Document:

Exhibit 4.2

 

REGISTRATION RIGHTS
AGREEMENT

 

This
Registration Rights Agreement (the “Agreement”) is made and entered into as of
this 20th day of June, 2003 by and among Click2learn, Inc., a Delaware
corporation (the “Company”), and the “Investors” named in that certain Purchase
Agreement by and among the Company and the Investors (the “Purchase
Agreement”).

 

The parties
hereby agree as follows:

 

1.                                       Certain
Definitions.

 

As used in
this Agreement, the following terms shall have the following meanings:

 

“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” shall mean the Company’s common stock, par value $0.01 per share,
and any securities into which such shares may hereinafter be reclassified.

 

“Investors”
shall mean the Investors identified in the Purchase Agreement and any Affiliate
or permitted transferee of any Investor who is a subsequent holder of any
Warrants or Registrable Securities.

 

“Prospectus”
shall mean the prospectus included in any Registration Statement, as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated
by reference in such prospectus.

 

“Register,”
“registered” and “registration” refer to a registration made by
preparing and filing a Registration Statement or similar document in compliance
with the 1933 Act (as defined below), and the declaration or ordering of
effectiveness of such Registration Statement or document.

 

“Registrable
Securities” shall mean the shares of Common Stock issuable (i) pursuant to
the Purchase Agreement, (ii) upon the exercise of the Warrants, if any, and
(ii) issuable with respect to or in exchange for Registrable Securities;
provided, that, a security shall cease to be a Registrable Security upon (A)
sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or
(B) such security becoming eligible for sale by the Investors pursuant to Rule
144(k).

 

“Registration
Statement” shall mean any registration statement of the Company filed under
the 1933 Act that covers the resale of any of the Registrable Securities
pursuant to the provisions of this Agreement, amendments and supplements to
such Registration Statement, including post-effective amendments, all exhibits
and all material incorporated by reference in such Registration Statement.

 

“Required
Investors” means the Investors holding a at least two-thirds of the
Registrable Securities.

 

 

“SEC”
means the U.S. Securities and Exchange Commission.

 

“Shares”
means shares of the Company’s Common Stock issued pursuant to the Purchase
Agreement.

 

“1933 Act”
means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

 

“1934 Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

 

“Warrants”
means, warrants to purchase shares of Common Stock issued pursuant to the
Purchase Agreement, the form of which is attached to the Purchase Agreement as
Exhibit B.

 

“Warrant
Shares” means the shares of Common Stock issuable upon the exercise of the
Warrants.

 

2.                                       Registration.

 

(a)                                  Registration
Statements.

 

(i)                                     Promptly
following the closing of the purchase and sale of the securities contemplated
by the Purchase Agreement (the “Closing Date”) but no later than thirty (30)
days after the Closing Date (the “Filing Deadline”), the Company shall prepare
and file with the SEC one Registration Statement on Form S-3 (or, if Form S-3
is not then available to the Company, on such form of registration statement as
is then available to effect a registration for resale of the Registrable
Securities, subject to the Required Investors’ consent), covering the resale of
the Registrable Securities in an amount at least equal to the sum of the number
of Shares plus the number of shares of Common Stock necessary to permit the
exercise in full of the Warrants issued on the Closing Date.  Such Registration Statement also shall
cover, to the extent allowable under the 1933 Act and the rules promulgated
thereunder (including Rule 416), such indeterminate number of additional shares
of Common Stock resulting from stock splits, stock dividends or similar
transactions with respect to the Registrable Securities.  The Company shall use its reasonable efforts
to obtain from each person who now has piggyback registration rights a waiver
of those rights with respect to the Registration Statement.  The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided in accordance with Section 3(c) to the
Investors and their counsel prior to its filing or other submission.  If a Registration Statement covering the
Registrable Securities is not filed with the SEC on or prior to the Filing
Deadline, the Company will make pro rata payments to each Investor, as
liquidated damages and not as a penalty, in an amount equal to 1.5% of the
aggregate amount invested by such Investor for each 30-day period or pro rata
for any portion thereof following the date by which such Registration Statement
should have been filed for which no Registration Statement is filed with
respect to the Registrable Securities. Such payments shall be in partial
compensation to the Investors, and shall not constitute the Investors’
exclusive remedy for such events.  Such
payments shall be made to each Investor in cash.

 

(b)                                 Expenses.  The Company will pay all expenses associated
with each registration, including but not limited to, filing and printing fees,
counsel to the Company,

 

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counsel to the Investors (not
to exceed $10,000), and accounting fees and expenses, costs associated with
clearing the Registrable Securities for sale under applicable state securities
laws and listing fees, but excluding the fees and disbursements of counsel to
the Investors in excess  $10,000 and
discounts, commissions, fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals with respect to the Registrable
Securities being sold by the Investors.

 

(c)                                  Effectiveness.

 

(i)                                     The
Company shall use reasonable efforts to have the Registration Statement
declared effective as soon as practicable. 
The Company shall notify the Investors by facsimile or e-mail as
promptly as practicable, and in any event, within twenty-four (24) hours, after
any Registration Statement is declared effective and shall simultaneously
provide the Investors with copies of any related Prospectus to be used in
connection with the sale or other disposition of the securities covered
thereby.  If (A) a Registration
Statement covering the Registrable Securities is not declared effective by the
SEC within ninety (90) days after the Closing Date (or 120 days in the event of
SEC review of the Registration Statement) or (B) after a Registration Statement
has been declared effective by the SEC, sales cannot be made pursuant to such Registration
Statement for any reason (including without limitation by reason of a stop
order, or the Company’s failure to update the Registration Statement), but
excluding the inability of any Investor to sell the Registrable Securities
covered thereby due to market conditions and except as excused pursuant to
subparagraph (ii) below, then the Company will make pro rata payments to each
Investor, as liquidated damages and not as a penalty, in an amount equal to
1.5% of the aggregate amount invested by such Investor for each 30-day period
or pro rata for any portion thereof following the date by which such
Registration Statement should have been effective (the “Blackout Period”).  Such payments shall be in partial compensation
to the Investors, and shall not constitute the Investors’ exclusive remedy for
such events.  The amounts payable as
liquidated damages pursuant to this paragraph shall be paid monthly within
three (3) Business Days of the last day of each month following the
commencement of the Blackout Period until the termination of the Blackout
Period.  Such payments shall be made to
each Investor in cash.

 

(ii)                                  For
not more than thirty (30) consecutive days or for a total of not more than
sixty (60) days in any twelve (12) month period, the Company may delay the
disclosure of material non-public information concerning the Company, by
suspending the use of any Prospectus included in any registration contemplated
by this Section containing such information, the disclosure of which at the
time is not, in the good faith opinion of the Company, in the best interests of
the Company (an “Allowed Delay”); provided, that the Company shall promptly (a)
notify the Investors in writing of the existence of (but in no event, without
the prior written consent of an Investor, shall the Company disclose to such
Investor any of the facts or circumstances regarding) material non-public
information giving rise to an Allowed Delay, and (b) advise the Investors in
writing to cease all sales under the Registration Statement until the end of
the Allowed Delay.

 

(d)                                 Underwritten
Offering.  If any offering pursuant
to a Registration Statement pursuant to Section 2(a) hereof involves an
underwritten offering, the Company shall

 

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have the right to select an
investment banker and manager to administer the offering, which investment
banker or manager shall be reasonably satisfactory to the Required Investors.

 

3.                                       Company
Obligations.  The Company will use
commercially reasonable efforts to effect the registration of the Registrable
Securities in accordance with the terms hereof, and pursuant thereto the
Company will, as expeditiously as possible:

 

(a)                                  use
commercially reasonable efforts to cause such Registration Statement to become
effective and to remain continuously effective for a period that will terminate
upon the earlier of (i) the date on which all Registrable Securities covered by
such Registration Statement as amended from time to time, have been sold, and
(ii) with respect to each Investor, the date on which all Registrable
Securities covered by such Registration Statement may be sold pursuant to Rule
144(k);

 

(b)                                 prepare
and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the
Registration Statement effective for the period specified in Section 3(a) and
to comply with the provisions of the 1933 Act and the 1934 Act with respect to
the distribution of all of the Registrable Securities covered thereby;

 

(c)                                  provide
copies to and permit counsel designated by the Investors to review each
Registration Statement and all amendments and supplements thereto no fewer than
five (5) Business Days prior to their filing with the SEC and not file any document
to which such counsel reasonably objects. 
An objection shall be deemed to be reasonable only if the Investor
reasonably believes such Registration Statement, amendments or supplements
contains (X) an untrue statement of material fact or omit to state any material
fact necessary to make the statements therein not misleading or fails to comply
with the applicable requirements of the 1933 Act or the rules promulgated
thereunder or (Y) contains an untrue statement of fact regarding such Investor
or omit to state any fact necessary to make the statement regarding such
Investor therein not misleading, and the Investor provides written notice of
such statement necessary to make the statements therein not misleading or
non-compliant;

 

(d)                                 furnish
to the Investors and their legal counsel (i) promptly after the same is
prepared and publicly distributed, filed with the SEC, or received by the
Company (but not later than two (2) Business Days after the filing date,
receipt date or sending date, as the case may be, one (1) copy of any
Registration Statement and any amendment thereto, each preliminary prospectus
and Prospectus and each amendment or supplement thereto, and (ii) such number
of copies of a Prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as each Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor that are covered by the related Registration
Statement;

 

(e)                                  in
the event the Company selects an underwriter for the offering, the Company
shall enter into and perform its reasonable obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the underwriter of
such offering;

 

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(f)                                    if
required by the underwriter,  the
Company shall furnish, on the effective date of the Registration Statement
(except with respect to clause (i) below) and on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement, (i) in the case of an underwritten offering, an
opinion, dated as of the closing date of the sale of Registrable Securities to
the underwriters, from independent legal counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the underwriters
participating in such underwritten offering, and (ii) a letter, dated as of the
effective date of such Registration Statement and confirmed as of the
applicable dates described above, from the Company’s independent certified
public accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters;

 

(g)                                 use
commercially reasonable efforts to (i) prevent the issuance of any stop order
or other suspension of effectiveness and, (ii) if such order is issued, obtain
the withdrawal of any such order at the earliest possible moment;

 

(h)                                 prior
to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their
counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions requested by the Investors and do any and all other
commercially reasonable acts or things necessary or advisable to enable the
distribution in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (i) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(h), (ii)
subject itself to general taxation in any jurisdiction where it would not otherwise
be so subject but for this Section 3(h), or (iii) file a general consent to
service of process in any such jurisdiction;

 

(i)                                     use
commercially reasonable efforts to cause all Registrable Securities covered by
a Registration Statement to be listed on each securities exchange, interdealer
quotation system or other market on which similar securities issued by the
Company are then listed;

 

(j)                                     immediately
notify the Investors, at any time during the period referred to in Section
3(a), upon discovery that, or upon the happening of any event as a result of
which, the Prospectus included in a Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and at the request
of any such holder, promptly prepare and furnish to such holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing;

 

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(k)                                  otherwise
use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, take such other
actions as may be reasonably necessary to facilitate the registration of the
Registrable Securities hereunder; and make available to its security holders,
as soon as reasonably practicable, but not later than the Availability Date (as
defined below), an earnings statement covering a period of at least twelve (12)
months, beginning after the effective date of each Registration Statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
1933 Act, including Rule 158 promulgated thereunder (for the purpose of this
subsection 3(k), “Availability Date” means the 45th day following the end of
the fourth fiscal quarter that includes the effective date of such Registration
Statement, except that, if such fourth fiscal quarter is the last quarter of
the Company’s fiscal year, “Availability Date” means the 90th day after the end
of such fourth fiscal quarter); any earnings statement conforming to the
requirements of this Section 3(k) and publicly available on the Company’s
website for a period of at least twelve (12) months or publicly available on
EDGAR shall be deemed available for the purposes of this Section 3(k); and

 

(l)                                     with
a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any
time permit the Investors to sell shares of Common Stock to the public without
registration, the Company covenants and agrees to:  (i) make and keep public information available, as those terms
are understood and defined in Rule 144, until the earlier of (A) six months
after such date as all of the Registrable Securities may be resold pursuant to
Rule 144(k) or any other rule of similar effect or (B) such date as all of the
Registrable Securities shall have been resold; and (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the
1934 Act; and (iii) furnish to each Investor upon request, as long as such
Investor owns any Registrable Securities, (A) a written statement by the
Company that it has complied with the reporting requirements of the 1934 Act,
(B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly
Report on Form 10-Q, and (C) such other information as may be reasonably
requested in order to avail such Investor of any rule or regulation of the SEC
that permits the selling of any such Registrable Securities without
registration.

 

4.                                       Obligations
of the Investors.

 

(a)                                  Each
Investor shall furnish in writing to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it, as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.  At least five (5)
Business Days prior to the first anticipated filing date of any Registration
Statement, the Company shall notify each Investor of the information the
Company requires from such Investor if such Investor elects to have any of the
Registrable Securities included in the Registration Statement.  An Investor shall provide such information
to the Company at least two (2) Business Days prior to the first anticipated
filing date of such Registration Statement if such Investor elects to have any
of the Registrable Securities included in the Registration Statement.  Any Investor who fails to provide such
information to the Company within the timeframes described in this Section 4(a)
shall waive any rights, damages or penalties such Investors has pursuant to
Section 2 of this Agreement.

 

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(b)                                 Each
Investor, by its acceptance of the Registrable Securities agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from such Registration Statement.

 

(c)                                  In
the event the Company, at the request of the Investors, determines to engage
the services of an underwriter, such Investor agrees to enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
dispositions of the Registrable Securities.

 

(d)                                 Each
Investor agrees that, upon receipt of any notice from the Company of either (i)
the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the
happening of an event pursuant to Section 3(j) hereof, such Investor will
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities, until the
Investor’s receipt of the copies of the supplemented or amended prospectus
filed with the SEC and declared effective and, if so directed by the Company,
the Investor shall deliver to the Company (at the expense of the Company) or
destroy (and deliver to the Company a certificate of destruction) all copies in
the Investor’s possession of the Prospectus covering the Registrable Securities
current at the time of receipt of such notice.

 

(e)                                  No
Investor may participate in any third party underwritten registration hereunder
unless it (i) agrees to sell the Registrable Securities on the basis provided
in any underwriting arrangements in usual and customary form entered into by
the Company, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions.  Notwithstanding the foregoing, no Investor
shall be required to make any representations to such underwriter, other than
those with respect to itself and the Registrable Securities owned by it,
including its right to sell the Registrable Securities, and any indemnification
in favor of the underwriter by the Investors shall be several and not joint and
limited in the case of any Investor, to the proceeds received by such Investor
from the sale of its Registrable Securities. 
The scope of any such indemnification in favor of an underwriter shall
be limited to the same extent as the indemnity provided in Section 5(b) hereof.

 

5.                                       Indemnification.

 

(a)                                  Indemnification
by the Company.  The Company will
indemnify and hold harmless each Investor and its officers, directors, members,
employees and agents, successors and assigns, and each other person, if any,
who controls such Investor within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of any
material fact contained in any Registration Statement, any

 

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preliminary prospectus or final
prospectus contained in, or any amendment or supplement thereof; (ii) any blue
sky application or other document executed by the Company specifically for that
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all of the Registrable
Securities under the securities laws thereof (any such application, document or
information herein called a “Blue
Sky Application”); (iii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (iv)
any violation by the Company or its agents of any rule or regulation
promulgated under the 1933 Act applicable to the Company or its agents and
relating to action or inaction required of the Company in connection with such
registration; or (v) any failure to register or qualify the Registrable
Securities included in any such Registration in any state where the Company or
its agents has affirmatively undertaken or agreed in writing that the Company
will undertake such registration or qualification on an Investor’s behalf (the
undertaking of any underwriter chosen by the Company being attributed to the
Company) and will reimburse such Investor, and each such officer, director or
member and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability (x) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by such Investor or any such
controlling person in writing specifically for use in such Registration
Statement or Prospectus, (y) arises out of the failure of the Investor to
comply with the prospectus delivery requirements of the 1933 Act, provided that
the Company had met its obligations hereunder to furnish the Investor with
copies of the applicable prospectus, or (z) arises out of or is based upon
sales by the Investor pursuant to the registration statement during an Allowed
Delay, provided that the Company had complied in all respects with the
provisions of Section 2(c)(ii) hereof.

 

(b)                                 Indemnification
by the Investors.  In connection
with any registration pursuant to the terms of this Agreement, each Investor
will furnish to the Company in writing such information as the Company
reasonably requests concerning the holders of Registrable Securities or the
proposed manner of distribution for use in connection with any Registration
Statement or Prospectus and agrees, severally but not jointly, to indemnify and
hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who controls the
Company (within the meaning of the 1933 Act) against any losses, claims,
damages, liabilities and expense (including reasonable attorney fees) resulting
from any untrue statement of a material fact or any omission of a material fact
required to be stated in the Registration Statement or Prospectus or preliminary
prospectus or amendment or supplement thereto or necessary to make the
statements therein not misleading, to the extent, but only to the extent that
such untrue statement or omission is contained in any information furnished in
writing by such Investor to the Company specifically for inclusion in such
Registration Statement or Prospectus or amendment or supplement thereto.  In no event shall the liability of an
Investor be greater in amount than the dollar amount of the proceeds (net of
all expense paid by such Investor in connection with any claim relating to this
Section 5 and the amount of any damages such holder has otherwise been required
to pay by reason of such untrue statement or omission) received by such
Investor upon the sale of the Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.

 

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(c)                                  Conduct
of Indemnification Proceedings.  Any
person entitled to indemnification hereunder shall (i) give prompt notice to
the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party; provided
that any person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but
the fees and expenses of such counsel shall be at the expense of such person
unless (a) the indemnifying party has agreed to pay such fees or expenses, or
(b) the indemnifying party shall have failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such person or (c) in the
reasonable judgment of any such person, based upon written advice of its
counsel, a conflict of interest exists between such person and the indemnifying
party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such person); and provided,
further, that the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation.  It is understood
that the indemnifying party shall not, in connection with any proceeding in the
same jurisdiction, be liable for fees or expenses of more than one separate
firm of attorneys at any time for all such indemnified parties.  No indemnifying party will, except with the
consent of the indemnified party, consent to entry of any judgment or enter
into any settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect of such claim or litigation.

 

(d)                                 Contribution.  If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations. 
No person guilty of fraudulent misrepresentation within the meaning of
Section 11(f) of the 1933 Act shall be entitled to contribution from any person
not guilty of such fraudulent misrepresentation.  In no event shall the contribution obligation of a holder of
Registrable Securities be greater in amount than the dollar amount of the
proceeds (net of all expenses paid by such holder in connection with any claim
relating to this Section 5 and the amount of any damages such holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission) received by it upon the sale of the
Registrable Securities giving rise to such contribution obligation.

 

6.                                       Miscellaneous.

 

(a)                                  Amendments
and Waivers.  This Agreement may be
amended only by a writing signed by the Company and the Required
Investors.  The Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the

 

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Company shall have obtained the
written consent to such amendment, action or omission to act, of the Required
Investors.

 

(b)                                 Notices.  All notices and other communications
provided for or permitted hereunder, other than notices set forth in Section
2(c)(i), shall be made as set forth in Section 9.4 of the Purchase Agreement.

 

(c)                                  Nondisclosure.  The Company shall not disclose material
nonpublic information to the Investors, or to advisors to or representatives of
the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and
provides the Investors, such advisors and representatives with the opportunity
to accept or refuse to accept such material nonpublic information for review
and any Investor wishing to obtain such information enters into an appropriate
confidentiality and standstill agreement with the Company with respect thereto.

 

(d)                                 Assignments
and Transfers by Investors.  The
provisions of this Agreement shall be binding upon and inure to the benefit of
the Investors and their respective successors and assigns.  An Investor may transfer or assign, in whole
or from time to time in part, to one or more persons its rights hereunder in
connection with the transfer of Registrable Securities by such Investor to such
person, provided that such Investor complies with all laws applicable thereto
and provides written notice of assignment to the Company promptly after such
assignment is effected.

 

(e)                                  Assignments
and Transfers by the Company.  This
Agreement may not be assigned by the Company (whether by operation of law or
otherwise) without the prior written consent of the Required Investors,
provided, however, that the Company may assign its rights and delegate its
duties hereunder to any surviving or successor corporation in connection with a
merger or consolidation of the Company with another corporation, or a sale,
transfer or other disposition of all or substantially all of the Company’s
assets to another corporation, without the prior written consent of the
Required Investors, after notice duly given by the Company to each Investor.

 

(f)                                    Benefits
of the Agreement.  The terms and
conditions 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.

 

(g)                                 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.

 

10

 

(h)                                 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.

 

(i)                                     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 provisions hereof prohibited or unenforceable in any respect.

 

(j)                                     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.

 

(k)                                  Entire
Agreement.  This Agreement is
intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

 

(l)                                     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 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.

 

(m) — Independent Nature of Investors’ Obligations and Rights.
The obligations of each Investor hereunder is several and not joint with the
obligations of any other Investor hereunder, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor hereunder.  Nothing contained
herein or in any other agreement or document delivered at any closing, and no
action taken by any Investor pursuant hereto or 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 with respect to such obligations or the transactions
contemplated by this

 

11

 

Agreement.  Each Investor shall be entitled to protect
and enforce its rights, including without limitation the rights arising out of
this Agreement, and it shall not be necessary for any other Investor to be
joined as an additional party in any proceeding for such purpose.

 

12

 

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

  

 

13

 

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

  
	
   

  	
   

  
	
   

  	
   

  
	
  If an individual:

  	
  If an entity:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
  Name of Entity

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	 

	
  Print Name

  	
   

  	
   

  	
  Its:

  	
   

  	
   

  	 

	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature 

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Print Name

  	
   

  
								

 

14Exhibit 4.3

 

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.

 

SUBJECT TO THE
PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID AFTER 5:00 P.M.
EASTERN TIME ON JUNE 20, 2008 (THE “EXPIRATION DATE”).

 

	
  Warrant No. CH-«No»

  	
   

  	
  Number of Shares:

  
	
  «Warrants»

  	
   

  	
   

  

 

CLICK2LEARN, INC.

 

WARRANT TO PURCHASE

COMMON STOCK

 

For value
received, «Name» (“Warrantholder”), is entitled to purchase, subject to
the provisions of this Warrant, from Click2learn, Inc., a Delaware corporation
(“Company”), at any time beginning on December 20, 2003 and not later
than 5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an
exercise price per share equal to $1.90 (the exercise price in effect being
herein called the “Warrant Price”), «Warrants» shares (“Warrant
Shares”) of the Company’s Common Stock, par value $0.01 per share (“Common
Stock”).  The number of Warrant
Shares purchasable upon exercise of this Warrant and the Warrant Price shall be
subject to adjustment from time to time as described herein.

 

Section 1.                                            Registration.  The Company shall maintain books for the
transfer and registration of the Warrant. 
Upon the initial issuance of this Warrant, the Company shall issue and
register the Warrant in the name of the Warrantholder.

 

Section 2.                                            Transfers.  As provided herein, this Warrant may be
transferred only pursuant to a registration statement filed under the Securities
Act of 1933, as amended (“Securities Act”), or an exemption from such
registration.  Subject to such
restrictions, the Company shall transfer this Warrant from time to time upon
the books to be maintained by the Company for that purpose, upon surrender
thereof for transfer properly endorsed or 
accompanied by appropriate instructions for transfer and such other
documents as may be reasonably required by the Company, including, if required
by the Company, an opinion of its counsel to the effect that such transfer is
exempt from the registration requirements of the Securities Act, to establish
that such transfer is being made in accordance with the terms hereof, and a new
Warrant shall be issued to the transferee and the surrendered Warrant shall be
canceled by the Company.

 

 

Section 3.                                            Exercise
of Warrant.

 

(a)                                  Subject
to the provisions hereof, the Warrantholder may exercise this Warrant in whole
or in part at any time after December 20, 2003 and prior to its expiration upon
surrender of the Warrant, together with delivery of the duly executed Warrant
exercise form attached hereto as Appendix A (the “Exercise Agreement”)
and payment by cash, certified check or wire transfer of funds for the
aggregate Warrant Price for that number of Warrant Shares then being purchased,
to the Company during normal business hours on any business day at the
Company’s principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof).  The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or such holder’s designee, as the
record owner of such shares, as of the close of business on the date on which
this Warrant shall have been surrendered (or evidence of loss, theft or
destruction thereof and security or indemnity satisfactory to the Company), the
Warrant Price shall have been paid and the completed Exercise Agreement shall
have been delivered.  Certificates for
the Warrant Shares so purchased, representing the aggregate number of shares specified
in the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding three (3) business days, after the date this
Warrant shall have been so exercised. 
The certificates so delivered shall be in such denominations as may be
requested by the holder hereof and shall be registered in the name of such
holder or such other name as shall be designated by such holder.  If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised. 
As used herein, “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.  Each exercise hereof shall
constitute the re-affirmation by the Warrantholder that the representations and
warranties contained in Section 5 of the Purchase Agreement (as defined below)
are true and correct in all material respects with respect to the Warrantholder
as of the time of such exercise.

 

(b)                                 If by the third business day after a date of
exercise the Company fails to deliver the required number of Warrant Shares in
the manner required pursuant to Section 3(a), then the Warrantholder will have
the right to rescind such exercise. If by the third business day after a date
of exercise the Company fails to deliver the required number of Warrant Shares
in the manner required pursuant to Section 3(a), and if after such third
business day and prior to the receipt of such Warrant Shares, the Warrantholder
purchases (in an open market transaction or otherwise) shares of Common Stock
to deliver in satisfaction of a sale by the Warrantholder of the Warrant Shares
which the Warrantholder anticipated receiving upon such exercise (a “Buy In”),
then the Company shall (1) pay in cash to the Warrantholder the amount by which
(x) the Warrantholder’s total purchase price (including brokerage commissions,
if any) for the shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of Warrant Shares that the Company was
required to deliver to the Warrantholder in connection with the exercise at
issue by (B) the closing bid price of the Common Stock on the date on which the
Warrantholder delivered the Exercise Agreement and (2) at the option of the
Warrantholder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Warrantholder the number of shares of Common

 

2

 

Stock
that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder.  The
Warrantholder shall provide the Company written notice indicating the amounts
payable to the Warrantholder in respect of the Buy In. The Company’s
obligations to issue and deliver Warrant Shares in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or inaction
by the Warrantholder to enforce the same, any waiver or consent with respect to
any provision hereof, the recovery of any judgment against any person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Warrantholder or any
other person of any obligation to the Company or any violation or alleged
violation of law by the Warrantholder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Warrantholder in connection with the issuance of Warrant Shares.
Nothing herein shall limit a Warrantholder’s right to pursue any other remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company’s failure to timely deliver certificates representing shares of Common
Stock upon exercise of the Warrant  as
required pursuant to the terms hereof.

 

Section 4.                                            Compliance
with the Securities Act of 1933. The Company may cause the legend set forth
on the first page of this Warrant to be set forth on each Warrant or similar
legend on any security issued or issuable upon exercise of this Warrant, unless
counsel for the Company is of the opinion as to any such security that such
legend is unnecessary.

 

Section 5.                                            Payment
of Taxes.  The Company will pay any
documentary stamp taxes attributable to the initial issuance of Warrant Shares
issuable upon the exercise of the Warrant; provided, however, that the Company
shall not be required to pay any tax or taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificates for
Warrant Shares in a name other than that of the registered holder of this
Warrant in respect of which such shares are issued, and in such case, the
Company shall not be required to issue or deliver any certificate for Warrant
Shares or any Warrant until the person requesting the same has paid to the
Company the amount of such tax or has established to the Company’s reasonable
satisfaction that such tax has been paid. 
The holder shall be responsible for income taxes due under federal,
state or other law, if any such tax is due.

 

Section 6.                                            Mutilated
or Missing Warrants.  In case this
Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue
in exchange and substitution of and upon cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and for the purchase of a like number of Warrant Shares,
but only upon receipt of evidence reasonably satisfactory to the Company of
such loss, theft or destruction of the Warrant, and with respect to a lost,
stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto,
if requested by the Company.

 

Section 7.                                            Reservation
of Common Stock.  The Company hereby
represents and warrants that there have been reserved, and the Company shall at
all applicable times keep reserved until issued (if necessary) as contemplated
by this Section 7, out of the authorized and unissued shares of Common Stock,
sufficient shares to provide for the exercise of the rights of purchase
represented by this Warrant.  The
Company agrees that all Warrant Shares issued upon

 

3

 

due exercise of the Warrant
shall be, at the time of delivery of the certificates for such Warrant Shares,
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company.

 

Section 8.                                            Adjustments.  Subject and pursuant to the provisions of
this Section 8, the Warrant Price and number of Warrant Shares subject to this
Warrant shall be subject to adjustment from time to time as set forth
hereinafter.

 

(a)                                  If
the Company shall, at any time or from time to time while this Warrant is
outstanding, pay a dividend or make a distribution on its Common Stock in
shares of Common Stock, subdivide its outstanding shares of Common Stock into a
greater number of shares or combine its outstanding shares of Common Stock into
a smaller number of shares or issue by reclassification of its outstanding shares
of Common Stock any shares of its capital stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), then the number of Warrant Shares
purchasable upon exercise of the Warrant and the Warrant Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter
exercising the Warrant shall be entitled to receive the number of shares of
Common Stock or other capital stock which the Warrantholder would have received
if the Warrant had been exercised immediately prior to such event upon payment
of a Warrant Price that has been adjusted to reflect a fair allocation of the
economics of such event to the Warrantholder. 
Such adjustments shall be made successively whenever any event listed
above shall occur.

 

(b)                                 If
any capital reorganization, reclassification of the capital stock of the
Company, consolidation or merger of the Company with another corporation in
which the Company is not the survivor, or sale, transfer or other disposition
of all or substantially all of the Company’s assets to another corporation
shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby each Warrantholder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions herein specified and in lieu of the Warrant Shares
immediately theretofore issuable upon exercise of the Warrant, such shares of
stock, securities or assets as would have been issuable or payable with respect
to or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
reorganization, reclassification, consolidation, merger, sale, transfer or
other disposition not taken place, and in any such case appropriate provision
shall be made with respect to the rights and interests of each Warrantholder to
the end that the provisions hereof (including, without limitation, provision
for adjustment of the Warrant Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise thereof.  The Company shall not effect any such
consolidation, merger, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets or other appropriate
corporation or entity shall assume the obligation to deliver to the holder of
the Warrant, at the last address of such holder appearing on the books of the
Company, such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to purchase, and the

 

4

 

other obligations under this
Warrant.  The provisions of this
paragraph (b) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.

 

(c)                                  In
case the Company shall fix a payment date for the making of a distribution to
all holders of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness or assets (other than cash dividends
or cash distributions payable out of consolidated earnings or earned surplus or
dividends or distributions referred to in Section 8(a)), or subscription rights
or warrants, the Warrant Price to be in effect after such payment date shall be
determined by multiplying the Warrant Price in effect immediately prior to such
payment date by a fraction, the numerator of which shall be the total number of
shares of Common Stock outstanding multiplied by the Market Price (as defined
below) per share of Common Stock immediately prior to such payment date, less
the fair market value (as determined by the Company’s Board of Directors in
good faith) of said assets or evidences of indebtedness so distributed, or of
such subscription rights or warrants, and the denominator of which shall be the
total number of shares of Common Stock outstanding multiplied by such Market
Price per share of Common Stock immediately prior to such payment date.  “Market Price” as of a particular
date (the “Valuation Date”) shall mean the following: (a) if the Common
Stock is then listed on a national stock exchange, the closing sale price of
one share of Common Stock on such exchange on the last trading day prior to the
Valuation Date; (b) if the Common Stock is then quoted on The Nasdaq Stock
Market, Inc. (“Nasdaq”), the closing sale price of one share of Common
Stock on Nasdaq on the last trading day prior to the Valuation Date or, if no
such closing sale price is available, the average of the high bid and the low
asked price quoted on Nasdaq on the last trading day prior to the Valuation
Date; or (c) if the Common Stock is not then listed on a national stock
exchange or quoted on Nasdaq, the fair market value of one share of Common Stock
as of the Valuation Date, shall be determined in good faith by the Board of
Directors of the Company and the Warrantholder.  The Board of Directors of the Company shall respond promptly, in
writing, to an inquiry by the Warrantholder prior to the exercise hereunder as
to the Market Price of a share of Common Stock as determined by the Board of
Directors of the Company.  In the event
that the Board of Directors of the Company and the Warrantholder are unable to
agree upon the Market Price in respect of subpart (c) hereof, the Company and
the Warrantholder shall jointly select an appraiser, who is experienced in such
matters.  The decision of such appraiser
shall be final and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Warrantholder. 
Such adjustment shall be made successively whenever such a payment date
is fixed.

 

(d)                                 For
the term of this Warrant, in addition to the provisions contained above, the
Warrant Price shall be subject to adjustment as provided below. An adjustment
to the Warrant Price shall become effective immediately after the payment date
in the case of each dividend or distribution and immediately after the
effective date of each other event which requires an adjustment.

 

(e)                                  In
the event that, as a result of an adjustment made pursuant to this Section 8,
the holder of this Warrant shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable

 

5

 

upon exercise of this Warrant shall be
subject thereafter to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Warrant
Shares contained in this Warrant.

 

(f)                                    Except
as otherwise provided in Section 8(g) hereof, if prior to the Expiration Date,
the Company issues or sells, or in accordance with Section 8(g) is deemed
to have issued or sold, any shares of Common Stock for no consideration (other
than a stock split or stock dividend) or for a consideration per share less
than the Warrant Price (as then in effect) (a “Dilutive Issuance”), then
effective immediately upon such Dilutive Issuance, the Warrant Price will be
adjusted in accordance with the following formula:

 

	
  W’

  	
  =

  	
  (W)(O+P/W)
  (CSDO)

  

 

	
   

  	
  W’

  	
  =

  	
  the adjusted
  Warrant Price;

  
	
  where:

  	
  W

  	
  =

  	
  the then
  current Warrant Price;

  
	
   

  	
  O

  	
  =

  	
  the number
  of shares of Common Stock outstanding immediately prior to the Dilutive
  Issuance;

  
	
   

  	
  P

  	
  =

  	
  the
  aggregate consideration, calculated as set forth in Section 8(g), received by
  the Company upon such Dilutive Issuance; and

  
	
   

  	
  CSDO

  	
  =

  	
  the total
  number of shares of Common Stock deemed outstanding immediately after the
  Dilutive Issuance which shall include the actual number of shares outstanding
  plus all shares issuable upon the conversion or exercise of all outstanding
  convertible securities, warrants and options

  

 

(g)                                 Effect
on Exercise Price of Certain Events. 
For purposes of determining the adjusted Exercise Price under Section
8(f), the following will apply:

 

(i)                                     Issuance
of Rights, Options or Convertible Securities.  Subject to Section 8(g)(ii) below, if, after the date hereof, the
Company issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock (“Convertible
Securities”) (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as “Options”), and
the price per share for which Common Stock is purchasable or issuable upon the
exercise of such Options is less than the Warrant Price (as then in effect) on
the date of issuance of such Option or direct stock grant (collectively, “Below
Market Options”), then the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options (assuming full
exercise, conversion or exchange of Convertible Securities, if applicable)
will, as of the date of the issuance or grant of such Below Market Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share.  For purposes of
the preceding sentence, the price per share for which Common Stock is issuable
upon the exercise of such Below Market Options is determined by dividing
(i) the total amount, if any, received or

 

6

 

receivable by the Company as consideration
for the issuance or sale of all such Below Market Options, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the exercise of all such Below Market Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Below Market Options,
the minimum aggregate amount of additional consideration payable upon the
exercise, conversion or exchange thereof at the time such Convertible
Securities first become exercisable, convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Warrant
Price will be made upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.

 

(ii)                                  Issuance
of Convertible Securities.

 

If the Company
issues or sells any Convertible Securities, whether or not immediately convertible
(other than where the same are issuable upon the exercise of Options) and the
price per share for which Common Stock is issuable upon such exercise,
conversion or exchange (as determined pursuant to Section 8(g)(ii)(B) if
applicable) is less than the Warrant Price (as then in effect) on the date of
issuance of such Convertible Security, then the maximum total number of shares
of Common Stock issuable upon the exercise, conversion or exchange of all such
Convertible Securities will, as of the date of the issuance of such Convertible
Securities, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share.  For
the purposes of the preceding sentence, the price per share for which Common
Stock is issuable upon such exercise, conversion or exchange is determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof
at the time such Convertible Securities first become exercisable, convertible
or exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Warrant Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.

 

(iii)                               Change
in Option Price or Conversion Rate. 
If there is a change at any time in (i) the amount of additional
consideration payable to the Company upon the exercise of any Options;
(ii) the amount of additional consideration, if any, payable to the Company
upon the exercise, conversion or exchange of any Convertible Securities, or
(iii) the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Warrant Price in effect at such time
shall be adjusted to the Warrant Price which would have been in effect had such
Options or Convertible Securities still outstanding provided for such changed
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold.

 

(iv)                              Treatment
of Expired Options and Unexercised Convertible Securities.  If, in any case, the total number of shares
of Common Stock issuable upon exercise of any Options or upon exercise,
conversion or exchange of any Convertible Securities is not, in fact, issued
and

 

7

 

the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Warrant Price then in effect will be readjusted
to the Warrant Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.

 

(v)                                 Calculation
of Consideration Received.  If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or
sale.  In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration part or all of
which shall be other than cash, the amount of the consideration other than cash
received by the Company will be the fair market value of such consideration
except where such consideration consists of freely-tradable securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt.  The fair market value of any consideration other than cash or
securities will be determined in the good faith reasonable business judgment of
the Board of Directors.

 

(h)                                 Exceptions
to Adjustment of Exercise Price.  No
adjustment to the Warrant Price or the number of Warrant Shares issuable
pursuant to this Warrant will be made under Section 8(f) above as a result of
the issuance of any securities of the Company issued pursuant to (i) the grant
or exercise of any stock or options which may hereafter be granted or exercised
under any employee, consultant or director benefit plan of the Company now
existing or implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Company’s
Board of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, (ii) any options, warrant,
convertible securities or rights or agreements to purchase securities of the
Company (not including equity lines of credit) outstanding on the date hereof;
(iii) any underwritten public offerings of equity securities securities
(other than equity lines of credit and similar transactions); (iv) any equity
securities issued for consideration other than cash pursuant to a merger,
consolidation, acquisition or similar business combination; (v) shares of
Common Stock issued in connection with any stock split, stock dividend or
recapitalization by the Company; (vi) shares of Common Stock issued upon
exercise of the Warrants; (vii) any equity securities issued pursuant to
any equipment leasing arrangement or debt financing from a bank or similar
financial institution whose primary business is lending money and not investing
in securities; or (viii) any equity securities (other than equity lines of
credit) issued in connection with strategic transactions involving the Company
and other entities, including (A) joint ventures, manufacturing, marketing
or distribution arrangements, (B) technology transfer or development
arrangements; provided, that the primary purpose of such transaction is not the
raising of capital; or (ix) an agreement to issue securities which does not
close.

 

Section 9.                                            Fractional
Interest.  The Company shall not be
required to issue fractions of Warrant Shares upon the exercise of this
Warrant.  If any fractional share of
Common Stock would, except for the provisions of the first sentence of this
Section 9, be deliverable upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising

 

8

 

holder of this Warrant an
amount in cash equal to the Market Price of such fractional share of Common
Stock on the date of exercise.

 

Section 10.                                      Extension
of Expiration Date.  If the Company
fails to cause any Registration Statement covering Registrable Securities
(unless otherwise defined herein, capitalized terms are as defined in the
Registration Rights Agreement relating to the Warrant Shares (the “Registration
Rights Agreement”)) to be declared effective prior to the applicable dates
set forth therein, or if any of the events specified in Section 2(c)(ii) of the
Registration Rights Agreement occurs, and the Blackout Period (whether alone,
or in combination with any other Blackout Period) continues for more than 60
days in any 12 month period, or for more than a total of 90 days, then the
Expiration Date of this Warrant shall be extended one day for each day beyond
the 60-day or 90-day limits, as the case may be, that the Blackout Period
continues.

 

Section 11.                                      Benefits.  Nothing in this Warrant shall be construed
to give any person, firm or corporation (other than the Company and the
Warrantholder) any legal or equitable right, remedy or claim, it being agreed
that this Warrant shall be for the sole and exclusive benefit of the Company
and the Warrantholder.

 

Section 12.                                      Notices
to Warrantholder.  Upon the
happening of any event requiring an adjustment of the Warrant Price, the
Company shall promptly give written notice thereof to the Warrantholder at the
address appearing in the records of the Company, stating the adjusted Warrant
Price and the adjusted number of Warrant Shares resulting from such event and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. 
Failure to give such notice to the Warrantholder or any defect therein
shall not affect the legality or validity of the subject adjustment.

 

Section 13.                                      Identity
of Transfer Agent.  The Transfer
Agent for the Common Stock is Mellon Shareholder Services.  Upon the appointment of any subsequent
transfer agent for the Common Stock or other shares of the Company’s capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant, the Company will mail to the Warrantholder a statement setting forth
the name and address of such transfer agent.

 

Section 14.                                      Notices.  Unless otherwise provided, any notice
required or permitted under this Warrant 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 facsimile, 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 as follows: if to the Warrantholder, at its address
as set forth in the Company’s books and records and, if to the Company, at the
address as follows, or at such other address as the Warrantholder or the
Company may designate by ten days’ advance written notice to the other:

 

9

 

	
   

  	
  If to the Company:

  
	
   

  	
   

  
	
   

  	
  Click2learn, Inc.

  
	
   

  	
  110-110th Avenue N.E., Suite 700

  
	
   

  	
  Bellevue, WA  98004-5840

  
	
   

  	
  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

  

 

Section 15.                                      Registration
Rights.  The initial holder of this
Warrant is entitled to the benefit of certain registration rights with respect
to the shares of Common Stock issuable upon the exercise of this Warrant as
provided in the Registration Rights Agreement, and any subsequent holder hereof
may be entitled to such rights.

 

Section 16.                                      
Successors.  All the covenants and
provisions hereof by or for the benefit of the Warrantholder shall bind and
inure to the benefit of its respective successors and assigns hereunder.

 

Section 17.                                      Governing
Law.  This Warrant shall be governed
by, and construed in accordance with, the internal laws of the State of New
York, without reference to the choice of law provisions thereof.  The Company and, by accepting this Warrant,
the Warrantholder, each 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
Warrant 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
methods as are specified for the giving of notices under this Warrant.  The Company and, by accepting this Warrant,
the Warrantholder, each 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.  The Company and, by accepting
this Warrant, the Warrantholder, each 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.

 

Section 18.                                      Cashless
Exercise.

 

Net Issue Election.  If the Common Stock issuable upon exercise
of this Warrant is not registered pursuant to a currently effective
Registration Statement and may not be sold pursuant to Rule 144(k), the
Warrantholder may elect to receive, without the payment by the

 

10

 

Warrantholder of the aggregate
Warrant Price in respect of the shares of Common Stock to be acquired, shares
of Common Stock equal to the value of this Warrant or any portion hereof by the
surrender of this Warrant (or such portion of this Warrant being so exercised)
together with the Net Issue Election Notice annexed hereto as Appendix B duly
executed, at the office of the Company. 
Thereupon, the Company shall issue to the Warrantholder such number of
fully paid, validly issued and nonassessable shares of Common Stock as is
computed using the following formula:

 

X = Y (A - B)

A

 

where

 

X =                             the
number of shares of Common Stock which the Warrantholder has then requested be
issued to the Warrantholder;

 

Y =                              the
total number of shares of Common Stock covered by this Warrant which the
Warrantholder has surrendered at such time for cash-less exercise (including
both shares to be issued to the Warrantholder and shares to be canceled as
payment therefor);

 

A =                            the
“Market Price” of one share of Common Stock as at the time the net issue
election is made; and

 

B =                              the
Warrant Price in effect under this Warrant at the time the net issue election
is made.

 

Section 19.                                      Call
Provision.  Notwithstanding any
other provision contained herein to the contrary, at any time commencing after
December 20, 2005, in the event that the closing bid price of a share of Common
Stock as traded on the Nasdaq (or such other exchange or stock market on which
the Common Stock may then be listed or quoted) equals or exceeds an amount
equal to 200% of the Warrant Price (appropriately adjusted for any stock split,
reverse stock split, stock dividend or other reclassification or combination of
the Common Stock occurring after the date hereof) for any twenty (20)
consecutive trading days (which such twenty (20) trading day period shall have
commenced after December 20, 2005)  and all of the shares of Common Stock
issuable hereunder either (i) are registered pursuant to an effective
Registration Statement (as defined in the Registration Rights Agreement) which
has not been suspended and for which no stop order is in effect, and pursuant
to which the Warrantholder is able to sell such shares of Common Stock during
the Notice Period (as defined below) or (ii) no longer constitute Registrable
Securities (as defined in the Registration Rights Agreement), the Company,
within three (3) days of such twenty (20) trading day period may demand that
the Warrantholder exercise its rights hereunder, and the Warrantholder must
exercise its rights prior to the end of the ten (10) days period after
effectiveness of such notice (the “Notice Period”), if such exercise is
not made or if only a partial exercise is made, any and all rights to further
exercise rights hereunder shall cease upon the expiration of the Notice Period,
provided, however, that if such Warrantholder elected to exercise pursuant to
Section 18 hereof, the Company consented to such

 

11

 

exercise.  Notice given pursuant to this Section 19
shall be given by facsimile and 
internationally recognized overnight air courier, return receipt
requested.

 

Section 20.                                      Limitation on Exercise.

 

(a)                                  Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Warrantholder upon any exercise of this Warrant (or otherwise in respect
hereof) shall be limited to the extent necessary to insure that, following such
exercise (or other issuance), the total number of shares of Common Stock then
beneficially owned by such Warrantholder and its affiliates and any other
persons whose beneficial ownership of Common Stock would be aggregated with the
Warrantholder’s for purposes of Section 13(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), does not exceed 4.999% of the total
number of issued and outstanding shares of Common Stock (including for such
purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  Each delivery of an
Exercise Agreement hereunder will constitute a representation by the
Warrantholder that it has evaluated the 
limitation set forth in this paragraph and determined that issuance of
the full number of Warrant Shares requested in such Exercise Agreement is
permitted under this paragraph.  By
written notice to the Company, the Warrantholder may waive the provisions of
this Section but (i) any such waiver will not be effective until the 61st day
after such notice is delivered to the Company and (ii) any such waiver will
apply only to the Warrantholder and not to any other holder of Warrants. This
provision shall not restrict the number of shares of Common Stock which a
Warrantholder may receive or beneficially own in order to determine the amount
of securities or other consideration that such Warrantholder may receive in the
event of a merger or other business combination or reclassification involving
the Company as contemplated in Section 8(b) of this Warrant.

 

(b)                                 Notwithstanding anything to the contrary
contained herein, the number of  shares
of Common Stock that may be acquired by the Warrantholder upon any exercise of
this Warrant (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such exercise (or other issuance), the
total number of shares of Common Stock then beneficially owned by such
Warrantholder and its affiliates and any other persons whose beneficial
ownership of Common Stock would be aggregated with the Warrantholder’s for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise).  For such purposes, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange Act and
the rules and regulations promulgated thereunder.  Each delivery of an Exercise Agreement hereunder will constitute
a representation by the Warrantholder that it has evaluated the limitation set
forth in this paragraph and determined that issuance of the full number of
Warrant Shares requested in such Exercise Agreement is permitted under this
paragraph.    This provision shall not
restrict the number of shares of Common Stock which a Warrantholder may receive
or beneficially own in order to determine the amount of securities or other
consideration that such Warrantholder may receive in the event of a merger or
other business combination or reclassification involving the Company as
contemplated in Section 8(b) of this Warrant.

 

12

 

Section 20.                                      No
Rights as Stockholder.  Prior to the
exercise of this Warrant, the Warrantholder shall not have or exercise any
rights as a stockholder of the Company by virtue of its ownership of this
Warrant.

 

Section 21.                                      Amendment;
Waiver.  This Warrant is one of a
series of Warrants of like tenor issued by the Company pursuant to the Purchase
Agreement and initially covering an aggregate of 2,611,225 shares of Common
Stock (collectively, the “Company Warrants”).  Any term of this Warrant may be amended or waived (including the
adjustment provisions included in Section 8 of this Warrant) upon the written
consent of the Company and the holders of Company Warrants representing at
least 50% of the number of shares of Common Stock then subject to all
outstanding Company Warrants (the “Majority Holders”); provided,
that (x) any such amendment or waiver must apply to all Company Warrants; and
(y) the number of Warrant Shares subject to this Warrant, the Warrant Price and
the Expiration Date may not be amended, and the right to exercise this Warrant
may not be altered or waived, without the written consent of the Warrantholder.

 

Section 22.                                      Section
Headings.  The section headings in
this Warrant are for the convenience of the Company and the Warrantholder and
in no way alter, modify, amend, limit or restrict the provisions hereof.

 

IN WITNESS WHEREOF,
the Company has caused this Warrant to be duly executed, as of the 20th day of
June, 2003.

 

	
   

  	
  CLICK2LEARN, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name: 
  Steven Esau

  
	
   

  	
  Title: 
  Senior Vice President, General Counsel

  

 

13

 

APPENDIX A

CLICK2LEARN, INC.

WARRANT EXERCISE FORM

 

To: CLICK2LEARN, INC.:

 

The
undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant (“Warrant”) for, and to purchase thereunder
by the payment of the Warrant Price and surrender of the Warrant,
                             
shares of Common Stock (“Warrant Shares”) provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:

 

	
   

  	
   

  	
   

  
	
   

  	
  Name

  
	
   

  	
   

  	
   

  
	
   

  	
  Address

  
	
   

  	
   

  	
   

  
	
   

  	
  Federal Tax ID or Social Security No.

  

 

and delivered
by (certified mail to the above address, or (electronically (provide DWAC
Instructions:                         ),
or (other (specify):
                                                           ).

 

and, if the number of Warrant Shares shall not be all the Warrant
Shares purchasable upon exercise of the Warrant, that a new Warrant for the
balance of the Warrant Shares purchasable upon exercise of this Warrant be
registered in the name of the undersigned Warrantholder or the undersigned’s
Assignee as below indicated and delivered to the address stated below.

 

The undersigned represents that he, she or it (as the case may be) is
an “accredited investor” as such term is defined in Rule 501(a) of the Securities
Act of 1933.

 

	
  Dated:

  	
                                    

  	
  ,

  	
            

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Note: 
  The signature must correspond with

  	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  	
   

  
	
  the name of the registered holder as
  written

  	
   

  	
   

  
	
  on the first page of the Warrant in every

  	
   

  	
   

  	
   

  
	
  particular, without alteration or
  enlargement

  	
   

  	
  Name (please print)

  
	
  or any change whatever, unless the Warrant

  	
   

  	
   

  
	
  has been assigned.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Federal Identification or

  Social Security No.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Assignee:

  
	
   

  	
   

  	
   

  	
   

  
											

 

 

APPENDIX
B

 

Net Issue Election Notice

 

	
  To: CLICK2LEARN, INC.

  
	
   

  
	
  Date:

  	
   

  	
   

  

 

The
undersigned hereby elects under Section 18 of this Warrant to surrender the
right to purchase
                   
shares of Common Stock pursuant to this Warrant and hereby requests the
issuance of
                        
shares of Common Stock.  The undersigned
represents that he, she or it (as the case may be) is an “accredited investor”
as such term is defined in Rule 501(a) of the Securities Act of 1933.  The certificate(s) for the shares issuable
upon such net issue election shall be issued in the name of the undersigned or
as otherwise indicated below.

 

 

	
   

  	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name for Registration

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Mailing
  Address

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