-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D207Hv2fzvorf9pnzFIMfIzNLOOJTn9SwdTW8iPzaOSbBj2QLTMUOl3wtIWcWeSv 6XWs19rSlcNpb+FIds469w== 0001012870-99-003627.txt : 19991018 0001012870-99-003627.hdr.sgml : 19991018 ACCESSION NUMBER: 0001012870-99-003627 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASYMETRIX LEARNING SYSTEMS INC CENTRAL INDEX KEY: 0001052327 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 911276003 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-24289 FILM NUMBER: 99727749 BUSINESS ADDRESS: STREET 1: 110 110TH AVE NE CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 4254620501 MAIL ADDRESS: STREET 1: 110 110TH AVE NE CITY: BELLEVUE STATE: WA ZIP: 98004 8-K 1 FORM 8-K DATED 9-30-1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 30, 1999 ASYMETRIX LEARNING SYSTEMS, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware ------------------------------------------------ (State or other jurisdiction of incorporation) 000-24289 91-1276003 - --------------------- -------------------- (Commission (IRS Employer File Number) Identification No.) 110-110TH AVENUE NE, BELLEVUE, WASHINGTON 98004 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (425) 462-0501 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) ________________________________________________________________________________ (Former name or former address, if changed since last report) Item 5: Other Events. Asymetrix Learning Systems, Inc. entered into a Securities Purchase Agreement dated as of September 30, 1999, with Marshall Capital, Inc. and Vulcan Ventures, pursuant to which these investors purchased an aggregate of 10,000 shares of Series A Convertible Preferred Stock of Asymetrix for an aggregate purchase price of $10.0 million. These shares of Preferred Stock are currently convertible into an aggregate of approximately 1,290,323 shares of Common Stock of Asymetrix. The conversion price, which is currently $7.75 per $1,000 of Preferred Stock purchased, is subject to adjustment and could be reduced to no lower than $6.82 per share, if the average closing price of Asymetrix Common Stock for the 20 trading days ending on the effective date (the "Effective Date") of a registration statement covering the resale of those shares is below $7.75 per share. Based on the minimum conversion price of $6.82 per share, the maximum number of shares issuable upon the conversion would be 1,466,275 shares of common stock. All of the shares of Preferred Stock will automatically convert into Common Stock on the Effective Date. If the Effective Date does not occur prior to March 29, 1999, Asymetrix would be required to pay premium with respect to the shares at a rate per annum equal to 5% of the purchase price of the shares. This premium, it becomes payable, would be payable on a quarterly basis. The Preferred Stock does not have voting rights, however, Asymetrix must obtain the consent of the holders of the Preferred Stock in order to take certain actions, such as issuing additional shares of Preferred Stock that are senior to this stock, amending the terms of this Preferred Stock or issue any additional shares of Series A Convertible Preferred Stock. The Preferred Stock has a liquidation preference in the amount of its stated value, which is $10.0 million in the aggregate, plus any accrued but unpaid premium. In connection with this transaction, Asymetrix also issued warrants to purchase an aggregate of 967,742 shares of Common Stock to these investors and a warrant to purchase 30,000 shares of Common Stock as a finder's fee. These warrants are exercisable for a period of five years and have an exercise price of $9.30 per share. These warrants may only be exercised for cash, unless the shares issuable upon exercise are not covered by an effective registration statement, in which case, they may be exercised on a "net exercise" basis, without the payment of additional cash consideration to Asymetrix. The number of shares issuable upon exercise of the warrants is subject to adjustment for stock splits, stock dividends and similar transactions. In the event Asymetrix issues securities for a purchase price of less than the exercise price, the exercise price will be adjusted on a "weighted average" basis to account for dilution. This anti-dilution provision does not apply to issuances in connection with employee stock options, employee stock purchase plans, mergers or acquisitions, strategic investments or underwritten offerings. Item 7: Financial Statements and Exhibits. (c) Exhibits 99.01 Securities Purchase Agreement, dated as of September 30, 1999 by and among Asymetrix, Marshall Capital Management, Inc. and Vulcan Ventures 99.02 Registration Rights Agreement, dated as of September 30, 1999 by and among Asymetrix, Marshall Capital Management, Inc. and Vulcan Ventures 99.03 Form of Warrant issued as of October 6, 1999 to Marshall Capital Management, Inc. and Vulcan Ventures (included as Exhibit A of Exhibit 99.01) 99.04 Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock of Asymetrix filed on October 5, 1999 with the Delaware Secretary of State 99.05 Asymetrix Press Release, dated October 11, 1999 99.06 Asymetrix Press Release, dated October 12, 1999. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ASYMETRIX LEARNING SYSTEMS, INC. Date: October 12, 1999 By: /s/ John D. Atherly ------------------------------------------- John D. Atherly Vice President, Finance and Administration and Chief Financial Officer 99.01 Securities Purchase Agreement, dated as of September 30, 1999 by and among Asymetrix, Marshall Capital Management, Inc. and Vulcan Ventures 99.02 Registration Rights Agreement, dated as of September 30, 1999 by and among Asymetrix, Marshall Capital Management, Inc. and Vulcan Ventures 99.03 Form of Warrant issued as of October 6, 1999 to Marshall Capital Management, Inc. and Vulcan Ventures (included as Exhibit A of Exhibit 99.01) 99.04 Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock of Asymetrix filed on October 5, 1999 with the Delaware Secretary of State 99.05 Asymetrix Press Release, dated October 11, 1999 99.06 Asymetrix Press Release, dated October 12, 1999. EX-99.01 2 SECURITIES PURCHASE AGREEMENT Exhibit 99.01 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of --------- September 30, 1999, by and between ASYMETRIX LEARNING SYSTEMS, INC., a Delaware corporation (the "Company"), and each of the entities whose names appear on the ------- signature pages hereof. Such entities are each referred to herein as a "Purchaser" and, collectively, as the "Purchasers". - ---------- ---------- The Company wishes to sell to each Purchaser, and each Purchaser wishes to buy, on the terms and subject to the conditions set forth in this Agreement, shares (the "Preferred Shares") of the Company's Series A Convertible ---------------- Preferred Stock, par value $.01 per share (the "Preferred Stock"), and related --------------- Warrants in the form attached hereto as Exhibit A (the "Warrants"). The --------- -------- Preferred Shares are convertible pursuant to the terms of the Certificate of Designation relating to the Preferred Stock, the form of which is attached hereto as Exhibit B (the "Certificate of Designation") into shares (the --------- -------------------------- "Conversion Shares") of the Company's common stock, par value .01 per share (the - ------------------ "Common Stock"). Amounts of Premium (as defined in the Certificate of ------------ Designation, "Premium") that have accrued on Preferred Shares and remain unpaid ------- at the end of a calendar quarter may, in certain circumstances, be paid in shares of Common Stock (the "Premium Shares"). The Warrants are exercisable into -------------- shares of Common Stock (the "Warrant Shares") in accordance with their terms. -------------- The Preferred Shares, the Conversion Shares, the Premium Shares, the Warrants and the Warrant Shares are collectively referred to herein as the "Securities". ---------- Any capitalized term used herein that is not otherwise defined shall have the meaning specified therefor in the Certificate of Designation. The sale of the Preferred Shares and the Warrants by the Company hereunder will be effected in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D") as ------------ promulgated by the Securities and Exchange Commission (the "Commission") under ---------- the Securities Act of 1933, as amended (the "Securities Act"). The Company has -------------- agreed to effect the registration of the Conversion Shares, the Premium Shares and the Warrant Shares under the Securities Act pursuant to a Registration Rights Agreement of even date herewith by and between the Company and each Purchaser (the "Registration Rights Agreement"). ----------------------------- The Company and each Purchaser hereby agree as follows: 1. PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANTS. ----------------------------------------------------- 1.1 Agreement to Purchase and Sell. Upon the terms and subject to ------------------------------ the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and each Purchaser agrees to 1 purchase (A) the number of Preferred Shares set forth below such Purchaser's name on the signature pages hereof and (B) a Warrant exercisable into a number of Warrant Shares equal to (i) the aggregate Stated Value of such Preferred Shares divided by (ii) the Initial Conversion Price times seventy five percent ---------- ----- (75%). The Warrants shall have an exercise price equal to $9.30. The date on which the closing (the "Closing") of the purchase and sale of the Preferred ------- Shares and Warrants occurs is hereinafter referred to as the "Closing Date". The ------------ purchase price for the Preferred Shares and Warrants being purchased by a Purchaser (the "Purchase Price") shall be equal to the Stated Value of the -------------- Preferred Shares being purchased by such Purchaser. Subject to the satisfaction or waiver of the conditions set forth herein, the Closing will be deemed to occur when the Company and each Purchaser execute and deliver this Agreement and the other Transaction Documents (as defined below), which delivery may be effected by facsimile transmission, and full payment of each Purchaser's Purchase Price has been made by wire transfer of immediately available funds against physical delivery by the Company of duly executed certificates representing the Preferred Shares and Warrants being purchased by such Purchaser. 1.2 Certain Definitions. When used herein, the following terms shall have ------------------- the respective meanings indicated: "Business Day" shall mean any day on which the New York Stock Exchange ------------ (the "NYSE") and commercial banks in the city of New York are open for business. ---- "Closing Bid Price" shall mean, with respect to the Common Stock, the ----------------- closing bid price for the Common Stock occurring on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation selected by the Company and reasonably acceptable to the Purchasers (collectively, "Bloomberg") or if the foregoing does not apply, the --------- last reported bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no bid price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc.. If the Closing Bid Price cannot be calculated for such security on any of the foregoing bases, the Closing Bid Price of such security shall be the fair market value as reasonably determined by an independent investment banking firm selected by the Purchasers, and reasonably acceptable to the Company, with the costs of such appraisal to be borne by the Company. "Closing Trade Price" shall mean, with respect to the Common Stock, ------------------- the last sale price reported for the Common Stock on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by the Bloomberg or, if no sale price was reported on such Trading Day by Bloomberg, the last sale price reported by Bloomberg 2 on the Trading Day on which such prices were last reported. "Trading Day" shall mean any day on which the Common Stock is ----------- purchased and sold on the principal securities exchange or market on which the Common Stock is then listed or traded. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PURCHASER. ----------------------------------------------------------- Each Purchaser hereby represents and warrants to the Company and agrees with the Company that, as of the date of this Agreement and as of the Closing Date: 2.1 Authorization; Enforceability. Such Purchaser is duly and validly ----------------------------- organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization with full power and authority to purchase the Securities and to execute and deliver this Agreement. This Agreement and the Registration Rights Agreement each constitutes such Purchaser's valid and legally binding obligation, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or other laws affecting creditors' rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity) or public policy. 2.2 Accredited Investor; Purchase as Principal. Such Purchaser is an ------------------------------------------ accredited investor as that term is defined in Rule 501 of Regulation D, and is acquiring the Securities solely for its own account as a principal and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act; provided, however that in making such representation, such Purchaser does not agree to hold any Securities for any minimum or specific term and reserves the right to sell, transfer or otherwise dispose of the Securities at any time in accordance with the provisions of this Agreement and with Federal and state securities laws applicable to such sale, transfer or disposition. 2.3 Information. The Company has provided such Purchaser with information ----------- regarding the business, operations and financial condition of the Company, and has granted to such Purchaser the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and materials relating to the terms and conditions of the purchase and sale of the Securities. Neither such information nor any other investigation conducted by such Purchaser or any of its representatives shall modify, amend or otherwise affect such Purchaser's right to rely on the Company's representations and warranties contained in this Agreement. 2.4 Limitations on Disposition. Such Purchaser acknowledges that, except -------------------------- as provided 3 in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. 2.5 Legend. Such Purchaser understands that the certificates representing ------ the Securities may bear at issuance a restrictive legend in substantially the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state, and may not be offered or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with regard thereto, or an exemption from registration under such laws is available in connection with such offer or sale." Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of such Securities is registered pursuant to an effective registration statement and such Purchaser represents in writing to the Company that such Securities have been or are being sold pursuant to such registration statement, (B) such Securities have been publicly sold pursuant to Rule 144 ("Rule 144") and such Purchaser has delivered -------- to the Company customary Rule 144 broker's and seller's representation letters, or (C) such Securities can be publicly sold pursuant to Rule 144(k) under the Securities Act, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder promptly upon request. 2.6 No Conflict. The execution, delivery and performance by such Purchaser ----------- of this Agreement and the other Transaction Documents to which it is a party (A) have been approved by all necessary action (corporate or other) on the part of such Purchaser and (B) will not result in (i) any material violation of any provisions of its charter, bylaws or any other governing document in effect on the date hereof, (ii) any material violation of any instrument or contract to which it is a party or by which it is bound, or (iii) the creation of any material lien, charge or encumbrance upon any of its assets. 4 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. -------------------------------------------------------- The Company hereby represents and warrants to each Purchaser and agrees with such Purchaser that, as of the date of this Agreement and as of the Closing Date: 3.1 Organization, Good Standing and Qualification. Except as set forth on --------------------------------------------- Schedule 3.1, each of the Company and its subsidiaries is duly organized, - ------------ validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate power and authority to carry on its business as now conducted. Each of the Company and its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on the consolidated business or financial condition of the Company and its subsidiaries taken as a whole. For purposes of this Agreement, the term "subsidiary" or "subsidiaries" shall mean any entity or entities in which the Company beneficially owns 20% or more of the voting equity thereof. 3.2 Authorization; Consents. The Company has the requisite corporate ----------------------- power and authority to enter into and perform its obligations under (i) this Agreement, (ii) the Registration Rights Agreement and (iii) all other agreements, documents or other instruments executed and delivered by or on behalf of the Company at the Closing (the instruments described in (i), (ii) and (iii) being collectively referred to herein as the "Transaction Documents"), to --------------------- execute and file, and perform its obligations under the Certificate of Designation, to issue and sell Preferred Shares and a Warrant to each Purchaser in accordance with the terms hereof and to issue and deliver Conversion Shares and Premium Shares in accordance with the terms of the Certificate of Designation and Warrant Shares in accordance with the terms of the Warrants. All corporate action on the part of the Company by its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents and (ii) the authorization, execution and filing of, and the performance by the Company of its obligations under, the Certificate of Designation has been taken, and no further consent or authorization of the Company, its Board of Directors, its stockholders, any governmental agency or organization (other than such approval as may be required under the Securities Act and applicable state securities laws in respect of the Registration Rights Agreement), or any other person or entity is required (pursuant to any rule of the Nasdaq National Market, other than such market's continued listing criteria governing issuances of common stock below the current market price thereof, or otherwise). 3.3 Enforcement. Each of the Transaction Documents constitutes a valid and ----------- legally binding obligation of the Company, enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or other laws affecting creditors' rights generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity) or public policy. 5 3.4 Disclosure Documents; Agreements; Financial Statements; Other ------------------------------------------------------------- Information. The Company has filed with the Commission: (i) the Company's - ----------- Annual Report on Form 10-K for the year ended December 31, 1998, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999, (iii) all Current Reports on Form 8-K, if any, and any other reports, required to be filed with the Commission since December 31, 1998 and prior to the date hereof and (iv) the Company's definitive Proxy Statement for its 1999 Annual Meeting of Stockholders (collectively, the "Disclosure Documents"). The Company -------------------- is not aware of any event occurring on or prior to the Closing Date (other than the transactions effected hereby) that would require the filing of, or with respect to which the Company intends to file, a Form 8-K after such date. Each Disclosure Document, as of the date of the filing thereof with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act") and, as of the date of such filing, such Disclosure Document did ------------ not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All material agreements required to be filed as exhibits to the Disclosure Documents have been filed or incorporated by reference as required by the applicable provisions of the Exchange Act. Neither the Company nor any of its subsidiaries is in breach of any agreement to which it is a party or by which it is bound where such breach could have a material adverse effect on (i) the consolidated business, operations, properties, financial condition, prospects or results of operations of the Company and its subsidiaries taken as a whole, (ii) the transactions contemplated hereby, by the other Transaction Documents or by the Certificate of Designation, (iii) the Securities or (iv) the ability of the Company to perform its obligations under this Agreement, the other Transaction Documents or the Certificate of Designation (collectively, a "Material Adverse ---------------- Effect"). Except as set forth in the Disclosure Documents, the Company has no - ------ liabilities, contingent or otherwise, other than liabilities incurred in the ordinary course of business which, under generally accepted accounting principles, are not required to be reflected in such financial statements (including the footnotes to such financial statements) and which, individually or in the aggregate, are not material to the consolidated business or financial condition of the Company and its subsidiaries taken as a whole. As of their respective dates, the financial statements of the Company included in the Disclosure Documents have been prepared in accordance with generally accepted accounting principles consistently applied at the times and during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end adjustments). The written information described in paragraph 2.3 does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which 6 they were made, not misleading. 3.5 Capitalization. The capitalization of the Company, including its -------------- authorized capital stock, the number of shares issued and outstanding, the number of shares issuable and reserved for issuance pursuant to the Company's stock option plans, the number of shares issuable and reserved for issuance pursuant to securities (other than the Preferred Stock and Warrants) exercisable for, or convertible into or exchangeable for any shares of Common Stock and the number of shares initially to be reserved for issuance upon conversion and exercise of the Preferred Stock and Warrants is set forth on Schedule 3.5 ------------ hereto. All of such outstanding shares of capital stock have been, or upon issuance will be, validly issued, fully paid and non-assessable. Except as set forth on Schedule 3.5, no shares of the capital stock of the Company are ------------ subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances created by or through the Company. Except as disclosed on Schedule 3.5, or as contemplated herein, there are no ------------ outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries. 3.6 Valid Issuance. The Preferred Shares are duly authorized and, when -------------- issued, sold and delivered in accordance with the terms hereof, (i) will be duly and validly issued, fully paid and nonassessable, free and clear of any taxes, liens, claims, preemptive or similar rights or encumbrances imposed by or through the Company (collectively, "Encumbrances"), (ii) based in part upon the ------------ representations of each Purchaser in this Agreement, will be issued, sold and delivered in compliance with all applicable Federal and state securities laws and (iii) will be entitled to all of the rights, preferences and privileges set forth in the Certificate of Designation. The Warrants are duly authorized and, when issued, sold and delivered in accordance with the terms hereof, (i) will be duly and validly issued, fully paid and nonassessable, free and clear of any Encumbrances and (ii) based in part upon the representations of each Purchaser in this Agreement, will be issued, sold and delivered in compliance with all applicable Federal and state securities laws. The Conversion Shares are duly authorized and reserved for issuance and, when issued upon conversion of the Preferred Shares in accordance with the terms of the Certificate of Designation, will be duly and validly issued, fully paid and nonassessable, free and clear of any Encumbrances. The Premium Shares are duly authorized and reserved for issuance and, when issued in payment of Premium in accordance with the terms of the Certificate of Designation, will be duly and validly issued, fully paid and nonassessable, free and clear of any Encumbrances. The Warrant Shares are duly authorized and, upon the issuance thereof in accordance with the terms of the Warrant, will be duly and validly issued, fully paid and nonassessable, free and clear of any Encumbrances. Except as set forth on Schedule 3.6, the Company's ------------ Board of Directors (i) has unanimously determined that the issuance and sale of the Preferred Shares and Warrants hereunder, and the consummation of 7 the transactions contemplated hereby, by the other Transaction Documents and by the Certificate of Designation (including without limitation the issuance of the Conversion Shares upon exercise of the Preferred Shares and the Warrant Shares upon exercise of the Warrants), are in the best interests of the Company and (ii) has unanimously approved the issuance of Conversion Shares upon exercise of the Preferred Shares, the issuance of Premium Shares in payment of Premium and the issuance of Warrant Shares upon exercise of the Warrants. 3.7 No Conflict with Other Instruments. Neither the Company nor any of ---------------------------------- its subsidiaries is in violation of any provisions of its charter, bylaws or any other governing document as amended and in effect on and as of the date hereof or in default (and no event has occurred which, with notice or lapse of time or both, would constitute a default) under any provision of any instrument or contract to which it is a party or by which it is bound, or of any provision of any Federal, state or foreign judgment, writ, decree, order, statute, rule or governmental regulation applicable to the Company, which violation or default could reasonably be expected to have a Material Adverse Effect. The (i) execution, delivery and performance of this Agreement and the other Transaction Documents, (ii) execution and filing of the Certificate of Designation and (iii) except as set forth in Schedule 3.7, consummation of the transactions ------------ contemplated hereby and thereby (including without limitation, the issuance of the Preferred Shares and the Warrants and the reservation for issuance and issuance of the Conversion Shares, the Premium Shares and the Warrant Shares) will not, in any such case, result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or of any of its subsidiaries or the triggering of any preemptive or anti-dilution rights or rights of first refusal or first offer, or any similar rights (whether pursuant to a "poison pill" provision or otherwise), on the part of holders of the Company's securities. 3.8 Financial Condition; Taxes; Litigation. -------------------------------------- 3.8.1 Except as set forth on Schedule 3.8.1, the Company's financial -------------- condition is, in all material respects, as described in the Disclosure Documents, except for changes in the ordinary course of business and normal year-end adjustments that are not, in the aggregate, materially adverse to the consolidated business or financial condition of the Company and its subsidiaries taken as a whole. Except as otherwise described in the Disclosure Documents or in Schedule 3.8.1, or disclosed in writing by the Company to such Purchaser prior to the Closing Date, there has been no material adverse change to the Company's business, operations, properties, financial condition, prospects or results of operations since the date of the Company's most recent audited financial statements contained in the Disclosure Documents. 3.8.2 Except as set forth on Schedule 3.8.2, the Company has filed all -------------- tax returns 8 required to be filed by it and paid all taxes which are due, except for taxes which it reasonably disputes or which could not have a Material Adverse Effect. 3.8.3 Neither the Company nor any of its subsidiaries is the subject of any pending or, to the Company's knowledge, threatened inquiry, investigation or administrative or legal proceeding by the Internal Revenue Service, the taxing authorities of any state or local jurisdiction, the Commission or any state securities commission or other governmental or regulatory entity which could have a Material Adverse Effect. 3.8.4 Except as described in the Disclosure Documents or in Schedule -------- 3.8.4, there is no claim, litigation or administrative proceeding pending, or, - ----- to the Company's knowledge, threatened or contemplated, against the Company or any of its subsidiaries, or against any officer, director or employee of the Company or any such subsidiary in connection with such person's employment therewith that, individually or in the aggregate, could have a Material Adverse Effect. Neither the Company nor any of its subsidiaries is a party to or subject to the provisions of, any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which could have a Material Adverse Effect. 3.9 Reporting Company; Form S-3. The Company is subject to the reporting --------------------------- requirements of the Exchange Act, has a class of securities registered under Section 12 of the Exchange Act, and has filed all reports required thereby. The Company is eligible to register for resale, in a secondary sale by a selling stockholder, shares of its Common Stock on a registration statement on Form S-3 under the Securities Act. To the Company's knowledge, there exist no facts or circumstances (including without limitation any required approvals or waivers of any circumstances that may delay or prevent the obtaining of accountant's consents) that would prohibit or delay the preparation and filing of a registration statement on Form S-3 with respect to the Registrable Securities (as defined in the Registration Rights Agreement). 3.10 Acknowledgement of Dilution. The Company acknowledges that the --------------------------- issuance of Conversion Shares or Warrant Shares may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions. The Company further acknowledges that its obligation to issue Conversion Shares in accordance with the terms of the Certificate of Designation and Warrant Shares in accordance with the terms of the Warrants, is unconditional and absolute regardless of the effect of any such dilution. 3.11 Intellectual Property. Except as set forth on Schedule 3.11, the --------------------- ------------- Company and its subsidiaries each has the right to use adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property rights necessary to conduct the business now operated by it, and is not aware of any infringement by a third party with respect to such rights or of any infringement by it or conflict with asserted 9 rights of others that, in any such case, if determined adversely to the Company or any of its subsidiaries, could individually or in the aggregate have a Material Adverse Effect. 3.12 Registration Rights; Rights of Participation. Except as described on -------------------------------------------- Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to any - ------------- person or entity any rights (including "piggy-back" registration rights) to have any securities of the Company registered with the Commission or any other governmental authority and (B) no person or entity, including, but not limited to, current or former stockholders of the Company, underwriters, brokers, agents or other third parties, has any right of first refusal, preemptive right, right of participation, anti-dilutive right or any similar right to participate in, or to receive securities of the Company or other consideration as a result of, the transactions contemplated by this Agreement or the other Transaction Documents which has not been waived or will not be waived or otherwise satisfied as of the Closing Date. 3.13 Listing on Nasdaq. The Common Stock is listed on the Nasdaq National ----------------- Market, and trading in the Common Stock on such market has not been suspended. The Company is, to its knowledge, in full compliance with the continued listing criteria of the Nasdaq National Market, and does not reasonably anticipate that the Common Stock will lose its listing on the Nasdaq National Market, whether by reason of the transactions contemplated by this Agreement or the other Transaction Documents, or otherwise and is not aware of any inquiry by or received any notice from the Nasdaq National Market regarding any failure or alleged failure by the Company to comply with such criteria. 3.14 Solicitation; Other Issuances of Securities. Neither the Company nor ------------------------------------------- any of its subsidiaries or affiliates, nor any person acting on its or their behalf, (i) has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities, (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the Securities under the Securities Act or (iii) has issued any shares of Common Stock or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire shares of Common Stock which would be integrated with the sale of the Securities to such Purchaser or the issuance of the Conversion Shares for purposes of the Securities Act or of any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. In order to prevent the possible integration of the offer and sale of the Securities with any offering effected subsequent to the Closing Date, neither the Company nor any of its subsidiaries or affiliates will offer or sell any securities during the six (6) month period following the Closing Date; provided, however, that such limitation shall not apply to any securities that - -------- ------- are offered or sold (i) pursuant to an employee benefit plan or program duly adopted by the Company and in effect on the date hereof, (ii) pursuant to stock options or warrants 10 outstanding on the date hereof, (iii) any firm-commitment underwritten public offering or (iv) in connection with a strategic investment or acquisition which, in either such case such case, is not effected for the primary purpose of raising equity capital. 3.15 Fees. Except as described on Schedule 3.15 hereto, the Company is ---- ------------- not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative or entity in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless such Purchaser from and against any claim by any person or entity alleging that such Purchaser is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby. 3.16 Regulatory Permits. Each of the Company and its subsidiaries ------------------ possesses all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct its business, except where the failure to so possess such certificates, authorizations or permits could not have a Material Adverse Effect, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit which revocation or modification could have a Material Adverse Effect. 3.17 Key Employees. Each person whose name is set forth on Schedule 3.17 ------------- ------------- (each, a "Key Employee") is currently serving in the capacity indicated on such ------------ schedule on a full-time basis. The Company has no knowledge of any fact or circumstance (including without limitation (i) the terms of any agreement to which such person is a party or any litigation in which such person is or may become involved and (ii) any illness or medical condition that could reasonably be expected to result in the disability or incapacity of such person) that would limit or prevent any such person from serving in such capacity on a full-time basis in the foreseeable future, or of any intention on the part of any such person to limit or terminate his or her employment with the Company. Except as described on Schedule 3.17, no Key Employee has borrowed money pursuant to a ------------- currently outstanding loan that is secured by Common Stock or any right or option to receive Common Stock. 3.18 Year 2000. To the Company's knowledge, except as disclosed on --------- Schedule 3.18: (i) all hardware and software products used by the Company and - ------------- its subsidiaries in the administration and the business operations of the Company and such subsidiaries will be able to process date data (including, but not limited to, calculating, comparing and sequencing) in a consistent manner from, into and between the twentieth century (through 1999), the year 2000 and the twenty-first century, including leap year calculations, when used in accordance with the product documentation accompanying such hardware and software products; and (ii) all software developed and currently sold by the Company and any of its subsidiaries (other than third party software) will be able to process 11 date data (including, but not limited to, calculating, comparing and sequencing) in a consistent manner from, into and between the twentieth century (through 1999), the year 2000 and the twenty-first century, including leap year calculations, when used in accordance with the product documentation accompanying such software. 3.19 Environment. Except as disclosed in the Disclosure Documents (i) ----------- there is no environmental liability, nor factors likely to give rise to any environmental liability, affecting any of the properties of the Company or any of its subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect and (ii) neither the Company nor any of the subsidiaries has violated any environmental law applicable to it now or previously in effect, other than such violations or infringements that, individually or in the aggregate, have not had and will not have a Material Adverse Effect. 4. COVENANTS OF THE COMPANY. ------------------------ 4.1 Corporate Existence. The Company shall, so long as any Purchaser or ------------------- any affiliate of any Purchaser beneficially owns any Securities, maintain its corporate existence in good standing under the jurisdiction of its incorporation and shall pay all taxes owed by it when due except for taxes which the Company reasonably disputes. 4.2 Provision of Information. The Company shall, so long as any Purchaser ------------------------ or any affiliate of any Purchaser beneficially owns any Securities, provide any such Purchaser with copies of all materials sent to stockholders, in each such case at the same time that it mails such materials to its stockholders. 4.3 Form D; Blue-Sky Qualification. To the extent that the Company is ------------------------------ relying on Regulation D under the Securities Act in selling the Securities to each Purchaser hereunder, the Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Purchaser promptly after such filing. The Company shall take such action as is necessary to qualify the Preferred Shares and Warrants for sale under applicable state or "blue-sky" laws or obtain an exemption therefrom, and shall provide evidence of any such action to each Purchaser at such Purchaser's request. 4.4 Reporting Status. As long as any Purchaser or any affiliate of any ---------------- Purchaser beneficially owns any Securities and until the date on which any of the foregoing may be sold to the public pursuant to Rule 144(k) (or any successor rule or regulation), (i) the Company shall timely file with the Commission all reports required to be so filed pursuant to the Exchange Act and (ii) the Company shall not terminate its status as an issuer required by the Exchange Act to file reports thereunder even if the Exchange Act or the rules or regulations thereunder would permit such 12 termination. The Company agrees to issue a press release describing the transactions contemplated by this Agreement and the other Transaction Documents and to file with the Commission a Form 8-K in the form required by the Exchange Act describing the terms of the transactions contemplated by this Agreement and the other Transaction Documents, with this Agreement and all schedules and exhibits attached to such Form 8-K as an exhibit thereto, in each case on or before October 15, 1999. 4.5 Reservation of Common Stock. The Company shall at all times following --------------------------- the Closing Date have authorized and reserved for issuance to the Purchasers pursuant to the Preferred Shares and the Warrants, free from any preemptive rights, a number of shares of Common Stock equal to the maximum number of Conversion Shares issuable upon conversion of the Preferred Shares and exercise of the Warrants (the "Reserved Amount")(in each case assuming (i) application of --------------- the minimum Conversion Price that may occur under the Certificate of Designation, (ii) accrual of Premium under all of the Preferred Shares issued hereunder from the Issue Date (as defined in the Certificate of Designation) through the Maturity Date (as defined in the Certificate of Designation) and payment of such Premium in Conversion Shares and (iii) that none of the limitations set forth herein, in the Certificate of Designation or in the Warrant on such conversion or exercise exist). The Company shall not reduce the Reserved Amount without each Purchaser's prior written consent. Each Purchaser shall be allocated a portion of the Reserved Amount in the same ratio that the Preferred Shares purchased by such Purchaser hereunder bears to the Preferred Shares purchased by all of the Purchasers hereunder. 4.6 Use of Proceeds. The Company shall use the proceeds from the sale of --------------- the Preferred Shares and Warrants for general corporate purposes only, in the ordinary course of its business and consistent with past practice and, without limiting the generality of the foregoing, shall not use such proceeds to make a loan to any employee, officer, director or stockholder of the Company, to repay any loan or other obligation of the Company to any such person or to repurchase or pay a dividend on shares of Common Stock or other securities of the Company, other than any such payment explicitly required or permitted by the terms of this Agreement, the Certificate of Designation or the other Transaction Documents. 4.7 Quotation on Nasdaq. The Company shall (i) promptly following the ------------------- Closing, take such action as may be necessary to include all of the Conversion Shares, Premium Shares and Warrant Shares that may be issued by the Company under the Preferred Shares and Warrants on the Nasdaq National Market, and (ii) use its reasonable commercial efforts to maintain the designation and quotation, or listing, of the Common Stock on the Nasdaq National Market or the New York Stock Exchange for a minimum of five (5) years following the Closing Date. 4.8 Use of Purchaser Name. Except as may be required by applicable law, --------------------- the Company shall not use, directly or indirectly, any Purchaser's name or the name of any of its 13 affiliates in any advertisement, announcement, press release or other similar communication unless it has received the prior written consent of such Purchaser for the specific use contemplated (which consent will not be unreasonably withheld) or as otherwise required by applicable law or regulation. 4.9 Right of First Offer. Prior to any offer or sale by the Company of any -------------------- Equity Securities (as defined below) during the period beginning on the Closing Date and ending on the twelve (12) month anniversary of the Closing Date, the Company must first deliver to each Purchaser written notice describing the proposed issuance, including the terms and conditions thereof, and provide each Purchaser with an option during the five (5) Trading Day period following delivery of such notice to purchase all or any part of such Purchaser's Allocable Portion (as defined below) of the Equity Securities being offered on the same terms as contemplated by such issuance (the "Right of First Offer"). -------------------- In the event that a Purchaser either does not give notice within such five Trading Day period that it intends to exercise the foregoing option or informs the Company in writing that it does not intend to participate in all or any part of such issuance, the Company may offer to a third party the option to purchase up to, in the aggregate, the amount of Equity Securities which were declined by such Purchaser, on the same terms as were offered to such Purchaser. For purposes hereof, (A) "Equity Security" shall mean Common Stock or any other --------------- equity security of the Company, or any security convertible into, or exercisable or exchangeable for, Common Stock or any such equity security and (B) a Purchaser's "Allocable Portion" of Equity Securities as of a particular date ----------------- shall be determined by dividing the number of Preferred Shares purchased by such Purchaser hereunder by the aggregate number of Preferred Shares purchased by of the Purchasers hereunder, and multiplying the resulting quotient by the aggregate amount of Equity Securities being issued. The Right of First Offer will not apply to the issuance of Equity Securities pursuant to (i) an employee benefit plan or program duly adopted by the Company and in effect on the date hereof, (ii) any options or warrant outstanding on the date hereof, (iii) any firm-commitment underwritten public offerings of Equity Securities or (iv) any issuance of Equity Securities in connection with a strategic investment or acquisition which, in either such case, is not effected for the primary purpose of raising equity capital. 4.11 Management Restrictions. During the period beginning on the Closing ----------------------- Date and ending on the later of (i) February 1, 2000 and (ii) the date on which the Registration Statement (as defined in the Registration Rights Agreement) has been declared effective by the Commission (the "Management Restriction Period"), no Key Employee may sell, transfer or otherwise dispose of any Common Stock held or beneficially owned by such individual, whether through the writing or purchase of options, futures or derivative instruments, or otherwise; provided, -------- however, that the foregoing limitation shall not apply to (A) any sale, transfer - ------- or other disposition of Common Stock at a price per share that is greater than the Conversion Price in effect on the date of such sale, transfer or disposition, or (B) any sale, transfer or other 14 disposition by a Key Employee of a number of shares of Common Stock that does not exceed, singly or in the aggregate with any other sales, transfers or other dispositions made by such Key Employee during the Management Restriction Period, ten thousand (10,000) shares of Common Stock, as long as, prior to any sale, transfer or other disposition permitted by clause (A) or (B), the Registration Statement (as defined in the Registration Rights Agreement) has been declared effective by the Commission. 5. CONDITIONS TO CLOSING. --------------------- 5.1 Conditions to Purchaser's Obligations at Closing. Each Purchaser's ------------------------------------------------ obligations at the Closing, including without limitation its obligation to purchase the Preferred Shares and Warrant being purchased by such Purchaser, are conditioned upon the satisfaction by the Company (or waiver by such Purchaser) of each of the following events as of the Closing Date: 5.1.1 the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of such date as if made on such date; 5.1.2 the Company shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by the Company on or before the Closing; 5.1.3 the Closing Date shall occur on a date that is not later than October 6, 1999; 5.1.4 the Company shall have delivered to such Purchaser a certificate, signed by an officer of the Company, certifying that the conditions specified in this paragraph 5.1 have been fulfilled as of the Closing, it being understood that such Purchaser may rely on such certificate as though it were a representation and warranty of the Company made herein; 5.1.5 the Company shall have delivered to such Purchaser an opinion of counsel for the Company, dated as of such date, in substantially the form set forth on Exhibit 5.1.5 hereto, and covering such additional matters as may reasonably be requested by such Purchaser; 5.1.6 the Company shall have delivered to such Purchaser duly executed certificates representing the Preferred Shares and Warrant being 15 purchased by such Purchaser; 5.1.7 the Company shall have executed and delivered the Registration Rights Agreement; 5.1.8 the Common Stock shall be listed for trading on the Nasdaq National Market and no suspension of trading in the Common Stock on such market shall have occurred and be continuing as of the Closing Date; 5.1.9 the Company shall have authorized and reserved for issuance the number of shares of Common Stock required to be reserved under paragraph 4.5 hereof, and shall have provided such Purchaser with reasonable evidence thereof; 5.1.10 the Company shall have delivered to such Purchaser proposed "final" drafts of each Schedule to this Agreement, together with a proposed "final draft" of the opinion required by 5.5.1, no later than the close of business on the fifth (5/th/) Business Day immediately prior to the Closing Date; and 5.1.11 each other Purchaser shall have tendered payment of the Purchase Price for the number of Preferred Shares set forth on such other Purchaser's signature page hereto so that the aggregate amount tendered by all of the Purchasers hereunder is no less than ten million dollars ($10,000,000). 5.2 Conditions to Company's Obligations at the Closing. The Company's --------------------------------------------------- obligations at the Closing are conditioned upon the satisfaction (or waiver by the Company) of each of the following events as of the Closing Date: 5.2.1 the representations and warranties of each Purchaser shall be true and correct in all material respects as of such date as if made on such date; and 5.2.2 each Purchaser shall have complied with or performed in all material respects all of the agreements, obligations and conditions set forth in this Agreement that are required to be complied with or performed by such Purchaser on or before the Closing. 6. MISCELLANEOUS. ------------- 16 6.1 Survival. The representations and warranties made by the parties -------- herein shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties. 6.2 Successors and Assigns. The terms and conditions of this ---------------------- Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. Each Purchaser may assign its rights and obligations hereunder, in connection with any private sale or transfer of Securities pursuant to Section 2.4, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term "Purchaser" shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. The Company may not assign it rights or obligations under this Agreement except as may be specifically provided by this Agreement or the other Transaction Documents. 6.3 No Reliance. Each party acknowledges that (i) it has such ----------- knowledge in business and financial matters as to be fully capable of evaluating this Agreement, the other Transaction Documents and the transactions contemplated hereby and thereby, (ii) it is not relying on any advice or representation of the other party in connection with entering into this Agreement, the other Transaction Documents or such transactions (other than the representations made in this Agreement or the other Transaction Documents), (iii) it has not received from such party any assurance or guarantee as to the merits (whether legal, regulatory, tax, financial or otherwise) of entering into this Agreement or the other Transaction Documents or the performance of its obligations hereunder and thereunder, and (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial and accounting advisors to the extent that it has deemed necessary, and has entered into this Agreement and the other Transaction Documents based on its own independent judgment and on the advice of its advisors as it has deemed necessary, and not on any view (whether written or oral) expressed by such party. 6.4 Injunctive Relief. The Company acknowledges that a breach by it ----------------- of its obligations hereunder will cause irreparable harm to each Purchaser and that the remedy or remedies at law for any such breach will be inadequate and agrees, in the event of any such breach, 17 in addition to all other available remedies, to an injunction restraining any breach and requiring immediate and specific performance of such obligations without the necessity of showing economic loss. 6.5 Governing Law; Jurisdiction. This Agreement shall be governed by --------------------------- and construed under the laws of the State of Delaware without regard to the conflict of laws provisions thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the County of New Castle, Delaware, for the adjudication of any dispute hereunder or under any Transaction Document or the Certificate of Designation or in connection herewith or therewith or with any transaction contemplated hereby or thereby or discussed herein or therein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. 6.6 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 6.7 Headings; Drafting. The headings used in this Agreement are used ------------------ for convenience only and are not to be considered in construing or interpreting this Agreement. The parties shall be deemed to have participated jointly in the drafting of this Agreement and the other Transaction Documents, and no provision hereof or thereof shall be construed against any party as the drafter thereof. 6.8 Notices. Any notice, demand or request required or permitted to ------- be given by any party to any other party pursuant to the terms of this Agreement shall be in writing and shall be deemed given (i) when delivered personally or by verifiable facsimile transmission (with an original to follow) on or before 6:00 p.m., pacific time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the parties as follows: 18 If to the Company: Asymetrix Learning Systems, Inc. 110 110/th/ Avenue NE Bellevue, WA 98008 Attn: General Counsel Tel: 425-637-5829 Fax: 425-637-1540 with a copy to: Jeffrey R. Vetter, Esq. Fenwick & West, LLP Two Palo Alto Square Palo Alto, CA 94306 Tel: 650-494-0600 Fax: 650-494-1417 and if to a Purchaser, to such address as shall be designated by such Purchaser in writing to the Company. 6.9 Expenses. The Company and each Purchaser each shall pay all -------- costs and expenses that it incurs in connection with the negotiation, execution, delivery and performance of this Agreement; provided, however, that the Company -------- ------- shall reimburse Marshall Capital Management, Inc. at the Closing for all out-of-pocket expenses (including without limitation reasonable legal fees and expenses) incurred by it in connection its due diligence investigation of the Company and the negotiation, preparation, execution, delivery and performance of this Agreement and the other Transaction Documents in an amount not to exceed thirty thousand dollars ($30,000). 6.10 Entire Agreement; Amendments; Waiver. This Agreement and the ------------------------------------ other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and each Purchaser. [Remainder of Page Intentionally Left Blank] 19 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. ASYMETRIX LEARNING SYSTEMS, INC. By: /s/ James A. Billmaier -------------------------------- Name: James A. Billmaier Title: Chief Executive Officer Marshall Capital Management, Inc. By: /s/ Allan Weine ------------------------------- Allan Weine, President Number of Preferred Shares: 6,000 20 ASYMETRIX LEARNING SYSTEMS, INC. By: /s/ James A. Billmaier ------------------------------- Name: James A. Billmaier Title: Chief Executive Officer VULCAN VENTURES By: /s/ William D. Savoy ------------------------------- Name: William D. Savoy Title: Vice President Number of Preferred Shares: 4,000 [x] The Purchaser whose name appears on this signature page hereby elects, by checking this box, not to be bound by the respective limitations contained ------------------------------------------------------- in Section 5 of the Certificate of Designation and Section 4 of the Warrant. --------------------------------------------------------------------------- 21 EX-99.02 3 REGISTRATION RIGHTS AGREEMENT Exhibit 99.02 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of --------- September 30, 1999, by and among ASYMETRIX LEARNING SYSTEMS, INC., a Delaware corporation (the "Company"), and each of the entities whose names appear on the ------- signature pages hereof. Such entities are each referred to herein as a "Purchaser" and collectively as the "Purchasers". --------- ---------- The Company has agreed, on the terms and subject to the conditions set forth in the Securities Purchase Agreement of even date herewith (the "Securities Purchase Agreement"), to issue and sell to each Purchaser shares ----------------------------- (the "Preferred Shares") of the Company's Series A Convertible Preferred Stock, ---------------- par value $.01 per share (the "Preferred Stock"), and a Warrant (each, a --------------- "Warrant" and, when taken together with all of the warrants issued pursuant to ------- the Securities Purchase Agreement, the "Warrants") entitling the holder thereof to purchase shares (the "Warrant Shares") of Common Stock. The Preferred Shares -------------- are convertible pursuant to a Certificate of Designation (the "Certificate of -------------- Designation") into shares (the "Conversion Shares") of the Company's Common - ----------- ----------------- Stock, par value $.01 per share (the "Common Stock"). ------------ In order to induce each Purchaser to enter into the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and under -------------- applicable state securities laws. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Securities Purchase Agreement or the Certificate of Designation, as applicable. In consideration of each Purchaser entering into the Securities Purchase Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. ----------- For purposes of this Agreement, the following terms shall have the meanings specified: (a) "Blackout Period" means such day or days, not to exceed an aggregate of thirty (30) days during any period of twelve (12) consecutive months, with respect to which the Board of Directors of the Company determines reasonably and in good faith (A) that an amendment or supplement to the Registration Statement (as defined below) or prospectus contained therein is necessary, in light of subsequent events, in order to correct a material misstatement made therein or to include information the absence of which would render the Registration Statement or such prospectus materially misleading and (B) that the filing of such amendment or supplement would result in the disclosure of information which the Company has a bona fide business purpose for ---- ---- preserving as confidential; provided that the Company shall be entitled to impose no more than two (2) Blackout Periods during any period of twelve (12) consecutive months; (b) "Business Day" and "Closing Date" shall have the respective ------------ ------------ meanings specified in the Securities Purchase Agreement; (c) "Holder" means any person owning or having the right to acquire, ------ through conversion of the Preferred Shares or exercise of the Warrants, Registrable Securities, including initially each Purchaser and thereafter any permitted assignee thereof; (d) "Effective Date" means the date on which the Registration -------------- Statement is declared effective by the Securities and Exchange Commission (the "Commission"). ---------- (e) "Filing Deadline" means the ninetieth (90th) day following the --------------- Closing Date; provided, however, that if such ninetieth day is not a -------- ------- Business Day, the Filing Deadline shall be the Business Day immediately following such ninetieth day; (f) "Premium Shares" shall have the meaning set forth in the -------------- Certificate of Designation. (g) "Register", "registered" and "registration" refer to a -------- ---------- ------------ registration effected by preparing and filing a registration statement or statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act ("Rule 415") or any successor rule -------- providing for the offering of securities on a continuous or delayed basis ("Registration Statement"), and the declaration or ordering of ---------------------- effectiveness of the Registration Statement by the Commission; (h) "Registration Deadline" means the ninetieth (90th) day following --------------------- the earlier to occur of (i) the date on which the Registration Statement is filed with the Commission and (ii) the Filing Deadline; and (i) "Registrable Securities" means the Conversion Shares, the Premium ---------------------- Shares, the Warrant Shares, and any other shares of Common Stock issuable pursuant to the terms of the Certificate of Designation or Warrants, and any shares of capital stock issued or issuable from time to time (with any adjustments) in replacement of, in exchange for or otherwise in respect of the Conversion Shares, the Premium Shares or the Warrant Shares. 2. MANDATORY REGISTRATION. ---------------------- (a) On or before the Filing Deadline, the Company shall prepare and file with the Commission a Registration Statement on Form S-3 as a "shelf" registration statement under Rule 415 covering the resale of the number of shares of Registrable Securities equal to the Reserved Amount (as defined in the Securities Purchase Agreement). The Registration Statement shall state, to the extent -2- permitted by Rule 416 under the Securities Act, that it also covers such indeterminate number of shares of Common Stock as may be required to effect conversion of the Preferred Shares and Warrants in order to prevent dilution resulting from stock splits, stock dividends or similar events. (b) The Company shall use its best efforts to cause the Registration Statement to become effective as soon as practicable following the filing thereof, but in no event later than the Registration Deadline. The Company shall respond promptly to any and all comments made by the staff of the Commission on the Registration Statement (but in no event later than fifteen (15) Business Days following the Company's receipt thereof), and shall submit to the Commission, within three (3) Business Days after the Company learns that no review of the Registration Statement will be made by the staff of the Commission or that the staff of the Commission has no further comments on the Registration Statement, as the case may be, a request for acceleration of the effectiveness of the Registration Statement to a time and date not later than forty eight (48) hours after the submission of such request. The Company shall maintain the effectiveness of the Registration Statement until the earlier to occur of (i) the date on which all of the Registrable Securities have been sold pursuant to the Registration Statement and (ii) the date on which all of the remaining Registrable Securities (in the reasonable opinion of counsel to the Holders) may be immediately sold to the public without registration and without regard to the amount of Registrable Securities which may be sold by a Holder thereof at a given time (the period beginning on the Registration Deadline and ending on the earlier of such dates being referred to herein as the "Registration Period"). ------------------- (c) If (A) the Registration Statement is not filed on or before the Filing Deadline or declared effective by the Commission on or before the thirtieth (30/th/) day following the Registration Deadline, (B) after the Registration Statement has been declared effective by the Commission, sales of Registrable Securities cannot be made by a Holder under the Registration Statement for any reason not within the exclusive control of such Holder (other than during a Blackout Period or with respect to such Registrable Securities as are then freely saleable pursuant to Rule 144(k) under the Securities Act), or (C) the Common Stock is not listed and freely tradeable on the Nasdaq National Market, the Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock Exchange (each of (A), (B) or (C) being referred to herein as a "Default ------- Event"), the Company shall pay to each Holder an amount equal to the lesser of - ----- (x) one and one half percent (1.5%) per thirty calendar day period (prorated for any period of less than thirty calendar days) and (y) the highest rate permitted by applicable law, times the Stated Value of the Preferred Shares then held by ----- such Holder, accruing daily and compounded monthly, from the date on which a Default Event occurs until the date on which such Default Event and any and all other Default Events have been cured and are no longer continuing. The amounts paid or payable by the Company hereunder shall be in addition to any other remedies available to each Holder at law or in equity or pursuant to the terms hereof or the Securities Purchase Agreement, or otherwise. Payments of such amounts pursuant hereto shall be made in immediately available funds within five (5) Business Days after the end of each period that gives rise to such obligation, provided that, if any such period extends for more than thirty (30) days, payments shall be made at the end of each thirty-day period. -3- 3. PIGGYBACK REGISTRATION. ----------------------- If at any time prior to the expiration of the Registration Period, (i) the Company proposes to register shares of Common Stock under the Securities Act in connection with the public offering of such shares for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or employee stock award or a registration on Form S-4 under the Securities Act or any successor or similar form registering stock issuable upon a reclassification, a business combination involving an exchange of securities or an exchange offer for securities of the issuer or another entity, or a registration statement on Form S-3 covering the resale of securities issued in connection with a corporate acquisition) (a "Proposed Registration") and (ii) --------------------- a registration statement covering the sale of all of the Registrable Securities is not then effective and available for sales thereof by the Holders, the Company shall, at such time, promptly give each Holder written notice of such Proposed Registration. Each Holder shall have twenty (20) days from its receipt of such notice to deliver to the Company a written request specifying the amount of Registrable Securities that such Holder intends to sell and such Holder's intended method of distribution. Upon receipt of such request, the Company shall use its best efforts to cause all Registrable Securities which the Company has been requested to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Holder; provided, however, that the Company shall have the right to postpone or -------- ------- withdraw any registration effected pursuant to this Section 3 without obligation to the Holder. If, in connection with any underwritten public offering for the account of the Company or for shareholders of the Company that have contractual rights to require the Company to register shares of Common Stock, the managing underwriter(s) thereof shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in the judgment of such underwriter(s), marketing or other factors dictate such limitation is necessary to facilitate such offering, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which each Holder has requested inclusion hereunder as such underwriter(s) shall permit. Any such exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in the Registration Statement, in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities; and provided, further, that, after giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall be made pro rata with holders of other securities having the right to include such securities in the Registration Statement (which securities shall include those held by Go2Net, Inc. or any other strategic investor to which the Company grants registration rights in the future). -4- 4. OBLIGATIONS OF THE COMPANY. -------------------------- In addition to performing its obligations hereunder, including without limitation those pursuant to paragraphs 2(a) and 2(b) above, the Company shall: (a) prepare and file with the Commission such amendments and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of the Securities Act or to maintain the effectiveness of the Registration Statement during the Registration Period, or as may be reasonably requested within a reasonable time prior to any proposed sale by a Holder in order to incorporate information concerning such Holder or such Holder's intended method of distribution; (b) secure the listing of all Registrable Securities on the Nasdaq National Market prior to the date on which the Registration Statement relating to such Registrable Securities becomes effective; (c) furnish to each Holder such number of copies of the prospectus included in such Registration Statement, including a preliminary prospectus, if any, in conformity with the requirements of the Securities Act, and such other documents as such Holder may reasonably request in order to facilitate the disposition of such Holder's Registrable Securities; (d) use all commercially reasonable efforts to register or qualify the Registrable Securities under the securities or "blue sky" laws of such jurisdictions within the United States as shall be reasonably requested from time to time by a Holder, and do any and all other acts or things which may be necessary or advisable to enable such Holder to consummate the public sale or other disposition of the Registrable Securities in such jurisdictions; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction; (e) in the event of an underwritten public offering of the Registrable Securities, enter into (together with all Holders proposing to distribute Registrable Securities through such underwriting) and perform its obligations under an underwriting agreement, in usual and customary form reasonably acceptable to the Company, with the managing underwriter of such offering; (f) notify each Holder immediately upon the occurrence of any event as a result of which the prospectus included in such Registration Statement, as then in effect, contains an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and as promptly as practicable, prepare, file and furnish to each Holder a reasonable number of copies of a supplement or an amendment to such prospectus as may be necessary so that such prospectus does not contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; -5- (g) use all commercially reasonable efforts to prevent the issuance of any stop order or other order suspending the effectiveness of such Registration Statement and, if such an order is issued, to obtain the withdrawal thereof at the earliest possible time and to notify each Holder of the issuance of such order and the resolution thereof; (h) furnish to each Holder, on the date that such Registration Statement becomes effective, (x) a letter, dated such date, of outside counsel representing the Company (and reasonably acceptable to such Holder) addressed to such Holder, confirming the effectiveness of the Registration Statement and, to the knowledge of such counsel, the absence of any stop order, and (y) in the case of an underwriting, (A) an opinion addressed to the underwriters, dated such date, of such outside counsel, in such form and substance as is required to be given to such underwriters, and (B) a letter addressed to such underwriters, dated such date, from the Company's independent certified public accountants, in such form and substance as is required to be given by the Company's independent certified public accountants to such underwriters; (i) provide each Holder and its representatives (subject to, upon the request of the Company with respect to any such representative, the execution of a confidentiality agreement reasonably satisfactory to the Company by such representative) the opportunity to conduct a reasonable inquiry of the Company's financial and other records during normal business hours and make available its officers, directors and employees for questions regarding information which such Holder may reasonably request in order to fulfill any due diligence obligation on its part; (j) permit counsel retained for such purpose by each Holder to review the Registration Statement and all amendments and supplements thereto, and any comments made by the staff of the Commission and the Company's responses thereto, within a reasonable period of time prior to the filing thereof with the Commission (or, in the case of comments made by the staff of the Commission, within a reasonable period of time following the receipt thereof by the Company) and amend such materials in accordance with the comments of such counsel; provided, however, that if such counsel has not delivered comments concerning - -------- ------- such materials to the Company on or before the second (2d) Business Day following it receipt thereof, the Company may deem the Holder represented by such counsel to have waived its right of review and comment hereunder, (k) refrain during the period of one hundred and eighty (180) days following the Effective Date from allowing any registration statement covering the Common Stock (other than the Registration Statement(s) required to be filed hereunder) to be declared effective by the Commission, other than a registration statement relating to the issuance or resale of securities pursuant to (i) an employee benefit plan or program duly adopted by the Company and in effect on the date hereof, (ii) any options or warrant outstanding on the date hereof, (iii) any firm-commitment underwritten public offering of securities or (iv) any issuance of Equity Securities in connection with a strategic investment or acquisition which, in either such case, is not effected for the primary purpose of raising equity capital; -6- (l) provide written notice to each Holder (i) immediately upon the imposition of a Blackout Period and (ii) immediately upon the cessation of any such Blackout Period. The Company agrees that it will not disclose any material, non-public information to any Holder regarding the reasons for imposing a Blackout Period, except to a Holder who specifically requests in writing such information and who agrees to maintain the confidentiality of such information until it is made public other than by or through such Holder. 5. OBLIGATIONS OF EACH HOLDER. -------------------------- In connection with the registration of the Registrable Securities pursuant to the Registration Statement, each Holder shall: (a) furnish to the Company in writing such information regarding itself and the intended method of disposition of Registrable Securities as the Company shall reasonably request in order to effect the registration thereof; (b) upon receipt of any notice from the Company of the happening of any event of the kind described in paragraphs 4(f), 4(g) or 4(l), immediately discontinue any sale or other disposition of Registrable Securities pursuant to the Registration Statement until the filing of an amendment or supplement as described in paragraph 4(f), withdrawal of the stop order referred to in paragraph 4(g) or cessation of the Blackout Period referred to in paragraph 4(l); (c) in the event of an underwritten offering of the Registrable Securities, enter into a customary and reasonable underwriting agreement and execute such other documents as the managing underwriter for such offering may reasonably request; (d) to the extent required by applicable law, deliver a prospectus to the purchaser of Registrable Securities; (e) notify the Company when it has sold all of the Registrable Securities theretofore held by it; and (f) promptly notify the Company in the event that any information supplied by such Holder in writing for inclusion in the Registration Statement or related prospectus is untrue or omits to state a material fact required to be stated therein or necessary to make such information not misleading in light of the circumstances then existing. 6. INDEMNIFICATION. --------------- In the event that any Registrable Securities are included in a Registration Statement under this -7- Agreement: (a) To the extent permitted by law, the Company shall indemnify and hold harmless each Holder, the officers, directors, employees and agents of such Holder, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934 ---- Act"), against any losses, claims, damages, liabilities or reasonable out-of- - --- pocket expenses (whether joint or several) (collectively, including legal or other expenses reasonably incurred in connection with investigating or defending same, "Losses"), insofar as any such Losses arise out of or are based upon (i) ------ any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus, if any, or final prospectus contained therein or any amendments or supplements thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Subject to the provisions of paragraph 6(c) below, the Company will reimburse such Holder, and each such officer, director, employee, agent or controlling person for any legal or other expenses as reasonably incurred by any such entity or person in connection with investigating or defending any Loss; provided, however, that the foregoing indemnity shall not apply to amounts paid in settlement of any Loss if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be obligated to indemnify any person for any Loss to the extent that such Loss arises out of or is based upon and in conformity with written information furnished by such person expressly for use in such Registration Statement; and provided, further, that the Company shall not be required to indemnify any person to the extent that any Loss results from such person selling Registrable Securities (i) to a person to whom there was not sent or given, at or prior to the written confirmation of the sale of such shares, a copy of the prospectus, as most recently amended or supplemented, if the Company has previously furnished or made available copies thereof or (ii) during any period following written notice by the Company to such Holder of an event described in paragraph 4(f), 4(g) or 4(l). (b) To the extent permitted by law, each Holder, acting severally and not jointly, shall indemnify and hold harmless the Company, the officers, directors, employees, agents and representatives of the Company, and each person, if any, who controls the Company within the meaning of the Securities Act or the 1934 Act, against any Losses to the extent (and only to the extent) that any such Losses arise out of or are based upon and in conformity with written information furnished by such Holder expressly for use in such Registration Statement; and such Holder will reimburse any legal or other expenses as reasonably incurred by the Company and any such officer, director, employee, agent, representative, or controlling person, in connection with investigating or defending any such Loss; provided, however, that the foregoing indemnity shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of such Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this paragraph 6(b) exceed the net proceeds resulting from the sale of the Registrable Securities sold by such Holder under the Registration Statement. -8- (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the reasonably incurred fees and expenses of one such counsel to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 6 with respect to such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6 or with respect to any other action unless the indemnifying party is materially prejudiced as a result of not receiving such notice. (d) In the event that the indemnity provided in paragraph 6(a) or 6(b) is unavailable or insufficient to hold harmless an indemnified party for any reason, the Company and each Holder agree, severally and not jointly, to contribute to the aggregate Losses to which the Company or such Holder may be subject in such proportion as is appropriate to reflect the relative fault of the Company and such Holder in connection with the statements or omissions which resulted in such Losses; provided, however, that in no case shall such Holder be responsible for any amount in excess of the proceeds resulting from the sale of the Registrable Securities sold by it under the Registration Statement. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company or by such Holder. The Company and each Holder agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph 6(d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to indemnification or contribution from any person who is not guilty of fraudulent misrepresentation. For purposes of this Section 6, each person who controls a Holder within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee or agent of such Holder shall have the same rights to contribution as such Holder, and each person who controls the Company within the meaning of either the Securities Act or the Exchange Act and each officer, director, employee or agent of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph 6(d). (e) The obligations of the Company and each Holder under this Section 6 shall survive the conversion of the Preferred Shares and exercise of the Warrants in full, the completion of any offering of Registrable Securities pursuant to a Registration Statement under this Agreement, or -9- otherwise. 7. REPORTS. ------- With a view to making available to each Holder the benefits of Rule 144 under the Securities Act ("Rule 144") and any other similar rule or regulation of the Commission that may at any time permit such Holder to sell securities of the Company to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company under the Securities Act and the 1934 Act; and (c) furnish to such Holder, so long as such Holder owns any Registrable Securities, forthwith upon written request (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, and the 1934 Act, (ii) to the extent not publicly available through the Commission's EDGAR database, a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing such Holder of any rule or regulation of the Commission which permits the selling of any such securities without registration. 8. MISCELLANEOUS. ------------- (a) Expenses of Registration. All expenses, other than underwriting ------------------------ discounts and commissions and fees and expenses of one counsel to the Holders, incurred in connection with the registrations, filings or qualifications described herein, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, the fees and disbursements of counsel for the Company, and the fees and disbursements incurred in connection with the opinion and letter described in paragraph 4(h) hereof, shall be borne by the Company. (b) Amendment; Waiver. Any provision of this Agreement may be amended ----------------- only pursuant to a written instrument executed by the Company and each Holder. Any waiver of the provisions of this Agreement may be made only pursuant to a written instrument executed by the party against whom enforcement is sought. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder, and the Company. The failure of any party to exercise any right or remedy under this Agreement or otherwise, or the delay by any party in exercising such right or remedy, shall not operate as a waiver thereof. (c) Notices. Any notice, demand or request required or permitted to ------- be given by any party to any other party pursuant to the terms of this Agreement shall be in writing and shall be -10- deemed given (i) when delivered personally or by verifiable facsimile transmission (with an original to follow) on or before 5:00 p.m., eastern time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the day actually received after deposit in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the parties as follows: If to the Company: Asymetrix Learning Systems, Inc. 110 110/th/ Avenue NE Bellevue, WA 98008 Attn: General Counsel Tel: 425-637-5829 Fax: 425-637-1540 with a copy to: Jeffrey R. Vetter, Esq. Fenwick & West, LLP Two Palo Alto Square Palo Alto, CA 94306 Tel: 650-494-0600 Fax: 650-494-1417 and if to any Holder, to such address as shall be designated by such Holder in writing to the Company. (d) Termination. This Agreement shall terminate on the earlier to ----------- occur of (a) the end of the Registration Period and (b) the date on which all of the Registrable Securities have been publicly distributed; but any such termination shall be without prejudice to (i) the parties' rights and obligations arising from breaches of this Agreement occurring prior to such termination and (ii) the indemnification and contribution obligations under this Agreement. (e) Assignment. Upon the transfer of Preferred Shares convertible ---------- into 250,000 or more Conversion Shares (or, if less, constituting all of the Preferred Shares owned by a Holder), the Warrant or Registrable Securities by a Holder, the rights of such Holder hereunder with respect to the securities so transferred shall be assigned automatically to the transferee thereof as long as: (i) the Company is, within a reasonable period of time following such transfer, furnished with written notice of the name and address of such transferee, (ii) the transferee agrees in writing with the Company to be bound by all of the provisions hereof and (iii) such transfer is made in accordance with the applicable requirements of the Securities Purchase Agreement, the Certificate of Designation or the Warrant, as -11- the case may be; provided, however, that the registration rights granted in this -------- ------- Agreement shall not be transferred to any person or entity that receives any such security pursuant to an effective registration statement under the Securities Act or pursuant to a transaction under Rule 144 or any successor provision thereto. (f) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, and all of which together shall be deemed one and the same instrument. This Agreement, once executed by a party, may be delivered to any other party hereto by facsimile transmission. (g) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Delaware without regard to the conflict of laws provisions thereof. -12- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. ASYMETRIX LEARNING SYSTEMS, INC. By: /s/ James A. Billmaier ---------------------- Name: James A. Billmaier Title: Chief Executive Officer MARSHALL CAPITAL MANAGEMENT, INC. By: /s/ Allan Weine Allan Weine, President -13- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written. ASYMETRIX LEARNING SYSTEMS, INC. By: /s/ James A. Billmaier ----------------------- Name: James A. Billmaier Title: Chief Executive Officer VULCAN VENTURES By: /s/William D. Savoy -------------------- Name: William D. Savoy Title: Vice President -14- EX-99.03 4 FORM OF WARRANT EXHIBIT 99.03 EXHIBIT A TO ------------ SECURITIES ---------- PURCHASE AGREEMENT ------------------ THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER. Warrant to Purchase Issue Date: October 6, 1999 ___________ Shares WARRANT TO PURCHASE COMMON STOCK of ASYMETRIX LEARNING SYSTEMS, INC. THIS CERTIFIES that _________________ or any subsequent holder hereof (the "Holder"), has the right to purchase from ASYMETRIX LEARNING SYSTEMS, INC., a ------ Delaware corporation (the "Company"), up to ________________ fully paid and ------- nonassessable shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"), subject to adjustment as provided herein, at a price equal ------------ to the Exercise Price (as defined below), at any time beginning on the date on which this Warrant is issued (the "Issue Date") and ending at 5:00 p.m., eastern ---------- time, on the date that is the fifth (5/th/) anniversary of the Issue Date (the "Expiration Date"). This Warrant is issued, and all rights hereunder shall be, - ---------------- subject to all of the conditions, limitations and provisions set forth herein and in the Securities Purchase Agreement of even date herewith by and among the Company and the Purchasers named therein (the "Securities Purchase Agreement"). ----------------------------- Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Securities Purchase Agreement or the Certificate of Designation relating to the Series A Convertible Preferred Stock issued pursuant to the Securities Purchase Agreement ("Certificate of -------------- Designation"). - ----------- 1. Exercise. -------- (a) Right to Exercise; Exercise Price. The Holder shall have the right to exercise this Warrant at any time and from time to time during the period beginning on the Issue Date and ending on the Expiration Date as to all or any part of the shares of Common Stock covered hereby (the "Warrant Shares"). The -------------- "Exercise Price" payable by the Holder in connection with the exercise of this -------------- Warrant shall be equal to $9.30 (subject to adjustment as provided herein). (b) Exercise Notice. In order to exercise this Warrant, the Holder shall send by facsimile transmission, at any time prior to 7:00 p.m., eastern time, on the Business Day (as defined below) on which the Holder wishes to effect such exercise (the "Exercise Date"), to the Company a copy of the notice of exercise ------------- in the form attached hereto as Exhibit A (the "Exercise Notice") stating the --------------- number of Warrant Shares as to which such exercise applies and the calculation therefor. As used herein, "Business Day" shall mean any day on which the New ------------ York Stock Exchange (the "NYSE") and commercial banks in the city of New York ---- are open for business. The Holder shall thereafter deliver to the Company the original Exercise Notice, the original Warrant and the Exercise Price. In the case of a dispute as to the calculation of the Exercise Price or the number of Warrant Shares issuable hereunder (including without limitation the calculation of any adjustment to the Exercise Price pursuant to Section 6 below), the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and shall submit the disputed calculations to the Company's independent accountant within two (2) Business Days following the Exercise Date. The Company shall cause such accountant to calculate the Exercise Price and/or the number of Warrant Shares issuable hereunder and to notify the Company and the Holder of the results in writing no later than two Business Days following the day on which such accountant received the disputed calculations. Such accountant's calculation shall be deemed conclusive absent manifest error. The fees of any such accountant shall be borne by the party whose calculations were most at variance with those of such accountant. (c) Cancellation of Warrant. This Warrant shall be canceled upon its exercise and, if this Warrant is exercised in part, the Company shall, at the time that it delivers Warrant Shares to the Holder pursuant to such exercise as provided herein, issue a new warrant, and deliver to the Holder a certificate representing such new warrant, with terms identical in all respects to this Warrant (except that such new warrant shall be exercisable into the number of shares of Common Stock with respect to which this Warrant shall remain unexercised); provided, however, that the Holder shall be entitled to exercise -------- ------- all or any portion of such new warrant at any time following the time at which this Warrant is exercised, regardless of whether the Company has actually issued such new warrant or delivered to the Holder a certificate therefor. (d) Expiration Upon Certain Events. Commencing on the two-year ------------------------------ anniversary of the Issue Date, in the event that during any period of twenty (20) consecutive Trading Days, the Closing Trade Price (as defined in the Certificate of Designation) of the Common Stock exceeds an amount equal to product of (i) the Exercise Price (subject to adjustment as provided herein) and (ii) two and -2- one-half (2.5), the Company may deliver to the Holder, as long as the Expiration Condition (as defined below) has been satisfied, a written notice to such effect (a "Cancellation Notice") and this Warrant shall expire on the date which is ------------------- five (5) Trading Days following the business day on which such Cancellation Notice is delivered to the Holder. The term "Expiration Condition" shall mean that either (A) the Registration Statement (as defined in the Registration Rights Agreement between the Company and the Holder) has been declared effective and is available for the resale of (i) all of the Warrant Shares into which this Warrant is exercisable and (ii) all of the Conversion Shares issuable upon conversion of the Preferred Shares (each as defined in the Certificate of Designation)(assuming the minimum applicable Conversion Price and that no conditions to or limitations on the conversion of the Preferred Shares then exist) or (B) the Warrant Shares may be sold pursuant to Rule 144(k) under the Securities Act of 1933, as amended. 2. Delivery of Warrant Shares Upon Exercise. Upon receipt of a Exercise ---------------------------------------- Notice pursuant to paragraph 1 above, the Company shall, (A) in the case of a Cashless Exercise (as defined below), no later than the close of business on the third (3rd) Business Day following the Exercise Date set forth in such Exercise Notice, (B) in the case of a Cash Exercise (as defined below) no later than the close of business on the later to occur of (i) the third (3rd) Business Day following the Exercise Date set forth in such Exercise Notice and (ii) such later date on which the Company shall have received payment of the Exercise Price, and (C) with respect to Warrant Shares which are disputed as described in paragraph 1(b) above, and required to be delivered by the Company pursuant to the accountant's calculations described therein, the close of business on the third (3/rd/) Business Day following the determination made pursuant to paragraph 1(b) (the "Delivery Date"), issue and deliver or caused to be ------------- delivered to the Holder the number of Warrant Shares as shall be determined as provided herein. The Company shall effect delivery of Warrant Shares to the Holder by, as long as the Company's designated transfer agent for the Common Stock (the "Transfer Agent") participates in the Depository Trust Company -------------- ("DTC") Fast Automated Securities Transfer program ("FAST"), crediting the --- ---- account of the Holder or its nominee at DTC (as specified in the applicable Exercise Notice) with the number of Warrant Shares required to be delivered, no later than the close of business on such Delivery Date. In the event that the Transfer Agent is not a participant in FAST, or if Warrant Shares are not otherwise eligible for delivery through FAST, or if the Holder so specifies in an Exercise Notice or otherwise in writing on or before the Exercise Date, the Company shall effect delivery of Warrant Shares by delivering to the Holder or its nominee physical certificates representing such Warrant Shares, no later than the close of business on such Delivery Date. Warrant Shares delivered to the Holder shall not contain any restrictive legend as long as the resale of such Warrant Shares is covered by an effective Registration Statement (as defined in the Registration Rights Agreement) and such Holder represents in writing to the Company that such Warrant Shares (i) have been or are being sold pursuant to such registration statement or pursuant to Rule 144 under the Securities Act of 1933, as amended, or (ii) may be made pursuant to Rule 144(k) under the Securities Act of 1933, as amended, or any successor rule or provision. 3. Failure to Deliver Warrant Shares. --------------------------------- -3- (a) Exercise Default. In the event that, as a result of any action or failure to act on the part of the Company (including without limitation a failure by the Company to have a sufficient number of shares of Common Stock authorized and reserved for issuance pursuant to exercise of the Warrants), the Company does not deliver to a Holder certificates representing the number of Warrant Shares specified in the applicable Exercise Notice on or before the Delivery Date therefor and such failure continues for ten (10) Business Days (an "Exercise Default"), the Company shall pay to the Holder payments ("Exercise ---------------- -------- Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate - ---------------- ------------- Exercise Price for the Warrant Shares which are the subject of such Exercise Default multiplied by (iii) the lower of twenty four percent (24%) and the ------------- maximum rate permitted by applicable law, where "N" equals the number of days elapsed between the original Delivery Date for such Warrant Shares and the date on which all of such Warrant Shares are issued and delivered to the Holder. Amounts payable under this subparagraph 3(a) shall be paid to the Holder in immediately available funds on or before the fifth (5th) Business Day of the calendar month immediately following the calendar month in which such amount has accrued. (b) Buy-in. Nothing herein shall limit a Holder's right to pursue actual damages for the Company's failure to issue and deliver Warrant Shares in connection with an exercise on the applicable Delivery Date (including, without limitation, damages relating to any purchase of shares of Common Stock by the Holder to make delivery on a sale effected in anticipation of receiving Warrant Shares upon exercise, such damages to be in an amount equal to (A) the aggregate amount paid by the Holder for the shares of Common Stock so purchased minus (B) ----- the aggregate amount of net proceeds, if any, received by the Holder from the sale of the Warrant Shares issued by the Company pursuant to such exercise), and the Holder shall have the right to pursue all remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief). (c) Reduction of Exercise Price. In the event that, as a result of any action or failure to act on the part of the Company (including without limitation a failure by the Company to have a sufficient number of shares of Common Stock authorized and reserved for issuance pursuant to exercise of the Warrants), a Holder has not received certificates representing the Warrant Shares by the tenth (10th) Business Day following an Exercise Default, the Holder may, upon written notice to the Company, regain on such Business Day the rights of a Holder of this Warrant, or part thereof, with respect to the Warrant Shares that are the subject of such Exercise Default, and the Exercise Price for such Warrant Shares shall be reduced by one percent (1%) for each day beyond such 10th Business Day in which the Exercise Default continues. In such event, the Holder shall retain all of the Holder's rights and remedies with respect to the Company's failure to deliver such Warrant Shares (including without limitation the right to receive the cash payments specified in subparagraph 3(a) above). (d) Holder of Record. Each Holder shall, for all purposes, be deemed to have become the holder of record of Warrant Shares on the Exercise Date of this Warrant, irrespective of the date of delivery of such Warrant Shares. Nothing in this Warrant shall be construed as conferring upon -4- the Holder hereof any rights as a stockholder of the Company prior to the Exercise Date. 4. Exercise Limitations. -------------------- In no event shall a Holder be permitted to exercise this Warrant, or part thereof, with respect to Warrant Shares in excess of the number of such shares, upon the issuance of which, (x) the number of shares of Common Stock beneficially owned by the Holder plus (y) the number of shares of Common Stock ---- issuable upon such exercise, would be equal to or exceed (z) 9.99% of the number of shares of Common Stock then issued and outstanding. To the extent that the limitation contained in this paragraph 4 applies, the submission of a Conversion Notice by the Holder shall be deemed to be the Holder's representation that this Warrant is exercisable pursuant to the terms hereof and the Company shall be entitled to rely on such representation without making any further inquiry. Nothing contained herein shall be deemed to restrict the right of a Holder to exercise this Warrant, or part thereof, at such time as such exercise will not violate the provisions of this Section 4. The limitation contained in this Section 4 shall not apply if the original Holder hereof elected in the Securities Purchase Agreement not to be subject to such limitation. 5. Payment of the Exercise Price. The Holder may pay the Exercise Price ----------------------------- in either of the following forms or, at the election of Holder, a combination thereof: (a) Cash Exercise: by delivery of immediately available funds. (b) Cashless Exercise: by surrender of this Warrant to the Company together with a notice of cashless exercise, in which event the Company shall issue to the Holder the number of Warrant Shares determined as follows: X = Y x (A-B)/A where: X = the number of Warrant Shares to be issued to the Holder. Y = the number of Warrant Shares with respect to which this Warrant is being exercised. -5- A = the average of the Closing Bid Prices of the Common Stock for the five (5) Trading Days immediately prior to (but not including) the Exercise Date. B = the Exercise Price; provided, however, that the Holder may exercise this Warrant pursuant to a - -------- ------- Cashless Exercise only if, on the Exercise Date, the resale of Warrant Shares is not covered by an effective Registration Statement (as defined in the Registration Rights Agreement) that is available to the Holder on such date. For purposes of Rule 144 under the Securities Act of 1933, as amended, it is intended, understood and acknowledged that the Warrant Shares issued in a cashless exercise transaction shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have been commenced, on the Issue Date. 6. Anti-Dilution Adjustments; Distributions; Other Events. The Exercise ------------------------------------------------------ Price and the number of Warrant Shares issuable hereunder shall be subject to adjustment from time to time as provided in this Section 6. In the event that any adjustment of the Exercise Price or number of Warrant Shares as required herein results in a fraction of a cent or fraction of a share, as applicable, such exercise Price or number of Warrant Shares shall be rounded upon or down to the nearest cent or share, as applicable. (a) Adjustment of Exercise Price and Number of Shares upon Issuance --------------------------------------------------------------- of Common Stock. Except as otherwise provided in Section 6(c) and 6(e) hereof, - --------------- if and whenever after the initial issuance of this Warrant, the Company issues or sells, or in accordance with Section 6(b) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration (other than a stock split or stock dividend) or for a consideration per share less than Exercise Price (as then in effect)(other than issuances of Common Stock (i) pursuant to an employee stock purchase plan or upon the exercise of options issued under a stock option plan duly adopted by the Company, (ii) in connection with a merger, acquisition or strategic investment which, in either such case, is not effected for the primary purpose of raising equity capital or (iii) in connection with a firm- commitment underwritten secondary offering) (a "Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the Exercise Price will be adjusted in accordance with the following formula: E' = (E)(O+P/E) ---------- (CSDO) where: E' = the adjusted Exercise Price E = the then current Exercise Price; -6- O = the number of shares of Common Stock outstanding immediately prior to the Dilutive Issuance; P = the aggregate consideration, calculated as set forth in Section 6(b) hereof, received by the Company upon such Dilutive Issuance; and CSDO = the total number of shares of Common Stock Deemed Outstanding (as herein defined) immediately after the Dilutive Issuance. (b) Effect on Exercise Price of Certain Events. For purposes of ------------------------------------------ determining the adjusted Exercise Price under Section 6(a) hereof, the following will apply: (i) Issuance of Rights or Options. If, after the date hereof, the Company in any manner issues or grants any warrants, rights or options, whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities exercisable, convertible into or exchangeable for Common Stock ("Convertible Securities")(such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options"), and the price per share for which Common Stock is purchasable or issuable upon the exercise of such Options is less than the Exercise Price (as then in effect) on the date of issuance of such Option or direct stock grant ("Below Market Options"), then the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full exercise, conversion or exchange of Convertible Securities, if applicable) will, as of the date of the issuance or grant of such Below Market Options, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of the preceding sentence, the price per share for which Common Stock is issuable upon the exercise of such Below Market Options is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Below Market Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such below Market Options, plus, in the case of Convertible Securities issuable upon the exercise of such Below Market Options, the minimum aggregate amount of additional consideration payable upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Below Market Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Exercise Price will be made upon the exercise of such Below Market Options or upon the exercise, conversion or exchange of Convertible Securities issuable upon exercise of such Below Market Options. (ii) Issuance of Convertible Securities. ---------------------------------- (A) If the Company in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options) and the price per share for which Common Stock is issuable upon such exercise, conversion or exchange (as determined pursuant to Section 6(b)(ii)(B) if applicable) is less than the -7- Exercise Price (as then in effect) on the date of issuance of such Convertible Security, then the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities will, as of the date of the issuance of such Convertible Securities, be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For the purposes of the preceding sentence, the price per share for which Common Stock is issuable upon such exercise, conversion or exchange is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange thereof at the time such Convertible Securities first become exercisable, convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise, conversion or exchange of all such Convertible Securities. No further adjustment to the Exercise Price will be made upon the actual issuances of such Common Stock upon exercise, conversion or exchange of such Convertible Securities. (B) If the Company in any manner issues or sells any Convertible Securities with a fluctuating or re-setting conversion or exercise price or exchange ratio (a "Variable Rate Convertible Security"), then the price per share for which Common Stock is issuable upon such exercise, conversion or exchange for purposes of the calculation contemplated by Section 6(b)(ii)(A) shall be deemed to be the lowest price per share which would be applicable assuming that (1) all holding period and other conditions to any discounts contained in such Convertible Security have been satisfied, and (2) the Market Price on the date of exercise, conversion or exchange of such Convertible Security was 80% of the Market Price on the date of issuance of such Convertible Security (the "Assumed Variable Market Price"). (iii) Change in Option Price or Conversion Rate. If there is a ----------------------------------------- change at any time in (i) the amount of additional consideration payable to the Company upon the exercise of any Options; (ii) the amount of additional consideration, if any, payable to the Company upon the exercise, conversion or exchange of any Convertible Securities; or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock (other than under or by reason of provisions designed to protect against dilution), the Exercise Price in effect at such time shall be adjusted to the Exercise Price which would have been in effect had such Options or Convertible Securities still outstanding provided for such changed additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. (iv) Treatment of Expired Options and Unexercised Convertible -------------------------------------------------------- Securities. If, in any case, the total number of shares of Common Stock - ----------- issuable upon exercise of any Options or upon exercise, conversion or exchange of any Convertible Securities is not, in fact, issued and the rights to exercise such Option or to exercise, convert or exchange such Convertible Securities shall have expired or terminated, the Exercise Price then in effect will be readjusted to the Exercise Price which would have been in effect at the time of such expiration or termination had such Options or -8- Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof), never been issued. (v) Calculation of Consideration Received. If any Common Stock, ------------------------------------- Options or Convertible Securities are issued, granted or sold for cash, the consideration received therefor for purposes of this Warrant will be the amount received by the Company therefor, before deduction of reasonable commissions, underwriting discounts or allowances or other reasonable expenses paid or incurred by the Company in connection with such issuance, grant or sale. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration part or all of which shall be other than cash, the amount of the consideration other than cash received by the Company will be the fair market value of such consideration except where such consideration consists of freely-tradable securities, in which case the amount of consideration received by the Company will be the Market Price thereof as of the date of receipt. The fair market value of any consideration other than cash or securities will be determined in the good faith reasonable business judgment of the Board of Directors. (vi) Exceptions to Adjustment of Exercise Price. No adjustment ------------------------------------------ to the Exercise Price will be made (i) upon the exercise of any warrants, options or convertible securities issued and outstanding on the date hereof in accordance with the terms of such securities as of such date; (ii) upon the grant or exercise of any stock or options which may hereafter be granted or exercised under any employee, consultant or director benefit plan of the Company now existing or to be implemented in the future, so long as the issuance of such stock or options is approved by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose; (iii) upon the issuance of the Conversion Shares (as defined in the Securities Purchase Agreement) in accordance with terms of the Certificate of Designation relating to the Company's Series A Preferred Stock (the "Preferred Stock"); or (iv) upon the exercise of the Warrants. (c) Subdivision or Combination of Common Stock. If the Company, at ------------------------------------------ any time after the initial issuance of this Warrant, subdivides (by any stock split, stock dividend, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a greater number of shares, then after the date of record for effecting such subdivision, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company, at any time after the initial issuance of this Warrant, combines (by reverse stock split, recapitalization, reorganization, reclassification or otherwise) its shares of Common Stock into a smaller number of shares, then, after the date of record for effecting such combination, the Exercise Price in effect immediately prior to such combination will be proportionally increased In the event of any adjustment to the Exercise Price arising from an event specified in the subparagraph (c), the number of shares of Common Stock into which this Warrant is exercisable will be proportionately increased or reduced, as the case may be. -9- (d) Distributions. If the Company or any of its subsidiaries shall at any ------------- time distribute to holders of Common Stock (or to a holder, other than the Company, of the common stock of any such subsidiary) cash, evidences of indebtedness or other securities or assets (other than cash dividends or distributions payable out of earned surplus or net profits for the current or the immediately preceding year) including any dividend or distribution in shares of capital stock of a subsidiary of the Company (collectively, a "Distribution") ------------ then, in any such case, the Holder of this Warrant shall be entitled to receive, at the same time as such assets are received by a holder of such stock, an amount and type of such Distribution as though such Holder were a holder on the record date therefor of a number of shares of Common Stock into which this Warrant is exercisable as of such record date (such number of shares to be determined at the Exercise Price then in effect and without regard to any limitation on exercise of this Warrant that may exist pursuant to the terms hereof or otherwise). (e) Notice of Consolidation or Merger. In the event of a merger, --------------------------------- consolidation, business combination, tender offer, exchange of shares, recapitalization, reorganization, redemption or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities or other assets of the Company or another entity or there is a sale of all or substantially all the Company's assets (a "Corporate Change"), then ---------------- this Warrant shall be exercisable into such class and type of securities or other assets as the Holder would have received had the Holder exercised this Warrant immediately prior to such Corporate Change; provided, however, that Company may not effect any Corporate Change unless (i) it (or, in the case of a tender offer, the offering party) first shall have given twenty (20) days' notice to the Holder hereof of any Corporate Change and makes a public announcement of such event before or at the same time that it gives such notice (it being understood that the filing by the Company of a Form 8-K for the purpose of disclosing the anticipated consummation of the Corporate Change shall constitute such a notice for purposes of this provision) and (ii) it requires the resulting successor or acquiring entity (if not the Company) to assume by written instrument the obligations of the Company hereunder and under the Securities Purchase Agreement and the Registration Rights Agreement. (f) Adjustments; Additional Shares, Securities or Assets. In the event ---------------------------------------------------- that at any time, as a result of an adjustment made pursuant to this paragraph 6, the Holder of this Warrant shall, upon exercise of this Warrant, become entitled to receive securities or assets (other than Common Stock) then, wherever appropriate, all references herein to shares of Common Stock shall be deemed to refer to and include such shares and/or other securities or assets; and thereafter the number of such shares and/or other securities or assets shall be subject to adjustment from time to time in a manner and upon terms as nearly equivalent as practicable to the provisions of this paragraph 6. -10- 7. Fractional Interests. -------------------- No fractional shares or scrip representing fractional shares shall be issuable upon the exercise of this Warrant, but on exercise of this Warrant, the Holder hereof may purchase only a whole number of shares of Common Stock. If, on exercise of this Warrant, the Holder hereof would be entitled to a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon exercise shall be rounded up or down to the nearest whole number of shares of Common Stock. 8. Transfer of this Warrant. The Holder may sell, transfer, assign, ------------------------ pledge or otherwise dispose of this Warrant, in whole or in part (and if in part, in minimum denominations of 50,000 shares), as long as such sale or other disposition is made pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act of 1933, as amended, and applicable state laws. Upon such transfer or other disposition, the Holder shall deliver a written notice to Company, substantially in the form of the Transfer Notice attached hereto as Exhibit B (the "Transfer Notice"), --------------- indicating the person or persons to whom this Warrant shall be transferred and, if less than all of this Warrant is transferred or this Warrant is transferred in parts, the number of Warrant Shares to be covered by the part of this Warrant to be transferred to each such person. Within three (3) Business Days of receiving a Transfer Notice and the original of this Warrant, the Company shall deliver to the each transferee designated by the Holder a Warrant or Warrants of like tenor and terms for the appropriate number of Warrant Shares. Notwithstanding the foregoing, no Holder may knowingly and voluntarily sell this Warrant (or any portion thereof) to an entity that is a competitor of the Company. 9. Benefits of this Warrant. ------------------------ Nothing in this Warrant shall be construed to confer upon any person other than the Holder of this Warrant any legal or equitable right, remedy or claim under this Warrant and this Warrant shall be for the sole and exclusive benefit of the Holder of this Warrant. 10. Loss, theft, destruction or mutilation of Warrant. -------------------------------------------------- Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender of this Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date. 11. Notice or Demands. ----------------- Except as otherwise provided herein, any notice, demand or request required or permitted to be given pursuant to the terms of this Warrant shall be in writing and shall be deemed -11- given (i) when delivered personally or by verifiable facsimile transmission (with an original to follow) on or before 5:00 p.m., eastern time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to a nationally-recognized overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows: If to the Company: Asymetrix Learning Systems, Inc. 110 110/th/ Avenue NE Bellevue, WA 98008 Attn: General Counsel Tel: 425-637-5829 Fax: 425-637-1540 with a copy to: Jeffrey R. Vetter, Esq. Fenwick & West, LLP Two Palo Alto Square Palo Alto, CA 94306 Tel: 650-494-0600 Fax: 650-494-1417 and if to the Holder, to such address as shall be designated by the Holder in writing to the Company. 12. Applicable Law. -------------- This Warrant is issued under and shall for all purposes be governed by and construed in accordance with the laws of the state of Delaware, without giving effect to conflict of law provisions thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -12- IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the 6/th/ day of October, 1999. ASYMETRIX LEARNING SYSTEMS, INC. By: ____________________________ Name: Title: -13- EXHIBIT A to WARRANT -------------------- EXERCISE NOTICE --------------- The undersigned Holder hereby irrevocably exercises the right to purchase ________________ of the shares of Common Stock ("Warrant Shares") of ASYMETRIX -------------- LEARNING SYSTEMS, INC. evidenced by the attached Warrant (the "Warrant"). ------- Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. Unless otherwise specified in writing to the Company, the undersigned represents to the Company that the shares of Common Stock covered by this notice have been or will be sold pursuant to the terms of an effective registration statement. 1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as: ______ a Cash Exercise with respect to _________________ Warrant ------------- Shares; and/or ______ a Cashless Exercise with respect to _________________ Warrant ----------------- Shares. 2. Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the sum of $________________ to the Company in accordance with the terms of the Warrant. 3. Delivery of Warrant Shares. The Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant. Date: ______________________ ___________________________________ Name of Registered Holder By: ______________________________ Name: Title: -14- EXHIBIT B to WARRANT -------------------- TRANSFER NOTICE --------------- FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells, assigns and transfers unto the person or persons named below the right to purchase ____shares of the Common Stock of ASYMETRIX LEARNING SYSTEMS, INC. evidenced by the attached Warrant. Date: ______________________ ___________________________________ Name of Registered Holder By: _______________________________ Name: Title: Transferee Name and Address: ____________________________________________ ____________________________________________ ____________________________________________ EX-99.04 5 CERTIFICATE OF DESIGNATION EXHIBIT 99.04 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS of the SERIES A CONVERTIBLE PREFERRED STOCK of ASYMETRIX LEARNING SYSTEMS, INC. Pursuant to Section 151 of the Delaware General Corporation Law ASYMETRIX LEARNING SYSTEMS, INC., a Delaware corporation (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation pursuant to the authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Law. RESOLVED, that pursuant to the authority granted to the Board of Directors in accordance with the provisions of the Corporation's Certificate of Incorporation, the Board of Directors hereby authorizes a series of the Corporation's previously authorized Preferred Stock, par value $.01 per share (the "Preferred Stock"), and hereby states the designation and number of shares, --------------- and fixes the relative rights, preferences, privileges and restrictions thereof as follows: 1. DESIGNATION AND AMOUNT. ---------------------- The designation of this series, which consists of ten thousand (10,000) shares of Preferred Stock, is the "Series A Convertible Preferred Stock" (the "Series A Preferred Stock") and the face amount of each share of Series A ------------------------ Preferred Stock (each, a "Preferred Share" and collectively, the "Preferred --------------- --------- Shares") shall be One Thousand Dollars ($1,000) per Preferred Share (the "Stated - ------ ------ Value"). The date on which the Preferred Shares are issued and sold, together - ----- with the related warrants (the "Warrants"), pursuant to the Securities Purchase -------- Agreement, dated September 30, 1999, between the Corporation and the Purchasers named therein (the "Securities Purchase Agreement") is referred to herein as the ----------------------------- "Issue Date". The Corporation has agreed to register the shares of Corporation's ---------- Common Stock, par value $.01 per share (the "Common Stock") pursuant to a ------------ Registration Rights Agreement of even date with the Securities Purchase Agreement (the "Registration Rights Agreement"). The holders of Preferred Shares ----------------------------- are each referred to as a "Holder" and, collectively, as the "Holders". ------ ------- 2. DIVIDENDS. --------- The Series A Preferred Stock will not bear dividends. 3. PRIORITY. -------- (a) Payment upon Dissolution. ------------------------ (i) Upon the occurrence of (x) any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings in connection therewith, commenced by the Corporation or by its creditors, as such, or relating to its assets or (y) the dissolution or other winding up of the Corporation whether total or partial, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy proceedings, or (z) any assignment for the benefit of creditors or any marshalling of the material assets or material liabilities of the Corporation (each, a "Liquidation ----------- Event"), no distribution shall be made to the holders of any shares of Junior - ----- Securities (as defined below) unless, following the payment of preferential amounts on all Senior Securities (as defined below), each Holder shall have received the Liquidation Preference (as defined below) with respect to each Preferred Share then held by such Holder. In the event that upon the occurrence of a Liquidation Event, and following the payment of preferential amounts on all Senior Securities (as defined below), the assets available for distribution to the Holders and the holders of Pari Passu Securities are insufficient to pay the Liquidation Preference with respect to all of the outstanding Preferred Shares and the preferential amounts payable to such holders, the entire assets of the Corporation shall be distributed ratably among the Preferred Shares and the shares of Pari Passu Securities in proportion to the ratio that the preferential amount payable on each such share (which shall be the Liquidation Preference in the case of a Preferred Share) bears to the aggregate preferential amount payable on all such shares. (ii) The "Liquidation Preference" with respect to a Preferred Share ---------------------- shall mean an amount equal to the Stated Value of such Preferred Share plus all unpaid Premium (as defined below) accrued on such Preferred Share in accordance with the terms hereof. "Junior Securities" shall mean the Common Stock and all ----------------- other capital stock of the Corporation that are not Pari Passu Securities or Senior Securities. "Pari Passu Securities" shall mean any securities ranking by --------------------- their terms pari passu with the Series A Preferred Stock in respect of redemption or distribution upon liquidation. "Senior Securities" shall mean (i) ----------------- any debt issued or assumed by the Corporation and (ii) any securities of the Corporation which by their terms have a preference over the Series A Preferred Stock in respect of redemption or distribution upon liquidation. 4. CONVERSION. ---------- (a) Right to Convert. Each Holder shall have the right to convert, at any ---------------- time and from time to time after the Issue Date, all or any part of the Preferred Shares held by such Holder into such number of fully paid and non- assessable shares ("Conversion Shares") of the Common Stock as is determined in ----------------- accordance with the terms hereof (a "Conversion"). ---------- 2 (b) Conversion Notice. In order to convert Preferred Shares, a Holder ----------------- shall send by facsimile transmission, at any time prior to 11:59 p.m., eastern time, on the date on which such Holder wishes to effect such Conversion (the "Conversion Date"), (i) a notice of conversion (a "Conversion Notice"), in --------------- ----------------- substantially the form of Exhibit A hereto, to the Corporation stating the number of Preferred Shares to be converted, the amount of Premium (as defined below) accrued (but remaining unpaid) thereon, the applicable Conversion Price (as defined below) and a calculation of the number of shares of Common Stock issuable upon such Conversion and (ii) a copy of the certificate or certificates representing the Preferred Shares being converted. The Holder shall thereafter send the original of the Conversion Notice and of such certificate or certificates to the Corporation. The Corporation shall issue a new certificate for Preferred Shares in the event that less than all of the Preferred Shares represented by a certificate delivered to the Corporation in connection with a Conversion are converted. Except as otherwise provided herein, upon delivery of a Conversion Notice by a Holder in accordance with the terms hereof, such Holder shall, as of the applicable Conversion Date, be deemed for all purposes to be record owner of the Common Stock to which such Conversion Notice relates. In the case of a dispute between the Corporation and a Holder as to the calculation of the Conversion Price or the number of Conversion Shares issuable upon a Conversion (including without limitation the calculation of any adjustment to the Conversion Price pursuant to Section 6 below), the Corporation shall issue to such Holder the number of Conversion Shares that are not disputed within the time periods specified in paragraph 4(e) below and shall submit the disputed calculations to its independent accountant within two (2) Business Days of receipt of such Holder's Conversion Notice. The Corporation shall cause such accountant to calculate the Conversion Price as provided herein and to notify the Corporation and such Holder of the results in writing no later than five (5) Business Days following the Corporation's receipt of such Holder's Conversion Notice (such 5/th/ Business Day being referred to herein as the "Disputed Share -------------- Calculation Date"). Such accountant's calculation shall be deemed conclusive - ---------------- absent manifest error. The fees of any such accountant shall be borne by the party whose calculations were most at variance with those of such accountant. (c) Number of Conversion Shares; Conversion Price. The number of --------------------------------------------- Conversion Shares to be delivered by the Corporation pursuant to a Conversion shall be determined in accordance with the following formula: SV + P ------ CP where SV represents the aggregate Stated Value of the Preferred Shares to be -- converted, P represents the aggregate unpaid Premium accrued on such Preferred - Shares through the Conversion Date, it being understood that the Corporation must pay Premium that has accrued as of a Conversion Date in immediately available funds if any Premium Share Condition (as defined in paragraph 4(g) below) has not been satisfied or waived by the Holder of such Preferred Shares as of such Conversion Date, in which case such Premium shall not be considered in determining the number of Conversion Shares 3 issuable pursuant to such Conversion, and it being further understood that such Premium shall not be included in such formula for any conversions that occur prior to the one hundred and eightieth (180/th/) day following the Issue Date (but shall accrue and be payable thereafter in accordance with the terms of this Certificate), and CP represents the Conversion Price (as defined below) in effect on the -- applicable Conversion Date. "Premium" with respect to a Preferred Share shall be determined in accordance ------- with the following formula: (SV)(.05)(N) ------------ 365 where SV represents the Stated Value of such Preferred Share, and -- N represents the number of days elapsed from the Issue Date through - and including the Conversion Date relating to such Preferred Share. In addition to the payment of Premium upon the conversion of Preferred Shares as described above, the Corporation shall pay to each Holder any Premium that has accrued on the Preferred Shares owned by such Holder and that remains unpaid on the last day of each calendar quarter beginning with the first calendar quarter to end after the one hundred and eightieth (180/th/) day following the Issue Date (a "Quarterly Premium Payment Date"). The Corporation shall pay such ------------------------------ accrued Premium in either (at the Corporation's option) cash or, if each Premium Share Condition (as defined below) has been satisfied or waived by such Holder as of such Quarterly Premium Payment Date, in shares of Common Stock (the "Premium Shares"). In the event that the Corporation elects to pay Premium on -------------- the last day of a quarter in Premium Shares, the number of such shares to be delivered shall be equal to the dollar amount of such Premium divided by the Market Price (as defined below). The Corporation shall pay such accrued Premium within five (5) Business Days following such Quarterly Premium Payment Date (a "Premium Share Delivery Date"). Notwithstanding anything contained herein to the --------------------------- contrary, (i) in the event that date on which the Registration Statement (as defined below) is declared effective by the Securities and Exchange Commission (the "Effective Date") occurs on or before the one hundred and eightieth (180/th/) day following the Issue Date, no Premium shall be payable with respect to any conversion or any Quarterly Premium Payment Date and (ii) in the event that the Effective Date does not occur on or before such 180/th/ day, all Premium accrued since the Issue Date shall become payable on the next occurring Delivery Date (as defined in subparagraph (e) below). "Conversion Price" shall be determined, subject to adjustment for the events ---------------- specified in Section 6 below, as follows: (A) during the period beginning on the Issue Date and ending on the Trading Day occurring immediately prior to the Effective Date, the Conversion Price shall be equal to $7.75 (the "Initial ------- Conversion Price"), and (B) on the Effective date, the Conversion Price shall be - ---------------- equal to the lower of (x) the Initial Conversion Price and (y) the greater of (i) the average Closing Trade Price 4 occurring during the period of twenty (20) consecutive Trading Days occurring immediately prior to (but not including) the Effective Date and (ii) $6.82. (d) Certain Definitions. "Trading Day" means any day on which the Common ------------------- ----------- Stock is purchased and sold on the principal securities exchange or market on which the Common Stock is then listed or traded. "Closing Bid Price" means, with ----------------- respect to the Common Stock, the closing bid price for the Common Stock occurring on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial Markets is not then reporting such prices, by a comparable reporting service of national reputation selected by the Corporation and reasonably acceptable to each Holder of the then outstanding Preferred Shares (collectively, "Bloomberg") or if the foregoing does not apply, --------- the last reported bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no bid price is reported for such security by Bloomberg, the average of the bid prices of all market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. (collectively, the "Applicable Reporting -------------------- Entity"). If the Closing Bid Price cannot be calculated for such security on - -------- any of the foregoing bases, the Closing Bid Price of such security shall be the fair market value as reasonably determined by an independent investment banking firm selected by all of the Holders of Preferred Shares, and reasonably acceptable to the Corporation, with the costs of such appraisal to be borne by the Corporation. "Closing Trade Price" means, with respect to the Common Stock, ------------------- the last sale price reported for the Common Stock on a given Trading Day on the principal securities exchange or trading market where such security is listed or traded as reported by the Applicable Reporting Entity or if no sale price was reported by the Applicable Reporting Entity on such Trading Day, the last sale price reported by the Applicable Reporting Entity on the Trading Day on which such prices were last reported immediately preceding such Trading Day. "Business -------- Day" means any day on which the New York Stock Exchange and commercial banks - --- located in the City of New York are open for business. (e) Delivery of Conversion Shares, Premium Shares. Upon receipt of a --------------------------------------------- Conversion Notice from a Holder, the Corporation shall, on or before the close of business on the later to occur of (i) the third (3rd) Business Day following the Conversion Date set forth in such Conversion Notice and (ii) with respect to Conversion Shares that are the subject of a dispute as described in paragraph 4(b) above, the Business Day immediately following the Disputed Share Calculation Date (the applicable such Business Day being referred to herein as a "Conversion Share Delivery Date"), issue and deliver or cause to be delivered to ------------------------------ such Holder the number of Conversion Shares to which such Holder is entitled to receive as provided herein. A Conversion Share Delivery Date and a Premium Share Delivery Date are each sometimes referred to herein as a "Delivery Date". The ------------- Corporation shall effect delivery of Conversion Shares or Premium Shares to a Holder by, as long as the transfer agent for the Corporation (the "Transfer -------- Agent") participates in the Depository Trust Company ("DTC") Fast Automated - ----- --- Securities Transfer program ("FAST"), crediting the account of such Holder or ---- its nominee at DTC (as specified in the applicable Conversion Notice or otherwise in writing) with the number of Conversion Shares required to be delivered, no later than the close of business on such Delivery Date. In the event that Transfer Agent is not a participant in FAST, or if Conversion Shares are not otherwise eligible for delivery through FAST, or if a Holder so specifies in a Conversion Notice or otherwise in 5 writing on or before the Conversion Date or Premium Share Delivery Date, the Corporation shall effect delivery of Conversion Shares or Premium Shares by delivering to the Holder or its nominee physical certificates representing such shares, no later than the close of business on such Delivery Date. If any Conversion or payment of Premium would create a fractional Conversion Share or Premium Share, such fractional share shall be disregarded and the number of Conversion Shares or Premium Shares shall be the rounded to the nearest whole number of shares. Conversion Shares and Premium Shares delivered to a Holder shall not contain any restrictive legend as long as (A) the resale, transfer, pledge or other disposition of such shares is covered by an effective registration statement and such Holder represents in writing to the Corporation that such shares have been or are being sold pursuant to such registration statement, (B) such shares have been publicly sold pursuant to Rule 144 ("Rule ---- 144"), or (C) such shares can be sold pursuant to Rule 144(k) under Securities - --- Act of 1933, as amended (the "Securities Act"), or any successor rule or --------------- provision. (f) Failure to Deliver Conversion Shares. ------------------------------------ (i) In the event that, as a result of any willful action or failure to act on the part of the Corporation (whether under this Certificate of Designation, under any other Transaction Document (as defined in the Securities Purchase Agreement) or otherwise, including without limitation a failure by the Corporation to have a sufficient number of shares of Common Stock authorized and reserved for issuance pursuant to conversions of Preferred Shares), a Holder has not received certificates (without any restrictive legend in the circumstances described in clause (A), (B) or (C) of paragraph 4(e) above) representing the number of Conversion Shares specified in the applicable Conversion Notice on or before the Delivery Date therefor (a "Conversion Default"), and such failure to ------------------ deliver certificates continues for ten (10) Business Days following the delivery of written notice thereof from such Holder (such tenth Business Day being referred to herein as the "Conversion Default Date"), the Corporation shall pay ----------------------- to such Holder payments ("Conversion Default Payments") in the amount of (i) "N" --------------------------- multiplied by (ii) the aggregate Stated Value of the Preferred Shares which are - ------------- the subject of such Conversion Default multiplied by (iii) one percent (1%), ------------- where "N" equals the number of days elapsed between the Conversion Default Date and the earlier to occur of (i) the date on which all of the certificates (without any restrictive legend in the circumstances described in clause (A), (B) or (C) of paragraph 4(e) above) representing such Conversion Shares are issued and delivered to such Holder, (ii) the date on which such Preferred Shares are redeemed pursuant to the terms hereof and (iii) the date on which a Withdrawal Notice (as defined below) is delivered to the Corporation. Amounts payable hereunder shall be paid to the Holder in immediately available funds on or before the fifth (5th) Business Day of the calendar month immediately following the calendar month in which such amounts have accrued. (ii) In the event that a Holder has not received certificates (without any restrictive legend in the circumstances described in clause (A), (B) or (C) of paragraph 4(e) above) representing the Conversion Shares by the tenth (10/th/) Business Day following a Conversion Default as a result of any willful action or any failure to act on the part of the Corporation (whether under this Certificate of Designation, under any other Transaction Document (as defined in the Securities Purchase Agreement) or otherwise, including without limitation a failure by the Corporation to have a 6 sufficient number of shares of Common Stock authorized and reserved for issuance pursuant to conversions of Preferred Shares), such Holder may, upon written notice (a "Withdrawal Notice") delivered to the Corporation on such Business Day ----------------- or on any Business Day thereafter (unless, prior to the delivery of such notice, such Conversion Shares are delivered to such Holder), withdraw its Conversion Notice with respect to such Conversion Shares and regain its rights as a Holder of the Preferred Shares that are the subject of such Conversion Default. In such event, the Conversion Price in effect when such Preferred Shares are thereafter converted shall be equal to the lowest Conversion Price occurring on or after the date of such Conversion Notice reduced by one percent (1%) for each day occurring during the period immediately following such 10th Business Day until the day on which the such Holder delivers a Withdrawal Notice to the Corporation; provided, however, that the maximum percentage by which such Conversion Price may be reduced hereunder shall be fifty percent (50%). (For example, if such Conversion Default were to continue for five days following such 10th Business Day, such Conversion Price would be reduced by 5%; if for ten days, by 10%; and for fifty days or more, 50%, so that the number of Conversion Shares deliverable upon conversion of such Preferred Shares would be increased proportionately). Upon delivery by a Holder of a Withdrawal Notice, such Holder shall retain all of such Holder's rights and remedies with respect to the Corporation's failure to deliver such Conversion Shares (including without limitation the right to receive the cash payments specified in subparagraph 4(f)(i) above). (iii) In addition to any other remedies provided herein, each Holder shall have the right to pursue actual damages for the Corporation's failure to issue and deliver Conversion Shares on the applicable Delivery Date (including, without limitation, damages relating to any purchase of shares of Common Stock by such Holder to make delivery on a sale lawfully effected in anticipation of receiving Conversion Shares upon Conversion, such damages to be in an amount equal to (A) the aggregate amount paid by such Holder for the shares of Common Stock so purchased minus (B) the aggregate Conversion Price for such Conversion ----- Shares, and such Holder shall have the right to pursue all other remedies available to it at law or in equity (including, without limitation, a decree of specific performance and/or injunctive relief). (g) Premium Share Conditions. The Corporation's right to pay accrued ------------------------ Premium in shares of Common Stock, whether pursuant to a Conversion or with respect to a Quarterly Premium Payment Date, is conditioned upon the satisfaction of each of the following conditions (the "Premium Share ------------- Conditions"): - ---------- (i) the number of shares of Common Stock authorized, unissued and unreserved for all other purposes, or held in the Corporation's treasury, is sufficient to pay such Premium in Conversion Shares or Premium Shares, as the case may be; (ii) the Corporation has, at least ten (10) days prior to any calendar month while any Preferred Shares remain outstanding, delivered a written notice to each Holder stating that the Corporation will pay Premium that becomes payable in shares of Common Stock (whether pursuant to a Conversion or with respect to a Quarterly Premium Payment Date) during such month or any calendar month that follows such month other than any such calendar month with respect to which the 7 Corporation has delivered a notice in accordance with the terms hereof. Each notice delivered by the Corporation hereunder to any Holder shall be irrevocable and binding on the Corporation upon such delivery; (iii) the Common Stock is authorized for quotation on the Nasdaq National Market or for listing on the New York Stock Exchange or the American Stock Exchange and trading in the Common Stock on such market or exchange has not been suspended; (iv) the registration statement required to be maintained by the Corporation (the "Registration Statement") pursuant to the Registration Rights ---------------------- Agreement is effective and available for the sale of the maximum number of (a) Conversion Shares and Premium Shares issuable pursuant to the Preferred Shares (assuming for such purpose (i) the application of the minimum Conversion Price that may occur hereunder, (ii) the accrual of Premium under all of the Preferred Shares issued hereunder from the Issue Date through the Maturity Date and payment of such Premium in Conversion Shares or Premium Shares and (iii) that no limitation set forth herein on such conversion or payment of Premium exists) and (b) Warrant Shares issuable upon exercise of all of the Warrants then outstanding (without regard to the limitations set forth in the Warrants), or sales of such shares may be made pursuant to Rule 144(k); (v) no Mandatory Redemption Event (as defined herein) has occurred (or with the passage of time would be deemed to occur) and is continuing; and (vi) such payment of Premium in shares of Common Stock will not violate the limitations set forth in Section 5 below. (h) In the event that any Premium Share Condition is not satisfied as of any Conversion Date or Quarterly Premium Payment Date, such Premium shall be payable by the Corporation to the Holder thereof in immediately available funds on the relevant Delivery Date immediately following such date. If the Corporation fails to deliver the amount of such Premium in immediately available funds to a Holder on or before the close of business on the Delivery Date therefor, such amount will bear interest at an annual rate equal to the lower of (x) twenty four percent (24%) and (y) the highest interest rate permitted by applicable law (the "Default Interest Rate"), accrued on a daily basis from and after such Delivery Date until such amount is paid in full. (i) Conversion at Maturity. On the Effective Date (sometimes referred to ---------------------- herein as the "Maturity Date"), each Preferred Share then outstanding shall be ------------- automatically converted into the number of shares of Common Stock equal to the Liquidation Preference of such shares divided by the Conversion Price then in ---------- effect (a "Conversion at Maturity"); provided, however, that if, on the Maturity ---------------------- Date, (i) the number of shares of Common Stock authorized, unissued and unreserved for all other purposes, or held in the Corporation's treasury, is not sufficient to effect the issuance and delivery of the number of Conversion Shares into which all outstanding Preferred Shares are then convertible, (ii) the Common Stock is not designated for quotation or listed on the Nasdaq National Market or the New York Stock Exchange or the American Stock Exchange or trading in the Common Stock on such 8 market or exchange has been suspended, or (iii) a Mandatory Redemption Event (as defined herein) has occurred and is continuing, each Holder shall have the option, upon written notice to the Corporation, to retain its rights as a holder of Preferred Shares, including without limitation, the right to convert such Preferred Shares in accordance with the terms of paragraphs 4(a) through 4(f) hereof and, upon delivery of such notice, such Preferred Shares shall not be subject to a Conversion at Maturity hereunder until the thirtieth (30th) day following the later of (a) the date on which the event specified (i), (ii) or (iii) is no longer continuing and (b) the date on which the Corporation delivers to each Holder written notice to such effect, and in such event, such thirtieth day shall be deemed to be the Maturity Date for purposes of this Certificate of Designation. If a Conversion at Maturity occurs, the Corporation and each Holder shall follow the procedures for Conversion set forth in this Section 4, with the Maturity Date deemed to be the Conversion Date, except that the Holder shall not be required to send a Conversion Notice as contemplated by paragraph 4(b). 5. CONVERSION LIMITATIONS. ---------------------- In no event shall a Holder be permitted to convert any Preferred Shares in excess of the number of such shares, upon the Conversion of which (x) the number of shares of Common Stock beneficially owned by such Holder (other than shares of Common Stock issuable upon conversion of such Preferred Shares or which would otherwise be deemed beneficially owned except for being subject to a limitation on conversion or exercise analogous to the limitation contained in this paragraph 5 plus (y) the number of shares of Common Stock issuable upon the ---- Conversion of such Preferred Shares, would be equal to or exceed (z) 9.99% of the number of shares of Common Stock then issued and outstanding. As used herein, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder. To the extent that the limitation contained in this paragraph applies (and without limiting any rights the Corporation may otherwise have), the Corporation may rely on the Holder's determination of whether Preferred Shares are convertible pursuant to the terms hereof, the Corporation having no obligation whatsoever to verify or confirm the accuracy of such determination, and the submission of a Conversion Notice by the Holder shall be deemed to be the Holder's representation that the Preferred Shares specified therein are convertible pursuant to the terms hereof. This paragraph may be amended by all of the Holders of Preferred Shares then outstanding only with the consent of the holders of a majority of the shares of Common Stock then outstanding. Nothing contained herein shall be deemed to restrict the right of a Holder to convert Preferred Shares at such time as the Conversion thereof will not violate the provisions of this paragraph 5. The limitation contained in this paragraph 5 shall not apply (i) in the event of a Conversion at Maturity or (ii) with respect to any Preferred Shares that were purchased from the Corporation pursuant to the Securities Purchase Agreement by a purchaser that (A) has elected therein not to be subject to the limitation contained in this paragraph 5 and (B) owns greater than ten percent (10%) of the Common Stock outstanding immediately prior to the Issue Date. 6. ADJUSTMENTS TO CONVERSION PRICE. ------------------------------- (a) Adjustment to Fixed Conversion Price Due to Stock Split, ------------------------------------------------------- Stock Dividend, Etc. If, prior to the Conversion of all of the Preferred Shares, - ------------------- (A) the number of outstanding 9 shares of Common Stock is increased by a stock split, a stock dividend on the Common Stock, a reclassification of the Common Stock, or other similar event, the Conversion Price shall be proportionately reduced, which reduction shall be effected on the date on which the Corporation announces such event; or (B) the Corporation issues Common Stock, whether upon the exercise of rights, warrants, securities convertible or exercisable into Common Stock or otherwise, at a price (the "Issue Price") that is less than the current Market Price (as defined ----------- below) thereof at the time of such issuance, the Conversion Price that would otherwise be in effect on a particular date following such issuance shall be proportionately reduced in order to account for the dilution to existing stockholders that occurs on the date of such issuance; provided, however, that if the Issue Price is lower than the Conversion Price otherwise in effect on the date of such issuance, such Conversion Price will be reduced to the lower of the amount determined by this clause (B) and the amount determined by clause (D) below; (C) the number of outstanding shares of Common Stock is decreased by a reverse stock split, combination or reclassification of shares or other similar event, the Conversion Price shall be proportionately increased, which increase shall be effected on the date on which the Corporation announces such event; or (D) the Corporation issues Common Stock, whether upon the exercise of rights, warrants, securities convertible or exercisable into Common Stock or otherwise, at a price that in any such case is lower than the Conversion Price, the Conversion Price that would otherwise be in effect on a Conversion Date following the date of the issuance of such Common Stock shall be reduced to such lower price. In no event shall any adjustment pursuant to clause (B) or clause (D) above result in a Conversion Price that exceeds the Conversion Price that would otherwise apply in the absence of such adjustment and provided further that no such adjustment pursuant to clause (B) or (D) shall apply with respect to issuances of Common Stock (i) pursuant to an employee stock purchase plan or upon the exercise of options issued under a stock option plan duly adopted by the Corporation, (ii) in connection with a merger, acquisition or strategic investment which, in any such case, is not effected for the primary purpose of raising equity capital or (iii) in connection with a firm-commitment underwritten secondary offering. For purposes hereof, the "Market Price" per share of Common Stock on any date shall be the average Closing Trade Price for the Common Stock as reported by Bloomberg on the five (5) consecutive Trading Days (as defined below) immediately preceding such date. If such Market Price cannot be calculated on any of the foregoing bases, such Market Price shall be the fair market value as reasonably determined by an investment banking firm selected by the Corporation and reasonably acceptable to the Holders, with the costs of such appraisal to be borne by the Corporation. (b) Adjustment to Conversion Price During Reference Period. If, prior to ------------------------------------------------------ the Conversion of all of the Preferred Shares, the number of outstanding shares of Common Stock is increased or decreased by a stock split, a stock dividend on the Common Stock, a combination, a reclassification of the Common Stock or other similar event, and such event takes place during the reference period for the determination of the Conversion Price for any Conversion thereof, the Conversion Price shall be calculated giving appropriate effect to the stock split, stock dividend, combination, reclassification or other similar event for all Trading Days occurring during such reference period. 10 (c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the -------------------------------------------- Conversion of all of the Preferred Shares, there shall be any merger, consolidation, business combination, tender offer, exchange of shares, recapitalization, reorganization, redemption or other similar event, as a result of which shares of Common Stock shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Corporation or another entity (an "Exchange Transaction"), then such -------------------- Holder shall (A) upon the consummation of such Exchange Transaction, have the right to receive, with respect to any shares of Common Stock then held by such Holder, or which such Holder is then entitled to receive pursuant to a Conversion Notice previously delivered by such Holder (and without regard to whether such shares contain a restrictive legend or are freely-tradable), the same amount and type of consideration (including without limitation, stock, securities and/or other assets) and on the same terms as a holder of shares of Common Stock would be entitled to receive in connection with the consummation of such Exchange Transaction (the "Exchange Consideration"), and (B) upon the ---------------------- Conversion of Preferred Shares occurring subsequent to the consummation of such Exchange Transaction (a "Subsequent Conversion"), have the right to receive the --------------------- Exchange Consideration which such Holder would have been entitled to receive in connection with such Exchange Transaction had such shares been converted immediately prior to such Exchange Transaction at the Conversion Price applicable on the Conversion Date relating to such Subsequent Conversion, and in any such case appropriate provisions shall be made with respect to the rights and interests of such Holder to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Conversion Price and of the number of shares of Common Stock issuable upon a Conversion) shall thereafter be applicable as nearly as may be practicable in relation to any securities thereafter deliverable upon the Conversion of such Preferred Shares. The Corporation shall not effect any Exchange Transaction unless (i) it first gives to each Holder twenty (20) days prior written notice of such Exchange Transaction (an "Exchange Notice"), and makes a public announcement of such --------------- event at the same time that it gives such notice (it being understood that the filing by the Corporation of a Form 8-K for the purpose of disclosing the anticipated consummation of the Exchange Transaction shall constitute an Exchange Notice for purposes of this provision) and (ii) the resulting successor or acquiring entity (if not the Corporation) assumes by written instrument the obligations of the Corporation hereunder, including the terms of this subparagraph 6(c), and under the Securities Purchase Agreement and the Registration Rights Agreement. (d) Distribution of Assets. If the Corporation or any of its subsidiaries ---------------------- shall declare or make any distribution of cash, evidences of indebtedness or other securities or assets (other than cash dividends or distributions payable out of earned surplus or net profits for the current or the immediately preceding year), or any rights to acquire any of the foregoing, to holders of Common Stock (or to a holder, other than the Corporation, of the common stock of any such subsidiary) as a partial liquidating dividend, by way of return of capital or otherwise, including any dividend or distribution in shares of capital stock of a subsidiary of the Corporation (collectively, a "Distribution"), then each Holder shall be entitled to receive, at the same time ------------ as such assets are received by a holder of such stock, an amount and type of such Distribution as though such Holder were a holder on the record date therefor of a number of shares of Common Stock determined by dividing the Liquidation Preference of the Preferred Shares held by such Holder on such record date by the lower of the Market 11 Price and the Conversion Price in effect on such record date (such number of shares to be determined without regard to any limitation on conversion of the Preferred Shares that may exist pursuant to this Certificate of Designation or otherwise). (e) Adjustment Pursuant to Other Agreements. In addition to and without --------------------------------------- limiting in any way the adjustments provided in this Section 6, the Conversion Price shall be adjusted as may be required by the provisions of the Registration Rights Agreement and/or by the provisions of the Securities Purchase Agreement. (f) No Fractional Shares. If any adjustment under this Section would -------------------- create a fractional share of Common Stock or a right to acquire a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon Conversion shall be rounded to the nearest whole number of shares. 7. REDEMPTION. ---------- (a) Mandatory Redemption. In the event that a Mandatory Redemption Event -------------------- (as defined below) occurs, each Holder shall have the right to require the Corporation to redeem all or any portion of the Preferred Shares held by such Holder (a "Mandatory Redemption") at the Mandatory Redemption Price (as defined -------------------- herein). In order to exercise its right to effect a Mandatory Redemption, a Holder must deliver a written notice (a "Mandatory Redemption Notice") to the --------------------------- Corporation at any time on or before 11:59 p.m. (eastern time) on the third (3/rd/) Business Day following the Business Day on which the Mandatory Redemption Event to which such Mandatory Redemption Notice relates is no longer continuing. The Mandatory Redemption Notice shall specify the effective date of such Mandatory Redemption (the "Mandatory Redemption Date") and the number of ------------------------- such shares to be redeemed. (b) Mandatory Redemption Event. Each of the following events shall be -------------------------- deemed a "Mandatory Redemption Event": -------------------------- (i) the Corporation fails as a result of not having a sufficient number of shares of Common Stock authorized and reserved for issuance, or as a result of the limitations contained in Section 5 hereof or for any reason within the control of the Corporation to issue shares of Common Stock to a Holder and deliver certificates representing such shares to such Holder as and when required by the provisions hereof upon conversion of any Preferred Shares, and such failure continues for ten (10) Business Days; (ii) the Corporation breaches, in a material respect, any covenant or other material term or condition of this Certificate, the Securities Purchase Agreement, the Registration Rights Agreement, or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby, and such breach continues for a period of five (5) Business Days after written notice thereof to the Corporation from a Holder, and such breach has or could have a Material Adverse Effect; 12 (iii) any material representation or warranty made by the Corporation in the Securities Purchase Agreement, the Registration Rights Agreement or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby or thereby is inaccurate or misleading in any material respect as of the date such representation or warranty was made, and such breach has or could have a Material Adverse Effect; (iv) (x) the sale, conveyance or disposition of all or substantially all of the assets of the Corporation, the effectuation of a transaction or series of transactions in which more than 50% of the voting power of the Corporation is disposed of, or the consolidation, merger or other business combination of the Corporation with or into any other entity, immediately following which the prior stockholders of the Corporation fail to own, directly or indirectly, at least fifty percent (50%) of the surviving entity or (y) a transaction or series of transactions in which any person (other than Paul Allen or entities affiliated with Paul Allen) acquires control of the Corporation (each a "Change of Control Transaction"). For purposes hereof, "control" shall ------- mean, with respect to the Corporation, the ability to direct the business, operations or management of the Corporation, whether through an equity interest therein or otherwise; and (v) the Common Stock is not quoted on the Nasdaq National Market or listed on the New York Stock Exchange or the American Stock Exchange, or trading in the Common Stock on such market or exchange is suspended and such suspension is in effect for more than five consecutive (5) Trading Days, and such suspension or failure to be so quoted or listed occurs as a result of any willful action or failure to act on the part of the Corporation. (c) Mandatory Redemption Price. The "Mandatory Redemption Price" shall be -------------------------- -------------------------- equal to the greater of (i) the Liquidation Preference of the Preferred Shares being redeemed multiplied by one hundred and fifteen percent (115%) (or, with ------------- respect to a Change of Control Transaction, one hundred and ten percent (110%)) and (ii) an amount determined by dividing the Liquidation Preference of the Preferred Shares being redeemed by the Conversion Price in effect on the Mandatory Redemption Date and multiplying the resulting quotient by the average Closing Trade Price for the Common Stock on the five (5) Trading Days immediately preceding (but not including) the Mandatory Redemption Date. (d) Payment of Mandatory Redemption Price. ------------------------------------- (i) The Corporation shall pay the Mandatory Redemption Price to the Holder exercising its right to redemption on the later to occur of (i) the fifth (5th) Business Day following the Mandatory Redemption Date and (ii) the date on which the Preferred Shares being redeemed are delivered by the Purchaser to the Corporation for cancellation (the "Mandatory Redemption Payment Date"). --------------------------------- (ii) If Corporation fails to pay the Mandatory Redemption Price to the Holder on or before the Mandatory Redemption Date, the Holder shall be entitled to interest thereon, from and after the Mandatory Redemption Payment Date until the Mandatory Redemption Price has been paid in full, 13 at an annual rate equal to the Default Interest Rate. (iii) If the Corporation fails to pay the Mandatory Redemption Price within ten (10) Business Days of the Mandatory Redemption Date, then the Holder shall have the right to regain its rights as a Holder of the Series A Preferred Stock and, upon written notice to such effect from the Holder, the Corporation shall return to such Holder the certificates representing the Preferred Shares that were delivered to the Corporation in connection with such Mandatory Redemption; in such event, the Conversion Price otherwise applicable to future Conversions of the Preferred Shares shall be reduced by one percent (1%) for each day beyond such 10th Business Day in which the failure to pay the Mandatory Redemption Price continued until the date of such notice; provided, however, that the maximum percentage by which such Conversion Price may be reduced hereunder shall be fifty percent (50%). 8. MISCELLANEOUS. ------------- (a) Transfer of Preferred Shares. Upon notice to the Corporation, a Holder ---------------------------- may sell or transfer all or any portion of the Preferred Shares to any person or entity as long as such sale or transfer is the subject of an effective registration statement under the Securities Act or is exempt from registration thereunder and otherwise is made in accordance with the terms of the Securities Purchase Agreement. Notwithstanding the foregoing, no Holder shall knowingly and voluntarily sell any Preferred Shares to an entity that is a competitor of the Corporation. From and after the date of such sale or transfer, the transferee thereof shall be deemed to be a Holder. Upon any such sale or transfer, the Corporation shall, promptly following the return of the certificate or certificates representing the Preferred Shares that are the subject of such sale or transfer, issue and deliver to such transferee a new certificate in the name of such transferee. (b) Notices. Except as otherwise provided herein, any notice, demand or ------- request required or permitted to be given pursuant to the terms hereof, the form or delivery of which notice, demand or request is not otherwise specified herein, shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission on or before 5:00 p.m., eastern time, on a Business Day or, if such day is not a Business Day, on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed to the parties as follows: If to the Corporation: Asymetrix Learning Systems, Inc. 110 110/th/ Avenue NE Bellevue, WA 98008 Attn: General Counsel Tel: 425-637-5829 Fax: 425-637-1540 14 with a copy to: Jeffrey R. Vetter, Esq. Fenwick & West, LLP Two Palo Alto Square Palo Alto, CA 94306 Tel: 650-494-0600 Fax: 650-494-1417 and if to any Holder, to such address for such Holder as shall be designated by such Holder in writing to the Corporation. (c) Lost or Stolen Certificate. Upon receipt by the Corporation of -------------------------- evidence of the loss, theft, destruction or mutilation of a certificate representing Preferred Shares, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Corporation and the Transfer Agent, and upon surrender and cancellation of such certificate if mutilated, the Corporation shall execute and deliver to the Holder a new certificate identical in all respects to the original certificate. (d) No Voting Rights. Except as provided by applicable law and paragraph ---------------- 8(g) below, the Holders of the Preferred Shares shall have no voting rights with respect to the business, management or affairs of the Corporation; provided that the Corporation shall provide each Holder with prior notification of each meeting of stockholders (and copies of proxy statements and other information sent to such stockholders). (e) Remedies, Characterization, Other Obligations, Breaches and Injunctive ---------------------------------------------------------------------- Relief. The remedies provided to a Holder in this Certificate of Designation - ------ shall be cumulative and in addition to all other remedies available to such Holder under this Certificate of Designation or under any Transaction Document (as defined in the Securities Purchase Agreement), at law or in equity (including without limitation a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing contained herein shall limit such Holder's right to pursue actual damages for any failure by the Corporation to comply with the terms of this Certificate of Designation. The Corporation agrees with each Holder that there shall be no characterization concerning this instrument other than as specifically provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder hereof and shall not, except as expressly provided herein, be subject to any other obligation of the Corporation (or the performance thereof). The Corporation acknowledges that a material breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. The Corporation agrees, in the event of any such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to an 15 injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (f) Failure or Delay not Waiver. No failure or delay on the part of a ---------------------------- Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. (g) Protective Provisions. --------------------- So long as shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval of the Holders of at least two-thirds (2/3) of outstanding shares of Series A Preferred Stock: (i) alter, change, modify or amend (x) the terms of the Series A Preferred Stock in any way or (y) the terms of any other capital stock of the Corporation so as to affect adversely the Series A Preferred Stock; (ii) create any new class or series of capital stock having a preference over or ranking pari passu with the Series A Preferred Stock as to redemption or distribution of assets upon a Liquidation Event or any other liquidation, dissolution or winding up of the Corporation; (iii) increase the authorized number of shares of Series A Preferred Stock; (iv) re-issue any shares of Series A Preferred Stock which have been converted or redeemed in accordance with the terms hereof; (v) issue any Pari Passu Securities or Senior Securities; (vi) redeem, or declare, pay or make any provision for any dividend or distribution with respect to, the Common Stock or any other capital stock of the Corporation ranking junior to the Series A Preferred Stock as to the distribution of assets upon liquidation, dissolution or winding up of the Corporation; or (vii) issue any Series A Preferred Stock except pursuant to the terms of the Securities Purchase Agreement. In the event that the Holders of at least two-thirds of the outstanding shares of Series A Preferred Stock agrees to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series A Preferred Stock pursuant to the terms hereof, then the Corporation will deliver notice of such approved change to the holders of the Series A Preferred Stock that did not agree to such alteration or change (the "Dissenting Holders") and the Dissenting ------------------ Holders shall have the right for a period of thirty (30) days following such delivery to convert their Preferred Shares pursuant to the 16 terms hereof as they existed prior to such alteration or change, or to continue to hold such Preferred Shares. No such change shall be effective to the extent that, by its terms, it applies to less than all of the Holders of Preferred Shares then outstanding. [Remainder of Page Intentionally Left Blank] 17 IN WITNESS WHEREOF, the Corporation has executed this Certificate of Designation as of the 4th day of October, 1999. ASYMETRIX LEARNING SYSTEMS, INC. By: /s/ James A. Billmaier ------------------------------ Name: James A. Billmaier Title: Chief Executive Officer 18 EXHIBIT A --------- NOTICE OF CONVERSION The undersigned hereby elects to convert shares of Series A Convertible Preferred Stock (the "Preferred Stock"), represented by stock certificate No(s). _______________ (the "Preferred Stock Certificates"), into shares of common stock ("Common Stock") of ASYMETRIX LEARNING SYSTEMS, INC. according to the terms and conditions of the Certificate of Designation relating to the Preferred Stock (the "Certificate of Designation"), as of the date written below. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Certificate of Designation. Unless otherwise specified in writing to the Corporation, the undersigned represents to the Corporation that the shares of Common Stock covered by this notice have been or will be sold pursuant to the terms of an effective registration statement. Date of Conversion:____________________________________ Number of Shares of Preferred Stock to be Converted:_______________________ Amount of Accrued Premium: ____________________________ Applicable Conversion Price:___________________________ Number of Shares of Common Stock to be Issued:_____________________________ Name of Holder:________________________________________ Address: ___________________________________________ ___________________________________________ ___________________________________________ Signature: ___________________________________________ Name: Title: Holder Requests Delivery to be made: (check one) - ----------------------------------- G By Delivery of Physical Certificates to the Above Address G Through Depository Trust Corporation (Account _____________________________) EX-99.05 6 PRESS RELEASE DATED 10-11-1999 EXHIBIT 99.05 For Details, Contact: Melissa Green [LOGO] Public Relations Coordinator (617) 747-7000, x103 MelissaG@asymetrix.com Michelle Kozin FitzGerald Communications (617) 494-9500 Mkozin@fitzgerald.com www.asymetrix.com www.click2learn.com Asymetrix Changes Company Name to click2learn.com, inc. Name change reflects importance of learning portal as the cornerstone to the company's market-leading status in the online learning arena BELLEVUE, WA, October 11, 1999 - Asymetrix Learning Systems, Inc. (NASDAQ: ASYM), the leader in online learning solutions, today announced that it is changing the company name to click2learn.com, inc., effective immediately. Asymetrix also announced that it is changing its Nasdaq-Amex ticker symbol from ASYM to CLKS. The change in name and ticker symbol reflects the growing importance of the company's innovative new learning portal located at www.click2learn.com to the company's market leading position in the online learning industry, as well as the integration of the company's existing products and services with the learning portal. "Our goal for the company is to be the lifelong learning partner to the business professional, and this change in company name is intended to both reflect the importance of our learning portal at www.click2learn.com in pursuing this goal, and signify our leadership position in web-delivered learning," said Jim Billmaier, CEO of Asymetrix Learning Systems. "As the market leader in behind- the-firewall enterprise online learning solutions with our learning management products, authoring tools and professional services, we see click2learn.com as a natural evolution to outside-the-firewall solutions of our product and service offerings. click2learn.com provides large corporations with thousands of titles as well as a learning management and authoring product in a hosted environment, and it gives small businesses and individuals a cost-effective and convenient way to access a diverse library of computing and business titles." click2learn.com is designed to be the lifelong learning partner to the business professional by providing professional education and training on a variety of topics. Using the Internet to remove economic and logistical barriers to critical learning, it allows individuals and small to medium-sized businesses to access formal training online directly through www.click2learn.com in an engaging and highly interactive format with a standard web browser. Larger organizations can access click2learn.com using the increasingly popular Application Service Provider (ASP) model, by seamlessly integrating a custom version of click2learn.com with their organization's intranets. Thousands of professional learning courses on computer, business and professional development skills are now accessible directly through www.click2learn.com. These courses, and courses created with the free click2learn.publisher authoring and publishing system, will also be available through Internet portal partners such as the Go2Net and VerticalNet network of websites, and corporate partners through their intranets and virtual universities. Additionally, a number of free courses are available currently through click2learn.com, with more constantly being added. Titled 2MinuteTutors(TM), these short tutorials cover a wide variety of topics focused on improving the skills and knowledge requirements of busy business professionals. The company also boasts the industry's market leading learning management products, anchored by Ingenium, a skills-based management product that lets administrators assign and track online learning as well as instructor-led classes. Ingenium is an integral component of the company's single-source online learning solution that also includes the ToolBook II family of authoring products - ToolBook II Assistant and ToolBook II Instructor. These products are augmented by the company's award-winning professional services group, one of the largest in the country, that develops custom online learning content for organizations, in addition to strategic consulting and systems integration services. click2learn.com will be officially launched at the Online Learning '99 Conference and Exposition on October 18, 1999 at the Los Angeles Convention Center. Visit click2learn.com, inc. at Booth #517. About click2learn.com, inc. (formerly Asymetrix Learning Systems, Inc.) click2learn.com, inc. (NASDAQ: CLKS), formerly Asymetrix Learning Systems, Inc. (NASDAQ: ASYM), is a leading provider of online enterprise learning solutions that enable organizations to author, deploy and manage Internet-based training and education. click2learn.com offers a single source training solution incorporating learning management products (including the market leading, skills-based Ingenium solution) and authoring software products (ToolBook II Instructor and Assistant) with professional services including custom development, strategic consulting and integration services. For more information on click2learn.com solutions, call (800) 448-6543 or (425) 462-0501. click2learn.com is located on the World Wide Web at www.click2learn.com, and the company maintains a website under the former name of Asymetrix Learning Systems at www.asymetrix.com. Asymetrix is a registered trademark and click2learn.com, 2MinuteTutor, Ingenium, ToolBook 11 Instructor and Assistant are trademarks of Asymetrix Learning Systems, Inc. Asymetrix is registered in the USA and in certain other countries. All other company and/or product names are the property of their respective owners. EX-99.06 7 PRESS RELEASE DATED 10-12-1999 Exhibit 99.06 For Details, Contact: Melissa Green [LOGO] Public Relations Coordinator (617) 747-7000, x103 MelissaG@asymetrix.com Michelle Kozin FitzGerald Communications (617) 494-9500 Mkozin@fitzgerald.com www.asymetrix.com www.click2learn.com Vulcan Ventures Inc. and Credit Suisse First Boston affiliate invest $10 million toward click2learn.com Paul G. Allen, and one of the web's leading investment banks, support new learning portal BELLEVUE, WA, October 12, 1999 - click2learn.com, inc. (NASDAQ: CLKS) - formerly Asymetrix Learning Systems, Inc. (NASDAQ: ASYM) - the leader in online learning, today announced it received $10 million in private equity funding from Vulcan Ventures Inc., the investment organization of Paul G. Allen, and Marshall Capital Management, Inc., an affiliate of Credit Suisse First Boston. This investment increases the company's cash holdings to an amount in excess of $24 million. The company intends to use the funds to further the development, marketing and sales of click2learn.com, the innovative new Internet learning portal providing professional education and training. The investment by these two prominent firms, each with a focus on web-based businesses, is evidence of their belief in the future of web-delivered learning, and web-based learning portals. "Web-delivered learning is a key component in Paul Allen's Wired World, and we feel click2learn.com can become the leading Internet learning destination for corporations and individual business professionals," said William Savoy, president of Vulcan Ventures Inc. "We look forward to exploring the synergies between click2learn.com, inc. and the other web-focused companies in the Vulcan portfolio." "The Internet is revolutionizing learning, and our goal is to brand click2learn.com to be the lifelong learning partner to the business professional," said Jim Billmaier, CEO of click2learn.com, inc. "This additional funding from Vulcan Ventures and Marshall Capital Management will allow us to further our efforts in marketing, sales and engineering to meet this goal. As further evidence of the importance of click2learn.com to our strategy, yesterday we announced a company name change from Asymetrix to click2learn.com, inc. and changed our ticker symbol from ASYM to CLKS." Using the Internet to remove economic and logistical barriers to critical learning, click2learn.com allows individuals and small to medium-sized businesses to access formal training online directly through www.click2learn.com in an engaging and highly interactive format with a standard web browser. Larger organizations can access click2learn.com using an Application Service Provider (ASP) model, by integrating a custom version of click2learn.com with their organization's intranets, complete with sophisticated learning management features and functionality. One of the most unique features of click2learn.com is the self-publishing system found in click2learn.publisher, the "browser-based" authoring and publishing system available for free on the learning portal. click2learn.publisher allows anyone to create and publish online courseware, and receive royalties on courses sold through the click2learn.com network that includes the Go2Net and VerticalNet network of websites. Without installing any additional software, authors, instructors and subject matter experts can create courses using just their web browser, set a purchase price for their course, and then publish it automatically to click2learn.com. After an initial review, finished courseware is instantly available to individual users of the site, as well as to click2learn.com corporate and portal partners. "We believe click2learn.publisher is a feature that is unmatched in our industry, and that it dramatically revolutionizes the world of traditional publishing," said Kevin Oakes, President and Chief Learning Officer of click2learn.com, inc. "Statistics show that for every book that makes it into print in the traditional world of publishing, there are thousands of manuscripts that go unpublished. Now, with a simple click of a button, authors can publish their courses and reach an entire Internet community of learners with an engaging online course, and earn a significant royalty every time that course is purchased." Thousands of professional learning courses on computer, business and professional development skills are now accessible directly through www.click2learn.com. Additionally, a number of free courses are available through click2learn.com, with more constantly being added. Titled 2MinuteTutors(TM), these short tutorials cover a wide variety of topics focused on improving the skills and knowledge requirements of busy business professionals. click2learn.com, the learning portal, will be officially launched next week at the Online Learning '99 Conference and Exposition on October 18, 1999 at the Los Angeles Convention Center. Visit click2learn.com, inc. at Booth #517. About click2learn.com, inc. - --------------------------- click2learn.com, inc. (NASDAQ: CLKS) formerly known as Asymetrix Learning Systems, Inc. (NASDAQ: ASYM) is a leading provider of online enterprise learning solutions that enable organizations to author, deploy and manage Internet-based training and education. click2learn.com offers a single source training solution incorporating learning management products (including the market leading, skills-based Ingenium solution) and authoring software products (ToolBook II Instructor and Assistant) with professional services including custom development, strategic consulting and integration services. For more information on click2learn.com, inc. solutions, call (800) 448-6543 or (425) 462-0501. click2learn.com, inc. is located on the World Wide Web at www.asymetrix.com and the click2learn.com learning portal is located at www.click2learn.com. This announcement contains forward-looking statements that involve risks and uncertainties, including information contained in this document where statements are preceded by, followed by or include the words "believes," "plans," "intends," "expects," "anticipates" or similar expressions. For such statements, click2learn.com, inc./Asymetrix Learning Systems, Inc. claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. Factors that could cause actual results to differ from those contained in the forward-looking statements include market acceptance of the click2learn.com learning portal, the ability to successfully implement strategic relationships with other web-based companies, and the risk factors set forth in filings click2learn.com, inc./Asymetrix Learning Systems, Inc. has made with the SEC. Asymetrix is a registered trademark and click2learn.com, 2MinuteTutor, Ingenium, ToolBook 11 Instructor and Assistant are trademarks of Asymetrix Learning Systems, Inc. Asymetrix is registered in the USA and in certain other countries. All other company and/or product names are the property of their respective owners. -----END PRIVACY-ENHANCED MESSAGE-----