Exhibit 2.2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made effective as of June 22, 1998, by and among Asymetrix
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Learning Systems, Inc., a Delaware corporation ("Asymetrix"), Asym Merger Corp.,
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a Delaware corporation and a wholly-owned subsidiary of Asymetrix ("Merger
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Sub"), Meliora Systems, Inc., a New York corporation ("MSI"), and Xxxxxx X.
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Xxxxxx and Xxxx X. Xxxxxx (each of whom is a stockholder of MSI, and are
collectively referred to herein as the "Principals" and each individual referred
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to as a "Principal").
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RECITALS
The parties intend that, subject to the terms and conditions of this
Agreement:
Merger Sub will merge with and into MSI in a statutory merger, with MSI to
be the corporation surviving the Merger (as defined below), all pursuant to the
terms and conditions of this Agreement and a Plan of Merger in the form of
Exhibit A attached hereto (the "Plan of Merger") and the applicable provisions
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of the law of the State of New York and the State of Delaware.
Upon the effectiveness of the Merger, all of the outstanding capital stock
of MSI will be converted into shares of Asymetrix Common Stock, as provided in
this Agreement and the Plan of Merger. The Merger is intended to be treated as
a tax-free reorganization pursuant to the provisions of Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code") by virtue of the
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provisions of Section 368(a)(2)(E) of the Code and is intended to be treated as
a "pooling of interests" for accounting purposes.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms have
the meanings set forth below:
1.1 "Asymetrix Common Stock" means the Common Stock of Asymetrix, $0.01
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par value per share.
1.2 "Asymetrix Options" means options exercisable for Asymetrix Common
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Stock to be granted to employees of MSI as provided in Section 11.3.
1.3 "MSI Common Stock" means the Common Stock of MSI, without par value
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per share.
1.4 "Effective Time" means the time and date on which a Certificate of
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Merger (the "Certificate of Merger") has been filed with the New York Secretary
of State and a Certificate of Merger has been filed with the Delaware Secretary
of State, and the Merger becomes effective under New York and Delaware law.
1.5 "Merger" means the statutory merger of Merger Sub with and into MSI in
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a reverse triangular merger pursuant to this Agreement and the Plan of Merger.
Other capitalized terms defined elsewhere in this Agreement and not defined
in this Section 1 have the meanings assigned to such terms in this Agreement.
2. PLAN OF REORGANIZATION
2.1 The Merger. At the Effective Time, Merger Sub will be merged with and
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into MSI pursuant to this Agreement and the Plan of Merger and in accordance
with applicable provisions of the laws of the States of New York and Delaware.
In consideration of the Merger and the conversion into equity of amounts owed to
Xxxxxx X. Xxxxxx by MSI, Asymetrix will issue 268,000 shares of Asymetrix Common
Stock. Each share of MSI Common Stock issued and outstanding immediately prior
to the Effective Time will, by virtue of the Merger and at the Effective Time,
and without further action on the part of any holder thereof, be converted into
such number of shares (the "Applicable Fraction") of Asymetrix Common Stock as
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is equal to 268,000 shares minus the portion thereof allocated to the conversion
into equity of amounts owed to Xxxxxx X. Xxxxxx by MSI pursuant to Section 2.2,
then dividing the difference by the total number of shares of MSI Common Stock
issued and outstanding immediately prior to the Effective Time.
2.2 Conversion of Certain Debt into Equity. At the Effective Time the
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aggregate amount owed to Xxxxxx X. Xxxxxx by MSI (including all accrued but
unpaid compensation, if any, and the principal amount of all loans and accrued
interest thereon made to MSI by Xxxxxx Xxxxxx) shall be converted into
Asymetrix Common Stock. The number of shares of Asymetrix Common Stock into
which the amounts owed by MSI to Xxxxxx X Xxxxxx shall be converted shall be
determined by dividing the aggregate total of the amounts owed by MSI to Xxxxxx
X Xxxxxx at the Effective Time by the closing price of Asymetrix Common Stock
on NASDAQ on the last trading day preceding the Effective Time and rounding to
the nearest whole share. Xx. Xxxxxx acknowledges and agrees that the issuance
of such shares of Asymetrix Common Stock pursuant to this Section 2.2 shall be
in full and complete satisfaction of all amounts owed by MSI to him as of the
Effective Time, and hereby agrees that, effective as of the Effective Time, he
releases and forever discharges MSI and Asymetrix from and against any claims
for payment of any amounts owed to him by MSI at or prior to the Effective Time.
2.3 Adjustments for Capital Changes. If, prior to the Effective Time,
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Asymetrix or MSI recapitalizes through a split-up of its outstanding shares into
a greater number, or a combination of its outstanding shares into a lesser
number, reorganizes, reclassifies or otherwise changes its outstanding shares
into the same or a different number of shares of other classes (other than
through a split-up or combination of shares provided for in the previous
clause), or declares a dividend on its outstanding shares payable in shares,
securities convertible into shares or other property, then the Applicable
Fraction will be adjusted appropriately.
2.4 Fractional Shares. No fractional shares of Asymetrix Common Stock
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will be issued in connection with the Merger, but in lieu thereof, the holders
of MSI Common Stock who
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would otherwise be entitled to receive a fraction of a share of Asymetrix Common
Stock will receive an additional share of Asymetrix Common Stock.
2.5 Escrow Agreement. Asymetrix will withhold from the holders of shares
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of MSI Common Stock (the "MSI Shareholders") at the Effective Time that number
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of shares of Asymetrix Common Stock issuable to the MSI Shareholders upon
conversion of their shares of MSI Common Stock under Section 2.1 that is equal
to 10% of the difference between 268,000 shares minus the portion thereof
allocated to the conversion into equity of amounts owed to Xxxxxx X. Xxxxxx
pursuant to Section 2.2,, and deliver such withheld shares (the "Escrow Shares")
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to Commerce Bank (or a similar institution), as escrow agent (the "Escrow
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Agent"), to be held by Escrow Agent as collateral for the indemnification
obligations under Section 11.2 and pursuant to the provisions of an escrow
agreement (the "Escrow Agreement") in substantially the form of Exhibit 2.5.
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The number of Escrow Shares withheld from each MSI Shareholder shall be equal to
the product obtained by multiplying the total number of Escrow Shares by a
fraction (i) whose numerator is the total number of issued and outstanding
shares of MSI Common Stock that were owned of record by such MSI Shareholder
immediately prior to the Effective Time and (ii) whose denominator is the total
number of shares of MSI Common Stock that were issued and outstanding and held
of record by all MSI Shareholders immediately prior to the Effective Time. The
Escrow Shares will be represented by duly authorized stock certificates issued
in the name of the respective MSI Shareholders. Subject to the terms and
conditions of the Escrow Agreement, the Escrow Shares will be held by the Escrow
Agent until the first anniversary of the Effective Time. By their approval of
the Merger, each of the MSI Shareholders shall, without any further act of any
MSI Shareholder, be conclusively deemed to have consented to and approved (i)
the use of the Escrow Shares as collateral for the indemnification obligations
under Section 11.2 in the manner set forth in the Escrow Agreement, (ii) the
authorization of a majority in interest of MSI Stockholders to act for and on
behalf of each MSI Stockholder, and the taking by such majority in interest of
MSI Stockholders of any and all actions and the making of any decisions required
or permitted to be taken under the Escrow Agreement (including, without
limitation, the exercise of the power to: (1) authorize delivery to Asymetrix
of the Escrow Shares in satisfaction of claims by Asymetrix; (2) agree to,
negotiate, enter into settlements and compromises of and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims; (3) resolve any claim made pursuant to Section 11.2; and (4) and take
all actions necessary in the judgment of such majority in interest of MSI
Stockholders for the accomplishment of the foregoing), and (iii) all of the
other terms, conditions and limitations in the Escrow Agreement.
2.6 Effects of the Merger. At the Effective Time: (a) the separate
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existence of the Merger Sub will cease and Merger Sub will be merged with and
into MSI, and MSI will be the surviving corporation of the Merger, pursuant to
the terms of the Plan of Merger; (b) the Certificate of Incorporation and Bylaws
of MSI will continue to be the Certificate of Incorporation and Bylaws of the
surviving corporation of the Merger; (c) each share of capital stock of Merger
Sub outstanding immediately prior to the Effective Time will be converted into
one share of MSI; (d) the directors and certain officers of Asymetrix shall
become the directors and officers of the surviving corporation as set forth in
the Plan of Merger; (e) each share of MSI Common Stock outstanding immediately
prior to the Effective Time will be converted into the
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right to receive that number of shares of Asymetrix Common Stock as provided in
Section 2.1; and (f) the Merger will, from and after the Effective Time, have
all of the effects provided by applicable law.
2.7 Further Assurances. Each of MSI and the Principals agree that if, at
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any time after the Effective Time, Asymetrix considers or is advised that any
further deeds, assignments or assurances are reasonably necessary or desirable
to vest, perfect or confirm in Asymetrix title to any property or rights of MSI,
Asymetrix and its officers and directors may execute and deliver all such proper
deeds, assignments and assurances and do all other things necessary or desirable
to vest, perfect or confirm title to such property or rights in Asymetrix and
otherwise carry out the purpose of this Agreement, in the name of MSI or
otherwise.
2.8 Securities Law Compliance. Asymetrix will issue the shares of
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Asymetrix Common Stock in the Merger pursuant to the "private placement"
exemption from registration under Section 4(2) of, or Regulation D promulgated
under, the Securities Act of 1933, as amended (the "Securities Act"), and the
shares received by the Principals in the Merger will therefore be restricted
securities within the meaning of Rule 144 of the Securities Act, and
certificates evidencing such shares will bear a restrictive legend evidencing
that fact. Asymetrix shall also take any action that is required to be taken
under any applicable state securities or Blue Sky laws in connection with the
issuance of Asymetrix Common Stock in the Merger. MSI and the Principals shall
furnish to Asymetrix all information known to MSI or the Principals (or
reasonably ascertainable by MSI or the Principals) concerning each of MSI and
the Principals, as may be reasonably requested in connection with any action
contemplated by this Section.
2.9 Pooling Accounting. The parties acknowledge that, as a material
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inducement to Asymetrix to enter into this Agreement and consummate the Merger,
the Merger is intended to qualify as a "pooling of interests" for accounting and
financial reporting purposes. Accordingly, concurrently with the Closing, each
MSI Shareholder and each officer and director of MSI shall execute and deliver
to Asymetrix an Affiliate Agreement in the form of Exhibit 2.9 hereto (the
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"Affiliate Agreement").
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2.10 Tax-Free Reorganization. The parties intend to adopt this Agreement
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as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Section 368(a)(1)(A) of the Code. The parties believe
that the value of the Asymetrix Common Stock to be received in the Merger is
equal to the value of the MSI Common Stock to be surrendered in exchange
therefor. The Asymetrix Common Stock issued in the Merger will be issued in
exchange for an amount of MSI Common Stock representing "control" of MSI as
defined in Section 368(c) of the Code and no other transaction other than the
Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the MSI Common Stock. Unless advised by tax counsel that
doing so is required under applicable law, the parties shall not take a position
on any tax returns inconsistent with this Section 2.10. In addition, Asymetrix
represents now, and as of the Effective Time, that it presently intends to
continue MSI's historic business or use a significant portion of MSI's business
assets in a business. At the Effective Time, officers of each of Asymetrix and
MSI shall execute and deliver officers' certificates in the forms of Exhibits
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2.10A and 2.10B attached hereto. The provisions and
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representations contained or referred to in this Section 2.10 shall survive
until the expiration of the applicable statute of limitations.
3. REPRESENTATIONS AND WARRANTIES OF MSI AND PRINCIPALS
Each of the Principals and MSI, jointly and severally, hereby represents
and warrants as follows, except as set forth in the MSI Schedule of Exceptions
(in numbered paragraphs that correspond to the Section numbers below)
simultaneously delivered to Asymetrix with the execution of this Agreement:
3.1 Organization, Good Standing and Qualification. MSI is a corporation
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duly organized, validly existing and in good standing under the corporation and
franchise tax laws of the State of New York, has the corporate power and
authority to own, operate and lease its properties and to carry on its business
as now conducted and as proposed to be conducted, and is qualified as a foreign
corporation in the jurisdictions listed in Schedule 3.1 of the MSI Schedule of
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Exceptions. MSI is qualified as a foreign corporation in each jurisdiction in
which a failure to be so qualified could reasonably be expected to have a
material adverse effect on the business, operations, financial condition or
prospects (for purposes of this Section 3 and Sections 4 and 5, a "Material
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Adverse Effect") of MSI.
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3.2 Power, Authorization and Validity.
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3.2.1 MSI and each Principal has the corporate or other right, power,
legal capacity and authority to enter into and perform his, her or its
respective obligations under this Agreement and all agreements to which MSI or
such Principal is or will be a party that are required to be executed at the
Closing (defined below) pursuant to this Agreement (the "MSI Ancillary
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Agreements"). The execution, delivery and performance of this Agreement and the
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MSI Ancillary Agreements to which MSI is a party have been duly and validly
approved and authorized by the Board of Directors of MSI. The Merger has been
approved by all of the stockholders of MSI.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable MSI and the Principals to enter into, and to
perform his, her or its obligations under, this Agreement and the MSI Ancillary
Agreements, except for (a) the filing of the Certificate of Merger with the New
York Secretary of State, (b) the filing of a Certificate of Merger with the
Delaware Secretary of State, (c) the filing of appropriate documents with the
relevant authorities of other states in which MSI is qualified to do business,
if any, and (d) such filings as may be required to comply with federal and state
securities laws.
3.2.3 This Agreement and the MSI Ancillary Agreements are, or when
executed by MSI and/or the Principals, as applicable, will be, valid and binding
obligations of MSI and/or the Principals, as applicable, enforceable in
accordance with their respective terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies; provided, however, that the Certificate of Merger
will not be effective until the Effective Time.
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3.3 Capitalization. As of the date hereof, the authorized capital stock
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of MSI consists of 200 shares of MSI Common Stock, of which 200 shares are
issued and outstanding. All issued and outstanding shares of MSI Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable
(except as provided in Section 630 of the NYBCL with respect to unpaid services
performed after the Effective Time), are not subject to any right of rescission,
and have been offered, issued, sold and delivered by MSI, in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws. Schedule 3.3 of the MSI
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Schedule of Exceptions sets forth a true, correct and complete list of all
holders of MSI Common Stock. There are no options, warrants, calls, commitments,
conversion privileges or preemptive or other rights or agreements outstanding to
purchase or otherwise acquire any of MSI's authorized but unissued capital stock
or any securities convertible into or exchangeable for shares of MSI capital
stock or obligating MSI to grant, extend, or enter into any such option,
warrant, call, commitment, conversion privilege or other right or agreement, and
there is no liability for dividends accrued but unpaid. There are no voting
agreements, rights of first refusal or other restrictions (other than normal
restrictions on transfer under applicable federal and state securities laws)
applicable to any of MSI's outstanding securities. MSI is not under any
obligation to register under the Securities Act any of its presently outstanding
securities or any securities that may be subsequently issued. All holders of MSI
Common Stock reside in the State of Georgia.
3.4 Subsidiaries. MSI does not presently own or control, directly or
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indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
3.5 No Violation of Existing Agreements. Neither the execution and
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delivery of this Agreement or any MSI Ancillary Agreement, nor the consummation
of the transactions contemplated hereby or thereby, will conflict with, or (with
or without notice or lapse of time, or both) result in a termination, breach or
violation of, or cause an acceleration or amendment of any obligation under, (a)
any provision of the Certificate of Incorporation or Bylaws of MSI, as currently
in effect, (b) any Material Agreement (as defined in Section 3.11) to which MSI
is a party or by which MSI or the Principals or his, her or its assets or
properties are bound, or (c) to the knowledge of MSI and the Principals, any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to MSI or the Principals, or their respective assets or
properties, in each case, such that the conflict, termination, breach,
acceleration or amendment would have a Material Adverse Effect.
3.6 Litigation. There is no action, proceeding, claim or investigation
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pending against MSI or any Principal before any federal, state, municipal,
foreign or other court or administrative agency, department, board or
instrumentality that, if concluded adversely to MSI or a Principal, would have a
Material Adverse Effect, and, to the best of MSI's and the Principals'
knowledge, no such action, proceeding, claim or investigation has been
threatened. There is, to the best of MSI's and the Principals' knowledge, no
reasonable basis for any stockholder or former stockholder of MSI, or any other
person, firm, corporation or entity, to assert a claim against MSI, any
Principal or Asymetrix based upon: (a) ownership or rights to ownership of any
shares of MSI Common Stock, (b) any rights as or to become a holder of
securities of MSI, including any option or preemptive rights or rights to notice
or to vote, or (c) any rights under any
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agreement among MSI and any of its stockholders or former stockholders or option
holders or former option holders.
3.7 Taxes. For purposes of this Section 3.7, the terms "tax" and "taxes"
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include all federal, state, local and foreign income, gains, franchise, excise,
property, sales, use, employment, license, payroll, occupation, recording,
value-added or transfer taxes, governmental charges, fees, levies or assessments
(whether payable directly or by withholding), and, with respect to such taxes,
any estimated taxes, interest, penalties, additions to tax and interest on any
such penalties and additions to tax. For purposes of this Section 3.7, the
terms "Return" and "Returns" include all federal, state, local and foreign tax
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returns, estimates, information statements and reports required to be filed by
MSI with respect to its income, assets or operations.
3.7.1 MSI has or will have filed all Returns for tax periods ending
before the Effective Time, other than where a failure to file a return did not
or would not have a Material Adverse Effect. All such Returns that have been
filed were (as filed or after timely amendment) true, correct and complete in
all material respects. MSI and the Principals have provided or made available to
Asymetrix copies of all material Returns actually filed by MSI during the three-
year period ending on the date hereof.
3.7.2 MSI has paid or deposited in full all taxes due and owing or
shown to be due on the Returns filed by MSI (including required estimated tax
payments with respect thereto), except where a failure to pay a tax in full did
not or would not have a Material Adverse Effect. MSI has established a proper
and adequate accrual or reserve on the MSI Financial Statements (as defined in
below) for all taxes not yet due and owing, whether or not shown or required to
be shown on any Return, except where a failure to establish such an accrual or
reserve did not or would not have a Material Adverse Effect.
3.7.3 Neither MSI nor any of the Principals is aware of any pending
or threatened claim or assessment in writing with respect to any deficiencies
for any tax against MSI by any taxing authority. MSI has not executed any
waiver of any statute of limitations relating to taxes or any extension of the
period for the assessment or collection of any tax (other than extensions which
have expired by the Effective Time). Neither MSI nor any of the Principals has
received any written notification, or is otherwise aware, that any material
issues are currently under audit, examination or review by any taxing authority
regarding MSI.
3.7.4 There are no material liens, pledges, charges, claims, security
interests or other encumbrances covering the assets of MSI or the Principals and
relating or attributable to taxes, other than for taxes not yet due and payable
and others that do not have a Material Adverse Effect.
3.7.5 [Intentionally omitted.]
3.7.6 MSI is not party to a tax sharing or tax allocation agreement,
and MSI does not owe any amount under any such agreement.
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3.7.7 MSI is not or has not at any time been a "United States real
property holding corporation" within the meaning of Section 897(c) of the Code.
3.7.8 MSI has not filed any consent agreement under Section 341(f)
of the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a "subsection (f) asset" (as defined in Section 341(f)(4) of the
Code) owned by MSI .
3.7.9 None of MSI's assets constitute "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
3.8 Financial Statements. MSI has delivered to Asymetrix as Schedule 3.8
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of the MSI Schedule of Exceptions MSI's (a) balance sheet as of December 31,
1997 (the "1997 Balance Sheet") and income statement and statement of cash flows
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for the 12 month period then ended (collectively, the "1997 Financial
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Statements"), and (b) balance sheet as of March 31, 1998 (the "March 31 Balance
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Sheet") and income statement for the three month period then ended
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(collectively, the "MSI March Financial Statements") (the 1997 Financial
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Statements and the MSI March Financial Statements are collectively referred to
herein as the "MSI Financial Statements"). The MSI Financial Statements (a) are
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in accordance with the books and records of MSI, (b) fairly present the
financial condition of MSI at the dates therein indicated and the results of
operations for the periods therein specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, subject, in the case of the MSI March Statements, to normal recurring
year-end adjustments and the absence of any notes thereto. MSI does not have any
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against or disclosed in the MSI Financial Statements, except for
those that may have been incurred after the date of the MSI Financial Statements
in the ordinary course of its business, consistent with past practice and that
are not material in amount either individually or collectively.
3.9 Title to Properties. MSI has good and marketable title to all of its
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tangible assets as shown on the March 31 Balance Sheet, free and clear of all
liens, charges, restrictions or encumbrances, other than for taxes not yet due
and payable and others that do not have a Material Adverse Effect. All
machinery and equipment included in such properties is in good condition and
repair, normal wear and tear excepted, and all leases of real or personal
property to which MSI is a party are fully effective. To the knowledge of MSI
and each of the Principals, MSI is not in violation of any zoning, building,
safety or environmental ordinance, regulation or requirement or other law or
regulation applicable to the operation of owned or leased properties (the
violation of which would have a Material Adverse Effect), or has received any
notice of such violation with which it has not complied or had waived.
3.10 Absence of Certain Changes. Except as set forth on Schedule 3.10,
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since March 31, 1998, other than actions required by this Agreement (including,
without limitation, the incurrence of legal and accounting fees and expenses in
connection therewith), there has not been with respect to MSI:
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(a) any change in the financial condition, properties, assets,
liabilities, business or operations of MSI which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or, to the knowledge of MSI and the Principals, will
have a Material Adverse Effect;
(b) any contingent liability incurred by MSI as guarantor, surety or
otherwise with respect to the obligations of others, which contingent liability
is in excess of $10,000 individually or $25,000 in the aggregate;
(c) any mortgage, encumbrance or lien placed on any of the properties
of MSI, which mortgage, encumbrance or lien is in excess of $10,000 individually
or $25,000 in the aggregate;
(d) any obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business, which
obligation or liability is in excess of $10,000 individually or $25,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, other than in the
ordinary course, of any of the properties or assets of MSI, which purchase,
sale, other disposition or other arrangement is in excess of $10,000
individually or $25,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of MSI,
any split, combination or recapitalization of the capital stock of MSI or any
direct or indirect redemption, purchase or other acquisition of the capital
stock of MSI;
(h) any labor dispute or claim of unfair labor practices or, other
than changes in the ordinary course of business, consistent with past practice,
any change in the compensation payable or to become payable to MSI's officers,
employees or agents, any bonus payment or arrangement made to or with any of
such officers, employees or agents or any employee terminations or resignations;
(i) any declaration or payment of an extraordinary dividend, within
the meaning of Section 1059(c) of the Code;
(j) any payment or discharge of a lien or liability thereof which lien
was not either shown on the March 31 Balance Sheet or incurred in the ordinary
course of business thereafter; or
(k) any material transaction with any of its officers, directors,
employees or stockholders or any entity controlled by any of such individuals.
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3.11 Material Agreements, Contracts and Commitments. Except as set forth
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on Schedule 3.11 of the MSI Schedule of Exceptions and other than this Agreement
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and the MSI Ancillary Agreements, neither MSI nor any Principal is on the date
hereof a party or subject to any oral or written contracts, obligations,
commitments, plans, leases, instruments, arrangements or licenses which are
material to the business of MSI (each a "Material Agreement"), including, but
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not limited to any:
(a) Contract, commitment, letter contract or purchase order providing
for payments by or to MSI in an aggregate amount of (1) $25,000 or more in the
ordinary course of business to any one vendor or customer; or (2) $10,000 or
more not in the ordinary course of business to any one vendor or customer;
(b) License agreement as licensor or licensee, including site
licenses for products with initial year fees in excess of $25,000 and each
agreement that provides for either the delivery of source code to the licensee
or escrow of such source code for the benefit of such licensee and including any
MSI IP Rights Agreement (as defined in Section 3.12);
(c) Consulting, development or similar agreement with fees exceeding
$5,000 for any one customer under which MSI currently provides or will provide
any custom software development, training, documentation, personnel placements,
advice, consulting services or other products or services to a customer of MSI
(collectively with any such agreements with fees less than $5,000 for any one
customer not required to be listed on Schedule 3.11, the "Current Service
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Agreements");
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(d) Contract for the current or future sale, provision or manufacture
of products (including computer software), material or supplies from MSI or in
which MSI has granted or received distribution rights, most favored customer
pricing provisions or exclusive marketing rights relating to any product or
services, group of products or services or territory (collectively, "Current
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Sales Agreements," together with the Current Service Agreements, the "Customer
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Agreements");
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(e) Contract providing for the development of software by or for MSI,
or license of software to MSI, which software is used or incorporated in any
products distributed or services provided by MSI or is contemplated to be used
or incorporated in any products to be distributed or services to be provided by
MSI (other than software generally available to the public at a per copy license
fee of less than $2,500 per copy);
(f) Contract or commitment for the employment of any officer,
employee or consultant of MSI or any other type of contract or understanding
with any officer, employee or consultant of MSI which is not immediately
terminable by MSI without cost or other liability;
(g) Agreement for the lease of real or personal property involving
payments by or to MSI in an aggregate amount of $10,000 or more;
(h) Joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
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(i) Written dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
ongoing distribution of any products or services of MSI ;
(j) Instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except as
disclosed in the MSI Financial Statements;
(k) Contract containing covenants purporting to limit MSI's freedom
to compete in any line of business in any geographic area; or
(l) Stock redemption or purchase agreement yet to be performed.
All Material Agreements constitute valid and enforceable obligations
of the parties thereto (except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (iii) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of
securities), and are and will, immediately after the Effective Time, be in full
force and effect. Neither MSI nor the Principals is, nor, to the best knowledge
of MSI and the Principals, is any other party thereto, in breach or default in
any material respect under the terms of any such Material Agreement. A copy of
each Material Agreement has been delivered or made available to Asymetrix's
counsel. Neither MSI nor the Principals is a party to any contract, agreement
or arrangement which has had, or could reasonably be expected to have, a
Material Adverse Effect. MSI has no material liability for renegotiation of
government contracts or subcontracts, if any.
3.12 Intellectual Property. MSI owns all right, title or interest in, or
---------------------
has the rights to use, sell or license, all Intellectual Property Rights (as
defined below) necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the " MSI IP Rights") and such rights to
-------------
use, sell or license are reasonably sufficient for the conduct of its business
as presently conducted. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any MSI IP Right or materially impair the right of MSI to use,
sell or license any MSI IP Right or portion thereof. There are no royalties,
honoraria, fees or other payments payable by MSI to any person by reason of the
ownership, use, license, sale or disposition of any MSI IP Rights. Except for
matters which would not have a Material Adverse Effect, neither the manufacture,
marketing, license, sale or intended use of any product currently licensed or
sold by MSI (whether on a stand-alone basis or as part of services offered by
MSI) or currently under development by MSI violates any license or agreement
between MSI and any third party or infringes any Intellectual Property Right of
any other party; and, except for matters which would not have a Material Adverse
Effect, there is no pending or, to the best knowledge of MSI and the Principals,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any MSI IP Right; nor, to the best knowledge of
MSI and the
-11-
Principals without any independent investigation thereof, is there any basis for
any such claim; nor has MSI received any notice asserting that any MSI IP Right
or the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, nor, to the best knowledge of MSI
and the Principals, is there any basis for any such assertion. MSI has taken all
steps that it believes are reasonable and practicable to safeguard and maintain
the secrecy and confidentiality of, and its proprietary rights in, all material
MSI IP Rights. MSI is not using any Intellectual Property Rights of any past or
present officers, employees or consultants. Schedule 3.12 of the MSI Schedule
-------------
of Exceptions contains a list of all applications, registrations, filings and
other formal actions made or taken pursuant to federal, state and foreign laws
by MSI to perfect or protect its interest in MSI IP Rights, including, without
limitation, all patents, patent applications, copyrights, copyright
registrations, trademarks, trademark applications and service marks and all MSI
IP Rights Agreements (except for object code end-user licenses granted to end-
users in the ordinary course of business that permit use of software products
without a right to modify, distribute or sublicense the same). As used herein,
the term "Intellectual Property Rights" shall mean all intellectual property
----------------------------
rights in any jurisdiction in the world, including, without limitation, patents,
patent applications, patent rights, trademarks, trademark applications, trade
names, service marks, service xxxx applications, copyright, copyright
registrations, licenses, know-how, trade secrets, customer lists, proprietary
processes, formulae and other rights to Software. The term "Software" shall mean
--------
all source and object code, algorithms, architecture, structure, display
screens, layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records. The term "MSI IP Rights Agreement"
-----------------------
shall mean any instrument or agreement governing any MSI IP Right.
3.13 Compliance with Laws. MSI has complied, or prior to the Closing Date
--------------------
will have complied, and is or will be at the Closing Date in full compliance, in
all material respects, with all applicable laws, ordinances and regulations, and
rules, and all orders, writs, injunctions, awards, judgments and decrees,
applicable to it or to its assets, properties, and business (the violation of
which would have a Material Adverse Effect), including, without limitation: (a)
all applicable federal and state securities laws and regulations, (b) all
applicable federal, state and local laws, ordinances and regulations, and all
orders, writs, injunctions, awards, judgments and decrees, pertaining to (i) the
sale, licensing, leasing, ownership or management of MSI's owned, leased or
licensed real or personal property, products and technical data, and (ii)
employment and employment practices, terms and conditions of employment, and
wages and hours, (c) the Export Administration Act and regulations promulgated
thereunder and all other laws, regulations, rules, orders, writs, injunctions,
judgments and decrees applicable to the export or re-export of controlled
commodities or technical data and (d) the Immigration Reform and Control Act;
provided, however, that this Section 3.13 shall not be deemed to apply to any
matters within the general scope of any other representation in this Section 3.
MSI has received all permits and approvals from, and has made all filings with,
third parties, including government agencies and authorities, that are necessary
in connection with its present business and which, if not received or filed,
would have a Material Adverse Effect. There are no legal or administrative
proceedings or investigations pending or threatened, that, if enacted or
determined adversely to MSI or any Principal, would result in any Material
Adverse Effect.
-12-
3.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (as that term is defined in Rule 405 under the
Securities Act) of MSI (each, a "Insider") nor any member of their immediate
-------
families is or has been directly or indirectly interested in any contract or
informal arrangement with MSI within the last three years, except for
compensation as an officer, director or employee of MSI. None of the Insiders
nor any member of their immediate families has any interest in any property,
real or personal, tangible or intangible, including inventions, patents,
copyrights, trademarks or trade names or trade secrets, used in or pertaining to
the business of MSI, except for the normal rights of a stockholder.
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 MSI has no employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements with
the sole purpose of providing for the confidentiality of proprietary information
or assignment of inventions).
3.15.2 MSI (i) has never been and is not now subject to a union
organizing effort, (ii) is not subject to any collective bargaining agreement
with respect to any of its employees, (iii) is not subject to any other
contract, written or oral, with any trade or labor union, employees' association
or similar organization, or (iv) has no current labor dispute. MSI and the
Principals have no knowledge that a material number of employees intend to leave
the employ of MSI or that any employees intend to leave the employ of MSI and
which departures would prevent MSI from fully performing on schedule any
Customer Agreement.
3.15.3 Schedule 3.15.3 of the MSI Schedule of Exceptions identifies
---------------
each "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), but excluding
-----
workers' compensation, unemployment compensation and other government-mandated
programs currently or previously maintained, contributed to or entered into by
MSI under which MSI or any ERISA Affiliate (as defined below) thereof has any
present or future obligation or liability (collectively, the " MSI Employee
------------
Plans"). For purposes of this Section 3.15.3, "ERISA Affiliate" shall mean any
----- ---------------
entity which is a member of (A) a "controlled group of corporations," as defined
in Section 414(b) of the Code, (B) a group of entities under "common control,"
as defined in Section 414(c) of the Code, or (C) an "affiliated service group,"
as defined in Section 414(m) of the Code, or treasury regulations promulgated
under Section 414(o) of the Code, any of which includes MSI. Copies of all MSI
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and summary plan descriptions thereof (including summary plan
descriptions) have been delivered or made available to Asymetrix or its counsel,
together with the three most recent annual reports (Form 5500, including, if
applicable, Schedule B thereto) prepared in connection with any such MSI
Employee Plan. All MSI Employee Plans which individually or collectively would
constitute an "employee pension benefit plan," as defined in Section 3(2) of
ERISA (collectively, the "MSI Pension Plans"), are identified as such in
-----------------
Schedule 3.15.3 of the MSI Schedule of Exceptions. As of the date hereof, all
---------------
contributions due and previously required to be made on or before the date
hereof from MSI with respect to any of the MSI Employee Plans have been made as
required under ERISA or have been accrued on the MSI Financial Statements. To
the knowledge of MSI and the Principals, each MSI Employee Plan has been
maintained
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substantially in compliance with its terms and with the requirements prescribed
by any and all statutes, orders, rules and regulations, including, without
limitation, ERISA and the Code, which are applicable to such MSI Employee Plans.
3.15.4 No "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any MSI Employee
Plan which is covered by Title I of ERISA which would result in a material
liability to MSI taken as a whole, excluding transactions effected pursuant to a
statutory or administrative exemption. Nothing done or omitted to be done and
no transaction or holding of any asset under or in connection with any MSI
Employee Plan has made or will make MSI or any officer or director of MSI
subject to any material liability under Title I of ERISA or liable for any
material tax (as defined in Section 2.7) or penalty pursuant to Sections 4972,
4975, 4976 or 4979 of the Code or Section 502 of ERISA.
3.15.5 Any MSI Pension Plan which is intended to be qualified under
Section 401(a) of the Code (a "MSI 401(a) Plan") has received a favorable
---------------
determination from the Internal Revenue Service as to its qualifications, and
MSI and the Principals are not aware of any reason why such determination may
not be relied upon by such plan. MSI and the Principals have delivered or made
available to Asymetrix or its counsel a true, correct and complete copy of the
most recent Internal Revenue Service determination letter with respect to each
MSI 401(a) Plan.
3.15.6 Schedule 3.15.6 of the MSI Schedule of Exceptions lists each
---------------
severance or other similar contract (written or oral), arrangement or policy and
each plan or arrangement providing for insurance coverage (including any self-
insured arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors, but excluding workers' compensation,
unemployment compensation and other government-mandated programs currently or
previously maintained, which (A) is not a MSI Employee Plan, (B) is entered
into, maintained or contributed to, as the case may be, by MSI and (C) covers
any employee or former employee of MSI. Such contracts, plans and arrangements
as are described in this Section 3.15.6 are herein referred to collectively as
the "MSI Benefit Arrangements." Each MSI Benefit Arrangement has been
------------------------
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such MSI Benefit Arrangement. MSI has delivered or made available
to Asymetrix or its counsel a complete and correct copy or description of each
MSI Benefit Arrangement.
3.15.7 MSI has timely provided to individuals entitled thereto all
required notices and coverage pursuant to Section 4980B of the Code and the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
-----
with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the
Code) under any MSI Employee Plan occurring prior to and including the Closing
Date, and no material Tax payable on account of Section 4980B of the Code has
been incurred with respect to any current or former employees (or their
beneficiaries) of MSI.
-14-
3.15.8 No benefit payable or which may become payable by MSI
pursuant to any MSI Employee Plan or any MSI Benefit Arrangement or as a result
of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise Tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code.
3.15.9 To the knowledge of MSI and the Principals and except for
matters which would not have a Material Adverse Effect, no employee of MSI is in
violation of any term of any employment contract, patent disclosure agreement,
noncompetition agreement, or any other contract or written agreement, or any
restrictive covenant contained in any such agreement relating to the right of
any such employee to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees does not subject MSI
to any material liability.
3.15.10 A list of all employees, officers and consultants of MSI and
their current compensation, bonus plans, commission plans, vacation rights and
severance rights is set forth on Schedule 3.15.10 of the MSI Schedule of
----------------
Exceptions. MSI is currently paying all amounts that are currently required to
be paid to such parties shown in such Schedule.
3.15.11 MSI is not a party to any (a) agreement with any executive
officer or other key employee of MSI (i) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving MSI in the nature of any of the transactions contemplated
by this Agreement and the Plan of Merger, (ii) providing any term of employment
or compensation guarantee, or (iii) providing severance benefits or other
benefits after the termination of employment of such employee regardless of the
reason for such termination of employment, or (b) agreement or plan, including,
without limitation, any stock option plan, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be materially increased,
or the vesting of benefits of which will be materially accelerated, by the
occurrence of any of the transactions contemplated by this Agreement and the
Plan of Merger or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement and the
Plan of Merger.
3.16 Corporate Documents. MSI has made available to Asymetrix for
-------------------
examination all documents and information listed in the MSI Schedule of
Exceptions or other exhibits called for by this Agreement or which have been
requested by Asymetrix's counsel, including, without limitation, the following:
(a) copies of the Certificate of Incorporation and Bylaws of MSI as currently in
effect; (b) the Minute Book containing all records of all proceedings, consents,
actions and meetings of the stockholders, the board of directors and any
committees thereof of MSI; (c) the stock ledger and journal reflecting all stock
issuances and transfers of MSI; (d) all material permits, orders, and consents
issued by any regulatory agency with respect to MSI, or any securities of MSI,
and all applications for such permits, orders, and consents; and (e) copies or
forms of all stock purchase agreements, warrants, option plans, grants and
exercise agreements and, where forms of agreements are provided rather than
copies of the signed documents, a true and complete list showing the names of
the security holder, numbers of shares, exercise or
-15-
purchase prices, grant dates, vesting dates, exercise dates, expiration dates
and all other relevant data necessary for Asymetrix to issue the Asymetrix
Common Stock .
3.17 No Brokers. Neither MSI nor any of the Principals is obligated for
----------
the payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement or the
MSI Ancillary Agreements or in connection with any transaction contemplated
hereby or thereby. Except as otherwise provided in this Agreement, MSI and each
Principal will pay only its own expenses, if any, incurred in connection with
this Agreement and the transactions contemplated herein.
3.18 Disclosure. To the knowledge of MSI and the Principals, neither this
----------
Agreement, its exhibits and schedules, nor any of the certificates or documents
to be delivered by MSI or the Principals to Asymetrix under this Agreement,
taken together, contains any untrue statement of a material fact or omits to
state any material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which such statements
were made, not misleading.
3.19 Insurance. MSI maintains and at all times during the prior three
---------
years has maintained fire and casualty, general liability, business interruption
and product liability insurance which it believes to be reasonably prudent for
similarly sized and similarly situated businesses. A list of all such insurance
is set forth on Schedule 3.19 of the MSI Schedule of Exceptions.
-------------
3.20 Environmental Matters.
---------------------
3.20.1 During the period that MSI has leased or owned its properties
or owned or operated any facilities, there have been no disposals or releases of
Hazardous Materials (as defined below) by MSI, or to MSI's and the Principals'
knowledge, by others, on, from or under such properties or facilities, the
liability for which would have a Material Adverse Effect. MSI and the
Principals have no knowledge of any presence, generation, manufacturing,
disposals or releases of Hazardous Materials on, from or under any of such
properties or facilities, which may have occurred prior to MSI having taken
possession of any of such properties or facilities, the liability for which
would have a Material Adverse Effect. For the purposes of this Agreement, the
terms "disposal" and "release" shall have the definitions assigned thereto by
-------- -------
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For the purposes of
------
this Agreement, "Hazardous Materials" shall mean any hazardous or toxic
-------------------
substance, material or waste which is or becomes prior to the Closing Date
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. (S) 1801 et seq.; (iii) the Toxic Substance Control
Act, 15 U.S.C. (S) 2601 et seq.; (iv) the Occupational Safety and Health Act of
1970, 29 U.S.C. (S) 651 et seq.; (v) any applicable federal, state or local
statute or ordinance that has a scope or purpose similar to those identified
above; or (vi) regulations promulgated under any of the laws or statutes
identified above.
-16-
3.20.2 None of the properties or facilities of MSI is in material
violation of any federal, state or local law, ordinance, regulation or order
relating to industrial hygiene or to the environmental conditions on, under or
about such properties or facilities, including, but not limited to, soil and
ground water condition. During the time that MSI has owned or leased its
properties and facilities, neither MSI nor, to MSI's and the Principals'
knowledge, any third party, has used, generated, manufactured or stored on,
under or about such properties or facilities or transported to or from such
properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
3.20.3 During the time that MSI has owned or leased its respective
properties and facilities, there has been no litigation brought or, to the
knowledge of MSI and the Principals, threatened against MSI by, or any
settlement reached by MSI with, any party or parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials on, from or
under any of such properties or facilities.
3.21 Books and Records. The books, records and accounts of MSI (a) are in
-----------------
all material respects true, complete and correct, (b) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(c) are stated in reasonable detail and accurately and fairly reflect the
material transactions and dispositions of the assets of MSI, and (d) accurately
and fairly reflect the basis for the MSI Financial Statements.
3.22 Certain Dispositions After Effective Time. None of the Principals
-----------------------------------------
has any present plan or intention, or any binding commitment, to dispose, after
the Effective Time, of an amount of Asymetrix Common Stock that would cause the
Principals, in the aggregate, to have disposed of such stock in an amount equal
in value to 50% or more of the value of MSI Common Stock outstanding immediately
prior to the Effective Time.
3.23 Company Debt. The aggregate principal amount of, and accrued
------------
interest upon, the amounts due under a Commercial Promissory Note dated July 1,
1997, a U.S. Small Business Administration Note dated July 30, 1997 and the
Commercial Term Note dated April 20, 1998, each between MSI and First National
Bank of Rochester, are equal to $40,000, $271,153.11 and $26,775, respectively,
as of June 1, 1998, and there has been no increase in the principal amount of
such debt since June 1, 1998. The aggregate amount owed to Xxxxxx X. Xxxxxx by
MSI (including all accrued but unpaid compensation, if any, and the principal
amount of all loans and accrued interest thereon made to MSI by Xxxxxx Xxxxxx)
is equal to $276,342.08 as of June 1, 1998, and there has been noincrease in the
principal amount of such debt since June 1, 1998.
3.24 Loans to Xxx Xxxxxxxx. The aggregate principal amount of, and
---------------------
accrued interest upon, all loans and advances of salary and bonus to, and other
indebtedness to MSI of, Xxx Xxxxxxxx (the "Xxxxxxxx Debt") is equal to
-------------
$136,975.83 as of June 1, 1998, and since June 1, 1998 no additional loans or
advances of salary or bonus have been made to, and no additional indebtedness to
MSI has been incurred by Xxx Xxxxxxxx, except for interest accruing on the
unpaid balance of the Xxxxxxxx Debt since June 1, 1998, and except for personal
expenses charged to MSI's American Express account since June 1, 1998.
-17-
3.25 Prior Agreements. MSI has no liability arising out of, related to,
----------------
in connection with or otherwise resulting from any Prior Agreement whatsoever.
For purposes of the foregoing, "Prior Agreements" means (i) all consulting,
----------------
development or similar agreement under which MSI has provided any training,
documentation, placements, advice, consulting services or other products and
services to a customer of MSI (which agreements are not Current Service
Agreements as defined in Section 3.11(c)), and (ii) all contracts for the sale,
provision or manufacture of products (including computer software), material or
supplies (which agreements are not Current Sales Agreements as defined in
Section 3.11(d))
4. REPRESENTATIONS AND WARRANTIES OF ASYMETRIX AND MERGER SUB
Asymetrix and Merger Sub hereby jointly and severally represent and warrant
as follows, except as set forth in the Registration Statement on Form S-1 (File
No. 333-49037) filed by Asymetrix with the Securities and Exchange Commission on
April 1, 1998, as amended to date (the "Form S-1"), or on the Asymetrix Schedule
--------
of Exceptions (in numbered paragraphs that correspond to the Section numbers
below) simultaneously delivered to MSI and the Principals with the execution of
this Agreement:
4.1 Organization, Good Standing and Qualification. Asymetrix is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the
corporation and franchise tax laws of the State of Delaware and has the
corporate power and authority to own, operate and lease its properties and to
carry on its business as now conducted and as proposed to be conducted. Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the corporate power and authority to
own, operate and lease its properties and carry on its business as now conducted
and as proposed to be conducted. Merger Sub was formed in May 1998 and has
conducted no business or operations prior to the date hereof. Asymetrix is
qualified to do business as a foreign corporation in each jurisdiction where
failure to be so qualified could reasonably be expected to have a material
adverse effect on the business, operations, financial condition or prospects of
Asymetrix and its subsidiaries taken as a whole (for purposes of this Section 4
and 6, a "Material Adverse Effect").
-----------------------
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Each of Asymetrix and Merger Sub has the corporate right,
power, legal capacity and authority to enter into and perform its respective
obligations under this Agreement, and all agreements to which Asymetrix and
Merger Sub are or will be a party that are required to be executed pursuant to
this Agreement (the "Asymetrix Ancillary Agreements"). The execution, delivery
------------------------------
and performance of this Agreement and the Asymetrix Ancillary Agreements have
been duly and validly approved and authorized by all necessary corporate action
on the part of each of Asymetrix and Merger Sub.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable each of Asymetrix and Merger Sub to enter
into, and to perform its respective obligations under, this Agreement and the
Asymetrix Ancillary Agreements, except for (a) the filing of the Certificate of
Merger with the New York Secretary of State, (b) the filing
-18-
of a Certificate of Merger with the Delaware Secretary of State, (c) the filing
of appropriate documents with the relevant authorities of other states in which
Asymetrix is qualified to do business, if any, and (d) such filings as may be
required to comply with federal and state securities laws.
4.2.3 This Agreement and the Asymetrix Ancillary Agreements are, or
when executed by Asymetrix and Merger Sub will be, valid and binding obligations
of each of Asymetrix and Merger Sub enforceable in accordance with their
respective terms, except as to the effect, if any, of (a) applicable bankruptcy
and other similar laws affecting the rights of creditors generally, (b) rules of
law governing specific performance, injunctive relief and other equitable
remedies, and (c) the enforceability of provisions requiring indemnification in
connection with the offering, issuance or sale of securities; provided, however,
that the Certificate of Merger will not be effective until the Effective Time.
4.3 Capitalization. The capitalization of Asymetrix and Merger Sub
--------------
consist of the following:
4.3.1 Asymetrix Capital Stock. A total of 2,000,000 authorized
-----------------------
shares of Preferred Stock, $0.01 par value per share, none of which are
outstanding. A total of 40,000,000 authorized shares of Asymetrix Common Stock,
of which 13,277,781 shares are outstanding as of June 18, 1998. The rights,
preferences and privileges of the Preferred Stock and the Asymetrix Common
Stock, are as stated in Asymetrix's Certificate of Incorporation, as amended,
and as provided by law. All issued and outstanding shares of Asymetrix capital
stock have been duly authorized and validly issued, are fully paid and
nonassessable, and have been offered, issued, sold and delivered by Asymetrix in
compliance with all registration or qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities laws.
4.3.2 Asymetrix Options, Warrants, Reserved Shares. As of June 18,
--------------------------------------------
1998, except for: (i) options to purchase 3,725,673 shares of Asymetrix Common
Stock and a like number of shares of Asymetrix Common Stock reserved for
issuance upon the exercise thereof under the Asymetrix 1995 Combined Incentive
and Nonqualified Stock Option Plan (the "1995 Option Plan"), (ii) options to
----------------
purchase 112,500 shares of Asymetrix Common Stock and a like number of shares
of Asymetrix Common Stock reserved for issuance upon the exercise thereof under
the Asymetrix 1998 Equity Incentive Plan (the "1998 Equity Plan"), 1,387,998
additional shares of Asymetrix Common Stock reserved for future issuance under
the 1998 Equity Plan, (iv) an option to purchase14,573 shares of Asymetrix
Common Stock, and (v) 187,500 additional shares of Asymetrix Common Stock
reserved for future issuance under the Asymetrix 1998 Directors Stock Option
Plan, which became effective upon the effective date of the initial public
offering of Asymetrix Common Stock and of which options to purchase30,000 shares
have been granted to eligible directors, effective June 11, 1998, there are not
outstanding any options, warrants, calls, commitments, rights (including
conversion or preemptive rights) or agreements for the purchase or acquisition
from Asymetrix of any shares of its capital stock or any securities convertible
into or ultimately exchangeable or exercisable for any shares of Asymetrix's
capital stock or obligating Asymetrix to grant, extend, or enter into any such
option, warrant, call,
-19-
commitment, conversion privilege or other right or agreement, and there is no
liability for dividends accrued but unpaid. Apart from the exceptions noted in
this Section 4.3.2, and except for (i) the rights granted in that certain Stock
Issuance and Restriction Agreements dated as of September 27, 1996 by and
between Asymetrix and EnCompass Group, Inc. (ii) the rights granted in that
certain Amended and Restated Investor's Rights Agreement dated as of December
20, 1996 by and among Asymetrix, SOFTVEN No. 2 Investment Enterprise Partnership
and former shareholder Multimedia Asia Pacific Pty Ltd (the "Investor's Rights
-----------------
Agreement"), (iii) the rights granted in that certain Acquisition Agreement,
---------
dated as of July 17, 1997 by and among Asymetrix, Xxxxx Computing, Inc.,
Asymocha Merger Corporation and Xxxx Xxxxx, (iv) a Voting Agreement and
Registration Rights Agreement dated as of September 11, 1997 entered into in
connection with the acquisition of Aimtech Corporation, (v) a Voting and Co-Sale
Agreement and Registration Rights Agreement dated as of September 30, 1997 among
Asymetrix, Xxxxxx Xxxxx, Xxxxx Xxxxx and Xxxx Xxxxxx, (vii) a Registration
Rights Agreement dated as of December 22, 1997 among Asymetrix and the former
shareholders of Communication Strategies, Incorporated, and (vii) a Registration
Rights Agreement dated as of May 22, 1998 among Asymetrix and the former
Shareholders of Strategic Systems Associates, Inc., there are no voting
agreements, rights of first refusal or other restrictions (other than normal
restrictions on transfer under applicable federal and state securities laws) or
registration rights applicable to any of Asymetrix's outstanding securities.
4.3.3 Merger Sub. A total of one thousand (1,000) authorized shares
----------
of Common Stock, $0.001 par value per share for Merger Sub, one hundred (100) of
which are validly issued, outstanding, fully paid and nonassessable. There are
not outstanding any options, warrants, rights (including conversion of
preemptive rights) or agreements for the purchase or acquisition from Merger Sub
of any shares of its capital stock or any securities convertible into or
ultimately exchangeable or exercisable for any shares of Merger Sub's capital
stock.
4.4 Subsidiaries. Asymetrix does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity, other than Xxxxx Computing, Inc., Aimtech
Corporation, SuperCede, Inc., Infomodelers, Inc., Xxxxx Interactive
Incorporated, Top Shelf Multimedia, Inc., Acorn Associates Incorporated,
Communication Strategies, Incorporated, Strategic Systems Associates, Inc.,
sales subsidiaries located in France, Germany and the United Kingdom and Merger
Sub. Merger Sub does not presently own or control, directly or indirectly, any
interest in any other corporation, partnership, trust, joint venture,
association, or other entity.
4.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Asymetrix Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or cause an acceleration or
amendment of any obligation under, (a) any provision of the Certificate of
Incorporation or Bylaws of Asymetrix and Merger Sub, as currently in effect, (b)
in any material respect, any material instrument or contract to which Asymetrix
and Merger Sub is a party or by which any of their assets or properties are
bound, or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Asymetrix and Merger Sub or
their assets
-20-
or properties, in each case, such that the conflict, termination, breach,
acceleration or amendment would have a Material Adverse Effect.
4.6 Litigation. There is no action, proceeding, claim or investigation
----------
pending against Asymetrix before any federal, state, municipal, foreign or other
court or administrative agency, department, board or instrumentality that, if
concluded adversely to Asymetrix, would have a Material Adverse Effect, and, to
the best of Asymetrix's knowledge, no such action, proceeding, claim or
investigation has been threatened. There is, to the best of Asymetrix's
knowledge, no reasonable basis for any shareholder or former shareholder of
Asymetrix, or any other person, firm, corporation or entity, to assert a claim
against Asymetrix based upon: (a) ownership or rights to ownership of any shares
of Asymetrix capital stock, (b) any rights as or to become a holder of
securities of Asymetrix, including any option or preemptive rights or rights to
notice or to vote, or (c) any rights under any agreement among Asymetrix and any
of its shareholders or former shareholders or option holders or former option
holders.
4.7 Taxes. Asymetrix has timely filed all tax returns and reports
-----
required by law, other than where a failure to file a return did not or would
not have a Material Adverse Effect, and has never been audited by any state or
federal taxing authority. All tax returns and reports of Asymetrix are true and
correct in all material respects. Asymetrix has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith (for which it has established a proper reserve). Asymetrix is not aware of
any pending or threatened claim or assessment with respect to any deficiencies
for any tax in writing against Asymetrix by any taxing authority. Asymetrix has
not executed any waiver of any statute of limitations relating to taxes or any
extension of the period for the assessment or collection of any tax (other than
extensions which have expired by the Effective Time). Asymetrix has not received
any written notification, and is not otherwise aware, that any material issues
are currently under audit, examination or review by any taxing authority
regarding Asymetrix. There are no material liens, pledges, charges, claims,
security interests or other encumbrances covering the assets of Asymetrix and
relating or attributable to taxes, other than for taxes not yet due and payable
and others that do not have a Material Adverse Effect. Asymetrix is not a party
to a tax sharing or tax allocation agreement, and Asymetrix does not owe any
amount under any such agreement.
4.8 Financial Statements. Asymetrix has delivered to MSI and the
--------------------
Principals as Schedule 4.8 of the Asymetrix Schedule of Exceptions Asymetrix's
------------
(a) audited balance sheet as of December 31, 1997 (the "Asymetrix 1997 Balance
----------------------
Sheet") and income statement and statement of cash flows for the 12 month period
-----
then ended (collectively, the "Asymetrix 1997 Financial Statements"), and (b)
-----------------------------------
balance sheet as of March 31, 1998 (the "Asymetrix March 31 Balance Sheet") and
--------------------------------
income statement for the three month period then ended (collectively, the
"Asymetrix March Financial Statements") (the Asymetrix 1997 Financial Statements
-------------------------------------
and Asymetrix March Financial Statements are collectively referred to herein as
the "Asymetrix Financial Statements"). Asymetrix has also delivered to MSI and
------------------------------
to each of the Principals a copy of the Form S-1. The Asymetrix Financial
Statements (a) are in accordance with the books and records of Asymetrix, (b)
fairly present the financial condition of Asymetrix at the dates therein
indicated and the results of operations for the periods therein specified, and
(c) have been prepared in accordance with generally accepted accounting
principles applied on a consistent
-21-
basis, subject, in the case of the Asymetrix March Financial Statements, to
normal recurring year-end adjustments and the absence of any notes thereto.
Asymetrix has no debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected or reserved against or disclosed in the Asymetrix Financial
Statements, except for those that may have been incurred after the date of the
Asymetrix Financial Statements in the ordinary course of its business,
consistent with past practice and that are not material in amount either
individually or collectively.
4.9 Title to Properties.
-------------------
4.9.1 Asymetrix has good and marketable title to all of its tangible
assets as shown on the Asymetrix September 30 Balance Sheet, free and clear of
all liens, charges, restrictions or encumbrances, other than for taxes not yet
due and payable and others that do not have a Material Adverse Effect. With
respect to the property and assets it leases, Asymetrix is in material
compliance with such leases.
4.9.2 Merger Sub has been newly formed for the sole and express
purpose of participating in the Merger and has at no time engaged in any
activities or owned any assets except as necessary for such purpose.
4.10 Absence of Certain Changes. Since March 31, 1998, other than actions
--------------------------
required by this Agreement (including, without limitation, the incurrence of
legal and accounting fees and expenses in connection therewith), there has not
been with respect to Asymetrix and Merger Sub.
(a) any change in its financial condition, properties, assets,
liabilities, business or operations from that reflected in the Asymetrix
Financial Statements, other than those that do not have a Material Adverse
Effect;
(b) any contingent liability incurred by it as guarantor, surety or
otherwise with respect to the obligations of others, which contingent liability
is in excess of $50,000 individually or in excess of $100,000 in the aggregate;
(c) any mortgage, encumbrance or lien placed on any of its
properties, which mortgage, encumbrance or lien is in excess of $100,000
individually or in excess of $250,000 in the aggregate;
(d) any obligation or liability incurred by it other than obligations
and liabilities incurred in the ordinary course of business, which obligation or
liability is in excess of $100,000 individually or in excess of $250,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of its
properties or assets, which purchase, sale, other disposition or other
arrangement is in excess of $100,000 individually or $250,000 in the aggregate;
-22-
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any distribution in respect of, its capital stock, or any split,
combination or recapitalization of its capital stock or any direct or indirect
redemption, purchase or other acquisition of its capital stock, including,
without limitation, any extraordinary dividend within the meaning of Section
1059(c) of the Code;
(h) any labor dispute or claim of unfair labor practices;
(i) any payment or discharge of a lien or liability thereof which
lien was not either shown on the Asymetrix March 31 Balance Sheet or incurred in
the ordinary course of business thereafter; or
(j) entered into any material transactions with any of its officers,
directors, employees or stockholders or any entity controlled by any of such
individuals.
4.11 Material Agreements, Contracts and Commitments. All oral or written
----------------------------------------------
contracts, obligations, commitments, plans, leases, instruments, arrangements or
licenses which are material to the business of Asymetrix and its subsidiaries
taken as a whole (for purposes of this Section 4.11, a "Material Agreement")
------------------
constitute valid and enforceable obligations of the parties thereto (except as
to the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and (iii)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities); and are in full force and effect.
Asymetrix is not, nor, to the best knowledge of Asymetrix, is any other party
thereto, in breach or default in any material respect under the terms of any
such Material Agreement. A copy of each Material Agreement has been made
available to counsel for MSI and the Principals. Asymetrix is not a party to
any contract or arrangement which, in the absence of a breach by the other party
or parties thereto, has had or could reasonably be expected to have a Material
Adverse Effect. Asymetrix does not have any material liability for
renegotiation of government contracts or subcontracts, if any.
4.12 Status of Proprietary Assets. Asymetrix owns all right, title or
----------------------------
interest in, or has the rights to use, sell or license, all Intellectual
Property Rights necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "Asymetrix IP Rights") and such
-------------------
rights to use, sell or license are reasonably sufficient for the conduct of its
business as presently conducted. Except for matters which would not have a
Material Adverse Effect, neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by Asymetrix or currently
under development by Asymetrix violates any license or agreement between
Asymetrix and any third party or infringes any Intellectual Property Right of
any other party; and, except for matters which would not have a Material Adverse
Effect, there is no pending or, to the best knowledge of Asymetrix, threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any Asymetrix IP Right; nor, to the best knowledge of
-23-
Asymetrix without any independent investigation thereof, is there any basis for
any such claim; nor has Asymetrix received any notice asserting that any
Asymetrix IP Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the best
knowledge of Asymetrix, is there any basis for any such assertion.
4.13 Compliance with Laws. Asymetrix and Merger Sub have complied, or
--------------------
prior to the Closing Date will have complied, and are or will be at the Closing
Date in full compliance, in all material respects, with all applicable laws,
ordinances and regulations, and rules, and all orders, writs, injunctions,
awards, judgments and decrees, applicable to it or to its assets, properties,
and business (the violation of which would have a Material Adverse Effect),
including, without limitation: (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state and local laws,
ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing, ownership
or management of Asymetrix's owned, leased or licensed real or personal
property, products and technical data, and (ii) employment and employment
practices, terms and conditions of employment, and wages and hours, (c) the
Export Administration Act and regulations promulgated thereunder and all other
laws, regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act. Asymetrix has received all
permits and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in connection
with its present business and which, if not received or filed, would have a
Material Adverse Effect. There are no legal or administrative proceedings or
investigations pending or threatened, that, if enacted or determined adversely
to Asymetrix, would result in any Material Adverse Effect.
4.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (other than (i) SOFTVEN No. 2 Investment Enterprises
Partnership, or its designated director, (ii) the designated director of the
former stockholders of Aimtech corporation, (iii) Xxxxx Xxxxx or (iv) Xxxxxxx
Xxxx and Xxxxx Xxxx) of Asymetrix (each, an "Asymetrix Insider") nor any member
-----------------
of their immediate families is or has been directly or indirectly interested in
any contract or informal arrangement with Asymetrix within the last twelve (12)
months, except for compensation as an officer, director or employee of
Asymetrix. None of the Asymetrix Insiders nor any member of their immediate
families has any interest in any property, real or personal, tangible or
intangible, including inventions, patents, copyrights, trademarks or trade names
or trade secrets, used in or pertaining to the business of Asymetrix, except for
the normal rights of a shareholder.
4.15 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of Asymetrix or
Merger Sub is required in connection with the consummation of the transactions
contemplated by this Agreement, except for such qualifications or filings under
------ ---
the Securities Act and the regulations thereunder and all other applicable
securities laws as may be required in connection with the transactions
contemplated by this Agreement. All such qualifications and filings will, in
the case of qualifications, be
-24-
effective on the Closing and will, in the case of filings, be made within the
time prescribed by law.
4.16 ERISA and Labor Issues.
----------------------
4.16.1 Asymetrix does not have any Employee Pension Benefit Plan as
defined in Section 3 of ERISA.
4.16.2 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, Asymetrix is in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, employee benefit plans as defined in
Section 3(3) of ERISA, hours, and terms and conditions of employment, including,
but not limited to, employee compensation matters, ERISA and the Code.
4.16.3 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, no employee of Asymetrix is in
violation of any term of any employment contract, patent disclosure agreement,
noncompetition agreement, or any other contract or written agreement, or any
restrictive covenant contained in any such agreement relating to the right of
any such employee to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees does not subject
Asymetrix to any material liability.
4.16.4 Asymetrix is not bound by or subject to any contract,
commitment or arrangement with any labor union, employees association or similar
organization, and to Asymetrix's best knowledge, no labor union, employees
association or similar organization has requested, sought or attempted to
represent any employees, representatives or agents of Asymetrix. There is no
strike or other labor dispute involving Asymetrix pending nor, to Asymetrix's
best knowledge, threatened, nor is Asymetrix aware of any labor organization
activity involving its employees.
4.17 Corporate Documents. Asymetrix has made available to MSI and the
-------------------
Principals for examination all documents and information listed in the Asymetrix
Schedule of Exceptions or other exhibits called for by this Agreement or which
have been requested by MSI and the Principals' counsel, including, without
limitation, the following: (a) copies of Asymetrix's and its subsidiaries'
Articles or Certificate of Incorporation and Bylaws as currently in effect; (b)
Asymetrix's Minute Book containing all records that Asymetrix has of all
proceedings, consents, actions and meetings of the stockholders, the board of
directors and any committees thereof; (c) Asymetrix's and its subsidiaries'
stock ledger or stockholder lists and journal reflecting stock issuances and
transfers; (d) all material permits, orders, and consents issued by any
regulatory agency with respect to Asymetrix, or any securities of Asymetrix, and
all applications for such permits, orders, and consents; and (e) copies or forms
of all stock purchase agreements, warrants, option plans, grants and exercise
agreements and, where forms of agreements are provided rather than copies of the
signed documents, a true and complete list showing the names of the security
holder, numbers of shares, exercise or purchase prices, grant dates, vesting
dates, exercise dates,
-25-
expiration dates and all other relevant data necessary for Asymetrix to issue
the Asymetrix Common Stock.
4.18 No Brokers. Neither Asymetrix nor Merger Sub is obligated for the
----------
payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement or the
Asymetrix Ancillary Agreements or in connection with any transaction
contemplated hereby or thereby.
4.19 Disclosure. To the best knowledge of Asymetrix and Merger Sub,
----------
neither this Agreement, its exhibits and schedules, nor any of the certificates
or documents to be delivered by Asymetrix or Merger Sub to MSI and the
Principals under this Agreement, taken together, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements contained herein and therein, in light of the circumstances
under which such statements were made, not misleading.
4.20 Insurance. Asymetrix maintains and at all times during the prior
---------
three years has maintained fire and casualty, general liability, business
interruption and product liability insurance which it believes to be reasonably
prudent for similarly sized and similarly situated businesses.
4.21 Environmental Matters.
---------------------
4.22.1 During the period that Asymetrix has leased or owned its
properties or owned or operated any facilities, there have been no disposals or
releases of Hazardous Materials (as defined below) by Asymetrix, or to
Asymetrix's knowledge, by others, on, from or under such properties or
facilities, the liability for which would have a Material Adverse Effect.
Asymetrix has no knowledge of any presence, generation, manufacturing, disposals
or releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to Asymetrix having taken possession
of any of such properties or facilities, the liability for which would have a
Material Adverse Effect
4.22.2 None of the properties or facilities of Asymetrix is in
material violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not limited to,
soil and ground water condition. During the time that Asymetrix has owned or
leased its properties and facilities, neither Asymetrix nor, to Asymetrix's
knowledge, any third party, has used, generated, manufactured or stored on,
under or about such properties or facilities or transported to or from such
properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
4.22.3 During the time that Asymetrix has owned or leased its
properties and facilities, there has been no litigation brought or, to the
knowledge of Asymetrix, threatened against Asymetrix by, or any settlement
reached by Asymetrix with, any party or parties alleging the presence, disposal,
release or threatened release of any Hazardous Materials on, from or under any
of such properties or facilities.
-26-
4.23 Real Property Holding Corporation Status. Asymetrix and each Merger
----------------------------------------
Sub is not and has at no time been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code.
4.24 Shares Issued in Merger. The Asymetrix Common Stock to be issued to
-----------------------
the stockholders of MSI in the Merger, when issued by Asymetrix pursuant to the
terms of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all liens, claims, pledges, options, adverse
claims, assessments or charges of any nature whatsoever, and will have been
issued materially in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws.
4.25 Books and Records. The books, records and accounts of Asymetrix (a)
-----------------
are in all material respects true, complete and correct, (b) have been
maintained in accordance with good business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the material transactions and dispositions of the assets of Asymetrix,
and (d) accurately and fairly reflect the basis for the Asymetrix Financial
Statements.
4.26 Certain Dispositions. Asymetrix has no present plan or intention, or
--------------------
any binding commitment, to dispose, subsequent to the Effective Time, of a
quantity of Common Stock of MSI that would cause Asymetrix to lose "control" of
Merger Sub within the meaning of Section 368(c) of the Code.
4.27 Control of Merger Sub. At all times prior to and as of the Effective
---------------------
Time, Asymetrix will be in "control" of Merger Sub, as such term is defined in
Section 368(c) of the Code.
5. MSI PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, each of MSI and the Principals covenants and agrees as follows:
5.1 Advice of Changes. MSI will, and the Principals will cause MSI to,
-----------------
promptly advise Asymetrix in writing (a) of any event occurring subsequent to
the date of this Agreement that would render any representation or warranty of
MSI or the Principals contained in this Agreement, if made on or as of the date
of such event or the Closing Date, untrue or inaccurate in any material respect
and (b) of any change in the business, results of operations or financial
condition of MSI that could reasonably be expected to have a Material Adverse
Effect.
5.2 Conduct of Business. MSI will, and the Principals will cause MSI to,
-------------------
continue to conduct its business and use commercially reasonable efforts to
maintain its business relationships in the ordinary and usual course and will
not, and each of the Principals will cause MSI not to, without the prior written
consent of Asymetrix (other than actions required by this Agreement, as required
by law or in connection with the performance of agreements disclosed in the MSI
Schedule of Exceptions):
-27-
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of business
or which involves an expense or capital commitment by MSI in excess of $10,000,
or which obligates MSI for a period exceeding six months;
(c) encumber or permit to be encumbered any of its assets or grant
liens therein;
(d) dispose of any portion of any of the assets of MSI with a value
exceeding $5,000 (other than in the ordinary course of business);
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business consistent
with past practice;
(f) fail to maintain any of the equipment and other assets of MSI in
good working condition and repair according to the standards MSI has maintained
to the date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary or special remuneration
to any officer, employee or consultant or agree to same or enter into any new
employment, severance, "golden parachute" or consulting agreement with any such
person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock;
(j) amend or terminate any contract, agreement or license to which MSI
is a party except those amended or terminated in the ordinary course of business
consistent with past practice, and which are not material in amount or effect;
(k) lend any amount or make any advance of salary or bonus
compensation to any person or entity, other than advances for travel and
expenses which are incurred in the ordinary course of business consistent with
past practice;
(l) guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business consistent with past practice;
(m) waive or release any material right or claim except in the
ordinary course of business consistent with past practice;
(n) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
-28-
(o) merge, consolidate or reorganize with, or acquire any entity;
(p) amend its Certificate of Incorporation or Bylaws;
(q) issue or sell any shares of its capital stock of any class;
(r) license any of its technology or intellectual property except in
the ordinary course of business consistent with past practice;
(s) agree to any audit assessment by any tax authority (unless the
amount thereof is not material or has been adequately accrued or reserved on the
MSI Financial Statements) or file any federal or state income or franchise tax
return unless (i) the amount payable with respect thereto is not material or has
been adequately accrued or reserved on the MSI Financial Statements or (ii)
copies of such returns have been delivered to Asymetrix for its review and
approved by Asymetrix prior to filing;
(t) change any insurance coverage or issue any certificates of
insurance except as is routinely done in the ordinary course of business of MSI;
(u) hire any employee or consultant;
(v) adopt or amend any employee benefit plan;
(w) enter into any contracts for the sale of advertising in an amount
exceeding $10,000 or for longer than 30 days; or
(x) permit the use of any MSI corporate credit card or charge card be
used for the personal expenses of any employee or to pay for any other non-MSI
expenses or charges; or
(y) agree to do any of the things described in the preceding clauses
5.2(a) through (x).
5.3 Regulatory Approvals. MSI will, and the Principals will cause MSI to,
--------------------
execute and file, or join in the execution and filing, of any application or
other document that may be required to be filed by it in order to obtain the
authorization, approval or consent of any governmental body (federal, state,
local or foreign) which may be reasonably required, in connection with the
consummation of the transactions contemplated by this Agreement. MSI will, and
the Principals will cause MSI to, use its best efforts to obtain all such
authorizations, approvals and consents.
5.4 Necessary Consents. MSI will, and the Principals shall cause MSI to,
------------------
use commercially reasonable efforts to obtain such written consents and take
such other actions as may be necessary or appropriate in addition to those set
forth in Section 5.3 (including, without limitation those consents set forth on
Schedule 9.6) to allow the consummation of the transactions contemplated hereby
and to allow Asymetrix to carry on MSI's business after the Closing.
-29-
5.5 Litigation. MSI and the Principals will notify Asymetrix in writing
----------
promptly after learning of any actions, suits, proceedings or investigations by
or before any court, board or governmental agency, initiated by or against MSI,
or known by MSI or the Principals to be threatened against MSI.
5.6 No Other Negotiations. From the date hereof until the earlier of the
---------------------
termination of this Agreement or consummation of the Merger, MSI will not, and
the Principals will not permit MSI to, and will not authorize any officer or
director of MSI or any other person on its behalf to, directly or indirectly,
solicit, encourage, negotiate or accept any offer from any party concerning the
possible disposition of all or any substantial portion of MSI's business, assets
or capital stock by merger, sale or any other means or any other transaction
that would involve a change in control of MSI, or any transaction in which MSI
contemplates issuing equity or debt securities. MSI and the Principals will
promptly notify Asymetrix in writing of any third party inquiries or proposals.
5.7 Access to Information. Until the Closing, each of MSI and the
---------------------
Principals will allow Asymetrix and its agents, upon reasonable prior notice,
reasonable access to the files, books, records and offices of MSI, including,
without limitation, any and all information relating to MSI's taxes,
commitments, contracts, leases, licenses, and real, personal and intangible
property (including its intellectual property) and financial condition. MSI will
and the Principals will cause MSI's accountants to cooperate with Asymetrix and
its agents in making available all financial information reasonably requested,
including, without limitation, the right to examine all working papers
pertaining to all financial statements prepared or audited by such accountants.
5.8 Satisfaction of Conditions Precedent. MSI and each of the Principals
------------------------------------
will use its or his or her commercially reasonable efforts to satisfy or cause
to be satisfied all the conditions precedent which are set forth in Section 9,
and each such person will use its or his commercially reasonable efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties (including without limitation, those third
parties described in Section 9.6) and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on their
part in order to effect the transactions contemplated hereby. MSI and the
Principals will promptly notify Asymetrix in writing of any failure or inability
to comply fully with this Section.
5.9 Blue Sky Laws. MSI and the Principals will cooperate with Asymetrix in
-------------
connection with Asymetrix's efforts to comply with the securities and Blue Sky
laws of all jurisdictions which are applicable in connection with the Merger.
6. ASYMETRIX PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, Asymetrix and Merger Sub covenant and agree as follows:
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6.1 Advice of Changes; Conduct of Business. Asymetrix and Merger Sub will
--------------------------------------
promptly advise MSI in writing (a) of any event occurring subsequent to the date
of this Agreement that would render any representation or warranty of Asymetrix
or Merger Sub contained in this Agreement, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect; or (b)
of any material adverse change in the business, results of operations or
financial condition of Asymetrix. Asymetrix will use commercially reasonable
efforts to continue to conduct its business and maintain its business
relationships in the ordinary and usual course and will promptly inform MSI in
writing if it does any of the following (other than action required by this
Agreement, as required by law or in connection with the performance of
agreements, arrangements or pending transactions disclosed in the Asymetrix
Schedule of Exceptions):
(a) enter into any material transaction not in the ordinary course of
business, except that Asymetrix may conduct negotiations regarding the
acquisition of other entities, and may enter into agreements to acquire other
entities and perform its obligations under such agreements;
(b) declare, set aside or pay any material cash or stock dividend or
other material distribution in respect of capital stock, or redeem or otherwise
acquire any material portion of its capital stock other than in connection with
a possible reverse stock split or share combination;
(c) dispose of (including by license), whether to a third party, a
partially or wholly-owned subsidiary or otherwise, any substantial portion of
its assets (other than in the ordinary course of business);
(d) encumber or permit to be encumbered in any material respect a
substantial portion of its assets or grant liens thereon;
(e) issue or sell a material number of shares of its capital stock of
any class or any other of its securities, or issue or create any material
warrants, obligations, subscriptions, options, convertible securities or other
commitments to issue shares of capital stock other than (i) the grant or
exercise of stock options to employees or contractors under the 1998 Equity Plan
or the 1995 Option Plan (ii) or in connection with an acquisition of another
entity; or
(f) merge, consolidate or reorganize with any entity if Asymetrix does
not survive such merger, consolidation or reorganization.
6.2 Regulatory Approvals. Asymetrix and Merger Sub will execute and file,
--------------------
or join in the execution and filing, of any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required, in connection with the consummation of the transactions contemplated
by this Agreement. Asymetrix will use its best efforts to obtain all such
authorizations, approvals and consents.
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6.3 Satisfaction of Conditions Precedent. Each of Asymetrix and Merger Sub
------------------------------------
will use its commercially reasonable efforts to satisfy or cause to be satisfied
all the conditions precedent which are set forth in Section 8, and each of
Asymetrix and Merger Sub will use its commercially reasonable efforts to cause
the transactions contemplated by this Agreement to be consummated and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
6.4 Blue Sky Laws. Asymetrix shall take such steps as may be necessary to
-------------
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Merger.
6.5 Access to Information. Until the Closing, Asymetrix will allow MSI and
---------------------
their respective agents reasonable access to the files, books, records and
offices of Asymetrix, including, without limitation, any and all information
relating to Asymetrix's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property (including its intellectual property) and
financial condition. Asymetrix will cause its accountants to cooperate with MSI
and its agents in making available all financial information reasonably
requested, including, without limitation, the right to examine all working
papers pertaining to all financial statements prepared or audited by such
accountants.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Section 10 below, the Closing will take place at the offices of Asymetrix in
Bellevue, Washington on or before July 1, 1998, or, if all conditions to closing
have not been satisfied or waived by such date, such other place, time and date
as MSI and Asymetrix may mutually select (the "Closing Date"). Concurrently
------------
with the Closing, the Certificate of Merger will be filed in the office of the
New York Secretary of State and a Certificate of Merger will be filed in the
office of the Delaware Secretary of State.
7.2 Exchange of Certificates.
------------------------
7.2.1 As of the Effective Time, all shares of MSI Common Stock that
are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist and will be converted into the right to
receive from Asymetrix the number of shares of Asymetrix Common Stock determined
as set forth in Section 2.1, subject to Section 2.2 and 2.5.
7.2.2 As soon as practicable after the Effective Time, each holder of
shares of MSI Common Stock will surrender the certificate(s) for such shares
(the "Certificates"), duly endorsed as requested by Asymetrix or accompanied by
------------
stock powers in a form acceptable to Asymetrix, to Asymetrix for cancellation.
Promptly after the Effective Time and receipt of such Certificates, Asymetrix
will issue to each tendering holder a certificate for the number of shares of
Asymetrix Common Stock to which such holder is entitled pursuant to Section 2.1
less the
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Escrow Shares to be held in escrow pursuant to Section 2.5, and certificates
representing the Escrow Shares will be delivered to the Escrow Agent.
7.2.3 No dividends or distributions payable to holders of record of
Asymetrix Common Stock after the Effective Time will be paid to the holder of
any unsurrendered Certificate(s) until the holder of the Certificate(s)
surrenders such Certificate(s), or if such certificates are lost, stolen or
destroyed, provides an indemnity reasonably acceptable to Asymetrix. Subject to
the effect, if any, of applicable escheat and other laws, following surrender of
any Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any dividends and distributions therefor paid with
respect to Asymetrix Common Stock so withheld as of any date subsequent to the
Effective Time and prior to such date of delivery.
7.2.4 All Asymetrix Common Stock delivered upon the surrender of MSI
Common Stock in accordance with the terms hereof will be deemed to have been
delivered in full satisfaction of all rights pertaining to such MSI Common
Stock. There will be no further registration of transfers on the stock transfer
books of MSI or the transfer agent of such MSI Common Stock . If, after the
Effective Time, Certificates are presented for any reason, they will be canceled
and exchanged as provided in this Section.
7.2.5 Until Certificates representing MSI Common Stock outstanding
prior to the Merger are surrendered pursuant to Section 7.2.2 above, such
Certificates will be deemed, for all purposes, to evidence ownership of the
number of shares of Asymetrix Common Stock into which MSI Common Stock will have
been converted pursuant to Sections 2.1 hereof less any shares withheld as
Escrow Shares pursuant to Section 2.5.
7.2.6 Certificates which are not presented to Asymetrix within three
years after the Closing shall be canceled and the holder thereof will no longer
be entitled to receive any Asymetrix securities in consideration thereof.
8. CONDITIONS TO OBLIGATIONS OF MSI AND THE PRINCIPALS
MSI's and the Principals' obligations hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by MSI and the Principals,
but only in a writing signed by MSI and the Principals):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Asymetrix and Merger Sub set forth in Section 4 that are not made
as of a specific date shall be true and accurate in all material respects on and
as of the date of this Agreement.
8.2 Covenants. Each of Asymetrix and Merger Sub shall have performed and
---------
complied in all material respects with all of its covenants contained in Section
6 on or before the Closing, and MSI shall receive a certificate to such effect
signed by Asymetrix's Chief Executive Officer and Chief Financial Officer.
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8.3 Compliance with Law. There shall be no order, decree, or ruling by any
-------------------
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including but not limited to, requirements under applicable federal
and state securities laws.
8.5 Opinion of Asymetrix's Counsel. MSI shall have received from Fenwick &
------------------------------
West LLP, counsel to Asymetrix, an opinion substantially in the form of Exhibit
-------
8.5, relying as to matters of Washington law on an opinion from the General
---
Counsel of Asymetrix.
8.6 Registration Rights Agreement. Asymetrix shall have executed and
-----------------------------
delivered a registration rights agreement substantially in the form of Exhibit
-------
8.6.
----
8.7 Escrow Agreement. Asymetrix shall have executed and delivered the
----------------
Escrow Agreement in the form of Exhibit 2.5.
-----------
8.8 Employment Agreements. Asymetrix shall have executed and delivered (i)
---------------------
an employment agreement with Xxxxxx X. Xxxxxx in the form of Exhibit 8.8A (the
------------
"Xxxxxx Employment Agreement"), and (ii) an employment agreement with Xxx
----------------------------
Xxxxxxxx in the form of Exhibit 8.8B (the "Xxxxxxxx Employment Agreement").
------------ -----------------------------
8.9 Absence of Material Adverse Changes. There shall not have been any
-----------------------------------
material adverse change in the financial conditions, properties, assets,
liabilities, business, prospects or results of operations of Asymetrix.
9. CONDITIONS TO OBLIGATIONS OF ASYMETRIX AND MERGER SUB
The obligations of Asymetrix and Merger Sub hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Asymetrix, but only in a
writing signed by Asymetrix):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of MSI and the Principals set forth in Section 3 that are not made as
of a specific date shall be true and accurate in all material respects on and as
of the date of this Agreement.
9.2 Covenants. MSI and the Principals shall have performed and complied
---------
in all material respects with all of its covenants contained in Section 5 on or
before the Closing, and Asymetrix shall receive certificates to such effect
executed by the Chief Executive Officer and Chief Financial Officer of MSI and
by the Principals.
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9.3 Compliance with Law. There shall be no order, decree, or ruling by any
-------------------
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
9.4 Government Consents. There shall have been obtained at or prior to the
-------------------
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including but not limited to, requirements under applicable federal
and state securities laws.
9.5 Opinion of Counsel. Asymetrix shall have received from counsel to MSI
------------------
and the Principals, an opinion as to the matters described in Exhibit 9.5.
-----------
9.6 Consents. MSI shall have received duly executed copies of all
--------
material third party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated by this Agreement or the MSI Schedule of
Exceptions or reasonably deemed necessary by Asymetrix's counsel to provide for
the continuation in full force and effect of any and all material contracts and
leases of MSI (including without limitation, the consents as to Material
Contracts hereto and the Customer Agreements) and for MSI and the Principals to
consummate the transactions contemplated hereby in form and substance reasonably
satisfactory to Asymetrix, except for such consents and approvals thereof as
Asymetrix and MSI and the Principals shall have agreed shall not be obtained. A
list of such required consents is set forth on Schedule 9.6.
------------
9.7 No Litigation. No litigation or proceeding shall be overtly threatened
-------------
or pending to enjoin or prevent the consummation of any of the transactions
contemplated by this Agreement, or which could be reasonably expected to have a
Material Adverse Effect.
9.8 Requisite Approvals. The principal terms of this Agreement and the
-------------------
Certificate of Merger shall have been approved and adopted by the holders of all
of the MSI Common Stock outstanding, and by a majority of the Board of Directors
of MSI.
9.9 Resignation of Officers and Directors. The officers and directors of
-------------------------------------
MSI in office immediately prior to the Effective Time shall have resigned as the
officers and directors of MSI effective as of the Effective Time.
9.10 Investment Representation Letter. Asymetrix shall have received from
--------------------------------
all of the holders of MSI Common Stock an executed Investment Representation
Letter substantially in the form of Exhibit 9.10 hereto.
------------
9.11 Escrow Agreement. Asymetrix shall have received a copy of the Escrow
----------------
Agreement executed by each holder of MSI Common Stock.
9.12 Employment Agreements. Asymetrix shall have received the Xxxxxx
---------------------
Employment Agreement executed by Xxxxxx X. Xxxxxx, and the Xxxxxxxx Employment
Agreement executed by Xxx Xxxxxxxx.
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9.13 Employees. MSI shall have still employed, without any currently
---------
expressed intent to resign, the number of employees with the job
responsibilities as indicated on Schedule 9.13.
-------------
9.14 Affiliate Agreements. Each MSI Shareholder and each officer and
--------------------
director of MSI will have executed and delivered to Asymetrix an Affiliate
Agreement in the form of Exhibit 2.9.
-----------
9.15 Material Agreements. All of the Material Agreements shall be in full
-------------------
force and effect and will not be subject to termination as a result of the
consummation of the Merger.
9.16 Escrow Shares Free of Liens. All shares of Asymetrix Common Stock
---------------------------
that are Escrow Shares shall be free and clear of any and all pledges, liens,
security interests or other rights or claims of any party.
9.17 Absence of Material Adverse Changes. There shall not have been any
------------------------------------
material adverse change in the financial conditions, properties, assets,
liabilities, business, prospects or results of operations of MSI.
9.18 Xxx Xxxxxxxx Loan Documents. Xxx Xxxxxxxx shall have executed and
---------------------------
delivered to Asymetrix (i) a Promissory Note in form of Exhibit 9.18A evidencing
-------------
the then current balance of the Xxxxxxxx Debt, rate of interest thereon and
repayment schedule and (ii) a Stock Pledge Agreement in the form of Exhibit
-------
9.18B, pledging any shares of Asymetrix Common Stock acquired by Xxx Xxxxxxxx to
-----
Asymetrix as security for the repayment of the Xxxxxxxx Debt.
9.19 Pooling Opinion. Asymetrix shall have received a letter from KPMG
---------------
Peat Marwick concurring with management's conclusion that the Merger qualifies
for treatment as "pooling of interests" for financial reporting purposes under
generally accepted accounting principals and the related published rules and
regulations of the SEC.
10. TERMINATION OF AGREEMENT
10.1 Termination of Agreement. Asymetrix on the one hand and MSI and the
------------------------
Principals on the other may terminate this Agreement prior to the Effective Time
(whether before or after stockholder approval has been obtained) solely as
provided below:
10.1.1 Asymetrix may terminate this Agreement by giving written notice to
MSI and the Principals in the event MSI or the Principals is in breach, and MSI
and the Principals may terminate this Agreement by giving written notice to
Asymetrix in the event Asymetrix is in breach, of any material representation,
warranty, or covenant contained in this Agreement, and such breach is not
remedied within 10 days of delivery of written notice thereof;
10.1.2 Asymetrix may terminate this Agreement by giving written notice to
MSI and the Principals if the Closing shall not have occurred on or before July
1, 1998 by reason of the failure of any condition precedent under Section 9
hereof (unless the failure results primarily
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for a breach by Asymetrix of any representation, warranty or covenant contained
in this Agreement); or
10.1.3 MSI and the Principals may terminate this Agreement by giving
written notice to Asymetrix if the Closing shall not have occurred on or before
July 1, 1998 by reason of the failure of any condition precedent under Section 8
hereof (unless the failure results primarily from a breach by MSI or the
Principals of any representation, warranty or covenant contained in this
Agreement made by him or it).
10.2 No Liability. Any termination of this Agreement pursuant to this
------------
Section 10 will be without further obligation or liability upon any party in
favor of the other party hereto other than the obligations provided in Sections
11.2 (but for purposes of this Section 10.2, only to the extent such obligations
relate to claims of third parties), or as provided in Sections 12.8 and 12.16
and in the Letter of Intent between Asymetrix and MSI dated May 15, 1998, other
than any liability of any party for breaches of this Agreement, which will
survive termination of this Agreement. MSI and the Principals on the one hand
and Asymetrix on the other will use commercially reasonable efforts to cause the
Merger to be consummated.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of MSI, the Principals and Asymetrix contained in this Agreement will
survive the Effective Time and remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the parties to this
Agreement, until the earlier of (a) the termination of this Agreement or (b) one
(1) year after the Closing Date, whereupon such representations, warranties and
covenants will expire (except that if the breach of any representations and
warranties are subject to resolution through the audit process, then such
representations and warranties shall expire upon the first public release of
audited financial statements following the Closing) ); provided, however, that
representations, warranties and covenants involving intentional fraud or willful
misconduct shall survive the Closing without the limitations of subsections (a)
or (b) above. The period of such survival shall be referred to herein as the
"Survival Period."
---------------
11.2 Agreement to Indemnify.
----------------------
11.2.1 Subject to the limitations set forth in this Section 11, the
MSI Shareholders (during the time period specified below) indemnify Asymetrix
and the surviving corporation of the Merger and their officers (other than any
Principal), directors and employees (the "Asymetrix Indemnified Persons") in
-----------------------------
respect of, and hold the Asymetrix Indemnified Persons harmless against, any and
all claims, demands, actions, causes of actions, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees
(hereinafter referred to as "Damages"):
-------
(a) arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties and covenants
given or made by MSI or
-37-
the Principals in this Agreement (including any Schedule or Exhibit hereto)
which indemnity shall survive for the time period specified in Section 11.1;
(b) resulting from any failure of any of the MSI Shareholders
to have good, valid and marketable title to the issued and outstanding MSI
Common Stock held by such stockholders, free and clear of all liens, claims,
pledges, options, adverse claims, assessments or charges of any nature
whatsoever, which indemnity shall survive for a three year period.
The maximum aggregate liability under paragraphs (a), (b) and (c) of this
subsection 11.2.1 of any MSI Shareholder who is not a Principal shall be limited
to the remedies of Asymetrix with respect to the Escrow Shares and any other
assets deposited in escrow pursuant to the Escrow Agreement with respect to such
MSI Shareholder, and the maximum aggregate liability under paragraphs (a), (b)
and (c) of this subsection 11.2.1 of the Principals shall be $2,000,000 (the
"Cap"), provided, however, that any indemnification obligations arising under
---
this subsection 11.2.1 which result from intentional fraud or willful miscount
shall be excluded from the calculation of the Cap and the Cap shall not
otherwise apply to any indemnification obligations arising under this subsection
11.2.1 which result from intentional fraud or willful misconduct. For purposes
of satisfying any Damages hereunder, the parties agree that the Principals shall
be able to choose, at his or her sole discretion, to satisfy his or her portion
of such Damages by (i) tendering shares of Asymetrix Common Stock equal to the
amount of such Damages with such shares of Asymetrix Common Stock being assigned
a value per share equal to the closing price of the Asymetrix Common Stock on
NASDAQ on the Closing Date, regardless of the value per share at which such
stock may then be trading, (ii) paying such Damages in legal tender of the
United States of America in an amount calculated by multiplying the number of
shares of Asymetrix Common Stock determined under (i) by the closing price of
the Asymetrix Common Stock on NASDAQ on the last trading day preceding the
payment date, or (iii) any combination of (i) and (ii).
11.2.2 The indemnification provided for in paragraphs (a) and (b) of
subsection 11.2.1 shall not apply unless and until the aggregate Damages for
which one or more Asymetrix Indemnified Persons seeks indemnification under such
paragraphs (a) and (b), exclusive of legal fees, exceeds $100,000 (the "Basket")
------
and then only to the extent that aggregate Damages exceed the Basket. The
Basket shall not apply to any Damages arising from the breach of the
representations and warranties set forth in Section 3.7. In seeking
indemnification for Damages under Section 11.2.1, the Asymetrix Indemnified
Persons shall be entitled to exercise their remedies with respect to the Escrow
Shares and any other assets deposited in escrow pursuant to the Escrow
Agreement. The exercise of remedies with respect to the Escrow Shares shall be
Asymetrix's only remedy as against the MSI Shareholders who are not Principals,
but as against the Principals shall be in addition to any and all other remedies
available to the Asymetrix Indemnified Persons at law or in equity.
11.2.3 Subject to the limitations set forth in this Section 11,
Asymetrix will indemnify and hold harmless the Principals (collectively, the
"MSI Indemnified Persons") from and against any and all Damages:
------------------------
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(a) arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants given or
made by Asymetrix in this Agreement or in any certificate, document or
instrument delivered by or on behalf of Asymetrix pursuant hereto; or
(b) resulting from any failure on the part of Asymetrix to issue to
the Principals good, valid and marketable title to the Asymetrix Common Stock as
provided in this Agreement, free and clear of all liens, claims, pledges,
options, adverse claims, assessments or charges of any nature whatsoever.
Asymetrix's maximum aggregate liability under paragraphs (a) and (b) of
this subsection 11.2.3 shall be $2,000,000 (the "Cap"), provided, however, that
---
any indemnification obligations arising under this subsection 11.2.3 which
result from intentional fraud or willful miscount shall be excluded from the
calculation of the Cap and the Cap shall not otherwise apply to any
indemnification obligations arising under this subsection 11.2.3 which result
from intentional fraud or willful misconduct. Asymetrix may satisfy any Damages
hereunder solely by tendering shares of Asymetrix Common Stock equal to the
amount of such Damages with such shares of Asymetrix Common Stock being assigned
a value per share equal to the closing price of the Asymetrix Common Stock on
NASDAQ on the Closing Date, regardless of the value per share at which such
stock may then be trading.
11.2.4 Any Asymetrix Indemnified Person or any MSI Indemnified Person
seeking indemnification hereunder shall give prompt written notification to the
Principals (in the case of indemnification sought by the Asymetrix Indemnified
Person) or to Asymetrix (in the case of indemnification sought by a MSI
Indemnified Person) (as applicable, the "Indemnification Representative") of the
-------------------------------
commencement of any action, suit or proceeding relating to a third party claim
for which indemnification pursuant to this Section 11 may be sought; provided,
however, that no delay on the part of the Indemnified Person in providing such
notice shall relieve the Principals or Asymetrix, as the case may be, of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnification Representative may, upon
written notice thereof to the Indemnified Person, assume control of the defense
of such action, suit or proceeding with counsel reasonably satisfactory to the
Indemnified Person, provided that the Indemnification Representative
acknowledges in writing to the Indemnified Person that any damages, fines, costs
or other liabilities that may be assessed against the Indemnified Person in
connection with such action, suit or proceeding constitute Damages for which the
Indemnified Person shall be entitled to indemnification pursuant to this Section
11. If the Indemnification Representative does not so assume control of such
defense, the Indemnified Person shall control such defense. The party not
controlling such defense may participate therein at its own expense; provided
that if the Indemnification Representative assumes control of such defense and
the Indemnified Person reasonably concludes that the indemnifying parties and
the Indemnified Person have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Person shall be
-39-
considered "Damage" for purposes of this Agreement. The party controlling such
defense shall keep the other party advised of the status of such action, suit or
proceeding and the defense thereof and shall consider in good faith
recommendations made by the other party with respect thereto. The Indemnified
Person shall not agree to any settlement of such action, suit or proceeding
without the prior written consent of the Indemnification Representative.
11.2.5 Treatment of Indemnity Payments. Any payment made to an
-------------------------------
Indemnified Person pursuant to this Section 11 or the Escrow Agreement shall be
treated as a reduction in the merger consideration.
11.2.6 Exclusivity. The indemnification provided for in this Section
-----------
11.2 shall be the Exclusive remedy of any Indemnified Person for any
misrepresentation or breach of or default in connection with any of the
representations, warranties and covenants herein or in any certificate, document
or instrument delivered pursuant hereto, except in the case of intentional fraud
or willful misconduct.
11.3 Employee Stock Options. Asymetrix shall take all action necessary to
----------------------
reserve for issuance under the Asymetrix 1998 Equity Plan and concurrently with
the the Closing, grant Asymetrix Options to purchase the number of shares of
Asymetrix Common Stock as set forth on Schedule 11.3 to employees of MSI who
-------------
become Asymetrix employees. All such options shall have exercise prices equal
to the fair market value of Asymetrix Common Stock at the date of grant, as
determined in accordance with the terms of the 1998 Plan. The grant of such
options to any particular employee shall be contingent upon such employee
executing Asymetrix's standard form of Employee Invention, Confidentiality,
Nonraiding and Noncompetition Agreement.
11.4 Repayment of Debt; Indemnification for Personal Guaranty. At the
--------------------------------------------------------
Effective Time, Asymetrix will repay the outstanding principal amount of, and
accrued interest upon, Commercial Promissory Note dated July 1, 1997, a U.S.
Small Business Administration Note dated July 30, 1997 and the Commercial Term
Note dated April 20, 1998, each between MSI and First National Bank of Rochester
(the "Bank Debt"), not to exceed to $40,000, $271,153.11 and $26,775 and
---------
$26,775, respectively (plus interest thereon since June 1, 1998). Following the
Effective Time, Asymetrix will indemnify and hold harmless Xxxxxx X. Xxxxxx from
and against any and all liability arising under the personal Guaranty of the
Bank Debt entered into by Xx. Xxxxxx; provided, however, that Asymetrix will not
indemnify Xx. Xxxxxx against any penalty, charges or default interest in excess
of principal and normal interest if arising from a breach of Xx. Xxxxxx under
the Guaranty.
12. MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. Neither party hereto
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other
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party hereto and any attempt to do so will be void. This Agreement will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
12.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
12.6 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a
party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. The Agreement may be amended by the parties hereto at any time before
or after approval of the shareholders of MSI but, after such approval, no
amendment will be made which by applicable law requires the further approval of
the shareholders of MSI obtaining such further approval.
12.7 No Waiver. The failure of any party to enforce any of the provisions
---------
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and fees of
--------
its own accountants, attorneys and other professionals incurred with respect to
this Agreement and the transactions contemplated hereby, except that the
Principals will bear such expenses and fees with respect to Meliora to the
extent they exceed $45,000.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit, reasonable attorneys' fees to be fixed by the
court (including without limitation, costs, expenses and fees on any appeal).
The prevailing party will be entitled to recover its costs of suit, regardless
of whether such suit proceeds to final judgment.
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12.10 Notices. Any notice or other communication required or permitted to
-------
be given under this Agreement will be in writing, will be delivered personally,
by registered or certified mail, postage prepaid, by confirmed facsimile or by
nationally recognized courier service, and will be deemed given upon delivery,
if delivered personally, or five days after deposit in the mails, if mailed, or
upon receipt if delivered by confirmed facsimile or by nationally recognized
courier service, to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Learning Systems, Inc.
000 000xx Xxxxxx XX, Xxxxx 000
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: General Counsel
With a copy to:
--------------
Xxxx X. Xxxxxxx, Esq.
Fenwick & West LLP
Xxx Xxxx Xxxx Xxxxxx
Xxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
(ii) If to MSI or the Principals:
---------------------------
Meliora Systems, Inc.
00 Xxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
With a copy to:
--------------
Xxxxxx X. Xxxxxx, Esq.
Xxxxxxxxx & Xxxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-00000
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
12.11 Construction of Agreement. This Agreement has been negotiated by the
-------------------------
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to,
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this Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and will not in any manner limit the
construction of this Agreement which will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be deemed
----------------
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.15 Public Announcement. Upon execution of the Agreement by all parties,
-------------------
and until the consummation of the Merger, all press releases and other public
communications shall be made by the parties only with the mutual consent of the
Principals, MSI and Asymetrix.
12.16 Confidentiality. Asymetrix, MSI and the Principals each recognize
---------------
that they have received and will receive confidential information concerning the
other during the course of the negotiations and preparations for the Merger.
Accordingly, each party agrees (a) to use its respective best efforts to prevent
the unauthorized disclosure of any confidential information concerning the other
that was or is disclosed during the course of such negotiations and
preparations, and is clearly designated in writing as confidential at the time
of disclosure, and (b) to not make use of or permit to be used any such
confidential information other than for the purpose of effectuating the Merger
and related transactions. The obligations of this Section will not apply to
information that (i) is or becomes part of the public domain, (ii) is disclosed
by the disclosing party to third parties without restrictions on disclosure,
(iii) is received by the receiving party from a third party without breach of a
nondisclosure obligation to the other party or (iv) is required to be disclosed
by law. If this Agreement is terminated, all copies of documents containing
confidential information shall be returned by the receiving party to the
disclosing party. Notwithstanding Section 12.17, this provision does not
supersede or replace any other confidentiality or non-disclosure agreement
between the parties, all of which shall remain in full force an effect in
accordance with their terms.
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12.17 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"ASYMETRIX" "MSI"
Asymetrix Learning Systems, Inc. Meliora Systems, Inc.
By: /s/ Xxxxx X. Xxxxxxxxx By: /s/ Xxxxxx X. Xxxxxx
----------------------------- -------------------------------
Name: Xxxxx X. Xxxxxxxxx Name: Xxxxxx X. Xxxxxx
--------------------------- -----------------------------
Its: Chief Executive Officer Its: President
---------------------------- ------------------------------
"MERGER SUB" "PRINCIPALS"
Asym Merger Corp.
By: /s/ Xxxxx X. Xxxxxxxxx /s/ Xxxxxx X. Xxxxxx
------------------------------- -----------------------------------
Xxxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxxxxx
----------------------------- /s/ Xxxx X. Xxxxxx
___________________________________
Its: President Xxxx X. Xxxxxx
------------------------------
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
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List of Exhibits and schedules
------------------------------
Exhibit A Plan of Merger
Exhibit 2.5 Escrow Agreement
Exhibit 2.9 Affiliate Agreement
Exhibit 2.10A Asymetrix Officers' Certificate
Exhibit 2.10B MSI Officers' Certificate
Exhibit 3.0 MSI Schedule of Exceptions
Schedule 3.1 States where Qualified
Schedule 3.3 List of Shareholders
Schedule 3.8 MSI Financial Statements
Schedule 3.10 Schedule of Changes
Schedule 3.11 Material Agreements, Contracts and Commitments
Schedule 3.12 MSI IP Registrations and Applications
Schedule 3.15.3 MSI Employee Benefit Plans
Schedule 3.15.6 MSI Benefit Arrangements
Schedule 3.15.10 MSI Employees, Compensation, Bonus, etc.
Schedule 3.19 Insurance Policies
Exhibit 4.0 Asymetrix Schedule of Exceptions
Exhibit 4.8 Asymetrix Financial Statements
Exhibit 8.5 Form of Opinion of General Counsel of Asymetrix
Exhibit 8.6 Registration Rights Agreement
Exhibit 8.8A Xxxxxx Employment Agreement
Exhibit 8.8B Xxxxxxxx Employment Agreement
Exhibit 9.5 Form of Opinion of Counsel to MSI and Principals
Schedule 9.6 Required Consents
Exhibit 9.10 Investment Representation Letter
Schedule 9.13 MSI Employees
Exhibit 9.18A Xxx Xxxxxxxx Promissory Note
Exhibit 9.18B Xxx Xxxxxxxx Stock Pledge
Schedule 11.3 Stock Options
