Exhibit 99.01
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
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September 30, 1999, by and between ASYMETRIX LEARNING SYSTEMS, INC., a Delaware
corporation (the "Company"), and each of the entities whose names appear on the
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signature pages hereof. Such entities are each referred to herein as a
"Purchaser" and, collectively, as the "Purchasers".
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The Company wishes to sell to each Purchaser, and each Purchaser
wishes to buy, on the terms and subject to the conditions set forth in this
Agreement, shares (the "Preferred Shares") of the Company's Series A Convertible
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Preferred Stock, par value $.01 per share (the "Preferred Stock"), and related
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Warrants in the form attached hereto as Exhibit A (the "Warrants"). The
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Preferred Shares are convertible pursuant to the terms of the Certificate of
Designation relating to the Preferred Stock, the form of which is attached
hereto as Exhibit B (the "Certificate of Designation") into shares (the
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"Conversion Shares") of the Company's common stock, par value .01 per share (the
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"Common Stock"). Amounts of Premium (as defined in the Certificate of
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Designation, "Premium") that have accrued on Preferred Shares and remain unpaid
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at the end of a calendar quarter may, in certain circumstances, be paid in
shares of Common Stock (the "Premium Shares"). The Warrants are exercisable into
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shares of Common Stock (the "Warrant Shares") in accordance with their terms.
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The Preferred Shares, the Conversion Shares, the Premium Shares, the Warrants
and the Warrant Shares are collectively referred to herein as the "Securities".
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Any capitalized term used herein that is not otherwise defined shall have the
meaning specified therefor in the Certificate of Designation.
The sale of the Preferred Shares and the Warrants by the Company
hereunder will be effected in reliance upon the exemption from securities
registration afforded by the provisions of Regulation D ("Regulation D") as
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promulgated by the Securities and Exchange Commission (the "Commission") under
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the Securities Act of 1933, as amended (the "Securities Act"). The Company has
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agreed to effect the registration of the Conversion Shares, the Premium Shares
and the Warrant Shares under the Securities Act pursuant to a Registration
Rights Agreement of even date herewith by and between the Company and each
Purchaser (the "Registration Rights Agreement").
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The Company and each Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF THE PREFERRED STOCK AND WARRANTS.
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1.1 Agreement to Purchase and Sell. Upon the terms and subject to
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the satisfaction or waiver of the conditions set forth herein, the Company
agrees to sell and each Purchaser agrees to
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purchase (A) the number of Preferred Shares set forth below such Purchaser's
name on the signature pages hereof and (B) a Warrant exercisable into a number
of Warrant Shares equal to (i) the aggregate Stated Value of such Preferred
Shares divided by (ii) the Initial Conversion Price times seventy five percent
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(75%). The Warrants shall have an exercise price equal to $9.30. The date on
which the closing (the "Closing") of the purchase and sale of the Preferred
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Shares and Warrants occurs is hereinafter referred to as the "Closing Date". The
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purchase price for the Preferred Shares and Warrants being purchased by a
Purchaser (the "Purchase Price") shall be equal to the Stated Value of the
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Preferred Shares being purchased by such Purchaser. Subject to the satisfaction
or waiver of the conditions set forth herein, the Closing will be deemed to
occur when the Company and each Purchaser execute and deliver this Agreement and
the other Transaction Documents (as defined below), which delivery may be
effected by facsimile transmission, and full payment of each Purchaser's
Purchase Price has been made by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing the Preferred Shares and Warrants being purchased by such
Purchaser.
1.2 Certain Definitions. When used herein, the following terms shall have
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the respective meanings indicated:
"Business Day" shall mean any day on which the New York Stock Exchange
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(the "NYSE") and commercial banks in the city of New York are open for business.
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"Closing Bid Price" shall mean, with respect to the Common Stock, the
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closing bid price for the Common Stock occurring on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg Financial Markets or, if Bloomberg Financial
Markets is not then reporting such prices, by a comparable reporting service of
national reputation selected by the Company and reasonably acceptable to the
Purchasers (collectively, "Bloomberg") or if the foregoing does not apply, the
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last reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc.. If the Closing Bid Price cannot be
calculated for such security on any of the foregoing bases, the Closing Bid
Price of such security shall be the fair market value as reasonably determined
by an independent investment banking firm selected by the Purchasers, and
reasonably acceptable to the Company, with the costs of such appraisal to be
borne by the Company.
"Closing Trade Price" shall mean, with respect to the Common Stock,
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the last sale price reported for the Common Stock on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by the Bloomberg or, if no sale price was reported on such
Trading Day by Bloomberg, the last sale price reported by Bloomberg
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on the Trading Day on which such prices were last reported.
"Trading Day" shall mean any day on which the Common Stock is
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purchased and sold on the principal securities exchange or market on which the
Common Stock is then listed or traded.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH PURCHASER.
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Each Purchaser hereby represents and warrants to the Company and agrees
with the Company that, as of the date of this Agreement and as of the Closing
Date:
2.1 Authorization; Enforceability. Such Purchaser is duly and validly
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organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Securities and to execute and deliver this Agreement. This
Agreement and the Registration Rights Agreement each constitutes such
Purchaser's valid and legally binding obligation, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) or public policy.
2.2 Accredited Investor; Purchase as Principal. Such Purchaser is an
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accredited investor as that term is defined in Rule 501 of Regulation D, and is
acquiring the Securities solely for its own account as a principal and not with
a present view to the public resale or distribution of all or any part thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act; provided,
however that in making such representation, such Purchaser does not agree to
hold any Securities for any minimum or specific term and reserves the right to
sell, transfer or otherwise dispose of the Securities at any time in accordance
with the provisions of this Agreement and with Federal and state securities laws
applicable to such sale, transfer or disposition.
2.3 Information. The Company has provided such Purchaser with information
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regarding the business, operations and financial condition of the Company, and
has granted to such Purchaser the opportunity to ask questions of and receive
answers from representatives of the Company, its officers, directors, employees
and agents concerning the Company and materials relating to the terms and
conditions of the purchase and sale of the Securities. Neither such information
nor any other investigation conducted by such Purchaser or any of its
representatives shall modify, amend or otherwise affect such Purchaser's right
to rely on the Company's representations and warranties contained in this
Agreement.
2.4 Limitations on Disposition. Such Purchaser acknowledges that, except
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as provided
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in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act and may not be transferred or resold
without registration under the Securities Act or unless pursuant to an exemption
therefrom.
2.5 Legend. Such Purchaser understands that the certificates representing
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the Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may not be
offered or sold unless a registration statement under the Securities
Act and applicable state securities laws shall have become effective
with regard thereto, or an exemption from registration under such laws
is available in connection with such offer or sale."
Notwithstanding the foregoing, it is agreed that, as long as (A) the resale
or transfer (including without limitation a pledge) of such Securities is
registered pursuant to an effective registration statement and such Purchaser
represents in writing to the Company that such Securities have been or are being
sold pursuant to such registration statement, (B) such Securities have been
publicly sold pursuant to Rule 144 ("Rule 144") and such Purchaser has delivered
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to the Company customary Rule 144 broker's and seller's representation letters,
or (C) such Securities can be publicly sold pursuant to Rule 144(k) under the
Securities Act, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend is
stamped, the Company shall issue new certificates without such legend to the
holder promptly upon request.
2.6 No Conflict. The execution, delivery and performance by such Purchaser
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of this Agreement and the other Transaction Documents to which it is a party (A)
have been approved by all necessary action (corporate or other) on the part of
such Purchaser and (B) will not result in (i) any material violation of any
provisions of its charter, bylaws or any other governing document in effect on
the date hereof, (ii) any material violation of any instrument or contract to
which it is a party or by which it is bound, or (iii) the creation of any
material lien, charge or encumbrance upon any of its assets.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
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The Company hereby represents and warrants to each Purchaser and agrees
with such Purchaser that, as of the date of this Agreement and as of the Closing
Date:
3.1 Organization, Good Standing and Qualification. Except as set forth on
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Schedule 3.1, each of the Company and its subsidiaries is duly organized,
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validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to carry on its business as now conducted. Each of the Company and its
subsidiaries is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on the consolidated business or financial condition of the
Company and its subsidiaries taken as a whole. For purposes of this Agreement,
the term "subsidiary" or "subsidiaries" shall mean any entity or entities in
which the Company beneficially owns 20% or more of the voting equity thereof.
3.2 Authorization; Consents. The Company has the requisite corporate
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power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement and (iii) all other
agreements, documents or other instruments executed and delivered by or on
behalf of the Company at the Closing (the instruments described in (i), (ii) and
(iii) being collectively referred to herein as the "Transaction Documents"), to
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execute and file, and perform its obligations under the Certificate of
Designation, to issue and sell Preferred Shares and a Warrant to each Purchaser
in accordance with the terms hereof and to issue and deliver Conversion Shares
and Premium Shares in accordance with the terms of the Certificate of
Designation and Warrant Shares in accordance with the terms of the Warrants. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for (i) the authorization, execution and delivery of, and
the performance by the Company of its obligations under, the Transaction
Documents and (ii) the authorization, execution and filing of, and the
performance by the Company of its obligations under, the Certificate of
Designation has been taken, and no further consent or authorization of the
Company, its Board of Directors, its stockholders, any governmental agency or
organization (other than such approval as may be required under the Securities
Act and applicable state securities laws in respect of the Registration Rights
Agreement), or any other person or entity is required (pursuant to any rule of
the Nasdaq National Market, other than such market's continued listing criteria
governing issuances of common stock below the current market price thereof, or
otherwise).
3.3 Enforcement. Each of the Transaction Documents constitutes a valid and
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legally binding obligation of the Company, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency or other laws affecting creditors' rights generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity) or public policy.
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3.4 Disclosure Documents; Agreements; Financial Statements; Other
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Information. The Company has filed with the Commission: (i) the Company's
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Annual Report on Form 10-K for the year ended December 31, 1998, (ii) Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999,
(iii) all Current Reports on Form 8-K, if any, and any other reports, required
to be filed with the Commission since December 31, 1998 and prior to the date
hereof and (iv) the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders (collectively, the "Disclosure Documents"). The Company
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is not aware of any event occurring on or prior to the Closing Date (other than
the transactions effected hereby) that would require the filing of, or with
respect to which the Company intends to file, a Form 8-K after such date. Each
Disclosure Document, as of the date of the filing thereof with the Commission,
conformed in all material respects to the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act") and, as of the date of such filing, such Disclosure Document did
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not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. All
material agreements required to be filed as exhibits to the Disclosure Documents
have been filed or incorporated by reference as required by the applicable
provisions of the Exchange Act. Neither the Company nor any of its subsidiaries
is in breach of any agreement to which it is a party or by which it is bound
where such breach could have a material adverse effect on (i) the consolidated
business, operations, properties, financial condition, prospects or results of
operations of the Company and its subsidiaries taken as a whole, (ii) the
transactions contemplated hereby, by the other Transaction Documents or by the
Certificate of Designation, (iii) the Securities or (iv) the ability of the
Company to perform its obligations under this Agreement, the other Transaction
Documents or the Certificate of Designation (collectively, a "Material Adverse
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Effect"). Except as set forth in the Disclosure Documents, the Company has no
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liabilities, contingent or otherwise, other than liabilities incurred in the
ordinary course of business which, under generally accepted accounting
principles, are not required to be reflected in such financial statements
(including the footnotes to such financial statements) and which, individually
or in the aggregate, are not material to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. As of their
respective dates, the financial statements of the Company included in the
Disclosure Documents have been prepared in accordance with generally accepted
accounting principles consistently applied at the times and during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may exclude footnotes or may be condensed or summary statements)
and fairly present in all material respects the financial position of the
Company as of the dates thereof and the results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end adjustments). The written information described in paragraph 2.3
does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which
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they were made, not misleading.
3.5 Capitalization. The capitalization of the Company, including its
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authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities (other than the Preferred Stock and Warrants) exercisable
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares initially to be reserved for issuance upon conversion and
exercise of the Preferred Stock and Warrants is set forth on Schedule 3.5
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hereto. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable. Except as set
forth on Schedule 3.5, no shares of the capital stock of the Company are
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subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances created by or through the Company.
Except as disclosed on Schedule 3.5, or as contemplated herein, there are no
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outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its subsidiaries, or arrangements by which the Company
or any of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries.
3.6 Valid Issuance. The Preferred Shares are duly authorized and, when
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issued, sold and delivered in accordance with the terms hereof, (i) will be duly
and validly issued, fully paid and nonassessable, free and clear of any taxes,
liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company (collectively, "Encumbrances"), (ii) based in part upon the
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representations of each Purchaser in this Agreement, will be issued, sold and
delivered in compliance with all applicable Federal and state securities laws
and (iii) will be entitled to all of the rights, preferences and privileges set
forth in the Certificate of Designation. The Warrants are duly authorized and,
when issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
Encumbrances and (ii) based in part upon the representations of each Purchaser
in this Agreement, will be issued, sold and delivered in compliance with all
applicable Federal and state securities laws. The Conversion Shares are duly
authorized and reserved for issuance and, when issued upon conversion of the
Preferred Shares in accordance with the terms of the Certificate of Designation,
will be duly and validly issued, fully paid and nonassessable, free and clear of
any Encumbrances. The Premium Shares are duly authorized and reserved for
issuance and, when issued in payment of Premium in accordance with the terms of
the Certificate of Designation, will be duly and validly issued, fully paid and
nonassessable, free and clear of any Encumbrances. The Warrant Shares are duly
authorized and, upon the issuance thereof in accordance with the terms of the
Warrant, will be duly and validly issued, fully paid and nonassessable, free and
clear of any Encumbrances. Except as set forth on Schedule 3.6, the Company's
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Board of Directors (i) has unanimously determined that the issuance and sale of
the Preferred Shares and Warrants hereunder, and the consummation of
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the transactions contemplated hereby, by the other Transaction Documents and by
the Certificate of Designation (including without limitation the issuance of the
Conversion Shares upon exercise of the Preferred Shares and the Warrant Shares
upon exercise of the Warrants), are in the best interests of the Company and
(ii) has unanimously approved the issuance of Conversion Shares upon exercise of
the Preferred Shares, the issuance of Premium Shares in payment of Premium and
the issuance of Warrant Shares upon exercise of the Warrants.
3.7 No Conflict with Other Instruments. Neither the Company nor any of
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its subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document as amended and in effect on and as of the date hereof
or in default (and no event has occurred which, with notice or lapse of time or
both, would constitute a default) under any provision of any instrument or
contract to which it is a party or by which it is bound, or of any provision of
any Federal, state or foreign judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company, which violation or default
could reasonably be expected to have a Material Adverse Effect. The (i)
execution, delivery and performance of this Agreement and the other Transaction
Documents, (ii) execution and filing of the Certificate of Designation and (iii)
except as set forth in Schedule 3.7, consummation of the transactions
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contemplated hereby and thereby (including without limitation, the issuance of
the Preferred Shares and the Warrants and the reservation for issuance and
issuance of the Conversion Shares, the Premium Shares and the Warrant Shares)
will not, in any such case, result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument or contract or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or of any of its subsidiaries or the triggering of any preemptive or
anti-dilution rights or rights of first refusal or first offer, or any similar
rights (whether pursuant to a "poison pill" provision or otherwise), on the part
of holders of the Company's securities.
3.8 Financial Condition; Taxes; Litigation.
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3.8.1 Except as set forth on Schedule 3.8.1, the Company's financial
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condition is, in all material respects, as described in the Disclosure
Documents, except for changes in the ordinary course of business and normal
year-end adjustments that are not, in the aggregate, materially adverse to the
consolidated business or financial condition of the Company and its subsidiaries
taken as a whole. Except as otherwise described in the Disclosure Documents or
in Schedule 3.8.1, or disclosed in writing by the Company to such Purchaser
prior to the Closing Date, there has been no material adverse change to the
Company's business, operations, properties, financial condition, prospects or
results of operations since the date of the Company's most recent audited
financial statements contained in the Disclosure Documents.
3.8.2 Except as set forth on Schedule 3.8.2, the Company has filed all
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tax returns
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required to be filed by it and paid all taxes which are due, except for taxes
which it reasonably disputes or which could not have a Material Adverse Effect.
3.8.3 Neither the Company nor any of its subsidiaries is the subject
of any pending or, to the Company's knowledge, threatened inquiry, investigation
or administrative or legal proceeding by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, the Commission or any
state securities commission or other governmental or regulatory entity which
could have a Material Adverse Effect.
3.8.4 Except as described in the Disclosure Documents or in Schedule
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3.8.4, there is no claim, litigation or administrative proceeding pending, or,
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to the Company's knowledge, threatened or contemplated, against the Company or
any of its subsidiaries, or against any officer, director or employee of the
Company or any such subsidiary in connection with such person's employment
therewith that, individually or in the aggregate, could have a Material Adverse
Effect. Neither the Company nor any of its subsidiaries is a party to or subject
to the provisions of, any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality which could have a Material
Adverse Effect.
3.9 Reporting Company; Form S-3. The Company is subject to the reporting
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requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required thereby. The
Company is eligible to register for resale, in a secondary sale by a selling
stockholder, shares of its Common Stock on a registration statement on Form S-3
under the Securities Act. To the Company's knowledge, there exist no facts or
circumstances (including without limitation any required approvals or waivers of
any circumstances that may delay or prevent the obtaining of accountant's
consents) that would prohibit or delay the preparation and filing of a
registration statement on Form S-3 with respect to the Registrable Securities
(as defined in the Registration Rights Agreement).
3.10 Acknowledgement of Dilution. The Company acknowledges that the
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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
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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
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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
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Schedule 3.12 hereto, (A) the Company has not granted or agreed to grant to any
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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
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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
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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
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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
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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
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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
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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
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(each, a "Key Employee") is currently serving in the capacity indicated on such
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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
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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
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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.
βββ βββ/ββ/ ββββββ ββ
ββββββββ, ββ βββββ
Attn: General Counsel
Tel: βββ-βββ-ββββ
Fax: βββ-βββ-ββββ
with a copy to:
βββββββ β. ββββββ, Esq.
Fenwick & West, LLP
βββ ββββ ββββ ββββββ
ββββ ββββ, ββ βββββ
Tel: βββ-βββ-ββββ
Fax: βββ-βββ-ββββ
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 ββββββββ 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/ βββββ β. βββββββββ
--------------------------------
Name: βββββ β. βββββββββ
Title: Chief Executive Officer
ββββββββ Capital Management, Inc.
By: /s/ βββββ βββββ
-------------------------------
βββββ βββββ, President
Number of Preferred Shares: 6,000
20
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ βββββ β. βββββββββ
-------------------------------
Name: βββββ β. βββββββββ
Title: Chief Executive Officer
VULCAN VENTURES
By: /s/ βββββββ β. βββββ
-------------------------------
Name: βββββββ β. βββββ
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