Exhibit 4.1




 




PURCHASE AGREEMENT




 




THIS PURCHASE AGREEMENT (“Agreement”) is made

as of the 20th day of June, 2003 by and among Click2learn, Inc., a Delaware

corporation (the “Company”), and the Investors set forth on the signature pages

affixed hereto (each an “Investor” and collectively the “Investors”).




 




Recitals




 




A.                                   The Company and the

Investors are executing and delivering this Agreement in reliance upon the

exemption from securities registration afforded by the provisions of Regulation

D (“Regulation D”), as promulgated by the U.S. Securities and Exchange

Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933

Act”); and




 




B.                                     The Investors wish

to purchase from the Company, and the Company wishes to sell and issue to the

Investors, upon the terms and conditions stated in this Agreement, in the

amounts set forth opposite such investors name on Exhibit A, an aggregate of

7,460,644shares of the Company’s Common Stock, par value $0.01  per

share (the “Common Stock”); and warrants to purchase an aggregate of 2,611,225  shares

of Common Stock in the form attached hereto as Exhibit B (the “Warrants”); and




 




C.                                     Contemporaneous

with the sale of the Common Stock and Warrants, the parties hereto will execute

and deliver a Registration Rights Agreement, in the form attached hereto as

Exhibit C (the “Registration Rights Agreement”), pursuant to which the Company

will agree to provide certain registration rights under the  1933 Act, and the rules and regulations

promulgated thereunder, and applicable state securities laws.




 




In consideration of the mutual promises made

herein and for other good and valuable consideration, the receipt and

sufficiency of which is hereby acknowledged, the parties hereto agree as

follows:




 




1.                                       Definitions.  In addition to those terms defined above and

elsewhere in this Agreement, for the purposes of this Agreement, the following

terms shall have the meanings here set forth:




 




“Affiliate” means, with respect to any

Person, any other Person which directly or indirectly Controls, is controlled

by, or is under common control with, such Person.




 




“Business Day” means a day, other than

a Saturday or Sunday, on which banks in New York City are open for the general

transaction of business.




 




“Common Stock” means the common stock,

par value $0.01 per share, of the Company, and any securities into which the

Common Stock may be reclassified.




 





























 




“Company’s Knowledge” means the actual

knowledge of the executive officers of the Company, after reasonable inquiry.




 




“Confidential Information” means trade

secrets, confidential information and know-how (including but not limited to

ideas, formulae, compositions, processes, procedures and techniques, research

and development information, computer program code, performance specifications,

support documentation, drawings, specifications, designs, business and

marketing plans, and customer and supplier lists and related information).




 




“Control” means the possession, direct

or indirect, of the power to direct or cause the direction of the management

and policies of a Person, whether through the ownership of voting securities,

by contract or otherwise.




 




“Intellectual Property” means all of

the following: (i) patents, patent applications, patent disclosures and

inventions (whether or not patentable and whether or not reduced to practice);

(ii) trademarks, service marks, trade dress, trade names, corporate names,

logos, slogans and Internet domain names, together with all goodwill associated

with each of the foregoing; (iii) copyrights and copyrightable works; (iv)

registrations, applications and renewals for any of the foregoing; and (v)

proprietary computer software (including but not limited to data, data bases

and documentation).




 




“Material Adverse Effect” means a

material adverse effect on (i) the assets, liabilities, results of operations,

condition (financial or otherwise), business or prospects of the Company and

its Subsidiaries taken as a whole, or (ii) the ability of the Company to issue

and sell the securities contemplated hereby and to perform its obligations

under the Transaction Documents.




 




“Nasdaq” means The Nasdaq Stock

Market, Inc., its successors and assigns.




 




“Person” means an individual,

corporation, partnership, limited liability company, trust, business trust,

association, joint stock company, joint venture, sole proprietorship,

unincorporated organization, governmental authority or any other form of entity

not specifically listed herein.




 




“Purchase Price” means  $12,770,756.88.




 




“SEC Filings” has the meaning set

forth in Section 4.6.




 




“Securities” means the Shares, the

Warrants and the Warrant Shares.




 




“Shares” means the shares of Common

Stock being purchased by the Investors hereunder.




 




“Subsidiary” has the meaning set forth

in Section 4.1.




 




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“Transaction Documents” means this

Agreement, the Warrants and the Registration Rights Agreement.




 




“Warrant Shares” means the shares of

Common Stock issuable upon exercise of the Warrants.




 




“1934 Act” means the Securities

Exchange Act of 1934, as amended, and the rules and regulations promulgated

thereunder.




 




2.                                       Purchase and

Sale of the Shares and Warrants. 

Subject to the terms and conditions of this Agreement, on the Closing

Date, each of the Investors shall severally, and not jointly, purchase, and the

Company shall sell and issue to the Investors, the Shares and Warrants in the

respective amounts set forth opposite the Investors’ names on Exhibit A hereto

in exchange for the Purchase Price (reflecting a per Share purchase price of

$1.668 and a Warrant purchase price of $0.125 per Warrant Share) as specified

in Section 3 below.




 




3.                                       Closing.   Upon confirmation that the other conditions

to closing specified herein have been satisfied, the Company shall deliver to

Craig-Hallum Capital Group LLC, in trust, a certificate or certificates,

registered in such name or names as the Investors may designate, representing

the Shares, as well as the original Warrants, registered in such name or names

as the Investors may designate, with instructions that such certificates and

Warrants are to be held for release to the Investors only upon payment of the

Purchase Price to the Company.  Upon

receipt by Craig-Hallum Capital Group LLC of the certificates and Warrants,

each Investor shall promptly cause a wire transfer in same day funds to be sent

to the account of the Company as instructed in writing by the Company, the

amount representing such Investor’s pro rata portion of the Purchase Price as

set forth on the signature pages to this Agreement.  On the date (the “Closing Date”) the Company receives such funds,

the certificates evidencing the Shares and the Warrants dated as of the Closing

Date shall be released to the Investors (the “Closing”).  The purchase and sale of the Shares and

Warrants shall take place at the offices of Craig-Hallum Capital Group LLC, or

at such other location and on such other date as the Company and the Investors

shall mutually agree.




 




4.                                       Representations

and Warranties of the Company.  The

Company hereby represents and warrants to the Investors that, except as set

forth in the schedules delivered herewith (collectively, the “Disclosure

Schedules”):




 




4. 1                              Organization, Good

Standing and Qualification.  Each of

the Company and its Subsidiaries is a corporation duly organized, validly

existing and in good standing under the laws of the jurisdiction of its

incorporation and has all requisite corporate power and authority to carry on

its business as now conducted and to own its properties.  Each of the Company and its Subsidiaries is

duly qualified to do business as a foreign corporation and is in good standing

in each jurisdiction in which the conduct of its business or its ownership or

leasing of property makes such qualification or leasing necessary unless the

failure to so qualify has not and could not reasonably be expected to have a

Material Adverse Effect.  The Company’s

subsidiaries that are material to the conduct of the business of the Company

are reflected on Schedule 4.1 hereto (the “Subsidiaries”).




 




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4.2                                 Authorization.  The Company has the requisite power and

authority and has taken all requisite action on the part of the Company, its

officers, directors and stockholders necessary for (i) the authorization,

execution and delivery of the Transaction Documents, (ii) authorization of the

performance of all obligations of the Company hereunder or thereunder, and

(iii) the authorization, issuance (or reservation for issuance) and delivery of

the Securities.  The Transaction Documents constitute the

legal, valid and binding obligations of the Company, enforceable against the

Company in accordance with their terms, subject to bankruptcy, insolvency,

fraudulent transfer, reorganization, moratorium and similar laws of general

applicability, relating to or affecting creditors’ rights generally.




 




4.3                                 Capitalization.  Schedule 4.3 sets forth (a) the

authorized capital stock of the Company on the date hereof; (b) the number of

shares of capital stock issued and outstanding; (c) the number of shares of

capital stock issuable pursuant to the Company’s stock plans; and (d) the

number of shares of capital stock issuable and reserved for issuance pursuant

to securities (other than the Shares and the Warrants) exercisable for, or

convertible into or exchangeable for any shares of capital stock of the

Company.  All of the issued and

outstanding shares of the Company’s capital stock have been duly authorized and

validly issued and are fully paid, nonassessable and free of pre-emptive rights

and were issued in full compliance with applicable law and any rights of third

parties.  All of the issued and

outstanding shares of capital stock of each Subsidiary have been duly

authorized and validly issued and are fully paid, nonassessable and free of

pre-emptive rights, were issued in full compliance with applicable law and any

rights of third parties, are owned by the Company, beneficially and of record,

and, except as disclosed on Schedule 4.3, subject to no lien,

encumbrance or other adverse claim.  No

Person is entitled to pre-emptive or similar statutory or contractual rights

with respect to any securities of the Company. 

Except as disclosed on Schedule 4.3, there are no outstanding

warrants, options, convertible securities or other rights, agreements or

arrangements of any character under which the Company or any of its

Subsidiaries is or may be obligated to issue any equity securities of any kind

and except as contemplated by this Agreement, neither the Company nor any of

its Subsidiaries is currently in negotiations for the issuance of any equity

securities of any kind.  Except as

disclosed on Schedule 4.3 and except for the Registration Rights

Agreement, there are no voting agreements, buy-sell agreements, option or right

of first purchase agreements or other agreements of any kind among the Company

and any of the security holders of the Company relating to the securities of

the Company held by them.  Except as

disclosed in Schedule 4.3, the Company has not granted any Person the right to

require the Company to register any securities of the Company under the 1933

Act, whether on a demand basis or in connection with the registration of

securities of the Company for its own account or for the account of any other

Person.




 




Schedule 4.3 sets

forth a true and complete table setting forth the capitalization of the Company

immediately following the issuance of the Shares and Warrants, on a fully

diluted basis giving effect to (i) the issuance of the Shares and the Warrants,

(ii) any adjustments in other securities resulting from the issuance of the

Shares or the Warrants, and (iii) the exercise or conversion of all outstanding

securities. Except as described on Schedule 4.3, the issuance and sale

of the Securities hereunder will not obligate the Company to issue shares of

Common Stock




 




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or other

securities to any other Person (other than the Investors) and will not result

in the adjustment of the exercise, conversion, exchange or reset price of any

outstanding security.




 




Except as disclosed on Schedule 4.3,

the Company does not have outstanding stockholder purchase rights or any

similar arrangement in effect giving any Person the right to purchase any

equity interest in the Company upon the occurrence of certain events.




 




4.4                                 Valid

Issuance.  The Shares have been duly

and validly authorized and, when issued and paid for pursuant to this

Agreement, will be validly issued, fully paid and nonassessable, and shall be

free and clear of all encumbrances and restrictions, except for restrictions on

transfer set forth in the Transaction Documents or imposed by applicable

securities laws or encumbrances or restrictions established by or through the

Investors.  The Warrants have been duly

and validly authorized.  Upon the due

exercise of the Warrants, the Warrant Shares will be validly issued, fully paid

and non-assessable free and clear of all encumbrances and restrictions, except

for restrictions on transfer set forth in the Transaction Documents or imposed

by applicable securities laws.  The Company

has reserved a sufficient number of shares of Common Stock for issuance upon

the exercise of the Warrants, free and clear of all encumbrances and

restrictions, except for restrictions on transfer set forth in the Transaction

Documents or imposed by applicable securities laws.




 




4.5                                 Consents.  (a) 

The execution, delivery and performance by the Company of the

Transaction Documents and the offer, issuance and sale of the Securities

require no consent of, action by or in respect of, or filing with, any Person,

governmental body, agency, or official other than filings that have been made

pursuant to applicable state securities laws and post-sale filings pursuant to

applicable state and federal securities laws which the Company undertakes to

file within the applicable time periods. 

The Company has taken all action necessary to exempt (i) the issuance

and sale of the Securities, (ii) the issuance of the Warrant Shares upon due

exercise of the Warrants, and (iii) the other transactions contemplated by the

Transaction Documents from the provisions of any anti-takeover, business

combination or control share law or statute binding on the Company or to which

the Company or any of its assets and properties may be subject or any provision

of the Company’s Certificate of Incorporation, By-laws or any stockholder

rights agreement that is or could become applicable to the Investors as a

result of the transactions contemplated hereby, including without limitation,

the issuance of the Securities and the ownership, disposition or voting of the

Securities by the Investors or the exercise of any right granted to the

Investors pursuant to this Agreement or the other Transaction Documents.




 




4.6                                 Delivery of SEC

Filings; Business.  The Company has

provided the Investors with copies of the Company’s most recent Annual Report

on Form 10-K for the fiscal year ended December 31, 2002 (the “10-K”), and all

other reports filed by the Company pursuant to the 1934 Act since the filing of

the 10-K and prior to the date hereof (collectively, the “SEC Filings”).  The SEC Filings are the only filings

required of the Company pursuant to the 1934 Act for such period.  The Company and its Subsidiaries are engaged

only in the business described in the SEC Filings and the SEC Filings contain a

complete and accurate description in all material respects of the business of

the Company and its Subsidiaries.




 




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4.7                                 Use of Proceeds.  The proceeds of the sale of the Shares

hereunder shall be used by the Company for working capital and general

corporate purposes, including but not limited to, repayment of debt.




 




4.8                                 No Material Adverse

Change.  Since December 31, 2002,

except as identified and described in the SEC Filings or as described on Schedule

4.8, there has not been:




 




(i)                                     any change in the

consolidated assets, liabilities, financial condition or operating results of

the Company from that reflected in the financial statements included in the

10-K, except for changes in the ordinary course of business which have not and

could not reasonably be expected to have a Material Adverse Effect,

individually or in the aggregate;




 




(ii)                                  any declaration or

payment of any dividend, or any authorization or payment of any distribution,

on any of the capital stock of the Company, or any redemption or repurchase of

any securities of the Company;




 




(iii)                               any damage, destruction

or loss, whether or not covered by insurance to any assets or properties of the

Company or its Subsidiaries which has had or is reasonably likely to have a

Material Adverse Effect, individually or in the aggregate;




 




(iv)                              any waiver, not in the

ordinary course of business, by the Company or any Subsidiary of a right or of

a debt owed to it which waiver has had or is reasonably likely to have a

Material Adverse Effect, individually or in the aggregate;




 




(v)                                 any satisfaction or

discharge of any lien, claim or encumbrance or payment of any obligation by the

Company or a Subsidiary, except in the ordinary course of business and which

has not and will not have a Material Adverse Effect, individually or in the

aggregate;




 




(vi)                              any change or amendment

to the Company’s Certificate of Incorporation or by-laws, or material change to

any material contract or arrangement by which the Company or any Subsidiary is

bound or to which any of their respective assets or properties is subject;




 




(vii)                           any material labor

difficulties or labor union organizing activities with respect to employees of

the Company or any Subsidiary;




 




(viii)                        any material transaction

entered into by the Company or a Subsidiary other than in the ordinary course

of business;




 




(ix)                                the loss of the

services of any key employee, or material change in the composition or duties

of the senior management of the Company or any Subsidiary;




 




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(x)                                   the loss or

threatened loss of any customer which has had or could reasonably be expected

to have a Material Adverse Effect; or




 




(xi)                                any other event or

condition of any character that has had or could reasonably be expected to have

a Material Adverse Effect.




 




4.9                                 SEC Filings; S-3

Eligibility.




 




(a)                                  At the time of filing

thereof, the SEC Filings complied as to form in all material respects with the

requirements of the 1934 Act and did not contain any untrue statement of a material

fact or omit to state any material fact necessary in order to make the

statements made therein, in the light of the circumstances under which they

were made, not misleading.




 




(b)                                 Each registration

statement and any amendment thereto filed by the Company since January 1, 2001

pursuant to the 1933 Act and the rules and regulations thereunder, as of the

date such statement or amendment became effective, complied as to form in all

material respects with the 1933 Act and did not contain any untrue statement of

a material fact or omit to state any material fact required to be stated

therein or necessary in order to make the statements made therein, in light of

the circumstances under which they were made, not misleading; and each

prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its issue

date and as of the closing of any sale of securities pursuant thereto did not

contain any untrue statement of a material fact or omit to state any material

fact required to be stated therein or necessary in order to make the statements

made therein, in light of the circumstances under which they were made, not

misleading.




 




(c)                                  The Company is

eligible to use Form S-3 to register the Registrable Securities (as such term

is defined in the Registration Rights Agreement) for sale by the Investors as

contemplated by the Registration Rights Agreement.




 




4.10                           No Conflict, Breach,

Violation or Default.  The

execution, delivery and performance of the Transaction Documents by the Company

and the issuance and sale of the Securities will not conflict with or result in

a breach or violation of any of the terms and provisions of, or constitute a

default under (i) the Company’s Certificate of Incorporation or the Company’s

Bylaws, both as in effect on the date hereof (copies of which have been

provided to the Investors before the date hereof), or (ii)(a) any statute,

rule, regulation or order of any governmental agency or body or any court,

domestic or foreign, having jurisdiction over the Company, any Subsidiary or

any of their respective assets or properties, or (b) any agreement or

instrument to which the Company or any Subsidiary is a party or by which the

Company or a Subsidiary is bound or to which any of their respective assets or

properties is subject.




 




4.11                           Tax

Matters.  Except as disclosed on

Schedule 4.11, the Company and each Subsidiary has timely prepared and filed

all tax returns required to have been filed by the Company or such Subsidiary

with all appropriate governmental agencies and timely paid all taxes shown thereon

or otherwise owed by it.  The charges,

accruals and reserves on the books of the Company in respect of taxes for all

fiscal periods are adequate in all material respects, and




 




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there are no

material unpaid assessments against the Company or any Subsidiary nor, to the

Company’s Knowledge, any basis for the assessment of any additional taxes,

penalties or interest for any fiscal period or audits by any federal, state or

local taxing authority except for any assessment which is not material to the

Company and its Subsidiaries, taken as a whole.  All taxes and other assessments and levies that the Company or

any Subsidiary is required to withhold or to collect for payment have been duly

withheld and collected and paid to the proper governmental entity or third

party when due.  There are no tax liens

or claims pending or, to the Company’s Knowledge, threatened against the

Company or any Subsidiary or any of their respective assets or property.  Except as described on Schedule 4.11,

there are no outstanding tax sharing agreements or other such arrangements

between the Company and any Subsidiary or other corporation or entity.




 




4.12                           Title

to Properties.  Except as disclosed

in the SEC Filings, the Company and each Subsidiary has good and marketable

title to all real properties and all other properties and assets owned by it,

in each case free from liens, encumbrances and defects that would materially

affect the value thereof or materially interfere with the use made or currently

planned to be made thereof by them; and except as disclosed in the SEC Filings,

the Company and each Subsidiary holds any leased real or personal property

under valid and enforceable leases with no exceptions that would materially interfere

with the use made or currently planned to be made thereof by them.




 




4.13                           Certificates,

Authorities and Permits.  The

Company and each Subsidiary possess adequate certificates, authorities or

permits issued by appropriate governmental agencies or bodies necessary to

conduct the business now operated by it, and neither the Company nor any

Subsidiary has received any notice of proceedings relating to the revocation or

modification of any such certificate, authority or permit that, if determined

adversely to the Company or such Subsidiary, could reasonably be expected to

have a Material Adverse Effect, individually or in the aggregate.




 




4.14                           No

Labor Disputes.  No material labor

dispute with the employees of the Company or any Subsidiary exists or, to the Company’s

Knowledge, is imminent.




 




4.15                           Intellectual

Property.




 




(a)                                  No

Intellectual Property of the Company or its Subsidiaries which is necessary for

the conduct of Company’s and each of its Subsidiaries’ respective businesses as

currently conducted or as currently proposed to be conducted has been or is now

involved in any cancellation, dispute or litigation, and, to the Company’s

Knowledge, no such action is threatened. 

No patent of the Company or its Subsidiaries has been or is now involved

in any interference, reissue, re-examination or opposition proceeding.




 




(b)                                 All

of the licenses and sublicenses and consent, royalty or other agreements

concerning Intellectual Property which are necessary for the conduct of the

Company’s and each of its Subsidiaries’ respective businesses as currently

conducted or as currently proposed to be conducted to which the Company or any

Subsidiary is a party or by which any of their assets are bound (other than

 generally commercially available, non-custom,




 




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off-the-shelf

software application programs having a retail acquisition price of less than

$10,000 per license) (collectively, “License Agreements”) are valid and binding

obligations of the Company or its Subsidiaries that are parties thereto and, to

the Company’s Knowledge, the other parties thereto, enforceable in accordance

with their terms, except to the extent that enforcement thereof may be limited

by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or

other similar laws affecting the enforcement of creditors’ rights generally,

and there exists no event or condition which will result in a material

violation or breach of or constitute (with or without due notice or lapse of

time or both) a default by the Company or any of its Subsidiaries under any

such License Agreement.




 




(c)                                  Except

as disclosed on Schedule 4.15, the Company and its Subsidiaries own or

have the valid right to use all of the Intellectual Property that is necessary

for the conduct of the Company’s and each of its Subsidiaries’ respective

businesses as currently conducted or as currently proposed to be conducted and

for the ownership, maintenance and operation of the Company’s and its

Subsidiaries’ properties and assets, free and clear of all liens, encumbrances,

adverse claims or obligations to license all such owned Intellectual Property

and Confidential Information, other than licenses entered into in the ordinary

course of the Company’s and its Subsidiaries’ businesses.  To the Company’s Knowledge, the Company and

its Subsidiaries have a valid and enforceable right to use all third party

Intellectual Property and Confidential Information used or held for use in the

respective businesses of the Company and its Subsidiaries.




 




(d)                                 To

the Company’s Knowledge, the conduct of the Company’s and its Subsidiaries’

businesses as currently conducted does not infringe or otherwise impair or

conflict with (collectively, “Infringe”) any Intellectual Property rights of

any third party or any confidentiality obligation owed to a third party, and,

to the Company’s Knowledge, the Intellectual Property and Confidential

Information of the Company and its Subsidiaries which are necessary for the

conduct of Company’s and each of its Subsidiaries’ respective businesses as

currently conducted or as currently proposed to be conducted are not being

Infringed by any third party.  Except as

disclosed on Schedule 4.15, there is no litigation or order pending or

outstanding or, to the Company’s Knowledge, threatened or imminent, that seeks

to limit or challenge or that concerns the ownership, use, validity or

enforceability of any Intellectual Property or Confidential Information of the

Company and its Subsidiaries and the Company’s and its Subsidiaries’ use of any

Intellectual Property or Confidential Information owned by a third party, and,

to the Company’s Knowledge, there is no valid basis for the same.




 




(e)                                  The

consummation of the transactions contemplated hereby will not result in the

alteration, loss, impairment of or restriction on the Company’s or any of its

Subsidiaries’ ownership or right to use any of the Intellectual Property or

Confidential Information which is necessary for the conduct of Company’s and

each of its Subsidiaries’ respective businesses as currently conducted or as

currently proposed to be conducted.




 




(f)                                    The

Company and its Subsidiaries have taken reasonable steps to protect the

Company’s and its Subsidiaries’ rights in their Intellectual Property and

Confidential Information.  Each employee,

consultant and contractor who has had access to Confidential Information which

is necessary for the conduct of Company’s and each of its Subsidiaries’




 




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respective

businesses as currently conducted or as currently proposed to be conducted has

executed an agreement to maintain the confidentiality of such Confidential

Information and has executed appropriate agreements that are substantially

consistent with the Company’s standard forms thereof.  Except under confidentiality obligations, there has been no

material disclosure of any of the Company’s or its Subsidiaries’ Confidential

Information to any third party.




 




4.16                           Environmental

Matters.  To the Company’s

Knowledge, neither the Company nor any Subsidiary is in violation of any

statute, rule, regulation, decision or order of any governmental agency or body

or any court, domestic or foreign, relating to the use, disposal or release of

hazardous or toxic substances or relating to the protection or restoration of

the environment or human exposure to hazardous or toxic substances

(collectively, “Environmental Laws”), owns or operates any real property

contaminated with any substance that is subject to any Environmental Laws, is

liable for any off-site disposal or contamination pursuant to any Environmental

Laws, and is subject to any claim relating to any Environmental Laws, which

violation, contamination, liability or claim has had or could reasonably be

expected to have a Material Adverse Effect, individually or in the aggregate;

and there is no pending or, to the Company’s Knowledge, threatened

investigation that might lead to such a claim.




 




4.17                           Litigation.  Except as described on Schedule 4.17,

there are no pending actions, suits or proceedings against or affecting the

Company, its Subsidiaries or any of its or their properties, which, if

determined adversely to the Company or a Subsidiary, could reasonably be

expected to have a Material Adverse Effect, individually or in the aggregate;

and to the Company’s Knowledge, no such actions, suits or proceedings are

threatened or contemplated.




 




4.18                           Financial Statements.  The financial statements included in each

SEC Filing present fairly, in all material respects, the consolidated financial

position of the Company as of the dates shown and its consolidated results of

operations and cash flows for the periods shown, and such financial statements

have been prepared in conformity with United States generally accepted

accounting principles applied on a consistent basis (except as may be disclosed

therein or in the notes thereto, and, in the case of quarterly financial

statements, as permitted by Form 10-Q under the 1934 Act).  Except as set forth in the financial

statements of the Company included in the SEC Filings filed prior to the date

hereof or as described on Schedule 4.18, neither the Company nor

any of its Subsidiaries has incurred any liabilities, contingent or otherwise,

except those incurred in the ordinary course of business, consistent (as to

amount and nature) with past practices since the date of such financial

statements, none of which, individually or in the aggregate, have had or could

reasonably be expected to have a Material Adverse Effect.




 




4.19                           Insurance Coverage.  The Company and each Subsidiary maintains in

full force and effect insurance coverage that is customary for comparably

situated companies for the business being conducted and properties owned or

leased by the Company and each Subsidiary, and the Company reasonably believes

such insurance coverage provides reasonable, prudent and customary coverage

against all liabilities, claims and risks against which it is customary for

comparably situated companies to insure.




 




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4.20                           Compliance with Nasdaq

Continued Listing Requirements.  The

Company is in compliance with applicable Nasdaq continued listing

requirements.  There are no proceedings

pending or, to the Company’s Knowledge, threatened against the Company relating

to the continued listing of the Company’s Common Stock on Nasdaq and except as

disclosed on Schedule 4.20, the Company has not received any notice of, nor to

the Company’s Knowledge is there any basis for, the delisting of the Common

Stock from Nasdaq.




 




4.21                           Brokers and Finders.  No Person will have, as a result of the

transactions contemplated by this Agreement, any valid right, interest or claim

against or upon the Company, any Subsidiary or an Investor for any commission,

fee or other compensation pursuant to any agreement, arrangement or

understanding entered into by or on behalf of the Company, other than as

described in Schedule 4.21.




 




4.22                           No Directed Selling

Efforts or General Solicitation. 

Neither the Company nor any Person acting on its behalf has conducted

any general solicitation or general advertising (as those terms are used in

Regulation D) in connection with the offer or sale of any of the Securities.




 




4.23                           No Integrated Offering.  Neither the Company nor any of its

Affiliates or any Person acting on its or their behalf has, directly or

indirectly, made any offers or sales of any Company security or solicited any

offers to buy any security, under circumstances that would adversely affect

reliance by the Company on Section 4(2) for the exemption from registration for

the transactions contemplated hereby or would require registration of the

Securities under the 1933 Act.




 




4.24                           Private Placement.  The offer and sale of the Securities to the

Investors as contemplated hereby is exempt from the registration requirements

of the 1933 Act.




 




4.25                           Questionable Payments.  Neither the Company nor any of its

Subsidiaries nor, to the Company’s Knowledge, any of their respective current

or former stockholders, directors, officers, employees, agents or other Persons

acting on behalf of the Company or any Subsidiary, has on behalf of the Company

or any Subsidiary or in connection with their respective businesses: (a) used

any corporate funds for unlawful contributions, gifts, entertainment or other

unlawful expenses relating to political activity; (b) made any direct or

indirect unlawful payments to any governmental officials or employees from

corporate funds; (c) established or maintained any unlawful or unrecorded fund

of corporate monies or other assets; (d) made any false or fictitious entries

on the books and records of the Company or any Subsidiary; or (e) made any

unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful

payment of any nature.




 




4.26                           Transactions with

Affiliates.  Except as disclosed in

SEC Filings made on or prior to the date hereof or as disclosed on Schedule

4.26, none of the officers or directors of the Company and, to the

Company’s Knowledge, none of the employees of the Company, is presently a party

to any transaction with the Company or a Subsidiary or to a presently

contemplated transaction (other than for services as employees, officers and

directors) that would be required to be disclosed pursuant to Item 404 of

Regulation S-K promulgated under the 1933




 




11





























 




Act (assuming

for purposes of this Section 4.26 that any such employee were an officer or

director).




 




4.27                           Disclosures.  Neither the Company nor any Person acting on

its behalf has provided the Investors or their agents or counsel with any information

that constitutes or might constitute material, non-public information.  The written information relating to the

Company, its business, the Subsidiaries and the transactions contemplated

hereby delivered to the Investors in connection with the transactions

contemplated by the Transaction Documents does not contain any untrue statement

of a material fact or omit to state a material fact necessary in order to make

the statements contained therein, in light of the circumstances under which

they were made, not misleading.




 




4.28                           Shareholder Approval.  The offer and sale of the Securities to the

Investors as contemplated hereby does not require approval by the Company’s

stockholders.




 




5.                                       Representations

and Warranties of the Investors. 

Each of the Investors hereby severally, and not jointly, represents and

warrants to the Company that:




 




5.1                                 Organization and

Existence.  The Investor is a

validly existing corporation, limited partnership or limited liability company

and has all requisite corporate, partnership or limited liability company power

and authority to invest in the Securities pursuant to this Agreement.




 




5.2                                 Authorization.  The execution, delivery and performance by

the Investor of the Transaction Documents to which such Investor is a party

have been duly authorized and will each constitute the valid and legally

binding obligation of the Investor, enforceable against the Investor in

accordance with their respective terms, subject to bankruptcy, insolvency,

fraudulent transfer, reorganization, moratorium and similar laws of general

applicability, relating to or affecting creditors’ rights generally.




 




5.3                                 Purchase Entirely

for Own Account.  The Securities to

be received by the Investor hereunder will be acquired for the Investor’s own

account, not as nominee or agent, and not with a view to the resale or

distribution of any part thereof in violation of the 1933 Act, and the Investor

has no present intention of selling, granting any participation in, or

otherwise distributing the same in violation of the 1933 Act.  Subject to the immediately preceding

sentence, nothing contained herein shall be deemed a representation or warranty

by such Investor to hold the Securities for any period of time.  The Investor is not a registered broker

dealer or an entity engaged in the business of being a broker dealer.




 




5.4                                 Investment

Experience.  The Investor

acknowledges that it can bear the economic risk and complete loss of its

investment in the Securities and has such knowledge and experience in financial

or business matters that it is capable of evaluating the merits and risks of

the investment contemplated hereby.




 




5.5                                 Disclosure of

Information.  The Investor has had

an opportunity to receive all additional information related to the Company

requested by it and to ask questions of and




 




12





























 




receive

answers from the Company regarding the Company, its business and the terms and

conditions of the offering of the Securities. 

The Investor acknowledges receipt of copies of the SEC Filings.  Neither such inquiries nor any other due

diligence investigation conducted by the Investor shall modify, amend or affect

the Investor’s right to rely on the Company’s representations and warranties

contained in this Agreement.




 




5.6                                 Restricted Securities.  The Investor understands that the Securities

are characterized as “restricted securities” under the U.S. federal securities

laws inasmuch as they are being acquired from the Company in a transaction not

involving a public offering and that under such laws and applicable regulations

such securities may be resold without registration under the 1933 Act only in

certain limited circumstances.




 




5.7                                 Legends.  It is understood that, except as provided

below, certificates evidencing such Securities may bear the following or any

similar legend:




 




(a)                                  “The securities

represented hereby may not be transferred unless (i) such securities have been

registered for sale pursuant to the Securities Act of 1933, as amended, (ii)

such securities are sold pursuant to Rule 144(k), or (iii) the Company has

received an opinion of counsel satisfactory to it that such transfer may

lawfully be made without registration under the Securities Act of 1933 or

qualification under applicable state securities laws.”




 




(b)                                 If required by the

authorities of any state in connection with the issuance of sale of the

Securities, the legend required by such state authority.




 




(c)                                  The Company acknowledges and agrees that an

Investor may from time to time pledge pursuant to a bona fide margin account

where the pledgee is an accredited investor and, if required under the terms of

such account, such Investor may transfer possession of the pledged or secured

Securities to the pledgees or secured parties. 

Such pledge or transfer would not be subject to approval or consent of

the Company and no legal opinion of legal counsel to the pledgee, secured party

or pledgor shall be required in connection with the pledge, but the legend

shall remain on the pledged Securities and such legal opinion may be  required in connection with a subsequent

transfer following default by the Investor transferee of the pledge.  Further, no notice shall be required of such

pledge.




 




(d)                                 Upon the earlier of

(i) registration for resale pursuant to the Registration Rights Agreement and

receipt by the Company of the Investor’s written confirmation that such

Securities will be disposed of in compliance with the prospectus delivery

requirements of the 1933 Act or (ii) Rule 144(k) becoming available, the

Company shall, upon an Investor’s written request, promptly cause certificates

evidencing the Securities to be replaced with certificates which do not bear

such restrictive legends, and Warrant Shares subsequently issued upon due

exercise of the Warrants shall not bear such restrictive legends provided the

provisions of either clause (i) or clause (ii) above, as applicable, are

satisfied with respect to such Warrant Shares. 

When the Company is required to cause unlegended certificates to replace

previously issued legended certificates, the Investor may designate whether it

wishes to receive the new physical certificates or to receive such certificates

via DWAC, and if unlegended




 




13





























 




physical

certificates are not delivered to an Investor within five (5) Business Days (or

three (3) Business Days for certificates via DWAC) of submission by that

Investor of legended certificate(s) to the Company’s transfer agent together

with a representation letter in customary form, the Company shall be liable to

the Investor for a penalty equal to 1% of the aggregate purchase price of the

Securities evidenced by such certificate(s) for each thirty (30) day period (or

portion thereof) beyond such three (3) or five (5) Business Day period, as

applicable, that the unlegended certificates have not been so delivered.




 




5.8                                 Accredited Investor.  The Investor is an accredited investor as

defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.




 




5.9                                 No General

Solicitation.  The Investor did not

learn of the investment in the Securities as a result of any public advertising

or general solicitation.




 




5.10                           Brokers and Finders.  No Person will have, as a result of the

transactions contemplated by this Agreement, any valid right, interest or claim

against or upon the Company, any Subsidiary or an Investor for any commission,

fee or other compensation pursuant to any agreement, arrangement or

understanding entered into by or on behalf of the Investors.




 




5.11                           Affiliated Investors.

 The Investor is not a part of a

“group of investors” with any of the other Investors as such term is defined in

proposed Nasdaq Rule 4200(a)(8) (SR-NASD-2003-61).




 




6.  Conditions to Closing.




 




6.1                                 Conditions

to the Investors’ Obligations. The obligation of the Investors to purchase the

Securities at the Closing is subject to the fulfillment to the Investors’

satisfaction, on or prior to the Closing Date, of the following conditions, any

of which may be waived by the Investors agreeing hereunder to purchase a

majority of the Shares and Warrants (the “Required Investors”):




 




(a)                                  The

representations and warranties made by the Company in Section 4 hereof

qualified as to materiality shall be true and correct at all times prior to and

on the Closing Date, except to the extent any such representation or warranty

expressly speaks as of an earlier date, in which case such representation or

warranty shall be true and correct as of such earlier date, and, the

representations and warranties made by the Company in Section 4 hereof not

qualified as to materiality shall be true and correct in all material respects

at all times prior to and on the Closing Date, except to the extent any such

representation or warranty expressly speaks as of an earlier date, in which

case such representation or warranty shall be true and correct in all material

respects as of such earlier date.  The

Company shall have performed in all material respects all obligations and

conditions herein required to be performed or observed by it on or prior to the

Closing Date.




 




(b)                                 The

Company shall have obtained in a timely fashion any and all consents, permits,

approvals, registrations and waivers necessary or appropriate for




 




14





























 




consummation

of the purchase and sale of the Securities all of which shall be in full force

and effect.




 




(c)                                  The

Company shall have executed and delivered the Registration Rights Agreement.




 




(d)                                 The

Company shall have received oral confirmation from Nasdaq that the Shares and

Warrant Shares shall have been approved for inclusion in The Nasdaq National

Market System upon official notice of issuance.




 




(e)                                  No

judgment, writ, order, injunction, award or decree of or by any court, or

judge, justice or magistrate, including any bankruptcy court or judge, or any

order of or by any governmental authority, shall have been issued, and no

action or proceeding shall have been instituted by any governmental authority,

enjoining or preventing the consummation of the transactions contemplated

hereby or in the other Transaction Documents.




 




(f)                                    The

Company shall have delivered a Certificate, executed on behalf of the Company

by its Chief Executive Officer or its Chief Financial Officer, dated as of the

Closing Date, certifying to the fulfillment of the conditions specified in subsections

(a), (b), (d), (g) and (j) of this Section 6.1.




 




(g)                                 The

Company shall have delivered a Certificate, executed on behalf of the Company

by its Secretary, dated as of the Closing Date, certifying the resolutions

adopted by the Board of Directors of the Company approving the transactions

contemplated by this Agreement and the other Transaction Documents and the

issuance of the Securities, certifying the current versions of the Certificate

of Incorporation and Bylaws of the Company and certifying as to the signatures

and authority of persons signing the Transaction Documents and related

documents on behalf of the Company.




 




(h)                                 The

Investors shall have received an opinion from Perkins Coie LLP the

Company’s counsel, dated as of the Closing Date, in the form attached hereto as

Exhibit C.




 




(i)                                     No

stop order or suspension of trading shall have been imposed by Nasdaq, the SEC

or any other governmental regulatory body with respect to public trading in the

Common Stock.




 




(j)                                     The

Company shall have received oral confirmation from the Nasdaq Listing

Qualifications Office that the transactions contemplated hereby, including the

issuance of the Shares, the Warrants, and the Warrant Shares pursuant to the

terms of this Agreement and the Warrants, does not require the approval of the

Company’s shareholders.




 




6.2                                 Conditions

to Obligations of the Company. The Company’s obligation to sell and issue

the Securities at the Closing is subject to the fulfillment to the satisfaction

of the Company on or prior to the Closing Date of the following conditions, any

of which may be waived by the Company:




 




15





























 




(a)                                  The

representations and warranties made by the Investors in Section 5 hereof, other

than the representations and warranties contained in Sections 5.3, 5.4, 5.5,

5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and

correct in all material respects when made, and shall be true and correct in

all material respects on the Closing Date with the same force and effect as if

they had been made on and as of said date. 

The Investment Representations shall be true and correct in all respects

when made, and shall be true and correct in all respects on the Closing Date

with the same force and effect as if they had been made on and as of said

date.  The Investors shall have

performed in all material respects all obligations and conditions herein

required to be performed or observed by them on or prior to the Closing Date.




 




(b)                                 The

Investors shall have executed and delivered the Registration Rights Agreement.




 




(c)                                  The

Investors shall have delivered the Purchase Price to the Company.




 




(d)                                 The

Company shall have received oral confirmation from the Nasdaq Listing

Qualifications Office that the transactions contemplated hereby, including the

issuance of the Shares, the Warrants, and the Warrant Shares pursuant to the

terms of this Agreement and the Warrants, does not require the approval of the

Company’s shareholders.




 




6.3                                 Termination

of Obligations to Effect Closing; Effects.




 




(a)                                  The

obligations of the Company, on the one hand, and the Investors, on the other

hand, to effect the Closing shall terminate as follows:




 




(i)                                     Upon

the mutual written consent of the Company and the Required Investors;




 




(ii)                                  By

the Company if any of the conditions set forth in Section 6.2 shall have become

incapable of fulfillment, and shall not have been waived by the Company;




 




(iii)                               By

the Required Investors if any of the conditions set forth in Section 6.1 shall

have become incapable of fulfillment, and shall not have been waived by the

Required Investors; or




 




(iv)                              By

either the Company or the Required Investors if the Closing has not occurred on

or prior to June 27, 2003;




 




provided, however, that, except

in the case of clause (i) above, the party seeking to terminate its obligation

to effect the Closing shall not then be in breach of any of its

representations, warranties, covenants or agreements contained in this

Agreement or the other Transaction




 




16





























 




Documents if such breach has

resulted in the circumstances giving rise to such party’s seeking to terminate

its obligation to effect the Closing




 




(b)                                 In

the event of termination by the Company or the Required Investors of their

obligations to effect the Closing pursuant to this Section 6.3, written notice

thereof shall forthwith be given to the other parties hereto and the obligation

of all parties to effect the Closing shall be terminated, without further

action by any party.  Nothing in this

Section 6.3 shall be deemed to release any party from any liability for any

breach by such party of the terms and provisions of this Agreement or the other

Transaction Documents or to impair the right of any party to compel specific

performance by any other party of its obligations under this Agreement or the

other Transaction Documents.




 




7.                                       Covenants and

Agreements of the Company.




 




7.1                                 Reservation of

Common Stock.  The Company shall at

all times reserve and keep available out of its authorized but unissued shares

of Common Stock, solely for the purpose of providing for the exercise of the

Warrants, such number of shares of Common Stock as shall from time to time

equal the number of shares sufficient to permit the exercise of the Warrants

issued pursuant to this Agreement in accordance with their respective terms.




 




7.2                                 No Conflicting

Agreements.  The Company will not

take any action, enter into any agreement or make any commitment that would

conflict or interfere in any material respect with the obligations to the

Investors under the Transaction Documents.




 




7.3                                 Insurance.  The Company shall not materially reduce the

insurance coverages described in Section 4.19.




 




7.4                                 Compliance with

Laws.  The Company will comply in

all material respects with all applicable laws, rules, regulations, orders and

decrees of all governmental authorities.




 




7.5                                 Listing

of Underlying Shares and Related Matters. 

Promptly following the date hereof, the Company shall take all necessary

action to cause the Shares and the Warrant Shares to be listed on the Nasdaq

National Market System as soon as possible. 

Further, if the Company applies to have its Common Stock or other

securities traded on any other principal stock exchange or market, it shall

include in such application the Shares and the Warrant Shares and will take

such other action as is necessary to cause such Common Stock to be so

listed.  The Company will use

commercially reasonable efforts to continue the listing and trading of its

Common Stock on the Nasdaq National Market System and, in accordance,

therewith, will use commercially reasonable efforts to comply in all respects

with the Company’s reporting, filing and other obligations under the bylaws or

rules of such market or exchange, as applicable.




 




7.6                                 Press

Release and 8-K.  On the Closing Date, the Company shall issue a

press release reasonably acceptable to the Investors disclosing the material

terms of the transactions contemplated hereby and file a Current Report on Form

8-K disclosing the transactions contemplated hereby and including as exhibits

to such Form 8-K this Agreement,




 




17





























 




the Registration Rights Agreement and form of Warrant.  In addition, the Company will make such

other filings and notices in the manner and time required by the SEC and the

trading market on which the Common Stock is listed.




 




7.7                                 No

Floating Rate Securities.  The

Company shall not issue or sell any convertible securities with a fluctuating

or re-setting conversion or exercise price or exchange ratio.




 




7.8                                 No

Material Non-Public Information.  The Company covenants and agrees that neither it

nor any other Person acting on its behalf will provide any Investor or its

agents or counsel with any information that the Company believes constitutes

material non-public information, unless prior thereto such Investor shall have

executed a written agreement regarding the confidentiality and use of such

information.  The Company understands

and confirms that each Purchaser shall be relying on the foregoing

representations in effecting transactions in securities of the Company.




 




7.9                                 Termination

of Covenants.  The provisions of

Sections 7.2 through 7.7 shall terminate and be of no further force and effect

upon the earlier of (i) the mutual consent of the Company and the Required

Investors or (ii) the date on which the Company’s obligations under the

Registration Rights Agreement to register or maintain the effectiveness of any

registration covering the Registrable Securities (as such term is defined in

the Registration Rights Agreement) shall terminate.




 




8.                                       Survival

and Indemnification.




 




8.1                                 Survival.  All representations, warranties, covenants

and agreements contained in this Agreement shall be deemed to be

representations, warranties, covenants and agreements as of the date hereof and

shall survive the execution and delivery of this Agreement for a period of two

(2) years from the date of this Agreement; provided, however, that the

provisions contained in Section 7 hereof shall survive in accordance therewith.




 




8.2                                 Indemnification.  The Company agrees to indemnify and hold

harmless, on an after-tax and after insurance recovery basis, each Investor and

its Affiliates and their respective directors, officers, employees and agents

from and against any and all losses, clams, damages, liabilities and expenses

(including, without limitation, reasonable attorney fees and disbursements and

other expenses incurred in connection with investigating, preparing or

defending any action, claim or proceeding, pending or threatened and the costs of

enforcement hereof) (collectively, “Losses”) to which such Person may become

subject as a result of any breach of representation, warranty, covenant or

agreement made by or to be performed on the part of the Company under the

Transaction Documents, and will reimburse any such Person for all such amounts

as they are incurred by such Person.




 




8.3                                 Conduct

of Indemnification Proceedings. 

Promptly after receipt by any Person (the “Indemnified Person”) of

notice of any demand, claim or circumstances which would or might give rise to

a claim or the commencement of any action, proceeding or investigation in

respect of which Indemnity may be sought pursuant to Section 8.2, such

Indemnified Person




 




18





























 




shall promptly

notify the Company in writing and the Company shall assume the defense thereof,

including the employment of counsel reasonably satisfactory to such Indemnified

Person, and shall assume the payment of all fees and expenses; provided  however,

that the failure of any Indemnified Person so to notify the Company shall not

relieve the Company of its obligations hereunder except to the extent that the

Company is materially prejudiced by such failure to notify.  In any such proceeding, any Indemnified

Person shall have the right to retain its own counsel, but the fees and

expenses of such counsel shall be at the expense of such Indemnified Person

unless: (i) the Company and the Indemnified Person shall have mutually agreed

to the retention of such counsel; or (ii) in the reasonable judgment of counsel

to such Indemnified Person representation of both parties by the same counsel

would be inappropriate due to actual or potential differing interests between

them.  The Company shall not be liable

for any settlement of any proceeding effected without its written consent,

which consent shall not be unreasonably withheld, but if settled with such

consent, or if there be a final judgment for the plaintiff, the Company shall

indemnify and hold harmless such Indemnified Person from and against any loss

or liability (to the extent stated above) by reason of such settlement or

judgment.  Without the prior written

consent of the Indemnified Person, which consent shall not be unreasonably withheld,

the Company shall not effect any settlement of any pending or threatened

proceeding in respect of which any Indemnified Person is or could have been a

party and indemnity could have been sought hereunder by such Indemnified Party,

unless such settlement includes an unconditional release of such Indemnified

Person from all liability arising out of such proceeding.




 




9.                                       Miscellaneous.




 




9.1                                 Successors

and Assigns.  This Agreement may not

be assigned by a party hereto without the prior written consent of the Company

or the Required Investors, as applicable, provided, however, that an Investor

may assign its rights and delegate its duties hereunder in whole or in part to

an Affiliate or to a third party acquiring some or all of its Securities in a

private transaction without the prior written consent of the Company or the

other Investors, after notice duly given by such Investor to the Company and

the other Investors, provided, that no such assignment or obligation shall

affect the obligations of such Investor hereunder.  The provisions of this Agreement shall inure to the benefit of

and be binding upon the respective permitted successors and assigns of the

parties.  Nothing in this Agreement,

express or implied, is intended to confer upon any party other than the parties

hereto or their respective successors and assigns any rights, remedies,

obligations, or liabilities under or by reason of this Agreement, except as

expressly provided in this Agreement.




 




9.2                                 Counterparts;

Faxes.  This Agreement may be

executed in two or more counterparts, each of which shall be deemed an

original, but all of which together shall constitute one and the same

instrument.  This Agreement may also be

executed via facsimile, which shall be deemed an original.




 




9.3                                 Titles

and Subtitles.  The titles and

subtitles used in this Agreement are used for convenience only and are not to

be considered in construing or interpreting this Agreement.




 




19





























 




9.4                                 Notices.  Unless otherwise provided, any notice

required or permitted under this Agreement shall be given in writing and shall

be deemed effectively given as hereinafter described (i) if given by personal

delivery, then such notice shall be deemed given upon such delivery, (ii) if

given by telex or telecopier, then such notice shall be deemed given upon

receipt of confirmation of complete transmittal, (iii) if given by mail, then

such notice shall be deemed given upon the earlier of (A) receipt of such

notice by the recipient or (B) three days after such notice is deposited in

first class mail, postage prepaid, and (iv) if given by an internationally

recognized overnight air courier, then such notice shall be deemed given one

day after delivery to such carrier.  All

notices shall be addressed to the party to be notified at the address as

follows, or at such other address as such party may designate by ten days’

advance written notice to the other party:




 




If to the Company:




 




Click2learn, Inc.




110-110th Avenue NE




Bellevue, WA  98004




Attention: 

General Counsel




Fax: 425.637.1540




 




With

a copy to:




 




Perkins Coie LLP




505 Fifth Avenue South, Suite 620




Seattle, WA 98104-3846




Attention:  Scott Gelband




Fax:  206.583.8500




 




If to the Investors:




 




to the addresses set forth on the signature pages hereto.




 




9.5                                 Expenses.  The parties hereto shall pay their own costs

and expenses in connection herewith except that the Company shall pay the

reasonable fees and expenses of counsel to the Investors, not to exceed

$30,000.  Such expenses shall be paid

not later than the Closing.  The Company

shall reimburse the Investors upon demand for all reasonable out-of-pocket

expenses incurred by the Investors, including without limitation reimbursement

of attorneys’ fees and disbursements, in connection with any amendment,

modification or waiver of this Agreement or the other Transaction

Documents.  In the event that legal

proceedings are commenced by any party to this Agreement against another party

to this Agreement in connection with this Agreement or the other Transaction

Documents, the party or parties which do not prevail in such proceedings shall

severally, but not jointly, pay their pro rata share of the reasonable

attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred

by the prevailing party in such proceedings.




 




20





























 




9.6                                 Amendments

and Waivers.  Any term 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 with the written consent of the Company

and the Required Investors.  Any

amendment or waiver effected in accordance with this paragraph shall be binding

upon each holder of any Securities purchased under this Agreement at the time

outstanding, each future holder of all such securities, and the Company.




 




9.7                                 Publicity.  No public release or announcement concerning

the transactions contemplated hereby shall be issued by the Company or the

Investors without the prior consent of the Company (in the case of a release or

announcement by the Investors) or counsel to the Investors.  (“Investor’s Counsel”) (in the case of a

release or announcement by the Company) (which consents shall not be

unreasonably withheld), except as such release or announcement may be required

by law or the applicable rules or regulations of any securities exchange or

securities market, in which case the Company or the Investors, as the case may

be, shall allow Investor’s Counsel or the Company, as applicable, to the extent

reasonably practicable in the circumstances, reasonable time to comment on such

release or announcement in advance of such issuance.




 




9.8                                 Severability.  Any provision of this Agreement that is

prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,

be ineffective to the extent of such prohibition or unenforceability without

invalidating the remaining provisions hereof but shall be interpreted as if it

were written so as to be enforceable to the maximum extent permitted by

applicable law, and any such prohibition or unenforceability in any

jurisdiction shall not invalidate or render unenforceable such provision in any

other jurisdiction.  To the extent

permitted by applicable law, the parties hereby waive any provision of law

which renders any provision hereof prohibited or unenforceable in any respect.




 




9.9                                 Entire

Agreement.  This Agreement,

including the Exhibits and the Disclosure Schedules, and the other Transaction

Documents constitute the entire agreement among the parties hereof with respect

to the subject matter hereof and thereof and supersede all prior agreements and

understandings, both oral and written, between the parties with respect to the

subject matter hereof and thereof.




 




9.10                           Further

Assurances.  The parties shall

execute and deliver all such further instruments and documents and take all

such other actions as may reasonably be required to carry out the transactions

contemplated hereby and to evidence the fulfillment of the agreements herein

contained.




 




9.11                           Governing

Law; Consent to Jurisdiction.  This

Agreement shall be governed by, and construed in accordance with, the internal

laws of the State of New York without regard to the choice of law principles

thereof.  Each of the parties hereto

irrevocably submits to the exclusive jurisdiction of the courts of the State of

New York located in New York County and the United States District Court for

the Southern District of New York for the purpose of any suit, action,

proceeding or judgment relating to or arising out of this Agreement and the

transactions contemplated hereby. 

Service of process in connection with any such suit, action or

proceeding may be served on each party hereto anywhere in the world by the same




 




21





























 




methods as are

specified for the giving of notices under this Agreement.  Each of the parties hereto irrevocably

consents to the jurisdiction of any such court in any such suit, action or

proceeding and to the laying of venue in such court.  Each party hereto irrevocably waives any objection to the laying

of venue of any such suit, action or proceeding brought in such courts and

irrevocably waives any claim that any such suit, action or proceeding brought

in any such court has been brought in an inconvenient forum.




 




9.12                           Liability.  The obligations of each

Investor under any this Agreement, the Registration Rights Agreement and the

Warrants are several and not joint with the obligations of any other Investor,

and no Investor shall be responsible in any way for the performance of the

obligations of any other Investor under any such document.  Nothing contained herein or in the

Registration Rights Agreement or the Warrant, and no action taken by any

Investor pursuant thereto, shall be deemed to 

constitute the Investors as a partnership, an association, a joint

venture or any other kind of entity, or create a presumption that the Investors

are in any way acting in concert or as a group with respect to such obligations

or the transactions contemplated by this Agreement, the Registration Rights

Agreement and the Warrants.  Each

Purchaser shall be entitled to independently protect and enforce its rights,

including without limitation the rights arising out of this Agreement or out of

the the Registration Rights Agreement and the Warrants, and it shall not be

necessary for any other Investor to be joined as an additional party in any

proceeding for such purpose.




 




9.13                           Damages.  In addition to being entitled

to exercise all rights provided herein or granted by law, including recovery of

damages, each of the Investors and the Company will be entitled to specific

performance under this Agreement, the Registration Rights Agreement and the

Warrants.  The parties agree that

monetary damages may not be adequate compensation for any loss incurred by reason

of any breach of obligations described in the foregoing sentence and hereby

agrees to waive in any action for specific performance of any such obligation

the defense that a remedy at law would be adequate.




 




[signature page follows]




 




22





























 




 




IN

WITNESS WHEREOF, the parties have executed this

Agreement or caused their duly authorized officers to execute this Agreement as

of the date first above written.




 




	

  The Company:


  	

  CLICK2LEARN, INC.


  
	

   


  	

   


  
	

   


  	

   


  
	

   


  	

  By:


  	

   /s/ Kevin Oakes


  	

   


  
	

   


  	

  Name:  Kevin Oakes


  
	

   


  	

  Title:  CEO


  
					





 




23





























 




The Investors:  [See Exhibit A for list of Investors.]




 




 




	

  If an individual:


  	

   


  	

  If an entity:


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

  Signature


  	

   


  	

  Name of Entity


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  By:


  	

   


  	

   


  
	

  Print Name


  	

   


  	

   


  	

  Its:


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

   


  
	

  Signature


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  
	

  Print Name


  	

   


  	

   


  
						





 




24





























 




EXHIBIT

A: SCHEDULE OF PURCHASERS




 




	

   


  	

   


  	

  Number of


  Shares of


  Common


  Shares


  	

   


  	

  Number of


  Shares


  underlying


  Warrants


  	

   


  	

  Purchase Price


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  SF Capital Partners Ltd.


  c/o Staro Asset Management LLC


  3600 S. Lake Drive


  St. Francis, WI  53235


  	

   


  	

  1,600,000


  	

   


  	

  560,000


  	

   


  	

  $


  	

  2,738,800.00


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  James & Kristy Tiampo


  P.O. Box 3439


  Blaine, WA98231-3439


  	

   


  	

  1,199,040


  	

   


  	

  419,664


  	

   


  	

  $


  	

  2,052,456.72


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Special Situations Fund


  55th Floor


  153 E 53rd Street


  New York, NY  10022


  	

   


  	

  899,280


  	

   


  	

  314,748


  	

   


  	

  $


  	

  1,539,342.54


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Lagunitas Partners LP


  50 Osgood Place


  San Francisco, CA  94133


  	

   


  	

  619,184


  	

   


  	

  216,714


  	

   


  	

  $


  	

  1,059,888.21


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Constable Capital, LLC


  Suite 110


  18300 Minnetonka Blvd.


  Deephaven, MN  55391


  	

   


  	

  381,186


  	

   


  	

  133,415


  	

   


  	

  $


  	

  652,495.14


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Alydar Capital


  17th Floor


  222 Berkeley St.


  Boston, MA  02116


  	

   


  	

  359,712


  	

   


  	

  125,899


  	

   


  	

  $


  	

  615,737.02


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Pequot Navigator Offshore Fund Inc.


  500 Nyala Farm Road


  Westport, CT  06880


  	

   


  	

  341,427


  	

   


  	

  119,499


  	

   


  	

  $


  	

  584,437.67


  	

   


  





 





























 




	

  Shottenfeld Associates


  37th Floor


  399 Park Avenue


  New York, NY  10022


  	

   


  	

  299,760


  	

   


  	

  104,916


  	

   


  	

  $


  	

  513,114.18


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Potomac Capital Partners LP


  26th Floor


  153 E. 53rd Street


  New York, NY  10022


  	

   


  	

  245,204


  	

   


  	

  85,821


  	

   


  	

  $


  	

  419,727.95


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Gruber & McBaine International


  50 Osgood Place


  San Francisco, CA  94133


  	

   


  	

  200,000


  	

   


  	

  70,000


  	

   


  	

  $


  	

  342,350.00


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Pleiades Investment Partners-R, LP


  26th Floor


  153 E. 53rd Street


  New York, NY  10022


  	

   


  	

  199,500


  	

   


  	

  69,825


  	

   


  	

  $


  	

  341,494.13


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  WBL Limited Partnership


  34 Peninsula Road


  Dellwood, MN  55110


  	

   


  	

  197,481


  	

   


  	

  69,118


  	

   


  	

  $


  	

  338,038.10


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Pequot Scout Fund, LP


  500 Nyala Farm Road


  Westport, CT  06880


  	

   


  	

  168,165


  	

   


  	

  58,858


  	

   


  	

  $


  	

  287,856.44


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Verbier Investments


  P.O. Box 3439


  Blaine, WA98231-3439


  	

   


  	

  147,579


  	

   


  	

  51,653


  	

   


  	

  $


  	

  252,618.35


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Constable Capital QP, LLC


  Suite 110


  18300 Minnetonka Blvd.


  Deephaven, MN  55391


  	

   


  	

  113,418


  	

   


  	

  39,696


  	

   


  	

  $


  	

  194,143.26


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Jon D. & Linda W. Gruber


  50 Osgood Place


  San Francisco, CA  94133


  	

   


  	

  100,000


  	

   


  	

  35,000


  	

   


  	

  $


  	

  171,175.00


  	

   


  





 




2





























 




	

  J. Patterson McBaine


  50 Osgood Place


  San Francisco, CA  94133


  	

   


  	

  100,000


  	

   


  	

  35,000


  	

   


  	

  $


  	

  171,175.00


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  CHPartners LP


  Ste. 350, 222 S. 9th St.


  Minneapolis, MN  55402


  	

   


  	

  59,952


  	

   


  	

  20,983


  	

   


  	

  $


  	

  102,622.84


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  CSL


  37th Floor


  399 Park Avenue


  New York, NY  10022


  	

   


  	

  59,952


  	

   


  	

  20,983


  	

   


  	

  $


  	

  102,622.84


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Potomac Capital International Ltd.


  26th Floor


  153 E. 53rd Street


  New York, NY  10022


  	

   


  	

  49,900


  	

   


  	

  17,465


  	

   


  	

  $


  	

  85,416.33


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Craig Campbell


  730 East Lake Street


  Wayzata, MN  55391


  	

   


  	

  29,976


  	

   


  	

  10,491


  	

   


  	

  $


  	

  51,311.29


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Robert G. Allison


  730 East Lake Street


  Wayzata, MN  55391


  	

   


  	

  29,976


  	

   


  	

  10,491


  	

   


  	

  $


  	

  51,311.29


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  Dennis D. Gonyea


  730 East Lake Street


  Wayzata, MN  55391


  	

   


  	

  29,976


  	

   


  	

  10,491


  	

   


  	

  $


  	

  51,311.29


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  David M. Westrum


  730 East Lake Street


  Wayzata, MN  55391


  	

   


  	

  29,976


  	

   


  	

  10,491


  	

   


  	

  $


  	

  51,311.29


  	

   


  
	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  	

   


  
	

  TOTAL


  	

   


  	

  7,460,644


  	

   


  	

  2,611,221


  	

   


  	

  $


  	

  12,770,756.88


  	

   


  





 




3