchaser's
name on the signature pages hereof and (B) a Warrant exercisable into a number
of Warrant Shares equal to (i) the aggregate Stated Value of such Preferred
Shares divided by (ii) the Initial Conversion Price times seventy five percent
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(75%). The Warrants shall have an exercise price equal to $9.30. The date on
which the closing (the "Closing") of the purchase and sale of the Preferred
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Shares and Warrants occurs is hereinafter referred to as the "Closing Date". The
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purchase price for the Preferred Shares and Warrants being purchased by a
Purchaser (the "Purchase Price") shall be equal to the Stated Value of the
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Preferred Shares being purchased by such Purchaser. Subject to the satisfaction
or waiver of the conditions set forth herein, the Closing will be deemed to
occur when the Company and each Purchaser execute and deliver this Agreement and
the other Transaction Documents (as defined below), which delivery may be
effected by facsimile transmission, and full payment of each Purchaser's
Purchase Price has been made by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing the Preferred Shares and Warrants being purchased by such
Purchaser.
1.2 Certain Definitions. When used herein, the following terms shall have
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the respective meanings indicated:
"Business Day" shall mean any day on which the New York Stock Exchange
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(the "NYSE") and commercial banks in the city of New York are open for business.
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"Closing Bid Price" shall mean, with respect to the Common Stock, the
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closing bid price for the Common Stock occurring on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial
Markets is not then reporting such prices, by a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
Purchasers (collectively, "Bloomberg") or if the foregoing does not apply, the
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last reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.. If the Closing Bid Price cannot be
calculated for such security on any of the foregoing bases, the Closing Bid
Price of such security shall be the fair market value as reasonably determined
by an independent investment banking firm selected by the Purchasers, and
reasonably acceptable to the Company, with the costs of such appraisal to be
borne by the Company.
"Closing Trade Price" shall mean, with respect to the Common Stock,
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the last sale price reported for the Common Stock on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by the Bloomberg or, if no sale price was reported on such
Trading Day by Bloomberg, the last sale price reported by Bloomberg
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on the Trading Day on which such prices were last reported.
"Trading Day" shall mean any day on which the Common Stock is
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purchased and sold on the principal securities exchange or market on which the
Common Stock is then listed or traded.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PURCHASER.
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Each Purchaser hereby represents and warrants to the Company and agrees
with the Company that, as of the date of this Agreement and as of the Closing
Date:
2.1 Authorization; Enforceability. Such Purchaser is duly and validly
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organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Securities and to execute and deliver this Agreement. This
Agreement and the Registration Rights Agreement each constitutes such
Purchaser's valid and legally binding obligation, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) or public policy.
2.2 Accredited Investor; Purchase as Principal. Such Purchaser is an
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accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Securities solely for its own account as a principal and not with
a present view to the public resale or distribution of all or any part thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act; provided,
however that in making such representation, such Purchaser does not agree to
hold any Securities for any minimum or specific term and reserves the right to
sell, transfer or otherwise dispose of the Securities at any time in accordance
with the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Information. The Company has provided such Purchaser with information
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regarding the business, operations and financial condition of the Company, and
has granted to such Purchaser the opportunity to ask questions of and receive
answers from representatives of the Company, its officers, directors, employees
and agents concerning the Company and materials relating to the terms and
conditions of the purchase and sale of the Securities. Neither such information
nor any other investigation conducted by such Purchaser or any of its
representatives shall modify, amend or otherwise affect such Purchaser's right
to rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. Such Purchaser acknowledges that, except
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as provided
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in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act and may not be transferred or resold
without registration under the Securities Act or unless pursuant to an exemption
therefrom.
2.5 Legend. Such Purchaser understands that the certificates representing
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the Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may not be
offered or sold unless a registration statement under the Securities
Act and applicable state securities laws shall have become effective
with regard thereto, or an exemption from registration under such laws
is available in connection with such offer or sale."
Notwithstanding the foregoing, it is agreed that, as long as (A) the resale
or transfer (including without limitation a pledge) of such Securities is
registered pursuant to an effective registration statement and such Purchaser
represents in writing to the Company that such Securities have been or are being
sold pursuant to such registration statement, (B) such Securities have been
publicly sold pursuant to Rule 144 ("Rule 144") and such Purchaser has delivered
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to the Company customary Rule 144 broker's and seller's representation letters,
or (C) such Securities can be publicly sold pursuant to Rule 144(k) under the
Securities Act, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend is
stamped, the Company shall issue new certificates without such legend to the
holder promptly upon request.
2.6 No Conflict. The execution, delivery and performance by such Purchaser
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of this Agreement and the other Transaction Documents to which it is a party (A)
have been approved by all necessary action (corporate or other) on the part of
such Purchaser and (B) will not result in (i) any material violation of any
provisions of its charter, bylaws or any other governing document in effect on
the date hereof, (ii) any material violation of any instrument or contract to
which it is a party or by which it is bound, or (iii) the creation of any
material lien, charge or encumbrance upon any of its assets.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
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The Company hereby represents and warrants to each Purchaser and agrees
with such Purchaser that, as of the date of this Agreement and as of the Closing
Date:
3.1 Organization, Good Standing and Qualification. Except as set forth on
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Schedule 3.1, each of the Company and its subsidiaries is duly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to carry on its business as now conducted. Each of the Company and its
subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole. For purposes of this Agreement,
the term "subsidiary" or "subsidiaries" shall mean any entity or entities in
which the Company beneficially owns 20% or more of the voting equity thereof.
3.2 Authorization; Consents. The Company has the requisite corporate
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power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents or other instruments executed and delivered by or on
behalf of the Company at the Closing (the instruments described in (i), (ii) and
(iii) being collectively referred to herein as the "Transaction Documents"), to
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execute and file, and perform its obligations under the Certificate of
Designation, to issue and sell Preferred Shares and a Warrant to each Purchaser
in accordance with the terms hereof and to issue and deliver Conversion Shares
and Premium Shares in accordance with the terms of the Certificate of
Designation and Warrant Shares in accordance with the terms of the Warrants. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of, and
the performance by the Company of its obligations under, the Transaction
Documents and (ii) the authorization, execution and filing of, and the
performance by the Company of its obligations under, the Certificate of
Designation has been taken, and no further consent or authorization of the
Company, its Board of Directors, its stockholders, any governmental agency or
organization (other than such approval as may be required under the Securities
Act and applicable state securities laws in respect of the Registration Rights
Agreement), or any other person or entity is required (pursuant to any rule of
the Nasdaq National Market, other than such market's continued listing criteria
governing issuances of common stock below the current market price thereof, or
otherwise).
3.3 Enforcement. Each of the Transaction Documents constitutes a valid and
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legally binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) or public policy.
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3.4 Disclosure Documents; Agreements; Financial Statements; Other
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Information. The Company has filed with the Commission: (i) the Company's
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Annual Report on Form 10-K for the year ended December 31, 1998, (ii) Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999,
(iii) all Current Reports on Form 8-K, if any, and any other reports, required
to be filed with the Commission since December 31, 1998 and prior to the date
hereof and (iv) the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders (collectively, the "Disclosure Documents"). The Company
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is not aware of any event occurring on or prior to the Closing Date (other than
the transactions effected hereby) that would require the filing of, or with
respect to which the Company intends to file, a Form 8-K after such date. Each
Disclosure Document, as of the date of the filing thereof with the Commission,
conformed in all material respects to the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act") and, as of the date of such filing, such Disclosure Document did
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not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. All
material agreements required to be filed as exhibits to the Disclosure Documents
have been filed or incorporated by reference as required by the applicable
provisions of the Exchange Act. Neither the Company nor any of its subsidiaries
is in breach of any agreement to which it is a party or by which it is bound
where such breach could have a material adverse effect on (i) the consolidated
business, operations, properties, financial condition, prospects or results of
operations of the Company and its subsidiaries taken as a whole, (ii) the
transactions contemplated hereby, by the other Transaction Documents or by the
Certificate of Designation, (iii) the Securities or (iv) the ability of the
Company to perform its obligations under this Agreement, the other Transaction
Documents or the Certificate of Designation (collectively, a "Material Adverse
----------------
Effect"). Except as set forth in the Disclosure Documents, the Company has no
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liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which, under generally accepted accounting
principles, are not required to be reflected in such financial statements
(including the footnotes to such financial statements) and which, individually
or in the aggregate, are not material to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. As of their
respective dates, the financial statements of the Company included in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments). The written information described in paragraph 2.3
does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which
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they were made, not misleading.
3.5 Capitalization. The capitalization of the Company, including its
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authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities (other than the Preferred Stock and Warrants) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion and
exercise of the Preferred Stock and Warrants is set forth on Schedule 3.5
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hereto. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable. Except as set
forth on Schedule 3.5, no shares of the capital stock of the Company are
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subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances created by or through the Company.
Except as disclosed on Schedule 3.5, or as contemplated herein, there are no
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outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries.
3.6 Valid Issuance. The Preferred Shares are duly authorized and, when
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issued, sold and delivered in accordance with the terms hereof, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company (collectively, "Encumbrances"), (ii) based in part upon the
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representations of each Purchaser in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Certificate of Designation. The Warrants are duly authorized and,
when issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
Encumbrances and (ii) based in part upon the representations of each Purchaser
in this Agreement, will be issued, sold and delivered in compliance with all
applicable Federal and state securities laws. The Conversion Shares are duly
authorized and reserved for issuance and, when issued upon conversion of the
Preferred Shares in accordance with the terms of the Certificate of Designation,
will be duly and validly issued, fully paid and nonassessable, free and clear of
any Encumbrances. The Premium Shares are duly authorized and reserved for
issuance and, when issued in payment of Premium in accordance with the terms of
the Certificate of Designation, will be duly and validly issued, fully paid and
nonassessable, free and clear of any Encumbrances. The Warrant Shares are duly
authorized and, upon the issuance thereof in accordance with the terms of the
Warrant, will be duly and validly issued, fully paid and nonassessable, free and
clear of any Encumbrances. Except as set forth on Schedule 3.6, the Company's
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Board of Directors (i) has unanimously determined that the issuance and sale of
the Preferred Shares and Warrants hereunder, and the consummation of
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the transactions contemplated hereby, by the other Transaction Documents and by
the Certificate of Designation (including without limitation the issuance of the
Conversion Shares upon exercise of the Preferred Shares and the Warrant Shares
upon exercise of the Warrants), are in the best interests of the Company and
(ii) has unanimously approved the issuance of Conversion Shares upon exercise of
the Preferred Shares, the issuance of Premium Shares in payment of Premium and
the issuance of Warrant Shares upon exercise of the Warrants.
3.7 No Conflict with Other Instruments. Neither the Company nor any of
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its subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document as amended and in effect on and as of the date hereof
or in default (and no event has occurred which, with notice or lapse of time or
both, would constitute a default) under any provision of any instrument or
contract to which it is a party or by which it is bound, or of any provision of
any Federal, state or foreign judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company, which violation or default
could reasonably be expected to have a Material Adverse Effect. The (i)
execution, delivery and performance of this Agreement and the other Transaction
Documents, (ii) execution and filing of the Certificate of Designation and (iii)
except as set forth in Schedule 3.7, consummation of the transactions
------------
contemplated hereby and thereby (including without limitation, the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and
issuance of the Conversion Shares, the Premium Shares and the Warrant Shares)
will not, in any such case, result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument or contract or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or of any of its subsidiaries or the triggering of any preemptive or
anti-dilution rights or rights of first refusal or first offer, or any similar
rights (whether pursuant to a "poison pill" provision or otherwise), on the part
of holders of the Company's securities.
3.8 Financial Condition; Taxes; Litigation.
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3.8.1 Except as set forth on Schedule 3.8.1, the Company's financial
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condition is, in all material respects, as described in the Disclosure
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and its subsidiaries
taken as a whole. Except as otherwise described in the Disclosure Documents or
in Schedule 3.8.1, or disclosed in writing by the Company to such Purchaser
prior to the Closing Date, there has been no material adverse change to the
Company's business, operations, properties, financial condition, prospects or
results of operations since the date of the Company's most recent audited
financial statements contained in the Disclosure Documents.
3.8.2 Except as set forth on Schedule 3.8.2, the Company has filed all
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tax returns
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required to be filed by it and paid all taxes which are due, except for taxes
which it reasonably disputes or which could not have a Material Adverse Effect.
3.8.3 Neither the Company nor any of its subsidiaries is the subject
of any pending or, to the Company's knowledge, threatened inquiry, investigation
or administrative or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, the Commission or any
state securities commission or other governmental or regulatory entity which
could have a Material Adverse Effect.
3.8.4 Except as described in the Disclosure Documents or in Schedule
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3.8.4, there is no claim, litigation or administrative proceeding pending, or,
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to the Company's knowledge, threatened or contemplated, against the Company or
any of its subsidiaries, or against any officer, director or employee of the
Company or any such subsidiary in connection with such person's employment
therewith that, individually or in the aggregate, could have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is a party to or subject
to the provisions of, any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality which could have a Material
Adverse Effect.
3.9 Reporting Company; Form S-3. The Company is subject to the reporting
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requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required thereby. The
Company is eligible to register for resale, in a secondary sale by a selling
stockholder, shares of its Common Stock on a registration statement on Form S-3
under the Securities Act. To the Company's knowledge, there exist no facts or
circumstances (including without limitation any required approvals or waivers of
any circumstances that may delay or prevent the obtaining of accountant's
consents) that would prohibit or delay the preparation and filing of a
registration statement on Form S-3 with respect to the Registrable Securities
(as defined in the Registration Rights Agreement).
3.10 Acknowledgement of Dilution. The Company acknowledges that the
---------------------------
issuance of Conversion Shares or Warrant Shares may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its obligation
to issue Conversion Shares in accordance with the terms of the Certificate of
Designation and Warrant Shares in accordance with the terms of the Warrants, is
unconditional and absolute regardless of the effect of any such dilution.
3.11 Intellectual Property. Except as set forth on Schedule 3.11, the
--------------------- -------------
Company and its subsidiaries each has the right to use adequate trademarks,
trade names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property rights necessary to
conduct the business now operated by it, and is not aware of any infringement by
a third party with respect to such rights or of any infringement by it or
conflict with asserted
9
<PAGE>
rights of others that, in any such case, if determined adversely to the Company
or any of its subsidiaries, could individually or in the aggregate have a
Material Adverse Effect.
3.12 Registration Rights; Rights of Participation. Except as described on
--------------------------------------------
Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to any
- -------------
person or entity any rights (including "piggy-back" registration rights) to have
any securities of the Company registered with the Commission or any other
governmental authority and (B) no person or entity, including, but not limited
to, current or former stockholders of the Company, underwriters, brokers, agents
or other third parties, has any right of first refusal, preemptive right, right
of participation, anti-dilutive right or any similar right to participate in, or
to receive securities of the Company or other consideration as a result of, the
transactions contemplated by this Agreement or the other Transaction Documents
which has not been waived or will not be waived or otherwise satisfied as of the
Closing Date.
3.13 Listing on Nasdaq. The Common Stock is listed on the Nasdaq National
-----------------
Market, and trading in the Common Stock on such market has not been suspended.
The Company is, to its knowledge, in full compliance with the continued listing
criteria of the Nasdaq National Market, and does not reasonably anticipate that
the Common Stock will lose its listing on the Nasdaq National Market, whether by
reason of the transactions contemplated by this Agreement or the other
Transaction Documents, or otherwise and is not aware of any inquiry by or
received any notice from the Nasdaq National Market regarding any failure or
alleged failure by the Company to comply with such criteria.
3.14 Solicitation; Other Issuances of Securities. Neither the Company nor
-------------------------------------------
any of its subsidiaries or affiliates, nor any person acting on its or their
behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities, (ii) has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Securities under the
Securities Act or (iii) has issued any shares of Common Stock or shares of any
series of preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Securities to such
Purchaser or the issuance of the Conversion Shares for purposes of the
Securities Act or of any applicable stockholder approval provisions, including,
without limitation, under the rules and regulations of any exchange or automated
quotation system on which any of the securities of the Company are listed or
designated. In order to prevent the possible integration of the offer and sale
of the Securities with any offering effected subsequent to the Closing Date,
neither the Company nor any of its subsidiaries or affiliates will offer or sell
any securities during the six (6) month period following the Closing Date;
provided, however, that such limitation shall not apply to any securities that
- -------- -------
are offered or sold (i) pursuant to an employee benefit plan or program duly
adopted by the Company and in effect on the date hereof, (ii) pursuant to stock
options or warrants
10
<PAGE>
outstanding on the date hereof, (iii) any firm-commitment underwritten public
offering or (iv) in connection with a strategic investment or acquisition which,
in either such case such case, is not effected for the primary purpose of
raising equity capital.
3.15 Fees. Except as described on Schedule 3.15 hereto, the Company is
---- -------------
not obligated to pay any compensation or other fee, cost or related expenditure
to any underwriter, broker, agent or other representative or entity in
connection with the transactions contemplated hereby. The Company will indemnify
and hold harmless such Purchaser from and against any claim by any person or
entity alleging that such Purchaser is obligated to pay any such compensation,
fee, cost or related expenditure in connection with the transactions
contemplated hereby.
3.16 Regulatory Permits. Each of the Company and its subsidiaries
------------------
possesses all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct its
business, except where the failure to so possess such certificates,
authorizations or permits could not have a Material Adverse Effect, and neither
the Company nor any such subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which revocation or modification could have a Material
Adverse Effect.
3.17 Key Employees. Each person whose name is set forth on Schedule 3.17
------------- -------------
(each, a "Key Employee") is currently serving in the capacity indicated on such
------------
schedule on a full-time basis. The Company has no knowledge of any fact or
circumstance (including without limitation (i) the terms of any agreement to
which such person is a party or any litigation in which such person is or may
become involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that would
limit or prevent any such person from serving in such capacity on a full-time
basis in the foreseeable future, or of any intention on the part of any such
person to limit or terminate his or her employment with the Company. Except as
described on Schedule 3.17, no Key Employee has borrowed money pursuant to a
-------------
currently outstanding loan that is secured by Common Stock or any right or
option to receive Common Stock.
3.18 Year 2000. To the Company's knowledge, except as disclosed on
---------
Schedule 3.18: (i) all hardware and software products used by the Company and
- -------------
its subsidiaries in the administration and the business operations of the
Company and such subsidiaries will be able to process date data (including, but
not limited to, calculating, comparing and sequencing) in a consistent manner
from, into and between the twentieth century (through 1999), the year 2000 and
the twenty-first century, including leap year calculations, when used in
accordance with the product documentation accompanying such hardware and
software products; and (ii) all software developed and currently sold by the
Company and any of its subsidiaries (other than third party software) will be
able to process
11
<PAGE>
date data (including, but not limited to, calculating, comparing and sequencing)
in a consistent manner from, into and between the twentieth century (through
1999), the year 2000 and the twenty-first century, including leap year
calculations, when used in accordance with the product documentation
accompanying such software.
3.19 Environment. Except as disclosed in the Disclosure Documents (i)
-----------
there is no environmental liability, nor factors likely to give rise to any
environmental liability, affecting any of the properties of the Company or any
of its subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect and (ii) neither the Company nor any of the subsidiaries
has violated any environmental law applicable to it now or previously in effect,
other than such violations or infringements that, individually or in the
aggregate, have not had and will not have a Material Adverse Effect.
4. COVENANTS OF THE COMPANY.
------------------------
4.1 Corporate Existence. The Company shall, so long as any Purchaser or
-------------------
any affiliate of any Purchaser beneficially owns any Securities, maintain its
corporate existence in good standing under the jurisdiction of its incorporation
and shall pay all taxes owed by it when due except for taxes which the Company
reasonably disputes.
4.2 Provision of Information. The Company shall, so long as any Purchaser
------------------------
or any affiliate of any Purchaser beneficially owns any Securities, provide any
such Purchaser with copies of all materials sent to stockholders, in each such
case at the same time that it mails such materials to its stockholders.
4.3 Form D; Blue-Sky Qualification. To the extent that the Company is
------------------------------
relying on Regulation D under the Securities Act in selling the Securities to
each Purchaser hereunder, the Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Purchaser promptly after such filing. The Company shall take such action as
is necessary to qualify the Preferred Shares and Warrants for sale under
applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall
provide evidence of any such action to each Purchaser at such Purchaser's
request.
4.4 Reporting Status. As long as any Purchaser or any affiliate of any
----------------
Purchaser beneficially owns any Securities and until the date on which any of
the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such
12
<PAGE>
termination. The Company agrees to issue a press release describing the
transactions contemplated by this Agreement and the other Transaction Documents
and to file with the Commission a Form 8-K in the form required by the Exchange
Act describing the terms of the transactions contemplated by this Agreement and
the other Transaction Documents, with this Agreement and all schedules and
exhibits attached to such Form 8-K as an exhibit thereto, in each case on or
before October 15, 1999.
4.5 Reservation of Common Stock. The Company shall at all times following
---------------------------
the Closing Date have authorized and reserved for issuance to the Purchasers
pursuant to the Preferred Shares and the Warrants, free from any preemptive
rights, a number of shares of Common Stock equal to the maximum number of
Conversion Shares issuable upon conversion of the Preferred Shares and exercise
of the Warrants (the "Reserved Amount")(in each case assuming (i) application of
---------------
the minimum Conversion Price that may occur under the Certificate of
Designation, (ii) accrual of Premium under all of the Preferred Shares issued
hereunder from the Issue Date (as defined in the Certificate of Designation)
through the Maturity Date (as defined in the Certificate of Designation) and
payment of such Premium in Conversion Shares and (iii) that none of the
limitations set forth herein, in the Certificate of Designation or in the
Warrant on such conversion or exercise exist). The Company shall not reduce the
Reserved Amount without each Purchaser's prior written consent. Each Purchaser
shall be allocated a portion of the Reserved Amount in the same ratio that the
Preferred Shares purchased by such Purchaser hereunder bears to the Preferred
Shares purchased by all of the Purchasers hereunder.
4.6 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Shares and Warrants for general corporate purposes only, in the
ordinary course of its business and consistent with past practice and, without
limiting the generality of the foregoing, shall not use such proceeds to make a
loan to any employee, officer, director or stockholder of the Company, to repay
any loan or other obligation of the Company to any such person or to repurchase
or pay a dividend on shares of Common Stock or other securities of the Company,
other than any such payment explicitly required or permitted by the terms of
this Agreement, the Certificate of Designation or the other Transaction
Documents.
4.7 Quotation on Nasdaq. The Company shall (i) promptly following the
-------------------
Closing, take such action as may be necessary to include all of the Conversion
Shares, Premium Shares and Warrant Shares that may be issued by the Company
under the Preferred Shares and Warrants on the Nasdaq National Market, and (ii)
use its reasonable commercial efforts to maintain the designation and quotation,
or listing, of the Common Stock on the Nasdaq National Market or the New York
Stock Exchange for a minimum of five (5) years following the Closing Date.
4.8 Use of Purchaser Name. Except as may be required by applicable law,
---------------------
the Company shall not use, directly or indirectly, any Purchaser's name or the
name of any of its
13
<PAGE>
affiliates in any advertisement, announcement, press release or other similar
communication unless it has received the prior written consent of such Purchaser
for the specific use contemplated (which consent will not be unreasonably
withheld) or as otherwise required by applicable law or regulation.
4.9 Right of First Offer. Prior to any offer or sale by the Company of any
--------------------
Equity Securities (as defined below) during the period beginning on the Closing
Date and ending on the twelve (12) month anniversary of the Closing Date, the
Company must first deliver to each Purchaser written notice describing the
proposed issuance, including the terms and conditions thereof, and provide each
Purchaser with an option during the five (5) Trading Day period following
delivery of such notice to purchase all or any part of such Purchaser's
Allocable Portion (as defined below) of the Equity Securities being offered on
the same terms as contemplated by such issuance (the "Right of First Offer").
--------------------
In the event that a Purchaser either does not give notice within such five
Trading Day period that it intends to exercise the foregoing option or informs
the Company in writing that it does not intend to participate in all or any part
of such issuance, the Company may offer to a third party the option to purchase
up to, in the aggregate, the amount of Equity Securities which were declined by
such Purchaser, on the same terms as were offered to such Purchaser. For
purposes hereof, (A) "Equity Security" shall mean Common Stock or any other
---------------
equity security of the Company, or any security convertible into, or exercisable
or exchangeable for, Common Stock or any such equity security and (B) a
Purchaser's "Allocable Portion" of Equity Securities as of a particular date
-----------------
shall be determined by dividing the number of Preferred Shares purchased by such
Purchaser hereunder by the aggregate number of Preferred Shares purchased by of
the Purchasers hereunder, and multiplying the resulting quotient by the
aggregate amount of Equity Securities being issued. The Right of First Offer
will not apply to the issuance of Equity Securities pursuant to (i) an employee
benefit plan or program duly adopted by the Company and in effect on the date
hereof, (ii) any options or warrant outstanding on the date hereof, (iii) any
firm-commitment underwritten public offerings of Equity Securities or (iv) any
issuance of Equity Securities in connection with a strategic investment or
acquisition which, in either such case, is not effected for the primary purpose
of raising equity capital.
4.11 Management Restrictions. During the period beginning on the Closing
-----------------------
Date and ending on the later of (i) February 1, 2000 and (ii) the date on which
the Registration Statement (as defined in the Registration Rights Agreement) has
been declared effective by the Commission (the "Management Restriction Period"),
no Key Employee may sell, transfer or otherwise dispose of any Common Stock held
or beneficially owned by such individual, whether through the writing or
purchase of options, futures or derivative instruments, or otherwise; provided,
--------
however, that the foregoing limitation shall not apply to (A) any sale, transfer
- -------
or other disposition of Common Stock at a price per share that is greater than
the Conversion Price in effect on the date of such sale, transfer or
disposition, or (B) any sale, transfer or other
14
<PAGE>
disposition by a Key Employee of a number of shares of Common Stock that does
not exceed, singly or in the aggregate with any other sales, transfers or other
dispositions made by such Key Employee during the Management Restriction Period,
ten thousand (10,000) shares of Common Stock, as long as, prior to any sale,
transfer or other disposition permitted by clause (A) or (B), the Registration
Statement (as defined in the Registration Rights Agreement) has been declared
effective by the Commission.
5. CONDITIONS TO CLOSING.
---------------------
5.1 Conditions to Purchaser's Obligations at Closing. Each Purchaser's
------------------------------------------------
obligations at the Closing, including without limitation its obligation to
purchase the Preferred Shares and Warrant being purchased by such Purchaser, are
conditioned upon the satisfaction by the Company (or waiver by such Purchaser)
of each of the following events as of the Closing Date:
5.1.1 the representations and warranties of the Company set forth
in this Agreement shall be true and correct in all material
respects as of such date as if made on such date;
5.1.2 the Company shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required to
be complied with or performed by the Company on or before
the Closing;
5.1.3 the Closing Date shall occur on a date that is not later
than October 6, 1999;
5.1.4 the Company shall have delivered to such Purchaser a
certificate, signed by an officer of the Company, certifying
that the conditions specified in this paragraph 5.1 have
been fulfilled as of the Closing, it being understood that
such Purchaser may rely on such certificate as though it
were a representation and warranty of the Company made
herein;
5.1.5 the Company shall have delivered to such Purchaser an
opinion of counsel for the Company, dated as of such date,
in substantially the form set forth on Exhibit 5.1.5 hereto,
and covering such additional matters as may reasonably be
requested by such Purchaser;
5.1.6 the Company shall have delivered to such Purchaser duly
executed certificates representing the Preferred Shares and
Warrant being
15
<PAGE>
purchased by such Purchaser;
5.1.7 the Company shall have executed and delivered the
Registration Rights Agreement;
5.1.8 the Common Stock shall be listed for trading on the Nasdaq
National Market and no suspension of trading in the Common
Stock on such market shall have occurred and be continuing
as of the Closing Date;
5.1.9 the Company shall have authorized and reserved for issuance
the number of shares of Common Stock required to be reserved
under paragraph 4.5 hereof, and shall have provided such
Purchaser with reasonable evidence thereof;
5.1.10 the Company shall have delivered to such Purchaser proposed
"final" drafts of each Schedule to this Agreement, together
with a proposed "final draft" of the opinion required by
5.5.1, no later than the close of business on the fifth
(5/th/) Business Day immediately prior to the Closing Date;
and
5.1.11 each other Purchaser shall have tendered payment of the
Purchase Price for the number of Preferred Shares set forth
on such other Purchaser's signature page hereto so that the
aggregate amount tendered by all of the Purchasers hereunder
is no less than ten million dollars ($10,000,000).
5.2 Conditions to Company's Obligations at the Closing. The Company's
---------------------------------------------------
obligations at the Closing are conditioned upon the satisfaction (or waiver by
the Company) of each of the following events as of the Closing Date:
5.2.1 the representations and warranties of each Purchaser shall
be true and correct in all material respects as of such date
as if made on such date; and
5.2.2 each Purchaser shall have complied with or performed in all
material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required to
be complied with or performed by such Purchaser on or before
the Closing.
6. MISCELLANEOUS.
-------------
16
<PAGE>
6.1 Survival. The representations and warranties made by the parties
--------
herein shall survive the Closing notwithstanding any due diligence investigation
made by or on behalf of the party seeking to rely thereon. In the event that any
provision of this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this Agreement shall continue
in full force and effect without said provision; provided that in such case the
parties shall negotiate in good faith to replace such provision with a new
provision which is not illegal, unenforceable or void, as long as such new
provision does not materially change the economic benefits of this Agreement to
the parties.
6.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Each Purchaser may assign its
rights and obligations hereunder, in connection with any private sale or
transfer of Securities pursuant to Section 2.4, as long as, as a condition
precedent to such transfer, the transferee executes an acknowledgment agreeing
to be bound by the applicable provisions of this Agreement, in which case the
term "Purchaser" shall be deemed to refer to such transferee as though such
transferee were an original signatory hereto. The Company may not assign it
rights or obligations under this Agreement except as may be specifically
provided by this Agreement or the other Transaction Documents.
6.3 No Reliance. Each party acknowledges that (i) it has such
-----------
knowledge in business and financial matters as to be fully capable of evaluating
this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of the other party in connection with entering into this
Agreement, the other Transaction Documents or such transactions (other than the
representations made in this Agreement or the other Transaction Documents),
(iii) it has not received from such party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and thereunder, and (iv) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary, and has entered into this Agreement
and the other Transaction Documents based on its own independent judgment and on
the advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by such party.
6.4 Injunctive Relief. The Company acknowledges that a breach by it
-----------------
of its obligations hereunder will cause irreparable harm to each Purchaser and
that the remedy or remedies at law for any such breach will be inadequate and
agrees, in the event of any such breach,
17
<PAGE>
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate and specific performance of such obligations
without the necessity of showing economic loss.
6.5 Governing Law; Jurisdiction. This Agreement shall be governed by
---------------------------
and construed under the laws of the State of Delaware without regard to the
conflict of laws provisions thereof. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in the
County of New Castle, Delaware, for the adjudication of any dispute hereunder or
under any Transaction Document or the Certificate of Designation or in
connection herewith or therewith or with any transaction contemplated hereby or
thereby or discussed herein or therein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof (certified or registered
mail, return receipt requested) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
6.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
6.7 Headings; Drafting. The headings used in this Agreement are used
------------------
for convenience only and are not to be considered in construing or interpreting
this Agreement. The parties shall be deemed to have participated jointly in the
drafting of this Agreement and the other Transaction Documents, and no provision
hereof or thereof shall be construed against any party as the drafter thereof.
6.8 Notices. Any notice, demand or request required or permitted to
-------
be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
6:00 p.m., pacific time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
18
<PAGE>
If to the Company:
Asymetrix Learning Systems, Inc.
110 110/th/ Avenue NE
Bellevue, WA 98008
Attn: General Counsel
Tel: 425-637-5829
Fax: 425-637-1540
with a copy to:
Jeffrey R. Vetter, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Tel: 650-494-0600
Fax: 650-494-1417
and if to a Purchaser, to such address as shall be designated by such Purchaser
in writing to the Company.
6.9 Expenses. The Company and each Purchaser each shall pay all
--------
costs and expenses that it incurs in connection with the negotiation, execution,
delivery and performance of this Agreement; provided, however, that the Company
-------- -------
shall reimburse Marshall Capital Management, Inc. at the Closing for all
out-of-pocket expenses (including without limitation reasonable legal fees and
expenses) incurred by it in connection its due diligence investigation of the
Company and the negotiation, preparation, execution, delivery and performance of
this Agreement and the other Transaction Documents in an amount not to exceed
thirty thousand dollars ($30,000).
6.10 Entire Agreement; Amendments; Waiver. This Agreement and the
------------------------------------
other Transaction Documents constitute the entire agreement between the parties
with regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and each Purchaser.
[Remainder of Page Intentionally Left Blank]
19
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ James A. Billmaier
--------------------------------
Name: James A. Billmaier
Title: Chief Executive Officer
Marshall Capital Management, Inc.
By: /s/ Allan Weine
-------------------------------
Allan Weine, President
Number of Preferred Shares: 6,000
20
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ James A. Billmaier
-------------------------------
Name: James A. Billmaier
Title: Chief Executive Officer
VULCAN VENTURES
By: /s/ William D. Savoy
-------------------------------
Name: William D. Savoy
Title: Vice President
Number of Preferred Shares: 4,000
[x] The Purchaser whose name appears on this signature page hereby elects, by
checking this box, not to be bound by the respective limitations contained
-------------------------------------------------------
in Section 5 of the Certificate of Designation and Section 4 of the Warrant.
---------------------------------------------------------------------------
21
<PAGE>
Exhibit 99.02
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
---------
September 30, 1999, by and among ASYMETRIX LEARNING SYSTEMS, INC., a Delaware
corporation (the "Company"), and each of the entities whose names appear on the
-------
signature pages hereof. Such entities are each referred to herein as a
"Purchaser" and collectively as the "Purchasers".
--------- ----------
The Company has agreed, on the terms and subject to the conditions set
forth in the Securities Purchase Agreement of even date herewith (the
"Securities Purchase Agreement"), to issue and sell to each Purchaser shares
-----------------------------
(the "Preferred Shares") of the Company's Series A Convertible Preferred Stock,
----------------
par value $.01 per share (the "Preferred Stock"), and a Warrant (each, a
---------------
"Warrant" and, when taken together with all of the warrants issued pursuant to
-------
the Securities Purchase Agreement, the "Warrants") entitling the holder thereof
to purchase shares (the "Warrant Shares") of Common Stock. The Preferred Shares
--------------
are convertible pursuant to a Certificate of Designation (the "Certificate of
--------------
Designation") into shares (the "Conversion Shares") of the Company's Common
- ----------- -----------------
Stock, par value $.01 per share (the "Common Stock").
------------
In order to induce each Purchaser to enter into the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended (the "Securities Act"), and under
--------------
applicable state securities laws. Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Securities
Purchase Agreement or the Certificate of Designation, as applicable.
In consideration of each Purchaser entering into the Securities Purchase
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the meanings
specified:
(a) "Blackout Period" means such day or days, not to exceed an
aggregate of thirty (30) days during any period of twelve (12) consecutive
months, with respect to which the Board of Directors of the Company determines
reasonably and in good faith (A) that an amendment or supplement to the
Registration Statement (as defined below) or prospectus contained therein is
necessary, in light of subsequent events, in order to correct a material
misstatement made therein or to include information the absence of which would
render the Registration Statement or such prospectus materially misleading and
(B) that the filing of such amendment or supplement would result in the
disclosure of information which the Company has a bona fide business purpose for
---- ----
preserving as confidential; provided that the Company shall be entitled to
impose no more than two (2) Blackout Periods during any period of twelve (12)
consecutive months;
<PAGE>
(b) "Business Day" and "Closing Date" shall have the respective
------------ ------------
meanings specified in the Securities Purchase Agreement;
(c) "Holder" means any person owning or having the right to acquire,
------
through conversion of the Preferred Shares or exercise of the
Warrants, Registrable Securities, including initially each Purchaser
and thereafter any permitted assignee thereof;
(d) "Effective Date" means the date on which the Registration
--------------
Statement is declared effective by the Securities and Exchange
Commission (the "Commission").
----------
(e) "Filing Deadline" means the ninetieth (90th) day following the
---------------
Closing Date; provided, however, that if such ninetieth day is not a
-------- -------
Business Day, the Filing Deadline shall be the Business Day
immediately following such ninetieth day;
(f) "Premium Shares" shall have the meaning set forth in the
--------------
Certificate of Designation.
(g) "Register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement
or statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act ("Rule 415") or any successor rule
--------
providing for the offering of securities on a continuous or delayed
basis ("Registration Statement"), and the declaration or ordering of
----------------------
effectiveness of the Registration Statement by the Commission;
(h) "Registration Deadline" means the ninetieth (90th) day following
---------------------
the earlier to occur of (i) the date on which the Registration
Statement is filed with the Commission and (ii) the Filing Deadline;
and
(i) "Registrable Securities" means the Conversion Shares, the Premium
----------------------
Shares, the Warrant Shares, and any other shares of Common Stock
issuable pursuant to the terms of the Certificate of Designation or
Warrants, and any shares of capital stock issued or issuable from time
to time (with any adjustments) in replacement of, in exchange for or
otherwise in respect of the Conversion Shares, the Premium Shares or
the Warrant Shares.
2. MANDATORY REGISTRATION.
----------------------
(a) On or before the Filing Deadline, the Company shall prepare and
file with the Commission a Registration Statement on Form S-3 as a "shelf"
registration statement under Rule 415 covering the resale of the number of
shares of Registrable Securities equal to the Reserved Amount (as defined in the
Securities Purchase Agreement). The Registration Statement shall state, to the
extent
-2-
<PAGE>
permitted by Rule 416 under the Securities Act, that it also covers such
indeterminate number of shares of Common Stock as may be required to effect
conversion of the Preferred Shares and Warrants in order to prevent dilution
resulting from stock splits, stock dividends or similar events.
(b) The Company shall use its best efforts to cause the Registration
Statement to become effective as soon as practicable following the filing
thereof, but in no event later than the Registration Deadline. The Company shall
respond promptly to any and all comments made by the staff of the Commission on
the Registration Statement (but in no event later than fifteen (15) Business
Days following the Company's receipt thereof), and shall submit to the
Commission, within three (3) Business Days after the Company learns that no
review of the Registration Statement will be made by the staff of the Commission
or that the staff of the Commission has no further comments on the Registration
Statement, as the case may be, a request for acceleration of the effectiveness
of the Registration Statement to a time and date not later than forty eight (48)
hours after the submission of such request. The Company shall maintain the
effectiveness of the Registration Statement until the earlier to occur of (i)
the date on which all of the Registrable Securities have been sold pursuant to
the Registration Statement and (ii) the date on which all of the remaining
Registrable Securities (in the reasonable opinion of counsel to the Holders) may
be immediately sold to the public without registration and without regard to the
amount of Registrable Securities which may be sold by a Holder thereof at a
given time (the period beginning on the Registration Deadline and ending on the
earlier of such dates being referred to herein as the "Registration Period").
-------------------
(c) If (A) the Registration Statement is not filed on or before the
Filing Deadline or declared effective by the Commission on or before the
thirtieth (30/th/) day following the Registration Deadline, (B) after the
Registration Statement has been declared effective by the Commission, sales of
Registrable Securities cannot be made by a Holder under the Registration
Statement for any reason not within the exclusive control of such Holder (other
than during a Blackout Period or with respect to such Registrable Securities as
are then freely saleable pursuant to Rule 144(k) under the Securities Act), or
(C) the Common Stock is not listed and freely tradeable on the Nasdaq National
Market, the Nasdaq SmallCap Market, the American Stock Exchange or the New York
Stock Exchange (each of (A), (B) or (C) being referred to herein as a "Default
-------
Event"), the Company shall pay to each Holder an amount equal to the lesser of
- -----
(x) one and one half percent (1.5%) per thirty calendar day period (prorated for
any period of less than thirty calendar days) and (y) the highest rate permitted
by applicable law, times the Stated Value of the Preferred Shares then held by
-----
such Holder, accruing daily and compounded monthly, from the date on which a
Default Event occurs until the date on which such Default Event and any and all
other Default Events have been cured and are no longer continuing. The amounts
paid or payable by the Company hereunder shall be in addition to any other
remedies available to each Holder at law or in equity or pursuant to the terms
hereof or the Securities Purchase Agreement, or otherwise. Payments of such
amounts pursuant hereto shall be made in immediately available funds within five
(5) Business Days after the end of each period that gives rise to such
obligation, provided that, if any such period extends for more than thirty (30)
days, payments shall be made at the end of each thirty-day period.
-3-
<PAGE>
3. PIGGYBACK REGISTRATION.
-----------------------
If at any time prior to the expiration of the Registration Period, (i)
the Company proposes to register shares of Common Stock under the Securities Act
in connection with the public offering of such shares for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan or employee stock award or a registration on Form S-4 under
the Securities Act or any successor or similar form registering stock issuable
upon a reclassification, a business combination involving an exchange of
securities or an exchange offer for securities of the issuer or another entity,
or a registration statement on Form S-3 covering the resale of securities issued
in connection with a corporate acquisition) (a "Proposed Registration") and (ii)
---------------------
a registration statement covering the sale of all of the Registrable Securities
is not then effective and available for sales thereof by the Holders, the
Company shall, at such time, promptly give each Holder written notice of such
Proposed Registration. Each Holder shall have twenty (20) days from its
receipt of such notice to deliver to the Company a written request specifying
the amount of Registrable Securities that such Holder intends to sell and such
Holder's intended method of distribution. Upon receipt of such request, the
Company shall use its best efforts to cause all Registrable Securities which the
Company has been requested to register to be registered under the Securities Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Holder; provided, however, that the Company shall have the right to postpone or
-------- -------
withdraw any registration effected pursuant to this Section 3 without obligation
to the Holder. If, in connection with any underwritten public offering for the
account of the Company or for shareholders of the Company that have contractual
rights to require the Company to register shares of Common Stock, the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in the
judgment of such underwriter(s), marketing or other factors dictate such
limitation is necessary to facilitate such offering, then the Company shall be
obligated to include in such Registration Statement only such limited portion of
the Registrable Securities with respect to which each Holder has requested
inclusion hereunder as such underwriter(s) shall permit. Any such exclusion of
Registrable Securities shall be made pro rata among the Holders seeking to
include Registrable Securities in the Registration Statement, in proportion to
the number of Registrable Securities sought to be included by such Holders;
provided, however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities, the holders of
which are not entitled to inclusion of such securities in such Registration
Statement or are not entitled to pro rata inclusion with the Registrable
Securities; and provided, further, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the right to include such
securities in the Registration Statement (which securities shall include those
held by Go2Net, Inc. or any other strategic investor to which the Company grants
registration rights in the future).
-4-
<PAGE>
4. OBLIGATIONS OF THE COMPANY.
--------------------------
In addition to performing its obligations hereunder, including without
limitation those pursuant to paragraphs 2(a) and 2(b) above, the Company shall:
(a) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to comply with the
provisions of the Securities Act or to maintain the effectiveness of the
Registration Statement during the Registration Period, or as may be reasonably
requested within a reasonable time prior to any proposed sale by a Holder in
order to incorporate information concerning such Holder or such Holder's
intended method of distribution;
(b) secure the listing of all Registrable Securities on the Nasdaq
National Market prior to the date on which the Registration Statement relating
to such Registrable Securities becomes effective;
(c) furnish to each Holder such number of copies of the prospectus
included in such Registration Statement, including a preliminary prospectus, if
any, in conformity with the requirements of the Securities Act, and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
(d) use all commercially reasonable efforts to register or qualify the
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions within the United States as shall be reasonably requested from
time to time by a Holder, and do any and all other acts or things which may be
necessary or advisable to enable such Holder to consummate the public sale or
other disposition of the Registrable Securities in such jurisdictions; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;
(e) in the event of an underwritten public offering of the Registrable
Securities, enter into (together with all Holders proposing to distribute
Registrable Securities through such underwriting) and perform its obligations
under an underwriting agreement, in usual and customary form reasonably
acceptable to the Company, with the managing underwriter of such offering;
(f) notify each Holder immediately upon the occurrence of any event as
a result of which the prospectus included in such Registration Statement, as
then in effect, contains an untrue statement of material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and as promptly as practicable, prepare, file and furnish to each Holder a
reasonable number of copies of a supplement or an amendment to such prospectus
as may be necessary so that such prospectus does not contain an untrue statement
of material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
-5-
<PAGE>
(g) use all commercially reasonable efforts to prevent the issuance of
any stop order or other order suspending the effectiveness of such Registration
Statement and, if such an order is issued, to obtain the withdrawal thereof at
the earliest possible time and to notify each Holder of the issuance of such
order and the resolution thereof;
(h) furnish to each Holder, on the date that such Registration
Statement becomes effective, (x) a letter, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder, confirming the effectiveness of the Registration Statement and, to
the knowledge of such counsel, the absence of any stop order, and (y) in the
case of an underwriting, (A) an opinion addressed to the underwriters, dated
such date, of such outside counsel, in such form and substance as is required to
be given to such underwriters, and (B) a letter addressed to such underwriters,
dated such date, from the Company's independent certified public accountants, in
such form and substance as is required to be given by the Company's independent
certified public accountants to such underwriters;
(i) provide each Holder and its representatives (subject to, upon the
request of the Company with respect to any such representative, the execution of
a confidentiality agreement reasonably satisfactory to the Company by such
representative) the opportunity to conduct a reasonable inquiry of the Company's
financial and other records during normal business hours and make available its
officers, directors and employees for questions regarding information which such
Holder may reasonably request in order to fulfill any due diligence obligation
on its part;
(j) permit counsel retained for such purpose by each Holder to review
the Registration Statement and all amendments and supplements thereto, and any
comments made by the staff of the Commission and the Company's responses
thereto, within a reasonable period of time prior to the filing thereof with the
Commission (or, in the case of comments made by the staff of the Commission,
within a reasonable period of time following the receipt thereof by the Company)
and amend such materials in accordance with the comments of such counsel;
provided, however, that if such counsel has not delivered comments concerning
- -------- -------
such materials to the Company on or before the second (2d) Business Day
following it receipt thereof, the Company may deem the Holder represented by
such counsel to have waived its right of review and comment hereunder,
(k) refrain during the period of one hundred and eighty (180) days
following the Effective Date from allowing any registration statement covering
the Common Stock (other than the Registration Statement(s) required to be filed
hereunder) to be declared effective by the Commission, other than a registration
statement relating to the issuance or resale of securities pursuant to (i) an
employee benefit plan or program duly adopted by the Company and in effect on
the date hereof, (ii) any options or warrant outstanding on the date hereof,
(iii) any firm-commitment underwritten public offering of securities or (iv) any
issuance of Equity Securities in connection with a strategic investment or
acquisition which, in either such case, is not effected for the primary purpose
of raising equity capital;
-6-
<PAGE>
(l) provide written notice to each Holder (i) immediately upon the
imposition of a Blackout Period and (ii) immediately upon the cessation of any
such Blackout Period. The Company agrees that it will not disclose any material,
non-public information to any Holder regarding the reasons for imposing a
Blackout Period, except to a Holder who specifically requests in writing such
information and who agrees to maintain the confidentiality of such information
until it is made public other than by or through such Holder.
5. OBLIGATIONS OF EACH HOLDER.
--------------------------
In connection with the registration of the Registrable Securities pursuant
to the Registration Statement, each Holder shall:
(a) furnish to the Company in writing such information regarding
itself and the intended method of disposition of Registrable Securities as the
Company shall reasonably request in order to effect the registration thereof;
(b) upon receipt of any notice from the Company of the happening of
any event of the kind described in paragraphs 4(f), 4(g) or 4(l), immediately
discontinue any sale or other disposition of Registrable Securities pursuant to
the Registration Statement until the filing of an amendment or supplement as
described in paragraph 4(f), withdrawal of the stop order referred to in
paragraph 4(g) or cessation of the Blackout Period referred to in paragraph
4(l);
(c) in the event of an underwritten offering of the Registrable
Securities, enter into a customary and reasonable underwriting agreement and
execute such other documents as the managing underwriter for such offering may
reasonably request;
(d) to the extent required by applicable law, deliver a prospectus to
the purchaser of Registrable Securities;
(e) notify the Company when it has sold all of the Registrable
Securities theretofore held by it; and
(f) promptly notify the Company in the event that any information
supplied by such Holder in writing for inclusion in the Registration Statement
or related prospectus is untrue or omits to state a material fact required to be
stated therein or necessary to make such information not misleading in light of
the circumstances then existing.
6. INDEMNIFICATION.
---------------
In the event that any Registrable Securities are included in a Registration
Statement under this
-7-
<PAGE>
Agreement:
(a) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers, directors, employees and agents of such
Holder, and each person, if any, who controls such Holder within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934
----
Act"), against any losses, claims, damages, liabilities or reasonable out-of-
- ---
pocket expenses (whether joint or several) (collectively, including legal or
other expenses reasonably incurred in connection with investigating or defending
same, "Losses"), insofar as any such Losses arise out of or are based upon (i)
------
any untrue statement or alleged untrue statement of a material fact contained in
such Registration Statement, including any preliminary prospectus, if any, or
final prospectus contained therein or any amendments or supplements thereto, or
(ii) the omission or alleged omission to state therein a material fact required
to be stated therein, or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. Subject to the
provisions of paragraph 6(c) below, the Company will reimburse such Holder, and
each such officer, director, employee, agent or controlling person for any legal
or other expenses as reasonably incurred by any such entity or person in
connection with investigating or defending any Loss; provided, however, that the
foregoing indemnity shall not apply to amounts paid in settlement of any Loss if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be obligated to
indemnify any person for any Loss to the extent that such Loss arises out of or
is based upon and in conformity with written information furnished by such
person expressly for use in such Registration Statement; and provided, further,
that the Company shall not be required to indemnify any person to the extent
that any Loss results from such person selling Registrable Securities (i) to a
person to whom there was not sent or given, at or prior to the written
confirmation of the sale of such shares, a copy of the prospectus, as most
recently amended or supplemented, if the Company has previously furnished or
made available copies thereof or (ii) during any period following written notice
by the Company to such Holder of an event described in paragraph 4(f), 4(g) or
4(l).
(b) To the extent permitted by law, each Holder, acting severally and
not jointly, shall indemnify and hold harmless the Company, the officers,
directors, employees, agents and representatives of the Company, and each
person, if any, who controls the Company within the meaning of the Securities
Act or the 1934 Act, against any Losses to the extent (and only to the extent)
that any such Losses arise out of or are based upon and in conformity with
written information furnished by such Holder expressly for use in such
Registration Statement; and such Holder will reimburse any legal or other
expenses as reasonably incurred by the Company and any such officer, director,
employee, agent, representative, or controlling person, in connection with
investigating or defending any such Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the consent of such Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this paragraph 6(b) exceed the net proceeds resulting from the sale of the
Registrable Securities sold by such Holder under the Registration Statement.
-8-
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate under
applicable standards of professional conduct due to actual or potential
conflicting interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified party
under this Section 6 with respect to such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 6 or
with respect to any other action unless the indemnifying party is materially
prejudiced as a result of not receiving such notice.
(d) In the event that the indemnity provided in paragraph 6(a) or 6(b)
is unavailable or insufficient to hold harmless an indemnified party for any
reason, the Company and each Holder agree, severally and not jointly, to
contribute to the aggregate Losses to which the Company or such Holder may be
subject in such proportion as is appropriate to reflect the relative fault of
the Company and such Holder in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall such Holder be
responsible for any amount in excess of the proceeds resulting from the sale of
the Registrable Securities sold by it under the Registration Statement.
Relative fault shall be determined by reference to whether any alleged untrue
statement or omission relates to information provided by the Company or by such
Holder. The Company and each Holder agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this paragraph 6(d), no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to indemnification or
contribution from any person who is not guilty of fraudulent misrepresentation.
For purposes of this Section 6, each person who controls a Holder within the
meaning of either the Securities Act or the Exchange Act and each officer,
director, employee or agent of such Holder shall have the same rights to
contribution as such Holder, and each person who controls the Company within the
meaning of either the Securities Act or the Exchange Act and each officer,
director, employee or agent of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph 6(d).
(e) The obligations of the Company and each Holder under this Section
6 shall survive the conversion of the Preferred Shares and exercise of the
Warrants in full, the completion of any offering of Registrable Securities
pursuant to a Registration Statement under this Agreement, or
-9-
<PAGE>
otherwise.
7. REPORTS.
-------
With a view to making available to each Holder the benefits of Rule
144 under the Securities Act ("Rule 144") and any other similar rule or
regulation of the Commission that may at any time permit such Holder to sell
securities of the Company to the public without registration, the Company agrees
to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company under the Securities Act and the
1934 Act; and
(c) furnish to such Holder, so long as such Holder owns any
Registrable Securities, forthwith upon written request (i) a written statement
by the Company, if true, that it has complied with the reporting requirements of
Rule 144, and the 1934 Act, (ii) to the extent not publicly available through
the Commission's EDGAR database, a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing such Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration.
8. MISCELLANEOUS.
-------------
(a) Expenses of Registration. All expenses, other than underwriting
------------------------
discounts and commissions and fees and expenses of one counsel to the Holders,
incurred in connection with the registrations, filings or qualifications
described herein, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, the fees and disbursements of
counsel for the Company, and the fees and disbursements incurred in connection
with the opinion and letter described in paragraph 4(h) hereof, shall be borne
by the Company.
(b) Amendment; Waiver. Any provision of this Agreement may be amended
-----------------
only pursuant to a written instrument executed by the Company and each Holder.
Any waiver of the provisions of this Agreement may be made only pursuant to a
written instrument executed by the party against whom enforcement is sought.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Holder, each future Holder, and the Company. The failure of
any party to exercise any right or remedy under this Agreement or otherwise, or
the delay by any party in exercising such right or remedy, shall not operate as
a waiver thereof.
(c) Notices. Any notice, demand or request required or permitted to
-------
be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be
-10-
<PAGE>
deemed given (i) when delivered personally or by verifiable facsimile
transmission (with an original to follow) on or before 5:00 p.m., eastern time,
on a Business Day or, if such day is not a Business Day, on the next succeeding
Business Day, (ii) on the next Business Day after timely delivery to a
nationally-recognized overnight courier and (iii) on the day actually received
after deposit in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Company:
Asymetrix Learning Systems, Inc.
110 110/th/ Avenue NE
Bellevue, WA 98008
Attn: General Counsel
Tel: 425-637-5829
Fax: 425-637-1540
with a copy to:
Jeffrey R. Vetter, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Tel: 650-494-0600
Fax: 650-494-1417
and if to any Holder, to such address as shall be designated by such Holder in
writing to the Company.
(d) Termination. This Agreement shall terminate on the earlier to
-----------
occur of (a) the end of the Registration Period and (b) the date on which all of
the Registrable Securities have been publicly distributed; but any such
termination shall be without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (ii) the indemnification and contribution obligations under this
Agreement.
(e) Assignment. Upon the transfer of Preferred Shares convertible
----------
into 250,000 or more Conversion Shares (or, if less, constituting all of the
Preferred Shares owned by a Holder), the Warrant or Registrable Securities by a
Holder, the rights of such Holder hereunder with respect to the securities so
transferred shall be assigned automatically to the transferee thereof as long
as: (i) the Company is, within a reasonable period of time following such
transfer, furnished with written notice of the name and address of such
transferee, (ii) the transferee agrees in writing with the Company to be bound
by all of the provisions hereof and (iii) such transfer is made in accordance
with the applicable requirements of the Securities Purchase Agreement, the
Certificate of Designation or the Warrant, as
-11-
<PAGE>
the case may be; provided, however, that the registration rights granted in this
-------- -------
Agreement shall not be transferred to any person or entity that receives any
such security pursuant to an effective registration statement under the
Securities Act or pursuant to a transaction under Rule 144 or any successor
provision thereto.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed one and the same instrument. This Agreement, once
executed by a party, may be delivered to any other party hereto by facsimile
transmission.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware without regard to the
conflict of laws provisions thereof.
-12-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first-above written.
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ James A. Billmaier
----------------------
Name: James A. Billmaier
Title: Chief Executive Officer
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/ Allan Weine
Allan Weine, President
-13-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first-above written.
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ James A. Billmaier
-----------------------
Name: James A. Billmaier
Title: Chief Executive Officer
VULCAN VENTURES
By: /s/William D. Savoy
--------------------
Name: William D. Savoy
Title: Vice President
-14-
<PAGE>
EXHIBIT 99.03
EXHIBIT A TO
------------
SECURITIES
----------
PURCHASE AGREEMENT
------------------
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase Issue Date: October 6, 1999
___________ Shares
WARRANT TO PURCHASE COMMON STOCK
of
ASYMETRIX LEARNING SYSTEMS, INC.
THIS CERTIFIES that _________________ or any subsequent holder hereof (the
"Holder"), has the right to purchase from ASYMETRIX LEARNING SYSTEMS, INC., a
------
Delaware corporation (the "Company"), up to ________________ fully paid and
-------
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), subject to adjustment as provided herein, at a price equal
------------
to the Exercise Price (as defined below), at any time beginning on the date on
which this Warrant is issued (the "Issue Date") and ending at 5:00 p.m., eastern
----------
time, on the date that is the fifth (5/th/) anniversary of the Issue Date (the
"Expiration Date"). This Warrant is issued, and all rights hereunder shall be,
- ----------------
subject to all of the conditions, limitations and provisions set forth herein
and in the Securities Purchase Agreement of even date herewith by and among the
Company and the Purchasers named therein (the "Securities Purchase Agreement").
-----------------------------
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Securities Purchase Agreement or the
Certificate of Designation relating to the Series A Convertible Preferred Stock
<PAGE>
issued pursuant to the Securities Purchase Agreement ("Certificate of
--------------
Designation").
- -----------
1. Exercise.
--------
(a) Right to Exercise; Exercise Price. The Holder shall have the right to
exercise this Warrant at any time and from time to time during the period
beginning on the Issue Date and ending on the Expiration Date as to all or any
part of the shares of Common Stock covered hereby (the "Warrant Shares"). The
--------------
"Exercise Price" payable by the Holder in connection with the exercise of this
--------------
Warrant shall be equal to $9.30 (subject to adjustment as provided herein).
(b) Exercise Notice. In order to exercise this Warrant, the Holder shall
send by facsimile transmission, at any time prior to 7:00 p.m., eastern time, on
the Business Day (as defined below) on which the Holder wishes to effect such
exercise (the "Exercise Date"), to the Company a copy of the notice of exercise
-------------
in the form attached hereto as Exhibit A (the "Exercise Notice") stating the
---------------
number of Warrant Shares as to which such exercise applies and the calculation
therefor. As used herein, "Business Day" shall mean any day on which the New
------------
York Stock Exchange (the "NYSE") and commercial banks in the city of New York
----
are open for business. The Holder shall thereafter deliver to the Company the
original Exercise Notice, the original Warrant and the Exercise Price. In the
case of a dispute as to the calculation of the Exercise Price or the number of
Warrant Shares issuable hereunder (including without limitation the calculation
of any adjustment to the Exercise Price pursuant to Section 6 below), the
Company shall promptly issue to the Holder the number of Warrant Shares that are
not disputed and shall submit the disputed calculations to the Company's
independent accountant within two (2) Business Days following the Exercise Date.
The Company shall cause such accountant to calculate the Exercise Price and/or
the number of Warrant Shares issuable hereunder and to notify the Company and
the Holder of the results in writing no later than two Business Days following
the day on which such accountant received the disputed calculations. Such
accountant's calculation shall be deemed conclusive absent manifest error. The
fees of any such accountant shall be borne by the party whose calculations were
most at variance with those of such accountant.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
exercise and, if this Warrant is exercised in part, the Company shall, at the
time that it delivers Warrant Shares to the Holder pursuant to such exercise as
provided herein, issue a new warrant, and deliver to the Holder a certificate
representing such new warrant, with terms identical in all respects to this
Warrant (except that such new warrant shall be exercisable into the number of
shares of Common Stock with respect to which this Warrant shall remain
unexercised); provided, however, that the Holder shall be entitled to exercise
-------- -------
all or any portion of such new warrant at any time following the time at which
this Warrant is exercised, regardless of whether the Company has actually issued
such new warrant or delivered to the Holder a certificate therefor.
(d) Expiration Upon Certain Events. Commencing on the two-year
------------------------------
anniversary of the Issue Date, in the event that during any period of twenty
(20) consecutive Trading Days, the Closing Trade Price (as defined in the
Certificate of Designation) of the Common Stock exceeds an amount equal to
product of (i) the Exercise Price (subject to adjustment as provided herein)
and (ii) two and
-2-
<PAGE>
one-half (2.5), the Company may deliver to the Holder, as long as the Expiration
Condition (as defined below) has been satisfied, a written notice to such effect
(a "Cancellation Notice") and this Warrant shall expire on the date which is
-------------------
five (5) Trading Days following the business day on which such Cancellation
Notice is delivered to the Holder. The term "Expiration Condition" shall mean
that either (A) the Registration Statement (as defined in the Registration
Rights Agreement between the Company and the Holder) has been declared effective
and is available for the resale of (i) all of the Warrant Shares into which this
Warrant is exercisable and (ii) all of the Conversion Shares issuable upon
conversion of the Preferred Shares (each as defined in the Certificate of
Designation)(assuming the minimum applicable Conversion Price and that no
conditions to or limitations on the conversion of the Preferred Shares then
exist) or (B) the Warrant Shares may be sold pursuant to Rule 144(k) under the
Securities Act of 1933, as amended.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of a Exercise
----------------------------------------
Notice pursuant to paragraph 1 above, the Company shall, (A) in the case of a
Cashless Exercise (as defined below), no later than the close of business on the
third (3rd) Business Day following the Exercise Date set forth in such Exercise
Notice, (B) in the case of a Cash Exercise (as defined below) no later than the
close of business on the later to occur of (i) the third (3rd) Business Day
following the Exercise Date set forth in such Exercise Notice and (ii) such
later date on which the Company shall have received payment of the Exercise
Price, and (C) with respect to Warrant Shares which are disputed as described in
paragraph 1(b) above, and required to be delivered by the Company pursuant to
the accountant's calculations described therein, the close of business on the
third (3/rd/) Business Day following the determination made pursuant to
paragraph 1(b) (the "Delivery Date"), issue and deliver or caused to be
-------------
delivered to the Holder the number of Warrant Shares as shall be determined as
provided herein. The Company shall effect delivery of Warrant Shares to the
Holder by, as long as the Company's designated transfer agent for the Common
Stock (the "Transfer Agent") participates in the Depository Trust Company
--------------
("DTC") Fast Automated Securities Transfer program ("FAST"), crediting the
--- ----
account of the Holder or its nominee at DTC (as specified in the applicable
Exercise Notice) with the number of Warrant Shares required to be delivered, no
later than the close of business on such Delivery Date. In the event that the
Transfer Agent is not a participant in FAST, or if Warrant Shares are not
otherwise eligible for delivery through FAST, or if the Holder so specifies in
an Exercise Notice or otherwise in writing on or before the Exercise Date, the
Company shall effect delivery of Warrant Shares by delivering to the Holder or
its nominee physical certificates representing such Warrant Shares, no later
than the close of business on such Delivery Date. Warrant Shares delivered to
the Holder shall not contain any restrictive legend as long as the resale of
such Warrant Shares is covered by an effective Registration Statement (as
defined in the Registration Rights Agreement) and such Holder represents in
writing to the Company that such Warrant Shares (i) have been or are being sold
pursuant to such registration statement or pursuant to Rule 144 under the
Securities Act of 1933, as amended, or (ii) may be made pursuant to Rule 144(k)
under the Securities Act of 1933, as amended, or any successor rule or
provision.
3. Failure to Deliver Warrant Shares.
---------------------------------
-3-
<PAGE>
(a) Exercise Default. In the event that, as a result of any action
or failure to act on the part of the Company (including without limitation a
failure by the Company to have a sufficient number of shares of Common Stock
authorized and reserved for issuance pursuant to exercise of the Warrants), the
Company does not deliver to a Holder certificates representing the number of
Warrant Shares specified in the applicable Exercise Notice on or before the
Delivery Date therefor and such failure continues for ten (10) Business Days (an
"Exercise Default"), the Company shall pay to the Holder payments ("Exercise
---------------- --------
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
- ---------------- -------------
Exercise Price for the Warrant Shares which are the subject of such Exercise
Default multiplied by (iii) the lower of twenty four percent (24%) and the
-------------
maximum rate permitted by applicable law, where "N" equals the number of days
elapsed between the original Delivery Date for such Warrant Shares and the date
on which all of such Warrant Shares are issued and delivered to the Holder.
Amounts payable under this subparagraph 3(a) shall be paid to the Holder in
immediately available funds on or before the fifth (5th) Business Day of the
calendar month immediately following the calendar month in which such amount has
accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right to pursue
actual damages for the Company's failure to issue and deliver Warrant Shares in
connection with an exercise on the applicable Delivery Date (including, without
limitation, damages relating to any purchase of shares of Common Stock by the
Holder to make delivery on a sale effected in anticipation of receiving Warrant
Shares upon exercise, such damages to be in an amount equal to (A) the aggregate
amount paid by the Holder for the shares of Common Stock so purchased minus (B)
-----
the aggregate amount of net proceeds, if any, received by the Holder from the
sale of the Warrant Shares issued by the Company pursuant to such exercise), and
the Holder shall have the right to pursue all remedies available to it at law or
in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).
(c) Reduction of Exercise Price. In the event that, as a result of
any action or failure to act on the part of the Company (including without
limitation a failure by the Company to have a sufficient number of shares of
Common Stock authorized and reserved for issuance pursuant to exercise of the
Warrants), a Holder has not received certificates representing the Warrant
Shares by the tenth (10th) Business Day following an Exercise Default, the
Holder may, upon written notice to the Company, regain on such Business Day the
rights of a Holder of this Warrant, or part thereof, with respect to the Warrant
Shares that are the subject of such Exercise Default, and the Exercise Price for
such Warrant Shares shall be reduced by one percent (1%) for each day beyond
such 10th Business Day in which the Exercise Default continues. In such event,
the Holder shall retain all of the Holder's rights and remedies with respect to
the Company's failure to deliver such Warrant Shares (including without
limitation the right to receive the cash payments specified in subparagraph 3(a)
above).
(d) Holder of Record. Each Holder shall, for all purposes, be
deemed to have become the holder of record of Warrant Shares on the Exercise
Date of this Warrant, irrespective of the date of delivery of such Warrant
Shares. Nothing in this Warrant shall be construed as conferring upon
-4-
<PAGE>
the Holder hereof any rights as a stockholder of the Company prior to the
Exercise Date.
4. Exercise Limitations.
--------------------
In no event shall a Holder be permitted to exercise this Warrant, or part
thereof, with respect to Warrant Shares in excess of the number of such shares,
upon the issuance of which, (x) the number of shares of Common Stock
beneficially owned by the Holder plus (y) the number of shares of Common Stock
----
issuable upon such exercise, would be equal to or exceed (z) 9.99% of the number
of shares of Common Stock then issued and outstanding. To the extent that the
limitation contained in this paragraph 4 applies, the submission of a Conversion
Notice by the Holder shall be deemed to be the Holder's representation that this
Warrant is exercisable pursuant to the terms hereof and the Company shall be
entitled to rely on such representation without making any further inquiry.
Nothing contained herein shall be deemed to restrict the right of a Holder to
exercise this Warrant, or part thereof, at such time as such exercise will not
violate the provisions of this Section 4. The limitation contained in this
Section 4 shall not apply if the original Holder hereof elected in the
Securities Purchase Agreement not to be subject to such limitation.
5. Payment of the Exercise Price. The Holder may pay the Exercise Price
-----------------------------
in either of the following forms or, at the election of Holder, a combination
thereof:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of this Warrant to the Company
together with a notice of cashless exercise, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
-5-
<PAGE>
A = the average of the Closing Bid Prices of the Common Stock for
the five (5) Trading Days immediately prior to (but not
including) the Exercise Date.
B = the Exercise Price;
provided, however, that the Holder may exercise this Warrant pursuant to a
- -------- -------
Cashless Exercise only if, on the Exercise Date, the resale of Warrant Shares is
not covered by an effective Registration Statement (as defined in the
Registration Rights Agreement) that is available to the Holder on such date.
For purposes of Rule 144 under the Securities Act of 1933, as amended, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the Issue Date.
6. Anti-Dilution Adjustments; Distributions; Other Events. The Exercise
------------------------------------------------------
Price and the number of Warrant Shares issuable hereunder shall be subject to
adjustment from time to time as provided in this Section 6. In the event that
any adjustment of the Exercise Price or number of Warrant Shares as required
herein results in a fraction of a cent or fraction of a share, as applicable,
such exercise Price or number of Warrant Shares shall be rounded upon or down to
the nearest cent or share, as applicable.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
---------------------------------------------------------------
of Common Stock. Except as otherwise provided in Section 6(c) and 6(e) hereof,
- ---------------
if and whenever after the initial issuance of this Warrant, the Company issues
or sells, or in accordance with Section 6(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration (other than a stock split
or stock dividend) or for a consideration per share less than Exercise Price (as
then in effect)(other than issuances of Common Stock (i) pursuant to an employee
stock purchase plan or upon the exercise of options issued under a stock option
plan duly adopted by the Company, (ii) in connection with a merger, acquisition
or strategic investment which, in either such case, is not effected for the
primary purpose of raising equity capital or (iii) in connection with a firm-
commitment underwritten secondary offering) (a "Dilutive Issuance"), then
effective immediately upon the Dilutive Issuance, the Exercise Price will be
adjusted in accordance with the following formula:
E' = (E)(O+P/E)
----------
(CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
-6-
<PAGE>
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in Section
6(b) hereof, received by the Company upon such Dilutive
Issuance; and
CSDO = the total number of shares of Common Stock Deemed Outstanding
(as herein defined) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 6(a) hereof, the following
will apply:
(i) Issuance of Rights or Options. If, after the date hereof,
the Company in any manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to purchase Common
Stock or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities")(such warrants, rights and options to
purchase Common Stock or Convertible Securities are hereinafter referred to as
"Options"), and the price per share for which Common Stock is purchasable or
issuable upon the exercise of such Options is less than the Exercise Price (as
then in effect) on the date of issuance of such Option or direct stock grant
("Below Market Options"), then the maximum total number of shares of Common
Stock issuable upon the exercise of all such Below Market Options (assuming full
exercise, conversion or exchange of Convertible Securities, if applicable) will,
as of the date of the issuance or grant of such Below Market Options, be deemed
to be outstanding and to have been issued and sold by the Company for such price
per share. For purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon the exercise of such Below Market Options is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Below Market
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the exercise of all such below Market Options, plus,
in the case of Convertible Securities issuable upon the exercise of such Below
Market Options, the minimum aggregate amount of additional consideration payable
upon the exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by (ii) the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Below Market Options (assuming full conversion of Convertible Securities,
if applicable). No further adjustment to the Exercise Price will be made upon
the exercise of such Below Market Options or upon the exercise, conversion or
exchange of Convertible Securities issuable upon exercise of such Below Market
Options.
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 6(b)(ii)(B) if applicable) is less than the
-7-
<PAGE>
Exercise Price (as then in effect) on the date of issuance of such Convertible
Security, then the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating or re-setting conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 6(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of exercise, conversion or exchange of such Convertible
Security was 80% of the Market Price on the date of issuance of such Convertible
Security (the "Assumed Variable Market Price").
(iii) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at such time shall be adjusted to the
Exercise Price which would have been in effect had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- -----------
issuable upon exercise of any Options or upon exercise, conversion or exchange
of any Convertible Securities is not, in fact, issued and the rights to exercise
such Option or to exercise, convert or exchange such Convertible Securities
shall have expired or terminated, the Exercise Price then in effect will be
readjusted to the Exercise Price which would have been in effect at the time of
such expiration or termination had such Options or
-8-
<PAGE>
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In
case any Common Stock, Options or Convertible Securities are issued or sold for
a consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair market
value of such consideration except where such consideration consists of
freely-tradable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. The
fair market value of any consideration other than cash or securities will be
determined in the good faith reasonable business judgment of the Board of
Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee, consultant or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Conversion Shares (as defined in the Securities Purchase Agreement) in
accordance with terms of the Certificate of Designation relating to the
Company's Series A Preferred Stock (the "Preferred Stock"); or (iv) upon the
exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company, at
------------------------------------------
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionally increased In
the event of any adjustment to the Exercise Price arising from an event
specified in the subparagraph (c), the number of shares of Common Stock into
which this Warrant is exercisable will be proportionately increased or reduced,
as the case may be.
-9-
<PAGE>
(d) Distributions. If the Company or any of its subsidiaries shall at any
-------------
time distribute to holders of Common Stock (or to a holder, other than the
Company, of the common stock of any such subsidiary) cash, evidences of
indebtedness or other securities or assets (other than cash dividends or
distributions payable out of earned surplus or net profits for the current or
the immediately preceding year) including any dividend or distribution in shares
of capital stock of a subsidiary of the Company (collectively, a "Distribution")
------------
then, in any such case, the Holder of this Warrant shall be entitled to receive,
at the same time as such assets are received by a holder of such stock, an
amount and type of such Distribution as though such Holder were a holder on the
record date therefor of a number of shares of Common Stock into which this
Warrant is exercisable as of such record date (such number of shares to be
determined at the Exercise Price then in effect and without regard to any
limitation on exercise of this Warrant that may exist pursuant to the terms
hereof or otherwise).
(e) Notice of Consolidation or Merger. In the event of a merger,
---------------------------------
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock of the Company shall be changed into the same or
a different number of shares of the same or another class or classes of stock or
securities or other assets of the Company or another entity or there is a sale
of all or substantially all the Company's assets (a "Corporate Change"), then
----------------
this Warrant shall be exercisable into such class and type of securities or
other assets as the Holder would have received had the Holder exercised this
Warrant immediately prior to such Corporate Change; provided, however, that
Company may not effect any Corporate Change unless (i) it (or, in the case of a
tender offer, the offering party) first shall have given twenty (20) days'
notice to the Holder hereof of any Corporate Change and makes a public
announcement of such event before or at the same time that it gives such notice
(it being understood that the filing by the Company of a Form 8-K for the
purpose of disclosing the anticipated consummation of the Corporate Change shall
constitute such a notice for purposes of this provision) and (ii) it requires
the resulting successor or acquiring entity (if not the Company) to assume by
written instrument the obligations of the Company hereunder and under the
Securities Purchase Agreement and the Registration Rights Agreement.
(f) Adjustments; Additional Shares, Securities or Assets. In the event
----------------------------------------------------
that at any time, as a result of an adjustment made pursuant to this paragraph
6, the Holder of this Warrant shall, upon exercise of this Warrant, become
entitled to receive securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this paragraph 6.
-10-
<PAGE>
7. Fractional Interests.
--------------------
No fractional shares or scrip representing fractional shares shall be
issuable upon the exercise of this Warrant, but on exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If,
on exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon exercise shall be rounded up or down to the nearest whole
number of shares of Common Stock.
8. Transfer of this Warrant. The Holder may sell, transfer, assign,
------------------------
pledge or otherwise dispose of this Warrant, in whole or in part (and if in
part, in minimum denominations of 50,000 shares), as long as such sale or other
disposition is made pursuant to an effective registration statement or an
exemption to the registration requirements of the Securities Act of 1933, as
amended, and applicable state laws. Upon such transfer or other disposition,
the Holder shall deliver a written notice to Company, substantially in the form
of the Transfer Notice attached hereto as Exhibit B (the "Transfer Notice"),
---------------
indicating the person or persons to whom this Warrant shall be transferred and,
if less than all of this Warrant is transferred or this Warrant is transferred
in parts, the number of Warrant Shares to be covered by the part of this Warrant
to be transferred to each such person. Within three (3) Business Days of
receiving a Transfer Notice and the original of this Warrant, the Company shall
deliver to the each transferee designated by the Holder a Warrant or Warrants of
like tenor and terms for the appropriate number of Warrant Shares.
Notwithstanding the foregoing, no Holder may knowingly and voluntarily sell this
Warrant (or any portion thereof) to an entity that is a competitor of the
Company.
9. Benefits of this Warrant.
------------------------
Nothing in this Warrant shall be construed to confer upon any person
other than the Holder of this Warrant any legal or equitable right, remedy or
claim under this Warrant and this Warrant shall be for the sole and exclusive
benefit of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
--------------------------------------------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
11. Notice or Demands.
-----------------
Except as otherwise provided herein, any notice, demand or request
required or permitted to be given pursuant to the terms of this Warrant shall be
in writing and shall be deemed
-11-
<PAGE>
given (i) when delivered personally or by verifiable facsimile transmission
(with an original to follow) on or before 5:00 p.m., eastern time, on a Business
Day or, if such day is not a Business Day, on the next succeeding Business Day,
(ii) on the next Business Day after timely delivery to a nationally-recognized
overnight courier and (iii) on the Business Day actually received if deposited
in the U.S. mail (certified or registered mail, return receipt requested,
postage prepaid), addressed as follows:
If to the Company:
Asymetrix Learning Systems, Inc.
110 110/th/ Avenue NE
Bellevue, WA 98008
Attn: General Counsel
Tel: 425-637-5829
Fax: 425-637-1540
with a copy to:
Jeffrey R. Vetter, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Tel: 650-494-0600
Fax: 650-494-1417
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
--------------
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of Delaware, without
giving effect to conflict of law provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-12-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
6/th/ day of October, 1999.
ASYMETRIX LEARNING SYSTEMS, INC.
By: ____________________________
Name:
Title:
-13-
<PAGE>
EXHIBIT A to WARRANT
--------------------
EXERCISE NOTICE
---------------
The undersigned Holder hereby irrevocably exercises the right to purchase
________________ of the shares of Common Stock ("Warrant Shares") of ASYMETRIX
--------------
LEARNING SYSTEMS, INC. evidenced by the attached Warrant (the "Warrant").
-------
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant. Unless otherwise specified in
writing to the Company, the undersigned represents to the Company that the
shares of Common Stock covered by this notice have been or will be sold pursuant
to the terms of an effective registration statement.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________ Warrant
-------------
Shares; and/or
______ a Cashless Exercise with respect to _________________ Warrant
-----------------
Shares.
2. Payment of Exercise Price. In the event that the Holder has elected a
Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the Holder
_____________ Warrant Shares in accordance with the terms of the Warrant.
Date: ______________________
___________________________________
Name of Registered Holder
By: ______________________________
Name:
Title:
-14-
<PAGE>
EXHIBIT B to WARRANT
--------------------
TRANSFER NOTICE
---------------
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons named below the right to
purchase ____shares of the Common Stock of ASYMETRIX LEARNING SYSTEMS, INC.
evidenced by the attached Warrant.
Date: ______________________
___________________________________
Name of Registered Holder
By: _______________________________
Name:
Title:
Transferee Name and Address:
____________________________________________
____________________________________________
____________________________________________
<PAGE>
EXHIBIT 99.04
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of the
SERIES A CONVERTIBLE PREFERRED STOCK
of
ASYMETRIX LEARNING SYSTEMS, INC.
Pursuant to Section 151 of the
Delaware General Corporation Law
ASYMETRIX LEARNING SYSTEMS, INC., a Delaware corporation (the
"Corporation"), hereby certifies that the following resolutions were adopted by
the Board of Directors of the Corporation pursuant to the authority of the Board
of Directors as required by Section 151 of the Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to the Board of Directors
in accordance with the provisions of the Corporation's Certificate of
Incorporation, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, par value $.01 per share
(the "Preferred Stock"), and hereby states the designation and number of shares,
---------------
and fixes the relative rights, preferences, privileges and restrictions thereof
as follows:
1. DESIGNATION AND AMOUNT.
----------------------
The designation of this series, which consists of ten thousand (10,000)
shares of Preferred Stock, is the "Series A Convertible Preferred Stock" (the
"Series A Preferred Stock") and the face amount of each share of Series A
------------------------
Preferred Stock (each, a "Preferred Share" and collectively, the "Preferred
--------------- ---------
Shares") shall be One Thousand Dollars ($1,000) per Preferred Share (the "Stated
- ------ ------
Value"). The date on which the Preferred Shares are issued and sold, together
- -----
with the related warrants (the "Warrants"), pursuant to the Securities Purchase
--------
Agreement, dated September 30, 1999, between the Corporation and the Purchasers
named therein (the "Securities Purchase Agreement") is referred to herein as the
-----------------------------
"Issue Date". The Corporation has agreed to register the shares of Corporation's
----------
Common Stock, par value $.01 per share (the "Common Stock") pursuant to a
------------
Registration Rights Agreement of even date with the Securities Purchase
Agreement (the "Registration Rights Agreement"). The holders of Preferred Shares
-----------------------------
are each referred to as a "Holder" and, collectively, as the "Holders".
------ -------
<PAGE>
2. DIVIDENDS.
---------
The Series A Preferred Stock will not bear dividends.
3. PRIORITY.
--------
(a) Payment upon Dissolution.
------------------------
(i) Upon the occurrence of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, commenced by the Corporation or by its
creditors, as such, or relating to its assets or (y) the dissolution or other
winding up of the Corporation whether total or partial, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each, a "Liquidation
-----------
Event"), no distribution shall be made to the holders of any shares of Junior
- -----
Securities (as defined below) unless, following the payment of preferential
amounts on all Senior Securities (as defined below), each Holder shall have
received the Liquidation Preference (as defined below) with respect to each
Preferred Share then held by such Holder. In the event that upon the occurrence
of a Liquidation Event, and following the payment of preferential amounts on all
Senior Securities (as defined below), the assets available for distribution to
the Holders and the holders of Pari Passu Securities are insufficient to pay the
Liquidation Preference with respect to all of the outstanding Preferred Shares
and the preferential amounts payable to such holders, the entire assets of the
Corporation shall be distributed ratably among the Preferred Shares and the
shares of Pari Passu Securities in proportion to the ratio that the preferential
amount payable on each such share (which shall be the Liquidation Preference in
the case of a Preferred Share) bears to the aggregate preferential amount
payable on all such shares.
(ii) The "Liquidation Preference" with respect to a Preferred Share
----------------------
shall mean an amount equal to the Stated Value of such Preferred Share plus all
unpaid Premium (as defined below) accrued on such Preferred Share in accordance
with the terms hereof. "Junior Securities" shall mean the Common Stock and all
-----------------
other capital stock of the Corporation that are not Pari Passu Securities or
Senior Securities. "Pari Passu Securities" shall mean any securities ranking by
---------------------
their terms pari passu with the Series A Preferred Stock in respect of
redemption or distribution upon liquidation. "Senior Securities" shall mean (i)
-----------------
any debt issued or assumed by the Corporation and (ii) any securities of the
Corporation which by their terms have a preference over the Series A Preferred
Stock in respect of redemption or distribution upon liquidation.
4. CONVERSION.
----------
(a) Right to Convert. Each Holder shall have the right to convert, at any
----------------
time and from time to time after the Issue Date, all or any part of the
Preferred Shares held by such Holder into such number of fully paid and non-
assessable shares ("Conversion Shares") of the Common Stock as is determined in
-----------------
accordance with the terms hereof (a "Conversion").
----------
2
<PAGE>
(b) Conversion Notice. In order to convert Preferred Shares, a Holder
-----------------
shall send by facsimile transmission, at any time prior to 11:59 p.m., eastern
time, on the date on which such Holder wishes to effect such Conversion (the
"Conversion Date"), (i) a notice of conversion (a "Conversion Notice"), in
--------------- -----------------
substantially the form of Exhibit A hereto, to the Corporation stating the
number of Preferred Shares to be converted, the amount of Premium (as defined
below) accrued (but remaining unpaid) thereon, the applicable Conversion Price
(as defined below) and a calculation of the number of shares of Common Stock
issuable upon such Conversion and (ii) a copy of the certificate or certificates
representing the Preferred Shares being converted. The Holder shall thereafter
send the original of the Conversion Notice and of such certificate or
certificates to the Corporation. The Corporation shall issue a new certificate
for Preferred Shares in the event that less than all of the Preferred Shares
represented by a certificate delivered to the Corporation in connection with a
Conversion are converted. Except as otherwise provided herein, upon delivery of
a Conversion Notice by a Holder in accordance with the terms hereof, such Holder
shall, as of the applicable Conversion Date, be deemed for all purposes to be
record owner of the Common Stock to which such Conversion Notice relates. In
the case of a dispute between the Corporation and a Holder as to the calculation
of the Conversion Price or the number of Conversion Shares issuable upon a
Conversion (including without limitation the calculation of any adjustment to
the Conversion Price pursuant to Section 6 below), the Corporation shall issue
to such Holder the number of Conversion Shares that are not disputed within the
time periods specified in paragraph 4(e) below and shall submit the disputed
calculations to its independent accountant within two (2) Business Days of
receipt of such Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and such Holder of the results in writing no later than five (5)
Business Days following the Corporation's receipt of such Holder's Conversion
Notice (such 5/th/ Business Day being referred to herein as the "Disputed Share
--------------
Calculation Date"). Such accountant's calculation shall be deemed conclusive
- ----------------
absent manifest error. The fees of any such accountant shall be borne by the
party whose calculations were most at variance with those of such accountant.
(c) Number of Conversion Shares; Conversion Price. The number of
---------------------------------------------
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined in accordance with the following formula:
SV + P
------
CP
where SV represents the aggregate Stated Value of the Preferred Shares to be
--
converted,
P represents the aggregate unpaid Premium accrued on such Preferred
-
Shares through the Conversion Date, it being understood that the
Corporation must pay Premium that has accrued as of a Conversion Date
in immediately available funds if any Premium Share Condition (as
defined in paragraph 4(g) below) has not been satisfied or waived by
the Holder of such Preferred Shares as of such Conversion Date, in
which case such Premium shall not be considered in determining the
number of Conversion Shares
3
<PAGE>
issuable pursuant to such Conversion, and it being further understood
that such Premium shall not be included in such formula for any
conversions that occur prior to the one hundred and eightieth
(180/th/) day following the Issue Date (but shall accrue and be
payable thereafter in accordance with the terms of this Certificate),
and
CP represents the Conversion Price (as defined below) in effect on the
--
applicable Conversion Date.
"Premium" with respect to a Preferred Share shall be determined in accordance
-------
with the following formula:
(SV)(.05)(N)
------------
365
where SV represents the Stated Value of such Preferred Share, and
--
N represents the number of days elapsed from the Issue Date through
-
and including the Conversion Date relating to such Preferred Share.
In addition to the payment of Premium upon the conversion of Preferred Shares as
described above, the Corporation shall pay to each Holder any Premium that has
accrued on the Preferred Shares owned by such Holder and that remains unpaid on
the last day of each calendar quarter beginning with the first calendar quarter
to end after the one hundred and eightieth (180/th/) day following the Issue
Date (a "Quarterly Premium Payment Date"). The Corporation shall pay such
------------------------------
accrued Premium in either (at the Corporation's option) cash or, if each Premium
Share Condition (as defined below) has been satisfied or waived by such Holder
as of such Quarterly Premium Payment Date, in shares of Common Stock (the
"Premium Shares"). In the event that the Corporation elects to pay Premium on
--------------
the last day of a quarter in Premium Shares, the number of such shares to be
delivered shall be equal to the dollar amount of such Premium divided by the
Market Price (as defined below). The Corporation shall pay such accrued Premium
within five (5) Business Days following such Quarterly Premium Payment Date (a
"Premium Share Delivery Date"). Notwithstanding anything contained herein to the
---------------------------
contrary, (i) in the event that date on which the Registration Statement (as
defined below) is declared effective by the Securities and Exchange Commission
(the "Effective Date") occurs on or before the one hundred and eightieth
(180/th/) day following the Issue Date, no Premium shall be payable with respect
to any conversion or any Quarterly Premium Payment Date and (ii) in the event
that the Effective Date does not occur on or before such 180/th/ day, all
Premium accrued since the Issue Date shall become payable on the next occurring
Delivery Date (as defined in subparagraph (e) below).
"Conversion Price" shall be determined, subject to adjustment for the events
----------------
specified in Section 6 below, as follows: (A) during the period beginning on the
Issue Date and ending on the Trading Day occurring immediately prior to the
Effective Date, the Conversion Price shall be equal to $7.75 (the "Initial
-------
Conversion Price"), and (B) on the Effective date, the Conversion Price shall be
- ----------------
equal to the lower of (x) the Initial Conversion Price and (y) the greater of
(i) the average Closing Trade Price
4
<PAGE>
occurring during the period of twenty (20) consecutive Trading Days occurring
immediately prior to (but not including) the Effective Date and (ii) $6.82.
(d) Certain Definitions. "Trading Day" means any day on which the Common
------------------- -----------
Stock is purchased and sold on the principal securities exchange or market on
which the Common Stock is then listed or traded. "Closing Bid Price" means, with
-----------------
respect to the Common Stock, the closing bid price for the Common Stock
occurring on a given Trading Day on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then reporting such
prices, by a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to each Holder of the then outstanding
Preferred Shares (collectively, "Bloomberg") or if the foregoing does not apply,
---------
the last reported bid price of such security in the over-the-counter market on
the electronic bulletin board for such security as reported by Bloomberg, or, if
no bid price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. (collectively, the "Applicable Reporting
--------------------
Entity"). If the Closing Bid Price cannot be calculated for such security on
- --------
any of the foregoing bases, the Closing Bid Price of such security shall be the
fair market value as reasonably determined by an independent investment banking
firm selected by all of the Holders of Preferred Shares, and reasonably
acceptable to the Corporation, with the costs of such appraisal to be borne by
the Corporation. "Closing Trade Price" means, with respect to the Common Stock,
-------------------
the last sale price reported for the Common Stock on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by the Applicable Reporting Entity or if no sale price was
reported by the Applicable Reporting Entity on such Trading Day, the last sale
price reported by the Applicable Reporting Entity on the Trading Day on which
such prices were last reported immediately preceding such Trading Day. "Business
--------
Day" means any day on which the New York Stock Exchange and commercial banks
- ---
located in the City of New York are open for business.
(e) Delivery of Conversion Shares, Premium Shares. Upon receipt of a
---------------------------------------------
Conversion Notice from a Holder, the Corporation shall, on or before the close
of business on the later to occur of (i) the third (3rd) Business Day following
the Conversion Date set forth in such Conversion Notice and (ii) with respect to
Conversion Shares that are the subject of a dispute as described in paragraph
4(b) above, the Business Day immediately following the Disputed Share
Calculation Date (the applicable such Business Day being referred to herein as a
"Conversion Share Delivery Date"), issue and deliver or cause to be delivered to
------------------------------
such Holder the number of Conversion Shares to which such Holder is entitled to
receive as provided herein. A Conversion Share Delivery Date and a Premium Share
Delivery Date are each sometimes referred to herein as a "Delivery Date". The
-------------
Corporation shall effect delivery of Conversion Shares or Premium Shares to a
Holder by, as long as the transfer agent for the Corporation (the "Transfer
--------
Agent") participates in the Depository Trust Company ("DTC") Fast Automated
- ----- ---
Securities Transfer program ("FAST"), crediting the account of such Holder or
----
its nominee at DTC (as specified in the applicable Conversion Notice or
otherwise in writing) with the number of Conversion Shares required to be
delivered, no later than the close of business on such Delivery Date. In the
event that Transfer Agent is not a participant in FAST, or if Conversion Shares
are not otherwise eligible for delivery through FAST, or if a Holder so
specifies in a Conversion Notice or otherwise in
5
<PAGE>
writing on or before the Conversion Date or Premium Share Delivery Date, the
Corporation shall effect delivery of Conversion Shares or Premium Shares by
delivering to the Holder or its nominee physical certificates representing such
shares, no later than the close of business on such Delivery Date. If any
Conversion or payment of Premium would create a fractional Conversion Share or
Premium Share, such fractional share shall be disregarded and the number of
Conversion Shares or Premium Shares shall be the rounded to the nearest whole
number of shares. Conversion Shares and Premium Shares delivered to a Holder
shall not contain any restrictive legend as long as (A) the resale, transfer,
pledge or other disposition of such shares is covered by an effective
registration statement and such Holder represents in writing to the Corporation
that such shares have been or are being sold pursuant to such registration
statement, (B) such shares have been publicly sold pursuant to Rule 144 ("Rule
----
144"), or (C) such shares can be sold pursuant to Rule 144(k) under Securities
- ---
Act of 1933, as amended (the "Securities Act"), or any successor rule or
---------------
provision.
(f) Failure to Deliver Conversion Shares.
------------------------------------
(i) In the event that, as a result of any willful action or failure
to act on the part of the Corporation (whether under this Certificate of
Designation, under any other Transaction Document (as defined in the Securities
Purchase Agreement) or otherwise, including without limitation a failure by the
Corporation to have a sufficient number of shares of Common Stock authorized and
reserved for issuance pursuant to conversions of Preferred Shares), a Holder has
not received certificates (without any restrictive legend in the circumstances
described in clause (A), (B) or (C) of paragraph 4(e) above) representing the
number of Conversion Shares specified in the applicable Conversion Notice on or
before the Delivery Date therefor (a "Conversion Default"), and such failure to
------------------
deliver certificates continues for ten (10) Business Days following the delivery
of written notice thereof from such Holder (such tenth Business Day being
referred to herein as the "Conversion Default Date"), the Corporation shall pay
-----------------------
to such Holder payments ("Conversion Default Payments") in the amount of (i) "N"
---------------------------
multiplied by (ii) the aggregate Stated Value of the Preferred Shares which are
- -------------
the subject of such Conversion Default multiplied by (iii) one percent (1%),
-------------
where "N" equals the number of days elapsed between the Conversion Default Date
and the earlier to occur of (i) the date on which all of the certificates
(without any restrictive legend in the circumstances described in clause (A),
(B) or (C) of paragraph 4(e) above) representing such Conversion Shares are
issued and delivered to such Holder, (ii) the date on which such Preferred
Shares are redeemed pursuant to the terms hereof and (iii) the date on which a
Withdrawal Notice (as defined below) is delivered to the Corporation. Amounts
payable hereunder shall be paid to the Holder in immediately available funds on
or before the fifth (5th) Business Day of the calendar month immediately
following the calendar month in which such amounts have accrued.
(ii) In the event that a Holder has not received certificates
(without any restrictive legend in the circumstances described in clause (A),
(B) or (C) of paragraph 4(e) above) representing the Conversion Shares by the
tenth (10/th/) Business Day following a Conversion Default as a result of any
willful action or any failure to act on the part of the Corporation (whether
under this Certificate of Designation, under any other Transaction Document (as
defined in the Securities Purchase Agreement) or otherwise, including without
limitation a failure by the Corporation to have a
6
<PAGE>
sufficient number of shares of Common Stock authorized and reserved for issuance
pursuant to conversions of Preferred Shares), such Holder may, upon written
notice (a "Withdrawal Notice") delivered to the Corporation on such Business Day
-----------------
or on any Business Day thereafter (unless, prior to the delivery of such notice,
such Conversion Shares are delivered to such Holder), withdraw its Conversion
Notice with respect to such Conversion Shares and regain its rights as a Holder
of the Preferred Shares that are the subject of such Conversion Default. In such
event, the Conversion Price in effect when such Preferred Shares are thereafter
converted shall be equal to the lowest Conversion Price occurring on or after
the date of such Conversion Notice reduced by one percent (1%) for each day
occurring during the period immediately following such 10th Business Day until
the day on which the such Holder delivers a Withdrawal Notice to the
Corporation; provided, however, that the maximum percentage by which such
Conversion Price may be reduced hereunder shall be fifty percent (50%). (For
example, if such Conversion Default were to continue for five days following
such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten
days, by 10%; and for fifty days or more, 50%, so that the number of Conversion
Shares deliverable upon conversion of such Preferred Shares would be increased
proportionately). Upon delivery by a Holder of a Withdrawal Notice, such Holder
shall retain all of such Holder's rights and remedies with respect to the
Corporation's failure to deliver such Conversion Shares (including without
limitation the right to receive the cash payments specified in subparagraph
4(f)(i) above).
(iii) In addition to any other remedies provided herein, each Holder
shall have the right to pursue actual damages for the Corporation's failure to
issue and deliver Conversion Shares on the applicable Delivery Date (including,
without limitation, damages relating to any purchase of shares of Common Stock
by such Holder to make delivery on a sale lawfully effected in anticipation of
receiving Conversion Shares upon Conversion, such damages to be in an amount
equal to (A) the aggregate amount paid by such Holder for the shares of Common
Stock so purchased minus (B) the aggregate Conversion Price for such Conversion
-----
Shares, and such Holder shall have the right to pursue all other remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(g) Premium Share Conditions. The Corporation's right to pay accrued
------------------------
Premium in shares of Common Stock, whether pursuant to a Conversion or with
respect to a Quarterly Premium Payment Date, is conditioned upon the
satisfaction of each of the following conditions (the "Premium Share
-------------
Conditions"):
- ----------
(i) the number of shares of Common Stock authorized, unissued and
unreserved for all other purposes, or held in the Corporation's treasury, is
sufficient to pay such Premium in Conversion Shares or Premium Shares, as the
case may be;
(ii) the Corporation has, at least ten (10) days prior to any
calendar month while any Preferred Shares remain outstanding, delivered a
written notice to each Holder stating that the Corporation will pay Premium that
becomes payable in shares of Common Stock (whether pursuant to a Conversion or
with respect to a Quarterly Premium Payment Date) during such month or any
calendar month that follows such month other than any such calendar month with
respect to which the
7
<PAGE>
Corporation has delivered a notice in accordance with the terms hereof. Each
notice delivered by the Corporation hereunder to any Holder shall be irrevocable
and binding on the Corporation upon such delivery;
(iii) the Common Stock is authorized for quotation on the Nasdaq
National Market or for listing on the New York Stock Exchange or the American
Stock Exchange and trading in the Common Stock on such market or exchange has
not been suspended;
(iv) the registration statement required to be maintained by the
Corporation (the "Registration Statement") pursuant to the Registration Rights
----------------------
Agreement is effective and available for the sale of the maximum number of (a)
Conversion Shares and Premium Shares issuable pursuant to the Preferred Shares
(assuming for such purpose (i) the application of the minimum Conversion Price
that may occur hereunder, (ii) the accrual of Premium under all of the Preferred
Shares issued hereunder from the Issue Date through the Maturity Date and
payment of such Premium in Conversion Shares or Premium Shares and (iii) that no
limitation set forth herein on such conversion or payment of Premium exists) and
(b) Warrant Shares issuable upon exercise of all of the Warrants then
outstanding (without regard to the limitations set forth in the Warrants), or
sales of such shares may be made pursuant to Rule 144(k);
(v) no Mandatory Redemption Event (as defined herein) has occurred
(or with the passage of time would be deemed to occur) and is continuing; and
(vi) such payment of Premium in shares of Common Stock will not
violate the limitations set forth in Section 5 below.
(h) In the event that any Premium Share Condition is not satisfied as of
any Conversion Date or Quarterly Premium Payment Date, such Premium shall be
payable by the Corporation to the Holder thereof in immediately available funds
on the relevant Delivery Date immediately following such date. If the
Corporation fails to deliver the amount of such Premium in immediately available
funds to a Holder on or before the close of business on the Delivery Date
therefor, such amount will bear interest at an annual rate equal to the lower of
(x) twenty four percent (24%) and (y) the highest interest rate permitted by
applicable law (the "Default Interest Rate"), accrued on a daily basis from and
after such Delivery Date until such amount is paid in full.
(i) Conversion at Maturity. On the Effective Date (sometimes referred to
----------------------
herein as the "Maturity Date"), each Preferred Share then outstanding shall be
-------------
automatically converted into the number of shares of Common Stock equal to the
Liquidation Preference of such shares divided by the Conversion Price then in
----------
effect (a "Conversion at Maturity"); provided, however, that if, on the Maturity
----------------------
Date, (i) the number of shares of Common Stock authorized, unissued and
unreserved for all other purposes, or held in the Corporation's treasury, is not
sufficient to effect the issuance and delivery of the number of Conversion
Shares into which all outstanding Preferred Shares are then convertible, (ii)
the Common Stock is not designated for quotation or listed on the Nasdaq
National Market or the New York Stock Exchange or the American Stock Exchange or
trading in the Common Stock on such
8
<PAGE>
market or exchange has been suspended, or (iii) a Mandatory Redemption Event (as
defined herein) has occurred and is continuing, each Holder shall have the
option, upon written notice to the Corporation, to retain its rights as a holder
of Preferred Shares, including without limitation, the right to convert such
Preferred Shares in accordance with the terms of paragraphs 4(a) through 4(f)
hereof and, upon delivery of such notice, such Preferred Shares shall not be
subject to a Conversion at Maturity hereunder until the thirtieth (30th) day
following the later of (a) the date on which the event specified (i), (ii) or
(iii) is no longer continuing and (b) the date on which the Corporation delivers
to each Holder written notice to such effect, and in such event, such thirtieth
day shall be deemed to be the Maturity Date for purposes of this Certificate of
Designation. If a Conversion at Maturity occurs, the Corporation and each Holder
shall follow the procedures for Conversion set forth in this Section 4, with the
Maturity Date deemed to be the Conversion Date, except that the Holder shall not
be required to send a Conversion Notice as contemplated by paragraph 4(b).
5. CONVERSION LIMITATIONS.
----------------------
In no event shall a Holder be permitted to convert any Preferred Shares in
excess of the number of such shares, upon the Conversion of which (x) the number
of shares of Common Stock beneficially owned by such Holder (other than shares
of Common Stock issuable upon conversion of such Preferred Shares or which would
otherwise be deemed beneficially owned except for being subject to a limitation
on conversion or exercise analogous to the limitation contained in this
paragraph 5 plus (y) the number of shares of Common Stock issuable upon the
----
Conversion of such Preferred Shares, would be equal to or exceed (z) 9.99% of
the number of shares of Common Stock then issued and outstanding. As used
herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and the rules
thereunder. To the extent that the limitation contained in this paragraph
applies (and without limiting any rights the Corporation may otherwise have),
the Corporation may rely on the Holder's determination of whether Preferred
Shares are convertible pursuant to the terms hereof, the Corporation having no
obligation whatsoever to verify or confirm the accuracy of such determination,
and the submission of a Conversion Notice by the Holder shall be deemed to be
the Holder's representation that the Preferred Shares specified therein are
convertible pursuant to the terms hereof. This paragraph may be amended by all
of the Holders of Preferred Shares then outstanding only with the consent of the
holders of a majority of the shares of Common Stock then outstanding. Nothing
contained herein shall be deemed to restrict the right of a Holder to convert
Preferred Shares at such time as the Conversion thereof will not violate the
provisions of this paragraph 5. The limitation contained in this paragraph 5
shall not apply (i) in the event of a Conversion at Maturity or (ii) with
respect to any Preferred Shares that were purchased from the Corporation
pursuant to the Securities Purchase Agreement by a purchaser that (A) has
elected therein not to be subject to the limitation contained in this paragraph
5 and (B) owns greater than ten percent (10%) of the Common Stock outstanding
immediately prior to the Issue Date.
6. ADJUSTMENTS TO CONVERSION PRICE.
-------------------------------
(a) Adjustment to Fixed Conversion Price Due to Stock Split,
-------------------------------------------------------
Stock Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares,
- -------------------
(A) the number of outstanding
9
<PAGE>
shares of Common Stock is increased by a stock split, a stock dividend on the
Common Stock, a reclassification of the Common Stock, or other similar event,
the Conversion Price shall be proportionately reduced, which reduction shall be
effected on the date on which the Corporation announces such event; or (B) the
Corporation issues Common Stock, whether upon the exercise of rights, warrants,
securities convertible or exercisable into Common Stock or otherwise, at a price
(the "Issue Price") that is less than the current Market Price (as defined
-----------
below) thereof at the time of such issuance, the Conversion Price that would
otherwise be in effect on a particular date following such issuance shall be
proportionately reduced in order to account for the dilution to existing
stockholders that occurs on the date of such issuance; provided, however, that
if the Issue Price is lower than the Conversion Price otherwise in effect on the
date of such issuance, such Conversion Price will be reduced to the lower of the
amount determined by this clause (B) and the amount determined by clause (D)
below; (C) the number of outstanding shares of Common Stock is decreased by a
reverse stock split, combination or reclassification of shares or other similar
event, the Conversion Price shall be proportionately increased, which increase
shall be effected on the date on which the Corporation announces such event; or
(D) the Corporation issues Common Stock, whether upon the exercise of rights,
warrants, securities convertible or exercisable into Common Stock or otherwise,
at a price that in any such case is lower than the Conversion Price, the
Conversion Price that would otherwise be in effect on a Conversion Date
following the date of the issuance of such Common Stock shall be reduced to such
lower price.
In no event shall any adjustment pursuant to clause (B) or clause (D) above
result in a Conversion Price that exceeds the Conversion Price that would
otherwise apply in the absence of such adjustment and provided further that no
such adjustment pursuant to clause (B) or (D) shall apply with respect to
issuances of Common Stock (i) pursuant to an employee stock purchase plan or
upon the exercise of options issued under a stock option plan duly adopted by
the Corporation, (ii) in connection with a merger, acquisition or strategic
investment which, in any such case, is not effected for the primary purpose of
raising equity capital or (iii) in connection with a firm-commitment
underwritten secondary offering.
For purposes hereof, the "Market Price" per share of Common Stock on any
date shall be the average Closing Trade Price for the Common Stock as reported
by Bloomberg on the five (5) consecutive Trading Days (as defined below)
immediately preceding such date. If such Market Price cannot be calculated on
any of the foregoing bases, such Market Price shall be the fair market value as
reasonably determined by an investment banking firm selected by the Corporation
and reasonably acceptable to the Holders, with the costs of such appraisal to be
borne by the Corporation.
(b) Adjustment to Conversion Price During Reference Period. If, prior to
------------------------------------------------------
the Conversion of all of the Preferred Shares, the number of outstanding shares
of Common Stock is increased or decreased by a stock split, a stock dividend on
the Common Stock, a combination, a reclassification of the Common Stock or other
similar event, and such event takes place during the reference period for the
determination of the Conversion Price for any Conversion thereof, the Conversion
Price shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all Trading
Days occurring during such reference period.
10
<PAGE>
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
--------------------------------------------
Conversion of all of the Preferred Shares, there shall be any merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then such
--------------------
Holder shall (A) upon the consummation of such Exchange Transaction, have the
right to receive, with respect to any shares of Common Stock then held by such
Holder, or which such Holder is then entitled to receive pursuant to a
Conversion Notice previously delivered by such Holder (and without regard to
whether such shares contain a restrictive legend or are freely-tradable), the
same amount and type of consideration (including without limitation, stock,
securities and/or other assets) and on the same terms as a holder of shares of
Common Stock would be entitled to receive in connection with the consummation of
such Exchange Transaction (the "Exchange Consideration"), and (B) upon the
----------------------
Conversion of Preferred Shares occurring subsequent to the consummation of such
Exchange Transaction (a "Subsequent Conversion"), have the right to receive the
---------------------
Exchange Consideration which such Holder would have been entitled to receive in
connection with such Exchange Transaction had such shares been converted
immediately prior to such Exchange Transaction at the Conversion Price
applicable on the Conversion Date relating to such Subsequent Conversion, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of such Holder to the end that the provisions hereof (including,
without limitation, provisions for the adjustment of the Conversion Price and of
the number of shares of Common Stock issuable upon a Conversion) shall
thereafter be applicable as nearly as may be practicable in relation to any
securities thereafter deliverable upon the Conversion of such Preferred Shares.
The Corporation shall not effect any Exchange Transaction unless (i) it first
gives to each Holder twenty (20) days prior written notice of such Exchange
Transaction (an "Exchange Notice"), and makes a public announcement of such
---------------
event at the same time that it gives such notice (it being understood that the
filing by the Corporation of a Form 8-K for the purpose of disclosing the
anticipated consummation of the Exchange Transaction shall constitute an
Exchange Notice for purposes of this provision) and (ii) the resulting successor
or acquiring entity (if not the Corporation) assumes by written instrument the
obligations of the Corporation hereunder, including the terms of this
subparagraph 6(c), and under the Securities Purchase Agreement and the
Registration Rights Agreement.
(d) Distribution of Assets. If the Corporation or any of its subsidiaries
----------------------
shall declare or make any distribution of cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or the immediately
preceding year), or any rights to acquire any of the foregoing, to holders of
Common Stock (or to a holder, other than the Corporation, of the common stock of
any such subsidiary) as a partial liquidating dividend, by way of return of
capital or otherwise, including any dividend or distribution in shares of
capital stock of a subsidiary of the Corporation (collectively, a
"Distribution"), then each Holder shall be entitled to receive, at the same time
------------
as such assets are received by a holder of such stock, an amount and type of
such Distribution as though such Holder were a holder on the record date
therefor of a number of shares of Common Stock determined by dividing the
Liquidation Preference of the Preferred Shares held by such Holder on such
record date by the lower of the Market
11
<PAGE>
Price and the Conversion Price in effect on such record date (such number of
shares to be determined without regard to any limitation on conversion of the
Preferred Shares that may exist pursuant to this Certificate of Designation or
otherwise).
(e) Adjustment Pursuant to Other Agreements. In addition to and without
---------------------------------------
limiting in any way the adjustments provided in this Section 6, the Conversion
Price shall be adjusted as may be required by the provisions of the Registration
Rights Agreement and/or by the provisions of the Securities Purchase Agreement.
(f) No Fractional Shares. If any adjustment under this Section would
--------------------
create a fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and the number
of shares of Common Stock issuable upon Conversion shall be rounded to the
nearest whole number of shares.
7. REDEMPTION.
----------
(a) Mandatory Redemption. In the event that a Mandatory Redemption Event
--------------------
(as defined below) occurs, each Holder shall have the right to require the
Corporation to redeem all or any portion of the Preferred Shares held by such
Holder (a "Mandatory Redemption") at the Mandatory Redemption Price (as defined
--------------------
herein). In order to exercise its right to effect a Mandatory Redemption, a
Holder must deliver a written notice (a "Mandatory Redemption Notice") to the
---------------------------
Corporation at any time on or before 11:59 p.m. (eastern time) on the third
(3/rd/) Business Day following the Business Day on which the Mandatory
Redemption Event to which such Mandatory Redemption Notice relates is no longer
continuing. The Mandatory Redemption Notice shall specify the effective date of
such Mandatory Redemption (the "Mandatory Redemption Date") and the number of
-------------------------
such shares to be redeemed.
(b) Mandatory Redemption Event. Each of the following events shall be
--------------------------
deemed a "Mandatory Redemption Event":
--------------------------
(i) the Corporation fails as a result of not having a sufficient
number of shares of Common Stock authorized and reserved for issuance, or as a
result of the limitations contained in Section 5 hereof or for any reason within
the control of the Corporation to issue shares of Common Stock to a Holder and
deliver certificates representing such shares to such Holder as and when
required by the provisions hereof upon conversion of any Preferred Shares, and
such failure continues for ten (10) Business Days;
(ii) the Corporation breaches, in a material respect, any covenant or
other material term or condition of this Certificate, the Securities Purchase
Agreement, the Registration Rights Agreement, or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby, and such breach continues for a period of five (5)
Business Days after written notice thereof to the Corporation from a Holder, and
such breach has or could have a Material Adverse Effect;
12
<PAGE>
(iii) any material representation or warranty made by the Corporation
in the Securities Purchase Agreement, the Registration Rights Agreement or any
other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby or thereby is inaccurate or
misleading in any material respect as of the date such representation or
warranty was made, and such breach has or could have a Material Adverse Effect;
(iv) (x) the sale, conveyance or disposition of all or substantially
all of the assets of the Corporation, the effectuation of a transaction or
series of transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other entity, immediately
following which the prior stockholders of the Corporation fail to own, directly
or indirectly, at least fifty percent (50%) of the surviving entity or (y) a
transaction or series of transactions in which any person (other than Paul Allen
or entities affiliated with Paul Allen) acquires control of the Corporation
(each a "Change of Control Transaction"). For purposes hereof, "control" shall
-------
mean, with respect to the Corporation, the ability to direct the business,
operations or management of the Corporation, whether through an equity interest
therein or otherwise; and
(v) the Common Stock is not quoted on the Nasdaq National Market or
listed on the New York Stock Exchange or the American Stock Exchange, or trading
in the Common Stock on such market or exchange is suspended and such suspension
is in effect for more than five consecutive (5) Trading Days, and such
suspension or failure to be so quoted or listed occurs as a result of any
willful action or failure to act on the part of the Corporation.
(c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall be
-------------------------- --------------------------
equal to the greater of (i) the Liquidation Preference of the Preferred Shares
being redeemed multiplied by one hundred and fifteen percent (115%) (or, with
-------------
respect to a Change of Control Transaction, one hundred and ten percent (110%))
and (ii) an amount determined by dividing the Liquidation Preference of the
Preferred Shares being redeemed by the Conversion Price in effect on the
Mandatory Redemption Date and multiplying the resulting quotient by the average
Closing Trade Price for the Common Stock on the five (5) Trading Days
immediately preceding (but not including) the Mandatory Redemption Date.
(d) Payment of Mandatory Redemption Price.
-------------------------------------
(i) The Corporation shall pay the Mandatory Redemption Price to the
Holder exercising its right to redemption on the later to occur of (i) the fifth
(5th) Business Day following the Mandatory Redemption Date and (ii) the date on
which the Preferred Shares being redeemed are delivered by the Purchaser to the
Corporation for cancellation (the "Mandatory Redemption Payment Date").
---------------------------------
(ii) If Corporation fails to pay the Mandatory Redemption Price to
the Holder on or before the Mandatory Redemption Date, the Holder shall be
entitled to interest thereon, from and after the Mandatory Redemption Payment
Date until the Mandatory Redemption Price has been paid in full,
13
<PAGE>
at an annual rate equal to the Default Interest Rate.
(iii) If the Corporation fails to pay the Mandatory Redemption Price
within ten (10) Business Days of the Mandatory Redemption Date, then the Holder
shall have the right to regain its rights as a Holder of the Series A Preferred
Stock and, upon written notice to such effect from the Holder, the Corporation
shall return to such Holder the certificates representing the Preferred Shares
that were delivered to the Corporation in connection with such Mandatory
Redemption; in such event, the Conversion Price otherwise applicable to future
Conversions of the Preferred Shares shall be reduced by one percent (1%) for
each day beyond such 10th Business Day in which the failure to pay the Mandatory
Redemption Price continued until the date of such notice; provided, however,
that the maximum percentage by which such Conversion Price may be reduced
hereunder shall be fifty percent (50%).
8. MISCELLANEOUS.
-------------
(a) Transfer of Preferred Shares. Upon notice to the Corporation, a Holder
----------------------------
may sell or transfer all or any portion of the Preferred Shares to any person or
entity as long as such sale or transfer is the subject of an effective
registration statement under the Securities Act or is exempt from registration
thereunder and otherwise is made in accordance with the terms of the Securities
Purchase Agreement. Notwithstanding the foregoing, no Holder shall knowingly
and voluntarily sell any Preferred Shares to an entity that is a competitor of
the Corporation. From and after the date of such sale or transfer, the
transferee thereof shall be deemed to be a Holder. Upon any such sale or
transfer, the Corporation shall, promptly following the return of the
certificate or certificates representing the Preferred Shares that are the
subject of such sale or transfer, issue and deliver to such transferee a new
certificate in the name of such transferee.
(b) Notices. Except as otherwise provided herein, any notice, demand or
-------
request required or permitted to be given pursuant to the terms hereof, the form
or delivery of which notice, demand or request is not otherwise specified
herein, shall be in writing and shall be deemed delivered (i) when delivered
personally or by verifiable facsimile transmission on or before 5:00 p.m.,
eastern time, on a Business Day or, if such day is not a Business Day, on the
next succeeding Business Day, (ii) on the next Business Day after timely
delivery to an overnight courier and (iii) on the day actually received if
deposited in the U.S. mail (certified or registered mail, return receipt
requested, postage prepaid), addressed to the parties as follows:
If to the Corporation:
Asymetrix Learning Systems, Inc.
110 110/th/ Avenue NE
Bellevue, WA 98008
Attn: General Counsel
Tel: 425-637-5829
Fax: 425-637-1540
14
<PAGE>
with a copy to:
Jeffrey R. Vetter, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
Tel: 650-494-0600
Fax: 650-494-1417
and if to any Holder, to such address for such Holder as shall be designated by
such Holder in writing to the Corporation.
(c) Lost or Stolen Certificate. Upon receipt by the Corporation of
--------------------------
evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation and the
Transfer Agent, and upon surrender and cancellation of such certificate if
mutilated, the Corporation shall execute and deliver to the Holder a new
certificate identical in all respects to the original certificate.
(d) No Voting Rights. Except as provided by applicable law and paragraph
----------------
8(g) below, the Holders of the Preferred Shares shall have no voting rights with
respect to the business, management or affairs of the Corporation; provided that
the Corporation shall provide each Holder with prior notification of each
meeting of stockholders (and copies of proxy statements and other information
sent to such stockholders).
(e) Remedies, Characterization, Other Obligations, Breaches and Injunctive
----------------------------------------------------------------------
Relief. The remedies provided to a Holder in this Certificate of Designation
- ------
shall be cumulative and in addition to all other remedies available to such
Holder under this Certificate of Designation or under any Transaction Document
(as defined in the Securities Purchase Agreement), at law or in equity
(including without limitation a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing contained
herein shall limit such Holder's right to pursue actual damages for any failure
by the Corporation to comply with the terms of this Certificate of Designation.
The Corporation agrees with each Holder that there shall be no characterization
concerning this instrument other than as specifically provided herein. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
Holder hereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Corporation (or the performance thereof). The
Corporation acknowledges that a material breach by it of its obligations
hereunder will cause irreparable harm to the Holders and that the remedy at law
for any such breach may be inadequate. The Corporation agrees, in the event of
any such breach or threatened breach, each Holder shall be entitled, in addition
to all other available remedies, to an
15
<PAGE>
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.
(f) Failure or Delay not Waiver. No failure or delay on the part of a
----------------------------
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
(g) Protective Provisions.
---------------------
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval of the Holders of at
least two-thirds (2/3) of outstanding shares of Series A Preferred Stock:
(i) alter, change, modify or amend (x) the terms of the Series
A Preferred Stock in any way or (y) the terms of any other capital stock of the
Corporation so as to affect adversely the Series A Preferred Stock;
(ii) create any new class or series of capital stock having a
preference over or ranking pari passu with the Series A Preferred Stock as to
redemption or distribution of assets upon a Liquidation Event or any other
liquidation, dissolution or winding up of the Corporation;
(iii) increase the authorized number of shares of Series A
Preferred Stock;
(iv) re-issue any shares of Series A Preferred Stock which have
been converted or redeemed in accordance with the terms hereof;
(v) issue any Pari Passu Securities or Senior Securities;
(vi) redeem, or declare, pay or make any provision for any
dividend or distribution with respect to, the Common Stock or any other capital
stock of the Corporation ranking junior to the Series A Preferred Stock as to
the distribution of assets upon liquidation, dissolution or winding up of the
Corporation; or
(vii) issue any Series A Preferred Stock except pursuant to the
terms of the Securities Purchase Agreement.
In the event that the Holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock agrees to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock pursuant to the terms hereof, then the Corporation will deliver notice of
such approved change to the holders of the Series A Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and the Dissenting
------------------
Holders shall have the right for a period of thirty (30) days following such
delivery to convert their Preferred Shares pursuant to the
16
<PAGE>
terms hereof as they existed prior to such alteration or change, or to continue
to hold such Preferred Shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the Holders of Preferred
Shares then outstanding.
[Remainder of Page Intentionally Left Blank]
17
<PAGE>
IN WITNESS WHEREOF, the Corporation has executed this Certificate of
Designation as of the 4th day of October, 1999.
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ James A. Billmaier
------------------------------
Name: James A. Billmaier
Title: Chief Executive Officer
18
<PAGE>
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby elects to convert shares of Series A Convertible
Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s).
_______________ (the "Preferred Stock Certificates"), into shares of common
stock ("Common Stock") of ASYMETRIX LEARNING SYSTEMS, INC. according to the
terms and conditions of the Certificate of Designation relating to the Preferred
Stock (the "Certificate of Designation"), as of the date written below.
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Certificate of Designation. Unless
otherwise specified in writing to the Corporation, the undersigned represents to
the Corporation that the shares of Common Stock covered by this notice have been
or will be sold pursuant to the terms of an effective registration statement.
Date of Conversion:____________________________________
Number of Shares of
Preferred Stock to be Converted:_______________________
Amount of Accrued Premium: ____________________________
Applicable Conversion Price:___________________________
Number of Shares of
Common Stock to be Issued:_____________________________
Name of Holder:________________________________________
Address: ___________________________________________
___________________________________________
___________________________________________
Signature: ___________________________________________
Name:
Title:
Holder Requests Delivery to be made: (check one)
- -----------------------------------
G By Delivery of Physical Certificates to the Above Address
G Through Depository Trust Corporation
(Account _____________________________)
<PAGE>
EXHIBIT 99.05
For Details, Contact:
Melissa Green
[LOGO]
Public Relations Coordinator
(617) 747-7000, x103
[email protected]
Michelle Kozin
FitzGerald Communications
(617) 494-9500
[email protected]
www.asymetrix.com
www.click2learn.com
Asymetrix Changes Company Name to click2learn.com, inc.
Name change reflects importance of learning portal as the cornerstone to the
company's market-leading status in the online learning arena
BELLEVUE, WA, October 11, 1999 - Asymetrix Learning Systems, Inc. (NASDAQ:
ASYM), the leader in online learning solutions, today announced that it is
changing the company name to click2learn.com, inc., effective immediately.
Asymetrix also announced that it is changing its Nasdaq-Amex ticker symbol from
ASYM to CLKS. The change in name and ticker symbol reflects the growing
importance of the company's innovative new learning portal located at
www.click2learn.com to the company's market leading position in the online
learning industry, as well as the integration of the company's existing products
and services with the learning portal.
"Our goal for the company is to be the lifelong learning partner to the business
professional, and this change in company name is intended to both reflect the
importance of our learning portal at www.click2learn.com in pursuing this goal,
and signify our leadership position in web-delivered learning," said Jim
Billmaier, CEO of Asymetrix Learning Systems. "As the market leader in behind-
the-firewall enterprise online learning solutions with our learning management
products, authoring tools and professional services, we see click2learn.com as a
natural evolution to outside-the-firewall solutions of our product and service
offerings. click2learn.com provides large corporations with thousands of titles
as well as a learning management and authoring product in a hosted environment,
and it gives small
<PAGE>
businesses and individuals a cost-effective and convenient way to access a
diverse library of computing and business titles."
click2learn.com is designed to be the lifelong learning partner to the business
professional by providing professional education and training on a variety of
topics. Using the Internet to remove economic and logistical barriers to
critical learning, it allows individuals and small to medium-sized businesses to
access formal training online directly through www.click2learn.com in an
engaging and highly interactive format with a standard web browser. Larger
organizations can access click2learn.com using the increasingly popular
Application Service Provider (ASP) model, by seamlessly integrating a custom
version of click2learn.com with their organization's intranets.
Thousands of professional learning courses on computer, business and
professional development skills are now accessible directly through
www.click2learn.com. These courses, and courses created with the free
click2learn.publisher authoring and publishing system, will also be available
through Internet portal partners such as the Go2Net and VerticalNet network of
websites, and corporate partners through their intranets and virtual
universities. Additionally, a number of free courses are available currently
through click2learn.com, with more constantly being added. Titled
2MinuteTutors(TM), these short tutorials cover a wide variety of topics focused
on improving the skills and knowledge requirements of busy business
professionals.
The company also boasts the industry's market leading learning management
products, anchored by Ingenium, a skills-based management product that lets
administrators assign and track online learning as well as instructor-led
classes. Ingenium is an integral component of the company's single-source
online learning solution that also includes the ToolBook II family of authoring
products - ToolBook II Assistant and ToolBook II Instructor. These products are
augmented by the company's award-winning professional services group, one of the
largest in the country, that develops custom online learning content for
organizations, in addition to strategic consulting and systems integration
services.
click2learn.com will be officially launched at the Online Learning '99
Conference and Exposition on October 18, 1999 at the Los Angeles Convention
Center. Visit click2learn.com, inc. at Booth #517.
<PAGE>
About click2learn.com, inc. (formerly Asymetrix Learning Systems, Inc.)
click2learn.com, inc. (NASDAQ: CLKS), formerly Asymetrix Learning Systems, Inc.
(NASDAQ: ASYM), is a leading provider of online enterprise learning solutions
that enable organizations to author, deploy and manage Internet-based training
and education. click2learn.com offers a single source training solution
incorporating learning management products (including the market leading,
skills-based Ingenium solution) and authoring software products (ToolBook II
Instructor and Assistant) with professional services including custom
development, strategic consulting and integration services. For more information
on click2learn.com solutions, call (800) 448-6543 or (425) 462-0501.
click2learn.com is located on the World Wide Web at www.click2learn.com, and the
company maintains a website under the former name of Asymetrix Learning Systems
at www.asymetrix.com.
Asymetrix is a registered trademark and click2learn.com, 2MinuteTutor, Ingenium,
ToolBook 11 Instructor and Assistant are trademarks of Asymetrix Learning
Systems, Inc. Asymetrix is registered in the USA and in certain other countries.
All other company and/or product names are the property of their respective
owners.
<PAGE>
Exhibit 99.06
For Details, Contact:
Melissa Green
[LOGO]
Public Relations Coordinator
(617) 747-7000, x103
[email protected]
Michelle Kozin
FitzGerald Communications
(617) 494-9500
[email protected]
www.asymetrix.com
www.click2learn.com
Vulcan Ventures Inc. and Credit Suisse First Boston
affiliate invest $10 million toward click2learn.com
Paul G. Allen, and one of the web's leading investment banks,
support new learning portal
BELLEVUE, WA, October 12, 1999 - click2learn.com, inc. (NASDAQ: CLKS) - formerly
Asymetrix Learning Systems, Inc. (NASDAQ: ASYM) - the leader in online learning,
today announced it received $10 million in private equity funding from Vulcan
Ventures Inc., the investment organization of Paul G. Allen, and Marshall
Capital Management, Inc., an affiliate of Credit Suisse First Boston. This
investment increases the company's cash holdings to an amount in excess of $24
million. The company intends to use the funds to further the development,
marketing and sales of click2learn.com, the innovative new Internet learning
portal providing professional education and training. The investment by these
two prominent firms, each with a focus on web-based businesses, is evidence of
their belief in the future of web-delivered learning, and web-based learning
portals.
"Web-delivered learning is a key component in Paul Allen's Wired World, and we
feel click2learn.com can become the leading Internet learning destination for
corporations and individual business professionals," said William Savoy,
president of Vulcan Ventures Inc. "We look forward to exploring the synergies
between click2learn.com, inc. and the other web-focused companies in the Vulcan
portfolio."
<PAGE>
"The Internet is revolutionizing learning, and our goal is to brand
click2learn.com to be the lifelong learning partner to the business
professional," said Jim Billmaier, CEO of click2learn.com, inc. "This additional
funding from Vulcan Ventures and Marshall Capital Management will allow us to
further our efforts in marketing, sales and engineering to meet this goal. As
further evidence of the importance of click2learn.com to our strategy, yesterday
we announced a company name change from Asymetrix to click2learn.com, inc. and
changed our ticker symbol from ASYM to CLKS."
Using the Internet to remove economic and logistical barriers to critical
learning, click2learn.com allows individuals and small to medium-sized
businesses to access formal training online directly through www.click2learn.com
in an engaging and highly interactive format with a standard web browser.
Larger organizations can access click2learn.com using an Application Service
Provider (ASP) model, by integrating a custom version of click2learn.com with
their organization's intranets, complete with sophisticated learning management
features and functionality.
One of the most unique features of click2learn.com is the self-publishing system
found in click2learn.publisher, the "browser-based" authoring and publishing
system available for free on the learning portal. click2learn.publisher allows
anyone to create and publish online courseware, and receive royalties on courses
sold through the click2learn.com network that includes the Go2Net and
VerticalNet network of websites. Without installing any additional software,
authors, instructors and subject matter experts can create courses using just
their web browser, set a purchase price for their course, and then publish it
automatically to click2learn.com. After an initial review, finished courseware
is instantly available to individual users of the site, as well as to
click2learn.com corporate and portal partners.
"We believe click2learn.publisher is a feature that is unmatched in our
industry, and that it dramatically revolutionizes the world of traditional
publishing," said Kevin Oakes, President and Chief Learning Officer of
click2learn.com, inc. "Statistics show that for every book that makes it into
print in the traditional world of publishing, there are thousands of manuscripts
that go unpublished. Now, with a simple click of a button, authors can publish
their courses and reach an entire Internet community of learners with an
engaging online course, and earn a significant royalty every time that course is
purchased."
Thousands of professional learning courses on computer, business and
professional development skills are now accessible directly through
www.click2learn.com. Additionally, a number of free courses are available
through click2learn.com, with more constantly being added. Titled
2MinuteTutors(TM), these short tutorials cover a wide variety of topics focused
on improving the skills and knowledge requirements of busy business
professionals.
<PAGE>
click2learn.com, the learning portal, will be officially launched next week at
the Online Learning '99 Conference and Exposition on October 18, 1999 at the Los
Angeles Convention Center. Visit click2learn.com, inc. at Booth #517.
About click2learn.com, inc.
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click2learn.com, inc. (NASDAQ: CLKS) formerly known as Asymetrix Learning
Systems, Inc. (NASDAQ: ASYM) is a leading provider of online enterprise learning
solutions that enable organizations to author, deploy and manage Internet-based
training and education. click2learn.com offers a single source training solution
incorporating learning management products (including the market leading,
skills-based Ingenium solution) and authoring software products (ToolBook II
Instructor and Assistant) with professional services including custom
development, strategic consulting and integration services. For more information
on click2learn.com, inc. solutions, call (800) 448-6543 or (425) 462-0501.
click2learn.com, inc. is located on the World Wide Web at www.asymetrix.com and
the click2learn.com learning portal is located at www.click2learn.com.
This announcement contains forward-looking statements that involve risks and
uncertainties, including information contained in this document where statements
are preceded by, followed by or include the words "believes," "plans,"
"intends," "expects," "anticipates" or similar expressions. For such statements,
click2learn.com, inc./Asymetrix Learning Systems, Inc. claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from the results predicted, and reported results should not be considered as an
indication of future performance. Factors that could cause actual results to
differ from those contained in the forward-looking statements include market
acceptance of the click2learn.com learning portal, the ability to successfully
implement strategic relationships with other web-based companies, and the risk
factors set forth in filings click2learn.com, inc./Asymetrix Learning Systems,
Inc. has made with the SEC.
Asymetrix is a registered trademark and click2learn.com, 2MinuteTutor, Ingenium,
ToolBook 11 Instructor and Assistant are trademarks of Asymetrix Learning
Systems, Inc. Asymetrix is registered in the USA and in certain other countries.
All other company and/or product names are the property of their respective
owners.
