U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the fiscal year ended
January 31, 2000
[ ] Transition report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 for the transition
period from _____________to _____________
Commission File Number 000-22661
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INVU, INC.
(Name of Small Business Issuer in Its Charter)
Colorado 84-1135638
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
The Beren
Blisworth Hill Farm
Stoke Road
Blisworth Northamptonshire NN7 3DB
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(Address of Principal Executive Offices) (Zip code)
011 44 1604 859 893
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(Issuer's Telephone Number, Including Area Code.)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange
------------------- on Which Registered
NONE ---------------------
N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
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(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for past 90 days.
Yes x No
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $8,267
The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant as of May 10, 2000, was approximately
$19,049,617.50. For purposes of this computation, all executive officers,
directors and 10% stockholders were deemed affiliates. Such a determination
should not be construed as an admission that such executive officers, directors
or 10% stockholders are affiliates.
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As of May 10, 2000, there were 30,206,896 shares of the common stock, no par
value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format: Yes No x
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<TABLE>
<CAPTION>
INVU, Inc.
Page
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PART I ............................................................................................... 1
Item 1. Description of Business .............................................................. 1
Item 2. Description of Properties ............................................................ 8
Item 3. Legal Proceedings .................................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders .................................. 8
PART II ............................................................................................... 9
Item 5. Market for Common Equity and Related Stockholder Matters ............................. 9
Item 6. Management's Discussion and Analysis or Plan of Operations ........................... 10
Item 7. Financial Statements ................................................................. 13
PART III ............................................................................................... 13
Item 9. Directors, Executive Officers, Promoters and Control Persons ......................... 13
Item 10. Executive Compensation ............................................................... 15
Item 11. Security Ownership of Certain Beneficial Owners and Management ....................... 15
Item 12. Certain Relationships and Related Transations ........................................ 17
Item 13. Exhibits and Reports on Form 8-K ..................................................... 18
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants ............................................ F-3
Consolidated Balance Sheets as of January 31, 2000 and 1999 ................................... F-4
Consolidated Statements of Operations for the year ended January 31, 2000 and January 31, 1999,
and the period from February 18, 1997 to January 31, 2000 .................................... F-5
Consolidated Statements of Deficit in Stockholders' Equity for the year ended
January 31, 2000 and January 31, 1999, and the period from February 18, 1997
to January 31, 2000 .......................................................................... F-6
Consolidated Statements of Cash Flows for the year ended January 31, 2000, and the period
from February 18, 1997 to January 31, 2000 ................................................... F-7
Notes to Consolidated Financial Statements .................................................... F-8
SIGNATURES
INDEX TO EXHIBITS ...................................................................................... E-1
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PART I
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or anticipated results, including those set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in, or incorporated by reference into, this report.
Item 1. Description of Business
Background of Company
INVU, Inc. (the "Company" or "INVU") was incorporated under the name
Sunburst Acquisitions I, Inc. pursuant to the laws of the State of Colorado on
February 25, 1997, as a "shell" company. The Company's business plan at the time
was to seek, investigate, and, if warranted, acquire one or more properties or
businesses, and to pursue other related activities intended to enhance
shareholder value.
After the consummation of the Share Exchange on August 31, 1998, which
is discussed below, the Company entered the business of marketing and selling
software for the electronic management of information and documents.
The structure of the business at this point consists of INVU, Inc. as
the ultimate holding company of three directly or indirectly wholly-owned
subsidiaries: INVU Plc, a UK holding company, and its subsidiaries, INVU
International (Holdings) Ltd., which holds certain intellectual property rights,
and Invu Services Ltd. ("INVU Services"), an operating company.
The Share Exchange
On August 31, 1998, the Company consummated the acquisition of all of
the issued and outstanding capital stock of INVU Plc, a company incorporated
under English law ("INVU Plc"), in exchange for 26,506,552 shares (the "Share
Exchange") of common stock, no par value, of the Company (the "Common Stock"),
pursuant to a Share Exchange Agreement, dated as of May 19, 1998, between the
Company and INVU Plc's majority shareholder Montague Limited ("Montague"), an
Isle of Man company (as amended by a First Amendment to Share Exchange
Agreement, dated as of July 23, 1998 (the "Share Exchange Agreement")). As a
result of the Share Exchange, INVU Plc became a wholly-owned subsidiary of the
Company. As conditions precedent to the consummation of the Share Exchange, (i)
Montague received a power of attorney from Halcyon Enterprises Plc, a minority
shareholder and a company incorporated under English law ("Halcyon"), to
transfer its shares of INVU Plc to the Company, and (ii) all of the outstanding
shares of Series A Convertible Preferred Stock of the Company (the "Preferred
Stock") were converted into Common Stock of the Company at a conversion rate of
two (2) shares of Common Stock for each share of Preferred Stock.
As of August 31, 1998, the Company had a total of 2,190,000 shares of
Common Stock issued and outstanding after the conversion of the Preferred Stock.
Upon consummation of the Share Exchange, Montague and Halcyon (collectively, the
"INVU Plc Shareholders") received in the aggregate 26,506,552 shares of Common
Stock of the Company in exchange for all of the issued and outstanding share
capital of INVU Plc.
The Market and Market Strategy
There has, in the recent past, been a significant increase in the
volume of information available to the public with the advent of inexpensive
computing and the arrival of wide area networks (that provide a conduit to this
information). A significant amount of information (e.g. on-line databases,
documents, graphics, audio, recordings and video) is now available via the
internet to organizations and individuals from sources around the world.
Management believes that the proliferation and consequent accumulation of such
information and accompanying documents over the years has created a problem for
individuals and organizations because they now need to manage large and
disparate sets of data created internally and arriving externally. For example,
personal computers are now shipped with up to
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16 Gigabyte hard disks, and these machines are rapidly becoming repositories for
lost files and information. Management believes that this is a global problem
that has resulted in an international market for document management
technologies, which Management expects to grow significantly in the next five
years. Information is now regarded as the key resource for organizations and
individuals. Management believes that accessing and sharing information are two
of the biggest challenges currently facing businesses. Management expects that
those organizations that are able to harness and exploit information will derive
a competitive advantage in their markets.
By contrast, Management estimates that the availability of services
that enable organizations to manage and control this mass of information has
lagged behind the requirement for such services. Therefore, Management believes
that the market for document management services has the potential for rapid
growth in markets throughout the world. Further, the document management market
is applicable to all information users, both organizations and individuals, and
therefore, while difficult to define, is broad in terms of potential in the
estimate of Management.
The Company's goal is to tap into this market potential and it markets
and sells software for the electronic management of many types of information
and documents, such as forms, correspondence, literature, faxes, technical
drawings and electronic files. Because this is a task that for the most part is
inherently clerical in nature, automation of document management control is
effectively dealt with by computer. Management believes there is an increasing
demand for ease of use in relation to document and information management
software and INVU software has been designed specifically to address this need.
Management considers the INVU software simple, intuitive and cost effective, yet
powerful. Geographically, the Company's first target markets are the United
States and the United Kingdom.
INVU serves both the personal computer ("PC") and client server market
segments and is, therefore, firmly placed in what Management believes are the
two principal growth areas. Management believes that the client server segment
(i.e. mid-range network user running open "multi-task software") has in
particular been largely neglected by the Company's competitors, which generally
fall into two categories:
i. Large corporate suppliers that offer proprietar (i.e. such companies
own their software) solutions based on large, often mainframe,
systems; or
ii. Small niche suppliers addressing the needs of small highly specialized
groups (e.g. lawyers or real estate agents).
Management believes that there are trends in the document management
market that its competitors may have neglected. These include:
i. The growth of the Internet has meant that a large amount of varied
data is available to computer users, with only rudimentary systems to
manage such data;
ii. A switch from "all-in-one" hardware and softwar in a single unit (i.e.
proprietary stand alone systems) to open PC based systems, as
evidenced by the PC and packaged systems showing the highest growth of
all market segments;
iii. Increased use of document management systems to control everyday
paperwork and electronic files; and
iv. Increased user requirements in the PC segment to store graphical
images in addition to electronic files.
Management believes that INVU enjoys an advantage over most competing
programs because INVU software exploits these trends and can be sold to single
users, departmental users and company wide. For example, once successfully
installed with a departmental user, INVU intends to encourage resellers to "roll
out" the product to other departments within the same organization using the
first installation as an internal reference site. Management believes that with
this technique there is considerable potential for additional sales to existing
customers. Further, INVU software has been designed for general office
applications, which can be utilized across a wide range of
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customers, from small office home office markets ("SOHO") to small to medium
sized enterprises ("SME") to large organizations. Management believes that this
allows INVU to address a wide and varied market.
On-going research is important to INVU and the use of qualitative focus
groups is a technique used by the Company to assess customer needs and
receptivity. In addition, industrial psychology techniques have been employed by
INVU to establish customer perception of value.
The Company's objective is to establish itself as a leading supplier of
information and document management software in the world. For its professional
range of products, which include INVU Series 100, Series 200 and ViewSafe, the
Company expects to target its marketing efforts initially on departmental users
in organizations, distributors and resellers in the United Kingdom and the
United States. For its personal user products, which include INVU WebServant and
FileServent, the Company intends to concentrate its marketing efforts on the
SOHO market and plans on targeting retailers. In addition, INVU intends to
maximize its internet presence for entry level product sales. To that end, in
November 1998, INVU finalized a distribution agreement with Digital River, Inc.
("Digital River") to sell its retail products on-line.
Management believes that, as the market matures, the purchase of
document management systems will become increasingly routine as buyers become
acquainted with both the technology and applications. In order to deal with the
increased demand, the Company intends to increase its number of distributors and
third party value added resellers. In addition, Management intends to make
INVU's retail products available from the Company's web-site. Management
considers both branding and product positioning fundamental to attaining the
market share required to profitably meet its objective of being a leading
supplier of information and document management software.
The Product
INVU's business is the development and sale of document and information
management software programs which operate on stand-alone PCs, networked PCs and
client server systems and allow documents of any size and format, from
correspondence and faxes to technical drawings and electronic files, to be
stored on to computer memory and retrieved instantly. In order to store such
information, INVU software also scans paper and creates files and imports
documents. Lastly, the software provides a mechanism to manage and retrieve the
imported information. Although INVU software has many layers of sophistication,
Management believes it is comparatively simple to use and inexpensive.
The Company's first product, INVU SOLO was released to distributors in
December 1998 and sales to the SOHO market began in January 1999. Management was
satisfied with the initial response to this product, but in view of comments and
advice received from retailers they re-launched a more suitably packaged product
in March 2000 that consists of two products. The first is "WebServant," which
enables web users to quickly and easily build a personal library from the
internet and download, store and organize webpages. WebServant carries a
competitive price of less than $50. The second is "FileServant," which is
similar to INVU SOLO except that it contains the same web technology as
"WebServant." The Company's professional range of products, i.e. INVU Series
100, Series 200 and ViewSafe, were first introduced in October 1999 via an
exclusive distributor who went into administrative receivership before any
product orders had been filled. Although no significant financial loss has
accrued to the Company, the closure of this distribution outlet has meant a
change in sales and marketing strategy in the United Kingdom. In response,
Management has decided to directly recruit resellers while at the same time
pursuing non-exclusive distributors for the products.
As a consequence of initial marketing activities associated with the
launch of the Company's professional range of products, many end user inquiries
have been received. These inquiries are now being pursued by our expanding team
of sales personnel. Although the loss of the Company's U.K. distributor has
caused a delay in sales revenues, Management is confident that its direct sales
team and newly recruited resellers will provide positive results during the
second half of year 2000.
Currently, the Company is developing INVU Series 2000 (formerly INVU
WEBFAST), and Management expects that it will be released in late 2000. INVU
software engineers have also successfully developed a prototype information
management internet service. This service will allow advanced internet
information management within
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fully encrypted secure databases. Individuals and corporations will be able to
store their documents on an INVU website and access them via password controls
from anywhere in the world. Management anticipates a release date in late 2000.
As of January 31, 2000, research and development costs were approximately
$387,125. None of these sums have been borne directly by customers.
In sum, the Company currently has six products. Each product addresses
different market segments, which include (1) the small office/home office
market, or "SOHO" and (2) the small/medium enterprise market, or "SME," (3) the
internet and (4) large enterprises.
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Product Description Market
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INVU WebServant single user e-mail and internet SOHO/Retail
information management
INVU FileServant single user information and SOHO/Retail
document management
INVU Series 100 single user information and SOHO/SME
document management
INVU Series 200 multi-user information and SME/Enterprise
document management system
INVU Series 2000* manage and find documents Enteprise/Internet
through a web browser
<FN>
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*to be released late 2000
</FN>
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Competition
The market for the Company's products is competitive, subject to rapid
change and significantly affected by new product introduction and other market
activities of industry participants. The Company currently encounters direct
competition from a number of public and private companies such as Altris
Software, Inc., Key File Inc., FileNet Corporation, PC Docs and Caere
Corporation. Virtually all of these direct competitors have significantly
greater financial, technical, marketing and other resources than the Company.
The Company also expects that direct competition will increase as a result of
recent consolidation in the software industry.
The Company will need to rely on a number of systems consulting and
systems integration firms for implementation and other customer support
services, as well as for recommendation of its products to potential purchasers.
Although the Company seeks to maintain close relationships with these service
providers, many of these third parties have similar, and often more established,
relationships with the Company's principal competitors. If the Company is unable
to develop and retain effective, long-term relationships with these third
parties, the Company's competitive position would be materially and adversely
affected. Further, there can be no assurance that these third parties will not
market software products in competition with the Company in the future or will
not otherwise reduce or discontinue their relationship with, or support of, the
Company and its products.
Management believes that its products are targeted at markets where, to
date, few of the Company's larger and more established competitors have secured
significant market penetration. Although the Company believes that it will
compete favorably in these markets, there can be no assurance that the Company
can maintain its competitive position against current and any potential
competitors, especially those with greater financial, marketing, service,
support, technical and other resources than the Company.
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Major Contracts
In March 1998, INVU Services entered into (i) a Reseller Agreement (the
"Reseller Agreement") with Computer Associates Plc ("CA Plc"), and (ii) a
Limited Manufacturing Agreement with Centura Software Ltd. These contracts
involve joint marketing, combined press releases, common distribution and the
use of combined technologies. Both Computer Associates Plc and Centura endorse
INVU through their logotypes on INVU materials and shrink-wrap packaging
containing the software. Both agreements include worldwide press announcements
and introductions to direct sales forces and third party distribution.
INVU Services and CA Plc have subsequently executed a memorandum
confirming certain agreements between INVU Services and CA Plc with respect to
the bundling and marketing of INVU Service's products under the Reseller
Agreement. In addition, in 1999, INVU Services and Computer Associates
International, Inc. ("CA Inc.") entered into a Gold Standard Reseller Agreement
pursuant to which INVU Services appointed CA Inc. as an authorized reseller of
INVU Series 100 and INVU Series 200 on a non-exclusive basis for a term of 12
months, renewable upon agreement of both parties and terminable upon 30 days
written notice by either party.
In late 1998 INVU Services entered into a Distribution Agreement with
KOCH Media Limited ("KOCH"). This agreement has since been terminated and
replaced by an agreement with Gem Distribution Limited, as described below.
Also in late 1998, INVU Services and Digital River entered into an
agreement whereby INVU will market its suite of products using Digital River's
e-commerce technology. Under this agreement, Digital River will partner with
INVU to create the INVU Cyber Store, offering a secure environment for customers
to purchase and download INVU software via the World Wide Web. INVU Services has
also entered into an increasing number of "Accredited Reseller Agreements"
whereby resellers are authorised to provide the professional range of products
to end users.
INVU Services and CHS UK Holdings Limited Incorporated ("DNSP")
entered into a Distributor Agreement in July 1999 pursuant to which INVU
Services appointed DNSP the exclusive distributor of INVU Series 100 and INVU
Series 200 and INVU Series 2000 for the territory of England, Scotland and
Wales. This agreement was terminated following the Receivership of DNSP in
October 1999.
In January 2000, INVU Services entered into a Distribution Agreement
with Gem Distribution Limited ("GEM Distribution"). GEM Distribution is a large
retail distributor and is not in any way affiliated with Global Emerging Markets
Inc., an investment banking firm, as described below. The agreement means that
INVU FileServant, WebServant, and Series 100 have access to all the major retail
channels in the United Kingdom.
Employees
As of May 1, 2000, the Company had 14 employees, all of whom were
full-time, and a further seven people who are part-time or serve as consultants.
Patents, Trademarks and Copyright
The Company's success is dependent in part upon proprietary technology.
At this time, the Company has not patented any aspect of its document management
systems technology in the United Kingdom, the United States or internationally.
The Company currently has no plans to file for and obtain patents domestically
or internationally. Even if the Company were to attain patent protection over
certain of its intellectual property, the rapidly changing technology in the
industry makes the Company's success largely dependent on the technical
competence and creative skills of its personnel.
The Company relies on a combination of trade secret, copyright and
non-disclosure agreements to protect its proprietary rights in its software and
technology. There can be no assurance that such measures are or will be adequate
to protect the Company's proprietary technology. Furthermore, there can be no
assurance that the Company's
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competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology.
The Company's software will be licensed to customers under license
agreements containing provisions prohibiting the unauthorized use, copying and
transfer of the licensed program. Policing unauthorized use of the Company's
products will be difficult, and any significant piracy of its products could
materially and adversely affect the Company's financial condition and results of
operations.
In addition, the Company also relies on certain software that it
licenses from third parties, including software that is integrated with
internally developed software and used in the Company's products to perform key
functions. There can be no assurances that the developers of such software will
remain in business, or that they will otherwise continue to be available to the
Company on commercially reasonable terms. The loss of or inability to maintain
any of these software licenses could result in delays or reductions in product
shipments until equivalent software can be developed, identified, licensed and
integrated, which could adversely affect the Company's business, operating
results and financial condition.
The Company is not aware that any of its software products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim infringement by the Company with respect to its
current or future products. The Company expects that software product developers
will increasingly be subject to infringement claims. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company or at all, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company claims a trademark on all of its products under common law
by using the "TM" symbol. The duration of such trademarks under United Kingdom
common law is the length of time the Company continues to use them. The Company
has filed an application for trademark registration of its "INVU" mark in the
United Kingdom. This application has been opposed by two companies. Management
believes that these oppositions will be favorably resolved. See "Item 3 - Legal
Proceedings."
The First Financing Transaction
As of February 2, 1999, pursuant to a financing transaction (the "First
Financing Transaction") among Montague and Zalcany Limited ("Zalcany"),
Mustardseed Estates Limited ("Mustardseed"), and Tomuro Limited, all companies
incorporated under English law, and Richard Harris and Roy Grainger Williams
(collectively, the "Lenders"), Montague transferred 2,400,000 shares of the
Common Stock to such purchasers in exchange for $1,000 and a loan facility for
the Company in the principal amount of $656,000. Of this amount, $190,325 was
advanced to the Company prior to January 31, 1999, with the balance being
received on February 2, 1999.
The Second Financing Transaction
On August 23, 1999, the Company entered into an Investment Agreement
(the "Initial Investment Agreement"), with David Morgan, John Agostini, and Paul
O'Sullivan, on the one hand, and Alan David Goldman and Vertical Investments
Limited ("Vertical"), a company registered in Jersey and beneficially owned by
Daniel Goldman, on the other hand. The Initial Investment Agreement was
immediately followed by a Supplemental Agreement (the "Supplemental Agreement"
and, together with the Initial Investment Agreement, the "Final Investment
Agreement"), between the Company, David Morgan, John Agostini, Paul O'Sullivan
and INVU Services, on the one hand, and Alan David Goldman, Vertical, and Tom
Maxfield ("Maxfield", together with Alan David Goldman and Vertical,
collectively, the "Investors") on the other hand. Pursuant to the terms of the
Final Investment Agreement, the Investors agreed to advance certain funds to the
Company in the aggregate principal amount of $1,000,000 in shares of $333,334,
$333,333 and approximately $333,333 among Alan David Goldman, Vertical and
Maxfield, respectively. In turn, the Company agreed to (1) pay in full any and
all amounts then outstanding pursuant to the First Financing Transaction and to
terminate such Agreement, (2) cause the Lenders to transfer to Montague 425,000
shares of the Common Stock then held by Lenders pursuant to the terms of the
First Financing Transaction (the "Transferred Shares"), and (3) cause Montague
to transfer 225,000 of such Transferred Shares to the Investors in equal shares
of 75,000 to each Investor.
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The loans being made to the Company pursuant to the terms of the Final
Investment Agreement were evidenced by (1) a Loan Stock Instrument, dated as of
August 23, 1999, executed by the Company in favor of the Investors, in the
aggregate principal amount of $600,000 ("Loan Stock Instrument A"), and (2) a
second Loan Stock Instrument, dated as of August 23, 1999, executed by the
Company in favor of the Investors, in the aggregate principal amount of $400,000
("Loan Stock Instrument B" and together with Loan Stock Instrument A,
collectively, the "Loan Stock Instruments"). Until the Loan Stock Instruments
are redeemed pursuant to their terms upon the occurrence of certain events
described therein, the outstanding principal and accrued but unpaid interest (1)
under Loan Stock Instrument A shall, at the option of the Investors, be
converted into one share of the Common Stock for each $.65 of outstanding
principal and accrued but unpaid interest converted, and (2) under the Loan
Stock Instrument B shall, at the option of Investors, be converted into one
share of the Common Stock for each $.50 of outstanding principal and accrued but
unpaid interest converted.
Any amounts outstanding under Loan Stock Instrument A shall bear
interest at a rate of 6% per annum, payable in semi-annual installments in
arrears on January 1 and July 1 of each year accruing from day to day and
calculated monthly. In addition, Loan Stock Instrument A will be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange or if the Company raises
additional capital of at least $4,000,000. Any amounts outstanding under Loan
Stock Instrument B shall bear interest at a rate of 8% per annum for the first
six months following the date thereof, 9% per annum for the following six month
period, and 10% per annum thereafter. All accrued but unpaid interest on the
Loan Stock shall be payable in semi-annual installments in arrears on January 1
and July 1 of each year. Loan Stock Instrument B will also be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange, however, the Investors have
the option of converting if the Company raises additional capital of at least
$4,000,000. If Loan Stock Instrument B is not so converted, it can be redeemed
at any time for a period of 12 months from August 23, 1999 at the election of
the Company. If the Loan Stock Instruments are not so converted, they may be
redeemed upon 30 days notice by the Company or the Investors on or after August
2002.
Pursuant to the terms of the Investor Agreement, the Investors shall
have the right to nominate one director of the Company, until the amounts
outstanding under the Loan Stock Instruments are redeemed or converted. Daniel
Goldman, the son of Alan David Goldman, is the nominee of the Investors.
The obligations of the Company under the Investor Agreement and the
Loan Stock Instruments have been guaranteed by INVU Services. Pursuant to the
Investment Agreement, the Company covenanted with the Investors to restrict
certain actions while any amounts remain outstanding under the Loan Stock
Instruments without the Investors' consent, which consent may not be
unreasonably withheld, including the following actions: the issuance of
additional Company Common Stock, except pursuant to the exercise of outstanding
warrants and options of the Company; the issuance of any new options to purchase
Company Common Stock; additional borrowings by the Company; capital expenditures
of the Company; paying off liabilities; granting security interests; and
acquiring other entities.
Merrion Capital Appointment
In March 2000, the Company announced the appointment of Merrion
Capital, an Irish corporate advisory firm ("Merrion"), as corporate finance
advisors to the Company. Merrion will advise and assist the Company in
implementing its corporate strategy and, in particular, its plans for a major
corporate fund-raising program.
The Third Financing Transaction
As of May 1, 2000 the Company entered into a Convertible Debenture
Purchase Agreement (the "GEM Agreement") with United Kingdom-based firm Global
Emerging Markets Inc. and related partner ("GEM") pursuant to which the Company,
upon the satisfaction of certain conditions by the Company set forth in the GEM
Agreement, will issue convertible debentures (the "Debentures") in the principal
amount of $5 million and warrants (the "Warrants") to purchase shares of Company
common stock.
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Debentures in the principal amount of $2.5 million will be issued to
GEM upon satisfaction by the Company of certain conditions, including, (1)
effectiveness of a registration statement filed by the Company under the United
States Securities Act of 1933 registering the resale of the shares of the
Company's common stock underlying the Debentures and the Warrants within 190
days of the date of the GEM Agreement, and (2) the Company's common stock having
an average closing bid price in excess of $1.00 for 30 trading days immediately
prior to the closing date. A second tranche of Debentures with principal amount
of $2.5 million will be issued to GEM 120 days later. In addition, upon
execution of the GEM Agreement, GEM has agreed to advance $100,000 to the
Company pursuant to a demand note (the "Note").
The Debentures will have a term of three years and bear interest at the
rate of 3% per annum, payable in cash or securities at the time of conversion.
The Debentures may be converted at any time into shares of the Company's common
stock and will automatically be converted upon maturity at a price equal to the
lesser of (x) the lower of $3.00 or 125% of the average of the closing bid
prices for the Company's common stock for the five trading days immediately
prior to the closing of the transaction, or (y) 75% of the average of the three
lowest closing bid prices for the Company's common stock during the thirty day
period prior to conversion.
The Warrants will also have a term of three years and will entitle the
holders thereof to purchase that number of shares of the Company's common stock
equal to 20% of such principal amount of the Debentures divided by the average
of the closing bid prices for the Company's common stock for the five trading
days immediately prior to the closing date. The exercise price of the Warrants
will be the lower of $3.00 or 125% of the average of the closing bid prices for
the Company's common stock for the five trading days immediately prior to the
closing date. In the event the GEM Agreement is terminated in certain
circumstances, GEM will be paid $100,000 and retain termination warrants to
purchase 500,000 shares of the Company's common stock at an exercise price of
$0.01 per share.
The Note shall bear interest at the rate of 3% per annum and if payment
is not made upon demand as provided in the Note, this rate shall increase to 15%
per annum from the date of demand through and including the date of payment. In
addition, if payment is not made upon demand, the Note holder may convert any or
all of the unpaid principal amount of the Note plus accrued but unpaid interest
into shares of the Company's common stock at substantially the same conversion
price described above for the Debentures.
The Company will be unable to sell any securities that would be
integrated with the offer and sale of the Debentures, the Warrants and the
shares the underlying the Debentures and the Warrants and thus require
registration under the Securities Act of 1933, as amended, of the sale of the
Debentures and the Warrants. If an event of default occurs under the GEM
Agreement after the initial closing of the transaction and it is not cured
within the time specified under the GEM Agreement, the Company will be obligated
to pay GEM liquidated damages in an amount equal to double the purchase price of
the debentures and the warrants.
Name Change
On February 22, 1999, the Company's shareholders approved an amendment
to the Company's Articles of Incorporation changing the name of the Company from
"Sunburst Acquisitions I, Inc." to "INVU, Inc."
Change in Fiscal Year
As of January 15, 1999, the Company's Board voted to change the
Company's fiscal year end to January 31.
Item 2. Description of Properties
The Company moved into new executive offices on March 19, 2000. As
previously, these new premises are located in Blisworth, Northamptonshire,
England. The Company leases 3,600 square feet of space in a facility as a
tenant. The term of the lease is through Jan 1, 2003 and the monthly rent is
currently approximately $5,700.
Item 3. Legal Proceedings
In 1998, the Company filed an application for trademark registration of
its "INVU" mark in the United Kingdom. This application was opposed by two
companies, France Cables et Radio ("France Cables") and Sension Limited
("Sension"). Both France Cables and Sension challenge the Company's right to
protect the "INVU" mark and ask for a denial of registration.
8
<PAGE>
The opposition case with France Cables began on September 3, 1998 and
has been assigned case number 48955. France Cables specifically asserts that
there is a likelihood of confusion with its own trade name. The Company contends
that the marks are so dissimilar in sound, connotation and meaning that no
reasonable person would likely be confused by their use on software products.
The case will be heard at the United Kingdom Trademark Registry, however, a
specific date for the hearing has not yet been set.
The opposition case with Sension began on September 1, 1998 and has
been assigned case number 48943. As of April 14, 2000, Sension Limited had yet
to file with the United Kingdom Trademark Registry (the "Trademark Registry")
evidence regarding their opposition of the "INVU" mark or to apply for an
extension of time to do so. In response, the Registrar of the Trademark Registry
issued a letter to their legal representatives stating that the case was ready
for a decision based upon the Company's evidence and statutory declarations.
Sension alleges that they have an earlier trademark right. The Company contends
that it has an earlier first date of use than Sension.
The Company believes that it will prevail on both matters.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters for submission to a vote of security holders
during the last fiscal year.
9
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock is listed on the OTC Electronic Bulletin Board. The
following table indicates the quarterly high and low bid price for the Common
Stock on the OTC Electronic Bulletin Board for the fiscal years ending January
31, 1999 and January 31, 2000 and for the quarter ending April 30, 2000. Prior
to the consummation of the Exchange Agreement on August 31, 1998, there was no
active public trading market for the Common Stock. Such inter-dealer quotations
do not necessarily represent actual transactions, and do not reflect retail
mark-ups, mark- downs or commissions.
<TABLE>
<CAPTION>
OTC ELECTRONIC
BULLETIN BOARD
BID PRICE
HIGH LOW
<S> <C> <C> <C>
Fiscal 1999
1st Quarter $N/A $N/A
2nd Quarter $N/A $N/A
3rd Quarter (Sept. 1 - Oct. 31) $5.00 $0.97
4th Quarter $1.56 $0.375
Fiscal 2000
1st Quarter $3.00 $0.45
2nd Quarter $1.88 $1.38
3rd Quarter $2.50 $1.00
4th Quarter $3.00 $0.875
Fiscal 2001
1st Quarter $3.00 $0.45
</TABLE>
As of May 12, 2000, there were approximately 131 holders of record of
the Common Stock.
The Company has not declared or paid any cash or other dividends on the
Common Stock to date for the last two (2) fiscal years and in any subsequent
period for which financial information is required and has no intention of doing
so in the foreseeable future. The Initial Investment Agreement prohibits the
Company from declaring or distributing any dividend so long as the Investors
hold stock. See "Item 1. Description of Business - The Second Financing
Transaction."
Recent Sales of Unregistered Securities
On August 23, 1999, the Company executed two Loan Stock Instruments in
favor of David Morgan, John Agostini, Paul O'Sullivan, INVU Services, Alan David
Goldman, Vertical Investments Limited and Tom Maxfield. See "Item 1. Description
of Business - The Second Financing Transaction." The first Loan Stock Instrument
("Loan Stock Instrument A") was executed for the aggregate principal amount of
$600,000 and the second ("Loan Stock Instrument B") was executed for the
aggregate principal amount of $400,000. Until the Loan Stock Instruments are
redeemed pursuant to their terms upon the occurrence of certain events described
therein, the outstanding principal and accrued but unpaid interest (1) under
Loan Stock Instrument A shall, at the option of the Investors, be converted into
one share of the Common Stock for each $.65 of outstanding principal and accrued
but unpaid interest converted, and (2) under the Loan Stock Instrument B shall,
at the option of Investors, be converted into one share of the Common Stock for
each $.50 of outstanding principal and accrued but unpaid interest converted. In
addition, both Loan Stock Instruments will be automatically converted in the
event that the Company is listed on the NASDAQ National Market or the Official
List of the London Stock Exchange. If the
10
<PAGE>
Company raises additional capital of at least $4,000,000, Loan Stock Instrument
A will be automatically converted and Loan Stock Instrument B can be converted
at the option of the Investor. If Loan Stock Instrument B is not so converted,
it can be redeemed at any time for a period of 12 months from August 23, 1999 at
the election of the Company. If both Loan Stock Instruments are not so
converted, they may be redeemed upon 30 days notice by the Company or the
Investors on or after August 2002.
Both Loan Stock Instruments were sold pursuant to an exemption provided
by Section 4(2) of the Securities Act of 1933.
Item 6. Management's Discussion and Analysis or Plan of Operations
The following description of "Management's Plan of Operation"
constitutes forward-looking statements for purposes of the Securities Act and
the Exchange Act and as such involves known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. The words
"expect", "estimate", "anticipate", "predict", "believes", "plan", "seek",
"objective" and similar expressions are intended to identify forward-looking
statements. Important factors that could cause the actual results, performance
or achievement of the Company to differ materially from the Company's
expectations include the following: 1) one or more of the assumptions or other
cautionary factors discussed in connection with particular forward-looking
statements or elsewhere in this Form 10-KSB prove not to be accurate; 2) the
Company is unsuccessful in increasing sales through its anticipated marketing
efforts; 3) mistakes in cost estimates and cost overruns; 4) the Company's
inability to obtain financing for general operations including the marketing of
the Company's products; 5) non-acceptance of one or more products of the Company
in the marketplace for whatever reason; 6) the Company's inability to supply any
product to meet market demand; 7) generally unfavorable economic conditions
which would adversely effect purchasing decisions by distributors, resellers or
consumers; 8) development of a similar competing product at a similar price
point; 9) the inability to successfully integrate one or more acquisitions,
joint ventures or new subsidiaries with the Company's operations (including the
inability to successfully integrate businesses which may be diverse as to type,
geographic area, or customer base and the diversion of Management's attention
among several acquired businesses) without substantial costs, delays, or other
problems; 10) if the Company experiences labor and/or employment problems such
as the loss of key personnel, inability to hire and/or retain competent
personnel, etc.; and 11) if the Company experiences unanticipated problems
and/or force majeure events (including but not limited to accidents, fires, acts
of God etc.), or is adversely affected by problems of its suppliers, shippers,
customers or others. All written or oral forward-looking statements attributable
to the Company are expressly qualified in their entirety by such factors. The
Company undertakes no obligation to publicly release the result of any revisions
to these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following discussion should be read in conjunction with the
Consolidated Financial Statements, including the notes thereto.
The Company develops, markets and sells software (under the brand name
of INVU) for the electronic management of many types of information and
documents such as forms, correspondence, literature, faxes, technical drawings,
electronic files and web pages. Management believes that the INVU software is
simple, intuitive and cost effective, yet powerful.
The Company's objective is to establish itself as a leading supplier of
information and document management software and services in the world. For its
professional range of products, INVU Series 100, Series 200, ViewSafe, and
Series 2000 (formerly WEBFAST) the Company expects to target its marketing
efforts initially in the United Kingdom and the United States on departmental
users in organizations, distributors and resellers. For its personal user (SOHO
- - small office / home office) market the Company envisages its marketing will
mainly target retailers for INVU WebServant and FileServant.
The Company's first product, INVU SOLO, was released to distributors in
December 1998 and sales to the SOHO market commenced in January 1999. The
Directors were satisfied with the initial response to this product, but in view
of comments and advice received from retailers they have decided to re-launch
more suitably packaged and
11
<PAGE>
targeted products for the personal user market. Two new products were released
to retailers in March 2000. The first, "WebServant," enables web users to
quickly and easily build a personal library from the internet with a competitive
price of less than $50. This product's key features are the simple downloading,
storing and organisation of web pages thus enabling on or off line browsing. The
second product, "FileServant," is a re-launch of the original INVU SOLO product
with additional features included including the aforementioned web technology.
The first production release of INVU Series 100, Series 200 (formerly
INVU PRO), and ViewSafe (collectively known as "the professional range of
products") was made on October 5, 1999 to an exclusive distributor in the United
Kingdom, and sales to end users were anticipated in October 1999. However, the
exclusive distributor went into administrative receivership in October 1999
before any product orders had been fulfilled. Although no significant financial
loss has accrued to the Company, the closure of this distribution outlet has
meant a change in sales and marketing strategy in the United Kingdom. In
response, the Directors have decided to directly recruit resellers whilst also
pursuing non-exclusive distributors for the products. The number of early
resellers sign-ups has been encouraging.
As a consequence of initial marketing activities associated with the
launch of the Company's professional range of products, many end user enquiries
have been received. These enquiries are now being pursued by our expanding team
of sales personnel. Although the loss of the Company's U.K. distributor has
caused a delay in sales revenues, Management is confident that its direct sales
team and newly recruited resellers will provide positive results during the
second half of year 2000.
INVU Series 2000 (formerly INVU WEBFAST), continues to be developed and
Management now estimates that this product will be released in late 2000.
INVU software engineers have also successfully developed a prototype
information management internet service. This service will allow advanced
internet information management within fully encrypted secure databases.
Individuals and corporations will be able to store their documents on an INVU
web site and access them via password controls from anywhere in the world.
Development work continues on this project and Management anticipates a release
date later in 2000.
Management is delighted with the contribution made over the last year
by its non-executive directors Tom Maxfield and Daniel Goldman. They are also
pleased with the appointment of David Andrews as a further non- executive
director on February 29, 2000. Management expects the ex Irish Foreign Minister
will add significant experience to the board particularly with regard to the
company's global aspirations.
Results of Operations
The following is a discussion of the results of operations for the year
ended January 31, 2000, compared with the year ended January 31, 1999, and
changes in financial condition during the year ended January 31, 2000.
INVU, Inc. (formerly Sunburst Acquisitions I, Inc.) engaged in no
significant operations prior to the Share Exchange Agreement with INVU PLC on
August 31, 1998.
Net sales for fiscal year 2000 were $15,754, which compares to $8,267
sales for fiscal 1999. The low level of sales reflects the continued development
stage of the business and relates to sales of INVU SOLO and initial sales of
INVU Series 100 and Series 200 to end users. The net loss in fiscal 2000 was
($1,433,004), which significantly exceeds the net loss of fiscal 1999 of
($694,809). The fiscal 2000 net loss was due to: increased production,
distribution, research and development, and administrative expenses (including
expenses incurred in complying with U.S. securities laws and other expenses
relating to public company requirements) of $1,369,771, which reflected the
Company's investment in product development, marketing support, and
administrative infrastructure, together with costs associated with the various
financing transactions undertaken during the year. As the Company neared the
completion of its development stage, its attention and resources have been
diverted towards sales and marketing and administrative collateral. An entire
sales team has been hired, including field sales, sales support and technical
support personnel. Management plans to greatly increase marketing expenditure to
create greater brand awareness. New premises have been leased as from March 19,
2000 with additional IT and administrative infrastructure. These additional
resources
12
<PAGE>
have affected operating expenses in the year ended January 31, 2000 but
management expects a considerably greater impact in the year to January 31,
2001.
In fiscal 2000, the Company incurred net interest expense of $78,987
compared with net interest expense of $6,419 for fiscal 1999. This increase in
interest expense was due to increased bank loan borrowings, and interest
associated with the First Financing Transaction and the Second Financing
Transaction. See "Item 1. Description of Business - First Financing Transaction
and Second Financing Transaction."
The tax rates for the years 2000 and 1999 are zero due to a net loss in
each period.
The total current assets of the Company were $61,416 at January 31,
2000, a decrease of $96,062, compared to $157,478 at January 31, 1999. Working
capital was negative $1,750,749 as of January 31, 2000, compared with negative
$272,080 as of January 31, 1999. These changes are due to the addition of
short-term credit facilities in 2000 and an increase of current maturities of
long-term obligations, following the procurement of substantial additional loan
funding.
Total assets of the Company were $288,175 at January 31, 2000, an
increase of $50,936, compared to $237,239 at January 31, 1999. The difference is
mainly attributable to the purchase of fixed assets and reduction in
inventories.
The total current liabilities of the Company increased by $1,382,607
from $429,558 at January 31, 1999 to $1,812,165 at January 31, 2000. Long term
liabilities were $525,777 at January 31, 2000 compared to $422,193 at January
31, 1999. The current and long term liabilities increases are attributable to
debt incurred in order to finance the development of the products and the
infrastructure of the business.
Total stockholders' equity decreased by $1,435,255 during the year
ended January 31, 2000 from defecit $614,512 at January 31, 1999 to a deficit of
$2,049,767 at January 31, 2000 as a result of the net loss for the year. The
Company is evaluating various financing options, including issuing debt and
equity to finance future development, marketing of products, and strategic
acquisitions now that its development stage is ending and it's operational stage
will soon commence.
Financing Management's Plan of Operation
The Company remains committed to raising the necessary funds and is
engaged in or presently pursuing the following financing transactions.
As of January 31, 1999, the Company had agreed to borrow $656,000 at an
annual interest rate of 8% by way of a secured short-term loan. In August 1999
the Company raised $1,000,000 by way of a private placement, the proceeds of
which were used, among other things, to pay off the short-term loan described
above. See "Item 1. Description of Business - The First Financing Transaction
and The Second Financing Transaction." In addition, the Company has a $486,000,
10% short-term credit facility with an English bank. The amount drawn against
the facility as of January 31, 2000 was $413,247. This amount is due at the end
of May 2000. Lastly, in March 2000 the Company received a non-interest unsecured
loan of $571,500 from an individual with no stated maturity date.
In March 2000, the Company announced the appointment of Merrion, as
corporate finance advisors to the Company. Merrion will advise and assist the
Company in implementing its corporate strategy and has agreed to use its best
efforts to raise $10,000,000 in a private placement.
As of May 1, 2000, the Company has entered into the GEM Agreement,
pursuant to which the Company, upon the satisfaction of certain conditions, will
raise $5,000,000 by issuing a convertible debenture in the principal amount of
$5,000,000 and warrants to purchase company common stock. See Item 1.
Description of Business - The Third Financing Transaction."
As a result of entering into the above Agreement, Anglo Irish Bank of
Dublin, Ireland has indicated to the Company that if the GEM Agreement is
satisfactory to it, it will provide a "Bridge Facility" in the sum of
$1,600,000.
13
<PAGE>
Management estimates that the proceeds from the above transactions,
if consummated, would fulfill the Company's capital requirements for a period of
up to thirty six (36) months. There can, however, be no assurance that the above
transaction will be consummated or that additional debt or equity financing will
be available, if and when needed, or that, if available, such financing could be
completed on commercially favorable terms. Failure to obtain additional
financing, if and when needed, could have a material adverse affect on the
Company's business, results of operations and financial condition. Please refer
to Note C of the Consolidated Financial Statements in conjunction with this
paragraph regarding the Company's ability to continue as a going concern.
14
<PAGE>
Item 7. Financial Statements
Filed herewith beginning on page F-1 are the audited financial
statements of the Company.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
Directors, Executive Officers, Promoters and Control Persons
The Board of Directors currently consists of six (6) persons, David
Morgan, Paul O'Sullivan, John Agostini, Daniel Goldman, Tom Maxfield and David
Andrews. The following table sets forth information about all Directors and
executive officers of the Company and all persons nominated or chosen to become
such.
<TABLE>
<CAPTION>
YEAR
NAME AGE OFFICE ELECTED
- ----- --- ------ -------
<S> <C> <C> <C>
David Morgan 39 President, Chief Executive Officer, and 1998
Chairman of the Board of Directors
Paul O'Sullivan 31 Director and 1998
Chief Technical Officer
John Agostini 41 Director, Chief Finance Officer and 1999
Secretary
Daniel Goldman 30 Non-Executive Director 1999
Thomas Maxfield 51 Non-Executive Director 1999
David Andrews 64 Non-Executive Director 2000
</TABLE>
David Morgan (Chief Executive Officer) - Mr. Morgan is 39 years old and
graduated in 1982 from the University of Warwick with a Bachelor of Laws
degree, with honors. From 1982 to 1986, he was assistant to the Director of the
Industrial & Marine Division of Rolls Royce plc. From 1986 to 1991, he was
Group Commercial Manager of Blackwood Hodge plc, a worldwide distributor of
construction and earthmoving equipment. From 1991 to 1992, he was managing
director of Hunsbury Computer Services Ltd, a systems integrator and subsidiary
of Blackwood Hodge. From 1992 to 1995, he was Managing Director of the UK
subsidiary of Network Imaging Inc., an international software and systems
house. From 1995 to 1996, he was Managing Director of Orchid Ltd, a UK computer
software reseller. From 1997 to the present, he has been a Director of and the
Chief Executive Officer and of INVU Plc. Since the Share Exchange on August 31,
1998, he has been Chairman and Chief Executive Officer of the Company.
Paul O'Sullivan (Chief Technical Officer) - Mr. O'Sullivan is 31 years
old and graduated from the University of Birmingham with a Bsc (Honors) degree
in Computer Sciences in 1992. From September 1992 to January 1994 he was a
software engineer with British Telecom, and from January 1994 to October 1995
was a senior systems analyst with Abbey National plc, a financial institution.
From October 1995 to May 1996 he was a senior system developer with Orchid
Limited, a UK computer software reseller. Between May 1996 and November 1997
Mr. O'Sullivan was a consultant to British Telecom, Royal Bank of Scotland and
Pearl Assurance before joining INVU Plc in June 1998. Since the Share Exchange
on August 31, 1998, he has served as a Director and Chief Technical Officer for
the Company.
John Agostini (Chief Finance Officer) - Mr. Agostini is 41 years old,
and qualified as a chartered accountant with Grant Thornton in 1984. Since 1986
he has worked for various companies within the printing, construction, and
15
<PAGE>
electronics industries, typically as a Finance/Commercial Director. From
December 1993 to October 1996, he held the position of Director of Finance and
Operations of Bizeq Limited, a security alarms distributor. From November 1996
to April 1997, Mr. Agostini served as European Financial Controller for Sunbeam
Europe Limited, a domestic appliance distributor. From April 1997 to February
1999, he served as Finance and Operations Director of the performance textiles
division of Porvair Plc. Mr. Agostini joined INVU in February 1999 as Chief
Finance Officer, Commercial Director and Secretary.
Daniel Goldman (Non Executive Director) - Mr. Goldman is 30 years old,
and works with emerging technology companies raising private equity finance and
also provides corporate finance advice. He has worked with a number of companies
in the fields of software and the internet, smart card technology, medical
devices and other areas of patented technology as a consultant. From January
1997 until June 1997, Mr. Goldman worked with Elderstreet Corporate Finance
Ltd., a venture capital fund specializing in the high-tech sector. From July
1997 through April 1998, Mr. Goldman worked with Alberdale & Co., a venture
capital fund specializing in the high-tech and healthcare sectors. From April
1998 until June 1999, he served as a Corporate Finance Executive with Shore
Capital Group Plc, an investment bank specializing in corporate finance. Mr.
Goldman is currently a non-executive director for a number of technology
companies. These include Boomerang Software Inc., an internet software
publishing company based in Boston. Mr. Goldman joined the Board of INVU Inc. on
May 13, 1999.
Thomas Maxfield (Non Executive Director) - Mr. Maxfield is 51 years
old. He has a B.A. honors degree in modern languages. Between 1984 and 1997 he
was a main board director of The Sage Group plc, a supplier of PC accounting
software. His responsibilities included the development of a national reseller
network, creating and maintaining telesales and field sales operations, and the
creation of the company's retail sales channel. From 1997 to the present, Mr.
Maxfield has served as a director of Seaham Hall Limited, a property development
company. Mr Maxfield joined the Board of INVU Inc. on May 13, 1999.
David Andrews (Non Executive Director) - Mr. Andrews is 64 years old
and has served as a politician in the Irish Parliament for over thirty-five
years. He was appointed as a Minister in 1977 and has held several ministerial
positions, including Justice, Marine, Defense and Foreign Affairs. In
particular, Mr. Andrews was appointed the Minister of Foreign Affairs of Ireland
in 1992 and reappointed in 1997. In addition, he has served since 1999 as the
Chairman in Office of the Council of Europe.
The Company is not aware of any "family relationships" (as defined in
Item 401(c) of Regulation S-B promulgated by the Commission) among directors,
executive officers, or persons nominated or chosen by the Company to become
directors or executive officers.
Except as set forth above, the Company is not aware of any event (as
listed in Item 401(d) of Regulation S-B promulgated by the Commission) that
occurred during the past five years that are material to an evaluation of the
ability or integrity of any director, person nominated to become a director,
executive officer, promoter or control person of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders") to file reports of
ownership and changes of ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and 10% Stockholders of the Company are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms so
filed.
The Company believes that, during the last fiscal year, the following
forms required to be filed under Section 16(a) were not filed or were not timely
filed: (i) Daniel Goldman, a director, failed to timely file a Form 3 upon his
appointment as a director; (ii) Thomas Maxfield, a director, failed to timely
file a Form 3 upon his appointment as a director; (iii) Montague, a 10%
stockholder of the Company, failed to file (a) a Form 4 upon the transfer of
2,400,000 shares pursuant to the First Financing Transaction in February 1999;
(b) a Form 4 for the acquisition of 425,000 shares in August 1999 pursuant to
the Second Financing Transaction; (c) a Form 4 for the 225,000 shares of the
425,000 it transferred back out in August 1999 in connection with the Second
Financing Transaction; (d) Form 4s relating to several transfers of 277,000
shares in the aggregate to consultants of the Company; (iv) the following
16
<PAGE>
Montague beneficiaries, Peter Fraser, Martyn Doherty and David Morgan (who is
also an officer and director of the Company) may have been required to jointly
file Form 4s along with Montague as described in (iii) above; (v) Thomas
Maxfield, a director, failed to file a Form 4 upon his receipt of 75,000 shares
in connection with the Second Financing Transaction; (vi) Daniel Goldman, a
director, failed to file a Form 4 upon Vertical Investments Limited's receipt of
75,000 shares pursuant to the Second Financing Transaction, a company that he
beneficially owns; and (vii) all of the above parties failed to file a Form 5
regarding the above described failures to file a Form 4.
Item 10. Executive Compensation
The following tables set forth the compensation paid by the Company to
its Executive Officers during the fiscal year ended January 31, 2000. No other
executive officer earned in excess of $100,000.
<TABLE>
<CAPTION>
Annual Compensation
Year Stock
Name/Principal Ending Options Other Annual
Position January 31 Salary Bonus Granted Compensation
-------- ---------- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
David Morgan/Chief 2000 $ 97,964 $ 0 $ 0 $22,279*
Executive Officer 1999 $101,082 $ 0 $ 0 $13,169*
Paul O'Sullivan/Chief 2000 $106,342 $ 0 $ 0 $ 5,478*
Technical Officer
John Agostini/Chief 2000 $ 86,312 $ 0 $ 0 $18,339*
Financial Officer
<FN>
*Other Annual Compensation consists of the use of a company car.
</FN>
</TABLE>
No stock options were granted to any employee during the Company's last fiscal
year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the close of business on May 10,
2000 information as to the beneficial ownership of shares of the Company Common
Stock for all directors, each of the named executive officers (as defined in
Item 402(a)(2) of Regulation S-B promulgated by the Commission), for all
directors and executive officers as a group, and any person or "group" (as that
term is defined in Item 403 of Regulation S-B promulgated by the Commission) who
or which is known to the Company to be the beneficial owner of more than 5% of
the outstanding shares of Company Common Stock. In addition, except as set forth
below, the Company does not know of any person or group who or which owns
beneficially more than 5% of its outstanding shares of Company Common Stock as
of the close of business on May 10, 2000.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
Name and Address Amount and Percentage(1)(2)
of Beneficial Owner Nature of ----------------
- ------------------- Beneficial
Owner
----------
<S> <C> <C>
Montague Limited (3)(7) 23,818,280 79.77%
David Morgan (4)(5) * *
Martyn Doherty (4) * *
Paul O'Sullivan (6) * *
Peter Fraser (4) * *
John Agostini(10) 0 0%
Daniel Goldman(7) 654,359 2.13%
Thomas Maxfield(8) 659,359 2.14%
Roy G. Williams (9) 1,725,920 5.7%
Officers and Directors as a Group (7 persons) 1,313,718 4.19%
<FN>
17
<PAGE>
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking, relationship or
otherwise has or shares voting power and/or investment power and as to
which such person has the right to acquire such voting and/or investment
power within 60 days. Percentage of beneficial ownership as to any person
as of a particular date is calculated by dividing the number of shares
beneficially owned by such person by the sum of the number of shares
outstanding as of such date and the number of shares as to which such
person has the right to acquire voting and/or investment power with in 60
days.
(2) Based on 30,206,896 shares of Common Stock outstanding as of May 10, 2000.
(3) Montague Limited ("Montague") is a company organized under Isle of Man law
with a business address of 34 Athol Street, Douglas, Isle of Man IM1 1RD
United Kingdom. The directors of Montague are Eammon Harkin and Barry John
Williams. The sole issued and outstanding share capital of Montague is
owned of record by an Isle of Man corporation related to the corporate
trustee of a discretionary trust (the "Trust"), the res of which includes
beneficial ownership of the capital stock of Montague and, therefore,
indirect beneficial ownership of 23,818,280 shares of Company Common Stock
that are held of record by Montague. Includes 500,000 shares of Common
Stock as to which Montague is the record owner, but Montague has agreed to
transfer such shares to certain third parties.
(4) Such person or persons are within a class of beneficiaries of the Trust,
with the exceptions of John Agostini, Daniel Goldman and Tom Maxfield. The
percentage of each such person's beneficial interest in the assets of the
Trust has not been determined at this time. Mr. Fraser's business address
is Caraway Cottage, 1 High Street, Ecton, Northampton and Mr. Doherty's
business address is Caymanx Trust, 34 Athol Street, Douglas, Isle of Man
IMI 1Rd, United Kingdom.
(5) David Morgan is President and Chief Executive Officer of the Company and is
a member of the Company's Board of Directors. His business address is The
Beren, Blisworth Hill Farm, Stoke Road, Blisworth Northamptonshire NN7 3DB.
(6) Paul O'Sullivan is Vice President - Chief Technical Officer of the Company
and is a member of the Company's Board of Directors. His business address
is The Beren, Blisworth Hill Farm, Stoke Road, Blisworth Northamptonshire
NN7 3DB.
(7) Includes shares of Common Stock that Vertical, which is owned by Mr.
Goldman, has the right to acquire upon conversion of Loan Stock Instrument
A and Loan Stock Instrument B (assuming that all accrued interest has been
paid). See "Item 1. Description of Business - The Second Financing
Transaction." Mr. Goldman's business address is 13 Fernville Road,
Newcastle upon Tyne NE3 4HT.
(8) Includes shares of Common Stock that Mr. Maxfield, has the right to acquire
upon conversion of Loan Stock Instrument A and Loan Stock Instrument B
(assuming that all accrued interest has been paid). See "Item 1.
Description of Business - The Second Financing Transaction." Mr. Maxfield's
business address is Marsden Hall, Lizard Lane, MarsdenTyne & Wear NE34 7AD.
18
<PAGE>
(9) Pursuant to a Schedule 13G filed by Mr. Williams, Mr. Williams has the
following beneficial ownership with respect to shares of Common Stock. Mr.
Williams has sole voting and dispositive power over 659,780 shares of
Common Stock including 261,875 shares of Common Stock owned by Mustardseed
and has sole voting and power over such shares. Zalcany owns 1,066,140
shares of Common Stock. Zalcany is owned 50% by Mr. Williams and 50% by
Richard Harris. Mr. Williams and Mr. Harris share voting and dispositive
power with respect to such shares. Mr. Williams business address is Birkett
House 27, Albemarle Street, London W1X 4LQ.
(10) Mr. Agostini is the Chief Financial Officer and a director of the Company.
His business address is The Beren, Blisworth Hill Farm, Stoke Road,
Blisworth Northamptonshire NN7 3DB.
</FN>
</TABLE>
Item 12. Certain Relationships and Related Transactions
On February 2, 1999, Zalcany, a company affiliated with Roy G. Williams, a
principal stockholder of the Company, and other related parties made a loan to
the Company to fund the Company's current operations. Such loan was made in the
aggregate principal amount of approximately $656,000 and payment is due in six
installments, with the final installment due on August 2, 2000. The loan had an
annual interest rate of 8%. See "Item 1. Description of Business - The First
Financing Transaction." As of August 23, 1999, Daniel Goldman, a director of the
Company and holder of all of the outstanding share capital of Vertical, Alan
David Goldman, the father of Daniel Goldman, and Thomas Maxfield, a director of
the Company, made a loan in the principal amount of $1,000,000 to the Company.
See "Item 1. Description of Business - The Second Financing Transaction." The
First Financing Transaction was repaid with the proceeds of the Second Financing
Transaction.
19
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First Amendment to
Share Exchange Agreement, dated as of July 23, 1998 (incorporated by
reference from Exhibit 2.1 of the Company's Current Report on Form 8-K
filed June 8, 1998 and Exhibit 99 of the Company's Amendment to Current
Report on Form 8-K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997 with
the Secretary of State of the State of Colorado (incorporated by reference
from Exhibit 3.2 of the Company's Registration Statement on Form 10-SB/A
filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on February
22, 1999, with the Secretary of State of the State of Colorado
(incorporated by reference from Exhibit 3.2 of the Company's Annual Report
on Form 10-KSB filed October 15, 1999).
3.3 Bylaws of the Company (incorporated by referenc from Exhibit 2.2 of the
Company's Registration Statement on Form 10-SB/A filed August 29, 1997).
10.1 Limited Manufacturing Agreement, dated March 25 1998, by and between INVU
Services Limited and Centura Software Corporation (incorporated by
reference from Exhibit 10.3 of the Company's Annual Report on Form 10-KSB
filed October 15, 1999).
10.2** Reseller Agreement, dated March 26, 1998, by and between INVU Services
between INVU Services Limited and Computer Associates Plc and Memorandum
Amendment dated July 17, 1998 (incorporated by reference from Exhibit 10.4
of the Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.3 Electronic Software Distribution Agreement, dated as of November 11, 1998,
by and between INVU Services Limited and Digital River, Inc. (incorporated
by reference from Exhibit 10.5 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.4 Distribution Contract dated as of October 27, 1998, by and between INVU
Services Limited and KOCH Media Limited (incorporated by reference from
Exhibit 10.6 of the Company's Annual Report on Form 10-KSB filed October
15, 1999).
10.5 Gold Standard Reseller Agreement, dated as of March 18, 1999, by and
between INVU Services Limited and Elcom Technical Services (incorporated by
reference from Exhibit 10.7 of the Company's Annual Report on Form 10-KSB
filed October 15, 1999).
10.6 Distributor Agreement, dated May 11, 1999, by and between INVU Services
Limited and Millenium Three Solutions Ltd. (incorporated by reference from
Exhibit 10.8 of the Company's Annual Report on Form 10- KSB filed October
15, 1999).
10.7** Gold Standard Reseller Agreement, date June 16, 1999, by and between INVU
Services Limited and Computer Associates International, Inc. (incorporated
by reference from Exhibit 10.9 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.8 Distributor Agreement, dated July 1, 1999, by and between INVU Services
Limited and CHS UK Holdings Limited Incorporated (incorporated by reference
from Exhibit 10.10 of the Company's Annual Report on Form 10-KSB filed
October 15, 1999).
20
<PAGE>
10.9 Investment Agreement, dated August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan, Alan David Goldman, and Vertical
Investments Limited (incorporated by reference from Exhibit 10.12 of the
Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.10 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited (incorporated
by reference from Exhibit 10.13 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.11 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited (incorporated
by reference from Exhibit 10.14 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.12 Supplemental Agreement, dated as of August 23, 1999, among the Company,
Vertical Investments Limited, Alan David Goldman, David Morgan, John
Agostini, Paul O'Sullivan, INVU Services Limited and Tom Maxfield
(incorporated by reference from Exhibit 10.15 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.13* Distribution Agreement, dated January 29, 2000, by and between INVU
Services and Gem Distribution Limited (Exhibit 10.13).
10.14 Agreement regarding Consulting Services, dated as of May 15, 1998, by and
between the Company and Robert Jeffcock (incorporated by reference from
Exhibit 99 of the Company's Annual Report on Form 10- KSB filed August 13,
1998).
10.15 Consulting Agreement, dated as of December 15, 1998, by and between the
Company and Robert Jeffock (incorporated by reference from Exhibit 10.2 of
the Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.16* Overdraft Facility Agreement, dated December 13, 1999, by and between
INVU Services Limited and HSBC Bank plc. (Exhibit 10.16).
10.17* Convertible Debenture Purchase Agreement, dated as of May 1, 2000, by and
among the Company and the Purchasers listed on Schedule 1 thereof.
(Exhibit 10.17).
10.18* Form of 3 Percent Convertible Debenture by and among the Company and the
Purchasers listed on Schedule 1 of the Convertible Debenture Purchase
Agreement. (Exhibit 10.18).
10.19* Form of Warrant by and between the Company and the Purchasers listed on
Schedule 1 of the Convertible Debenture Purchase Agreement. (Exhibit
10.19).
10.20* Registration Rights Agreement, dated as of May 1, 2000, by and among the
Company, GEM Global Yield Fund Limited and Turbo International Ltd.
(Exhibit 10.20).
10.21* Debenture and Warrant Shares Escrow Agreement, dated as of May 1, 2000,
by and among the Company, Kaplan Gottbetter & Levenson, LLP, GEM Global
Yield Fund Limited and Turbo International Ltd. (Exhibit 10.21).
10.22* Warrant Purchase Agreement, dated as of May 1, 2000, by and between the
Company and Turbo International, Ltd. (Exhibit 10.22).
10.23* Schedules to the Convertible Debenture Purchase Agreement, dated as of
May 1, 2000. (Exhibit 10.23).
10.24* Demand Promissory Note, dated May 1, 2000, by and between the Company and
GEM Advisors, Inc. (Exhibit 10.24).
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21 of
the Company's Annual Report on Form 10-KSB filed October 15, 1999).
27* Financial Data Schedule.
*Filed herewith
** Incorporated by reference, confidential treatment requested.
(b) Reports on Form 8-K
21
<PAGE>
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
22
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
INVU, INC
AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
January 31, 2000 and 1999
<PAGE>
CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF DEFICIT IN STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
F-2
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors INVU, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of INVU, Inc. (a
development stage enterprise) and Subsidiaries as of January 31, 2000 and 1999
and the related consolidated statements of operations, deficit in stockholders'
equity and cash flows for the years ended January 31, 2000 and 1999 and for the
period February 18, 1997 (date of inception) to January 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of INVU, Inc. and
Subsidiaries as of January 31, 2000 and 1999 and the consolidated results of
their operations and their consolidated cash flows for the years ended January
31, 2000 and 1999 and for the period February 18, 1997 (date of inception) to
January 31, 2000 in conformity with generally accepted accounting principles in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has experienced losses, is not generating cash from operations and
has a deficit in stockholders' equity. These circumstances raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
plans with respect to these matters, including plans to continue funding its
development expenses, are described in Note C. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Grant Thornton
Northampton, England
May 12, 2000
F-3
<PAGE>
<TABLE>
<CAPTION>
January 31, January 31,
2000 1999
$ $
<S> <C> <C>
ASSETS
Current assets
Accounts receivable:
Trade, net 1,916 615
VAT recoverable and other 22,000 11,331
Inventories 25,110 126,590
Prepaid expenses 12,390 18,942
Total current assets 61,416 157,478
Equipment, furniture and fixtures
Computer equipment 42,450 26,217
Vehicles 226,348 65,046
Office furniture and fixtures 31,096 29,938
----------------- ------------------
299,894 121,201
Less accumulated depreciation 73,135 41,440
226,759 79,761
288,175 237,239
================= ==================
LIABILITIES
Current liabilities
Short-term credit facility 413,247 66,146
Current maturities of long-term obligations 1,074,185 209,517
Accounts payable 126,204 74,773
Accrued liabilities 198,529 79,122
----------------- ------------------
Total current liabilities 1,812,165 429,558
Long-term obligations, less current maturities 525,777 422,193
Deficit in stockholders' equity
Preferred stock, no par value
Authorised - 20,000,000 shares; nil shares issued and outstanding - -
Common stock, no par value
Authorised - 100,000,000 shares; issued and outstanding
- - 30,206,896 shares 288,355 288,355
Accumulated other comprehensive income 6,844 9,095
Accumulated deficit during the development stage (2,344,966) (911,962)
----------------- ------------------
(2,049,767) (614,512)
288,175 237,239
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Feb 18, 1997
(date of
inception) to
Jan 31, 2000 Jan 31, 1999 Jan 31, 2000
$ $ $
<S> <C> <C> <C>
Revenues 15,754 8,267 25,993
Expenses:
Production cost 106,979 65,188 215,158
Selling and distribution cost 250,995 81,421 372,594
Research and development cost 210,219 128,959 387,125
Administrative costs 801,578 422,581 1,308,931
----------------- ----------------- -----------------
Total operating expenses 1,369,771 698,149 2,283,808
Operating loss (1,354,017) (689,882) (2,257,815)
Other income (expense)
Interest, net (78,987) (6,419) (89,514)
Other - 1,492 2,363
----------------- ----------------- -----------------
Total other expense (78,987) (4,927) (87,151)
----------------- ----------------- -----------------
Loss before income taxes (1,433,004) (694,809) (2,344,966)
----------------- ----------------- -----------------
Income taxes - - -
----------------- ----------------- -----------------
Net loss (1,433,004) (694,809) (2,344,966)
================= ================= =================
Weighted average shares outstanding:
Basic and Diluted 30,206,896 30,206,896 30,206,896
================= ================= =================
Net loss per common share:
Basic and Diluted (0.05) (0.02) (0.08)
================= ================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Accumulated
other
Preferred stock Common stock Accumulated comprehensive Comprehensive
Shares Amount Shares Amount deficit income Total income
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
($1.64 per share) - - 176,000 288,640 - - 288,640
Reclassification of $1.64
common stock - - (176,000) (288,640) - - (288,640)
Issuance of no par common
stock in connection with
reverse acquisition - - 28,696,552 288,355 - - 288,355
Issuance of common stock
($0.50 per share) - - 1,510,344 750,000 - - 750,000
Reverse acquisition
transaction costs - - - (750,000) - - (750,000)
Comprehensive income:
Foreign currency
translation adjustment - - - - - 440 440 440
Net loss during the period - - - - (217,153) - (217,153) (217,153)
----------
Total comprehensive income (216,713)
------ ------ ---------- -------- ---------- ------ ---------- ==========
Balance at January 31, 1998 - - 30,206,896 288,355 (217,153) 440 71,642
Comprehensive income:
Foreign currency translation
adjustment - - - - - 8,655 8,655 8,655
Net loss during the year - - - - (694,809) - (694,809) (694,809)
----------
Total comprehensive income (686,154)
------ ------ ---------- -------- ---------- ------ ---------- ==========
Balance at January 31, 1999 - - 30,206,896 288,355 (911,962) 9,095 (614,512)
Comprehensive income:
Foreign currency translation
adjustment - - - - - (2,251) (2,251) (2,251)
Net loss during the year - - - - (1,433,004) - (1,433,004) (1,433,004)
----------
Total comprehensive income (1,435,255)
------ ------ ---------- -------- ---------- ------ ---------- ==========
Balance at January 31, 2000 - - 30,206,896 288,355 (2,344,966) 6,844 (2,049,767)
====== ====== ========== ======== ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASHFLOWS
Feb 18, 1997
(date of
inception) to
Jan 31, 2000 Jan 31, 1999 Jan 31, 2000
$ $ $
<S> <C> <C> <C> <C>
Net cash flows used in operating activities
Net loss during the period (1,433,004) (694,809) (2,344,966)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 42,286 29,390 84,105
Accounts receivable (11,966) 19,247 (23,892)
Inventories 98,702 (128,134) (28,198)
Prepaid expenses 6,243 (8,342) (12,744)
Accounts payable 51,138 65,953 127,496
Accrued liabilities 118,886 69,878 200,357
---------- -------- ----------
Net cash used in operating activities (1,127,715) (646,817) (1,997,842)
Cash flows used in investing activities:
Acquisitions of property and equipment (46,143) (36,676) (113,897)
Proceeds from sale of vehicles 19,356 - -
---------- -------- ----------
Net cash used in investing activities (26,787) (36,676) (113,897)
Cash flows provided by financing activities:
Short-term credit facility 343,613 66,953 414,518
Borrowings received from notes payable 1,661,472 1,102,884 2,764,356
Repayment of borrowings (833,091) (523,265) (1,323,587)
Principal payments on capital lease (15,857) (8,911) (33,234)
Proceeds from issuance of stock - - 288,640
---------- --------- ----------
Net cash provided by financing activities 1,156,137 637,661 2,110,693
Effect of exchange rate changes on cash (1,635) 835 1,046
Net decrease in cash - (44,997) -
Cash at beginning of period - 44,997 -
---------- --------- ----------
Cash at end of period - - -
========== ========= ==========
Supplemental disclosure of
cash flow information:
Cash paid during the period for:
Interest 79,000 6,100 89,200
Income taxes - - -
</TABLE>
F-7
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF CASHFLOWS
The accompanying notes are an integral part of these statements.
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
NOTE A - COMPANY DESCRIPTION
INVU, Inc. (the Company) is a holding company which operates one subsidiary INVU
Plc, which is a holding company for two subsidiaries of its own, INVU Services
(Services) and INVU International Holdings Limited (Holdings). The Company was
incorporated under the laws of the State of Colorado, United States of America,
in February 1997. INVU Plc, Services and Holdings are companies incorporated
under English Law. The Company operates in one industry segment which includes
developing and selling software for electronic management of many types of
information and documents such as forms, correspondence, literature, faxes,
technical drawings and electronic files. Services is the sales, marketing and
trading company and Holdings holds the intellectual property rights to the INVU
software.
On August 31, 1998, Sunburst Acquisitions I Inc. (Sunburst) (a public
development stage enterprise) acquired all of the outstanding shares of INVU Plc
in exchange for restricted shares of common stock of Sunburst (the Exchange)
pursuant to a Share Exchange Agreement between Sunburst and the principal
shareholders of INVU Plc. Sunburst exchanged 26,506,552 shares of common stock
for all of INVU Plc's issued and outstanding shares of common stock. For
accounting purposes, the Exchange was treated as a recapitalization of INVU Plc
where INVU Plc is the accounting acquirer. All periods have been restated to
give effect to the recapitalization. The historic statements from inception up
to the Exchange are those of INVU Plc. Proforma information is not presented
since this combination is not considered to be a business combination. In
connection with the Exchange, the directors and officers of INVU Plc became the
directors and officers of Sunburst. Also, Sunburst changed its name to INVU,
Inc. At the time of the Exchange, the Company issued 1,510,344 shares of Common
Stock of the Company to a consultant pursuant to a consulting agreement for
introducing INVU Plc and Sunburst. The shares were estimated to have a value of
$750,000 and have been treated as a transaction cost in connection with the
Exchange. Immediately after the Exchange, INVU Plc's former shareholders owned
approximately 88% of the outstanding common stock of Sunburst.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1 Development stage company
The Company (a development stage company) is in the development stage as
defined by Statement of Financial Accounting Standard No. 7, "Accounting
and Reporting by Development Stage Enterprises" (SFAS No. 7).
F-8
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2 Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries INVU Plc, Services and Holdings. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
3 Revenue recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position 97-2 "Software Revenue Recognition" (SOP 97-2) issued
by the American Institution of Certified Public Accountants ("AICPA"). Fees
for services and maintenance are generally charged to customers separately
from the license of software. Revenues from license fees are recognized
upon product shipment when fees are fixed, collectability is probable and
the Company has no significant obligations remaining under the licensing
agreement. In instances where a significant vendor obligation exists,
revenue recognition is delayed until such obligation has been satisfied.
For those license agreements which provide the customers the right to
multiple copies in exchange for guaranteed amounts (including non
refundable advance royalties), license revenues are recognized at delivery
of the product master or the first copy. Per copy royalties on sales which
exceed the guarantee are recognized as earned.
Services revenue consists of training and consulting for which revenue is
recognized when the services are performed. Maintenance revenue consists of
ongoing support and maintenance and product updates for which revenue is
deferred and recognized ratably over the term of the contract, normally
twelve months.
In December 1998, the AICPA issued Statement of Position 98-9 "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions". (SOP 98-9) amends SOP 97-2 to require recognition of revenue
using the residual method for certain multiple-element arrangement
transactions entered into in fiscal years beginning after March 15, 1999.
The Company has assessed the effects of complying with SOP 98-9 and
concluded that there is no significant impact to date on its financial
position or results of operations.
F-9
<PAGE>
4 Software development costs
Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standard No. 86
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" (SFAS No. 86) requires the capitalization of certain
software development costs once technological feasibility is established,
which the Company defines as establishment of a working model. The working
model criteria is used because the Company's process of creating software
(including enhancements) does not include a detailed program design. To
date, the period between achieving technological feasibility and the
general availability of such software has been short and software
development costs qualifying for capitalization have been insignificant.
Accordingly, the Company has not capitalized any software development
costs.
5 Equipment, furniture and fixtures Equipment, furniture and fixtures are
stated at cost. Depreciation is provided in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated services
lives. The straight line method of depreciation is followed for financial
reporting purposes. The useful lives are as follows:
Years
Computer equipment 4
Vehicles 4
Office furniture and fixtures 4
Expenditures for repairs and maintenance are charged to expense as incurred
and additions and improvements that significantly extend the lives of
assets are capitalized. Upon sale or retirement of depreciable property,
the cost and accumulated depreciation are removed from the related accounts
and any gain or loss is reflected in the results of operations.
F-10
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 Cash
For the purpose of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity
of three months or less to be cash equivalents.
7 Inventories
Inventories consist of licensed goods and goods for resale and are stated
at the lower of FIFO (first-in, first-out) cost or market.
8 Advertising costs
Advertising costs of $142,707, $46,336 and $206,136 for the years ended
January 31, 2000 and 1999, and for the period February 18, 1997 (date of
inception) to January 31, 2000, respectively, have been charged to expense
as incurred.
9 Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
An allowance against deferred tax assets is recorded when it is more likely
than not that such tax benefits will not be realized.
10 Use of estimates in financial statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
11 Net loss per share
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share" (SFAS No. 128).
The Company's basic net loss per share amount has been computed by dividing
net loss by the weighted average number of outstanding common shares. For
the years ended January 31, 2000 and 1999 no common stock equivalents were
included in the computation of diluted net earnings per share. Convertible
debentures excluded from the calculation of loss per share because their
effect is anti-dilutive amounted to 1,723,077 common shares for the year
ended January 31, 2000.
12 Fair Value of Financial Instruments
The Company's financial instruments consists of cash, trade receivables,
borrowings, trade payables and accrued liabilities. The carrying amount of
these instruments approximate the fair values because of their short
maturity. The fair value of non- current financial assets and liabilities
are estimated to approximate carrying value based on considerations of
risk, current interest rates and remaining maturities.
13 Foreign currency translation
The functional currency of the Company and its Subsidiaries is the British
pound sterling. The consolidated financial statements are presented in US
dollars using the principles set out in Statement of Financial Accounting
Standard No. 52 "Foreign Currency Translation" (SFAS No. 52). Assets and
liabilities are translated at the rate of exchange in effect at the close
of the period. Revenues and expenses are translated at the weighted average
of exchange rates in effect during the period. The effects of exchange rate
fluctuations on translating foreign currency assets and liabilities into US
dollars are included as part of the accumulated other comprehensive income
component of stockholders' equity.
F-12
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14 Recently Issued Accounting Standards Statement of Financial Accounting
Standard No. 133 (SFAS 133), as modified by SFAS 137 "Accounting for
Derivative Investments and Hedging Activities - Deferral of the Effective
Date of FASB Statement 133", requires entities to recognize all derivatives
in their financial statements as either assets or liabilities measured at
fair value. SFAS 133 also specifies new methods for accounting for hedging
transactions, prescribes the items and transactions that may be hedged, and
specifies detailed criteria to be met to qualify for hedge accounting. SFAS
133, as modified by SFAS 137, is effective for fiscal years beginning after
June 15, 2000. The Company does not believe that the adoption of SFAS 133
will have a material impact on its financial statements.
NOTE C - GOING CONCERN
The Company's liabilities exceed its assets and the Company has incurred losses
from operations primarily as a result of treating virtually all development
expenses since inception as current operating expenses. The Company is not
generating cash from operations. Operations to date have been funded principally
by equity capital and borrowings. The Company plans to continue to fund its
development expenses through additional capital raising activities, including
one or more offerings of equity and/or debt through private placements and/or
public offerings. The Company's ability to continue to develop its
infrastructure depends on its ability to raise other additional capital. The
financial statements do not include any adjustment that might result from the
outcome of this uncertainty.
The Company is still building its operational infrastructure. Additional capital
raised by the Company, if any, will be used for this purpose and to fund its
planned launch of operations within the United Kingdom.
F-13
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - INVENTORIES
Inventories consist of the following:
January 31, January 31,
2000 1999
$ $
Licensed goods 25,110 118,080
Goods for resale - 8,510
------ -------
25,110 126,590
====== =======
Licensed goods represent software licenses purchased by the Company which allow
the Company to manufacture and distribute a separate company's proprietary
software products in conjunction with and as an embedded component of the
Company's proprietary software. Goods for resale represent the finished
consolidated product to be sold to the end user. Licenses amounting to $82,160
have been charged to profits in the year as the Company believes it unlikely to
utilize this proposition of licenses before their expiry in June 2000.
NOTE E - SHORT-TERM CREDIT FACILITY
The Company has a $486,000 ((pound)300,000) (1999: $65,600 ((pound)40,000)), 10%
short-term credit facility with an English bank. The credit facility is
collateralized by all assets of the Company and a limited personal guarantee by
a director of the Company. The amount drawn against the facility at January 31,
2000 was $413,247 ((pound)255,091), (1999 $66,146 ((pound)40,333)). The amount
drawn is payable on demand at the bank's discretion.
F-14
<PAGE>
<TABLE>
<CAPTION>
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations at January 31, 2000 and January 31, 1999, consist of the
following:
January 31, January 31,
2000 1999
$ $
<S> <C> <C>
Non-interest bearing, unsecured loan from an individual, no
stated maturity date 298,009 391,140
8% note payable to corporate investors and individuals
payable in six monthly instalments commencing August 1999;
paid in full using proceeds from Convertible Notes described below(1) - 190,325
4% above Libor rate (Libor rate was 5.75% and 5.75% at
January 31, 2000 and 1999, respectively) notes payable to
an English bank, monthly payment aggregating to (pound)500,
maturing in March 2002, collateralized by all assets
of the Company and a Limited personal guarantee by a director 22,107 32,235
4% above Libor rate (Libor rate was 5.75% and 5.75% at January
31, 2000 and 1999, respectively) notes payable to an English
bank, monthly payments aggregating to (pound)1,333, maturing
in June 2004, collateralized by all assets of the Company and
unlimited multilateral guarantees between subsidiary undertakings;
a quarterly loan guarantee premium of 1 1/2% per annum is payable
on 85% of the outstanding balance 114,480 -
Convertible A Note 1999-2002, with interest at 6%;
interest due in arrears biannually on January 1 and July 1 600,000 -
Convertible B Note 1999-2002, bearing interest of 8% per
annum for the first six months, 9% per annum for the next
six months and 10% per annum thereafter; interest due in arrears
biannually on January 1 and July 1 400,000 -
Capital leases for vehicles, interest ranging from 10.2%
- - 16.9% with maturities through 2004 165,366 18,010
----------------- ------------------
1,599,962 631,710
Less current maturities (1,074,185) (209,517)
----------------- ------------------
525,777 422,193
================= ==================
<FN>
(1) All corporate and individual investors are minority shareholders in the Company.
</FN>
</TABLE>
F-15
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Convertible debentures
The A and B Convertible Notes 1999-2002 are held by individuals who are minority
shareholders in the Company. They are convertible into common shares at the rate
of one common share for every US$0.65 of outstanding principal Note converted
for the A Notes and one common share for every US$0.50 of outstanding principal
Note converted for the B Notes. Conversion will take place:-
i) immediately prior to an Initial Public Offering
ii) at the option of the investor for the B Notes and automatically for the A
Notes, upon new equity capital resulting in proceeds to the Company of at
least $4,000,000
iii)at the option of the investor giving 30 days notice to the Company.
The Notes may be redeemed together with accrued interest by the Company at any
time during the 12 months to 16 August 2000. Any outstanding principal not
converted or redeemed by the anniversary date will be redeemed at par plus
interest in the year 2002 upon receipt of 30 days written notice from the
Company or the Investor.
In consideration of the Investor advancing an aggregate of $1,000,000, the
Company caused Montague Limited the principal shareholder to transfer, and
register in the name of the Investor, 225,000 shares of Common Stock of no par
value.
In view of the Company's present status with regard to its equity and/or debt
offerings, it is probable that the Convertible A and B notes will be converted
within the next twelve months. Accordingly, the notes have been disclosed as
repayable within current maturities.
Scheduled maturities of long-term obligation are as follows:
Year ending January 31,
2001 1,074,185
2002 65,595
2003 91,810
2004 59,563
10,800
298,009
-----------------
1,599,962
=================
F-16
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company leases vehicles under noncancellable capitalized leases.
January 31, January 31,
2000 1999
$ $
Vehicles 226,348 34,706
Less accumulated depreciation (30,958) (6,941)
----------------- -----------------
195,390 27,765
================= =================
The following is a schedule by years of future minimum lease payments under the
capital leases together with the present value of the net minimum lease payments
as of January 31, 2000.
Year ending January 31,
2001 53,250
2002 43,160
2003 75,743
2004 37,365
Thereafter minimum lease payments -
-----------------
209,518
Less amount representing interest (44,152)
-----------------
Present value of net minimum lease payments 165,366
=================
The scheduled net minimum lease payments to maturity are included in the
long-term obligation table above.
F-17
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - LEASE COMMITMENTS
The Company leases office space which expires in 2002. Rent expense totaled
approximately $27,500 and $17,200 at January 31, 2000 and for the year ended
January 31, 1999. The rent expense for the period February 18, 1997 (date of
inception) to January 31, 2000 totaled $57,700. New premises have been leased
effective from February, 2000 at an annual commitment of $67,600.
The future minimum rental commitments as of January 31, 2000 are as follows:
Year ending January 31, $
2001 67,600
2002 67,600
2003 67,600
2004 67,600
405,600
-----------------
676,000
=================
F-18
<PAGE>
INVU, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards No 109 "Accounting for Income Taxes". Accordingly, a deferred tax
liability or deferred tax asset (benefit) is computed by applying the current
statutory tax rates to net taxable or deductible temporary differences between
pre-tax financial and taxable income.
Deferred tax benefits are recorded only to the extent that the amount of net
deductible temporary differences or carry forward attributes may be utilized
against current period earnings, offset against taxable temporary differences
reversing in future periods, or utilized to the extent of management's estimate
of future taxable income. Deferred tax liabilities are provided for on
differences between amounts reported for financial and tax basis accounting.
At January 31, 2000, due to the Company's cumulative losses since inception, a
loss carry forward of approximately $2,087,000 may be utilized in the future for
an indefinite period.
Net deferred tax assets resulting from the loss carry forward have been offset
by a valuation allowance of equal amounts at January 31, 2000 and January 31,
1999 due to the uncertainty of realizing the net deferred tax asset through
future operations. The valuation allowances were approximately $417,000 and
$159,000 at January 31, 2000 and January 31, 1999, respectively. The valuation
allowance increased approximately $258,000 and $118,000 at January 31, 2000 and
1999 respectively. The effective tax rate differs from the statutory rate as a
result of the valuation allowance. Gross deferred tax liabilities were
immaterial for all period.
NOTE I - SUBSEQUENT EVENT
On March 10, 2000 the Company received a non-interest bearing unsecured loan of
$571,500 from an individual with no stated maturity date to provide funds for
trading operations.
F-19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this annual report on Form 10-KSB to be
signed on its behalf by the undersigned thereto duly authorized.
INVU, Inc.
(Registrant)
Date: May 15, 2000 By: /s/ David Morgan
---------------------------
David Morgan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report on Form 10-KSB has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE OFFICE DATE
--------- ------ ----
<S> <C> <C> <C>
/s/ David Morgan President, Chief Executive Officer May 15, 2000
----------------------------- and Chairman of the Board of
David Morgan Directors (Principal Executive
Officer)
/s/ Paul O'Sullivan Director and Chief Technical Officer May 15, 2000
-----------------------------
Paul O'Sullivan
Director May __, 2000
-----------------------------
Daniel Goldman
/s/ John Agostini Director and Chief Finance Officer May 15, 2000
----------------------------- (Principal Financial Officer and
John Agostini Chief Accounting Officer)
/s/ Tom Maxfield Director May 15, 2000
-----------------------------
Tom Maxfield
Director May __, 2000
-----------------------------
David Andrews
</TABLE>
23
<PAGE>
INDEX TO EXHIBITS
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------- ----------------------
2.1 Share Exchange Agreement, dated as of May 19, 1998, by and between the
Company and Montague Limited, as amended by that certain First Amendment to
Share Exchange Agreement, dated as of July 23, 1998 (incorporated by
reference from Exhibit 2.1 of the Company's Current Report on Form 8-K
filed June 8, 1998 and Exhibit 99 of the Company's Amendment to Current
Report on Form 8- K/A filed August 6, 1998).
3.1 Articles of Incorporation of the Company filed on February 25, 1997 with
the Secretary of State of the State of Colorado (incorporated by reference
from Exhibit 3.2 of the Company's Registration Statement on Form 10-SB/A
filed August 29, 1997).
3.2 Amendment to the Articles of Incorporation of the Company filed on February
22, 1999, with the Secretary of State of the State of Colorado
(incorporated by reference from Exhibit 3.2 of the Company's Annual Report
on Form 10-KSB filed October 15, 1999).
3.3 Bylaws of the Company (incorporated by referenc from Exhibit 2.2 of the
Company's Registration Statement on Form 10-SB/A filed August 29, 1997).
10.1 Limited Manufacturing Agreement, dated March 25 1998, by and between INVU
Services Limited and Centura Software Corporation (incorporated by
reference from Exhibit 10.3 of the Company's Annual Report on Form 10-KSB
filed October 15, 1999).
10.2 ** Reseller Agreement, dated March 26, 1998, by an between INVU Services
Limited and Computer Associates Plc and Memorandum Amendment dated July 17,
1998 (incorporated by reference from Exhibit 10.4 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.3 Electronic Software Distribution Agreement, dated as of November 11, 1998,
by and between INVU Services Limited and Digital River, Inc. (incorporated
by reference from Exhibit 10.5 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.4 Distribution Contract dated as of October 27, 1998, by and between INVU
Services Limited and KOCH Media Limited (incorporated by reference from
Exhibit 10.6 of the Company's Annual Report on Form 10-KSB filed October
15, 1999).
10.5 Gold Standard Reseller Agreement, dated as of March 18, 1999, by and
between INVU Services Limited and Elcom Technical Services (incorporated by
reference from Exhibit 10.7 of the Company's Annual Report on Form 10-KSB
filed October 15, 1999).
10.6 Distributor Agreement, dated May 11, 1999, by and between INVU Services
Limited and Millenium Three Solutions Ltd. (incorporated by reference from
Exhibit 10.8 of the Company's Annual Report on Form 10-KSB filed October
15, 1999).
10.7** Gold Standard Reseller Agreement, date June 16, 1999, by and between INVU
Services Limited and Computer Associates International, Inc. (incorporated
by reference from Exhibit 10.9 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
24
<PAGE>
10.8 Distributor Agreement, dated July 1, 1999, by and between INVU Services
Limited and CHS UK Holdings Limited Incorporated (incorporated by refer-
ence from Exhibit 10.10 of the Company's Annual Report on Form 10-KSB
filed October 15, 1999).
10.9 Investment Agreement, dated August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan, Alan David Goldman, and Vertical
Investments Limited (incorporated by reference from Exhibit 10.12 of the
Company's Annual Report on Form 10-KSB filed October 15, 1999).
10.10 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited (incorporated
by reference from Exhibit 10.13 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.11 Loan Stock Instrument, dated as of August 23, 1999, by the Company in
favor of Alan David Goldman and Vertical Investments Limited (incorporated
by reference from Exhibit 10.14 of the Company's Annual Report on Form
10-KSB filed October 15, 1999).
10.12 Supplemental Agreement, dated as of August 23, 1999, among the Company,
Vertical Investments Limited, Alan David Goldman, David Morgan, John
Agostini, Paul O'Sullivan, INVU Services Limited and Tom Maxfield
(incorporated by reference from Exhibit 10.15 of the Company's Annual
Report on Form 10-KSB filed October 15, 1999).
10.13* Distribution Agreement, dated January 29, 2000, by and between INVU
Services and Gem Distribution Limited (Exhibit 10.13).
10.14 Agreement regarding Consulting Services, dated as of May 15, 1998, by and
between the Company and Robert Jeffcock (incorporated by reference from
Exhibit 99 of the Company's Annual Report on Form 10-KSB filed August 13,
1998).
10.15 Consulting Agreement, dated as of December 15, 1998, by and between the
Company and Robert Jeffock (incorporated by reference from Exhibit 10.2 of
the Company's Annual Report on Form 10- KSB filed October 15, 1999).
10.16* Overdraft Facility Agreement, dated December 13, 1999, by and between
INVU Services Limited and HSBC Bank plc. (Exhibit 10.16).
10.17* Convertible Debenture Purchase Agreement, dated as of May 1, 2000 by and
among the Company and the Purchasers listed on Schedule 1 thereof.
(Exhibit 10.17).
10.18* Form of 3 Percent Convertible Debenture by and among the Company and the
Purchasers listed on Schedule 1 of the Convertible Debenture Purchase
Agreement. (Exhibit 10.18).
10.19* Form of Warrant by and between the Company and the Purchasers listed on
Schedule 1 of the Convertible Debenture Purchase Agreement. (Exhibit
10.19).
10.20* Registration Rights Agreement, dated as of May 1, 2000, by and among the
Company, GEM Global Yield Fund Limited and Turbo International Ltd.
(Exhibit 10.20).
10.21* Debenture and Warrant Shares Escrow Agreement, dated as of May 1, 2000,
by and among the Company, Kaplan Gottbetter & Levenson, LLP, GEM Global
Yield Fund Limited and Turbo International Ltd. (Exhibit 10.21).
10.22* Warrant Purchase Agreement, dated as of May 1, 2000, by and between the
Company and Turbo International, Ltd. (Exhibit 10.22).
10.23* Schedules to the Convertible Debenture Purchase Agreement, dated as of
May 1, 2000. (Exhibit 10.23).
10.24* Demand Promissory Note, dated May 1, 2000, by and between the Company and
GEM Advisors, Inc. (Exhibit 10.24).
21 Subsidiaries of the Company (incorporated by reference from Exhibit 21 of
the Company's Annual Report on Form 10-KSB filed October 15, 1999).
27* Financial Data Schedule.
25
<PAGE>
*Filed herewith
** Incorporated by reference, confidential treatment requested.
26
Exhibit 10.13
Distribution Agreement
----------------------
Between Gem Distribution and Invu Services, Ltd. ("Company").
This agreement dated January 29, 2000 sets forth the terms and conditions under
which Gem Distribution Ltd. ("Gem"), maintaining its principal place of business
at Lovet Road, The Pinnacles, Harlow, Essex CM19 5TB and its registered office
at Shorten Brook Way, Altham Business Park, Altham, Accrington, Lancashire, BB5
5YJ will distribute products Published by Company.
3.1 Company hereby appoints Gem the right to distribute the products produced
by Company.
- --------------------------------------------------------------------------------
1.1 Sales to Gem. Company agrees to sell Products (the " Products") to GEM and
GEM agrees to purchase Products on the terms and subject to the conditions
of this agreement.
1.2 Sale for Resale. Company sells Products to GEM on condition that they be
sold by GEM to dealers of Products in the UK and EU, and that they not
knowingly be sold to end users.
1.3 Barcodes and Packaging. All products must be supplied shrink-wrapped and
Bar-coded to EAN Standards.
- --------------------------------------------------------------------------------
2.1 Price. The price paid for products must have been previously agreed by Gem
and must conform to the price stated on any purchase order received by
Company.
3.2 Prices and Payment.
(i) Prices and Price Lists: Unless otherwise agreed, all prices for
Products will be listed Pounds Sterling (pound) (the "Base Prices").
COMPANY will provide a list of the Base Prices for Products (the "Base
Price List"), which must be signed by Gem to be valid.
(ii) VAT and other taxes not included: the Base Prices to not include VAT.
2.3 Payment Terms. Terms of payment will be ___ days from the date of invoice.
2.4 Settlement Discount. A settlement discount of 2.5% will be given for
payment within 15 days of invoice date.
2.5 Negative Balance. Company agrees to pay back any negative balance on the
gem account at request of Gem.
2.6 Rebate. Company agrees to Gem a rebate of 5% o previous quarters net
business as a rebate.
- --------------------------------------------------------------------------------
3.1 Stock Protection. Gem shall have the right to return 10 of the product
purchased within any preceding Month for full credit.
3.2 Version Protection. In the event of an updated version of a product
becoming available Gem shall have the right to return all previous versions
of products purchased for exchange to the latest products.
- --------------------------------------------------------------------------------
<PAGE>
4.1 Exceptional SOR. Occasionally Gem is required to offer sale or return on
products to facilitate inclusion into major accounts. Company agrees to
extend this option to Gem where required, after confirmation of acceptance
by Company.
- --------------------------------------------------------------------------------
5.1 Base Price Increases. COMPANY may increase the Base Price for any of
Company Product(s) upon not less than sixty (60) days written notice. This
cannot be put into effect until signed confirmation has been received from
Gem.
5.2 Base Price Decreases. COMPANY may decrease the Base Prices for any Company
Product upon written notice. The decreased Bast Price(s) shall apply to all
units ordered but not yet shipped on the effective date of the price
decrease (the "Base Price Decrease Effective Date") and orders received
after such date.
5.3 Credits for Base Price Decreases. In the event that COMPANY decreases the
Base Price to be paid by GEM for any Company Product COMPANY agrees to
credit the GEM purchase account with (i) the sum of the difference between
(a) the Base Price for the Company Product immediately prior to the Base
Price Decrease Effective date, and (b) the decreased Base Price for the
Company Product multiplied by (ii) GEM actual inventory balance on the Base
Price Decrease Effective Date of units of the Company Product purchased.
(i.e. (Old Base Price - New Base Price) * (actual inventory balance)).
- --------------------------------------------------------------------------------
6.1 Freight Charges. All products shall be delivered to the Gem warehouse
located in Altham, Lancashire free of charge.
- --------------------------------------------------------------------------------
7.1 Faulty Product. All Faulty Products returned by Gem to Company, or where a
product supplied cannot be used for its intended purpose shall receive full
credit.
- --------------------------------------------------------------------------------
8.1 Marketing Fund. Company agrees to pay a Gem a Marketing Incentive Fund
("MIF") of 5% of the previous months Invoices. This can only be used with
prior approval of Company.
8.2 Launch Costs. An Initial fee of(pound)2,500 will be requ ir for launch of
product through Gem Distribution.
- --------------------------------------------------------------------------------
9.1 Year 2000 Compliance: All Software provided by company to Gem must have
year 2000 conformity as defined in the British Standards Institution's
document DISC PD 2000. "A Definition of Year 2000 Conformity".
9.2 Year 2000 Indemnity: Company will fully indemnify Gem against any loss,
damage, claim, fine, liability, cost or expense of whatever nature
resulting from any software supplied by you failing to have Year 2000
Conformity.
- --------------------------------------------------------------------------------
10.1 Termination. Either party can terminate this contract a not less than
ninety (90) days written notice.
<PAGE>
This agreement shall be governed and interpreted in accordance with the laws of
England.
The parties have executed this Agreement as of the date below. All signed copies
of this Agreement shall be deemed originals.
On behalf of Gem Distribution Ltd. On behalf of Company.
By: /s/ By: /s/
Title: Commercial Director Title: President
Dated: 29-1-00 Dated: 28/1/00
Exhibit 10.16
The Directors
Invu Services Limited
Unit P1
Blisworth Hill Farm
Stoke Road
Blisworth
Northamptonshire
NN7 3DB
13 December 1999
Dear Sirs
We are pleased to continue to make available an overdraft facility to you, Invu
Services Limited, subject to the terms and conditions as set out in our facility
letter dated 23 June 1999, except as amended below:
1 LIMIT
The Limit will be (pound)300000 (Three hundred thousand pounds).
2 SECURITY
The security listed in the attached schedule is to be held.
You will have to pay to us all costs, expenses, fees (including but not
limited to any legal, security and valuation fees), stamp duty, taxes and
other charges, and registration costs incurred or charged by us in
connection with the negotiation, preparation, investigation,
administration, supervision or enforcement of your overdraft facility, the
facility letter (as amended), or any security. We will debit these costs
to your account and tell you the amount of these costs before we do so.
3 FEES
There will be an arrangement fee of (pound)3000 for you to pay. This will
be debited to your account in instalments. (i.e. (pound)1500 when we have
received your acceptance and (pound)1500 at the end of January 2000).
<PAGE>
The increased Limit will be available when we have received your acceptance
together with a copy, certified by the Chairman and Secretary, of a board
resolution of the Directors in a form acceptable to us, approving the increased
overdraft facility.
Without prejudice to the terms and conditions of our facility letter (as
amended) your overdraft facility is due for review in January 2000.
If you wish to accept the revised terms and conditions relating to your
overdraft facility as set out in this letter please sign and return the enclosed
copy of this letter.
Yours sincerely,
/s/
B E Hocken
Senior Business Banking Manager
For and on behalf of HSBC Bank plc
<PAGE>
SECURITY SCHEDULE
Debenture including Fixed Equitable Charge over all present and future freehold
and leasehold property; First Fixed Charge over, among other things, book and
other debts, chattels, goodwill and uncalled capital, both present and future;
and First Floating Charge over all assets and undertaking both present and
future given by Invu Services Limited.
Unlimited Multilateral Company Guarantee given by Invu Services Limited and Invu
plc and Invu International Holdings Limited to secure all liabilities of each
other. Supported by:
Debenture including Fixed Equitable Charge over all present and future
freehold and leasehold property; First Fixed Charge over, among other
things, book and other debts, chattels, goodwill and uncalled capital,
both present and future; and First Floating Charge over all assets and
undertaking both present and future given by Invu plc.
Debenture including Fixed Equitable Charge over all present and future
freehold and leasehold property; First Fixed Charge over, among other
things, book and other debts, chattels, goodwill and uncalled capital,
both present and future; and First Floating Charge over all assets and
undertaking both present and future given by Invu International
Holdings Limited.
Guarantee for (pound)40000 to secure all liabilities of Invu Services Limited
given by Peter Fraser.
Guarantee for (pound)12500 to secure all liabilities of Invu Services Limited
given by David Morgan.
Guarantee for (pound)2500 to secure all liabilities of Invu Services Limited
given by David Morgan.
Guarantee for (pound)300000 to secure all liabilities of Invu Services Limited
given by Peter Fraser and Vertical Investments Limited.
Letter of Comfort to be given by Invu Inc. in respect of banking facilities made
available to Invu Services Limited by the bank.
Authority over Third Party Deposits given by David Morgan over monies deposited
with the bank from time to time.
Exhibit 10.17
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
By and Among
GEM GLOBAL YIELD FUND LIMITED
and
TURBO INTERNATIONAL LTD.
(the "Purchasers")
and
INVU, INC.
(the "Company")
--------------------------------------------
Dated as of May 1, 2000
--------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Article I Certain Definitions.................................... 1
Article II Purchase of Debentures and Warrants.................... 5
Article III Representations and Warranties......................... 8
Article IV Other Agreements of the Parties........................ 12
Article V Conditions Precedent to Closing........................ 21
Article VI Termination............................................ 23
Article VII Legal Fees and Default Interest Rate................... 24
Article VIII Miscellaneous.......................................... 24
Exhibit A Form of Convertible Debenture
Exhibit B Form of Warrant
Exhibit C Form of Registration Rights Agreement
Exhibit D Conversion Procedures
Exhibit E Form of Escrow Agreement
Exhibit F Form of Power of Attorney
Exhibit G Form of Legal Opinion
Exhibit H Form of Notice of Conversion
Exhibit I Form of Notice of Exercise
Exhibit J Form of Termination Warrant
Schedule 1 List of Purchasers
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(e) Conflicts
Schedule 3.1(f) Required Consents and Approvals
Schedule 3.1(g) Litigation
Schedule 3.1(h) No Default or Violation
<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
THIS AGREEMENT, dated as of May 1, 2000 (this "Agreement"), is by and
among INVU, Inc., a Colorado corporation with its executive offices at The
Beren, Blisworth Hill Farm, Stoke Road, Blisworth, Northamptonshire (the
"Company"), and the purchasers listed on Schedule 1 hereof (each individually,
the "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company desires to issue and sell to the Purchasers and
the Purchasers desire to acquire the Company's 3% Convertible Debentures, due
May 2003 (the "Debentures").
IN CONSIDERATION of the mutual covenants, promises and agreements set
forth herein, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, and
unless the context requires a different meaning, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities by contract or otherwise.
"Agreement" shall mean this Convertible Debenture Purchase Agreement
and the Exhibits and Schedules annexed hereto.
"Business Day" means any day except Saturday, Sunday and any day which
is a legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government actions to close,
between the hours of 9:30 a.m. and 6:00 p.m. New York Time.
"Closing" shall have the meaning set forth in Section 2.2(b).
"Closing Date" shall mean the date of Closing, as set forth in Section
2.2(b).
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder as in effect on the date hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means shares now or hereafter authorized of the class
of common stock, no par value, of the Company and stock of any other class into
which such shares may hereafter have been reclassified or changed.
"Company" shall have the meaning set forth in the introductory
paragraph.
"Debentures" means the 3% Convertible Debentures of the Company, due
May 2003, which are annexed hereto as Exhibit A and made a part hereof.
"Debenture Escrow Shares" shall have the meaning set forth in Section
2.2(c).
"Demand Note" shall mean the demand promissory note issued on even
date of this Agreement by the Company payable to GEM in the original principal
amount of $100,000.
"Disclosure Documents" means the disclosure package consisting of the
Company's Annual Report on Form 10-KSB for the fiscal year ended January 31,
1999, the Quarterly Report on Form 10- QSB for the quarter ended April 30, 1999,
the Quarterly Report on Form 10-QSB for the quarter ended July 31, 1999, the
Quarterly Report on Form 10-QSB for the quarter ended October 31, 1999 (each as
filed with the Commission), delivered to the Purchasers in connection with the
offering by the Company of the Debentures and the Schedules to this Agreement
furnished by or on behalf of the Company pursuant to Section 3.1.
"Effective Date" shall have the meaning set forth in Section 2.2(b).
"Escrow Agent" means Kaplan, Gottbetter & Levenson, LLP, 630 Third
Avenue, 5th Floor, New York, NY 10017; Tel: 212-983-6900; Fax: 212-983-9210.
"Event of Default" shall have the meaning set forth in the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GEM" means GEM Advisors, Inc., with its registered address at 712
Fifth Avenue, 7th Floor, New York, NY 10019; Phone: 212-582-3400; Fax:
212-265-4035.
"Indemnified Party" shall have the meaning set forth in Section
4.16(b).
<PAGE>
"Indemnifying Party"shall have the meaning set forth in Section
4.16(b).
"KGL" shall have the meaning set forth in Section 4.28.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Limitations on Conversion" shall have the meaning set forth in
Section 4.19.
"Losses" shall have the meaning set forth in Section 4.16(a).
"Material" shall mean having a financial consequence in excess of
$100,000.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(a).
"Minimum Stock Price" shall have the meaning set forth in Section
5.1(h).
"Minimum Stock Price Determination Date" shall have the meaning set
forth in Section 5.1(h).
"NASD" means the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the Nasdaq Stock Market, Inc.(R)
"OTCBB" shall mean the OTC Bulletin Board(R).
"Per Debenture Consideration" shall have the meaning set forth in
Section 2.2(a).
"Per Share Market Value" of the Common Stock means on any particular
date (a) the last sale price of shares of Common Stock on such date or, if no
such sale takes place on such date, the last sale price on the most recent prior
date, in each case as officially reported on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading, or (b)
if the Common Stock is not then listed or admitted to trading on any national
securities exchange, the closing bid price per share as reported by Nasdaq, or
(c) if the Common Stock is not then listed or admitted to trading on the Nasdaq,
the closing bid price per share of the Common Stock on such date as reported on
the OTCBB or if there is no such price on such date, then the last bid price on
the date nearest preceding such date, or (d) if the Common Stock is not quoted
on the OTCBB, the closing bid price for a share of Common Stock on such date in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices) or if there is no such price on such date, then the last bid
price on the date nearest preceding such date, or (e) if the Common Stock is no
longer publicly traded, the fair market value of a share of Common Stock as
determined by an Appraiser (as defined in Section 4(c) (iv) of the Debenture)
<PAGE>
selected in good faith by the holders of a majority of principal amount of
outstanding Debentures; provided, however, that the Company, after receipt of
the determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case, the fair market value shall be equal to the
average of the determinations by each such Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Purchase Price" shall have the meaning set forth in Section 2.2(a).
"Purchaser" and "Purchasers" shall have the meaning set forth in the
introductory paragraph.
"Required Approvals" shall have the meaning set forth in Section
3.1(f).
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
"Termination Warrants" means the common stock purchase warrants issued
to the Purchasers and/or their assigns, in the form annexed hereto as Exhibit J.
"Trading Day" means (a) a day on which the Common Stock is quoted on
Nasdaq, the OTCBB or the principal stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not quoted on Nasdaq, the OTCBB or
any stock exchange, a day on which the Common Stock is quoted in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
"Transaction Documents" means this Agreement, the Registration Rights
Agreement annexed hereto as Exhibit C, the Escrow Agreement annexed hereto as
Exhibit E, the Power or Attorney annexed hereto as Exhibit F, and all other
documents, instruments and writings required to have been delivered by the
Company at the Execution Date pursuant to this Agreement.
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debenture.
<PAGE>
"Warrant" means the common stock purchase warrant issued to the
Purchasers and/or their assigns, in the form annexed hereto as Exhibit B.
"Warrant Escrow Shares" shall have the meaning as set forth in Section
2.2(c).
"Warrant Shares" means the shares of Common Stock for which the
Warrants can be exercised in accordance with the terms hereof and the Warrant.
ARTICLE II
PURCHASE OF DEBENTURES AND WARRANTS
Section 2.1. Execution of Documents; Delivery of Termination Warrants.
(a) As soon as practicable after the execution by all parties
(the "Execution Date") of the Transaction Documents and the execution and
delivery by the Company of the Termination Warrants, the Company shall, in
accordance with the Registration Rights Agreement, file a duly completed
registration statement on the appropriate form with the Commission to register
the resale of the Underlying Shares and the Warrant Shares under the Securities
Act.
(b) As consideration for entering into this Agreement, in the
event this Agreement is terminated for any reason pursuant to Section 6.1 or
Section 6.3 herein, (i) the Company shall pay the Purchasers, within three (3)
Business Days of the date of termination, an aggregate of One Hundred Thousand
Dollars (US$100,000) in such allocation as set forth in Schedule 1, and (ii) the
Purchasers shall retain the Termination Warrants and any and all rights and
privileges thereunder without condition or obligation to the Company.
Section 2.2. Purchase of Debentures and Delivery of Warrants; Closing.
(a) Subject to the terms and conditions set forth in this
Agreement, the Company hereby agrees to issue and sell to the Purchasers, and
the Purchasers hereby agree to purchase from the Company on the Closing Date the
amount of Debentures and the number of Warrants listed opposite each of the
Purchasers' names on Schedule 1. The Debentures shall have the respective
rights, preferences and privileges set forth in the form of Debenture annexed as
Exhibit A, at a price per Debenture of One Thousand Dollars (US$1,000) (the "Per
Debenture Consideration"). The Per Debenture Consideration multiplied by the
number of Debentures to be purchased by the Purchasers hereunder is hereinafter
referred to as the "Purchase Price". The total principal amount of Debentures to
be purchased by the Purchasers and the total Purchase Price shall be Five
Million Dollars (US$5,000,000). The Warrants shall have the respective terms and
conditions as set forth in the form of Warrant annexed as Exhibit B.
(b) The closing of the purchase and sale of the Debentures and
issuance of the Warrants (the "Closing") shall take place at the offices of the
Escrow Agent no later than five (5) Business Days after the registration
<PAGE>
statement, in accordance with and subject to the Registration Rights Agreement
annexed as Exhibit C, is granted effectiveness by the Commission, time being of
the essence, unless the parties agree in writing to extend such date. The
effective date of the Registration Statement (the "Effective Date") shall occur
no later than one hundred-ninety (190) days after the Execution Date (unless
such day is not a Business Day, then the next Business Day), unless all of the
Purchasers agree in advance in writing to extend such 190 day period and set
forth the new effective date deadline. The date of the Closing is hereinafter
referred to as the "Closing Date".
(c) At the Closing, the Company shall deliver to the Escrow
Agent the following:
(i) original and duly executed Debentures registered
in the names of the Purchasers in the amounts set
forth in Schedule 1;
(ii) original and duly executed Warrants registered in
the names of the Purchasers in the amounts
proportionate to the principal amount of
Debentures purchased by each Purchaser as set
forth in Schedule 1;
(iii) The number of shares of duly issued Common Stock
of the Company equal to four (4) times the number
of shares of Common Stock otherwise issuable as if
the Debentures were converted in their entirety on
the Closing Date, in share denominations of ten
thousand (10,000) shares registered in the name of
each of the Purchasers in the amounts
proportionate to the principal amount of
Debentures purchased by each Purchaser set forth
in Schedule 1 for use in the conversion of the
Debentures (the "Debenture Escrow Shares");
(iv) The number of shares of duly issued Common Stock
of the Company equal to four (4) times the number
of shares of Common Stock otherwise issuable as if
the Warrants were exercised in their entirety on
the Closing Date in share denominations of ten
thousand (10,000) shares registered in the name of
each of the Purchasers in the amounts
proportionate to the principal amount of
Debentures purchased by each Purchaser set
forth in Schedule 1 for use in the exercise of the
Warrants (the "Warrant Escrow Shares");
(v) the legal opinion in substantially the form
annexed hereto as Exhibit G, addressed to the
Purchasers and dated the Closing Date from the
Counsel for the Company;
(vi) a certificate, dated the Closing Date, signed
by the Secretary or an Assistant Secretary of
the Company and certifying (i) that attached
<PAGE>
thereto is a true, correct and complete copy of
(A) the Company's Articles of Incorporation, as
amended to the date thereof, (B) the Company's
By-Laws, as amended to the date thereof, (C)
resolutions duly adopted by the Board of Directors
of the Company authorizing the execution and
delivery of this Agreement, the issuance and sale
of the Debentures, Warrants and the Underlying
Shares and the appointment of the Attorney-in-Fact
pursuant to Section 4.15 attached hereto as
Exhibit F, and (D) a certificate of good standing
from the Secretary of State of Colorado and (ii)
the incumbency of officers executing this
Agreement; and
(vii) all other documents, instruments and writings
required to have been delivered or necessary at or
prior to Closing by the Company pursuant to this
Agreement.
(d) Upon receipt by the Escrow Agent of those items set forth
above, the Purchasers shall deliver the following to the Escrow Agent:
(i) fifty percent (50%) of the Purchase Price as
determined pursuant to this Section 2 in United
States dollars in immediately available funds
by wire transfer to an account designated in
writing by the Escrow Agent prior to the Closing;
(ii) the Termination Warrants;
(iii) all documents, instruments, and writings required
to have been delivered or necessary at or prior to
Closing by the Purchasers
pursuant to this Agreement; and
(iv) within one hundred twenty (120) days after the
Closing Date, the remaining fifty percent (50%)
of the Purchase Price as determined pursuant
to this Section 2 in United States dollars in
immediately available funds by wire transfer to
an account designated in writing by the Escrow
Agent prior to the 120th day after the Closing
Date.
(e) Upon receipt of all of the items set forth in
subparagraphs (c) and (d)(i)-(iii) of this Section, the Escrow Agent shall
deliver fifty percent (50%) of the Purchase Price less the fees set forth in
Section 4.28 and less the amount pursuant to Section 4.27, to the Company in
accordance with its written instructions, and shall deliver the items set forth
in subparagraph (c), with the exception of fifty percent (50%) of the Debentures
and fifty percent (50%) of the Warrants, the Debenture Escrow Shares and Warrant
Escrow Shares which shall be held in accordance with the terms of this
Agreement, the Debenture and the Escrow Agreement, to the Purchasers. Upon the
Escrow Agent's receipt of the remaining fifty percent (50%) of the Purchase
<PAGE>
Price from the Purchasers in accordance with subparagraph (d)(iv) of this
Section, the Escrow Agent shall deliver the remaining fifty percent (50%) of the
Purchase Price to the Company in accordance with its written instructions, and
shall deliver the remaining fifty percent (50%) of the Debentures and fifty
percent (50%) of the Warrants to the Purchasers.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company. Except as
previously disclosed to the Purchasers, the Company hereby represents and
warrants to the Purchasers as follows, all of which survive Closing:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with the requisite corporate
power and authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule 3.1(a) (collectively, the "Subsidiaries"). Each of the
Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on (a) the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, or (b) the Purchasers'
rights under this Agreement, the Escrow Agreement, the Debenture and the
Warrants (a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, liquidation or similar laws relating to, or affecting generally the
enforcement of, creditors' rights and remedies or by other equitable principles
of general application.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company and each of the Subsidiaries is set forth in
Schedule 3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically set forth in Schedule 3.1(c), there are no
outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Debentures hereunder, securities, rights or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
<PAGE>
Neither the Company nor any Subsidiary is in violation of any of the provisions
of its respective articles of incorporation, bylaws or other charter documents
or resolutions.
(d) Issuance of Debentures and Warrants. The Debentures and
Warrants have been duly and validly authorized for issuance, offer and sale
pursuant to this Agreement and, when issued and delivered as provided hereunder
against payment in accordance with the terms hereof, shall be valid and binding
obligations of the Company enforceable in accordance with their terms. The
Company has and at all times while the Debentures and Warrants are outstanding
has and will continue to maintain an adequate reserve of shares of Common Stock
to enable it to perform its obligations under this Agreement, the Debentures and
Warrants. When issued in accordance with the terms hereof and the Debentures and
the Warrants, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable. There are not outstanding any equity or equity
equivalent security substantially similar to the Debentures, including any
security with a floating conversion price substantially similar to the
Debentures.
(e) No Conflicts. Except as set forth in Schedule 3.1(e), the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its or its
Subsidiaries' articles of incorporation, resolutions or bylaws or (ii) be
subject to obtaining the consents referred to in Section 3.1(f), conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including Federal and State securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 3.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, permit, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, State, local or other govern
mental authority or other Person in connection with the execution, delivery and
performance by the Company of this Agreement, other than the applicable filings
under State and federal securities laws (collectively, the "Required
Approvals").
(g) Litigation; Proceedings. Except as specifically set forth
in Schedule 3.1(g), there is no action, suit, notice of violation, proceeding,
inquiry or investigation pending or threatened against or affecting the Company
or any of its Subsidiaries or any of their respective properties before or by
any court, governmental or administrative agency or regulatory authority
(Federal, State, county, local or foreign) which (i) relates to or challenges
the legality, validity or timely enforceability of this Agreement or
<PAGE>
the Debentures and Warrants, (ii) could, individually or in the aggregate, have
a Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Company to perform fully on a timely basis
its obligations under this Agreement.
(h) No Default or Violation. Except as specifically set forth
in Schedule 3.1(h), neither the Company nor any Subsidiary (i) is in default
under or in violation of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, except such conflicts or defaults as do not have a Material
Adverse Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body, except for such violations as do not have a Material Adverse
Effect, or (iii) is in violation of any statute, rule or regulation of any
governmental authority which could (individually or in the aggregate) (x)
adversely affect the legality, validity or enforceability of this Agreement, (y)
have a Material Adverse Effect or (z) adversely impair the Company's ability or
obligation to perform fully on a timely basis its obligations under this
Agreement.
(i) Certain Fees. No fees or commission will be payable by the
Company to any investment banker, broker, placement agent or bank with respect
to the consummation of the transactions contemplated hereby except as provided
in Section 4.28.
(j) Disclosure Documents. The Disclosure Documents are
accurate and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(k) Reporting Company. The Company is subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act and is current
in its reporting requirements.
Each of the Purchasers acknowledge and agree that the Company makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Section 3.1 herein.
Section 3.2. Representations and Warranties of the Purchasers. The
Purchasers hereby represent and warrant to the Company as follows:
(a) Organization and Qualification. Each of the Purchasers is
a corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation.
(b) Authorization; Enforcement. Each of the Purchasers has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
purchase of the Debentures and the Warrants by the Purchasers hereunder have
been duly authorized by all necessary action on the part of each of the
Purchasers. This Agreement has been duly executed and delivered by each of the
Purchasers or on its behalf and constitutes the valid and legally binding
<PAGE>
obligation of the Purchasers, enforceable against each of the Purchasers in
accordance with its terms; except as such enforceability may be limited by
applicable bankruptcy, insolvency, liquidation, fraudulent transfer,
reorganization, moratorium and remedies or by other equitable principles of
general application or similar laws relating to or affecting generally the
enforcement of creditors' rights.
(c) Investment Intent. Each Purchaser is acquiring the
Debentures, Warrants, Underlying Shares and the Warrant Shares for its own
account for investment purposes only and not with a view to or for distributing
or reselling such Debentures, Warrants, Underlying Shares or Warrant Shares or
any part thereof or interest therein, without prejudice, however, to the
Purchasers' right, subject to the provisions of this Agreement, at all times to
sell or otherwise dispose of all or any part of such Debentures, Warrants,
Underlying Shares or Warrant Shares in compliance with applicable federal and
State securities laws.
(d) Purchasers' Status. At the time each of the Purchasers was
offered the Debentures and/or the Warrants, it was, and at the date hereof, it
is, and at the Closing Date, it will be, an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
(e) Experience of Purchasers. Each of the Purchasers, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of the prospective investment in the Debentures,
and has so evaluated the merits and risks of such investment.
(f) Ability of Purchaser to Bear Risk of Investment. Each of
the Purchasers is able to bear the economic risk of an investment in the
Debentures and, at the present time, is able to afford a complete loss of such
investment.
(g) Prohibited Transactions. The Debentures to be purchased by
each of the Purchasers are not being acquired, directly or indirectly, with the
assets of any "employee benefit plan", within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(h) Access to Information. Each of the Purchasers acknowledges
receipt of the Disclosure Documents and further acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Debentures and the Warrants and the
merits and risks of investing in the Debentures and the Warrants; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Debentures and the Warrants; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire which is necessary to make an informed investment decision with
respect to the Debentures and the Warrants.
<PAGE>
(i) Reliance. Each of the Purchasers understands and
acknowledges that (i) the Debentures and the Warrants are being offered and
sold, and the Underlying Shares and Warrant Shares are being offered, to it
without registration under the Securities Act in a transaction that is exempt
from the registration provisions of the Securities Act and (ii) the availability
of such exemption, depends in part on, and that the Company will rely upon the
accuracy and truthfulness of, the foregoing representations and each of the
Purchasers hereby consents to such reliance.
(j) Corporate Domicile. Each of the Purchasers is a foreign
corporation and has its residence or corporate domicile outside the United
States.
(k) Current Funds. Purchasers have, and will have at Closing,
readily available the current funds required to purchase the Debentures.
The Company acknowledges and agrees that each of the Purchasers makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Section 3.2 herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
Section 4.1. Manner of Offering. The Debentures and Warrants are being
issued pursuant to Rule 506 of Regulation D of the Securities Act. The
Debentures, Warrants, Underlying Shares and the Warrant Shares will bear
restrictions on transfer, and will carry a restrictive legend with respect to
the exemption from registration under the Securities Act. The transfer and
resale of the Debentures, the Warrants and the Underlying Shares may be made
only pursuant to registration under the Securities Act or an exemption from such
registration.
Section 4.2. Furnishing of Information. As long as each of the
Purchasers owns Debentures, the Warrants, Underlying Shares or the Warrant
Shares, the Company will furnish to it, promptly after they have been prepared
all annual, quarterly reports and other reports and filings required by Section
13(a) or 15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall on a
continuing basis (i) advise each of the Purchasers promptly after obtaining
knowledge thereof, and, if requested by any of the Purchasers, confirm such
advice in writing, of (A) the issuance by any State securities commission of any
stop order suspending the qualification or exemption from qualification of the
Debentures, the Warrants or the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any State
securities commission or other regulatory authority, or (B) any event that makes
any statement of a material fact made in the Disclosure Documents untrue or that
requires the making of any additions to or changes in the Disclosure Documents
in order to make the statements therein, in the light of the circumstances under
which they are made, not misleading, (ii) use its best efforts to prevent the
<PAGE>
issuance of any stop order or order suspending the qualification or exemption
from qualification of the Debentures, the Warrants or the Common Stock under any
State securities or Blue Sky laws, and (iii) if at any time any State securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Debentures, the Warrants or
the Common Stock under any such laws, use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
Section 4.4. Copies and Use of Disclosure Documents. The Company shall
furnish each of the Purchasers, without charge, as many copies of the Disclosure
Documents, and any amendments or supplements thereto, as each of the Purchasers
may reasonably request. The Company consents to the use of the Disclosure
Documents, and any amendments and supplements thereto, by each of the Purchasers
in connection with resales of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares other than pursuant to an effective registration statement.
Section 4.5. Modification to Disclosure Documents. If any event shall
occur as a result of which, in the reasonable judgment of the Company or any of
the Purchasers, it becomes necessary or advisable to amend or supplement the
Disclosure Documents in order to make the statements therein, in the light of
the circumstances at the time the Disclosure Documents were delivered to any of
the Purchasers, not misleading, or if it is necessary to amend or supplement the
Disclosure Documents to comply with applicable law, the Company shall promptly
prepare an appropriate amendment or supplement to the Disclosure Documents (in
form and substance reasonably satisfactory to both the Purchasers and Company)
so that (i) as so amended or supplemented the Disclosure Documents will not
include an untrue statement of material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to any of the Purchasers, not
misleading and (ii) the Disclosure Documents will comply with applicable law.
Section 4.6. [Reserved].
Section 4.7. Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Debentures, the Warrants, Underlying Shares, or the Warrant Shares in a manner
that would require the registration under the Securities Act of the sale of the
Debentures and the Warrants to the Purchasers.
Section 4.8. Furnishing of Rule 144A Materials. The Company shall, for
so long as any of the Debentures, the Warrants, Underlying Shares or Warrant
Shares remain outstanding and during any period in which it is not subject to
Section 13 or 15(d) of the Exchange Act, make available to any registered holder
of Debentures, the Warrants, Underlying Shares or Warrant Shares in connection
with any sale thereof and any prospective purchaser of such Debentures,
Warrants, Underlying Shares or Warrant Shares from such Person, the following
information in accordance with Rule 144A(d)(4) under the Securities Act: a brief
statement of the nature of the business of the Company and the products and
services it offers and the Company's most recent audited balance sheet and
<PAGE>
profit and loss and retained earnings statements, and similar audited financial
statements for such part of the two preceding fiscal years as the Company has
been in operation.
Section 4.9. Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Debentures, the Warrants, Underlying Shares or Warrant Shares other than the
Disclosure Documents and any amendments and supplements thereto prepared in
compliance herewith or (ii) solicit any offer to buy or sell the Debentures, the
Warrants, Underlying Shares or Warrant Shares by means of any form of general
solicitation or advertising.
Section 4.10. Subsequent Financial Statements. The Company shall
furnish to the Purchasers, promptly after they are filed with the Commission, a
copy of all financial statements for any period subsequent to the period covered
by the financial statements included in the Disclosure Documents until the
earlier of the full conversion of the Debentures or the Maturity Date of the
Debentures.
Section 4.11. Prohibition on Certain Actions. From the date hereof
through the Closing Date, the Company shall not and shall cause the Subsidiaries
not to, without the prior written consent of the Purchasers, (i) amend its
Articles of Incorporation, bylaws or other charter documents so as to adversely
affect any rights of the Purchasers; (ii) split, combine or reclassify its
outstanding capital stock; (iii) declare, authorize, set aside or pay any
dividend or other distribution with respect to the Common Stock; (iv) redeem,
repurchase or offer to repurchase or otherwise acquire shares of its Common
Stock; or (v) enter into any agreement with respect to any of the foregoing.
Section 4.12. Listing of Common Stock. The Company shall use its best
efforts to maintain the quote for its Common Stock on the OTCBB (or listing on a
national securities exchange or market on which the Common Stock is listed)
during the period that the Debentures may be converted hereunder by the
Purchasers or the Warrants may be exercised, and shall provide to the Purchasers
evidence of such listing.
Section 4.13 Escrow. The Company and the Purchasers agree to enter
into, simultaneous with the execution of this Agreement, the escrow agreement
attached hereto and made part hereof as Exhibit E (the "Escrow Agreement").
Section 4.14. Conversion and Exercise Procedures and Maintenance of
Escrowed Shares for Conversions and Exercises. Exhibit D attached hereto and
made a part hereof sets forth the procedures with respect to the conversion of
the Debentures and the exercise of the Warrants, including the forms of Notice
of Conversion and Notice of Exercise to be provided upon conversion or exercise,
instructions as to the procedures for conversion or exercise, the form of legal
opinion, if necessary, that shall be rendered to the Company and such other
information and instructions as may be reasonably necessary to enable any of the
Purchasers to exercise its right of conversion or exercise smoothly and
expeditiously. The Company agrees that, at any time the conversion price of the
Debentures is such that the number of Debenture Escrow Shares is less than 200%
of the number of shares of Common Stock that would be needed to satisfy full
<PAGE>
conversion of all of the Debentures given the then current conversion price (the
"Full Conversion Shares"), upon ten (10) Business Days written notice of such
circumstance to the Company by the Purchasers and/or Escrow Agent, it will issue
additional share certificates in the names of each of the Purchasers in
denominations of 10,000 shares, and deliver same to the Escrow Agent, such that
the new number of Debenture Escrow Shares is equal to 200% of the Full
Conversion Shares.
Section 4.15 Attorney-in-Fact. To effectuate the terms and provisions
of this Agreement, the Escrow Agreement, the Debenture and the Warrants, the
Company hereby agrees to give a power of attorney as is evidenced by Exhibit F
attached hereto. All acts done under such power of attorney are hereby ratified
and approved and neither the Attorney-in-Fact nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law, as long as the Attorney-in-Fact is
operating within the scope of the power of attorney and this Agreement and its
exhibits. The power of attorney being coupled with an interest shall be
irrevocable while any amount of the Debenture remains unpaid, any amount of the
Warrants remain unexercised or any portion of this Agreement or the Escrow
Agreement remains unsatisfied. In addition, the Company shall give the
Attorney-in-Fact a corporate resolution executed by the Board of Directors of
the Company which authorizes future issuances of the Underlying Shares for the
Debentures, and which resolution states that it is irrevocable while any amount
of the Debenture remains unpaid, any amount of the Warrants remain unexercised
or any portion of this Agreement or the Escrow Agreement remains unsatisfied.
Section 4.16 Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless GEM and each Purchaser, their respective officers,
directors, agents and employees of each of them, each Person who controls GEM or
each such Purchaser (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to a breach or breaches of any representation, warrant, covenant
or agreement by the Company under this Agreement, the other Transaction
Documents, the Debentures or the Warrants.
(b) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
<PAGE>
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed to
pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it 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 the claim against the Indemnified Party but will
retain the right to control the overall Proceedings out of which the claim arose
and such counsel employed by the Indemnified Party shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party to which the
Indemnified Party is entitled hereunder (including reasonable fees and expenses
to the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section) shall be paid to
the Indemnified Party, as incurred, within ten (10) Business Days of written
notice thereof to the Indemnifying Party.
No right of indemnification under this Section 4.16 shall be
available as to a particular Indemnified Party if there is a non-appealable
final judicial determination that such Losses arise solely out of the negligence
or bad faith of such Indemnified Party in performing the obligations of such
Indemnified Party under this Agreement or a breach by such Indemnified Party of
its obligations under this Agreement.
(c) Contribution. If a claim for indemnification under Section
4.16(a) is unavailable to an Indemnified Party or is insufficient to hold such
Indemnified Party harmless for any Losses in respect of which this Section 4.16
would apply by its terms (other than by reason of exceptions provided in this
Section 4.16(c)), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other and the relative fault of
the Indemnifying Party and Indemnified Party in connection with the actions or
omissions that resulted in such Losses as well as any other relevant equitable
<PAGE>
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether there was
a judicial determination that such Losses arise in part out of the negligence or
bad faith of the Indemnified Party in performing the obligations of such
Indemnified Party under this Agreement or the Indemnified Party's breach of its
obligations under this Agreement. The amount paid or payable by a party as a
result of any Losses shall be deemed to include any attorneys' or other fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party.
(d) Nonexclusive. The indemnity and contribution agreements
contained in this Section are in addition to any liability that the Indemnifying
Parties may have to the Indemnified Parties.
Section 4.17 [Reserved].
Section 4.18 Qualification of Common Stock and Related Matters. (a) The
Company shall (i) advise each of the Purchasers promptly after obtaining
knowledge thereof, and, if requested by any of the Purchasers, confirm such
advice in writing, of the issuance by any State securities commission of any
stop order suspending the qualification or exemption from qualification of the
Debentures, the Warrants, the Underlying Shares or the Warrant Shares for
offering or sale in any jurisdiction, or the initiation of any proceeding for
such purpose by any State securities commission or other regulatory authority,
or (ii) use its best efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption from qualification of the Debentures,
the Warrants, the Underlying Shares or Warrant Shares under any State securities
or Blue Sky laws, and (iii) if at any time any State securities commission or
other regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Debentures, the Warrants, the Underlying
Shares, or Warrant Shares under any such laws, use its best efforts to obtain
the withdrawal or lifting of such order at the earliest possible time.
(b) The Company shall furnish each of the Purchasers, without
charge, as many copies of the prospectus underlying the registration statement
contemplated by the Registration Rights Agreement, and any amendments or
supplements thereto, as such Purchaser may reasonably request. The Company
consents to the use of such prospectus, and any amendments and supplements
thereto, by any of the Purchasers in connection with resales of the Debentures,
the Warrants, the Underlying Shares or Warrant Shares.
(c) In accordance with the Registration Rights Agreement
annexed hereto as Exhibit C, the Company shall qualify the Underlying Shares and
the Warrant Shares under the securities or Blue Sky laws of such jurisdictions
as any of the Purchasers may reasonably request and shall continue such
qualification at all times through the second anniversary of the last Closing
Date; provided, however, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where they
are not now so qualified or to take any action that would subject the Company to
<PAGE>
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
Section 4.19 Purchasers' Ownership of Common Stock. In addition to and
not in lieu of the limitations on conversion set forth in the Debentures, the
conversion and exercise rights of each of the Purchasers set forth in the
Debentures and the Warrants, as applicable, shall be limited, solely to the
extent required, from time to time, such that, unless each of the Purchasers
give written notice 75 days in advance to the Company of their intention to
exceed the Limitation on Conversions as defined herein, with respect to all or a
specified amount of the Debentures and the corresponding number of the
Underlying Shares, in no instance shall the maximum number of shares of Common
Stock which the Purchasers (singularly, together with any Persons who in the
determination of such Purchasers, together with such Purchasers, constitute a
group as defined in Rule 13d-5 of the Exchange Act) may receive in respect of
any conversion of the Debentures, or exercise of the Warrants, exceed, at any
one time, an amount equal to the remainder of (i) 4.99% of the then issued and
outstanding shares of Common Stock of the Company following such conversion or
exercise minus (ii) the number of shares of Common Stock of the Company then
owned by any of the Purchasers (including any shares of Common Stock deemed
beneficially owned due to ownership of the Debentures and Warrants) (the
foregoing being herein referred to as the "Limitation on Conversion"); provided,
however, that the Limitation on Conversion shall not apply to any forced or
automatic conversion by the Company pursuant to Section 4(i) and Section 5 of
the Debentures and, provided, further, that if ten (10) Business Days have
elapsed since any of the Purchasers shall have declared an Event of Default (as
that term is defined in the Debenture) and the Company shall not have cured such
Event of Default, the provisions of this Section 4.19 shall be null and void
from and after such date. The Company shall, promptly upon its receipt of a
notice of conversion tendered by any of the Purchasers (or its sole designee)
under the Debentures, as applicable, and upon its receipt of a notice of
exercise under the terms of the Warrants, notify such Purchaser by telephone and
by facsimile of the number of shares of Common Stock outstanding on such date
and the number of Underlying Shares which would be issuable to such Purchaser
(or its sole designee, as the case may be) if the conversion requested in such
notice of conversion or exercise requested in such notice of exercise were
effected in full, whereupon, notwithstanding anything to the contrary set forth
in the Debentures or the Warrants, such Purchaser may within one (1) Business
Day of its receipt of the Company notice required by this Section 4.19 by
facsimile revoke such conversion or exercise to the extent (in whole or in part)
that it determines that such conversion or exercise would result in such
Purchaser owning shares of Common Stock in excess of the Limitation on
Conversion.
Section 4.20 Purchasers' Rights if Trading in Common Stock is
Suspended. In the event that at any time during the period when the Registration
Statement is to remain effective under the Securities Act in accordance with the
Registration Rights Agreement, trading in the shares of the Common Stock is
suspended (and not reinstated within five (5) Trading Days) on such stock
exchange or market upon which the Common Stock shall then be listed for trading
(other than as a result of the suspension of trading in securities on such
market generally or temporary suspensions pending the release of material
information), or the Common Stock is deleted from the OTCBB (and not reinstated
<PAGE>
within five (5) Trading Days), then, at any of the Purchasers' option
exercisable by written notice to the Company, the Company shall redeem, as
applicable, all of the Debentures, Warrants, Underlying Shares and Warrant
Shares owned by such Purchaser at an aggregate purchase price equal to the sum
of:
(i) the product of (1) the average Per Share Market Value for
the five (5) Trading Days immediately preceding (a) the day of such notice, (b)
the date of payment in full of the repurchase price calculated under this
Section 4.20, or (c) the day when the Common Stock was suspended, delisted or
deleted from trading, whichever is greater, multiplied by (2) the aggregate
number of Underlying Shares and Warrant Shares owned by such Purchaser;
(ii) the greater of (A) the outstanding principal amount and
accrued and unpaid interest on the Debentures owned by such Purchaser and (B)
the product of (1) the average Per Share Market Value for the five (5) Trading
Days immediately preceding (a) the day of such notice, (b) the date of payment
in full of the repurchase price calculated under this Section 4.20, or (c) the
day when the Common Stock was suspended, delisted or deleted from trading,
whichever is greater, multiplied by (2) the aggregate number of Underlying
Shares issuable upon the outstanding Debentures owned by the Purchaser;
(iii) the product of (A) the difference, but not below zero,
between (1) the average Per Share Market Value for the five (5) Trading Days
immediately preceding (a) the day of such notice, (b) the date of payment in
full of the repurchase price calculated under this Section 4.20, or (c) the day
when the Common Stock was suspended, delisted or deleted from trading, whichever
is greater, and (2) the then-current exercise price of the Warrant, multiplied
by (B) the number of Warrant Shares issuable upon exercise of the Warrant owned
by the Purchaser; and
(iv) interest on such amounts set forth in (i) - (iii) above
accruing from the seventh (7th) day after such notice until the repurchase price
under this Section 4.20 is paid in full, at the rate of fifteen percent (15%)
per annum.
Section 4.21 No Violation of Applicable Law. Notwithstanding any
provision of this Agreement to the contrary, if the redemption of the
Debentures, the Warrants, the Underlying Shares or the Warrant Shares otherwise
required under this Agreement, the Debenture, the Warrant, or the Registration
Rights Agreement would be prohibited by the relevant provisions of Colorado law,
such redemption shall be effected as soon as it is permitted under such law;
provided, however, that interest payable by the Company with respect to any such
redemption shall continue to accrue in accordance with Section 4.20.
Section 4.22 Redemption Restrictions. Notwithstanding any provision of
this Agreement to the contrary, if any redemption of Debentures, the Warrants,
Underlying Shares or the Warrant Shares otherwise required under this Agreement,
the Debenture, the Warrant, or the Registration Rights Agreement would be
prohibited in the absence of consent from any lender of the Company or any of
the Subsidiaries, or by the holders of any class of securities of the Company,
the Company shall use its best efforts to obtain such consent as promptly as
practicable after the redemption is required. Interest payable by the Company
<PAGE>
with respect to any such redemption shall continue to accrue in accordance with
Section 4.20 until such consent is obtained. Nothing contained in this Section
4.22 shall be construed as a waiver by any of the Purchasers of any rights it
may have by virtue of any breach of any representation or warranty of the
Company herein as to the absence of any requirement to obtain any such consent.
Section 4.23 No Other Registration Rights. During the period commencing
the date hereof and ending on the earlier to occur of (i) the one year
anniversary of the Closing and (ii) the date the Registration Statement required
to be filed by the Company in accordance with the Registration Rights Agreement
is declared effective under the Securities Act by the Commission, the Company
may not file any registration statement that provides for the registration of
shares of Common Stock to be sold by other shareholders of the Company without
the prior written consent of the Purchasers or their assigns. Such registration
rights shall not apply to registration statements relating solely to (i)
employee benefit plans notwithstanding the inclusion of a resale prospectus for
securities received under such employee benefit plan, or (ii) business
combinations.
Section 4.24. Merger or Consolidation. Until the earlier of the full
conversion of the Debentures or the Maturity Date of the Debentures (as that
term is defined in the Debenture), the Company and each Subsidiary will not, in
a single transaction or a series of related transactions, (i) consolidate with
or merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless (w) either (A) the Company shall be
the survivor of such merger or consolidation or (B) the surviving Person shall
expressly assume by supplemental agreement all of the obligations of the Company
under the Debentures and the Warrants and this Agreement; (x) immediately before
and immediately after giving effect to such transaction (including any
indebtedness incurred or anticipated to be incurred in connection with the
transaction), no Default or Event of Default shall have occurred and be
continuing; (y) if the Company is not the surviving entity, such surviving
entity's common shares shall be listed on either The New York Stock Exchange,
American Stock Exchange, or Nasdaq National Market or Nasdaq SmallCap Market and
(z) the Company has delivered to the Purchasers an officers' certificate and
opinion of counsel, each stating that such consolidation, merger or transfer
complies with this Agreement, that the surviving Person agrees to be bound
thereby and that all conditions precedent in this Agreement relating to such
transactions have been satisfied.
Section 4.25 Registration of Underlying Shares and Warrant Shares.
Pursuant to the terms of the Registration Rights Agreement between the Company
and the Purchasers, the Company shall cause the Underlying Shares and Warrant
Shares to be registered under the Securities Act, and so long as any Debentures
remain outstanding or any Warrants remain unexercised, the Company agrees to
keep such registration current with the Commission and with such states of the
United States as the Holders (as that term is defined in the Debenture) of the
Debenture or Warrants shall reasonably request in writing. All costs and
expenses of registration shall be borne by the Company.
Section 4.26 Liquidated Damages. The Company understands and agrees
that an Event of Default as contained in this Agreement, the Transaction
Documents and/or the Debenture will result in substantial economic loss to the
<PAGE>
Purchasers which will be extremely difficult to calculate with precision.
Therefore, after the Closing, if for any reason the Company fails to cure any
Event of Default within the time given to cure such Event of Default, if any, as
compensation and liquidated damages for such default, and not as a penalty, the
Company agrees to pay liquidated damages to the Purchasers in an amount equal to
the two times (2x) the Purchase Price. The Company shall upon demand pay the
Purchasers, such liquidated damages by wire transfer in immediately available
funds to an account designated by the Purchasers. Nothing herein shall limit the
right of any of the Purchasers to pursue actual damages (less the amount of any
liquidated damages received pursuant to the foregoing) for the Company's failure
to cure an Event of Default, consistent with the terms of this Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE
COMPANY'S OBLIGATIONS UNDER THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS
AGREEMENT.
Section 4.27 Use of Proceeds. At Closing, the Escrow Agent shall deduct
from escrow the outstanding principal amount and the accrued and unpaid interest
on that certain Demand Note dated the date of this Agreement in the original
principal amount of One Hundred Thousand Dollars (US$100,000) and pay such funds
to the payee thereof in satisfaction of the Demand Note.
Section 4.28. Fees. The Company will pay the following fees and
expenses in connection with this transaction: (a) US$9,500 to Kaplan Gottbetter
& Levenson, LLP ("KGL") for document production fees, receipt of which is
acknowledged, (b) $500 to KGL for expenses, receipt of which is acknowledged,
(c) US$5,000 to KGL as escrow agent fee, and (d) a commission to GEM equal to
three percent (3%) of the Purchase Price paid by Turbo International Ltd. All
fees and expenses will be paid at Closing and the Escrow Agent shall deduct such
fees and expenses directly from escrow.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
Section 5.1. Conditions Precedent to Obligations of the Purchasers. The
obligations of the Purchasers to close on the purchase of the Debentures are
subject to the satisfaction or written waiver by the Purchasers, at or prior to
the Closing, of each of the following conditions:
(a) Accuracy of the Company's Representations and Warranties.
The representations and warranties of the Company contained herein shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing;
<PAGE>
(c) No Material Adverse Effect. Since the date of the
financial statements included in the Company's Disclosure Documents, no event
which had a Material Adverse Effect shall have occurred which is not disclosed
in the Disclosure Documents;
(d) No Prohibitions. The purchase of and payment for the
Debentures and the Warrants (and upon conversion or exercise thereof, the
Underlying Shares and the Warrant Shares) hereunder (i) shall not be prohibited
or enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Purchasers to any penalty, or in its
reasonable judgment, other onerous condition under or pursuant to any applicable
law or governmental regulation that would materially reduce the benefits to the
Purchaser of the purchase of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement);
(e) No Suspensions of Trading in Common Stock. Trading in the
Common Stock shall not have been suspended, delisted or otherwise ceased by the
Commission or the NASD or other exchange or market on which the Common Stock is
listed or quoted (and not reinstated within five (5) Trading Days) (except for
any suspension of trading of limited duration solely to permit dissemination of
material information regarding the Company);
(f) Required Approvals. All Required Approvals shall
have been obtained;
(g) Registration Statement. The Commission shall have declared
the registration statement, prepared and filed in accordance with and subject to
the Registration Rights Agreement annexed hereto as Exhibit C, effective within
one hundred-ninety (190) days after the Execution Date (unless such date is not
a Business Day, then the next Business Day).
(h) Minimum Stock Price. The average Per Share Market Value of
the Common Stock for the thirty (30) Trading Days (which thirtieth (30th)
Trading Day shall be the Trading Day immediately prior to the day the Commission
declared the registration statement (prepared and filed in accordance with and
subject to the Registration Rights Agreement annexed hereto as Exhibit C)
effective (the "Minimum Stock Price Determination Date")), shall be at least One
Dollar (US$1.00) ("Minimum Stock Price"). The Minimum Stock Price shall be
appropriately adjusted to give effect each time that, prior to the Closing, (i)
the Company's Common Stock shall be subdivided or split into a greater number of
shares or combined into a fewer number of shares, or (ii) a dividend in Common
Stock shall be paid in respect of Common Stock.
Section 5.2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to issue and sell the Debentures hereunder is subject
to the satisfaction or written waiver by the Company, at or to the Closing, of
each of the following conditions:
<PAGE>
(a) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of the Purchasers shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Debentures and Warrants
(and upon conversion or exercise thereof, the Underlying Shares or Warrant
Shares) hereunder (i) shall not be prohibited or enjoined (temporarily or
permanently) by any applicable law or governmental regulation and (ii) shall not
subject the Company to any penalty, or in its reasonable judgment, any other
onerous condition under or pursuant to any applicable law or governmental
regulation that would materially reduce the benefits to the Company of the sale
of Debentures Warrants, Underlying Shares or Warrant Shares to the Purchasers
(provided, however, that such regulation, law or onerous condition was not in
effect in such form at the date of this Agreement).
ARTICLE VI
TERMINATION
Section 6.1. Termination by the Company or the Purchasers. This
Agreement may be terminated prior to Closing by the Company or Purchasers, by
giving written notice of such termination to the other party as follows:
(a) there shall be in effect any statute, rule, law or
regulation that prohibits the consummation of the Closing or if the consummation
of the Closing would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having competent
jurisdiction; or
(b) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the reasonable
judgment of the terminating party, would materially adversely affect the
transactions contemplated hereby.
Section 6.2. Termination by the Company. This Agreement may be
terminated prior to Closing by the Company, by giving written notice of such
termination to the Purchasers, if any of the Purchasers have materially breached
any representation, warranty, covenant or agreement contained in this Agreement
or the Registration Rights Agreement and such breach is not cured within ten
(10) Business Days following receipt by such Purchaser of notice of such breach
and the other Purchasers decline to be substituted for the breaching Purchaser's
investment.
<PAGE>
Section 6.3. Termination by the Purchasers. This Agreement may be
terminated prior to Closing by the Purchasers, by giving written notice of such
termination to the Company, if:
(a) the Closing shall not have occurred by 5:30 Eastern Time
one hundred-ninety (190) days after the Execution Date (unless such day is not a
Business Day, then the next Business Day);
(b) the Company has breached any representation, warranty,
covenant or agreement contained in this Agreement and such breach is not cured
within ten (10) Business Days following receipt by the Company of notice of such
breach;
(c) there has occurred an event since the date of the
financial statements included in the Disclosure Documents which has had a
Material Adverse Effect and which is not disclosed in the Disclosure Documents;
or
(d) trading in the Common Stock has been suspended, delisted,
or otherwise ceased by the Commission or the NASD or other exchange or market on
which the Common Stock is listed or quoted (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company) and not reinstated within five (5) Trading Days.
ARTICLE VII
LEGAL FEES AND DEFAULT INTEREST RATE
In the event any Party commences legal action to enforce its rights
under this Agreement, the Debentures, the Warrants or the Escrow Agreement, the
non-prevailing party shall pay all reasonable costs and expenses (including but
not limited to reasonable attorney's fees, accountant's fees, appraiser's fees
and investigative fees) incurred in enforcing such rights. In the event of an
uncured Default by any party hereunder, interest shall accrue on all unpaid
amounts due the aggrieved party at the rate of 15% per annum, compounded
annually.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Fees and Expenses. Except as set forth above, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay the fees of the Escrow Agent and all stamp and other taxes
and duties levied in connection with the issuance of the Debentures and Warrants
(and upon conversion or exercise thereof, the Underlying Shares and Warrant
Shares) pursuant hereto. Each of the Purchasers shall be responsible for its own
tax liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company shall pay (i) all costs, expenses, fees and all taxes incident to
<PAGE>
and in connection with: (A) the preparation, printing and distribution of the
Registration Statement and all amendments and supplements thereto (including,
without limitation, financial statements and exhibits), and all preliminary and
final Blue Sky memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith, (B) the issuance
and delivery of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and the Warrant Shares, (C) the exemption from
registration of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares for offer and sale to the
Purchasers under the securities or Blue Sky laws of the applicable jurisdiction,
(D) furnishing such copies of the Registration Statement and all amendments and
supplements thereto, as may reasonably be requested for use in connection with
resales of the Debentures and Warrants and, upon conversion or exercise thereof,
the Underlying Shares and the Warrant Shares, and (E) the preparation of
certificates for the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares (including, without
limitation, printing and engraving thereof), (ii) all fees and expenses of the
counsel and accountants of the Company and (iii) all expenses and listing fees
on securities exchanges, if any.
Section 8.2. Entire Agreement; Amendments. This Agreement, together
with the Exhibits, Annexes and Schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters. This Agreement shall be deemed to have been drafted and
negotiated by both parties hereto and no presumptions as to interpretation,
construction or enforceability shall be made by or against either party in such
regard.
Section 8.3. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been made upon facsimile transmission (with transmission confirmation report) at
the number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day
following such delivery (if delivered other than on a Business Day during normal
business hours where such notice is to be received) whichever shall first occur.
The addresses for such communications shall be:
If to the Company: INVU, Inc.
The Beren,
Blisworth Hill Farm
Stoke Road
Blisworth
North-hampton, NNZ 3DB
Attn: David Morgan
Tel: 011 44 1604 859893
Fax: 011 44 1604 859902
<PAGE>
With copies to: Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, TX 75202-2799
Attn: Mark D. Wigder, Esq.
Tel: (214) 855-4326
Fax: (214) 855-4300
If to the Purchasers: See Schedule 1 - Schedule of
Purchasers (attached hereto)
With copies to: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017-6705
Attn: Adam S. Gottbetter, Esq.
Tel: (212) 983-6900
Fax: (212) 983-9210
If to Escrow Agent: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017-6705
Attn: Adam S. Gottbetter, Esq.
Tel: (212) 983-6900
Fax: (212) 983-9210
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 8.5. Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 8.6. Headings. The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 8.7. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
<PAGE>
Section 8.8. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
Section 8.9. Governing Law; Venue; Service of Process. The parties
hereto acknowledge that the transactions contemplated by this Agreement and the
exhibits hereto bear a reasonable relation to the State of New York. The parties
hereto agree that the internal laws of the State of New York shall govern this
Agreement and the exhibits hereto, including, but not limited to, the
enforcement of the amount of interest to be charged on the outstanding principal
amount of the Debentures and as to all issues related to usury. Any action to
enforce the terms of this Agreement or any of its exhibits shall be exclusively
brought in the State and/or federal courts in the State and County of New York.
Service of process in any action by Purchasers to enforce the terms of this
Agreement may be made by serving a copy of the summons and complaint, in
addition to any other relevant documents, by commercial overnight courier to the
Company at its principal address set forth in this Agreement.
Section 8.10. Survival. The representations and warranties of the
Company and the Purchasers contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article VIII shall
survive the Closing (or any earlier termination of this Agreement).
Section 8.11. Counterpart Signatures. This Agreement may be executed in
two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature page were an original thereof.
Section 8.12. Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, unless counsel for the disclosing party
deems such public statement to be required by applicable federal and/or State
securities laws.
Section 8.13. Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
<PAGE>
Section 8.14. Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including the recovery of damages, all
parties shall be entitled to specific performance of the obligations under this
Agreement and its exhibits, as well as equitable relief, including but not
limited to preliminary, temporary and permanent injunctive relief. Each of the
Company and the Purchasers agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate. As to any equitable remedies pursued by Purchasers,
Purchasers shall not be obligated, and the Company hereby waives any
requirements, to post any bond or undertaking in connection with any application
for temporary, preliminary or permanent injunctive relief. Notwithstanding
anything herein to the contrary, in the event the liquidated damages provisions
of Section 4.26 is fully enforced and collected, specific performance shall not
be available to the Purchasers.
[ SIGNATURE PAGE FOLLOWS ]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
INVU, INC.
By:
-----------------------------------
Name: David Morgan
Title: President
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By:
------------------------------------
Name:
Title:
TURBO INTERNATIONAL LTD.
By:
------------------------------------
Name:
Title:
<PAGE>
<TABLE>
SCHEDULE 1
<CAPTION>
Full Amount of Number of Termination Termination
Debentures to be Warrant Shares Amount
Name and Address of Purchaser Purchased Exercisable
<S> <C> <C> <C>
GEM Global Yield Fund Limited US$4,500,000 450,000 US$90,000
Loughran & Co.
38 Hertford St.
London W1Y 7TG
Tel: 44.171.355.2051
Fax: 44.171.355.4975
Turbo International Ltd. US$500,000 50,000 US$10,000
50 Shirley Street
P.O. Box N 7755
Nassau, Bahamas
Tel: 242.326.5528
Fax: 242.328.2935
</TABLE>
<PAGE>
Insert all Schedules from Agreement with relevant information, even if the
substance is "none"
<PAGE>
EXHIBIT A
DEBENTURE
<PAGE>
EXHIBIT B
WARRANT
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
Conversion and Exercise Procedures
1. At any time, and from time to time during the term of this Agreement,
any Purchaser may deliver to the Escrow Agent written notice (a "Notice
of Conversion" or "Notice of Exercise") that it has elected to convert
the Debentures or exercise the Warrants, registered in the names of
such Purchaser, in whole or in part, in accordance with the terms of
the Debenture or Warrants, and the Notice of Conversion to be in the
form annexed as Exhibit G , and the Notice of Exercise to be in the
form annexed as Exhibit H hereto. A fee of $350 shall accompany every
Notice of Conversion or Notice of Exercise delivered to the Escrow
Agent.
2. Holder shall send by fax the executed Holder Notice of Conversion or
Notice of Exercise to the Escrow Agent by 4:00 p.m. New York Time on
the date of the Conversion or Exercise. The Escrow Agent shall send the
Holder Notice of Conversion or Notice of Exercise by facsimile to the
Company by the end of the Business Day.
3. The Company shall have two (2) Business Days from the transmission of
the Notice of Conversion by the Escrow Agent to object only to the
calculation of the number of Debenture Escrow Shares and Warrant
Escrow Shares (collectively the "Escrow Shares") to be released. If
the Company fails to object to the calculation of the number of Escrow
Shares to be released within said time, then the Company shall be
deemed to have waived any objections to the calculation of the number
of Escrow Shares set forth in the Purchaser's Notice and directed
Escrow Agent to release same. The Company's only basis for any
objection hereunder shall be to the calculation of the number of
Escrow Shares to be released. In the event of such an objection, the
Parties shall have one (1) Business Day to agree on the number of
Escrow Shares to be released pursuant to said Conversion. In the event
that the Parties cannot agree on the number of Escrow Shares to be
released in said time, then the Company shall commence a legal action
in the appropriate State or federal court in the State and County of
New York, within five (5) Business Days of the transmittal of the
Notice of Conversion by the Escrow Agent to the Company. If the
Company does not commence such legal action within said five (5)
Business Days, the Escrow Agent shall release the number of shares
stated in the Notice of Conversion to the Purchaser and the Company's
objection shall be deemed withdrawn and waived with prejudice. If the
Escrow Agent does not receive said objection notice within the time
period set forth above from the Company, the Escrow Agent shall
release from escrow and deliver to the Purchaser certificates or
instruments representing the number of Escrow Shares issuable to the
Purchaser in accordance with such conversion on the second Business
Day from the transmittal to the Company of the Notice of Conversion.
In the event that the certificates evidencing the Escrow Shares held
by the Escrow Agent are not in denominations appropriate for such
delivery to the Purchaser, the Escrow Agent shall request the Company
to cause its transfer agent and registrar to reissue certificates in
smaller denominations. The Escrow Agent shall, however, immediately
release to the Purchaser certificates representing such lesser number
<PAGE>
of shares as the denominations in its possession will allow that is
closest to but no more than the actual number to be released to the
Purchaser. Upon receipt of the reissued shares in lesser denominations
from the Company's transfer agent, the Escrow Agent shall release to
the Purchaser the balance of the shares due to the Purchaser.
4. Holder shall send the original Debenture and Holder Notice of
Conversion to the Escrow Agent via FedEx or other commercial overnight
courier, along with a fee of $350, with instructions regarding names
and amount of certificates for the issuance of the Underlying Shares,
and instructions as to the re-issuance of the balance of the
Debentures, if conversion is not in full. However, if the Escrow Agent
is holding the Debenture, the Notice of Conversion may be faxed to the
Escrow Agent and the fee may be transmitted via wire transfer. In the
event that the Escrow Agent has custody of the Debenture, the Escrow
Agent shall notify the Company and the Holder in writing of the
balance of the Debenture remaining and the Company and the Holder
shall acknowledge such notice in writing, in lieu of a new Debenture
being issued for the balance.
4. Company will issue the new Debentures (if any) and will send such new
Debentures by overnight courier within five (5) Business Days to the
Escrow Agent. The Escrow Agent shall send the Common Shares to the
Holder in accordance with Holder's instructions within two (2)
Business Days of receipt of the Notice of Conversion and will send the
new Debentures (if any) to the Holder upon receipt.
5. The Escrow Agent agrees to notify in writing by facsimile the Company
each time it releases Escrow Shares to the Purchaser. Until any such
release and notification to the Company, the Escrow Shares shall not
be deemed to be validly issued and outstanding shares of capital stock
of the Company. Such notification shall be given when the Escrow Agent
delivers the Notice of Conversion to the Company.
6. Upon receipt of a Notice of Exercise for the Warrants, the Warrants
and exercise price for the Warrants, the Escrow Agent shall notify the
Company of the exercise of the Warrants pursuant to paragraph 2.
Within two (2) Business Days of the receipt of the Notice of Exercise,
the Escrow Agent shall wire the exercise price to the Company pursuant
to the instructions provided by the Company and shall release the
Warrant Shares to the Holder. The Escrow Agent shall return the
original Warrants to the Company for cancellation, or re-issuance for
the balance if applicable. The Company will issue the new Warrants (if
any) and will send such new Warrants by overnight courier within five
(5) Business Days to the Escrow Agent.
7. The Company agrees that, at any time the conversion price of the
Debentures is such that the number of Debenture Escrow Shares is less
than 200% of the number of shares of Common Stock that would be needed
to satisfy full conversion of all of the Debentures given the then
current conversion price (the "Full Conversion Shares"), upon five (5)
days written notice of such circumstance to the Company by the
Purchaser and/or Escrow Agent, it will issue additional share
certificates, in the names of each of the Purchaser, and deliver same
to the Escrow Agent, such that the new number of Debenture Escrow
Shares is equal to 200% of the Full Conversion Shares.
<PAGE>
EXHIBIT E
ESCROW AGREEMENT
<PAGE>
EXHIBIT F
POWER OF ATTORNEY
<PAGE>
EXHIBIT G
OPINION LETTER
<PAGE>
EXHIBIT H
FORM NOTICE OF CONVERSION
<PAGE>
EXHIBIT I
FORM NOTICE OF EXERCISE
<PAGE>
EXHIBIT J
TERMINATION WARRANT
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER RULE 506 OF REGULATION D PROMULGATED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM
THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. [number]
US$[number]
3% CONVERTIBLE DEBENTURE DUE [DATE], 2003
THIS DEBENTURE is one of a duly authorized issue of Debentures of INVU,
Inc., a Colorado corporation (the "Company"), designated as its 3% Convertible
Debentures, due [date], 2003 (the "Debentures"), in an aggregate principal
amount of up to US$5,000,000.
FOR VALUE RECEIVED, the Company promises to pay to [name], or its
registered assigns (the "Holder"), the principal sum of [amount] Dollars (US
$[number]), on or prior to [date], 2003 (the "Maturity Date") and to pay
interest to the Holder on the principal sum, at the rate of three percent (3%)
per annum. Interest shall accrue daily commencing on the date twelve (12) months
after the Original Issue Date (as defined in Section 1) until payment in full of
the principal sum, together with all accrued and unpaid interest, has been made
or duly provided for. If at any time after the original Issue Date an Event of
Default has occurred and is continuing, interest shall accrue at the rate of
fifteen percent (15%) per annum from the date of the Event of Default and the
applicable cure period through and including the date of payment. Interest due
and payable hereunder shall be paid to the person in whose name this Debenture
(or one or more successor Debentures) is registered on the records of the
Company regarding registration and transfers of the Debentures (the "Debenture
Register"); provided, however, that the Company's obligation to a transferee of
this Debenture arises only if such transfer, sale or other disposition is made
in accordance with the terms and conditions hereof and of the Convertible
Debenture Purchase Agreement by and between the Company and the Holder, dated as
of May __, 2000, as amended from time to time (the "Purchase Agreement"),
executed by the original Holder. A transfer of the right to receive principal
and interest under this Debenture shall be transferable only through an
appropriate entry in the Debenture Register as provided herein.
<PAGE>
This Debenture is subject to the following additional provisions:
Section 1. Definitions. Capitalized terms used and not
otherwise defined herein shall have the meanings given such terms in the
Purchase Agreement. As used in this Agreement, the following terms shall have
the following meanings:
"Adjusted Conversion Price" means the lesser of the Fixed
Conversion Price or the Floating Conversion Price one day prior to the record
date set for the determination of stockholders entitled to receive dividends,
distributions, rights or warrants as provided for in Sections 4(c)(ii), (iii)
and (iv).
"Attorney-in-Fact" shall have the same meaning as used in the
Purchase Agreement.
"Conversion Date" means the date on which a Notice of
Conversion is dated.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is the principal amount represented by any Debenture plus accrued
but unpaid interest, and of which the denominator is the Conversion Price at
such time.
"Escrow Agent" means the Escrow Agent as defined in the
Purchase Agreement.
"Junior Securities" means the Common Stock, all other equity
securities of the Company and all other debt that is subordinated to the
Debenture by its terms.
"Original Issue Date" shall mean the date of the first
issuance of this Debenture regardless of the number of transfers hereof.
Section 2. Denominations of Debentures.
The Debentures are issuable in denominations of One Thousand
Dollars (US$1,000.00) and integral multiples of One Thousand Dollars
(US$1,000.00) in excess thereof. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same, but shall not be issuable in
denominations of less than integral multiplies of One Thousand Dollars
(US$1,000.00). No service charge to the Holder will be made for such
registration of transfer or exchange.
Section 3. Events of Default and Remedies.
I. "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
<PAGE>
(a) any default in the payment of the principal of or interest
on this Debenture as and when the same shall become due and payable either at
the Maturity Date, by acceleration, conversion, or otherwise, and such default
shall not have been remedied within ten (10) Business Days after the date on
which written notice of such default shall have been given;
(b) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach of,
this Debenture, and such failure or breach shall not have been remedied within
ten (10) Business Days after the date on which written notice of such failure or
breach shall have been given;
(c) the occurrence of any event or breach or default by the
Company under the Purchase Agreement or any other Transaction Document and such
failure or breach shall not have been remedied within ten (10) Business Days
after the date on which written notice of such failure or breach shall have been
given by the Purchaser;
(d) the Company or any of its subsidiaries shall commence a
voluntary case under the United States Bankruptcy Code as now or hereafter in
effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case
is commenced against the Company under the Bankruptcy Code and the petition is
not controverted within thirty (30) days, or is not dismissed within sixty (60)
days, after commencement of the case; or a "custodian" (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of the property of the Company or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or there
is commenced against the Company any such proceeding which remains undismissed
for a period of sixty (60) days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company suffers any appointment of any custodian
or the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of sixty (60) days; or the Company makes a
general assignment for the benefit of creditors; or the Company shall fail to
pay, or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or the Company shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its debts; or
the Company shall by any act or failure to act indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other action is
taken by the Company for the purpose of effecting any of the foregoing;
(e) the Company shall default in any of its obligations under
any mortgage, indenture or instrument under which there may be issued, or by
which there may be secured or evidenced, any indebtedness of the Company in an
amount exceeding One Hundred Thousand Dollars ($100,000.00), whether such
indebtedness now exists or shall hereafter be created and such default shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable;
<PAGE>
(f) the Company shall voluntarily have its Common Stock
deleted or delisted, as the case may be, from the OTCBB or other national
securities exchange or market on which such Common Stock is listed for trading
or suspended from trading thereon, and shall not have its Common Stock relisted
or have such suspension lifted, as the case may be, within five (5) Trading Days
of such deletion or delisting;
(g) notwithstanding anything herein to the contrary, the
Company shall fail to deliver to the Escrow Agent share certificates
representing the Common Shares to be issued upon conversion of the Debentures
within ten (10) Business Days pursuant to written notice by the Escrow Agent to
the Company that additional Shares are required in escrow pursuant to Section
4.14 of the Purchase Agreement, Article 2 of the Escrow Agreement, and Section
4(b) of this Debenture;
(h) the Company shall issue a press release, or otherwise make
publicly known, that it is not honoring properly executed Holder Notice of
Conversions for any reason whatsoever;
(i) the Registration Statement which is the subject of the
Registration Rights Agreement annexed as Exhibit C to the Purchase Agreement is
no longer effective as required under the Registration Rights Agreement and the
Company does not cause such Registration Statement to become effective within
ten (10) Business Days of not being effective;
(j) the Company shall issue or enter into an agreement to
issue any equity or equity equivalent security with a floating conversion price
substantially similar to the Debentures.
II. (a) If any Event of Default occurs and continues, beyond any cure
period, if any, then so long as such Event of Default shall then be continuing
the Holder may, by notice to the Company, accelerate all of the payments due
under this Debenture by declaring all amounts of this Debenture, to be,
whereupon the same shall become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
waived by the Company, notwithstanding anything herein contained to the
contrary, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Holder at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. This shall include, but not be limited to the
right to temporary, preliminary and permanent injunctive relief without the
requirement of posting any bond or undertaking.
(b) Holder may thereupon proceed to protect and enforce its
rights either by suit in equity, or by action at law, or by other appropriate
proceedings whether for the specific performance (to the extent permitted by
law) of any covenant or agreement contained in this Debenture or in aid of the
exercise of any power granted in this Debenture, and proceed to enforce the
payment of any of the Debentures held by it, and to enforce any other legal or
equitable right of such holder.
<PAGE>
(c) Except as expressly provided for herein, the Company
specifically waives all rights it may have (i) to notice of nonpayment, demand,
presentment, protest and notice of protest with respect to any of the
obligations hereunder or the shares; (ii) notice of acceptance hereof or of any
other action taken in reliance hereon, notice and opportunity to be heard before
the exercise by Holder of the remedies of self-help, set-off, or other summary
procedures and all other demands and notices of any description except for cure
periods; and (iii) releases Holder, its officers, directors, agents, employees
and attorneys from all claims for loss or damage caused by any act or failure to
act on the part of Holder, its officers, attorneys, agents, directors and
employees except for gross negligence or willful misconduct.
(d) As a non-exclusive remedy, in the Event of a Default, the
Holder can convert the remaining principal amount of the Debenture and accrued
interest at the lesser of the Fixed Conversion Price or the Floating Conversion
Price upon giving a notice of conversion to the Company. The Company shall not
have the right to object to the conversion or the calculation of the applicable
Conversion Price, and the Escrow Agent shall release the shares of Common Stock
from escrow upon notifying the Company of the conversion.
III. To effectuate the terms and provision of this Debenture, the
Holder may send notice of any default to the Company's attorney-in-fact (the
"Attorney-in-Fact") as set forth herein and send a copy of such notice to the
Company and its counsel, simultaneously, and request the Attorney-in- Fact, to
comply with the terms of this Debenture and Purchase Agreement and all
agreements entered into pursuant to the Purchase Agreement on behalf of the
Company.
Section 4. Conversion
(a) The unpaid principal amount of this Debenture and interest
due thereon, shall be convertible into shares of Common Stock at the Conversion
Ratio as defined below, and subject to the Limitation on Conversion in Section
4.19 of the Purchase Agreement, at the option of the Holder in whole or in part,
at any time, commencing on the Original Issue Date. The resale of such shares of
Common Stock has been registered under the Securities Act of 1933, as amended,
pursuant to the Registration Rights Agreement. Any conversion under this Section
4(a) shall be for a minimum principal amount of $10,000.00 of Debentures and the
interest accrued and due on such amount. The Holder shall effect conversions by
surrendering the Debenture (or such portions thereof) to be converted to the
Company, together with the form of conversion notice attached hereto as Exhibit
A (the "Holder Notice of Conversion") in the manner set forth in Section 4(j).
Each Holder Notice of Conversion shall specify the principal amount of
Debentures and related interest to be converted, and the date on which such
conversion is to be effected (the "Holder Conversion Date"). Subject to Section
4, each Holder Notice of Conversion, once given, shall be irrevocable. If the
Holder is converting less than all of the principal amount represented by the
Debenture(s) tendered by the Holder in the Holder Notice of Conversion, the
Company shall deliver to the Holder a new Debenture for such principal amount as
has not been converted within two (2) Business Days of the Holder Conversion
Date. In the event that the Escrow Agent holds the Debentures on behalf of the
Holder, the Company agrees that in lieu of surrendering the Debenture upon every
partial conversion, the Escrow Agent shall give the Company and the Holder
<PAGE>
written notice of the amount of the Debenture left unconverted. Upon the entire
conversion of the Debenture or the Maturity Date, the Escrow Agent shall return
the Debenture to the Company for cancellation.
(b) Not later than two (2) Business Days after the Conversion
Date, the Escrow Agent will deliver to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions, representing the number of shares of Common Stock being acquired
upon the conversion of Debentures and (ii) once received from the Company,
Debentures in principal amount equal to the principal amount of Debentures not
converted; provided, however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any Debentures, until the Debentures are either delivered for conversion to the
Escrow Agent or Company or any transfer agent for the Debentures or Common
Stock, or the Holder notifies the Company that such Debentures have been lost,
stolen or destroyed and provides an agreement reasonably acceptable to the
Company to indemnify the Company from any loss incurred by it in connection
therewith. In the case of a conversion pursuant to a Holder Notice of
Conversion, if such certificate or certificates are not delivered by the date
required under this Section 4(b), the Holder shall be entitled by providing
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind such conversion, in which
event the Company shall immediately return the Debentures tendered for
conversion.
The Company agrees that, at any time the conversion price
of the Debentures is such that the number of shares of Common Stock in escrow
(the "Debenture Escrow Shares") is less than 200% of the number of shares of
Common Stock that would be needed to satisfy full conversion of all of the
Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) days written notice of such circumstance to the Company
by the Purchaser and/or Escrow Agent, it will issue additional share
certificates in the names of each of the Purchasers in denominations of 10,000
shares, and deliver same to the Escrow Agent, such that the new number of
Debenture Escrow Shares is equal to 200% of the Full Conversion Shares.
(c) (i) The Conversion Price for each Debenture in effect on
any Conversion Date shall be the LESSER of (X) [the lower of US$3.00 or one
hundred twenty-five percent (125%) of the average Per Share Market Value for the
five (5) Trading Days immediately prior to the Closing Date] (the "Fixed
Conversion Price") or (Y) seventy five percent (75%) of the average of the three
(3) lowest Per Share Market Value prices during the thirty (30) day period
immediately preceding the Conversion Date ("Floating Conversion Price"). The
conversion of the Debentures is subject to the Limitation on Conversion in
Section 4.19 of the Purchase Agreement as set forth below.
"In addition to and not in lieu of the limitations on
conversion set forth in the Debentures, the conversion and
exercise rights of each of the Purchasers set forth in the
Debentures and the Warrants, as applicable, shall be limited,
solely to the extent required, from time to time, such that,
unless each of the Purchasers give written notice 75 days in
advance to the Company of their intention to exceed the
Limitations of Conversions as defined herein, with respect to
all or a specified amount of the Debentures and the
corresponding number of
<PAGE>
corresponding number of the Underlying Shares, in no instance
shall the maximum number of shares of Common Stock which
the Purchasers (singularly, together with any Persons who in
the determination of such Purchasers, together with such
Purchasers, constitute a group as defined in Rule 13d-5 of
the Exchange Act) may receive in respect of any conversion
of the Debentures, or exercise of the Warrants, exceed, at
any one time, an amount equal to the remainder of (i) 4.99%
of the then issued and outstanding shares of Common Stock of
the Company following such conversion or exercise minus (ii)
the number of shares of Common Stock of the Company then
owned by any of the Purchasers (including any shares of
Common Stock deemed beneficially owned due to ownership of
the Debentures and Warrants) (the foregoing being herein
referred to as the "Limitation on Conversion"); provided,
however, that the Limitation on Conversion shall not apply
to any forced or automatic conversion by the Company
pursuant to Section 4(i) and Section 5 of the Debentures
and, provided, further, that if 10 Business Days have
elapsed since any of the Purchasers shall have declared an
Event of Default (as that term is defined in the Convertible
Debenture) and the Company shall not have cured such Event
of Default, the provisions of this Section 4.19 shall be
null and void from and after such date. The Company shall,
promptly upon its receipt of a notice of conversion tendered
by any of the Purchasers (or its sole designee) under the
Debentures, as applicable, and upon its receipt of a notice
of exercise under the terms of the Warrants, notify such
Purchaser by telephone and by facsimile of the number of
shares of Common Stock outstanding on such date and the
number of Underlying Shares which would be issuable to such
Purchaser (or its sole designee, as the case may be) if the
conversion requested in such notice of conversion or
exercise requested in such notice of exercise were effected
in full, whereupon, notwithstanding anything to the contrary
set forth in the Debentures or the Warrants, such Purchaser
may within one Trading Day of its receipt of the Company
notice required by this Section 4.19 by facsimile revoke
such conversion or exercise to the extent (in whole or in
part) that it determines that such conversion or exercise
would result in such Purchaser owning shares of Common Stock
in excess of the Limitation on Conversion."
(ii) If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its Common Stock or of
capital stock of any class), (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
Common Stock any shares of capital stock of the Company, the Adjusted Conversion
Price designated in Section 4(c)(i) shall be multiplied by a fraction of which
<PAGE>
the numerator shall be the number of shares of Common Stock of the Company
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 4(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any
Debentures are outstanding, shall issue or sell shares of Common Stock, or
options, warrants or other rights to subscribe for or purchase shares of Common
Stock, (excluding shares of Common Stock issuable upon exercise of options,
warrants or conversion rights granted as of the date hereof and 2,250,000 shares
of Common Stock issuable upon exercise of options to be granted to members of
the Company's management and up to a maximum of 750,000 of shares to be issued
as compensation to certain persons) and at a price per share less than the Per
Share Market Value of Common Stock at the issue date mentioned below, the
Adjusted Conversion Price designated in Section 4(c)(i) shall be multiplied by a
fraction, of which the denominator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such shares, options, warrants or rights plus the number of
shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an adjustment
in the Conversion Price designated in Section 4(c)(i) pursuant to this Section
4(c)(iii), if any such right or warrant shall expire and shall not have been
exercised, the Adjusted Conversion Price designated in Section 4(c)(i) shall
immediately upon such expiration be recomputed and effective immediately upon
such expiration be increased to the price which it would have been (but
reflecting any other adjustments in the Conversion Price made pursuant to the
provisions of this Section 4 after the issuance of such rights or warrants) had
the adjustment of the Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while Debentures
are outstanding, shall distribute to all holders of Common Stock (and not to
holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those referred to
in Section 4(c)(iii) above) then in each such case the Conversion Price at which
each Debenture shall thereafter be convertible shall be determined by
multiplying the Adjusted Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
<PAGE>
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith; provided, however that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority of
the principal amount of the Debentures then outstanding; and provided, further
that the Company, after receipt of the determination by such Appraiser shall
have the right to select an additional Appraiser, in which case the fair market
value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the Holder and all other holders of Debentures of the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above.
(v) All calculations under this Section 4 shall be
made to the nearest 1/1000th of a cent or the nearest 1/1000th of a share, as
the case may be. Any calculation over .005 shall be rounded up to the next cent
or share and any calculation less than .005 shall be rounded down to the
previous cent or share.
(vi) In the event the Conversion Price is not
adjusted pursuant to Section 4(c)(ii), (iii), (iv), or (v), within two (2)
Business Days following the occurrence of an event described therein, the Holder
shall have the right to require the Company to redeem the Debentures at 135% of
par value and simultaneously pay such amount and all accrued interest and
dividends to the Holder pursuant to the written instructions provided by the
Holder.
(vii) Whenever the Conversion Price is adjusted
pursuant to Section 4(c)(ii),(iii), (iv) or (v), or redeemed pursuant to Section
4(c)(vi), the Company shall within two (2) days after the determination of the
new Conversion Price mail and fax to the Holder and to each other holder of
Debentures, a notice ("Company Notice of Conversion") setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(viii) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then each holder of Debentures then
outstanding shall have the right thereafter to convert such Debentures only into
the shares of stock and other securities and property receivable upon or deemed
to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange (except in the event the
property is cash, then the Holder shall have the right to convert the Debentures
and receive cash in the same manner as other stockholders), and the Holder shall
be entitled upon such event to receive such amount of securities or property as
the shares of the Common Stock into which such Debentures could have been
converted immediately prior to such reclassification, consolidation, merger,
<PAGE>
sale, transfer or share exchange would have been entitled. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such terms
so as to continue to give to the Holder the right to receive the securities or
property set forth in this Section 4(c)(viii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(ix) If:
(A) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(B) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(C) the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any shares
of capital stock of any class or of
any rights; or
(D) the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company
(other than a subdivision or
combination of the outstanding
shares of Common Stock), any
consolidation or merger to which the
Company is a party, any sale or
transfer of all or substantially all
of the assets of the Company, or any
compulsory share exchange whereby
the Common Stock is converted into
other securities, cash or property;
or
(E) the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or
winding-up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures, and shall cause to be mailed and faxed
to the Holder and each other holder of Debentures at their last addresses as it
shall appear upon the Debenture Register, at least thirty (30) calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
<PAGE>
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(d) If at any time conditions shall arise by reason of action
or inaction taken by the Company which in the opinion of the Board of Directors
are not adequately covered by the other provisions hereof and which might
materially and adversely affect the rights of the Holder and all other holders
of Debentures (different than or distinguished from the effect generally on
rights of holders of any class of the Company's capital stock), the Company
shall, at least thirty (30) calendar days prior to the effective date of such
action, mail and fax a written notice to each holder of Debentures briefly
describing the action contemplated and the material adverse effects of such
action on the rights of such holders and an Appraiser selected by the holders of
majority in principal amount of the outstanding Debentures shall give its
opinion as to the adjustment, if any (not inconsistent with the standards
established in this Section 4), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which Debentures may
thereafter be convertible) and any distribution which is or would be required to
preserve without diluting the rights of the holders of Debentures; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the right to select an additional Appraiser, in which case the
adjustment shall be equal to the average of the adjustments recommended by each
such Appraiser. The Board of Directors shall make the adjustment recommended
forthwith upon the receipt of such opinion or opinions or the taking of any such
action contemplated, as the case may be; provided, however, that no such
adjustment of the Conversion Price shall be made which in the opinion of the
Appraiser(s) giving the aforesaid opinion or opinions would result in an
increase of the Conversion Price to more than the Conversion Price then in
effect.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Debentures as herein provided, free
from preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Debentures, such number of shares of Common Stock as
shall be issuable (taking into account the adjustments and restrictions of
Section 4(c) and Section 4(d) hereof) upon the conversion of the aggregate
principal amount of all outstanding Debentures. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly and
validly authorized, issued and fully paid and nonassessable.
(f) No fractional shares of Common Stock shall be issuable
upon a conversion hereunder and the number of shares to be issued shall be
rounded up to the nearest whole share. If a fractional share interest arises
upon any conversion hereunder, the Company shall eliminate such fractional share
interest by issuing Holder an additional full share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Debentures shall be made without charge to the Holder for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
<PAGE>
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(h) Debentures converted into Common Stock shall be canceled
upon conversion.
(i) On the Maturity Date, the unconverted principal amount of
the Debentures and all interest due thereon shall either be paid off in full by
the Company or, if payment in full is not received within ten (10) Business Days
after the Maturity Date, convert automatically into shares of Common Stock at
the lesser of the Fixed Conversion Price or the Floating Conversion Price as set
forth in Section 4(c)(i).
(j) Each Holder Notice of Conversion shall be given by
facsimile to the Escrow Agent no later than 4:00 pm New York Time. Upon receipt
of such Notice of Conversion, the Escrow Agent shall forward such Notice of
Conversion to the Company by facsimile by the end of the Business Day, on which
received, assuming received by 6:00 pm New York Time and if thereafter on the
next Business Day, at the facsimile telephone number and address of the
principal place of business of the Company. Each Company Notice of Conversion
shall be given by facsimile addressed to each holder of Debentures at the
facsimile telephone number and address of such holder appearing on the books of
the Company as provided to the Company by such holder for the purpose of such
Company Notice of Conversion, with a copy to the Escrow Agent. Any such notice
shall be deemed given and effective upon the transmission of such facsimile at
the facsimile telephone number specified in this Section 4(j) (with printed
confirmation of transmission). In the event that the Escrow Agent receives the
Notice of Conversion after 4:00 p.m. New York Time, the Conversion Date shall be
deemed to be the next Business Day. In the event that the Notice of Conversion
is sent after the end of the Business Day, notice will be deemed to have been
given the next Business Day.
Section 5. Redemption of Debentures In the event the Holder
converts a portion of the Debenture resulting in the issuance of a [the Holder's
proportionate share of an aggregate of 6,666,666] shares ("Maximum Shares") of
Common Stock, and so long as the Company is not in default of the Debenture and
the Purchase Agreement, then the Company may redeem the unconverted principal
amount of the Debentures in accordance with the following:
(a) The Company may, upon no less that seven (7) Business Days
written notice to the Holder, with a copy to the Escrow Agent, redeem the
Debentures at one hundred thirty-five percent (135%) of the par value per
debenture plus accrued interest (the "Redemption Price").
(b) Within five (5) Business Days of sending the notice of
redemption, the Company shall deposit the Redemption Price by wire transfer to
the IOLA account of the Escrow Agent. Upon receipt of the Redemption Price, the
Escrow Agent shall release the Redemption Price to the Holder and return the
remaining Debentures and Underlying Shares to the Company.
<PAGE>
(c) In the event that the Company fails to deposit the
Redemption Price in the Escrow Agent's IOLA account within the time allocated in
section (b) above, then the redemption shall be declared null and void.
(d) The Maximum Shares shall be subject to adjustment as
provided in Section 4(c).
Section 6. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, and interest on, this
Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture is a direct obligation of the Company. This Debenture
ranks pari passu with all other Debentures now or hereafter issued under the
terms set forth herein. The Company may not prepay any portion of the
outstanding principal amount on the Debentures.
Section 7. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other proceedings of
the Company, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
Section 8. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of an affidavit of such loss, theft or
destruction of such Debenture, and reasonably acceptable indemnity, if
requested, by the Company.
Section 9. This Debenture shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Any action to
enforce the terms of this Debenture, the Purchase Agreement or any other
Transaction Document shall be exclusively brought in the state and/or federal
courts in the State and County of New York. Service of process in any action by
the Holder to enforce the terms of this Debenture may be made by serving a copy
of the summons and complaint, in addition to any other relevant documents, by
commercial overnight courier to the Company at its principal address set forth
in the Purchase Agreement.
Section 10. All notices or other communications hereunder
shall be given, and shall be deemed duly given and received, if given, in the
manner set forth in Section 4(j).
Section 11. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
<PAGE>
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
Section 12. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 13. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
Section 14. This Debenture may not be transferred or assigned,
in whole or in part, at any time, except in compliance with applicable federal
and state securities laws by the transferor and the transferee.
Section 15. In the event any Party commences legal action to
enforce its rights under this Debenture, the non-prevailing party shall pay all
reasonable costs and expenses (including but not limited to reasonable
attorney's fees, accountant's fees, appraiser's fees and investigative fees)
incurred in enforcing such rights.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed by an officer thereunto duly authorized as of the date first
above indicated.
INVU, INC.
Attest: ______________________ By:______________________________
Name:
Title:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
Except as provided by Section 4(b) of the Debenture, the undersigned hereby
irrevocably elects to convert the above Debenture No. into shares of Common
Stock, no par value per share (the "Common Stock"), of INVU, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. A fee of $350 will be charged to the Holder
for any conversion by the Escrow Agent. No other fees will be charged to the
Holder, except for such transfer taxes, if any.
Conversion calculations: ------------------------------------------------
Date to Effect Conversion
------------------------------------------------
Principal Amount of Debentures to be Converted
------------------------------------------------
Interest to be Converted or Paid
------------------------------------------------
Applicable Conversion Price (Pursuant to Section
4(c)(v))
------------------------------------------------
Number of Shares to be Issued Upon Conversion
------------------------------------------------
Signature
------------------------------------------------
Name
------------------------------------------------
Address
Void after 5:00 p.m., New York Time on [Date], 2003
Warrant to Purchase [Number] Shares of Common Stock
--------------------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
INVU, INC.
--------------------------------------------
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER RULE 506 OF REGULATION D PROMULGATED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM
THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
FOR VALUE RECEIVED, INVU, Inc., a Colorado corporation (the "Company"),
grants the following rights to [name], a [jurisdiction] corporation, with an
office at [address] and/or its assigns ("Holder"):
ARTICLE 1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall have the meanings
given such terms in the Convertible Debenture Purchase Agreement by and between
the Company and the Holder (the "Purchase Agreement") and entered into on April
___,2000. As used in this Agreement, the following terms shall have the
following meanings:
Dallas1 587669 v 1, 40687.00001
1
<PAGE>
"Closing" shall have the same meaning as defined in the Purchase Agreement.
"Corporate Office" shall mean the office of the Company (or its successor) at
which at any particular time its principal business shall be administered.
"Escrow Agent" shall mean Kaplan, Gottbetter & Levenson, LLP, 630 Third Avenue,
5th Floor, New York, NY 10017, as the Company's escrow agent, or its authorized
successor, as such.
"Escrow Agreement" means the escrow agreement by and among the Company, the
Holder and Kaplan Gottbetter & Levenson, LLP, annexed as Exhibit E to the
Purchase Agreement.
"Exercise Date" shall mean [to be determined in accordance with Purchase
Agreement], any date upon which the Holder shall give the Company a Notice of
Exercise.
"Exercise Price" shall mean [the lower of US$3.00 or one hundred twenty five
percent (125%) of the average closing bid price of the Common Stock for the five
(5) Trading Days immediately prior to the Closing Date] per share of Common
Stock, subject to adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on [third anniversary of
the Closing Date] 2003.
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of the Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS.
2.1 Exercise of Warrant. This Warrant shall entitle Holder to purchase up to
[number equal to twenty percent (20%) of the Purchase Price (as defined in the
Purchase Agreement) divided by a number which is equal to twenty-five percent
(25%) less than the average Per Share Market Value of the Common Stock for the
five (5) Trading Days immediately prior to the Closing Date] shares of Common
Stock (the "Shares") at the Exercise Price. This Warrant shall be exercisable at
any time and from time to time prior to the Expiration Date (the "Exercise
Period"). This Warrant and the right to purchase Warrant Shares hereunder shall
expire and become void on the Expiration Date.
2.2 Manner of Exercise.
------------------
(a) Holder may exercise this Warrant at any time, starting at the time of
the issuance of this Warrant and from time to time during the Exercise Period,
in whole or in part (but not in denominations of fewer than 10,000 Warrant
Shares, except upon an exercise of this Warrant with respect to the remaining
balance of Warrant Shares purchasable hereunder at the time of exercise), by
delivering to the Escrow Agent (as defined in an escrow agreement dated of the
same date as this Warrant between the Company and the Holder incorporated herein
by reference) (i) a duly executed
2
<PAGE>
Notice of Exercise in substantially the form attached as Appendix 1 hereto, (ii)
the Warrant Certificate representing the Warrants, (iii) a bank cashier's or
certified check for the aggregate Exercise Price of the Warrant Shares being
purchased, and (iv) a bank cashier's, certified check or wire transfer of $350
to the Escrow Agent for an exercise fee.
(b) The Holder may, at its option, in lieu of paying cash for the Warrant
Shares, exercise this Warrant by exchanging the Warrants, in whole or in part (a
"Warrant Exchange"), by delivering to the Escrow Agent (i) a duly executed
Notice of Exercise electing a Warrant Exchange, (ii) the Warrant Certificate
representing the Warrants, and (iii) a bank cashier's, certified check or wire
transfer of $350 to the Escrow Agent for an exercise fee. In connection with any
Warrant Exchange, the Holder shall be deemed to surrender or exchange, for the
Warrant Shares to be issued to it, the number of Warrant Shares equal to the
quotient obtained by dividing (A) the product of the number of Warrant Shares
exercised and the existing Exercise Price of the Warrants by (B) the average Per
Share Market Value of a share of Common Stock for the ten (10) Trading Days
ending on the date the Notice of Exercise is sent to the Escrow Agent.
2.3 Termination. All rights of the Holder in this Warrant, to the extent
they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. Prior to its exercise pursuant to Section
2.2 above, this Warrant shall not entitle the Holder to any voting or other
rights as a shareholder of the Company.
2.5 Fractional Shares. No fractional shares shall be issuable upon exercise
of this Warrant and the number of Warrant Shares to be issued shall be rounded
up to the nearest whole Share. If a fractional Share interest arises upon any
exercise of the Warrant, the Company shall eliminate such fractional Share
interest by issuing Holder an additional full Share.
2.6 Escrow. The Company agrees to enter into the escrow agreement and to
issue into said Escrow certificates to be held by the Escrow Agent (as defined
in the Escrow Agreement), registered in the name of the Holder, representing a
number of shares of Common Stock (in 10,000 share certificates) equal to the
number of Warrant Shares of this Warrant.
2.7 Adjustments to Exercise Price and Number of Securities
------------------------------------------------------
(a) Computation of Adjusted Exercise Price. In case the Company shall at any
time after the date hereof issue or sell any shares of Common Stock (other than
the issuances or sales referred to in Section 2.7 (g) hereof), including shares
held in the Company's treasury and shares of Common Stock issued upon the
exercise of any options, rights or warrants to subscribe for shares of Common
Stock and shares of Common Stock issued upon the direct or indirect conversion
or exchange of securities for shares of Common Stock (excluding shares of Common
Stock issuable upon exercise of options, warrants or conversion rights granted
as of the date hereof and 2,250,000 shares of Common Stock issuable upon
exercise of options to be granted to members of the Company's management and up
to a maximum of 750,000 of shares to be issued as compensation to certain
persons), for a
3
<PAGE>
consideration per share less than Exercise Price on the date immediately prior
to the issuance or sale of such shares, or without consideration, then forthwith
upon such issuance or sale, the Exercise Price shall (until another such
issuance or sale) be reduced to the price (calculated to the nearest full cent)
equal to the quotient derived by dividing (A) an amount equal to the sum of (X)
the product of (a) the Exercise Price on the date immediately prior to the
issuance or sale of such shares, multiplied by (b) the total number of shares of
Common Stock outstanding immediately prior to such issuance or sale plus, (Y)
the aggregate of the amount of all consideration, if any, received by the
Company upon such issuance or sale, by (B) the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided, however,
that in no event shall the Exercise Price be adjusted pursuant to this
computation to an amount in excess of the Exercise Price in effect immediately
prior to such computation, except in the case of a combination of outstanding
shares of Common Stock, as provided by Section 2.7 (c) hereof.
For the purposes of any computation to be made in accordance with this
Section 2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or other
distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than shares of
the Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time outstanding shall
include the
4
<PAGE>
aggregate number of shares issued or issuable (subject to readjustment upon the
actual issuance thereof) upon the exercise of options, rights, warrants and upon
the conversion or exchange of convertible or exchangeable securities; provided,
however, that shares issuable upon the exercise of the Warrants shall not be
included in such calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable Securities.
In case the Company shall at any time after the date hereof issue options,
rights or warrants to subscribe for shares of Common Stock, or issue any
securities convertible into or exchangeable for shares of Common Stock, for a
consideration per share less than the Exercise Price immediately prior to the
issuance of such options, rights or warrants (excluding shares of Common Stock
issuable upon exercise of options, warrants or conversion rights granted as of
the date hereof and 2,250,000 shares of Common Stock issuable upon exercise of
options to be granted to members of the Company's management and up to a maximum
of 750,000 of shares to be issued as compensation to certain persons), or such
convertible or exchangeable securities, or without consideration, the Exercise
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provision of Section 2.7 (a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the case may
be, issuable under such options, rights or warrants shall be deemed to be issued
and outstanding at the time such options, rights or warranties were issued, and
for a consideration equal to the minimum purchase price per share provided for
in such options, rights or warrants at the time of issuance, plus the
consideration (determined in the same manner as consideration received on the
issue or sale of shares in accordance with the terms of the Warrants), if any,
received by the Company for such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock issuable upon
conversion or exchange of any convertible or exchangeable securities shall be
deemed to be issued and outstanding at the time of issuance of such securities,
and for a consideration equal to the consideration (determined in the same
manner as consideration received on the issue or sale of shares of Common Stock
in accordance with the terms of the Warrants) received by the Company for such
securities, plus the minimum consideration, if any, receivable by the Company
upon the conversion or exchange thereof.
(iii) If any change shall occur in the price per share provided for in any
of the options, rights or warrants referred to in subsection (a) of this Section
2.7 (b), or in the price per share at which the securities referred to in
subsection (b) of this Section 2.7 (b) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
5
<PAGE>
(iv) If any options, rights or warrants referred to in subsection (a) of
this Section 2.7, or any convertible or exchangeable securities referred to in
subsection (b) of this Section 2.7, expire or terminate without exercise or
conversion, as the case may be, then the Exercise Price of the remaining
outstanding Warrants shall be readjusted as if such options, rights or warrants
or convertible or exchangeable securities, as the case may be, had never been
issued.
(c) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the Exercise
Price pursuant to the provisions of this Section 2.7, the number of Warrant
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) [Reserved].
(f) Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Common Stock), the corporation
formed by such consolidation or merger shall execute and deliver to the Holder a
supplemental warrant agreement providing that the Holder of each Warrant then
outstanding or to be outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, the kind
and amount of shares of stock and other securities and property (except in the
event the property is cash, then the Holder shall have the right to exercise the
Warrant and receive cash in the same manner as other stockholders) receivable
upon such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 2.7. The above provision of
this Subsection shall similarly apply to successive consolidations or mergers.
(g) No Adjustment of Exercise Price in Certain Cases. No adjustment of the
Exercise Price shall be made upon the issuance of the Shares upon conversion of
the convertible debentures of this warrant, or upon the exercise of any options,
rights, or warrants outstanding as of the date of the Purchase Agreement and
disclosed in Section 3.1(c) therein.
(h) Dividends and Other Distributions. In the event that the Company shall
at any time prior to the exercise of all Warrants declare a dividend (other than
a dividend consisting solely of shares of
6
<PAGE>
Common Stock) or otherwise distribute to its stockholders any assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another, or any other thing of
value, the Holders of the unexercised Warrants shall thereafter be entitled, in
addition to the shares of Common Stock or other securities and property
receivable upon the exercise thereof, to receive, upon the exercise of such
Warrants, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Warrants had been
exercised immediately prior to such dividend or distribution. At the time of any
such dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this subsection 2.7 (h).
Nothing contained herein shall provide for the receipt or accrual by a Holder of
cash dividends prior to the exercise by such Holder of the Warrants.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. In addition to the representations and
warranties contained in Article 3.1 of the Convertible Debenture Purchase
Agreement, the Company hereby represents and warrants to the Holder as follows:
(a) All shares which may be issued upon the exercise of the purchase right
represented by this Warrant shall, upon issuance, be duly authorized, validly
issued, fully-paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws, and not subject to any pre-emptive rights.
(b) The Company is a corporation duly organized and validly existing under
the laws of the State of Colorado, and has the full power and authority to issue
this Warrant and to comply with the terms hereof. The execution, delivery and
performance by the Company of its obligations under this Warrant, including,
without limitation, the issuance of the Warrant Shares upon any exercise of the
Warrant have been duly authorized by all necessary corporate action. This
Warrant has been duly executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting enforceability of creditors' rights
generally and except as the availability of the remedy of specific enforcement,
injunctive relief or other equitable relief is subject to the discretion of the
court before which any proceeding therefor may be brought.
(c) The Company is not subject to or bound by any provision of any
certificate or articles of incorporation or by-laws, mortgage, deed of trust,
lease, note, bond, indenture, other instrument or agreement, license, permit,
trust, custodianship, other restriction or any applicable provision of any law,
statute, rule, regulation, judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator which could
prevent or be violated by or under which there would be a default (or right of
termination) as a result of the execution, delivery and performance by the
Company of this Warrant.
7
<PAGE>
(d) The Company is subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, as amended, and is current
in its reporting requirements. The Company is eligible to issue the Warrants and
the Warrant Shares pursuant to Rule 506 of Regulation D promulgated under the
Securities Act.
ARTICLE 4. MISCELLANEOUS.
4.1 Transfer. This Warrant may not be transferred or assigned, in whole or
in part, at any time, except in compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of an investment representation letter and a legal
opinion reasonably satisfactory to the Company), provided that this Warrant may
not be transferred or assigned such that either the Holder or any transferee
will, following such transfer or assignment, hold a Warrant for the right to
purchase fewer than 10,000 Warrant Shares.
4.2 Transfer Procedure. Subject to the provisions of Section 4.1, Holder may
transfer or assign this Warrant by giving the Company notice setting forth the
name, address and taxpayer identification number of the transferee or assignee,
if applicable (the "Transferee") and surrendering this Warrant to the Company
for reissuance to the Transferee and the Holder, in the event of a transfer or
assignment of this Warrant in part. (Each of the persons or entities in whose
name any such new Warrant shall be issued are herein referred to as a "Holder").
4.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall become
mutilated or defaced or be destroyed, lost or stolen, the Company shall execute
and deliver a new Warrant in exchange for and upon surrender and cancellation of
such mutilated or defaced Warrant or, in lieu of and in substitution for such
Warrant so destroyed, lost or stolen, upon the Holder filing with the Company an
affidavit that such Warrant has been so mutilated, defaced, destroyed, lost or
stolen. However, the Company shall be entitled, as a condition to the execution
and delivery of such new Warrant, to demand reasonably acceptable indemnity to
it and payment of the expenses and charges incurred in connection with the
delivery of such new Warrant. Any Warrant so surrendered to the Company shall be
canceled.
4.4 Notices. All notices and other communications from the Company to the
Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
4.5 Waiver. This Warrant and any term hereof may be changed, waived, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
4.6 Governing Law. This Warrant shall be governed by and construed in
accordance with the
8
<PAGE>
laws of the State of New York, without giving effect to its principles regarding
conflicts of law. Any action to enforce the terms of this Warrant shall be
exclusively heard in the State and Federal Courts of New York County and State
and Country of the United States of America.
4.7 Signature. In the event that any signature on this Warrant is delivered
by facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same, with the same force and effect as if such facsimile
signature page were an original thereof.
4.8 Legal Fees. In the event any Party commences a legal action to enforce
its rights under this Warrant, the non-prevailing shall pay all reasonable costs
and expenses (including reasonable attorney's fees) incurred in enforcing such
rights.
(Remainder of this page left intentionally blank)
9
<PAGE>
4.9 Attorney-in-Fact. To effectuate the terms and provisions of the Purchase
Agreement, the Escrow Agreement, the Debenture and this Warrant, the Company
hereby agrees to give a power of attorney as is evidenced by Exhibit F to the
Convertible Debenture Purchase Agreement. All acts done under the such power of
attorney are hereby ratified and approved and neither the Attorney-in- Fact nor
any designee or agent thereof shall be liable for any acts of commission or
omission, for any error of judgment or for any mistake of fact or law, as long
as the Attorney - in- Fact is operating within the scope of the power of
attorney and within the scope of, and in accordance with, this Warrant, the
Purchase Agreement, the Debenture and the Escrow Agreement. The power of
attorney being coupled with an interest shall be irrevocable while any amount of
the Debenture remains unpaid, any amount of this Warrant remains unexercised or
any portion of the Purchase Agreement or the Escrow Agreement remains
unsatisfied. In addition, the Company shall give the Attorney-in-Fact a
corporate resolution executed by the Board of Directors of the Company which
authorizes future issuances of the shares for the Debentures, and which
resolution states that it is irrevocable while any amount of the Debenture
remains unpaid, any amount of this Warrant remains unexercised or any portion of
the Purchase Agreement or the Escrow Agreement remains unsatisfied.
Dated: INVU, INC.
By:
------------------------------
Name:
Title:
Attest:
- ------------------------------------
Name:
Title:
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<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects (please check the appropriate box and fill in
the blank spaces):
|_| to purchase ______ shares of Common Stock, no par value per share, of
INVU, Inc. at $_____ per share for a total of $_____________ and pursuant to
the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such Warrant Shares in full; or
|_| to purchase _______ shares of Common Stock, no par value per share, of
INVU, Inc. pursuant to the cashless exercise provision under Section 2.2 (b)
of the Warrant, and tenders herewith the number of Warrant Shares to
purchase such Warrant Shares based on the average closing bid price of the
Common Stock for the ten trading days prior to the date hereof of $ per
share.
2. Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:
Date By:
-------------------------- -----------------------------------
Name:
Title:
11
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 1, 2000, by and between INVU, INC., a Colorado
corporation, with its principal place of business at The Beren, Blisworth Hill
Farm, Stoke Road, Blisworth, North-hampton, NNZ 3DB (the "Company"); and GEM
Global Yield Fund Limited, a Nevis company, with its administrative office at
Loughran & Co., 38 Hertford St., London W1Y 7TG, and Turbo International Ltd., a
Bahamas corporation, with its administrative office at 50 Shirley Street, P.O.
Box N 7755, Nassau, Bahamas, (each of "Purchaser" and collectively the
"Purchasers").
Simultaneously with the execution of this Agreement, the Purchasers and
the Company entered into a Convertible Debenture Purchase Agreement, dated as of
the date hereof (the "Purchase Agreement") incorporated herein by reference,
pursuant to which the Purchasers have agreed to purchase certain Debentures and
Warrants (the "Debentures" and the "Warrants") of the Company.
The Company and the Purchasers hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined
herein shall have the meanings given such terms in the Purchase Agreement. As
used in this Agreement, the following terms shall have the following meanings:
"Advice" shall have the meaning set forth in Section 4.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control " when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day"means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York are authorized or required by law or other government actions to close
between the hours of 9:30 a.m. and 6:00 p.m. New York Time.
"Closing" shall mean the Closing, as such term is defined in the
Purchase Agreement.
"Closing Date" shall mean the Closing Date, as such term is defined in
the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the Company's common stock, no par value per
share.
"Debentures" means the Company's 3% Convertible Debentures delivered to
the Purchasers pursuant to the Purchase Agreement.
"Effectiveness Date" means, with respect to a Registration Statement,
in the case of a Closing, the earlier of the 180th day following the execution
of the Purchase Agreement (or if such date is not a Business Day, the next
Business Day) and the fifth (5th) Business Day after the date the Company is
notified by the Commission that such Registration Statement will not be
reviewed.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 6.
"Event Date" shall have the meaning set forth in Section 6.
"Escrow Agreement" means the escrow agreement by and among the Company,
KG&L and the Purchasers, entered into on the same date as this Agreement, and
which is incorporated herein by reference.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Execution Date" means the day the Purchase Agreement and the other
Transaction Documents are executed by the parties
"Filing Date" means the day the Registration Statement is filed with
the Commission, which date shall be as soon as practicable after the Execution
Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 8(c).
"Indemnifying Party" shall have the meaning set forth in Section 8(c).
"Inspectors" shall have the meaning set forth in Section 3(m).
"Losses" shall have the meaning set forth in Section 8(a).
"New York Courts" shall have the meaning set forth in Section 10(h).
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"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), 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 the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Records" shall have the meaning set forth in Section 3(m).
"Registrable Securities" means the Warrant Shares and the Underlying
Shares; provided, however, that in order to account for adjustments in the
conversion and exercise ratios, Registrable Securities shall include a number of
shares of Common Stock equal to no less than four (4) times the number of shares
of Common Stock into which the Debentures are convertible in full, at the lesser
of either the Fixed Conversion Price or the Floating Conversion Price on the
date of execution of the Purchase Agreement together with such number of Warrant
Shares issuable upon exercise of the Warrants issued on the Closing.
"Registration Statement" means the registration statement, contemplated
by Section 2(a), including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
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"Securities Act" means the Securities Act of 1933, as amended.
"Underlying Shares" shall mean the shares of Common Stock into which
the Debentures are convertible in accordance with the Purchase Agreement and the
Debentures.
"Underwritten Registration" or "Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the Common Stock purchase warrants issued in
accordance with the terms of the Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the Warrants.
2. Shelf Registration
(a) As soon as practicable after the date of this Agreement
(the "Execution Date"), the Company shall prepare and file with the Commission a
"Shelf" Registration Statement covering the issuance or resale of all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-1 or another
appropriate form permitting registration of Registrable Securities for issuance
to or resale by the Holders in the manner or manners designated by them
(including, without limitation, public or private sales and one or more
Underwritten Offerings). The Company shall (i) not permit any securities other
than the Registrable Securities to be included in the Registration Statement
except as provided for in Section 7(b) and (ii) use its best efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as practicable after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is five years after the
date of this Agreement or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold pursuant to
Rule 144 as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Holders, to such effect (the "Effectiveness
Period"); provided, however, that the Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action to suspend the
effectiveness of the Registration Statement under the Securities Act during the
Effectiveness Period, unless the Company, after consultation with its counsel,
determines that such action is required under applicable law or the Company has
filed a post-effective amendment to the Registration Statement and the
Commission has not declared it effective. Should the Registration Statement not
relate to the maximum number of Registrable Securities acquired by (or
potentially acquirable by) the Holders thereof upon conversion or exercise of
the Debentures, and Warrants (because of the indeterminable number of shares of
Common Stock issuable upon conversion or exercise thereof), the Company shall be
required to file a separate registration statement (utilizing Rule 462
promulgated under the Securities Act, where applicable) relating to such
Registrable Securities which then remain unregistered. The provisions of this
Agreement shall relate to such separate registration statement as if it were an
amendment to such Registration Statement.
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(b) If the Holders of a majority of the Registrable Securities
so elect and inform the Company in writing a reasonable time prior to the Filing
Date, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such offering exceeds the amount of Registrable Securities which can
be sold in such offering, there shall be included in such Underwritten Offering
the amount of such Registrable Securities which in the opinion of such managing
underwriters can be sold, and such amount shall be allocated pro rata among the
Holders proposing to sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority of the Registrable Securities included in such offering, with the
approval of the Company, which shall not be unreasonably withheld or delayed. No
Holder may participate in any Underwritten Offering hereunder unless such Person
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures. In connection with the Company's
registration obligations hereunder, the Company shall:
(a) Prepare and file with the Commission within the time
period set forth in Section 2 a Registration Statement on Form S-1 or another
appropriate form permitting registration of Registrable Securities for issuance
to the Holders and the resale thereof in accordance with the method or methods
of distribution thereof as specified by the Holders, and use its best efforts to
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however that, subject only to the Holders providing
to the Company in writing information, requested in writing by the Company,
relating to the Holders' proposed method of distribution of Registrable
Securities and such other information required by law, not less than ten (10)
days prior to the filing of the Registration Statement or any related Prospectus
or any amendment (pre or post effective) or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to the Holders, their Counsel and any
managing underwriters, copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders, their Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Holders shall have five days after receipt of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto to comment on or object to the filing of such documents. The Company
shall not file the
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Registration Statement or any such Prospectus or any amendments or supplements
thereto without including any comments reasonably requested by the Holders and
shall not file any such documents to which the Holders of a majority of the
Registrable Securities, their Counsel, or any managing underwriters, shall
object; provided, however, that the counting of days for determining whether the
Company has complied with the Filing Date and Effectiveness Date requirements
for purposes of this Agreement shall not include any days during the period
commencing with such objection and ending when the Person objecting subsequently
consents to the filing of such documents. On the date of effectiveness of any
Registration Statement, the Company shall furnish an opinion, dated as of such
date, from counsel representing the Company addressed to the Holders of the
Registrable Securities and in form, scope and substance as is customarily given
in an underwritten public offering. The Company shall also use its best efforts
to cause to be furnished on the date of effectiveness of any Registration
Statement, a letter, dated such date, 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 Holders of the Registrable Securities.
(b) (i) Prepare and file with the Commission such amendments,
including post- effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective for the
applicable time period; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
practicable to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto; and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect to the
registration of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than three Business Days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; and (B) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time the Registration Statement becomes stale and is no
longer effective; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus
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or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) Use its reasonable best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post- effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) unless in the opinion
of counsel for the Company such action is required by applicable law.
(f) Furnish to each Holder, their Counsel and any managing
underwriters, without charge, at least one complete copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus forming part of the effective Registration
Statement) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby agrees to respond in writing to a
written request from the Purchasers with respect to the effectiveness of such
Prospectus.
(h) Prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement;
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provided, however, that the Company shall not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any tax
in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold, which certificates shall be free of all
restrictive legends, except as required by applicable law, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three (3)
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain 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, in light of the circumstances under which they were made,
not misleading.
(k) Use its reasonable best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed or quoted on the
Nasdaq National Market, the Nasdaq SmallCap Market and any other securities
exchange, market or over-the-counter bulletin board, if any, on which similar
securities issued by the Company are then listed or quoted to the extent
required by the rules of such exchange, market or other quotation system.
(l) If the Registrable Securities are included in a
Registration Statement filed in connection with an Underwritten Offering, the
Company shall, (i) make such representations and warranties to such Holders as
it agrees to make to the underwriters in such Underwritten Public Offerings, and
confirm the same if and when requested; (ii) enter into an indemnification
agreement which shall contain indemnification provisions and procedures no less
favorable to the selling Holders , than those set forth in Section 6 and (iii)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Counsel
and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(1)(i) .
If an Underwritten Offering by the Company includes Registrable
Securities, then any legal opinion addressed to an underwriter shall be
addressed to the Selling Shareholders, and the Company will use its best efforts
to cause the independent certified public accountants of the Company to address
its opinion to the Selling Shareholders.
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(m) Make available for inspection by (i) Holders of the
Registrable Securities; (ii) any underwriter participating in any disposition
pursuant to the Registration Statement, (iii) one firm of attorneys and one firm
of accountants or other agents retained by the Investors, and (iv) one firm of
attorneys retained by all such underwriters (collectively, the "Inspectors") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be reasonably
deemed necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3(m). Each Holder of
Registrable Securities agrees that it shall, upon learning that disclosure of
such Records is sought in or by a court or government body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Holders' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than forty-five (45) days after the end of any 12-month
period (or ninety (90) days after the end of any 12-month period if such period
is a fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first (1st) day of the first (1st) fiscal quarter of
the Company after the effective date of the Registration Statement.
(o) At such time as the Registration Statement has been
declared effective by the Commission covering a resale of any Registrable
Securities, the Company shall cause its legal counsel to deliver to the Transfer
Agent an opinion, subject to the holders of any Registrable Securities making
such representations and warranties to Company counsel as it may require,
certifying that such Registrable Securities may be sold by the Holders pursuant
to such Registration Statement with the purchasers thereof receiving share
certificates without restrictive legend, which opinion shall remain effective so
long as such Registration Statement remains in full force and effect. In the
event that, at any time, such Registration Statement ceases to be effective, the
Company shall
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immediately deliver written notice thereof to the Transfer Agent and the Holders
stating that the opinion of the Company's legal counsel may no longer be relied
upon by the Transfer Agent (unless and until an additional or amended, as
applicable, Registration Statement is so declared effective (with respect to the
resale of such Registrable Securities)).
(p) Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the Registration Statement.
(q) The Company shall take all such other actions as any
Holder of Registrable Securities or the underwriters, if any, reasonably request
in order to expedite or facilitate the disposition of the Registration
Securities.
The Company may require each selling Holder and the underwriters to
furnish to the Company such information regarding the distribution of such
Registrable Securities and the Holder as is required by law to be disclosed in
the Registration Statement and as may otherwise be reasonably requested by the
Company, including, without limitation, information necessary for the Company to
respond to the comments from the Commission and/or state securities authorities,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request, and such Holder shall be deemed to
have violated this Registration Rights Agreement for purposes of Section 6.2 of
the Purchase Agreement.
If the Registration Statement refers to any Holder by name or otherwise
as the holder of any securities of the Company, then such Holder shall have the
right to require (i) the inclusion therein of language, in form and substance
reasonably satisfactory to such Holder and the Company, to the effect that the
ownership by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of the Company,
or (ii) if such reference to such Holder by name or otherwise is not required by
the Securities Act or any similar federal statute then in force, the deletion of
the reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
Each Purchaser covenants and agrees that (i) it will not offer or sell
any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) each Purchaser and its officers, directors
or Affiliates, if any, will comply with the prospectus delivery requirements of
the Securities Act as applicable to them in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a written notice from the Company of the occurrence of any
event of the kind described in
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Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such Holder will
forthwith discontinue disposition of such Registrable Securities until such
Holder's receipt of the copies of the supplemented Prospectus and/or amended
Registration Statement contemplated by Section 3(j), or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not the Registration Statement is filed or becomes effective and
whether or not any Registrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
Holders of a majority of Registrable Securities may designate)), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company , (v) fees and disbursements of all
independent certified public accountants referred to in Section 3(a)(ii) , and
(vi) Securities Act liability insurance, if the Company so desires such
insurance, and (vii) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange on which similar securities issued by the Company are then
listed.
(b) Notwithstanding anything to the contrary herein, the
Holders shall be responsible for the cost of underwriting discounts and
commissions if any, applicable to the Registrable Securities, and the fees and
expenses of its counsel.
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5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding termination of this Agreement and without limitation as to time,
indemnify and hold harmless each Holder, the officers, directors, agents
(including any underwriters retained by such Holder in connection with the offer
or sale of Registrable Securities), brokers, investment advisors and employees
of each of them, each Person who controls any such Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) and the
officers, directors, agents and employees of each such controlling Person, to
the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
costs of preparation and attorneys' fees) and expenses (collectively, "Losses"),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except solely to the extent that (i) such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by or on behalf of such Holder expressly for
use therein, which information was relied on by the Company for use therein or
(ii) such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was furnished in writing to the
Company by or on behalf of such Holder expressly for use therein. The Company
shall notify the Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the transactions
contemplated by this Agreement.
(b) Indemnification by Holders. In connection with the
Registration Statement, each Holder shall furnish to the Company in writing such
information as the Company reasonably requests for use in connection with the
Registration Statement or any Prospectus and agrees, severally and not jointly,
to indemnify and hold harmless the Company, their directors, officers, agents
and employees, each Person who controls the Company (within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based solely
upon any omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading solely to the extent, and only to
the extent, that (i) such untrue statement or omission is contained in any
information furnished in writing by such Holder to the Company specifically for
inclusion in the Registration Statement or such Prospectus and such information
was relied upon by the Company for use in the Registration Statement, such
Prospectus or such form of prospectus, or (ii) such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was furnished in writing by or on behalf of such
12
<PAGE>
Holder to the Company specifically for inclusion in the Registration Statement
or such Prospectus and such information was relied upon by the Company for use
in the Registration Statement, such Prospectus or such form of prospectus. In
addition, the foregoing shall not inure to the benefit of any Holder if a copy
of the Prospectus (as then amended or supplemented) was furnished by the Company
to such Holder and was not sent or given by or on behalf of such Holder to such
Holder's purchaser of Registrable Securities if required by law to have been so
delivered.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume the
defense of such Proceeding and to employ counsel reasonably satisfactory to such
Indemnified Party in any such Proceeding; or (3) the named parties to any such
Proceeding (including any impleaded parties) include both such Indemnified Party
and the Indemnifying Party, and such Indemnified Party shall have been advised
by counsel that a conflict of interest is likely to exist if the same counsel
were to represent such Indemnified Party and the Indemnifying Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it 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 the
claim against the Indemnified Party but will retain the right to control the
overall Proceedings out of which the claim arose, and counsel employed by the
Indemnified Party shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party to which the Indemnified
Party is entitled hereunder (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten (10) Business Days of written notice
thereof to the Indemnifying Party.
13
<PAGE>
(d) Contribution. If a claim for indemnification under Section
6(a) or 6(b) is unavailable to an Indemnified Party or is insufficient to hold
such Indemnified Party harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, (i) in such proportion as is appropriate to reflect
the relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other from the distribution of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative benefits received by the
Indemnified Party and the Indemnifying Party, as the case may be, shall be
deemed to be in the same proportion as the total net proceeds received by the
Company from the initial sale of the Registrable Securities by the Company to
the Purchasers pursuant to the Purchase Agreement and the Warrants bear to the
gain, if any, realized by the selling Holder upon the resale thereof. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 6(c), any attorneys' or other fees or
expenses incurred by such party in connection with any Proceeding to the extent
such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6(d) were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 6(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
14
<PAGE>
6. Rule 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at any
time the Company is not required to file such reports, they will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The Company
further covenants that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by Rule 144. Upon the
request of any Holder, the Company shall deliver to such Holder a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Piggyback on Registrations. Except as provided in
Section 4.23 of the Purchase Agreement, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not enter into any agreement
providing any such right to any of its security holders.
(c) Amendments and Waivers. This Agreement may be amended and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the Holder
or Holders of the sum of 51% or more of the shares of (i) Registrable Securities
issued at such time, plus (ii) Registrable Securities issuable upon exercise or
conversion of any Debentures, and Warrants that have not been fully exchanged or
converted in full as of the date such consent is sought. Each Holder of any
Registrable Securities at the time or thereafter outstanding shall be bound by
any consent authorized by this Section 10(c), whether or not such Registrable
Securities shall have been marked to indicate such consent.
(d) Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
15
<PAGE>
If to the Company: INVU, Inc.
The Beren,
Blisworth Hill Farm
Stoke Road
Blisworth
North-hampton, NNZ 3DB
Tel: 011 44 1604 859893
Fax: 011 44 1604 859902
With copies to: Jenkens & Gilchrist, P.C.
1445 Ross Avenue, Suite 3200
Dallas, TX 75202-2799
Attn: Mark D. Wigder, Esq.
Tel: (214) 855-4326
Fax: (214) 855-4300
If to the Purchasers: See Schedule 1 - Schedule of
Purchasers (attached to the
Purchase Agreement)
With copies to: Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017-6705
Attn: Adam S. Gottbetter, Esq.
Tel: (212) 983-6900
Fax: (212) 983-9210
If to any other Person who is then the registered Holder: to the
address of such Holder as it appears in the stock transfer books of the Company;
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder.
(f) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(g) Governing Law; Submission to Jurisdiction; Waiver of Jury
Trial. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflicts of law.
The Company and each Holder (including Warrant
16
<PAGE>
Holders) hereby irrevocably submits to the jurisdiction of any New York state
court sitting in the Borough of Manhattan in the City of New York or any federal
court sitting in the Borough of Manhattan in the City of New York (collectively,
the "New York Courts") in respect of any Proceeding arising out of or relating
to this Agreement, and irrevocably accepts for itself and in respect of its
property, generally and unconditionally, jurisdiction of the New York Courts.
The Company and each Holder (including Warrant Holders) irrevocably waives to
the fullest extent it may effectively do so under applicable law any objection
that it may now or hereafter have to the laying of the venue of any such
Proceeding brought in any New York Court and any claim that any such Proceeding
brought in any New York Court has been brought in an inconvenient forum.
(h) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(j) Headings. The headings in this Agreement are for conven-
ience of reference only and shall not limit or otherwise affect the meaning
hereof.
(k) Shares Held by The Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than a Purchaser or transferees or successors or assigns
thereof if such Persons are deemed to be Affiliates solely by reason of their
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[ Signature Page Follows ]
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Company:
INVU, INC.
By:
-------------------------
Name: David Morgan
Title: President
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By:
-------------------------
Name:
Title:
TURBO INTERNATIONAL LTD.
By:
-------------------------
Name:
Title:
18
DEBENTURE AND WARRANT SHARES ESCROW AGREEMENT
DEBENTURE AND WARRANT SHARES ESCROW AGREEMENT (this
"Agreement"), dated as of May 1, 2000, by and among INVU, Inc., a Colorado
corporation with its principal place of business at The Beren, Blisworth Hill
Farm, Stoke Road, Blisworth, North- hampton, NNZ 3DB (the "Company"); Kaplan
Gottbetter & Levenson, LLP with its principal place of business at 630 Third
Avenue, New York, NY 10017 (the "Escrow Agent"); GEM Global Yield Fund Limited,
a Nevis company, with its administrative office at Loughran & Co., 38 Hertford
St., London W1Y 7TG ("GEM Global"); and Turbo International Ltd., a Bahamas
corporation, with its administrative office at 50 Shirley Street, P.O. Box N
7755, Nassau, Bahamas ("Turbo") (each of GEM Global and Turbo is a "Purchaser
and collectively the "Purchasers").
Recitals
A. Simultaneously with the execution of this Agreement, the
Purchasers and the Company entered into a Convertible Debenture Purchase
Agreement, dated as of the date hereof (the "Purchase Agreement") incorporated
herein by reference, pursuant to which the Purchasers have agreed to purchase
certain Debentures and Warrants (the "Debentures" and the "Warrants") of the
Company.
B. The Escrow Agent is willing to act as escrow agent pur-
suant to the terms of this Agreement with respect to the purchase of the
Debentures and the Warrants.
C. All capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Purchase Agreement.
NOW, THEREFORE, IT IS AGREED:
1. Procedure for Escrow. The procedure of escrow shall be
governed by the provisions of Article 2 of the Debenture Purchase Agreement.
2. Terms of Escrow. The terms of the escrow shall be
governed by Article 4 of the Purchase Agreement, Article 2 of the Warrant and
Articles 4 and 5 of the Debenture.
3. Duties and Obligations of the Escrow Agent.
(a) The parties hereto agree that the duties and
obligations of the Escrow Agent are only such as are herein specifically
provided and no other. The Escrow Agent's duties are as a depositary only, and
the Escrow Agent shall incur no liability whatsoever, except as a direct result
of its willful misconduct or gross negligence.
1
<PAGE>
(b) The Escrow Agent may consult with counsel of
its choice, and shall not be liable for any action taken, suffered or omitted by
it in accordance with the advice of such counsel.
(c) The Escrow Agent shall not be bound in any
way by the terms of any other agreement to which the Purchasers and the Company
are parties, whether or not it has knowledge thereof, and the Escrow Agent shall
not in any way be required to determine whether or not any other agreement has
been complied with by the Purchasers and the Company, or any other party
thereto. The Escrow Agent shall not be bound by any modification, amendment,
termination, cancellation, rescission or supersession of this Agreement unless
the same shall be in writing and signed jointly by the Purchasers and the
Company, and agreed to in writing by the Escrow Agent.
(d) If the Escrow Agent shall be uncertain as to
its duties or rights hereunder or shall receive instructions, claims or demands
which, in its opinion, are in conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action, other than to
keep safely all property held in escrow or to take certain action, until it
shall jointly be directed otherwise in writing by the Purchasers and the Company
or by a final judgment of a court of competent jurisdiction.
(e) The Escrow Agent shall be fully protected in
relying upon any written notice, demand, certificate or document which it, in
good faith, believes to be genuine. The Escrow Agent shall not be responsible
for the sufficiency or accuracy of the form, execution, validity or genuineness
of documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority or rights of the persons executing
or delivering or purporting to execute or deliver any such document, security or
endorsement.
(f) The Escrow Agent shall not be required to
institute legal proceedings of any kind and shall not be required to defend any
legal proceedings which may be instituted against it or in respect of the
Consideration.
(g) If the Escrow Agent at any time, in its sole
discretion, deems it necessary or advisable to relinquish custody of the
Consideration, it may do so by delivering the same to any other escrow agent
mutually agreeable to the Purchasers and the Company and, if no such escrow
agent shall be selected within three days of the Escrow Agent's notification to
the Purchasers and the Company of its desire to so relinquish custody of the
Consideration, then the Escrow Agent may do so by delivering the Consideration
to the clerk or other proper officer of a court of competent jurisdiction as may
be permitted by law. The fee of any court officer shall be borne by the Company.
Upon such delivery, the Escrow Agent shall be discharged from any and all
responsibility or liability with respect to the Consideration and this Agreement
and the Company and the Purchasers shall promptly pay to the Escrow Agent all
monies which may be owed it for its services hereunder, including, but not
limited to, reimbursement of its out-of-pocket expenses pursuant to paragraph
(i) below.
2
<PAGE>
(h) This Agreement shall not create any
fiduciary duty on the Escrow Agent's part to the Purchasers or the Company, nor
disqualify the Escrow Agent from representing either party hereto in any dispute
with the other, including any dispute with respect to the Consideration.
(i) The Escrow Agent represents that it is
counsel to the Purchasers. The parties agree that the Escrow Agent's engagement
as provided for herein is not and shall not be objectionable for any reason.
(j) Upon the performance of this Agreement, the
Escrow Agent shall be deemed released and discharged of any further obligations
hereunder.
4. Indemnification.
(a) The Purchasers hereby indemnify and hold
free and harmless Escrow Agent from any and all losses, expenses, liabilities
and damages (including but not limited to reasonable attorney's fees, and
amounts paid in settlement) resulting from claims asserted by the Company
against Escrow Agent with respect to the performance of any of the provisions of
this Agreement.
(b) The Company hereby indemnifies and holds
free and harmless Escrow Agent from any and all losses, expenses, liabilities
and damages (including but not limited to reasonable attorney's fees, and amount
paid in settlement) resulting from claims asserted by the Purchasers against
Escrow Agent with respect to the performance of any of the provisions of this
Agreement.
(c) The Purchasers and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent harmless from and against
any and all losses, damages, taxes, liabilities and expenses that may be
incurred by the Escrow Agent, arising out of or in connection with its
acceptance of appointment as the Escrow Agent hereunder and/or the performance
of its duties pursuant to this Agreement, the Purchase Agreement, the Debentures
and the Warrants, including, but not limited to, all legal costs and expenses of
the Escrow Agent incurred defending itself against any claim or liability in
connection with its performance hereunder, provided that the Escrow Agent shall
not be entitled to any indemnity for any losses, damages, taxes, liabilities or
expenses that directly result from its willful misconduct or gross negligence.
(d) In the event of any legal action between the
parties to this Agreement to enforce any of its terms, the legal fees of the
prevailing party shall be paid by the party(ies) who did not prevail.
3
<PAGE>
5. Miscellaneous.
(a) All Notice of Conversions, Objections, notices,
requests, demands and other communications hereunder shall be in writing, sent
by telecopier, upon proof of sending thereof to the following addresses:
(i) If to the Company: INVU, Inc.
The Beren,
Blisworth Hill Farm
Stoke Road
Blisworth
North-hampton, NNZ 3DB
Attn: David Morgan
Tel: 011 44 1604 859893
Fax: 011 44 1604 859902
With copies to: Jenkens & Gilchrest, P.C.
1445 Ross Avenue,
Suite 3200
Dallas, TX 75202-2799
Attn: Mark D. Wigder, Esq.
Tel: (214) 855-4326
Fax: (214) 855-4300
(ii) If to the Purchasers: At the fax numbers set
forth in the Purchase
Agreement.
(iii) If to the Escrow Agent: Kaplan Gottbetter &
Levenson, LLP
630 Third Avenue, 5th Floor
New York, NY 10017-6705
Attn: Adam S. Gottbetter,
Esq.
Tel: 212-983-6900
Fax: 212-983-9210
or at such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This Agreement shall be construed and
enforced in accordance with the law of the State of New York applicable to
contracts entered into and performed entirely within New York.
(c) This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
4
<PAGE>
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
(d) This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
6. Termination of Escrow. This Escrow Agreement shall begin
upon the date hereof and shall terminate upon the earlier of (i) the conversion
of the full amount of the Debentures; (ii) the Expiration Date of the Warrants;
or (iii) the Maturity Date of the Debentures. Upon the termination of the Escrow
Agreement, the Escrow Agent shall return any unconverted Debenture Escrow Shares
to the Company.
[ SIGNATURE PAGE FOLLOWS ]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed the day and year first above written.
Escrow Agent: The Company:
KAPLAN GOTTBETTER & INVU, INC.
LEVENSON, LLP
By: By:
--------------------------- ------------------------------
Name: Name:
Title: Title:
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By:
------------------------------
Name:
Title:
TURBO INTERNATIONAL LTD.
By:
------------------------------
Name:
Title:
6
Void after 5:00 p.m., New York Time on April 30, 2003
Warrant to Purchase 50,000 Shares of Common Stock
--------------------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
INVU, INC.
--------------------------------------------
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER RULE 506 OF REGULATION D PROMULGATED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM
THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS.
FOR VALUE RECEIVED, INVU, Inc., a Colorado corporation (the "Company"),
grants the following rights to Turbo International Ltd., a Bahamas corporation,
with its administrative office at 50 Shirley Street, P.O. Box N 7755, Nassau,
Bahamas, and/or its assigns ("Holder"):
ARTICLE 1. DEFINITIONS.
Capitalized terms used and not otherwise defined herein shall have the meanings
given such terms in the Convertible Debenture Purchase Agreement by and between
the Company and the Holder (the "Purchase Agreement") and entered into on May 1,
2000. As used in this Agreement, the following terms shall have the following
meanings:
1
<PAGE>
"Corporate Office" shall mean the office of the Company (or its successor) at
which at any particular time its principal business shall be administered.
"Exercise Date" shall mean any date upon which the Holder shall give the Company
a Notice of Exercise.
"Exercise Price" shall mean US$0.01 per share of Common Stock, subject to
adjustment as provided herein.
"Expiration Date" shall mean 5:00 p.m. (New York time) on April 30, 2003.
"SEC" shall mean the United States Securities and Exchange Commission.
"Warrant Shares" shall mean the shares of the Common Stock issuable upon
exercise of the Warrant.
ARTICLE 2. EXERCISE AND AGREEMENTS.
2.1 Exercise of Warrant. This Warrant shall entitle Holder to purchase
up to fifty thousand (50,000) shares of Common Stock (the "Shares") at the
Exercise Price. This Warrant shall be exercisable at any time and from time to
time prior to the Expiration Date (the "Exercise Period"). This Warrant and the
right to purchase Warrant Shares hereunder shall expire and become void on the
Expiration Date.
2.2 Manner of Exercise.
(a) Holder may exercise this Warrant at any time, starting at the time
of the issuance of this Warrant and from time to time during the Exercise
Period, in whole or in part (but not in denominations of fewer than 10,000
Warrant Shares, except upon an exercise of this Warrant with respect to the
remaining balance of Warrant Shares purchasable hereunder at the time of
exercise), by delivering to the Company (i) a duly executed Notice of Exercise
in substantially the form attached as Appendix 1 hereto, (ii) the Warrant
Certificate representing the Warrants, and (iii) a bank cashier's or certified
check for the aggregate Exercise Price of the Warrant Shares being purchased.
(b) The Holder may, at its option, in lieu of paying cash for the
Warrant Shares, exercise this Warrant by exchanging the Warrants, in whole or in
part (a "Warrant Exchange"), by by delivering to the Company (i) a duly executed
Notice of Exercise electing a Warrant Exchange and (ii) the Warrant Certificate
representing the Warrants. In connection with any Warrant Exchange, the Holder
shall be deemed to surrender or exchange, for the Warrant Shares to be issued to
it, the number of Warrant Shares equal to the quotient obtained by dividing (A)
the product of the number of Warrant Shares exercised and the existing Exercise
Price of the Warrants by (B) the average Per Share Market Value of a share of
Common Stock for the ten (10) Trading Days ending on the date the Notice of
Exercise is sent to the Company.
2
<PAGE>
2.3 Termination. All rights of the Holder in this Warrant, to the
extent they have not been exercised, shall terminate on the Expiration Date.
2.4 No Rights Prior to Exercise. Prior to its exercise pursuant to
Section 2.2 above, this Warrant shall not entitle the Holder to any voting or
other rights as a shareholder of the Company.
2.5 Fractional Shares. No fractional shares shall be issuable upon
exercise of this Warrant and the number of Warrant Shares to be issued shall be
rounded up to the nearest whole Share. If a fractional Share interest arises
upon any exercise of the Warrant, the Company shall eliminate such fractional
Share interest by issuing Holder an additional full Share.
2.6 [Reserved].
2.7 Adjustments to Exercise Price and Number of Securities
(a) Computation of Adjusted Exercise Price. In case the Company shall
at any time after the date hereof issue or sell any shares of Common Stock
(other than the issuances or sales referred to in Section 2.7 (g) hereof),
including shares held in the Company's treasury and shares of Common Stock
issued upon the exercise of any options, rights or warrants to subscribe for
shares of Common Stock and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock
(excluding shares of Common Stock issuable upon exercise of options, warrants or
conversion rights granted as of the date hereof and 2,250,000 shares of Common
Stock issuable upon exercise of options to be granted to members of the
Company's management and up to a maximum of 750,000 of shares to be issued as
compensation to certain persons), for a consideration per share less than
Exercise Price on the date immediately prior to the issuance or sale of such
shares, or without consideration, then forthwith upon such issuance or sale, the
Exercise Price shall (until another such issuance or sale) be reduced to the
price (calculated to the nearest full cent) equal to the quotient derived by
dividing (A) an amount equal to the sum of (X) the product of (a) the Exercise
Price on the date immediately prior to the issuance or sale of such shares,
multiplied by (b) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus, (Y) the aggregate of the amount
of all consideration, if any, received by the Company upon such issuance or
sale, by (B) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Exercise Price be adjusted pursuant to this computation to an amount in excess
of the Exercise Price in effect immediately prior to such computation, except in
the case of a combination of outstanding shares of Common Stock, as provided by
Section 2.7 (c) hereof.
For the purposes of any computation to be made in accordance with this
Section 2.7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
3
<PAGE>
Company for subscription, the subscription price, or if either of such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of the Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section 2.7(a).
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities; provided, however, that shares issuable upon the
exercise of the Warrants shall not be included in such calculation.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. In case the Company shall at any time after the date hereof issue
options, rights or warrants to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock, for
a consideration per share less than the Exercise Price immediately prior to the
issuance of such options, rights or warrants (excluding shares of Common Stock
issuable upon exercise of options, warrants or conversion rights granted as of
the date hereof and 2,250,000 shares of Common Stock issuable upon exercise of
options to be granted to members of the Company's management and up to a maximum
of 750,000 of shares to be issued as compensation to certain persons), or such
convertible or exchangeable securities, or without consideration, the Exercise
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provision of Section 2.7 (a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as the
case may be, issuable
4
<PAGE>
under such options, rights or warrants shall be deemed to be issued and
outstanding at the time such options, rights or warranties were issued, and for
a consideration equal to the minimum purchase price per share provided for in
such options, rights or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue or sale of
shares in accordance with the terms of the Warrants), if any, received by the
Company for such options, rights or warrants.
(ii) The aggregate maximum number of shares of Common Stock issuable
upon conversion or exchange of any convertible or exchangeable securities shall
be deemed to be issued and outstanding at the time of issuance of such
securities, and for a consideration equal to the consideration (determined in
the same manner as consideration received on the issue or sale of shares of
Common Stock in accordance with the terms of the Warrants) received by the
Company for such securities, plus the minimum consideration, if any, receivable
by the Company upon the conversion or exchange thereof.
(iii) If any change shall occur in the price per share provided for in
any of the options, rights or warrants referred to in subsection (a) of this
Section 2.7 (b), or in the price per share at which the securities referred to
in subsection (b) of this Section 2.7 (b) are convertible or exchangeable, such
options, rights or warrants or conversion or exchange rights, as the case may
be, shall be deemed to have expired or terminated on the date when such price
change became effective in respect of shares not theretofore issued pursuant to
the exercise or conversion or exchange thereof, and the Company shall be deemed
to have issued upon such date new options, rights or warrants or convertible or
exchangeable securities at the new price in respect of the number of shares
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(iv) If any options, rights or warrants referred to in subsection (a)
of this Section 2.7, or any convertible or exchangeable securities referred to
in subsection (b) of this Section 2.7, expire or terminate without exercise or
conversion, as the case may be, then the Exercise Price of the remaining
outstanding Warrants shall be readjusted as if such options, rights or warrants
or convertible or exchangeable securities, as the case may be, had never been
issued.
(c) Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
(d) Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 2.7, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
5
<PAGE>
(e) [Reserved].
(f) Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the Holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property (except in the event the property is cash, then the Holder shall have
the right to exercise the Warrant and receive cash in the same manner as other
stockholders) receivable upon such consolidation or merger, by a holder of the
number of shares of Common Stock of the Company for which such warrant might
have been exercised immediately prior to such consolidation, merger, sale or
transfer. Such supplemental warrant agreement shall provide for adjustments
which shall be identical to the adjustments provided in Section 2.7. The above
provision of this Subsection shall similarly apply to successive consolidations
or mergers.
(g) No Adjustment of Exercise Price in Certain Cases. No adjustment of
the Exercise Price shall be made upon the issuance of the Shares upon conversion
of the convertible debentures of this warrant, or upon the exercise of any
options, rights, or warrants outstanding as of the date of the Purchase
Agreement and disclosed in Section 3.1(c) therein.
(h) Dividends and Other Distributions. In the event that the Company
shall at any time prior to the exercise of all Warrants declare a dividend
(other than a dividend consisting solely of shares of Common Stock) or otherwise
distribute to its stockholders any assets, property, rights, evidences of
indebtedness, securities (other than shares of Common Stock), whether issued by
the Company or by another, or any other thing of value, the Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities and property receivable upon the exercise
thereof, to receive, upon the exercise of such Warrants, the same property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution as if the Warrants had been exercised immediately prior to such
dividend or distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this subsection 2.7 (h). Nothing contained herein shall provide
for the receipt or accrual by a Holder of cash dividends prior to the exercise
by such Holder of the Warrants.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. In addition to the representations
and warranties contained in Article 3.1 of the Convertible Debenture Purchase
Agreement, the Company hereby represents and warrants to the Holder as follows:
(a) All shares which may be issued upon the exercise of the purchase
right represented by this
6
<PAGE>
Warrant shall, upon issuance, be duly authorized, validly issued, fully-paid and
nonassessable, and free of any liens and encumbrances except for restrictions on
transfer provided for herein or under applicable federal and state securities
laws, and not subject to any pre-emptive rights.
(b) The Company is a corporation duly organized and validly existing
under the laws of the State of Colorado, and has the full power and authority to
issue this Warrant and to comply with the terms hereof. The execution, delivery
and performance by the Company of its obligations under this Warrant, including,
without limitation, the issuance of the Warrant Shares upon any exercise of the
Warrant have been duly authorized by all necessary corporate action. This
Warrant has been duly executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting enforceability of creditors' rights
generally and except as the availability of the remedy of specific enforcement,
injunctive relief or other equitable relief is subject to the discretion of the
court before which any proceeding therefor may be brought.
(c) The Company is not subject to or bound by any provision of any
certificate or articles of incorporation or by-laws, mortgage, deed of trust,
lease, note, bond, indenture, other instrument or agreement, license, permit,
trust, custodianship, other restriction or any applicable provision of any law,
statute, rule, regulation, judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator which could
prevent or be violated by or under which there would be a default (or right of
termination) as a result of the execution, delivery and performance by the
Company of this Warrant.
(d) The Company is subject to the reporting requirements of Section 13
or Section 15(d) of the Securities Exchange Act of 1934, as amended, and is
current in its reporting requirements. The Company is eligible to issue the
Warrants and the Warrant Shares pursuant to Rule 506 of Regulation D promulgated
under the Securities Act.
ARTICLE 4. MISCELLANEOUS.
4.1 Transfer. This Warrant may not be transferred or assigned, in whole
or in part, at any time, except in compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of an investment representation letter and a legal
opinion reasonably satisfactory to the Company), provided that this Warrant may
not be transferred or assigned such that either the Holder or any transferee
will, following such transfer or assignment, hold a Warrant for the right to
purchase fewer than 10,000 Warrant Shares.
4.2 Transfer Procedure. Subject to the provisions of Section 4.1,
Holder may transfer or assign this Warrant by giving the Company notice setting
forth the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee") and surrendering this Warrant to the
Company for reissuance to the Transferee and the Holder, in the event of a
7
<PAGE>
transfer or assignment of this Warrant in part. (Each of the persons or entities
in whose name any such new Warrant shall be issued are herein referred to as a
"Holder").
4.3 Loss, Theft, Destruction or Mutilation. If this Warrant shall
become mutilated or defaced or be destroyed, lost or stolen, the Company shall
execute and deliver a new Warrant in exchange for and upon surrender and
cancellation of such mutilated or defaced Warrant or, in lieu of and in
substitution for such Warrant so destroyed, lost or stolen, upon the Holder
filing with the Company an affidavit that such Warrant has been so mutilated,
defaced, destroyed, lost or stolen. However, the Company shall be entitled, as a
condition to the execution and delivery of such new Warrant, to demand
reasonably acceptable indemnity to it and payment of the expenses and charges
incurred in connection with the delivery of such new Warrant. Any Warrant so
surrendered to the Company shall be canceled.
4.4 Notices. All notices and other communications from the Company to
the Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission with confirmation sheet at such address
and/or facsimile number as may have been furnished to the Company or the Holder,
as the case may be, in writing by the Company or the Holder from time to time.
4.5 Waiver. This Warrant and any term hereof may be changed, waived, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
4.6 Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law. Any action to enforce the terms of this
Warrant shall be exclusively heard in the State and Federal Courts of New York
County and State and Country of the United States of America.
4.7 Signature. In the event that any signature on this Warrant is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same, with the same force and effect as if such facsimile
signature page were an original thereof.
4.8 Legal Fees. In the event any Party commences a legal action to
enforce its rights under this Warrant, the non-prevailing shall pay all
reasonable costs and expenses (including reasonable attorney's fees) incurred in
enforcing such rights.
4.9 Attorney-in-Fact. To effectuate the terms and provisions of the
Purchase Agreement and this Warrant, the Company hereby agrees to give a power
of attorney as is evidenced by Exhibit F to the Convertible Debenture Purchase
Agreement. All acts done under the such power of attorney are hereby ratified
and approved and neither the Attorney-in-Fact nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake
8
<PAGE>
of fact or law, as long as the Attorney-in-Fact is operating within the scope of
the power of attorney and this Warrant and the Purchase Agreement, the Debenture
and the Escrow Agreement. The power of attorney being coupled with an interest
shall be irrevocable while any amount of this Warrant remains unexercised or any
portion of the Purchase Agreement or the Escrow Agreement remains unsatisfied.
In addition, the Company shall give the Attorney-in-Fact a corporate resolution
executed by the Board of Directors of the Company which authorizes future
issuances of the shares for the Debentures, and which resolution states that it
is irrevocable while any amount of the Debenture remains unpaid, any amount of
this Warrant remains unexercised or any portion of the Purchase Agreement or the
Escrow Agreement remains unsatisfied.
(Remainder of this page left intentionally blank)
9
<PAGE>
Dated: May 1, 2000 INVU, INC.
By:
-------------------------
Name:
Title:
Attest:
- --------------------------------
Name:
Title:
10
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects (please check the appropriate box and fill in
the blank spaces):
|_| to purchase ______ shares of Common Stock, no par value per share, of
INVU, Inc. at $_____ per share for a total of $_____________ and pursuant to
the terms of the attached Warrant, and tenders herewith payment of the
purchase price of such Warrant Shares in full; or
|_| to purchase _______ shares of Common Stock, no par value per share, of
INVU, Inc. pursuant to the cashless exercise provision under Section 2.2 (b)
of the Warrant, and tenders herewith the number of Warrant Shares to
purchase such Warrant Shares based on the average closing bid price of the
Common Stock for the ten trading days prior to the date hereof of $ per
share.
2. Please issue a certificate or certificates representing said Warrant Shares
in the name of the undersigned or in such other name as is specified below:
Date By:
-------------------- ------------------------------
Name:
Title:
11
Schedule 3.1(a)
Subsidiaries
Invu Plc
Invu International Holdings Limited
Invu Service Limited
<PAGE>
<TABLE>
<CAPTION>
Schedule 3.1(c)
Capitalization
- ------------------------------------------------------------------------------------------------------------------------
Authorized Issued
- ------------------------------------------------------------------------------------------------------------------------
Preferred Common Preferred Common
Stock Stock Stock Stock
No par value No par value No par value No par value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVU, Inc. 20,000,000 100,000,000 0 30,206,896
(pound)1 Ordinary (pound)1 Ordinary
- -------------------------------------------------------------------------------------------------------------------------
INVU Plc 1,000,000 176,000
(pound)1 Ordinary (pound)1 Ordinary
- -------------------------------------------------------------------------------------------------------------------------
INVU International 10,000 400
Holdings Limited
(pound)1 Ordinary (pound)1 Ordinary
- -------------------------------------------------------------------------------------------------------------------------
INVU Services Limited 10,000 2
- -------------------------------------------------------------------------------------------------------------------------
Options, Warrants, Convertible Securities
</TABLE>
A. On August 23, 1999, the Company entered into that certain Investment
Agreement (the "Initial Investment Agreement"), among the Company, David Morgan,
John Agostini, and Paul O'Sullivan, on the one hand, and Alan David Goldman
("Goldman") and Vertical Investments Limited ("Vertical"), a company registered
in Jersey and beneficially owned by Daniel Goldman, on the other hand, as
supplemented by that certain Supplemental Agreement (the "Supplemental
Agreement" and, together with the Initial Investment Agreement, the "Final
Investment Agreement"), dated as of August 23, 1999, among the Company, David
Morgan, John Agostini, Paul O'Sullivan and INVU Services, on the one hand, and
Goldman, Vertical, and Tom Maxfield ("Maxfield", together with Goldman and
Vertical, collectively, the "Investors") on the other hand. Pursuant to the
terms of the Final Investment Agreement, the Investors agreed to advance certain
funds to the Company in the aggregate principal amount of $1,000,000 in shares
of $333,334, $333,333 and approximately $333,333 among Goldman, Vertical and
Maxfield, respectively, and the Company agreed to (1) pay in full any and all
amounts then outstanding pursuant to the First Financing Transaction and to
terminate such Agreement, (2) cause the Lenders to transfer to Montague 425,000
shares of the Common Stock then held by Lenders pursuant to the terms of the
First Financing Transaction (the "Transferred Shares"), and (3) cause Montague
to transfer 225,000 of such Transferred Shares to the Investors in equal shares
of 75,000 to each Investor.
The loans being made to the Company pursuant to the terms of the Final
Investment Agreement were evidenced by (1) that certain Loan Stock Instrument,
dated as of August 23, 1999, executed by the Company in favor of the Investors,
in the aggregate principal amount of $600,000 ("Loan Stock Instrument A"), and
(2) that certain Loan Stock Instrument, dated as of August 23, 1999, executed by
the Company in favor of the Investors, in the aggregate principal amount of
$400,000 ("Loan Stock Instrument B" and together with Loan Stock Instrument A,
collectively, the "Loan Stock Instruments"). Until the Loan Stock Instruments
are redeemed pursuant to their terms upon the occurrence of certain events
described therein, the outstanding principal and accrued but unpaid interest (1)
under Loan Stock Instrument A shall, at the option of the Investors, be
converted into one share of the Common Stock for each $.65
<PAGE>
of outstanding principal and accrued but unpaid interest converted, and (2)
under the Loan Stock Instrument B shall, at the option of Investors, be
converted into one share of the Common Stock for each $.50 of outstanding
principal and accrued but unpaid interest converted.
<PAGE>
Schedule 3.1(c)
Any amounts outstanding under Loan Stock Instrument A shall bear
interest at a rate of 6% per annum, payable in semi-annual installments in
arrears on January 1 and July 1 of each year accruing from day to day and
calculated monthly. In addition, Loan Stock Instrument A will be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange or if the Company raises
additional capital of at least $4,000,000. Any amounts outstanding under Loan
Stock Instrument B shall bear interest at a rate of 8% per annum for the first
six months following the date thereof, 9% per annum for the following six month
period, and 10% per annum thereafter. All accrued but unpaid interest on the
Loan Stock shall be payable in semi-annual installments in arrears on January 1
and July 1 of each year. Loan Stock Instrument B will also be automatically
converted in the event that the Company is listed on the NASDAQ National Market
or the Official List of the London Stock Exchange, however, the Investors have
the option of converting if the Company raises additional capital of at least
$4,000,000. If Loan Stock Instrument B is not so converted, it can be redeemed
at any time for a period of 12 months from August 23, 1999 at the election of
the Company. If the Loan Stock Instruments are not so converted, they may be
redeemed upon 30 days notice by the Company or the Investors on or after August
2002.
Pursuant to the terms of the Investor Agreement, the Investors shall
have the right to nominate one director of the Company, until the amounts
outstanding under the Loan Stock Instruments are redeemed or converted. Daniel
Goldman, the son of Goldman, is the nominee of the Investors.
The obligations of the Company under the Investor Agreement and the
Loan Stock Instruments have been guaranteed by INVU Services. Pursuant to the
Investment Agreement, the Company covenanted with the Investors to restrict
certain actions while any amounts remain outstanding under the Loan Stock
Instruments without the Investors' consent, which consent may not be
unreasonably withheld, including the following actions: the issuance of
additional Company Common Stock, except pursuant to the exercise of outstanding
warrants and options of the Company; the issuance of any new options to purchase
Company Common Stock; additional borrowings by the Company; capital expenditures
of the Company; paying off liabilities; granting security interests; and
acquiring other entities.
B. On March 1, 2000, the Company entered into a letter agreement with David
Andrews pursuant to which the Company granted Mr. Andrews an option to purchase
30,000 shares of the Common Stock in compensation for his services as a Director
of the Company.
<PAGE>
Schedule 3.1(e) & (f)
No Conflicts
Consents and Approvals
The transactions contemplated by the Agreement and related documents
requires the consent of the Investors (as defined in Schedule 3.1(c)) pursuant
to the Final Investment Agreement (as defined in Schedule 3.1(c)).
Daniel Goldman, as Investor Director for the Investors, has consented to
the Company entering into the transactions contemplated by the Agreement.
<PAGE>
Schedule 3.1(g)
Litigation
The Company has filed an application for trademark registration of its
"Invu" mark in the United Kingdom. This application has been opposed by two
companies. Management believes these opposition will be favorably resolved.
<PAGE>
Schedule 3.1(h)
No Default or Violation
1. The Company was delinquent in timely filing the following reports required
to be filed with the Securities and Exchange Commission (the "SEC")
pursuant to Section 13 of the Securities Exchange Act of 1934, as amended:
(a) Quarterly Report on Form 10-QSB for the quarter ended October 31, 1998;
(b) Annual Report on Form 10KSB for the fiscal year ended January 31, 1999;
(c) Quarterly Report on Form 10-QSB for the quarter ended April 30, 1999;
(d) Quarterly Report on Form 10-QSB for the quarter ended July 31, 1999.
Exhibit 10.24
DEMAND PROMISSORY NOTE
May 1, 2000
US$100,000
INVU, Inc.("Borrower"), a Colorado corporation with a place of business
at The Beren, Blisworth Hill Farm, Stoke Rd., Blisworth, Northhampton, NN7 3DB,
United Kingdom, for value received, hereby promises to pay to the order of GEM
Advisors, Inc. ("Lender"), with its registered address at 712 Fifth Avenue, 7th
Floor, New York, NY 10019, or Lender's assigns, or at any other place the holder
hereof designates, the principal sum of One Hundred Thousand Dollars
(US$100,000) in lawful money of the United States of America on demand, and to
pay interest accrued thereon in like money upon maturity on the unpaid principal
balance hereof at a rate of three percent (3%) per annum, calculated on the
basis of a 365 day year and actual days elapsed. Payments shall be first applied
towards outstanding interest, and then towards reduction of principal. If
payment is not made upon demand in accordance with this note, interest shall
accrue at the rate of fifteen percent (15%) per annum from the date of demand
through and including the date of payment. In addition, if payment is not made
upon demand in accordance with this Note, the holder of this Note may convert
any or all of the unpaid principal amount of the note and accrued but unpaid
interest, at any timer, and from time to time, for shares of common stock of the
Borrower, at the conversion ratio of (X) the lower of US$3.00 or one hundred
twenty-five percent (125%) of the average Per Share Market Value for the five
(5) Trading Days immediately prior to the date demand for payment of this Note
is made (the "Fixed Conversion Price") or (Y) seventy five percent (75%) of the
average of the three (3) lowest Per Share Market Value prices during the thirty
(30) day period immediately preceding the Conversion Date ("Floating Conversion
Price"). Capitalized terms used herein not otherwise defined herein shall have
the same meaning as ascribed to such terms in the Form of Debenture annexed to
the Convertible Debenture Purchase Agreement dated May 1, 2000 entered into,
among others, Borrower. Terms of conversion as set forth in Section 4 of the
Form of Debenture shall also apply to the conversion of this Note.
This Note may be pre-paid at any time without penalty. Borrower by its
execution below (i) waives diligence, demand of presentment, notice of
nonpayment and protest, and assents to extensions of the time of payment,
surrender or substitution of security (if any), or other indulgence, without
notice, (ii) represents and warrants that this instrument has been executed and
delivered by a duly authorized officer of the Borrower and shall constitute the
legal, valid, binding and enforceable obligation of the Borrower, (iii) hereby
consents to the jurisdiction of any federal and state court located in the
Borough of Manhattan, New York, and waives any defenses it may have based upon
improper venue and forum non conveniens, and (iv) agrees to pay reasonable fees
of legal counsel, and disbursements thereof, incurred by Lender in any
collection or enforcement proceeding relating hereto.
INVU, INC.
By:________________________________
David Morgan
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of January 31, 2000 and 1999 and the
Consolidated Statement of Operations for the year ended January 31, 2000
and January 31, 1999, and the periods from February 18, 1997 to January 31,
2000 and is qualified in its entirety be reference to such financial
statements.
</LEGEND>
<CIK> 0001035039
<NAME> INVU, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1916
<ALLOWANCES> 0
<INVENTORY> 25,110
<CURRENT-ASSETS> 61,416
<PP&E> 299,894
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0
0
<COMMON> 288,355
<OTHER-SE> (2,338,122)
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<NET-INCOME> (1,433,004)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
