**EMPLOYMENT AGREEMENT**

 

This Employment Agreement(the “Agreement”) is entered into as of October 1, 2001 (the “Effective Date”)between Click2learn, Inc., a Delaware corporation with its principal officeslocated at 110-110th Avenue N.E., Bellevue, Washington 98004-5840, (the“Company”) and Dennis Worsley (“Employee”).

 

In consideration of thepromises and the terms and conditions set forth in this Agreement, the partiesagree as follows:

 

**1.             Position**

 

During the term of thisAgreement, Company will employ Employee and Employee will serve as ExecutiveVice President, Worldwide Sales and Marketing.

 

**2.             Duties**

 

Employee will reportdirectly to the Company’s President and CEO and will be responsible for allaspects of the Company’s sales and marketing activities throughout the worldand will have such other duties as are reasonably determined by the ChiefExecutive Officer and commensurate with the position of Executive VicePresident, Worldwide Sales and Marketing at a company in the Company’s industrywith similar revenue and employee base. Employee will comply with and be bound by Company’s operating policies,procedures, and practices from time to time in effect during Employee’semployment.

 

**3.**             **Exclusive Service**

 

Employee will devote hisfull professional time and efforts exclusively to this employment and apply allhis skill and experience to the performance of his duties and advancing theCompany’s interests in accordance with Employee’s experience and skills.  In addition, Employee will not engage in anyconsulting activity except with the prior written approval of Company, or atthe direction of Company, and Employee will otherwise do nothing incompatiblewith the performance of his duties hereunder.

 

**4.             Term ofAgreement**

 

This Agreement willcommence on the Effective Date and will continue until the earlier of 12 monthsafter the Effective Date or termination of Employees employment pursuant toSection 7 hereof.  This Agreement willautomatically renew for additional periods of 12 months each unless the partiesmutually agree not to renew this Agreement. Either party will provide the other party with any requests for changesto this Agreement for any renewal term at least 60 days prior to the renewaldate unless otherwise agreed.

 

**5.             Compensationand Benefits**

 

(a)           Base Salary.  The Company agrees to pay Employee aninitial base salary of $175,000 per year, Employee’s salary will be payable asearned in accordance with Company’s customary payroll practice, which currentlyis to pay salary on a bi-weekly basis.

 

(b)           Additional Benefits.  Employee will be eligible to participate inCompany’s employee benefit plans of general application, including withoutlimitation the Company’s 401(k) Plan and those plans covering life, health,disability and dental insurance in accordance with the rules established forindividual participation in any such plan and applicable law.  Employee will receive such other benefits,including health club membership, vacation, holidays and sick leave, as theCompany generally provides to its executive officers.

 

(c)           Commission Plan.  Employee will be eligible to receivecommissions on sales revenue in accordance with mutually agreed uponcompensation plans.  Employee’s targetcommission at 100% of quota is $25,000 for the fourth quarter of 2001 and$100,000 for fiscal year 2002.  Employeewill receive commissions at accelerated rates for sales in excess ofquota.  Quotas, commission rates,payment terms and other details of the commission plan for fourth quarter 2001are attached as Exhibit A.  Quotas,commission rates, payment terms and other details of the commission plan forfourth quarter 2001 will be set forth in a written plan signed by the Company’CEO, CFO and Employee.

 

(d)           Business Expenses.  The Company will reimburse Employee for allreasonable and necessary expenses incurred by Employee in connection with theCompany’s business, provided that such expenses are deductible to the Company,are in accordance with the Company’s applicable policy and are propertydocumented and accounted for in accordance with the requirements of theInternal Revenue Service.

 

(e)           Stock Options.    Effective as of the date of this AgreementEmployee shall be granted, under the Company’s 1998 Equity Incentive  Plan (the “Plan”),  an option to purchase 100,000 shares of Common Stock at the fairmarket value as determined in accordance with the Plan.   Such options shall become exercisable(“vest”) over four years with 25,000 shares vesting at the end of one year and1/36 of the remaining 75,000 shares vesting on the same day of each month forthe remaining three years.

 

(f)            RelocationExpenses.   The Company willreimburse Employee for the reasonable and necessary expenses incurred byEmployee in moving himself and his family from the San Diego, California areato Company’s Corporate headquarters in Bellevue, Washington.  Such expenses include actual move costs,house hunting trips, temporary housing and commute trips prior to Employee’sactual move, home buying and selling costs, and other incidental expenses, upto a maximum amount to be reasonably agreed by the parties.  Reimbursement is dependent upon Employee’ssubmission of receipts for applicable moving expenses and all expenses must beincurred within one year of the Effective Date.  Employee will reimburse Company 100% of the relocation expensespaid in the event of Employee’s Voluntary Termination within six full months ofthe Effective Date and 50% of the relocation expenses paid in the event ofEmployee’s Voluntary Termination between six full months and one year from theEffective Date.  Employee agrees thatCompany may deduct any repayment due from Employee’s unpaid salary,commissions, outstanding expense reports and/or any other form of compensationor reimbursement due to you, to the extent allowed by law, in addition to anyother form of lawful recovery remedy the Company may have.

 

**6.             ProprietaryRights**

 

Employee hereby agrees that concurrently with theexecution of this Agreement, Employee will execute a mutually-agreed form ofClick2learn’s Employee Invention, Confidentiality, Non-raiding andNoncompetition Agreement (the “Invention Agreement”).

 

**7.             Termination**

 

(a)           Eventsof Termination.    Employee’semployment with the Company shall terminate upon any one of the following:

 

(i)            the determination of the Board ofDirectors made in good faith to terminate the Employee for “cause” as definedunder Section 7(b) below (“Termination for Cause”); or

 

(ii)           the effective date of a writtennotice sent to Employee stating that the Company is terminating his employment,without cause, which notice can be given by the Company at any time after theEffective Date at the Company’s sole discretion, for any reason or for noreason (“Termination Without Cause”); or

 

(iii)          the effective date of a written noticesent to the Company from Employee stating that Employee is electing toterminate his employment with the Company with good reason as defined underSection 7(b) below (“Termination With Good Reason”); or

 

(iv)          the effective date of a written noticesent to the Company from Employee stating that Employee is electing toterminate his employment with the Company in circumstances that would notconstitute Termination with Good Reason (“Voluntary Termination”).

 

(b)           “Cause” Defined.  For purposes of this Agreement, “cause” forEmployee’s termination will exist at any time after the happening of one ormore of the following events:

 

(i)            a failure or refusal to comply inany material respect with the reasonable policies, standards or regulations ofthe Company which has been communicated to Employee in writing with areasonable period to cure;

 

(ii)           a good faith determination by theCompany’s  Board of Directors,  with Employee abstaining from any vote onsuch matter, that Employee’s performance is unsatisfactory after reasonablenotice of the ways in which performance is unsatisfactory has been communicatedto Employee in writing with a reasonable period to cure any such deficiencies(“Termination for Performance”); provided, however, the failure of Employee to meetsatisfactory performance due to reasons beyond his control (such as productdefects, economic conditions, etc.) shall not be sufficient grounds forTermination for Performance;

 

(iii)          a failure or refusal in any materialrespect to perform his duties determined by the Company in accordance with thisAgreement or the customary duties of Employee’s employment (except for anyfailure due to ill health or disability) which has been communicated toEmployee in writing with a reasonable period to cure;

 

(iv)          fraudulent conduct or conduct thatmaterially discredits the Company or is materially detrimental to thereputation, character or standing of the Company as determined by an arbitratorunder Section 9;

 

(v)           a deliberate attempt to do an injuryto the Company;

 

(vi)          Employee’s material breach of a termof this Agreement or the Invention Agreement, including, without limitation,Employee’s unauthorized intentional disclosure or theft of the Company’sproprietary information;

 

(vii)         a serious unlawful or criminal actwhich would reflect badly on the Company as determined by an arbitrator underSection 9; or

 

(viii)        Employee’s death.

 

(c)           “Good Reason” Defined.  For purposes of this Agreement, “goodreason” for Employee’s resignation will exist at any time after the happeningof one or more of the following events:

 

(i)            theassignment of duties not commensurate with your status as Executive VicePresident, Worldwide Sales and Marketing as provided in Section 2 or anymaterial reduction of duties, authority, responsibilities or title from thatset forth in Section 2 without your written consent;

 

(ii)           areduction by the Company in your base salary or total target compensation belowthat provided in this Agreement without your written consent;

 

(iii)          the relocation of your work locationto a location more than fifty miles

from your then presentwork location, without your written consent; or

 

(iv)          the breach of this Agreement by theCompany.

 

**8.             Effect ofTermination**

 

(a)           Termination for Cause or VoluntaryTermination.   In the event of anytermination of Employee’s employment pursuant to Sections 7(a)(i) or 7(a)(iv),the Company shall pay Employee the compensation and benefits otherwise payableto Employee under Section 5 through the date of termination.  Employee’s rights under the Company’sbenefit plans of general application shall be determined under the provisionsof those plans.  In addition, in theevent of a Termination for Performance (but not in the event of any otherTermination for Cause”) the Company shall continue to pay Employee his basesalary under Section 5(a) above at Employee’s then current salary, lessapplicable withholding taxes, payable on the Company’s normal payroll datesduring that period for a period of 3 months following the date of termination;provided, however, that at any time during such period the Company may elect topay such base salary, less applicable withholding taxes, or the then unpaidportion thereof, in a single lump sum payment

 

(b)           Termination Without Cause orTermination With Good Reason.  Inthe event of any termination of Employee’s employment pursuant to Section7(a)(ii) or Section 7(a)(iii) during the Term of this Agreement:

 

(i)            the Company shall pay Employee thecompensation and benefits otherwise payable to Employee under Section 5 throughthe date of termination (including a pro rata portion of any bonus compensationthat may become payable for the calendar quarter that includes the date oftermination, which bonus compensation shall be paid following the end of suchcalendar quarter);

 

(ii)           for a period ending 6 months followingthe date of termination, the Company shall continue to pay Employee his basesalary under Section 5(a) above at Employee’s then current salary, lessapplicable withholding taxes, payable on the Company’s normal payroll datesduring that period; provided, however, that at any time during such period theCompany may elect to pay such base salary, less applicable withholding taxes,or the then unpaid portion thereof, in a single lump sum payment;

 

(iii)          Employee’s rights under the Company’sbenefit plans of general application shall be determined under the provisionsof those plans.

 

**9.             Miscellaneous**

 

(a)           Arbitration.  Employee and the Company shall submit tomandatory binding arbitration in Seattle, Washington  any controversy or claim arising out of, or relating to, thisAgreement or any breach hereof, provided, however, that Employee and theCompany retain their right to and shall not be prohibited, limited or in anyother way restricted from, seeking or obtaining equitable relief from a courthaving jurisdiction over the parties. Such arbitration shall be conducted in accordance with the commercialarbitration rules of the American Arbitration Association in effect at thattime, and judgment upon the determination or award rendered by the arbitratormay be entered in any court having jurisdiction thereof.  The parties shall mutually agree on thearbitrator to decide any such controversy or claim and if the parties cannotagree on the selection of an arbitrator then they shall each select anarbitrator and those two arbitrators shall agree on a third arbitrator who willdecide any such controversy or claim.

 

(b)           Severability.  If any provision of this Agreement shall befound by any arbitrator or court of competent jurisdiction to be invalid orunenforceable, then the parties hereby waive such provision to the extent thatit is found to be invalid or unenforceable and to the extent that to do sowould not deprive one of the parties of the substantial benefit of itsbargain.  Such provision shall, to theextent allowable by law and the preceding sentence, be modified by sucharbitrator or court so that it becomes enforceable and, as modified, shall beenforced as any other provision hereof, all the other provisions continuing infull force and effect.

 

(c)           Remedies.  The Company and Employee acknowledge thatthe service to be provided by Employee is of special, unique, unusual,extraordinary and intellectual character, which gives it peculiar value theloss of which cannot be reasonably or adequately compensated in damages in anaction at law.  Accordingly,  Employee hereby consents and agrees that forany breach or violation by Employee of any of the provisions of this Agreementincluding, without limitation, Section 3, a restraining order an/or injunctionmay be issued against Employee, in addition to any other rights and remediesthe Company may have, at law or equity, including without limitation therecovery of money damages.

 

(d)           No Waiver.  The failure by either party at any time torequire performance or compliance by the other of any of its obligations oragreements shall in no way affect the right to require such performance orcompliance at any time thereafter.  Thewaiver by either party of a breach of any provision hereof shall not be takenor held to be a waiver of any preceding or succeeding beach of such provisionor as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is inwriting and is signed by the party against whom such waiver is sought to beenforced.

 

(e)           Assignment.  This Agreement and all rights hereunder arepersonal to Employee and may not be transferred or assigned by Employee at anytime.  The Company may assign its rights,together with its obligations hereunder, to any parent, subsidiary, affiliateor successor, or in connection with the sale, transfer, or other disposition ofall or substantially all of its business and assets, *provided, however*, that anysuch assignee assumes the Company’s obligations hereunder.

 

(f)            Withholding.  All sums payable to Employee hereunder shallbe reduced by all federal, state, local and other withholding and similar taxesand payments required by applicable law.

 

(g)           Entire Agreement.  This Agreement and the Invention Agreementconstitute the entire and only agreement between the parties relating toemployment of Employee with the Company, and this Agreement and the InventionAgreement supersede and cancel any and all previous contracts, arrangements orunderstandings with respect thereto.

 

(h)           Amendment.  This Agreement may be amended, modified,superseded, canceled, renewed or extended only by an agreement in writingexecuted by both parties hereto.

 

(i)            Notices.       All notices and other communicationsrequired or permitted under this Agreement shall be in writing and handdelivered, sent by telecopier, sent by certified first class mail, postageprepaid, or sent by nationally recognized express courier service.  Such notices and other communications shallbe effective upon receipt if hand delivered or sent by telecopier, five daysafter mailing if sent by U.S. mail, and one day after dispatch if sent byexpress courier, to the following addresses, or such other addresses as anyparty shall notify the other parties:

 

 

| If to the Company: |   | 110-110th Avenue N.E.,  Suite 700             |
|--------------------|--------|-----------------------------------------------|
|               |   | Bellevue, WA 98004-5840                       |
| Telecopier:        |   | 206-637-1540                                  |
| Attention:         |   | President and CEO                             |
|               |   |                                          |
| If to Employee:    |   | At the address on the  records of the Company |

 

(j)            Binding Nature.    This Agreement shall be binding upon, andinure to the benefit of, the successors and personal representatives of therespective parties hereto.

 

(k)           Governing Law.  This Agreement and the rights andobligations of the parties hereto shall be construed in accordance with thelaws of the State of Washington, without giving effect to the principles ofconflict of laws; provided, however, that if Employee is relocated to anotherjurisdiction then the laws of such jurisdiction shall apply, and in the event ofany claim made following termination, the laws of the jurisdiction whereEmployee was located on the date of termination shall apply.

 

IN WITNESS WHEREOFthe Company and Employee have executed this Agreement as of the date firstabove written.

 

 
| “COMPANY” |   | “EMPLOYEE” |
|---------------------|--------|----------------------|
|                |   |                 |
| CLICK2LEARN, INC.   |   |                 |
|                |   |                 |
|                |   |                 |
|                |   |                 |
|                |   |                 |
| By:            |   |                 |   |
| Name                |   |                 | Dennis Worsley |
| Title:              |   |                 |   |