<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-24289
ASYMETRIX LEARNING SYSTEMS, INC.
(Exact name of registrant as specified in its chapter)
DELAWARE 91-1276003
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110-110TH AVENUE NE, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip Code)
(425) 462-0501
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------------- ---------------
The number of shares outstanding of the issuer's Common Stock, par value $0.01,
as of June 30, 1999 was 14,104,247 shares.
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
FORM 10 -Q
FOR THE QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999 and December
31, 1998 3
Condensed Consolidated Statements of Operations for the three months
and six months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the three months
and six months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Securities Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 21
2
</TABLE>
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,245 $ 21,713
Accounts receivable, net of allowance for returns and
doubtful accounts of $861 and $1,397 9,568 7,917
Inventories 302 370
Prepaid royalties and licenses 248 66
Receivables from related companies 74 193
Other current assets 1,219 998
----------- ------------
Total current assets 27,656 31,257
Property and equipment, net 2,521 2,320
Goodwill and other intangible assets, net 9,780 9,917
Other assets 231 128
----------- ------------
Total assets $ 40,188 $ 43,622
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,103 $ 1,494
Accrued liabilities 2,504 1,637
Deferred revenue 1,089 1,401
Other current liabilities 1,457 1,812
----------- ------------
Total current liabilities 7,153 6,344
Other noncurrent liabilities 219 268
----------- ------------
Total liabilities 7,372 6,612
----------- ------------
Stockholders' equity:
Common stock 142 140
Additional paid-in capital 203,524 203,249
Accumulated deficit (169,931) (165,522)
Deferred stock compensation (528) (580)
Accumulated other comprehensive loss (391) (277)
----------- ------------
Total stockholders' equity 32,816 37,010
----------- ------------
Total liabilities and stockholders' equity $ 40,188 $ 43,622
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
3
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products $ 3,280 $ 2,588 $ 6,016 $ 4,893
Other products 288 730 706 2,270
---------- ---------- ---------- ----------
Total product revenue 3,568 3,318 6,722 7,163
Services revenue 4,983 5,054 9,289 9,407
---------- ---------- ---------- ----------
Total revenue 8,551 8,372 16,011 16,570
---------- ---------- ---------- ----------
Cost of revenue:
Product revenue:
Online learning products 225 269 403 478
Other products 122 288 258 577
---------- ---------- ---------- ----------
Total cost of product revenue 347 557 661 1,055
Services revenue 3,491 3,140 6,767 5,992
---------- ---------- ---------- ----------
Total cost of revenue 3,838 3,697 7,428 7,047
---------- ---------- ---------- ----------
Gross margin 4,713 4,675 8,583 9,523
---------- ---------- ---------- ----------
Operating expenses:
Research and development 1,644 1,551 3,158 3,070
Sales and marketing 3,654 3,556 7,180 7,061
General and administrative 1,400 1,443 2,656 2,944
Amortization of goodwill 219 195 438 379
---------- ---------- ---------- ----------
Total operating expenses 6,917 6,745 13,432 13,454
---------- ---------- ---------- ----------
Loss from operations (2,204) (2,070) (4,849) (3,931)
Other income (loss), net 201 15 440 2,166
---------- ---------- ---------- ----------
Net loss $ (2,003) $ (2,055) $ (4,409) $ (1,765)
Accretion of redemption value of redeemable common stock 0 (604) 0 (1,370)
---------- ---------- ---------- ----------
Net loss attributable to common stockholders $ (2,003) $ (2,659) $ (4,409) $ (3,135)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share, basic and diluted $ (0.14) $ (0.32) $ (0.32) $ (0.41)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares outstanding, basic and diluted 14,019 8,304 13,993 7,618
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
4
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,409) $ (1,765)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,052 845
Write-off property and equipment - 8
Stock compensation expense 52 203
Equity in income from Infomodelers, Inc. - (2,169)
Changes in assets and liabilities:
Accounts receivable (1,651) (418)
Inventories 68 131
Prepaid royalties and licenses (182) (39)
Receivables from related companies 119 106
Other current assets (223) (769)
Accounts payable 608 (450)
Accrued liabilities 869 493
Deferred revenue (311) (554)
Other current liabilities (353) (490)
---------- ----------
Net cash used in operating activities (4,361) (4,868)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (1,116) (747)
Disposal of investment in Infomodelers, Inc. - 2,373
Disposal (purchase) of other assets (103) 45
---------- ----------
Net cash (used in)/provided by investing activities (1,219) 1,671
---------- ----------
Cash flows from financing activities:
Repayment of notes payable (49) (784)
Proceeds from exercise of stock options 276 177
Net proceeds from initial public offering - 29,331
---------- ----------
Net cash provided by financing activities 227 28,724
---------- ----------
Effect of foreign exchange rate changes (115) (35)
---------- ----------
Net increase(decrease) in cash and cash equivalents (5,468) 25,492
Cash and cash equivalents at beginning of period 21,713 2,541
---------- ----------
Cash and cash equivalents at end of period $ 16,245 $ 28,033
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
5
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ASYMETRIX LEARNING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements
of Asymetrix Learning Systems, Inc. ("Asymetrix") include the accounts of
Asymetrix and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. These statements reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of operations for
the periods presented. These condensed consolidated financial statements and
notes should be read in conjunction with Asymetrix's audited consolidated
financial statements included in Asymetrix's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998. Certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Interim results of operations for the three months and six months ended June 30,
1999 are not necessarily indicative of the operating results for the full fiscal
year. Factors that may affect such operating results, include, but are not
limited to, those discussed in "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS".
INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Raw materials $237 $247
Finished goods 114 226
Less obsolescence reserve (49) (103)
-------- ------------
$302 $370
-------- ------------
-------- ------------
</TABLE>
NET LOSS PER SHARE
Basic earnings per share is computed by dividing the sum of net loss
plus accretion of redemption value of redeemable common stock by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is computed by dividing the sum of net loss plus accretion of
redemption value of redeemable common stock by the weighted average number of
common and dilutive common equivalent shares outstanding during the period. As
Asymetrix had a net loss attributable to common stockholders in each of the
periods presented, basic and diluted net loss per share is the same.
Excluded from the computation of diluted earnings per share for the
three and six months ended June 30, 1999 are options to acquire approximately
4,247,148 shares of Common Stock with a weighted average exercise price of
$4.87, and for the three and six months ended June 30, 1998 are options to
acquired approximately 3,893,631 shares of Common Stock with a weighted average
exercise price of $4.69 because their effects would be anti-dilutive.
REVENUE RECOGNITION
Asymetrix recognizes revenue in accordance with Statement of Position
97-2, SOFTWARE REVENUE RECOGNITION ("SOP 97-2"), which provides specific
industry guidance and stipulates that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation, or training. Under
SOP 97-2, the determination of fair value is based on objective evidence which
is specific to the vendor. If such evidence of fair value for each element of
the arrangement does not exist, all revenue from the
6
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arrangement is deferred until such time that evidence of fair value does
exist or until all elements of the arrangement are delivered.
Revenue from sales of software products to end-users, resellers, and
distributors is recognized when the products are delivered provided all the
requirements of SOP 97-2 have been met. Asymetrix's agreements with certain
distributors and resellers permit them to exchange products under certain
circumstances and permit returns from certain resellers subject to specific
limitations. When appropriate, accruals are established for estimated returns
and exchanges. In the case of nonrefundable minimum royalties from an OEM,
reseller or other distributor, provided that no significant obligations of
Asymetrix remain, Asymetrix recognizes revenue when it delivers its product to
the OEM reseller or other distributor. Additional royalties are paid to the
extent that the advances are exceeded and these additional royalties are
recognized upon delivery of the products by the OEM reseller or other
distributor to its customers. Asymetrix recognizes revenue associated with
technical support agreements over the life of the contract.
Asymetrix recognizes revenue under custom development contracts as
services are provided for time and materials contracts or by using the
percentage-of-completion method of accounting, based on the ratio of costs
incurred to the total estimated project cost, for individual fixed-price
contracts. Provisions for any estimated losses on uncompleted contracts are made
in the period in which such losses become evident.
In December 1998, the AICPA issued Statement of Position 98-9,
"MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN
TRANSACTIONS" ("SOP 98-9") which amends certain elements of SOP 97-2 and is
effective for fiscal years beginning after March 15, 1999. Asymetrix believes
that the adoption of SOP 98-9 will not have a material effect on results of
operations or financial position.
COMPREHENSIVE INCOME
Asymetrix has adopted the provisions of Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("Statement 130").
Statement 130 establishes revenues for reporting and disclosure of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The following table sets forth the
components of comprehensive loss for the periods presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $(2,003) $(2,055) $(4,409) $(1,765)
Foreign currency translation adjustment (66) (120) (113) (34)
-------- -------- -------- --------
Total comprehensive loss $(2,069) $(2,175) $(4,522) $(1,799)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 established
guidance on accounting for the costs incurred related to internal used software.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Asymetrix adopted SOP 98-1 effective January 1, 1999. Adoption of SOP 98-1 did
not have a material impact on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("Statement 133"). Statement 133 provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. Statement 133 is effective for fiscal years beginning after
June 15, 2000. Asymetrix does not expect the adoption of Statement 133 to have a
material impact on its consolidated financial statements.
7
<PAGE>
SEGMENT INFORMATION
Asymetrix has adopted the provisions of Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION ("Statement 131"). Statement 131 establishes standards
for the reporting by public business enterprises about operating segments,
products and services, geographic areas, and major customers. The method for
determining what information to report is based on the way that management
organizes the operating segments within Asymetrix for making operating
decisions and assessing financial performance.
Asymetrix's chief operating decision-maker is considered to be
Asymetrix's Chief Executive Officer ("CEO"). The CEO reviews financial
information on a consolidated basis with disaggregated information about
revenues by product categories and geographic region for purposes of making
operating decisions and assessing financial performance. The product
categories reviewed by the CEO are on-line learning products and other
products. These categories are identical to those in the accompanying
consolidated statements of operations. The consolidated financial information
reviewed by the CEO does not include information regarding profitability of
Asymetrix's different products or services. Therefore, Asymetrix operates in
a single operating segment, on-line learning.
Revenue and long-lived asset information regarding operations in the
United States and International - primarily Europe is as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Domestic $6,771 $6,946 $12,675 $13,237
International - primarily Europe 1,780 1,426 3,336 3,333
-------- -------- -------- --------
$8,551 $8,372 $16,011 $16,570
<CAPTION>
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Long-lived assets:
Domestic operations $12,222 $12,704
International operations - primarily Europe 78 54
-------- --------
$12,300 $12,758
</TABLE>
No single customer accounted for greater than 10% of total revenues in
any period presented.
SUBSEQUENT EVENTS
In July 1999, Asymetrix acquired Pixelmedia Visual Communications, Inc.
("Pixelmedia"), an online learning production company based in British Columbia,
Canada. Asymetrix issued approximately 100,000 shares of Common Stock in
connection with the acquisition and assumed liabilities of approximately
$400,000. It is anticipated that the acquisition will be accounted for using the
purchase method of accounting and will be amortized over a 15 year period.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ASYMETRIX SHOULD BE READ IN CONJUNCTION WITH ASYMETRIX'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT. THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ASYMETRIX'S ACTUAL RESULTS
MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN "FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS."
OVERVIEW
Asymetrix's comprehensive learning solution consists of an open,
standards-based, Internet-centric technology platform as well as a variety of
professional learning services for the online learning market. Asymetrix's
technology platform includes authoring products which enable customers to
create online learning applications and learning management systems which
enable customers to deploy and manage such applications, automate
instructor-led training, logistics and tracking of individual and group
competencies. Asymetrix's professional services include a wide range of
consulting, integration and custom development services focused on the online
learning market as well as training and customer support.
From September 1997 through June 1998, Asymetrix acquired eight
companies and issued an aggregate of 3,457,504 shares of common stock. All of
these acquisitions were accounted for using the purchase method of
accounting. Accordingly, Asymetrix's historical consolidated financial
statements do not include results of operations, financial position or cash
flows of these entities prior to their respective dates of acquisition. In
connection with all of its acquisitions from July 1997 through September
1998, Asymetrix has recorded an aggregate of approximately $10.2 million in
goodwill, of which approximately $1.5 million will be amortized on a
straight-line basis over a five-year life and approximately $8.7 million will
be amortized over a fifteen-year life. If Asymetrix were to incur additional
charges for acquired in-process research and development and amortization of
goodwill with respect to any future acquisitions, Asymetrix's business,
operating results and financial condition could be materially and adversely
affected. In July 1998, Asymetrix acquired Meliora Systems Inc. ("Meliora"),
an online learning product and consulting company, which has been accounted
for under the pooling of interests method. Asymetrix issued 268,000 shares of
common stock in exchange for all outstanding shares of Meliora. The
consolidated financial statements of Asymetrix have been restated to give
effect to the combination as if the companies had been combined since their
inception.
As part of its strategy to focus on the online enterprise learning
market, Asymetrix divested product lines and technologies that were unrelated
to this market. In October 1996, Asymetrix completed the spin-off of its
Database Tools Division to Infomodelers, Inc. ("Infomodelers") and
distributed a controlling interest in Infomodelers to its stockholders. In
March 1998, Asymetrix sold substantially all of its remaining interest in
Infomodelers to Vulcan Ventures, Inc. for an aggregate purchase price of
approximately $2.4 million in cash, which price included approximately $2.0
million for shares of Infomodelers Series A Preferred Stock and approximately
$390,000 for shares of Infomodelers common stock.
In July 1997, Asymetrix established SuperCede, Inc. ("SuperCede"), a
subsidiary, and transferred the assets of its Internet Development Tools
Division and SuperCede products to SuperCede. Following an investment by Vulcan
Ventures, Inc. and certain related transactions, 50% of SuperCede was owned by
Asymetrix. However, Asymetrix held Series B Preferred Stock which was
subordinate to the Series A Preferred stock held by Vulcan Ventures. All of the
assets of SuperCede were subsequently acquired by Instantiations, Inc. in
January 1999 and SuperCede was dissolved. Because the total consideration
received in the transaction was less than the liquidation preference of the
Series A Preferred Stock, Asymetrix received no portion of that consideration
and believes that it will receive no future value from its SuperCede interest.
Asymetrix's historical financial statements do not consolidate the results of
operations, financial position or cash flows of Infomodelers subsequent to
October 1996 or of SuperCede subsequent to September 1997.
Asymetrix incurred net losses of $13.7 million in 1997, $5.2 million in
1998 and a net loss of $4.4 million in the six months ended June 30, 1999, and
has yet to achieve operating income or net income under its online learning
business model. Asymetrix's limited operating history under this business model,
and the emerging nature
9
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of the market for online enterprise learning among other factors, make
prediction of Asymetrix's future operating results difficult. Although
Asymetrix has experienced revenue growth in certain recent periods there can
be no assurance that such growth rates are sustainable or indicative of
actual growth rates that Asymetrix may experience and, therefore, they should
not be considered indicative of future operating results. In addition,
Asymetrix intends to continue to invest in various aspects of its online
learning business. As a result, Asymetrix expects to continue to incur
operating losses at least through 1999. There can be no assurance that
Asymetrix will achieve profitability or, if profitability is achieved, that
it will be sustained.
In July of 1999, Asymetrix announced click2learn.com, an innovative new
Internet learning portal providing professional education and training, that
leverages its authoring and management enterprise technologies in an
outsourced model. By providing a business-to-business and consumer learning
portal, along with enterprise services that include strategic consulting,
learning management products, online learning authoring products, systems
integration, custom content, and off-the-shelf content, Asymetrix strives to
become a single-source provider with the capacity to meet any organization's
training and learning needs. The site is expected to formally launch early in
the fourth quarter of 1999, therefore no significant revenue from
click2learn.com is expected in 1999. Asymetrix will incur incremental marketing
and site development expenses associated with the portal during the remainder
of 1999.
RESULTS OF OPERATIONS
The following table presents Asymetrix's results of operations as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
1999 1998 1999 1998
------ ------ ------ ------
% % % %
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products 39 31 38 30
Other products 3 9 4 14
------ ------ ------ ------
Total product revenue 42 40 42 43
Services revenue 58 60 58 57
------ ------ ------ ------
Total revenue 100 100 100 100
Cost of revenue:
Product revenue:
Online learning products 3 3 3 3
Other products 1 3 2 3
------ ------ ------ ------
Total cost of product revenue 4 6 4 6
Services revenue 41 38 42 36
------ ------ ------ ------
Total cost of revenue 45 44 46 43
Gross margin 55 56 54 57
Operating expenses:
Research and development 19 19 20 19
Sales and marketing 43 42 45 43
General and administrative 16 17 17 18
Amortization of goodwill 3 2 3 2
------ ------ ------ ------
Total operating expenses 81 81 84 81
------ ------ ------ ------
Loss from operations (26) (25) (30) (24)
Other income(loss), net 3 0 3 13
------ ------ ------ ------
Net loss (23) (25) (28) (11)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1998
REVENUE. Total revenue increased 2% from $8.4 million in the three
months ended June 30, 1998 to $8.6 million in the three months ended June 30,
1999. Total revenue decreased 3% from $16.6 million in the six months ended
June 30, 1998 to $16.0 million in the six months ended June 30, 1999.
10
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Online learning product revenue increased 27% from $2.6 million in
the three months ended June 30, 1998 to $3.3 million in the three months
ended June 30, 1999. Online learning product revenue increased 23% from $4.9
million in the six months ended June 30, 1998 to $6.0 million in the six
months ended June 30, 1999. The increase in online learning product revenue
was due primarily to increased demand for Asymetrix's online learning
products as a result of Asymetrix's focus on the online learning market.
Other product revenue decreased 61% from $730,000 in the three months ended
June 30, 1998 to $288,000 in the three months ended June 30, 1999. Other
product revenue decreased 69% from $2.3 million in the six months ended June
30, 1998 to $706,000 in the six months ended June 30, 1999. Other product
revenue consists of revenue from Asymetrix's products which are not targeted
at the online learning market many of which have been discontinued or
divested over the past years. Total product revenue increased 8% from $3.3
million in the three months ended June 30, 1998 to $3.6 million in the three
months ended June 30, 1999, reflecting the increase in online learning
product revenue. Total product revenue decreased 6% from $7.2 million in the
six months ended June 30, 1998 to $6.7 million in the six months ended June
30, 1999, reflecting the decrease in other product revenue. As a result of
Asymetrix's strategy to focus on the online learning market, Asymetrix
anticipates that future growth in product sales, if any, will be attributable
to its online learning products and that its other product revenue will
continue to decrease in the future.
Services revenue decreased 1% from $5.1 million in the three months
ended June 30, 1998 to $5.0 million in the three months ended June 30, 1999.
Services revenue decreased 1% from $9.4 million in the six months ended June
30, 1998 to $9.3 million in the six months ended June 30, 1999.
COST OF REVENUE. Cost of product revenue includes costs of media,
manuals and distribution costs. Gross margin from Asymetrix's online learning
products is generally higher than that of its other products because these
products are typically sold by Asymetrix's direct sales force, as compared
with other products sold through indirect channels, such as OEMs and
resellers. Cost of services revenue consists primarily of personnel-related
costs in providing consulting, maintenance and training to customers. Gross
margin on product revenue is higher than gross margin on services revenue,
reflecting the lower materials, packaging and other costs of software
compared with the relatively high personnel costs associated with providing
professional services.
Total cost of revenue increased 3% from $3.7 million in the three
months ended June 30, 1998 to $3.8 million in the three months ended June 30,
1999. Total cost of revenue increased 5% from $7.0 million in the six months
ended June 30, 1998 to $7.4 million in the six months ended June 30, 1999.
Cost of online learning products revenue decreased 16% from $269,000
in the three months ended June 30, 1998 to $225,000 in the three months ended
June 30, 1999. Cost of online learning products revenue decreased 16% from
$478,000 in the six months ended June 30, 1998 to $403,000 in the six months
ended June 30, 1999. The decrease was due primarily to lower per unit costs.
Cost of other products revenue decreased 58% from $288,000 in the three
months ended June 30, 1998 to $122,000 in the three months ended June 30,
1999. Cost of other products revenue decreased 55% from $577,000 in the six
months ended June 30, 1998 to $258,000 in the six months ended June 30, 1999.
The decline was due to decreased sales of Asymetrix's other products. Total
cost of product revenue decreased 38% from $557,000 in the three months ended
June 30, 1998 to $347,000 in the three months ended June 30, 1999. Total cost
of product revenue decreased 37% from $1.1 million in the six months ended
June 30, 1998 to $661,000 in the six months ended June 30, 1999.
Total products gross margin increased from 83% in the three months
ended June 30, 1998 to 90% in the three months ended June 30, 1999. Total
products gross margin increased from 85% in the six months ended June 30,
1998 to 90% in the six months ended June 30, 1999.
Cost of services revenue increased 11% from $3.1 million in the
three months ended June 30, 1998 to $3.5 million in the three months ended
June 30, 1999. Cost of services revenue increased 13% from $6.0 million in
the six months ended June 30, 1998 to $6.8 million in the six months ended
June 30, 1999. The increase was due primarily to increased personnel costs
associated with over capacity.
Services gross margin decreased from 38% in the three months ended
June 30, 1998 to 30% in the three months ended June 30, 1999. Services gross
margin decreased from 36% in the six months ended June 30, 1998 to 27% in the
six months ended June 30, 1999. Asymetrix anticipates that cost of services
revenue will increase in
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absolute dollars if it adds additional professional services personnel. To
the extent services revenue increases relative to product sales revenue as a
percentage of total revenue, overall gross margins would decline.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses include
expenses associated with the development of new products and new product
versions and consist primarily of salaries, depreciation of development
equipment, supplies and overhead allocations. Research and development
expenses were $1.6 million in the three months ended June 30, 1998 and the
three months ended June 30, 1999. Research and development expenses as a
percentage of total revenue was unchanged at 19% in the three months ended
June 30, 1998 and in the three months ended June 30, 1999. Research and
development expenses as a percentage of total revenue increased from 19% in
the six months ended June 30, 1998 to 20% in the six months ended June 30,
1999. Asymetrix expects research and development expenses to increase in
absolute dollars in the future.
SALES AND MARKETING. Sales and marketing expenses consist primarily
of sales and marketing personnel costs, including sales commissions, travel,
advertising, public relations, seminars, trade shows and other marketing
literature and overhead allocations. Sales and marketing expenses were $3.6
million in the three months ended June 30, 1998 and $3.7 million in the three
months ended June 30,1999. Sales and marketing expenses as a percentage of
total revenue increased from 42% in the three months ended June 30, 1998 to
43% in the three months ended June 30, 1999. Sales and marketing expenses as
a percentage of total revenue increased from 43% in the six months ended June
30, 1998 to 45% in the six months ended June 30, 1999. Asymetrix expects that
sales and marketing expenses will increase in absolute dollars in the future
as Asymetrix continues to increase its sales and marketing efforts in the
online learning market.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
consist primarily of salaries and other personnel-related expenses for
Asymetrix's administrative, executive and finance personnel as well as
outside legal and audit costs. General and administrative expenses were
unchanged at $1.4 million for the three months ended June 30, 1998 and for
the three months ended June 30, 1999. General and administrative expenses
decreased 10% from $2.9 million for the six months ended June 30, 1998 to
$2.7 million for the six months ended June 30, 1999. General and
administrative expenses as a percentage of total revenue decreased from 17%
to 16% in the three months ended June 30, 1999 compared to the three months
ended June 30, 1998. General and administrative expenses as a percentage of
total revenue decreased from 18% to 17% in the six months ended June 30, 1998
compared to the six months ended June 30, 1999. Asymetrix expects that
general and administrative expenses will increase in absolute dollars in the
future as Asymetrix incurs additional costs (including directors' and
officers' liability insurance, investor relations programs and increased
professional fees) related to being a public company.
AMORTIZATION OF GOODWILL
Amortization of goodwill expense relates to the amortization of
excess purchase price over net assets from acquired companies recorded under
the purchase method of accounting. For the three months ended June 30, 1998,
Asymetrix recognized $195,000 of amortization of goodwill and for the three
months ended June 30, 1999, recognized $219,000 of amortization of goodwill.
For the six months ended June 30, 1998, Asymetrix recognized $379,000 of
amortization of goodwill and for the six months ended June 30, 1999,
recognized $438,000 of amortization of goodwill. The acquisition of
Pixelmedia in July of 1999 is expected to generate approximately $15,000 of
additional amortization of goodwill expense per quarter for the next 15 years.
OTHER INCOME (EXPENSE)
Asymetrix recorded no other expense in the three months ended June 30,
1998 and in the three months ended June 30, 1999. Asymetrix recorded no other
expense in the six months ended June 30, 1998 and in the six months ended June
30, 1999. Other interest income, net was $15,000 in the three months ended June
30, 1998 and $201,000 in the three months ended June 30, 1999. Other interest
income, net was $15,000 in the six months ended June 30, 1998 and $440,000 in
the six months ended June 30, 1999. The increase was due to interest earned on
Asymetrix's higher cash and cash equivalents balance as a result of its initial
public offering. Equity in income (losses) from Infomodelers was $2.2 million in
the six months ended June 30, 1998, representing Asymetrix's equity in the net
income (losses) from Infomodelers in such periods, and $0 in the three months
ended June 30,
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1999. Equity in income (losses) from Infomodelers in 1998 resulted from the
sale by Infomodelers of substantially all of its assets to Visio Corporation.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, Asymetrix had cash and cash equivalents totaling
$16.2 million, a decrease of $5.5 million from December 31, 1998. The
decrease in cash and cash equivalents was due primarily to $4.4 million used
in operating activities and $1.2 million used in investing activities. At
June 30, 1999, the principal source of liquidity for Asymetrix was $20.5
million in working capital.
Asymetrix anticipates that its cash and cash equivalents will be
sufficient to meet its working capital needs and capital expenditures for at
least the next 12 months. Asymetrix's long-term liquidity will be affected by
numerous factors, including acquisitions of businesses or technologies,
demand for Asymetrix's online learning products and services, the extent to
which such online learning products and services achieve market acceptance,
the timing of and extent to which Asymetrix invests in new technology, the
expenses of sales and marketing and new product development, the extent to
which competitors are successful in developing their own products and
services and increasing their own market share, the level and timing of
revenues, and other factors. In addition, Asymetrix from time to time
evaluates potential acquisitions of businesses, products or technologies that
complement Asymetrix's business. To the extent that resources are
insufficient to fund Asymetrix's activities, Asymetrix may need to raise
additional funds. There can be no assurance that such additional funding, if
needed, will be available on terms attractive to Asymetrix, or at all. If
adequate funds are not available on acceptable terms, Asymetrix may be unable
to expand its business, develop or enhance its products and services, take
advantage of future opportunities or respond to competitive pressures, any of
which could have a material adverse effect on Asymetrix's business, operating
results and financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code
fields will need to distinguish 21st century dates from 20th century dates
and, as a result, many companies' software and computer systems may need to
be upgraded or replaced in order to comply with such "year 2000" requirements.
Asymetrix has designed and tested the most current versions of its
products to be year 2000 compliant. However, some of Asymetrix's customers
may be using older versions of its products that are not year 2000 compliant.
Asymetrix has been encouraging its customers to upgrade to current product
versions, and Asymetrix has been required by certain of its customers to
warrant that the current versions of its products and custom development
applications are year 2000 compliant. Although Asymetrix believes the current
versions of its products are year 2000 compliant, the current product
versions may contain undetected errors or defects associated with year 2000
date functions. These undetected date functions may result in material costs
to Asymetrix, as well as claims against Asymetrix for breach of its
warranties of year 2000 compliance. Furthermore, although Asymetrix has not
made any express representations or warranties with respect to year 2000
compliance of older versions of its products and has included clauses
disclaiming any implied warranties and limiting its liability for product
defects in the agreements under which those older versions were licensed to
customers, Asymetrix may still face claims or litigation based on older
versions of its products. Asymetrix is aware of a growing number of lawsuits
against other software vendors related to year 2000 compliance, including
lawsuits based on those companies charging their customers for new versions
of their products that are year 2000 compliant rather than providing such
versions for free. Because of the unprecedented nature of such litigation,
Asymetrix is uncertain of the extent to which it may be affected. If
Asymetrix is affected by such litigation, it could have a material adverse
effect on Asymetrix's business, operating results and financial condition.
Asymetrix is not currently a party to any such litigation.
With respect to Asymetrix's internal information technology systems,
Asymetrix's year 2000 internal readiness program primarily covers the
following activities: (1) taking inventory of hardware and software systems,
(2) determining those systems' level of year 2000 compliance, (3) assessing
the business and customer satisfaction risks associated with those systems,
(4) creating action plans to address known risks, (5) executing and
monitoring its action plans, and (6) contingency planning.
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At this time Asymetrix has substantially completed its review of its
most mission critical information technology systems including finance, order
processing, customer service, project management, and sales management, and
believes that those systems are substantially year 2000 compliant. Asymetrix is
currently reviewing and addressing year 2000 issues in its second tier
information technology systems, including its network servers, network software
and widely used software applications. Asymetrix expects that it will
substantially complete its year 2000 readiness preparations with respect to its
second tier systems and network hardware and software systems by third quarter
1999. Asymetrix expects to continue implementation and testing of year 2000
compliance activities throughout calendar 1999. Asymetrix has no current plans
to perform an assessment of imbedded technology outside of its information
technology systems, and believes that the failure of any such imbedded
technology to be year 2000 compliant will not have a material effect on
Asymetrix's business. Asymetrix has no current plan to retain any outside
consultants to assist in its year 2000 compliance activities.
Asymetrix has not sent detailed questionnaires to vendors and
service providers to certify year 2000 readiness, but Asymetrix has obtained
or relied upon published assurances of year 2000 compliance in relation to
purchases of new information technology systems and Asymetrix has conducted
and is continuing to conduct its own internal year 2000 analysis. While
Asymetrix has no plans to broadly survey its vendors and service providers
for year 2000 compliance, Asymetrix does intend to obtain and review the year
2000 readiness statements of its significant vendors who are required to file
proxy statements and annual and quarterly reports with the SEC in order to
help determine their level of year 2000 compliance. Asymetrix does not rely
on products and services provided by any single vendor in the conduct of its
business, and believes that even if the ability of one of its suppliers to
provide goods or services was negatively impacted by a year 2000 problem,
alternative sources would be available to supply such goods and services on
commercially reasonable terms.
Asymetrix has not sent and does not currently plan to send
questionnaires to its customers to independently verify its customers' level
of year 2000 compliance. However, most of Asymetrix's significant customers
are large business enterprises and government agencies which Asymetrix
believes are devoting significant resources to ensuring their own internal
year 2000 compliance. Most of Asymetrix's significant customers are also
required to file proxy statements and annual and quarterly reports with the
SEC disclosing their own year 2000 readiness, and Asymetrix intends to obtain
and review such disclosure for its significant customers to help determine
their level of year 2000 compliance. Moreover, Asymetrix has received and
responded to a large number of detailed year 2000 questionnaires from its
customers as a part of their own year 2000 compliance programs. Asymetrix
believes that its customers' or potential customers' year 2000 compliance
efforts have affected their purchasing patterns as these companies or
agencies expend significant resources and focus personnel on ensuring their
own internal year 2000 compliance. Devoting resources and personnel to year
2000 compliance may result in reduced funds available to purchase other
products or services and may delay the implementation of new information
technology systems such as those offered by Asymetrix, either of which could
have a material adverse effect on Asymetrix's business, operating results and
financial condition.
Asymetrix estimates that the total cost of evaluating and addressing
its year 2000 issues will be approximately $100,000. Asymetrix has spent
$9,500 and $19,000 in the three and six months ending June 30, 1999 and to
date, $57,000 in connection with evaluating and addressing year 2000 issues.
Such expenditures represented 6% of Asymetrix's total information technology
budget. All funds used for evaluating and addressing year 2000 issues are
from Asymetrix's information technology budget and no additional budget
dollars were allocated specifically to address year 2000 compliance. As a
result, resources devoted to year 2000 compliance are not available for other
information technology systems or projects.
Although Asymetrix does not believe that it will incur any material
costs or experience material disruptions in its business associated with
preparing its internal systems for the year 2000, Asymetrix may experience
serious unanticipated negative consequences and material costs caused by
undetected errors or defects in the technology used in its internal systems,
which are composed of third party software, third party hardware and
internally developed software, or in the internal systems of its vendors or
customers. The most reasonably likely worst case scenarios would include: (1)
loss or corruption of data contained in Asymetrix's internal information
systems, (2) hardware failure, (3) the failure of infrastructure services
provided by government agencies and other third parties (e.g., electricity,
phone service, water transport, internet services, etc.); and (4) the failure
of the internal systems of Asymetrix's vendors or customers, resulting in
problems with providing services or making payments to Asymetrix. Asymetrix
is in the early phases of contingency planning at this time and expects to
undertake more in depth contingency planning following the completion of its
analysis and correction of its internal year 2000 issues.
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Asymetrix expects its contingency plans to include, among other things,
manual work-arounds for software and hardware failures, as well as
substitution of systems or vendors, if necessary.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
LIMITED OPERATING HISTORY IN ONLINE LEARNING MARKET. Asymetrix was
incorporated in December 1984. Until early 1995, Asymetrix was engaged in
various technology and development activities and in the development and
marketing of multimedia authoring products, database and Internet tools,
World Wide Web publishing products and other ancillary products, most of
which are not included as part of Asymetrix's online enterprise learning
solution. Starting in 1995, Asymetrix recapitalized and redirected its focus
to the development and marketing of authoring products and a learning
management system designed to capitalize on the advantages of the Internet as
a means of delivering technology-based training applications. Since 1995,
Asymetrix has also introduced a variety of professional services.
Accordingly, Asymetrix has only a limited operating history upon which to
base an evaluation of its current business and prospects. Asymetrix's
prospects must be considered in light of the risks and uncertainties
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets such as online enterprise
learning and by companies engaged in a business transition from developing
and marketing software products to offering an integrated product and
services solution. Such risks include, but are not limited to the demand for
technology-based training and online enterprise learning applications; the
management of both internal and acquisition-based growth; demand for
Asymetrix's products and services; the ability of Asymetrix to meet the needs
of sophisticated corporate customers; and competition. To address these
risks, Asymetrix must, among other things, successfully introduce new
products and services; achieve commercial acceptance of its new products and
services; continue to expand its professional services business; successfully
identify, acquire and integrate acquired businesses; respond to competitive
developments; attract, integrate, retain and motivate qualified personnel;
and address new or evolving technologies and standards. Asymetrix may not be
successful in addressing such risks and the failure to do so could have a
material adverse effect on Asymetrix's business, operating results and
financial condition.
Asymetrix has recently announced its click2learn.com learning portal
web site. Broad and timely acceptance of this web site is important to the
future success of the Asymetrix business and is subject to a number of
significant risks: education and instruction over the Internet and on the
World Wide Web is a new market; Asymetrix has not previously hosted, operated
and managed an e-commerce web site; Asymetrix will need to enter into
distribution relationships with high traffic web sites as well as with
creators of learning content; and Asymetrix will need to attract user traffic
to this web site. If this new click2learn.com web site is not successful, the
business of Asymetrix could be materially harmed.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Asymetrix's quarterly
operating results have varied significantly in the past and are expected to
fluctuate significantly in the future as a result of a variety of factors,
many of which are outside Asymetrix's control. Factors that may adversely
affect Asymetrix's quarterly operating results include the demand for
technology-based training in general and demand for online enterprise
learning solutions in particular; the size and timing of product orders and
the timing and execution of professional services engagements; the mix of
revenue from products and services; the mix of products sold; the inability
of Asymetrix to meet its own or client project milestones or to meet client
expectations; the effect of year 2000 issues on the purchasing decisions of
customers and potential customers; market acceptance of Asymetrix's or
competitors' products and services; the ability of Asymetrix to develop and
market new or enhanced products and services in a timely manner and market
acceptance of such products and services; the timing of revenue recognition;
charges related to acquisitions; competitive conditions; technological
changes; personnel changes; general economic conditions; economic conditions
specific to the technology-based training and online learning markets; market
acceptance of the click2learn.com web site; the ability of Asymetrix to derive
revenues from the click2learn.com web site; and the ability to attract users
and content providers to the click2learn.com web site.
With its emphasis on providing an online enterprise learning
solution, Asymetrix is targeting its selling and marketing efforts towards
customers with the potential need for enterprise-wide solutions. Because the
implementation of its solutions may require an enterprise-wide decision by
prospective customers, Asymetrix may be required to provide a significant
level of education to prospective customers regarding Asymetrix's solutions
before a sale is completed. Therefore, Asymetrix believes that the period
between initial contact and the sale of Asymetrix's solutions could be
lengthy, and the implementation cycle could lengthen because of increases in
the size and complexity of customer implementations. Uncertainty of timing
with respect to sales or implementations could have a material adverse effect
on Asymetrix's business and operations and cause Asymetrix's operating
results to vary significantly from quarter to quarter. Therefore, Asymetrix's
operating results for any particular quarterly period may not be indicative
of future operating results.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL. Asymetrix's
future success will be highly dependent on the performance of its senior
management team and other key employees and on Asymetrix's ability to
attract, integrate, motivate and retain additional highly skilled technical,
sales and marketing and professional services personnel. There is intense
competition for such personnel in the areas of Asymetrix's activities.
Asymetrix does not have employment agreements with most of its executives or
other key employees. In addition, Asymetrix does not maintain key person life
insurance for any of its officers or key employees. The loss of the services
of any of Asymetrix's senior management team or other key employees or the
failure of Asymetrix to attract, integrate,
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motivate and retain additional key employees, including professional services
personnel, could have a material adverse effect on Asymetrix's business,
operating results and financial condition.
CUSTOMER REQUIREMENTS; FIXED PRICE ENGAGEMENTS. The online learning
market is a developing market characterized by complex and varied customer
expectations and requirements, a lack of technical standards and frequent
introductions and announcements of new products and services. Because
Asymetrix's online learning solution is targeted at customers with
enterprise-wide deployments in an emerging market, customers and potential
customers may have a greater sensitivity to product integration,
interoperability and defects than customers in the market for software
products generally. In addition, these customers may have evolving and
rapidly changing requirements for their online enterprise learning needs,
which Asymetrix must address satisfactorily. Many of Asymetrix's professional
services engagements require Asymetrix to develop learning applications to
suit unique customer requirements. Asymetrix's failure or inability to meet a
customer's expectations or requirements in the performance of its services
could potentially damage Asymetrix's reputation or result in a claim for
substantial damages against Asymetrix, regardless of Asymetrix's
responsibility for such failure. In addition, most such professional services
engagements are billed on a fixed-price basis. Asymetrix's failure to
estimate accurately the resources and time required for an engagement, to
manage client expectations effectively regarding the scope of services to be
delivered for the estimated fees or to complete fixed-price engagements
within budget, on time and to clients' satisfaction would expose Asymetrix to
risks associated with cost overruns and may expose Asymetrix, in certain
cases, to penalties, any of which could have a material adverse effect on
Asymetrix's business, operating results and financial condition.
DEVELOPING MARKET. The market for online enterprise learning is a
new and emerging market. Although technology-based training applications have
been available for several years, they currently account for only a small
portion of the overall training market. The failure of technology-based
training, and online learning in particular, to gain wide market acceptance
within the time frame anticipated by Asymetrix could have a material adverse
effect on Asymetrix's business, operating results and financial condition.
Asymetrix's success depends on the continued adoption of the Internet and
intranets as means of communication, particularly for corporate training and
education. Even if the Internet and intranets are widely adopted, the
adoption of these networks for corporate training and education, particularly
by companies that have relied on traditional means of training their
personnel, will require broad acceptance of new training methods. In
addition, companies that have already invested substantial resources in other
methods of corporate training and education may be reluctant to adopt a new
strategy that may limit or compete with their existing investments.
COMPETITION. The online learning market is highly fragmented and
competitive, rapidly evolving and subject to rapid technological change, with
no single competitor accounting for a dominant market share. Because of the
lack of significant barriers to entry in its market, Asymetrix expects that a
number of new competitors will enter this market in the future, and a number
of large companies have announced an intention to enter the market for online
learning and technology-based training. Increased competition could result in
pricing pressures, reduced margins or the failure of Asymetrix's products and
services to achieve or maintain market acceptance, any of which could have a
material adverse effect on Asymetrix's business, operating results and
financial condition. Furthermore, several of Asymetrix's current and
potential competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than Asymetrix
and therefore may be able to respond more quickly than Asymetrix to new or
changing opportunities, technologies, standards and customer requirements. As
a result of the foregoing and other factors, there can be no assurance that
Asymetrix will compete effectively with current or future competitors or that
competitive pressures faced by Asymetrix will not have a material adverse
effect on Asymetrix's business, operating results and financial condition.
GENERAL ECONOMIC CONDITIONS. Asymetrix's revenue is subject to
fluctuation as a result of general economic conditions. A significant portion
of Asymetrix's revenue is derived from the sale of products and services to
Fortune 1000 companies, educational organizations and government agencies,
which historically have adjusted their expenditures for education and
training during economic downturns. Should the economy weaken in any future
period, these organizations may not increase or may reduce their expenditures
on education and training generally, and on technology-based training and
online learning in particular, which could have an adverse effect on
Asymetrix's business, operating results and financial condition.
VOLATILITY OF STOCK PRICE. The stock market from time to time has
experienced significant price and volume fluctuations. In addition, the
market price of Asymetrix common stock has been highly volatile since the
initial
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public offering. Factors such as fluctuations in Asymetrix's operating
results, announcements of technological innovations or new products by
Asymetrix or its competitors, analysts' reports and projections and general
market conditions may have a significant effect on the market price of
Asymetrix's common stock. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation
has often been instituted against such a company. The institution of such
litigation against Asymetrix could result in substantial costs and a
diversion of management's attention and resources, which could have a
material adverse effect on Asymetrix's business, operating results and
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asymetrix holds its assets primarily in cash and cash equivalents,
such as short-term marketable debt securities, money market funds and other
cash equivalents. Asymetrix minimizes its risk by investing in financial
instruments with a maturity of three months or less. Asymetrix does not use
derivative financial instruments.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with Asymetrix's initial public offering, it
registered for public sale 3,000,000 shares of common stock, all of which
were sold by Asymetrix. The Registration Statement on Form S-1 (Registration
No. 333-49037), as amended, was declared effective by the Securities and
Exchange Commission on June 11, 1998. NationsBanc Montgomery Securities LLC
was the managing underwriter of the IPO. The IPO commenced on June 12, 1998,
and terminated following the sale of all of the securities registered under
the Registration Statement, plus an additional 25,000 shares pursuant to the
exercise of the underwriters' over-allotment option. The common stock was
offered and sold to the public at $11.00 per share, for aggregate
consideration of $33,275,000, of which Asymetrix received net proceeds of
$29,331,000.
From the effective date of the Registration Statement through June
30, 1999, Asymetrix has incurred an estimated $3,944,000 in expenses in
connection with the issuance and distribution of the common stock, including
underwriting discounts and commissions of $2,329,250 and other expenses of
$1,614,750. No finders' fees or expenses were paid to or for the
underwriters. None of these payments were made, directly or indirectly, to:
(1) directors or officers of Asymetrix, or their associates; (2) persons
owning ten percent or more of any class of equity securities of Asymetrix; or
(3) affiliates of Asymetrix.
From the effective date of the Registration Statement through June
30, 1999, Asymetrix has applied approximately $13.1 million of the offering
proceeds to working capital requirements. None of these payments were made,
directly or indirectly, to: (1) directors or officers of Asymetrix, or their
associates; (2) persons owning ten percent or more of any class of equity
securities of Asymetrix; or (3) affiliates of Asymetrix. To date, Asymetrix
believes that it has used the offering proceeds in a manner consistent with
the use of proceeds described in the Registration Statement. The remaining
$16.2 million of the offering proceeds is invested in short-term marketable
debt securities, money market funds and other cash equivalents.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The 1999 Annual Meeting of the Stockholders of Asymetrix was held on
May 25, 1999 at 110 - 110th Avenue NE, Bellevue, Washington. The meeting was
held pursuant to a Notice of Annual Meeting of Stockholders mailed to the
stockholders on April 22, 1999. Four proposals were submitted to the
stockholders and approved at the annual meeting, as follows:
PROPOSAL 1: Election of Sally Narodick and Joseph DiNucci as Class I
directors to serve until the annual meeting of the stockholders to be held in
2002. The number of votes cast for or withheld from each nominee, both in person
and by proxy, was as follows:
<TABLE>
<CAPTION>
SALLY NARODICK JOSEPH DINUCCI
-------------- --------------
<S> <C> <C>
Votes For 10,608,690 10,607,117
Votes Withheld 19,904 21,477
</TABLE>
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The following table sets forth the name of each director elected at
the meeting, and the name of each other director whose term of office as a
director continued after the meeting
TERM
DIRECTOR NAME EXPIRES
------------- -------
DIRECTORS ELECTED:
------------------
Sally Narodick 2002
Joseph DiNucci 2002
CONTINUING DIRECTORS:
---------------------
Kevin Oakes 2000
Shelley Harrison, Ph.D. 2000
Ronald S. Posner 2000
Bert Kolde 2001
James A. Billmaier 2001
PROPOSAL 2: An amendment of Asymetrix's 1998 Equity Incentive Plan
to increase the number of shares of common stock reserved for issuance
thereunder from 1,500,000 shares to 2,500,000 shares. The number of votes
cast for, cast against or abstaining from Proposal 2, both in person and by
proxy, and broker non-votes was as follows:
Votes For 8,120,405
Votes Against 1,308,662
Abstaining 19,841
Broker Non-votes 1,179,686
PROPOSAL 3: Approval of the adoption by Asymetrix of the 1999 Employee
Stock Purchase Plan and the reservation for issuance thereunder of up to 450,000
shares of common stock during each calendar year that the 1999 Employee Stock
Purchase Plan remains in effect. The number of votes cast for, cast against or
abstaining from Proposal 3, both in person and by proxy, and broker non-votes
was as follows:
Votes For 8,674,599
Votes Against 759,998
Abstaining 14,311
Broker Non-votes 1,179,686
PROPOSAL 4: Ratification of the appointment of KPMG LLP as Asymetrix's
independent accountants to perform the audit of Asymetrix's financial statements
for 1999. The number of votes cast for, cast against or abstaining from Proposal
2, both in person and by proxy, was as follows:
Votes For 10,613,482
Votes Against 6,750
Abstaining 8,362
Item 5. Other Information
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Asymetrix's 1998 Equity Incentive Plan
10.2 Asymetrix's 1999 Employee Stock Purchase Plan
27 Financial Data Schedule
19
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(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months
ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASYMETRIX LEARNING SYSTEMS, INC.
August 16, 1999 /s/ John D. Atherly
- ---------------------------- --------------------------------------------
Date John D. Atherly
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized Officer and Chief Accounting
Officer)
20
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EXHIBIT INDEX
10.1 Asymetrix's 1998 Equity Incentive Plan
10.2 Asymetrix's 1999 Employee Stock Purchase Plan
27 Financial Data Schedule
21
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ASYMETRIX LEARNING SYSTEMS, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted by the Board of Directors on December 29, 1997
And as Amended on May 25, 1999
1. PURPOSE. The purpose of this Plan is to provide incentives to
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, and any of its
Parent and Subsidiaries, by offering them an opportunity to participate in
the Company's future performance through awards of Options, Restricted Stock
and Stock Bonuses. Capitalized terms not defined in the text are defined in
Section 23.
2. SHARES SUBJECT TO THE PLAN.
2.1 NUMBER OF SHARES AVAILABLE. Subject to Sections 2.2 and
18, the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,500,000 Shares. Subject to Sections 2.2 and
18, Shares that: (a) are subject to issuance upon exercise of an Option but
cease to be subject to such Option for any reason other than exercise of such
Option; (b) are subject to an Award granted hereunder but are forfeited or
are repurchased by the Company at the original issue price; or (c) are
subject to an Award that otherwise terminates without Shares being issued,
will again be available for grant and issuance in connection with future
Awards under this Plan. Any authorized shares not issued or subject to
outstanding grants under the Company's 1995 Combined Incentive and
Nonqualified Stock Option Plan (the "Prior Plan") on the Effective Date (as
defined below) and any shares that are issuable upon exercise of options
granted pursuant to the Prior Plan that expire or become unexercisable for
any reason without having been exercised in full, will no longer be available
for grant and issuance under the Prior Plan, but will be available for grant
and issuance under this Plan. In addition, any shares issued under the Prior
Plan which are repurchased or forfeited will be available for grant and
issuance under this Plan. At all times the Company shall reserve and keep
available a sufficient number of Shares as shall be required to satisfy the
requirements of all outstanding Options granted under this Plan and all other
outstanding but unvested Awards granted under this Plan.
2.2 ADJUSTMENT OF SHARES. In the event that the number of
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and
(c) the number of Shares subject to other outstanding Awards will be
proportionately adjusted, subject to any required action by the Board or the
stockholders of the Company and compliance with applicable securities laws;
PROVIDED, HOWEVER, that fractions of a Share will not be issued but will
either be replaced by a cash payment equal to the Fair Market Value of such
fraction of a Share or will be rounded up to the nearest whole Share, as
determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be
granted only to employees (including officers and directors who are also
employees) of the Company or of a Parent or Subsidiary of the Company. All
other Awards may be granted to employees, officers, directors, consultants,
independent contractors and advisors of the Company or any Parent or
Subsidiary of the Company; PROVIDED such consultants, contractors and
advisors render bona fide services not in connection with the offer and sale
of securities in a capital-raising transaction. No person will be eligible
to receive more than 500,000 Shares in any calendar year under this Plan
pursuant to the grant of Awards hereunder, other than new employees of the
Company or of a Parent or Subsidiary of the Company (including new employees
who are also officers and directors of the Company or any Parent or
Subsidiary of the Company), who are eligible to receive up to a maximum of
1,000,000 Shares in the calendar year in which they commence their
employment. A person may be granted more than one Award under this Plan.
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4. ADMINISTRATION.
4.1 COMMITTEE AUTHORITY. This Plan will be administered by
the Committee or by the Board acting as the Committee. Subject to the
general purposes, terms and conditions of this Plan, and to the direction of
the Board, the Committee will have full power to implement and carry out this
Plan. Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards; PROVIDED, HOWEVER, that any single Award of more than
20,000 shares to any individual shall require the approval of the
entire Board;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 COMMITTEE DISCRETION. Any determination made by the
Committee with respect to any Award will be made in its sole discretion at
the time of grant of the Award or, unless in contravention of any express
term of this Plan or Award, at any later time, and such determination will be
final and binding on the Company and on all persons having an interest in any
Award under this Plan. The Committee may delegate to one or more officers of
the Company the authority to grant an Award under this Plan to Participants
who are not Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons
and will determine whether such Options will be Incentive Stock Options
within the meaning of the Code ("ISOs") or Nonqualified Stock Options
("NQSOs"), the number of Shares subject to the Option, the Exercise Price of
the Option, the period during which the Option may be exercised, and all
other terms and conditions of the Option, subject to the following:
5.1 FORM OF OPTION GRANT. Each Option granted under this
Plan will be evidenced by an Award Agreement which will expressly identify
the Option as an ISO or an NQSO ("STOCK OPTION AGREEMENT"), and will be in
such form and contain such provisions (which need not be the same for each
Participant) as the Committee may from time to time approve, and which will
comply with and be subject to the terms and conditions of this Plan.
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5.2 DATE OF GRANT. The date of grant of an Option will be
the date on which the Committee makes the determination to grant such Option,
unless otherwise specified by the Committee. The Stock Option Agreement and
a copy of this Plan will be delivered to the Participant within a reasonable
time after the granting of the Option.
5.3 EXERCISE PERIOD AND EXERCISABILITY. Options may be
exercisable within the times or upon the events determined by the Committee
as set forth in the Stock Option Agreement governing such Option; PROVIDED,
HOWEVER, that no Option will be exercisable after the expiration of ten (10)
years from the date the Option is granted; and PROVIDED FURTHER that no ISO
granted to a person who directly or by attribution owns more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or of any Parent or Subsidiary of the Company ("TEN PERCENT
STOCKHOLDER") will be exercisable after the expiration of five (5) years from
the date the ISO is granted. The Committee also may provide for Options to
become exercisable at one time or from time to time, periodically or
otherwise, in such number of Shares or percentage of Shares as the Committee
determines. Unless otherwise determined by the Committee, the Award
Agreement for any Option granted to a full time employee that becomes
exercisable over time shall provide that if, subsequent to the grant date of
an Option, such employee's work schedule is reduced such that the employee is
working less than full time but has not been Terminated, then the number of
Shares or percentage of Shares that become exercisable at the times specified
in the Award Agreement shall be reduced in proportion to the reduction in the
employee's work schedule.
5.4 EXERCISE PRICE. The Exercise Price of an Option will be
determined by the Committee when the Option is granted and may be not less
than 85% of the Fair Market Value of the Shares on the date of grant;
provided that: (i) the Exercise Price of an ISO will be not less than 100% of
the Fair Market Value of the Shares on the date of grant; and (ii) the
Exercise Price of any ISO granted to a Ten Percent Stockholder will not be
less than 110% of the Fair Market Value of the Shares on the date of grant.
Payment for the Shares purchased may be made in accordance with Section 8 of
this Plan.
5.5 METHOD OF EXERCISE. Options may be exercised only by
delivery to the Company of a written stock option exercise agreement (the
"EXERCISE AGREEMENT") in a form approved by the Committee (which need not be
the same for each Participant), stating the number of Shares being purchased,
the restrictions imposed on the Shares purchased under such Exercise
Agreement, if any, and such representations and agreements regarding
Participant's investment intent and access to information and other matters,
if any, as may be required or desirable by the Company to comply with
applicable securities laws, together with payment in full of the Exercise
Price for the number of Shares being purchased.
5.6 TERMINATION. Notwithstanding the exercise periods set
forth in the Stock Option Agreement, exercise of an Option will always be
subject to the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after
a Termination other than because of Participant's death or
disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any such
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<PAGE>
exercise beyond (a) three (3) months after the Termination Date
when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12) months after
the Termination Date when the Termination is for Participant's
death or Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of notice,
or for any other benefits. In making such determination, the
Board shall give the Participant an opportunity to present to the
Board evidence on his or her behalf. For the purpose of this
paragraph, termination of service shall be deemed to occur on the
date when the Company dispatches notice or advice to the
Participant that his or her service is terminated.
5.7 LIMITATIONS ON EXERCISE. The Committee may specify a
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 LIMITATIONS ON ISOs. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which ISOs are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISOs and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISOs, such different limit
will be automatically incorporated herein and will apply to any Options granted
after the effective date of such amendment.
5.9 MODIFICATION, EXTENSION OR RENEWAL. The Committee may
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; PROVIDED, HOWEVER, that the Exercise Price may not be reduced
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 NO DISQUALIFICATION. Notwithstanding any other provision
in this Plan, no term of this Plan relating to an ISO will be interpreted,
amended or altered, nor will any discretion or authority granted under this Plan
be exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "PURCHASE PRICE"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
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6.1 FORM OF RESTRICTED STOCK AWARD. All purchases under a
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("RESTRICTED STOCK PURCHASE AGREEMENT") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase Agreement is delivered to the person. If
such person does not execute and deliver the Restricted Stock Purchase Agreement
along with full payment for the Shares to the Company within thirty (30) days,
then the offer will terminate, unless otherwise determined by the Committee.
6.2 PURCHASE PRICE. The Purchase Price of Shares sold pursuant
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 TERMS OF RESTRICTED STOCK AWARDS. Restricted Stock Awards
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 TERMINATION DURING PERFORMANCE PERIOD. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
7.1 AWARDS OF STOCK BONUSES. A Stock Bonus is an award of
Shares (which may consist of Restricted Stock) for services rendered to the
Company or any Parent or Subsidiary of the Company. A Stock Bonus may be
awarded for past services already rendered to the Company, or any Parent or
Subsidiary of the Company pursuant to an Award Agreement (the "STOCK BONUS
AGREEMENT") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. A Stock Bonus
may be awarded upon satisfaction of such performance goals as are set out in
advance in the Participant's individual Award Agreement (the "PERFORMANCE
STOCK BONUS AGREEMENT") that will be in such form (which need not be the same
for each Participant) as the Committee will from time to time approve, and
will comply with and be subject to the terms and conditions of this Plan.
Stock Bonuses may vary from Participant to Participant and between groups of
Participants, and may be based upon the achievement of the Company, Parent or
Subsidiary and/or individual performance factors or upon such other criteria
as the Committee may determine.
7.2 TERMS OF STOCK BONUSES. The Committee will determine the
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such
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Stock Bonuses have been earned. Performance Periods may overlap and
Participants may participate simultaneously with respect to Stock Bonuses
that are subject to different Performance Periods and different performance
goals and other criteria. The number of Shares may be fixed or may vary in
accordance with such performance goals and criteria as may be determined by
the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as the Committee deems necessary or
appropriate to reflect the impact of extraordinary or unusual items, events
or circumstances to avoid windfalls or hardships.
7.3 FORM OF PAYMENT. The earned portion of a Stock Bonus may
be paid currently or on a deferred basis with such interest or dividend
equivalent, if any, as the Committee may determine. Payment may be made in the
form of cash or whole Shares or a combination thereof, either in a lump sum
payment or in installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
8.1 PAYMENT. Payment for Shares purchased pursuant to this
Plan may be made in cash (by check) or, where expressly approved for the
Participant by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; PROVIDED, HOWEVER, that Participants who are not
employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD DEALER")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to
pay for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or
(f) by any combination of the foregoing.
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8.2 LOAN GUARANTEES. The Committee may help the Participant
pay for Shares purchased under this Plan by authorizing a guarantee by the
Company of a third-party loan to the Participant.
9. WITHHOLDING TAXES.
9.1 WITHHOLDING GENERALLY. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 STOCK WITHHOLDING. When, under applicable tax laws, a
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee
10. PRIVILEGES OF STOCK OWNERSHIP.
10.1 VOTING AND DIVIDENDS. No Participant will have any of the
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; PROVIDED, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; PROVIDED, FURTHER, that the Participant will have no right to
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 FINANCIAL STATEMENTS. The Company will, upon the request
of a Participant, provide the financial statements included in its most recent
Form 10-K or 10-Q to Participant prior to such Participant's purchase of Shares
under this Plan, and will, upon the request of a Participant, provide such
Participant with the most recent annual report of the Company during the period
such Participant has Awards outstanding; PROVIDED, HOWEVER, the Company will not
be required to provide such financial statements to Participants whose services
in connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or
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cancellation of purchase money indebtedness, at the Participant's Exercise
Price or Purchase Price, as the case may be.
13. CERTIFICATES. All certificates for Shares or other securities
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or advisable,
including restrictions under any applicable federal, state or foreign securities
law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or
quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; PROVIDED, HOWEVER, that the Committee may
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will
not be effective unless such Award is in compliance with all applicable
federal and state securities laws, rules and regulations of any governmental
body, and the requirements of any stock exchange or automated quotation
system upon which the Shares may then be listed or quoted, as they are in
effect on the date of grant of the Award and also on the date of exercise or
other issuance. Notwithstanding any other provision in this Plan, the Company
will have no obligation to issue or deliver certificates for Shares under
this Plan prior to: (a) obtaining any approvals from governmental agencies
that the Company determines are necessary or advisable; and/or (b) completion
of any registration or other qualification of such Shares under any state or
federal law or ruling of any governmental body that the Company determines to
be necessary or advisable. The Company will be under no obligation to
register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have
no liability for any inability or failure to do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
18.1 ASSUMPTION OR REPLACEMENT OF AWARDS BY SUCCESSOR. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving
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corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the stockholders
of the Company or their relative stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation,
which assumption will be binding on all Participants), (c) a merger in which
the Company is the surviving corporation but after which the stockholders of
the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in
the Company, (d) the sale of substantially all of the assets of the Company,
or (e) the acquisition, sale, or transfer of more than 50% of the outstanding
shares of the Company by tender offer or similar transaction, any or all
outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement will be
binding on all Participants. In the alternative, the successor corporation
may substitute equivalent Awards or provide substantially similar
consideration to Participants as was provided to stockholders (after taking
into account the existing provisions of the Awards). The successor
corporation may also issue, in place of outstanding Shares of the Company
held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In
the event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will accelerate in full immediately prior to
such transaction.
18.2 OTHER TREATMENT OF AWARDS. Subject to any greater rights
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 ASSUMPTION OF AWARDS BY THE COMPANY. The Company, from
time to time, also may substitute or assume outstanding awards granted by
another company, whether in connection with an acquisition of such other company
or otherwise, by either; (a) granting an Award under this Plan in substitution
of such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had applied
the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain
unchanged (EXCEPT that the exercise price and the number and nature of Shares
issuable upon exercise of any such option will be adjusted appropriately
pursuant to Section 424(a) of the Code). In the event the Company elects to
grant a new Option rather than assuming an existing option, such new Option may
be granted with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
effective on the date on which the registration statement filed by the
Company with the SEC under the Securities Act registering the initial public
offering of the Company's Common Stock is declared effective by the SEC (the
"EFFECTIVE DATE"). This Plan shall be approved by the stockholders of the
Company (excluding Shares issued pursuant to this Plan), consistent with
applicable laws, within twelve (12) months before or after the date this Plan
is adopted by the Board. Upon the Effective Date, the Committee may grant
Awards pursuant to this Plan; PROVIDED, HOWEVER, that: (a) no Option may be
exercised prior to initial stockholder approval of this Plan; (b) no Option
granted pursuant to an increase in the number of Shares subject to this Plan
approved by the Board will be exercised prior to the time such increase has
been approved by the stockholders of the Company; and (c) in the event that
stockholder approval of such increase is not obtained within the time period
provided herein, all Awards granted pursuant to such increase will be
canceled, any Shares issued pursuant to any Award granted pursuant to such
increase will be canceled, and any purchase of Shares pursuant to such
increase will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of Washington.
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<PAGE>
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; PROVIDED, HOWEVER, that the Board will not, without the approval
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
the following meanings:
"AWARD" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"AWARD AGREEMENT" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"BOARD" means the Board of Directors of the Company.
"CAUSE" means the commission of an act of theft, embezzlement,
fraud, dishonesty, intoxication at work, disclosure of confidential information
or a breach of fiduciary duty to the Company or a Parent or Subsidiary of the
Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board.
"COMPANY" means Asymetrix Learning Systems, Inc. or any successor
corporation.
"DISABILITY" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXERCISE PRICE" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"FAIR MARKET VALUE" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in THE WALL STREET JOURNAL;
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in THE WALL STREET JOURNAL;
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(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in THE WALL
STREET JOURNAL;
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock pursuant
to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"INSIDER" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"OPTION" means an award of an option to purchase Shares pursuant
to Section 5.
"PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"PARTICIPANT" means a person who receives an Award under this
Plan.
"PERFORMANCE FACTORS" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or
earnings before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"PERFORMANCE PERIOD" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
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<PAGE>
"PLAN" means this Asymetrix Corporation 1998 Equity Incentive
Plan, as amended from time to time.
"RESTRICTED STOCK AWARD" means an award of Shares pursuant to
Section 6.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"STOCK BONUS" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"TERMINATION" or "TERMINATED" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "TERMINATION DATE").
"UNVESTED SHARES" means "Unvested Shares" as defined in the Award
Agreement.
"VESTED SHARES" means "Vested Shares" as defined in the Award
Agreement.
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ASYMETRIX LEARNING SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Adopted by the Board of Directors on March 24, 1999
And Approved by the Stockholders on May 25, 1999
1. ESTABLISHMENT OF PLAN. Asymetrix Learning Systems, Inc. (the
"COMPANY") proposes to grant options for purchase of the Company's Common Stock
to eligible employees of the Company and its Participating Subsidiaries (as
hereinafter defined) pursuant to this Employee Stock Purchase Plan (this
"PLAN"). "PARTICIPATING SUBSIDIARIES" are those "parent corporations" and
"subsidiary corporations" of the Company (as defined in Sections 424(e) and
424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"CODE")) that the Board of Directors of the Company (the "BOARD") designates
from time to time as corporations that shall participate in this Plan. The
Company intends this Plan to qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments to or replacements of such
Section), and this Plan shall be so construed. Any term not expressly defined
in this Plan but defined for purposes of Section 423 of the Code shall have the
same definition herein. A total of 450,000 shares of the Company's Common Stock
is reserved for issuance under this Plan. In addition, on each January 1, the
aggregate number of shares reserved for issuance under the Plan will be
increased automatically by the number of shares purchased under the Plan in the
preceding calendar year; provided that the aggregate number of shares issued
over the term of the Plan shall not exceed 4,500,000 shares. Such number shall
be subject to adjustments effected in accordance with Section 14 of this Plan.
2. PURPOSE. The purpose of this Plan is to provide eligible
employees of the Company and Participating Subsidiaries with a convenient means
of acquiring an equity interest in the Company through payroll deductions, to
enhance such employees' sense of participation in the affairs of the Company and
Participating Subsidiaries, and to provide an incentive for continued
employment.
3. ADMINISTRATION. This Plan shall be administered by the
Compensation Committee of the Board (the "COMMITTEE"). Subject to the
provisions of this Plan and the limitations of Section 423 of the Code or any
successor provision in the Code, all questions of interpretation or application
of this Plan shall be determined by the Committee and its decisions shall be
final and binding upon all participants. Members of the Committee shall receive
no compensation for their services in connection with the administration of this
Plan, other than standard fees as established from time to time by the Board for
services rendered by Board members serving on Board committees. All expenses
incurred in connection with the administration of this Plan shall be paid by the
Company.
4. ELIGIBILITY. Any employee of the Company or the Participating
Subsidiaries is eligible to participate in an Offering Period (as hereinafter
defined) under this Plan except the following:
(a) employees who are not employed by the Company or a
Participating Subsidiary ten days before the beginning of such Offering Period;
(b) employees who are customarily employed for 20 hours or less
per week;
(c) employees who are customarily employed for five months or
less in a calendar year;
(d) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock
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<PAGE>
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its Participating Subsidiaries or
who, as a result of being granted an option under this Plan with respect to
such Offering Period, would own stock or hold options to purchase stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its Participating Subsidiaries; and
(e) individuals who provide services to the Company or any of its
Participating Subsidiaries as independent contractors who are reclassified as
common law employees for any reason except for federal income and employment tax
purposes.
5. OFFERING DATES. The offering periods of this Plan (each, an
"OFFERING PERIOD") shall be of 24 months duration commencing on February 1 and
August 1 of each year and ending on July 31 and January 31 of each year. Each
Offering Period shall consist of four six-month purchase periods (individually,
a "PURCHASE PERIOD") during which payroll deductions of the participants are
accumulated under this Plan. The first business day of each Offering Period is
referred to as the "OFFERING DATE". The last business day of each Purchase
Period is referred to as the "PURCHASE DATE". The first Offering Date shall be
August 1, 1999. The Committee shall have the power to change the duration of
Offering Periods or Purchase Periods with respect to offerings without
stockholder approval if such change is announced at least 15 days prior to the
scheduled beginning of the first Offering Period or Purchase Period to be
affected.
6. PARTICIPATION IN THIS PLAN. Eligible employees may become
participants in an Offering Period under this Plan on the first Offering Date
after satisfying the eligibility requirements by delivering a subscription
agreement in the form of Exhibit A (a "SUBSCRIPTION AGREEMENT") to the Company's
human resources department (the "HR DEPARTMENT") not later than five days before
such Offering Date unless a later time for filing the Subscription Agreement is
set by the Committee for all eligible employees with respect to a given Offering
Period. An eligible employee who does not deliver a Subscription Agreement to
the HR Department by such date after becoming eligible to participate in such
Offering Period shall not participate in that Offering Period or any subsequent
Offering Period unless such employee enrolls in this Plan by filing a
subscription agreement with the HR Department not later than five days preceding
a subsequent Offering Date. Once an employee becomes a participant in an
Offering Period, such employee will automatically participate in the Offering
Period commencing immediately following the last day of the prior Offering
Period unless the employee withdraws or is deemed to withdraw from this Plan or
terminates further participation in the Offering Period as set forth in Section
11 below. Such participant is not required to file any additional Subscription
Agreement in order to continue participation in this Plan.
7. GRANT OF OPTION ON ENROLLMENT. Enrollment by an eligible employee
in this Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
the Purchase Date up to that number of shares of Common Stock of the Company
determined by dividing (a) the amount accumulated in such employee's payroll
deduction account during such Purchase Period by (b) the lower of (i) 85% of the
fair market value of a share of the Company's Common Stock on the Offering Date,
or (ii) 85% of the fair market value of a share of the Company's Common Stock
on the Purchase Date, PROVIDED, HOWEVER, that the number of shares of the
Company's Common Stock subject to any option granted pursuant to this Plan
shall not exceed the lesser of (a) the maximum number of shares set by the
Committee pursuant to Section 10(c) below with respect to the applicable
Purchase Date (if any), or (b) the maximum number of shares which may be
purchased pursuant to Section 10(b) below with respect to the applicable
Purchase
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<PAGE>
Date. The fair market value of a share of the Company's Common Stock shall
be determined as provided in Section 8 hereof.
8. PURCHASE PRICE. The purchase price per share at which a share of
Common Stock will be sold in any Offering Period shall be 85% of the lesser of:
(a) the fair market value on the Offering Date; or
(b) the fair market value on the Purchase Date.
For purposes of this Plan, the term "FAIR MARKET VALUE" means, as of any
date, the value of a share of the Company's Common Stock determined as follows:
(i) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on
the date of determination as reported in THE WALL STREET
JOURNAL;
(ii) if such Common Stock is publicly traded and is then listed
on a national securities exchange, its closing price on the
date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted
to trading as reported in THE WALL STREET JOURNAL;
(iii) if such Common Stock is publicly traded but is not quoted
on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of
the closing bid and asked prices on the date of
determination as reported in THE WALL STREET JOURNAL; or
(iv) if none of the foregoing is applicable, by the Board in
good faith.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE
OF SHARES.
(a) The purchase price of the shares is accumulated by regular
payroll deductions made during each Offering Period. The deductions are made as
a percentage of the participant's compensation in 1% increments of not less than
1%, nor greater than 10% or such lower limit set by the Committee. Compensation
shall mean total cash compensation paid by the Company, including base salary,
commissions, bonuses and incentive compensation not to exceed $250,000 per
calendar year, provided however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence on the first payday of the Offering Period and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in this Plan.
(b) A participant may decrease or increase the rate of payroll
deductions during an Offering Period by filing with the HR Department a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than 15 days after the HR
Department's receipt of the authorization and shall continue for the remainder
of the Offering Period unless changed as described below. Such change in the
rate of payroll deductions may be made at any time during an Offering Period,
but not more than one change may be made effective during any
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<PAGE>
Offering Period. A participant may increase or decrease the rate of payroll
deductions for any subsequent Offering Period by filing with the HR
Department a new authorization for payroll deductions not later than 15 days
before the beginning of such Offering Period.
(c) A participant may reduce his or her payroll deduction
percentage to zero during an Offering Period by filing with the HR Department a
request for cessation of payroll deductions. Such reduction shall be effective
beginning with the next payroll period starting more than 15 days after the HR
Department's receipt of the request and no further payroll deductions will be
made for the duration of the Offering Period. Payroll deductions credited to
the participant's account prior to the effective date of the request shall be
used to purchase Common Stock in accordance with Section 9(e) below. A
participant may not resume making payroll deductions during the Offering Period
in which he or she reduced his or her payroll deductions to zero.
(d) All payroll deductions made for a participant are credited
to his or her account under this Plan and are deposited with the general funds
of the Company. No interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(e) On each Purchase Date, so long as this Plan remains in
effect (and provided that the participant has not withdrawn from the Offering
Period Pursuant to Section 11), the Company shall apply the funds then in the
participant's account to the purchase of whole shares of Common Stock reserved
under the option granted to such participant with respect to the Offering Period
to the extent that such option is exercisable on the Purchase Date. The
purchase price per share shall be as specified in Section 8 of this Plan. Any
cash remaining in a participant's account after such purchase of shares shall be
refunded to such participant in cash, without interest; provided, however that
if the amount remaining in such participant's account on a Purchase Date is less
than the amount necessary to purchase a full share of Common Stock of the
Company, such amount shall be carried forward, without interest, into the next
Purchase Period or Offering Period, as the case may be. In the event that this
Plan has been oversubscribed, all funds not used to purchase shares on the
Purchase Date shall be returned to the participant, without interest. No
Common Stock shall be purchased on a Purchase Date on behalf of any employee
whose participation in this Plan has terminated prior to such Purchase Date.
(f) As promptly as practical after the Purchase Date, the
number of shares of Common Stock purchased by each participant shall be
deposited into an account established in the participant's name at a stock
brokerage or other financial services firm designated by the Company (the "ESPP
Broker"). Subject to the notice requirements of Section 17, a participant shall
be free to (i) undertake a disposition (as that term is defined in Section
424(c) of the Code) of the shares in the ESPP Broker account at any time,
whether by sale, exchange, gift, or other transfer of legal title, (ii) move
those shares to another brokerage account of participant's choosing or (iii)
request that a stock certificate representing the shares be issued and delivered
to the participant.
(g) During a participant's lifetime, such participant's option
to purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised.
10. LIMITATIONS ON SHARES TO BE PURCHASED.
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<PAGE>
(a) No participant shall be entitled to purchase stock under
this Plan at a rate which, when aggregated with his or her rights to purchase
stock under all other employee stock purchase plans of the Company or any
Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering
Date (or such other limit as may be imposed by the Code) for each calendar year
in which the employee participates in this Plan. The Company shall
automatically suspend the payroll deductions of any participant as necessary to
enforce such limit provided that when the Company automatically resumes such
payroll deductions, the Company must apply the rate in effect immediately prior
to such suspension.
(b) No more than 200% of the number of shares that could have
been purchased at a purchase price of 85% of the fair market value of a share of
the Company's Common Stock on the Offering Date may be purchased by a
participant on any single Purchase Date.
(c) No participant shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than 30 days prior to the commencement of any Offering Period, the Committee
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "MAXIMUM
SHARE AMOUNT"). Until otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amounts permitted under Section 10(b) above. If a new Maximum Share Amount is
set, then all participants must be notified of such Maximum Share Amount prior
to the commencement of the next Offering Period. Once the Maximum Share Amount
is set, it shall continue to apply with respect to all succeeding Purchase Dates
and Offering Periods unless revised by the Committee as set forth above.
(d) If the number of shares to be purchased on a Purchase Date
by all employees participating in this Plan exceeds the number of shares then
available for issuance under this Plan, then the Company will make a pro rata
allocation of the remaining shares in as uniform a manner as shall be reasonably
practicable and as the Committee shall determine to be equitable. In such
event, the Company shall give written notice of such reduction of the number of
shares to be purchased under a participant's option to each participant affected
thereby.
(e) Any payroll deductions accumulated in a participant's
account which are not used to purchase stock due to the limitations in this
Section 10 shall be returned to the participant as soon as practicable after the
end of the applicable Purchase Period, without interest.
11. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under
this Plan by signing and delivering to the HR Department a written notice to
that effect on a form provided for such purpose. Such withdrawal may be elected
at any time at least 15 days prior to the end of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll
deductions shall be returned to the withdrawn participant, without interest, and
his or her interest in this Plan shall terminate. In the event a participant
voluntarily elects to withdraw from this Plan, he or she may not resume his or
her participation in this Plan during the same Offering Period, but he or she
may participate in any Offering Period under this Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
this Plan.
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(c) If the purchase price on the first day of any current
Offering Period in which a participant is enrolled is higher than the purchase
price on the first day of any subsequent Offering Period, the Company will
automatically enroll such participant in the subsequent Offering Period. Any
funds accumulated in a participant's account prior to the first day of such
subsequent Offering Period will be applied to the purchase of shares on the
Purchase Date immediately prior to the first day of such subsequent Offering
Period. A participant does not need to file any forms with the Company to
automatically be enrolled in the subsequent Offering Period
12. TERMINATION OF EMPLOYMENT. Termination of a participant's
employment for any reason, including retirement, death or the failure of a
participant to remain an eligible employee of the Company or of a
Participating Subsidiary, immediately terminates his or her participation in
this Plan. In such event, the payroll deductions credited to the
participant's account will be returned to him or her or, in the case of his
or her death, to his or her legal representative, without interest. For
purposes of this Section 12, an employee will not be deemed to have
terminated employment or failed to remain in the continuous employ of the
Company or of a Participating Subsidiary in the case of sick leave, military
leave, or any other leave of absence approved by the Board; PROVIDED that
such leave is for a period of not more than 90 days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
13. RETURN OF PAYROLL DEDUCTIONS. In the event a participant's
interest in this Plan is terminated by withdrawal, termination of employment or
otherwise, or in the event this Plan is terminated by the Board, the Company
shall promptly deliver to the participant all payroll deductions credited to
such participant's account. No interest shall accrue on the payroll deductions
of a participant in this Plan.
14. CAPITAL CHANGES.
(a) Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock covered by each option
under this Plan which has not yet been exercised and the number of shares of
Common Stock which have been authorized for issuance under this Plan but have
not yet been placed under option (collectively, the "RESERVES"), as well as
the price per share of Common Stock covered by each option under this Plan
which has not yet been exercised, shall be proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of
Common Stock of the Company resulting from a stock split or the payment of a
stock dividend (but only on the Common Stock) or any other increase or
decrease in the number of issued and outstanding shares of Common Stock
effected without receipt of any consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall
not be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Committee, whose determination shall be
final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an option.
(b) In the event of the proposed dissolution or liquidation of
the Company, the Offering Period will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that this Plan shall terminate as of a date fixed by the
Committee and give each participant the right to purchase shares under this Plan
prior to such termination.
- 6 -
<PAGE>
(c) In the event of (i) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly-owned subsidiary, a reincorporation of the Company in a different
jurisdiction, or other transaction in which there is no substantial change in
the stockholders of the Company or their relative stock holdings and the options
under this Plan are assumed, converted or replaced by the successor corporation,
which assumption will be binding on all participants), (ii) a merger in which
the Company is the surviving corporation but after which the stockholders of the
Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in
the Company, (iii) the sale of substantially all of the assets of the Company or
(iv) the acquisition, sale, or transfer of more than 50% of the outstanding
shares of the Company by tender offer or similar transaction, the Plan shall
continue for all Offering Periods which began prior to the transaction and
shares will be purchased based on the fair market value of the surviving
corporation's stock on each Purchase Date (taking into account the exchange
ratio, where necessary).
(d) The Committee may, if it so determines in the exercise of
its sole discretion, also make provision for adjusting the Reserves, as well as
the price per share of Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its outstanding
Common Stock, or in the event of the Company being consolidated with or merged
into any other corporation.
15. NONASSIGNABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under this Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be void and
without effect.
16. REPORTS. Individual accounts will be maintained for each
participant in this Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his or her account setting forth the total
payroll deductions accumulated, the number of shares purchased, the per share
price thereof and the remaining cash balance, if any, carried forward to the
next Purchase Period or Offering Period, as the case may be.
17. NOTICE OF DISPOSITION. Each participant shall notify the Company
if the participant disposes of any of the shares purchased in any Offering
Period pursuant to this Plan if such disposition occurs within two years from
the Offering Date or within one year from the Purchase Date on which such shares
were purchased (the "NOTICE PERIOD"). The Company may, at any time during the
Notice Period, place a legend or legends on any certificate representing shares
acquired pursuant to this Plan requesting the Company's transfer agent to notify
the Company of any transfer of the shares. The obligation of the participant to
provide such notice shall continue notwithstanding the placement of any such
legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT. Neither this Plan nor the
grant of any option hereunder shall confer any right on any employee to remain
in the employ of the Company or any Participating Subsidiary, or restrict the
right of the Company or any Participating Subsidiary to terminate such
employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to this Plan so that this Plan
qualifies as an "employee stock purchase plan"
- 7 -
<PAGE>
within the meaning of Section 423 or any successor provision of the Code and
the related regulations. Any provision of this Plan which is inconsistent
with Section 423 or any successor provision of the Code shall, without
further act or amendment by the Company, the Committee or the Board, be
reformed to comply with the requirements of Section 423. This Section 19
shall take precedence over all other provisions in this Plan.
20. NOTICES. All notices or other communications by a participant
to the Company under or in connection with this Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
21. TERM; STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board, this Plan will become effective on the date that is the First Offering
Date (as defined above). This Plan shall be approved by the stockholders of the
Company, in any manner permitted by applicable corporate law, within twelve
months before or after the date this Plan is adopted by the Board. No purchase
of shares pursuant to this Plan shall occur prior to such stockholder approval.
This Plan shall continue until the earlier to occur of (a) termination of this
Plan by the Board (which termination may be effected by the Board at any time),
(b) issuance of all of the shares of Common Stock reserved for issuance under
this Plan, or (c) ten years from the adoption of this Plan by the Board.
22. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under this Plan in the event of such participant's death
subsequent to the end of an Purchase Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under this
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under this
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act, the Securities Exchange Act of 1934, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange or automated quotation system upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
24. APPLICABLE LAW. The Plan shall be governed by the substantive
laws (excluding the conflict of laws rules) of the State of Washington.
- 8 -
<PAGE>
25. AMENDMENT OR TERMINATION OF THIS PLAN. The Board may at any time
amend, terminate or extend the term of this Plan, except that any such
termination cannot affect options previously granted under this Plan, nor may
any amendment make any change in an option previously granted which would
adversely affect the right of any participant, nor may any amendment be made
without approval of the stockholders of the Company obtained in accordance with
Section 21 hereof within twelve months of the adoption of such amendment (or
earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under this Plan;
or
(b) change the designation of the employees (or class of employees)
eligible for participation in this Plan.
(c) Notwithstanding the foregoing, the Committee may make such
amendments to the Plan as the Committee determines to be advisable if the
continuation of the Plan of any Offering Period would result in financial
accounting treatment for the Plan that is different from the financial
accounting treatment in effect on the date this Plan is adopted by the Board.
- 9 -
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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0
0
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