Series B Preferred Stock Exchange Agreement

EXHIBIT 10.08


SERIES B PREFERRED STOCK EXCHANGE AGREEMENT


This SERIES B PREFERRED STOCK EXCHANGE AGREEMENT (this "Agreement") is made
--------- and entered into as of September 30, 1997 by and among SuperCede, Inc., a Washington corporation (the "Company") with an address for purposes of this
------- Agreement at 110 - 110th Avenue NE, Suite ____, Bellevue, Washington 98004 and Asymetrix Corporation, a Washington corporation (the "Investor") with an address
-------- for purposes of this Agreement at 110 - 110th Avenue NE, Suite 700 Bellevue, Washington 98004.


RECITALS
--------


WHEREAS, the Company and the Investor desire to recapitalize the Company, in connection with which Investor will exchange shares of the Company's Common Stock it currently owns for shares of the Company's newly issued Series B Preferred Stock, and to enter into certain other related agreements, on the terms and conditions set forth in this Agreement; and


WHEREAS, in connection with such recapitalization the Company and the Investor desire to amend that certain Asset Transfer, License and Stock Issuance Agreement between them dated as of June 24, 1997 (the "Asset and License Agreement") to terminate the license of certain of the Company's technology to Investor;


Now, therefore, the parties hereby agree as follows:


1. AGREEMENT TO EXCHANGE STOCK.
---------------------------


1.1 Authorization. As of the Closing (as defined below) the Company will
------------- have authorized the issuance, pursuant to the terms and conditions of this Agreement, of up to 3,500,000 shares of the Company's Series B Preferred Stock, $0.01 par value per share (the "Series B Stock") having the rights, preferences,
-------------- privileges and restrictions set forth in the Restated Articles of Incorporation of the Company attached to this Agreement as Exhibit A (the "Restated
--------- -------- Articles"). - --------


1.2 Agreement to Exchange. The Company and the Investor agree to exchange
--------------------- 3,500,000 shares of the Company's Common Stock, $0.01 par value per share (the "Asymetrix Shares") for an equivalent number of shares of Series B Stock. The - ----------------- shares of Series B Stock acquired by Investor pursuant to this Agreement will be collectively hereinafter referred to as the "Series B Shares" and the shares of
--------------- Common Stock issuable upon conversion of the Series B Shares will be collectively hereinafter referred to as the "Conversion Shares".
-----------------


2. CLOSING.
-------


2.1 Time and Place. The exchange of the Asymetrix Shares for the Series B
-------------- Shares will take place at the offices of the Company concurrently with the execution of this Agreement


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on September 30, 1997 or at such other time and place as the Company and the Investor mutually agree upon (which time and place are referred to in this Agreement as the "Closing").
-------


2.2 Deliveries By the Company. At the Closing, the Company will deliver
------------------------- to the Investor (concurrently with the deliveries from the Investor to the Company pursuant to Section 2.3) the following:


(a) a certificate representing the Series B Shares;


(b) a copy of the Restated Articles of Incorporation certified by the Secretary of State of the State of Washington;


(c) a copy of the Bylaws of the Company (as amended through the date of the Closing), certified by the Secretary of the Company as a true and correct copy thereof as of the Closing;


(d) an opinion from Graham & James LLP, counsel for the Company, dated as of the date of the Closing, in the form attached hereto as Exhibit B;
---------


(e) the Investors' Rights Agreement in the form attached to this Agreement as Exhibit C, executed by the Company (the "Investors' Rights
--------- ----------------- Agreement"); and - ---------


(f) the Voting Agreement in the form attached to this Agreement as Exhibit D, executed by both the Company and Vulcan Ventures, Inc. (the "Voting - --------- ------ Agreement"). - ---------


2.3 Deliveries By the Investor. At the Closing, the Investor will
-------------------------- deliver to the Company (concurrently with the deliveries from the Company to the Investor pursuant to Section 2.2) the following:


(a) a certificate representing the Asymetrix Shares, duly endorsed by the Investor as requested by the Company for cancellation;


(b) the Investors' Rights Agreement, executed by the Investor; and


(c) the Voting Agreement, executed by the Investor.


3. REPRESENTATIONS, WARRANTIES AND FURTHER AGREEMENTS OF THE COMPANY.
-----------------------------------------------------------------


The Company hereby represents and warrants to the Investor that, except as set forth in the Schedule of Exceptions ("Schedule of Exceptions") attached to this
---------------------- Agreement as Exhibit E (which Schedule of Exceptions shall be deemed to be
--------- representations and warranties to the Investor by the Company under this Section 3), the statements in the following paragraphs of this Section 3 are all true and correct:


3.1 Organization, Good Standing and Qualification. The Company is a
--------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Washington


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and has all requisite corporate power and authority to own its properties and assets and to carry on its business as now conducted and as presently proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where failure to be so qualified would have a material adverse effect on its financial condition, business, prospects or operations.


3.2 Capitalization. Immediately prior to the Closing the capitalization
-------------- of the Company will consist of the following:


(a) Preferred Stock. A total of 7,000,000 authorized shares of
--------------- preferred stock, $0.01 par value per share (the "Preferred Stock"), consisting
--------------- of 3,500,000 shares designated as Series B Preferred Stock ("Series B Stock"),
-------------- none of which will be issued and outstanding, and 3,500,000 shares designated as Series A Preferred Stock ("Series A Stock"), none of which will be issued and
-------------- outstanding. The rights, preferences and privileges of the Series B Stock and the Series A Stock will be as stated in the Restated Articles and as provided by law.


(b) Common Stock. A total of 15,000,000 authorized shares of common
------------ stock, $0.01 par value per share (the "Common Stock"), of which 3,500,000 shares
------------ will be issued and outstanding.


(c) Options, Warrants, Reserved Shares. Except for the conversion
---------------------------------- privileges of the Series B Stock and the Series A Stock and conversion rights under a Convertible Secured Promissory Note dated August 13, 1997 held by Vulcan Ventures Inc. (which rights under such Convertible Secured Promissory Note will be canceled upon the Closing), there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock or any securities convertible into or ultimately exchangeable or exercisable for any shares of the Company's capital stock. Apart from the exceptions noted in this Section 3.2(c), no shares of the Company's outstanding capital stock, or stock issuable upon exercise or exchange of any outstanding options, warrants or rights, or other stock issuable by the Company, are subject to any rights of first refusal or other rights to purchase such stock (whether in favor of the Company or any other person), pursuant to any agreement or commitment of the Company. No more than 4,000,000 shares of the Company's Common Stock will be reserved for issuance under any stock option plan, stock incentive plan or any other plan relating to the grant of shares of the Company's capital stock, or of options or other rights to purchase shares of the Company's capital stock.


(d) Outstanding Security Holders. Other than Asymetrix, there are no
---------------------------- outstanding shareholders, option holders, warrant holders, convertible note holders and other security holders of the Company as of immediately prior to the Closing.


3.3 Subsidiaries. The Company does not presently own or control, directly
------------ or indirectly, any interest in any other corporation, partnership, trust, joint venture, association, or other entity.


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3.4 Due Authorization. All corporate action on the part of the Company,
----------------- its officers, directors and shareholders necessary for the authorization, execution, delivery of, and the performance of all obligations of the Company under, this Agreement, the Investors' Rights Agreement and the Voting Agreement, and the authorization, issuance, reservation for issuance and delivery of all of the Series B Shares being issued under this Agreement and of the Conversion Shares has been taken, and this Agreement constitutes, and the Investors' Rights Agreement and the Voting Agreement, when executed, will constitute, valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization or others laws of general application relating to or affecting the enforcement of creditors' rights generally and (ii) the effect of rules of law governing the availability of equitable remedies.


3.5 Valid Issuance of Stock.
-----------------------


(a) The Series B Shares, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration provided for herein, will be duly and validly issued, fully paid and nonassessable. The Conversion Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Articles, will be duly and validly issued, fully paid and nonassessable.


(b) Based in part on the representations made by the Investor in Section 4 hereof, the Series B Shares and (assuming no change in applicable law and no unlawful distribution of Series B Shares by Investor or other parties) the Conversion Shares will be issued in full compliance with the registration and prospectus delivery requirements of the U.S. Securities Act of 1933, as amended (the "1933 Act") and the registration and qualification requirements of
-------- the State of Washington or in compliance with applicable exemptions therefrom (provided that, with respect to the Conversion Shares, no commission or other remuneration is paid or given, directly or indirectly, for soliciting the issuance of Conversion Shares upon the conversion of the Series B Shares and no additional consideration is paid for the Conversion Shares other than surrender of the applicable Series B Shares upon conversion thereof in accordance with the Restated Articles).


(c) The outstanding shares of the capital stock of the Company are duly and validly issued, fully paid and nonassessable, and such shares of such capital stock, and all outstanding options, warrants, convertible notes and other securities of the Company, have been issued in full compliance with the registration and prospectus delivery requirements of the 1933 Act or in compliance with applicable exemptions therefrom, the registration and qualification requirements of all applicable securities laws of states of the United States and all other provisions of applicable securities laws of States of the United States, including, without limitation, anti-fraud provisions.


3.6 Governmental Consents. No consent, approval, order or authorization
--------------------- of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, the Investors' Rights


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Agreement or the Voting Agreement, except for such qualifications or filings
------ --- under the 1933 Act and the regulations thereunder and all other applicable securities laws of States of the United States as may be required in connection with the transactions contemplated by this Agreement. All such qualifications and filings will, in the case of qualifications, be effective on the Closing and will, in the case of filings, be made within the time prescribed by law.


3.7 Litigation. There is no action, suit, proceeding, claim, arbitration
---------- or investigation ("Action") pending (or, to the best of the Company's knowledge,
------ currently threatened) against the Company, its activities, properties or assets or, to the best of the Company's knowledge, against any officer, director or employee of the Company in connection with such officer's, director's or employee's relationship with, or actions taken on behalf of, the Company. To the best of the Company's knowledge, there is no factual or legal basis for any such Action that might result, individually or in the aggregate, in any material adverse change in the business, properties, assets, financial condition, affairs or prospects of the Company. By way of example but not by way of limitation, there are no Actions pending or, to the best of the Company's knowledge, threatened (or any basis therefor known to the Company) relating to the prior employment of any of the Company's employees or consultants, their use in connection with the Company's business of any information, technology or techniques allegedly proprietary to any of their former employers, clients or other parties, or their obligations under any agreements with prior employers, clients or other parties. The Company is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality and there is no Action by the Company currently pending or which the Company intends to initiate.


3.8 Status of Proprietary Assets.
----------------------------


(a) Ownership. The Company has full title and ownership of, or has
--------- license to, all patents, patent applications, trademarks, service marks, trade names, copyrights, moral rights, mask works, trade secrets, confidential and proprietary information, compositions of matter, formulas, designs, proprietary rights, know-how and processes (all of the foregoing collectively hereinafter referred to as the "Proprietary Assets") necessary to enable it to carry on its
------------------ business as now conducted and as presently proposed to be conducted, without any conflict with or infringement of the rights of others. To the best of the Company's knowledge, no third party has any ownership right, title, interest, claim in or lien on any of the Company's Proprietary Assets and the Company has taken all steps reasonably necessary to preserve its legal rights in, and the secrecy of, all its Proprietary Assets, except those for which disclosure is required for legitimate business or legal reasons.


(b) Licenses; Other Agreements. Except for licenses to use the
-------------------------- SuperCede Products granted to customers in the ordinary course of business and except as set forth on Schedule 3.8(b), the Company has not granted, and, to the best of the Company's knowledge, there are not outstanding, any options, licenses or agreements of any kind relating to any Proprietary Asset of the Company, nor is the Company bound by or a party to any option, license or agreement of any kind with respect to any of its Proprietary Assets.


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(c) No Infringement. To the best of the Company's knowledge, the
--------------- Company has not violated or infringed, and is not currently violating or infringing, and the Company has not received any communications alleging that the Company (or any of its employees or consultants) has violated or infringed or, by conducting its business as proposed, would violate or infringe, any Proprietary Asset of any other person or entity.


(d) No Breach by Employee. The Company is not aware that any
--------------------- employee or consultant of the Company is obligated under any agreement (including licenses, covenants or commitments of any nature) or subject to any judgment, decree or order of any court or administrative agency, or any other restriction that would interfere with the use of his or her best efforts to carry out his or her duties for the Company or to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. The carrying on of the Company's business by the employees and contractors of the Company and the conduct of the Company's business as presently proposed, will not, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees or contractors or the Company is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any employees of the Company (or persons the Company currently intends to hire) made prior to their employment by the Company. At no time during the conception of or reduction of any of the Company's Proprietary Assets to practice was any developer, inventor or other contributor to such patents operating under any grants from any governmental entity or agency or private source, performing research sponsored by any governmental entity or agency or private source or subject to any employment agreement or invention assignment or nondisclosure agreement or other obligation with any third party that could adversely affect the Company's rights in such Proprietary Assets.


3.9 Compliance with Law and Charter Documents. The Company is not in
----------------------------------------- violation or default of any provisions of its Articles of Incorporation or Bylaws, both as amended, and to the best of the Company's knowledge, except for any violations that individually and in the aggregate would have no material adverse impact on the Company's business, the Company is in compliance with all applicable statutes, laws, regulations and executive orders of the United States of America and all states, foreign countries or other governmental bodies and agencies having jurisdiction over the Company's business or properties. The Company has not received any notice of any violation of such statutes, laws, regulations or orders which has not been remedied prior to the date hereof. The execution, delivery and performance of this Agreement, the Investors' Rights Agreement and the Voting Agreement and the consummation of the transactions contemplated hereby or thereby will not result in any such violation or default, or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a default under the Company's Articles of Incorporation or Bylaws, or any agreement or contract of the Company, or, to the best of the Company's knowledge, a violation of any statutes, laws, regulations or orders, or an event which results in the creation of any lien, charge or encumbrance upon any asset of the Company.


3.10 Material Agreements. The Company has not breached, nor does the
------------------- Company have any knowledge of any claim or threat that the Company has breached, any term or condition


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of any agreement, contract, lease, license, instrument or commitment that, individually or in the aggregate, is material to the business, properties, financial condition, results of operations or affairs or prospects of the Company ("Material Agreements"). Each Material Agreement is in full force and effect and, to the Company's knowledge, no other party to such Material Agreement is in default thereunder. The Company is not a party to any agreement that restricts its ability to market or sell any of its products (whether by territorial restriction or otherwise).


3.11 Registration Rights. Except as provided in the Investors' Rights
------------------- Agreement, the Company has not granted or agreed to grant to any person or entity any rights (including piggyback registration rights) to have any securities of the Company registered with the United States Securities and Exchange Commission ("SEC") or any other governmental authority.
---


3.12 Title to Property and Assets. The Company owns its properties and
---------------------------- assets free and clear of all mortgages, deeds of trust, liens, encumbrances, security interests and claims except for statutory liens for the payment of current taxes that are not yet delinquent and liens, encumbrances and security interests which arise in the ordinary course of business and which do not affect material properties and assets of the Company. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of the Company's knowledge, the Company holds valid leasehold interests in such assets free of any liens, encumbrances, security interests or claims of any party other than the lessors of such property and assets.


3.13 Financial Statements. Attached to this Agreement as Exhibit F is an
-------------------- --------- unaudited balance sheet of the Company dated August 31, 1997 (the "Balance Sheet
------------- Date") and an unaudited income statement of the Company for the two-month period - ---- ended August 31, 1997 (all such financial statements being collectively referred to herein as the "Financial Statements"). Such financial statements (i) are in
-------------------- accordance with the books and records of the Company, (ii) are true, correct and complete and present fairly the financial condition of the Company at the date or dates therein indicated and the results of operations for the period or periods therein specified, and (iii) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, for the omission of notes thereto and normal year-end audit adjustments. Specifically, but not by way of limitation, the balance sheet discloses all of the Company's material debts, liabilities and obligations of any nature, whether due or to become due, as of their respective dates (including, without limitation, absolute liabilities, accrued liabilities, and contingent liabilities) to the extent such debts, liabilities and obligations are required to be disclosed in accordance with generally accepted accounting principles. The Company has good and marketable title to all assets set forth on the balance sheet, except for such assets as have been spent, sold or transferred in the ordinary course of business since their respective dates.


3.14 Certain Actions. Since the Balance Sheet Date, the Company has not:
--------------- (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $10,000 or in excess of $25,000 in the aggregate; (iii) made any loans or advances to any person, other than ordinary advances for travel


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expenses; (iv) sold, exchanged or otherwise disposed of any material assets or rights other than the sale of inventory in the ordinary course of its business; or (v) entered into any transactions with any of its officers, directors or employees or any entity controlled by any of such individuals.


3.15 Activities Since Balance Sheet Date. Since the Balance Sheet Date,
----------------------------------- there has not been:


(a) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as presently conducted and as presently proposed to be conducted);


(b) any waiver by the Company of a valuable right or of a material debt owed to it;


(c) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except such a satisfaction, discharge or payment made in the ordinary course of business that is not material to the assets, properties, financial condition, operating results or business of the Company;


(d) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject, except for changes or amendments which are expressly provided for or disclosed in this Agreement;


(e) any material change in any c ...