<PAGE>
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended June 30, 1995
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURI-
TIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 0-17190
WASATCH EDUCATION SYSTEMS CORPORATION
(Name of small business issuer in its charter)
UTAH 87-0458433
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5250 South 300 West, Suite 101
Salt Lake City, Utah 84107
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (801) - 261-1001
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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. [X]
Issuer's revenues for fiscal year ended June 30, 1995 were $5,475,181.
The aggregate market value of the voting stock held by non-affiliates
computed by the average bid and asked prices of such stock as of September
30, 1995 was $446,154
The number of shares outstanding of issuer's common stock as of September 30,
1995 was 3,569,229.
<PAGE>
FORM 10-KSB
PART I
ITEM 1. BUSINESS
General Description
Wasatch Education Systems Corporation (the "Company" or "Wasatch"),
incorporated in 1988 in the State of Utah, develops and markets computer-
aided instructional systems ("CAI Systems") for the pre-school, elementary,
secondary, adult education and home school markets. The Company's products
are primarily used by students enrolled in United States schools between
kindergarten and the twelfth grade ("K-12"), as well as by adult students
enrolled in basic education programs and students receiving schooling at home.
Schools utilize the Company's products to offer students self-paced,
individualized courses in reading, writing, science, mathematics, life skills
and high school equivalency (GED) test preparation. The CAI Systems furnished
by the Company are typically used by students to supplement their regular
instructional programs.
The Company markets and sells its products through a direct sales force,
independent marketing representatives, and two dealers. See "Business--
Marketing and Sales". In addition to receiving revenues from initial product
license fees and sales (including software licenses, training, and printed
materials), the Company also receives fees in subsequent years for customer
support, software upgrades, teacher training, and printed materials.
The Market
With the introduction of personal computers in the late 1970's and early
1980's, schools began utilizing drill-and-practice, diskette-based
educational software. In the Company's view, the networking capability of
MS-DOS/Windows compatible equipment created a market for courseware which
addresses broad curriculum needs. These networked products contrast with
earlier software designed for stand-alone (non-networked) computers.
The Company's Products
The Company provides what it characterizes as a "learning" system. The
system provides each student with self-paced, individualized lessons. Using
a personal computer as a fileserver, the system stores course software (known
as "Courseware") and student data and transmits programs to student
workstations as needed. The fileserver can be connected to as many as 100
student workstations equipped with color monitors. A printer is also attached
to the system to service the needs of the users. Individual workstations can
be located in one place, such as a school computer laboratory, or the network
can be arranged to distribute workstations in different classrooms throughout
the school.
The Company believes that its Courseware offers several features which make
it attractive to customers. These include automatic record-keeping, automatic
re-entry at the appropriate point in the lesson, the capability to store work
for later use and the emphasis on workplace knowledge in real world
scenarios. The networked, MS-DOS/Windows software also allows more elaborate
lessons, including such features as graphics, audio and animation.
<PAGE>
The Company has designed its Courseware to emphasize content knowledge,
strategies, problem solving skills, critical thinking skills and process
skills, which distinguish it from educational software systems offered by
other companies. For example, the Company's science program focuses on
developing the student's content knowledge of physical, earth and life
sciences as well as on developing process skills such as observing phenomena
and recording data. Process skills are taught using computer tools such a
data bases and word processors, and other tools which are unique to
individual courses. Because the Courseware uses the computer as a problem-
solving tool and as an instructional vehicle, the Company believes that the
Courseware serves to integrate process skills and computer literacy into
the traditional curriculum. This permits the teacher to use the computer
to evaluate student mastery of knowledge, computer literacy and process skill
development.
The Company developed new Courseware called Projects for the Real WorldTM
that was introduced into the market during the fiscal year ended June 30,
1994 to address concerns about the need for "real world" based teaching
methods emphasizing work place knowledge, as advocated by the U.S. Department
of Labor in its report "Secretary's Commission on Achieving Necessary Skills"
or SCANS. The Company's new software is designed for K-8 and provides a new
approach to student interactive learning. The Company's Projects for the Real
WorldTM features highly interactive Courseware that requires an elevated
level of critical thinking in real world, work place scenarios.
In 1990, the Company signed a contract with Educational Testing Service
("ETS") which required the Company to develop curricula to help students
develop academic skills in reading, writing and mathematics, with a specific
goal of preparing teacher-candidates to pass Stage I of The Praxis Series:
Professional Assessments for Beginning TeachersTM. The product was marketed
for the first time beginning in the fall of 1993. The Company is entitled to
receive royalties, paid quarterly, on products sold by ETS into the teacher
education market, and the Company pays ETS a quarterly royalty for all ETS
products sold by the Company.
On February 25, 1991, the Company entered into a joint research and software
development project in mathematics with Rutgers University's Center for
Mathematics, Science and Computer Education. The project, to develop a tool-
based elementary mathematics product, was headed by Dr. Warren Crown. The
Company began marketing these products during the fiscal year ended June 30,
1994 and will pay a royalty to Rutgers on all sales.
On October 9, 1994, the Company signed an agreement with Integrated
Information Systems, Inc. to convert the Company's MS-Windows based
Courseware to the Macintosh operating system. This project is expected to be
completed in the fall of 1995 and will provide the Company the opportunity to
sell its products into school districts with Macintosh only hardware.
In the spring of 1995, the Company developed and began selling individual
units of its Courseware on CD-ROM.
All of the Company's products can be delivered in both networked environment
and non-networked individual workstation environments via CD-ROM technology.
Services
In addition to licensing Courseware, the Company provides on-site Courseware
installation, ongoing training, and telephone customer support. Training
consists of multiple in-service sessions throughout the school year and a
multi-year training plan. Company consultants work with teachers and school
principals in order to develop curriculum focus and integrate the Company's
Courseware into classroom instruction. Customer support is available during
extended working hours to Company customers via a toll-free number. Many
installations are sold with a modem which provides a telecommunication link
between the school and the Company's customer service personnel for remote
diagnostics.
<PAGE>
Research and Product Development
As in most of the software industry, rapid technological change and market
demands require the Company to continually enhance its existing products.
Although school curricula has remained relatively standard from location to
location and from year to year (and the Company believes it will continue to
do so), the need to add additional products to the Company's current product
line requires the Company to continually broaden its product line to remain
competitive.
From its inception in 1985 to June 30, 1995, the Company has cumulatively
spent $15,515,000 for research and product development. During the fiscal
years ended June 30, 1995 and 1994, the Company spent approximately $309,000
and $227,000, respectively, on expensed product development. In addition, the
Company spent approximately $1,269,000 and $2,455,000 in the fiscal years
ended June 30, 1995 and 1994, respectively, on product development that was
capitalized. Within a given curriculum area, the Company's development
strategy typically focuses on early completion of a core of software modules.
As a result, products in a given curriculum area are typically brought to
market after 12 to 15 months of development.
The Company intends to continue making significant investments in product
development activities with funds produced through continuing operations.
The new products will improve the Company's offerings in K-12 communication
arts and adult basic education. There can be no assurance, however, that the
Company will be able to respond adequately to technological advances in its
marketplace or that it will be able to develop or market successfully any
new products.
Marketing and Sales
The Company's early marketing strategy targeted the major urban school
districts as its core business. In April 1985, the Company installed its
products at three pilot sites in Chicago. By the end of 1985, the Company had
installations in 19 school districts serving a total of 26 schools. As of
June 30, 1995, the Company had sold its products to over 360 school districts
for use in 870 schools on approximately 18,000 individual networked
workstations throughout the United States. (See Note 8 to the Financial
Statements.)
As of June 30, 1995 the Company sells its products through a geographically
based direct sales force consisting of two full-time sales representatives
with an additional nine independent marketing representatives and two
dealers. In addition to qualifying prospects and calling on both existing and
prospective customers, the Company's sales representatives host users'
conferences and attend national trade shows and conferences. The Company
markets its products to a variety of customers including K-12 school school
districts, private schools, universities, adult education centers, the home
market and corporate education centers. The Company is expanding its
school marketing efforts through catalog mailings and follow up telemarketing
efforts.
<PAGE>
The Company has recently organized a catalog sales division that
incorporates a published catalog of all the Company's modular products and a
telemarketing group. Catalog mailings to key school districts are followed up
by the direct sales efforts of the telemarketers. This marketing strategy
attempts to capitalize on the trend of some school districts to buy modular
products at the school level rather than the district level.
Competition
The K-12 computer-aided instruction market is highly competitive. The
Company categorizes its competitors into two types. The first type of
competitor is the diskette or CD-ROM based educational software publisher.
While these companies serve a growing market, they generally distribute their
products via telemarketing and catalogue sales to individuals as well as
school districts.
The second category of competitor is the growing group of companies
producing comprehensive courseware primarily for networked systems. These
companies generally market to school districts with direct sales forces. The
Company believes that its major competitors in this second category are
Jostens Learning Corporation, Computer Curriculum Corporation and IBM. These
competitors have far greater resources than those of the Company. Some of
these competitors have entrenched market positions and established trademarks
and intellectual property rights.
Some of the products of the Company's competitors emphasize drill-and-
practice skills as opposed to the reasoning and thinking skills emphasized by
the Company's courseware. Although the Company believes that it has priced
its products competitively, there can be no assurance that the Company will
be able to remain price-competitive in the future or with respect to new
products. The Company believes that each of its competitors has approached
the market from a different standpoint and has targeted specific market
segments. Although Jostens Learning Corporation is believed to have a
dominant share of the K-8 market, no single company dominates the entire
market, and the Company competes against different companies with respect to
different products.
Product Protection
The Company's success is dependent to a large extent on its ability to
protect its proprietary interest in its software products. In addition, the
Company requires its employees to enter into confidentiality agreements with
it, and its license agreements with school districts prohibit the
reproduction or other unauthorized use of the Company's proprietary software;
however, not all school districts have entered into such license agreements.
Several circuits of the United States Court of Appeals, as well as federal
district courts, have held that governmental entities may be immune from suit
for copyright infringement. Such immunity protection would extend to states
and their alter egos but not to other political subdivisions. If school
district customers were to be viewed as alter egos of their respective states
, the Company could be denied protection from copyright infringement as to
these customers, even if such protection would otherwise be available.
However, the Company should still be entitled to contractual protection under
any license agreements it has executed with such districts.
The Company believes that the rapid pace of technological change in the
computer software industry renders patent, trade secret and copyright
protections less significant than the knowledge, ability, and experience of
the Company's personnel, name recognition and on-going maintenance.
<PAGE>
Suppliers
The objective of the Company is to sell proprietary software to customers
without accompanying of computer equipment and supplies, or third party
software except where the addition of the third party software compliments
or augments the Company's software. However, at times the Company must
coordinate the sale of its products with third party computer hardware and
peripherals as well as third party software in order to satisfy the bid
specifications of certain customers. In these instances, the Company must
rely upon delivery of products and services from various suppliers and has
established certain relationships with these suppliers to provide continuity
of supply.
Computer Hardware: The Company has non-binding, non-contractual
relationships with several manufacturers of computers used as student
workstations and fileservers. These vendors install and provide on-going
support for their hardware. Wasatch does not provide on-going hardware
support nor does it offer hardware as "Wasatch approved". The Company does
however, provide standardized computer configurations to achieve uniformity
of all suppliers' products sold.
Third Party Software: The Company purchases software products from third
parties to fill gaps in the Company's proprietary product lines. Such
software products constitute a small percentage of the Company's business but
nevertheless, provide both necessary and appropriate products for specific
market needs. In the event such software sources were to cease to be
available to the Company, the Company would be required to find alternatives,
and there can be no assurance that it would be successful in doing so. The
Company also purchases and reselss books from several publishers.
Employees
As of June 30, 1995, the Company employed 28 persons on the basis of full-
time equivalent employment including 3 persons in sales, marketing, and
related activities; 6 persons in product development; 11 persons in customer
support and operations; 4 persons in servicing and consulting; and 4 persons
in general administration and finance.
The Company believes that its future success will depend, in part, on its
ability to recruit and retain highly skilled sales and technical personnel
(including senior management as the Company expands its marketing efforts).
None of the Company's employees is represented by a labor union. The Company
has experienced no work stoppage and believes that its employee relations are
good.
<PAGE>
Significant Customers
The Company's products are marketed primarily to public school districts,
adult education facilities, corporations and recently to school districts and
adult education sites through telemarketing and catalog sales.
For all periods from inception through June 30, 1995, a small number of
school districts generated a disproportionate amount of the Company's annual
revenues. (See Note 8 to the Financial Statements.)
The Company must continually seek new customers for its products because
most of the Company's revenue is from non-recurring initial sales of software
, not from recurring annual license fees. Accordingly, the Company is not
particularly dependent on any individual customer(s) for future revenues.
Backlog
On June 30, 1995, the Company's backlog was immaterial, all of which was
shipped during the first quarter of fiscal year 1996. The Company does not
generally have a significant backlog as a result of the following factors.
Even though the sales cycle is lengthy, when a customer actively places an
order it is generally important that delivery be made quickly. The Company
does not manufacture or maintain significant inventory of computer hardware;
it merely installs its software on hardware manufactured, and often delivered
, by third parties. The Company's backlog was immaterial on June 30, 1995
and June 30, 1994.
At June 30, 1995, the Company had recorded deferred revenue with respect to
cash receipts for services, which consist primarily of training and
maintenance, yet to be performed in the amount of $367,000. This amount will
be recognized as revenue during fiscal year 1996 as the services are
completed.
ITEM 2. PROPERTIES
The Company's headquarters and its research and development facilities are
located at the same facility in Salt Lake City, Utah, which is presently
under a variable term lease through March 31, 1996. The annual base rent
(inclusive of payment of taxes) through March 31, 1996 is $73,777. (See Note
5 to the Financial Statements.)
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings against the Company were pending as of June 30, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
FORM 10-KSB
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) Market Price Data
The Company's Common Stock began trading in the over-the-counter market in
October 1988. Prices were quoted in the National Association of Security
Dealers Automated Quotation System ("NASDAQ") under the symbol WESC. On
January 31, 1991, the Company was granted by NASDAQ a conditional continued
listing on NASDAQ, and the Company's symbol was temporarily changed to WESCC.
On July 8, 1991, the Company's symbol was changed back to WESC as the company
met the minimum equity requirement of NASDAQ. The Company was delisted on
JUne 16, 1992 for failure to meet certain requirements for inclusion in the
NASDAQ system. The Company is currently reviewing the requirements to be
relisted on the NASDAQ exchange. The Company's Common Stock is now traded
on the NASDAQ Bulletin Board. The following table sets forth the range of the
high and low bid quotations for the stock for the fiscal year quarters
indicated, as reported by the applicable NASDAQ trading market. The
quotations represent prices between dealers and do not include retail markups
, markdowns or commissions and may not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
<S> HIGH LOW
Fiscal Year Ended June 30, 1994 <C> <C>
1st Quarter ended September 30, 1993 $1.000 $0.750
2nd Quarter ended December 31, 1993 1.000 0.625
3rd Quarter ended March 31, 1994 0.500 0.125
4th Quarter ended June 30, 1994 0.313 0.125
Fiscal Year Ended June 30, 1995
1st Quarter ended September 30, 1994 $0.313 $0.125
2nd Quarter ended December 31, 1994 0.219 0.094
3rd Quarter ended March 31, 1995 0.156 0.094
4th Quarter ended June 30, 1995 0.156 0.094
</TABLE>
(B) Approximate Number of Equity Security Holders
As of June 30, 1995, the Company had 427 common and preferred stockholders
of record.
(C) Dividends
The Company has never paid a dividend on its Preferred Stock. As of June 30,
1995, the Preferred Stock dividends in arrears amounted to $90,866. Under
Utah corporate law, the Company is restricted from paying dividends on its
Common Stock until the accumulated dividends on its Preferred Stock are paid
and the Company has achieved positive retained earnings. Only the Series B
Preferred Stock is entitled to dividends. The Series A Preferred Stock is not
entitled to dividends. The Series C Preferred Stock is entitled to dividends
under certain circumstances (see Note 6).
The Company has never paid a cash dividend on its Common Stock. The current
policy of the Company is to retain any earnings for the operation of its
business. The Company intends for the foreseeable future to continue this
policy of retaining earnings achieved to finance the development of its
business.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:
Fiscal Year 1995 compared to Fiscal Year 1994:
The following are explanations of significant period to period changes for
the fiscal year ended June 30, 1995 compared to the fiscal year ended June
30, 1994.
Revenue for the fiscal year ended June 30, 1995 of $5,475,000 decreased
$460,000 or 8 percent, compared to $5,935,000 for the fiscal year ended June
30, 1994. Courseware license revenues increased 26 percent or $851,000 to
$4,167,000 for the fiscal year ended June 30, 1995, from $3,316,000 for the
fiscal year ended June 30, 1994. This increase is primarily the result of
more effective marketing of the Company's new MS-Windows based software,
including the new "Projects for the Real WorldTM" courseware. Additionally,
the Company experienced success with proprietary Courseware sales through
its newly introduced catalog sales division. Services and other revenues
decreased $1,311,000 or 50 percent to $1,308,000 for the fiscal year ended
June 30, 1995 from $2,619,000 for the fiscal year ended June 30, 1994. Of
this, $761,000 is the result of the Company eliminating, except in limited
situations, computer hardware for sale along with its Courseware. Support
renewal revenues decreased $385,000 to $845,000 at June 30, 1995 from
$1,230,000 in fiscal 1994. This decrease is primarily the result of the
the Company lowering its annual customer support renewal fee.
Gross margins increased $3,631,000 to $3,682,000 at June 30, 1995 from
$51,000 at June 30, 1994. This increase is primarily the result of increased
software sales, lower training costs and reduced amortization of courseware
development costs as result of the Company writing off a substantial portion
of its deferred MS-DOS based courseware costs during fiscal year 1994. The
gross margin as a percent of revenue increased 66 percent to 67 percent for
the fiscal year ended June 30, 1995 from 1 percent for the fiscal year ended
June 30, 1994. The gross margin as a percent of revenue for service and
other revenues increased $81,000 to $486,000 or 37 percent for the fiscal
year ended June 30, 1995 from $405,000 or 15 percent for the fiscal year
ended June 30, 1994. This increase was due to the reduction in training costs
and significantly reduced low margin hardware sales.
Operating expenses decreased by 15 percent or $501,000 to $2,479,000 for the
fiscal year ended June 30, 1995 from $3,251,000 for the fiscal year ended
June 30, 1994. Of this, $382,000 is a decrease in sales and marketing
expenses. This decrease is primarily the result of a reduction od the
Company's internal sales representatives and lower selling costs associated
with direct sales. The Company's sales effort has shifted to independent
sales representatives and dealers. General and administrative expenses
decreased $202,000 to $1,450,000 at June 30, 1995 from $1,652,000 at June 30,
1994. This decrease is due primarily to reduced personnel in finance and
administration as wel as technical support. The Company's research and
development costs increased by $82,000 due to the Company expensing a larger
percentage of courseware development costs.
Operating income increased by $4,133,000 to income of $933,000 for the
fiscal year ended June 30, 1995 from a loss of $3,200,000 for the fiscal
year ended June 30, 1994.
<PAGE>
Net interest epxense increased by $11,000 to $756,000 for the fiscal year
ended June 30, 1995 from $745,000 for the fiscal year ended June 30, 1994.
This increase was primarily the result of interest on higher debt levels,
including interest accrued on convertible subordinated debentures and
interest on $5,500,000 of related party debt. Effective June 30, 1995, all
related party debt was cenverted into a combination of Series C non-
convertible preferred stock and common stock. Additionally, in this
transaction over $1.0 million in accrued, unpaid interest, was forgiven and
recognized as an extraordinary gain on the fiscal year ended June 30, 1995
income statement.
The net income for the Company increased $4,575,000 during the fiscal year
ended June 30, 1995 to income of $1,219,000 from a loss of $3,356,000 for
the fiscal year ended June 30, 1994.
Liquidity and Capital Resources:
The Company ended June 30, 1995 with liquid assets (cash, accounts
receivable and contract receivable) of $1,744,000, an increase of 14 percent
or $212,000 from June 30, 1994 when liquid resources were $1,532,000.
Accounts receivable increased $362,000 or 28 percent to $1,648,000 at June
30, 1995 from $1,286,000 at June 30, 1994. This increase was the result of
increased sales in the fourth quarter of the fiscal year ended June 30, 1995.
Casdh decreased by $130,000 primarily due to the more timely payments of
commissions made to independent sales representatives during this fiscal
year, versus the delayed payments made last fiscal year to direct sales
representatives.
Current assets increased by $129,000 or 7 percent to $1,868,000 at June 30,
1995 from $1,739,000 at June 30, 1994. This increase was the result of a
$362,000 increase in accounts receivable discussed above which was partially
offset by a decrease of $233,000 in cash, inventory and other current assets.
The increase in long-term assets of $242,000 or 5 percent, to $4,733,000 at
June 30, 1995 from $4,491,000 at June 30, 1994 was due primarily to an
increase in courseware development costs of $436,000 net of amortization.
The decline in fixed assets of $173,000 was due to the normal depreciation
of fixed assets.
Current liabilities decreased by $6,437,000 to $1,237,000 at June 30, 1995
from $7,584,000 at June 30, 1994. Of this decrease, %5,500,000 resulted from
the conversion of related party debt to a combination of series C non-
convertible preferred stock and common stock. Additionally, in this
transaction over $1.0 million in accrued, unpaid interest, was forgiven
and recognized as an extraordinary gain in the fiscal year ended June 30,
1995 income statement. This transaction was the primary reason for the net
decrease in both accounts payable and accrued interest payable to related
parties of $687,000. Deferred revenue decreased primarily as a result of the
Company lowering its annual renewal fee charged in fiscal year 1995.
Effective June 30, 1995, the Company converted all related party debt
totaling $5,500,000 as discussed above (see Note 3 to the financial
statements).
The Company's working capital balance increased by $6,476,000 to a positive
posotion of $631,00 at June 30, 1995 from deficit balance of $5,845,000 at
June 30, 1994. This decrease is primarily the result of the conversion of
$5,500,000 related party debt into equity and a corresponding net decrease
in accounts payable and accrued interest payable to related parties of
$687,000. Liquid assets (cash, accounts receivable and contract receivable)
of the Company increased by $212,000 during the fiscal year ended June 30,
1995.
<PAGE>
Stockholders' equity increased by $6,719,000 to a positive position of
$4,167,000 at June 30, 1995 from a deficit of $2,552,000 at June 30, 1994.
This increase is primarily the result of the conversion of $5,500,000 of
related party debt to a combination of Series C non-convertible preferred
stock and common stock, and net income of $1,219,000.
In the opnion of management, debt and equity capital resources should be
increased for the Company to pursue its goals in the next twelve months. The
Company is addressing the need for longer term growth capital by pursuing
new sources of investment funding. While management believes that the
Company can continue its current operating strategy without additional
funding, cash flows are diffcult to forecasy accurately. Therefore, the
Company has no assurance that capital will not be rquired, nor that it will
bee available on terms which are acceptable to the Company.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wasatch Education Systems Corporation:
We have audited the accompanying balance sheet of Wasatch Education Systems
Corporation as of June 30, 1995, and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended June 30, 1995. 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 with generally accepted auditing
standards. 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 amount 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 statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial staements referred to above present fairly,
in all material respects, the financial position of Wasatch Education
Systems Corporation at June 30, 1995 and the results of its operations and
its cash flows for each of the two years in the period ended June 30, 1995
the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
August 4, 1995
<TABLE>
ITEM 7. Financial Statements
<CAPTION>
Wasatch Education Systems Corporation
Balance Sheet
June 30,1995
<S> <C>
Assets
Current assets:
Cash $ 76,151
Accounts receivable, net of allowance
for doubtful accounts of $15,000 1,648,105
Contract receivable 20,079
Inventories 75,187
Other current assets 48,176
----------
Total current assets 1,867,698
Equipment, furniture and fixtures, net of
accumulated depreciation of $659,211 283,696
Courseware development costs, net of
accumulated amortization of $1,101,567 4,411,391
Other assets, net 38,333
----------
Total assets $ 6,601,118
==========
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable $ 316,012
Accrued employee costs 193,190
Other accrued liabilities 360,625
Deferred revenue 367,234
----------
Total current liabilities 1,237,061
----------
Convertible subordinated debentures 1,197,000
==========
Commitments (note 5)
Stockholders' equity:
Preferred stock, 20,000,000 shares authorized:
Series A convertible redeemable, 4,439,870 shares
outstanding, $4,439,870 involuntary liquidation
value 4,665,724
Series B $.375 cumulative convertible redeemable,
91,151 shares outstanding, $158,254 liquidation
value 118,496
Series C non-convertible, 5,300,000 shares
outstanding, $5,300,000 preferred liquidation
value 5,300,000
Common stock, no par value; 200,000,000 shares
authorized, 3,569,229 shares outstanding 11,744,072
Accumulated deficit(17,661,235)
----------
Total stockholders' equity 4,167,057
----------
Total liabilities and stockholders' equity $ 6,601,118
==========
The accompanying notes are an integral part of this balance sheet.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wasatch Education Systems Corporation
Statements of Operations
Fiscal year Fiscal year
ended June 30, ended June 30,
<S> 1995 1995
Revenue: <C> <C>
Courseware license rights $ 4,167,357 $ 3,316,095
Services and other 1,307,824 2,618,997
---------- ----------
5,475,181 5,935,092
Cost of revenue:
Courseware license rights 970,986 3,670,111
Services and other 822,202 2,214,154
---------- ----------
1,793,188 5,884,265
---------- ----------
Gross margin 3,681,993 50,827
Operating expenses:
General and administrative 1,425,985 1,652,185
Sales and marketing 989,442 1,371,874
Research and development 309,358 227,266
---------- ----------
2,274,785 3,251,325
---------- ----------
Income (loss) from operations 957,208 (3,200,498)
Interest expense, net of interest income 755,761 744,988
Income (loss) before income taxes ---------- ----------
and extraordinary items 201,447 (3,945,486)
Income tax benefit (provision) (4,029) 189,176
---------- ----------
Income (loss) before extraordinary items 197,418 (3,756,310)
Extraordinary items, forgiveness of accrued
interest and forgiveness of debt, net of
income tax (provision) benefit of ($20,163)
and $189,176, respectively 1,021,238 400,182
---------- ----------
Net income (loss) 1,218,656 (3,356,128)
Unpaid and undeclared preferred stock
dividends 34,182 56,684
Net income (loss) attributable to ---------- ----------
common stockholders $ 1,184,474 $(3,412,812)
========== ==========
Primary income (loss) per common share:
Income (loss) before extraordinary items $ .03 $ (2.00)
Extraordinary items .16 .21
---------- ----------
Net income (loss) $ .19 $ (1.79)
========== ==========
Fully dilutive income (loss) per common
share:
Income (loss) before extraordinary items $ .04 $ (2.00)
Extraordinary items .08 .21
---------- ----------
Net income (loss) $ .12 $ (1.79)
========== ==========
Weighted average common and common
equivalent shares outstanding
Primary 6,347,012 1,902,563
Fully dilutive 12,299,683 1,902,563
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wasatch Education Systems Corporation
Statements of Stockholders' Equity
For the Fiscal Years Ended June 30, 1995 and 1994
(Dollars in Thousands)
Series A Series B Series C
Total
Preferred Stock Preferred Stock Preferred Stock Common Stock Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Shares Amount Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 2,875,546 $2,814 1,592,521 $1,460 - $ - 1,902,563 $11,544 $(15,524) $ 295
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $152,634 659,980 510 509
Conversion of Series B
to Series A convertible
preferred Stock 904,344 1,342 (1,501,370) (1,342) (3,356) (3,356)
Net loss ---------------------------------------------------------------------------------------------------
Balance at June 30, 1994 4,439,870 4,666 91,151 118 - - 1,902,563 11,544 (18,880) (2,552)
Issuance of series C
preferred stock in
conversion of debt to
equity 5,300,000 5,300 5,300
Issuance of common stock
in conversion of debt
to equity 1,666,666 200 200
Net income 1,219 1,219
--------------------------------------------------------------------------------------------------
Balance at June 30, 1995 4,439,870 $4,666 91,151 $ 118 5,300,000 $ 5,300 3,569,229 $11,744 $(17,661) $ 4,167
==================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wasatch Education Systems Corporation
Statements of Cash Flows
Fiscal year Fiscal Year
ended June 30, ended June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,218,656 $(3,356,128)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,036,922 1,482,963
Write-off of courseware development
costs - 2,116,562
Extraordinary gains from forgiveness
of debt and accrued interest (1,041,581) (589,359)
Increase (decrease) in cash from:
Accounts and contract receivable (341,000) (159,006)
Inventories 29,990 62,360
Other current assets 52,938 61,616
Accounts Payable (227,360) 315,140
Accrued liabilities 541,572 (189,839)
Deferred revenue (119,618) 55,674
Net cash provided by (used in) ----------- ----------
operating activities 1,149,646 (196,017)
Cash flows from investing activities:
Purchase of equipment, furniture and
fixtures (30,346) (95,307)
Additions to courseware development
costs (1,269,193) (2,455,070)
Decrease in other assets 20,000 108,270
----------- -----------
Net cash used in investing activities (1,279,539) (2,442,107)
Cash flows from financing activities:
Net borrowings under notes payable to
related parties - 2,207,284
Proceeds from issuance of Series A
preferred stock, net of issuance
costs of $152,634 - 509,665
---------- -----------
Net cash provided by financing activities - 2,716,949
(Decrease) increase in cash (129,893) 78,825
Cash at beginning of year 206,043 127,218
----------- -----------
Cash at end of year $ 76,150 $ 206,043
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 161,595 $ 658,054
Cash paid for income taxes $ 2,366 $ 11,131
Supplemental disclosure of noncash
investing and financing activities:
Conversion of Series B preferred
stock to series A preferred stock $ - $1,342,097
Issuance of Series C preferred stock
in conversion of debt to equity $ 5,300,000 $ -
Issuance of common stock in conversion
of debt to equity $ 200,000 $ -
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
Wasatch Education Systems Corporation
Notes to Financial Statements
Note 1 DESCRIPTION OF BUSINESS
Wasatch Education Systems Corporation (the "Company") develops and markets
computer-aided instructional systems for the pre-school, elementary, high
school, secondary adult education and home school markets. Schools utilize
the Company's products to offer students self-paced, individualized courses
in reading, writing, science, mathematics, life skills and high school
equivalency ("GED") test preparation. The Company grants credit to customers
, substantially all of whom are school districts located within th United
States.
Effective June 30, 1995 an agreement with one of the Company's founding
investors was finalized, wherein $5.5 million in debt was exchanged for a
combination of Series C non-convertible preferred stock and common stock.
In addition to these financing arrangements, the Company has taken and will
continue to take action to improve prifitability. Since June 30, 1992, the
Company's new management team has substantially revised the Company's
strategic direction. The Company has restructured its sales and training
departments, established relationships with outside dealer organizations and
has plans to expand more rapidly into the catalog and adult education markets
as well as continuing to emphasize the school market. Management has taken
steps to significantly reduce operating costs by reducing headcount, revising
software development plans to reduce development costs and the time to
market for new products, and renegotiating development contracts with outside
developers. The Company is subject to a number of risks associated with
companies in a similar stage of operations including dependence on key
individuals, potential competition from larger more established companies
and the need to maintain adequate sources of financing.
Note 2 SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position No. 91-1, "Software Revenue Recognition."
The Company sells computer educational software systems consisting of
license rights to proprietary courseware, instructional materials,
nonproprietary software and third party vendor software. Customer training
and support and software updates are usually included with licenses of
initial systems. In addition to selling computer education systems to new
customers, the Company receives revenue from annual fees for customer
training, support, maintenance, and software updates, as well as from
ongoing sales of consumables. Revenue from the initial sale of computer
education systems to customers is recognized on the date of shippment while
revenue relating to training and support, which is based on the fair value
of such services, is deferred and recognized when post contract services
have been performed, generally within one year.
Revenue related to customer support and software maintenance renewals is
recognized over the period such services are provided. Revenue related to
the sale of instructional material is recognized when the material is shipped.
<PAGE>
Note 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and Cash Equivalents
As of June 30, 1995, the Company had demand deposits and money market
accounts totaling $138,000 with First Interstate Bank Corporation. These
balances exceed the $100,000 limit for insurance by the Federal Deposit
Insurance Corporation.
Inventories
Inventories, consisting primarily of finished goods, are recorded at the
lower of cost (first-in, first-out method) or market value and include
courseware, textual materials and third party computer software.
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are recorded at cost. Major additions and
improvements are capitalized, while minor replacements, maintenance and
repairs that do not increase the useful lives of the property are expensed
as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the property, which range from three to five years.
Courseware Development Costs
Courseware development costs incurred subsequent to establishment of
technological feasibility are capitalized in the accompanying balance sheet.
Technological feasibility for the Company's computer courseware products is
based upon achievement of a detailed program design free of high-risk
development issues. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized courseware development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
revenues, estimated economic life and changes in technology. For the fiscal
years ended June 30, 1995 and 1994, the Company invested approximately
$1,269,000 and $2,455,000, respectively, in the development of several new
product lines, some of which began shipping during the fiscal year ended
June 30, 1995. The Company has approximately $1,224,000 of unamortized
costs related to current year products. No inetrest was capitalized during
the fiscal years ended June 30, 1995 and 1994. During the fiscal year ended
June 30, 1994, the Company determined it was appropriate to write off
#2,117,000 in costs associated with its MS-DOS based software due to the
introduction of its new MS-Windows based software that now represents the
primary focus of the Company's marketing effort.
Amortization of capitalized courseware development costs begins when the
courseware is first sold and is calculated using the straight-line method
over five years, the estimated economic lives of the products. Amortization
expense for the fiscal years ended June 30, 1995 and 1994 was approximately
$834,000 and $1,253,000, respectively. As of September 1, 1993, the Company
determined that the appropriate economic useful life for its products was
five years as opposed to three years previously used. Accordingly, the Company
prospectively revised the remaining lives of its products from three to
five years. This revision caused the reported loss for the fiscal year ended
June 30, 1994 to be less than it otherwise would have been by approximately
$240,000, after the effects of income taxes.
<PAGE>
Note 2 SIGNIFICANT ACCOUNTING POLICIES (continued)
Income (Loss) Per Common Share
Primary income per common share is computed by dividing net income (loss) by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. For purposes of primary income (loss)
per common share, common stock equivalents include shares issuable upon
conversion of the Company's convertible preferred stock but exclude
outstanding stock, warrants and options. Fully diluted income (loss) per common
share is computed based on the weighted average number of shares of common
stock equivalents outstanding during the year and include the shares
issuable upon conversion of the Company's convertible preferred stock and
the exercise of all dilutive warrants and options outstanding.
Note 3 DEBT
The Company competed two private placements of convertible subordinated
debentures during 1990 and received a total of $3,670,000. Such debentures
are redeemable by the Company upon not less than 30 days nor more than 60
days written notice. Interest is payable each March, June, September and
December. The debentures were convertible into Common Stock of the Company
during April 1993 and 1994 at conversion prices of either $19.50 or $21.60
per share, however no such conversions took place. The debentures are
subordinated to all present and future debt of the Company. At June 30, 1995,
$1,197,000 of the debentures remain outstanding. The debentures, originally
due July 1, 1995, have been extended to July 31, 1996. The extension was
ratified by the 66 2/3 percent majority vote requires by debenture holders.
On July 1, 1993, the Company negotiated settlement with a vendor for full
discharg of an outstanding obligation of $533,228. Under the terms of this
agreement, the Company was required to pay $50,000 in five monthly
installments of $10,000 each beginning August 1, 1993. The $483,228
difference between the liability discharge and the settlement (net of
$155,000 of income taxes) was recognized as an extraordinary gain in the
fiscal year 1994 financial statements.
On January 12, 1994, the Company negotiated a settlement with a vendor for
full discharge of an outstanding obligation totaling $106,130. The discharge
of the outstanding obligation (net of $34,068 of income taxes) was
recognized as an extraordinary gain in the fiscal year 1994 financial
statements.
Effective June 30, 1995, an agreement with certain of the Company's
principal stockholders was finalized wherein $5.5 million in debt was
exchanged for a combination of 5,300,000 shares of Series C redeemable
Preferred Stock and 1,666,666 shares of Common Stock. The Series C
Redeemable Preferred Stock was exchanged at a price of $1 per share and the
Common Stock was exchanged at a price of $.12 per share. Certain warrants
were issued and amended in connection with the conversion (see Note 6).
Additionally, $1,041,401 of accrued interest was forgiven resulting in
extraordinary income for the fiscal year ended June 30, 1995.
<PAGE>
Note 4 INCOME TAXES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS
No. 109 requires the use of the liability method for financial reporting
purposes which differs from the deferred method previously required by
generally accepted accounting principles. The adoption of SFAS No. 109 had
no effect on the Company's financial statements since a valuation allowance
has been provided against all deferred tax assets. The provision for income
taxes for the year year ended June 30, 1995 includes the following components:
<TABLE>
<CAPTION>
Current Tax Provision:
<S> <C>
Federal $371,000
State 69,000
--------
440,000
--------
Deferred Tax Provision:
Federal 22,000
State 4,000
--------
26,000
--------
466,000
Less benefit from utilization of
net operating loss carryforward (442,000)
--------
24,000
Less provision related to
extraordinary items (20,000)
--------
Provision for income taxes 4,000
========
</TABLE>
The components of and the changes in deferred tax assets for the fiscal year
ended June 30, 1995 are as follows:
<TABLE>
<CAPTION>
Deferred
June 30, (Expense) June 30,
1994 Benefit 1995
<S> <C> <C> <C>
Tax net operating loss $4,868,000 $(496,000) $4,372,000
Revenue deferred for
financial reporting 185,000 (45,000) 140,000
Reserves and accrued
liabilities 22,000 19,000 41,000
---------- --------- ---------
Total deferred tax assets 5,075,000 (522,000) 4,553,000
Valuation allowance (5,075,000) 522,000 (4,553,000)
Net deferred tax assets $ - $ - $ -
========================================
</TABLE>
As of June 30, 1995, the Company has available net operating losses for
Federal income tax purposes and financial reporting purposes of approximately
$11,506,000 and $13,681,000, respectively. The tax net operating losses will
begin expiring in 2004. Net operating losses for tax purposes differ from net
operating losses for financial reporting purposes primarily as a result of
the accounting treatment for accrued liabilities and deferred revenue.
<PAGE>
The following table summarizes the appropriate net operating losses
available to the Company for Federal income tax purposes.
<TABLE>
<CAPTION>
Year Expiration
of Loss Amount Date
--------- ----------- ----------
<C> <C> <C>
12/31/1989 $ 2,488,000 12/31/2004
12/31/1990 1,428,000 12/31/2005
12/31/1991 3,857,000 12/31/2006
6/30/1992 2,849,000 6/30/2007
6/30/1993 341,000 6/30/2008
6/30/1994 543,000 6/30/2009
Total tax net operating loss -----------
carryforwards $11,506,000
===========
</TABLE>
Certain of these net operating losses may be limited by ownership changes
which occurred on August 17, 1988, and June 30, 1993 based on Section 382 of
the Internal Revenue Code.
<PAGE>
Note 5 COMMITMENTS
The Company leases its facilities and certain equipment under noncancelable
operating leases. As of June 30, 1995, the minimum future rentals to be paid
under the leasing arrangements amount to $93,000, $15,000, and $4,000 for the
years ending June 30, 1996, 1997 and 1998, respectively. The Company's
facilities lease expires on March 31, 1996. Rent expense was $142,000 and
$166,000 for the fiscal year ended June 30, 1995 and 1994, respectively.
During 1990, the Company signed a contract with Education Testing Service
("ETS") which required the Company to develop curricula to help facilitate
the passing of the National Teachers Exam. The contract required ETS to
fully fund up to $2,000,000 of the development costs for the program. Costs
in excess of $2,000,000 and less than $3,669,000 would be partially funded
by the Company and costs exceeding $3,669,000 would be totally funded by the
Company. The Company will owe ETS a royalty for all of the product sold by the
Company. The Company will recieve a royalty for all of the product sold by
ETS after ETS has recovered its advance against royalties.
The Company has entered into several agreements which provide for royalty
payments by the Company based on net sales of certain software products. The
Company recognized royalty expense of $127,000 and $195,000 during the fiscal
years ended June 30, 1995 and 1994, respectively.
Note 6 STOCKHOLDERS' EQUITY
Series A Preferred Stock
Pursuant to a private offering memorandum dated May 5, 1993, the Company
issued 4,439,870 shares of Series A Convertible Redeemable Preferred Stock
("Series A Preferred Stock") to accredited investors and a limited number of
non-accredited investors at $1.00 per share; of which 1,121,500 shares were
issued for cash, 2,000,000 shares were issued for the conversion of related
party debt and 1,318,370 shares were issued for the conversion of Series B
Preferred Stock.
The Series A Preferred Stock is convertible at any time into Common Stock
at the conversion ratio of one Common Share for one Series A Preferred Share.
The Series A holder is not entitled to any dividends. Series B Preferred
Stockholders who converted to Series A waived their rights to any dividends
upon conversion. Series A Preferred Stock has no voting rights except in
matters directly related to the Series A Preferred Stock.
The Series A Preferred Stock is redeemable at any time or from time to time
by the Company upon 90 days prior written notice and payment to the holder of
$1.00 per share. Shareholders are entitled, at their option, to convert their
shares of Series A Preferred Stock into Common Stock of the Company prior to
the stated redemption date.
Upon the dissolution or liquidation of the Company, or upon any
distribution of its assets by way of return of capital, the holders of the
Series A Preferred Stock are entitled to receive and be paid an amount
equal to $1.00 per share before any sum shall be paid to, or any assets
distributed among, holders of Common Stock.
<PAGE>
Note 6. STOCKHOLDERS' EQUITY (continued)
Series B Preferred Stock
The Series B $.375 Cumulative Convertible Redeemable Preferred Stock
("Series B Preferred Stock") is convertible at any time into restricted
Common Stock of the Company at the conversion rate of one common share for
each six shares of Series B Preferred Stock. However, each share of Series B
Preferred Stock issued in exchange for the debentures which had a conversion
privelage to Common Stock at the rate of $19.50 per share (instead of the
$21.60 per share conversion rate which pertains to all other debentures) is
entitles to convert such shares of Series B Perferred Stock into Common
shares of the Company at the rate of one Common Share for each five shares of
Series B Preferred Stock. As of June 30, 1995, only 91,151 shares of the
Series B Preferred Stock remained outstanding after the conversion of
1,866,534 shares to Series A Preferred Stock. The Seire B Prefereed Stock
has no voting rights excepte in matters directly related to the Series B
Preferred Stock.
The Series B Preferred Stock is redeemable at any time or from time to time
by the Company upon 90 days prior written notice and payment to the holder of
$1.30 per share, together with the amount of accrued dividends accumulated
on such shares on the redemption date. Shareholders are entitled, at their
option, to convert their Series B Preferred Stock to Common Stock of the
Company prior to the stated redemption date.
The holders of the Series B Preferred Stock were entitled to receive
cumulative dividends thereon at the rate of $.2025 per annum for each share,
which rate increased to $.375 per annum per share effective June 1, 1994, for
all Series B Preferred Stock then outstanding, as and when declared by the
Board of Directors. The Company has the option to pay these dividends to
shareholders who elect to convert their Series B Preferred Shares to Common
Shares, in cash, Common Stock or any combination of cash and Commmon Stock.
At June 30, 1995, accumulated unpaid dividends on Series B Preferred Stock
were $90,866. In accordance with the Company's Articles of Incorporation,
the Company may only declare and pay dividends out of unreserved and
unrestricted surplus. Surplus is the excess of the net assets of a
corporation over its stated capital. At June 30, 1995, no dividends have
been declared or paid as the Company had an accumulated deficit of
$17,661,235.
Upon the dissolution or liquidation of the Company, or upon any distribution
of its assets by way of return of capital, the holders of the Series B
Preferred Stock shall be entitled to receive and be paid an amount equal to
$1.30 per share, plus all unpaid accumulated dividends thereon, without
interest, before any sum shall be paid to or any assets distributed among the
holders of the Common Stock.
Series C Preferred Stock
The Series C Redeemable Preferred Stock ("Series C Preferred Stock") has a
par value of $1 per share, has no voting rights and is not convertible into
shares of Common Stock or other preferred stock. Effective June 30, 1995
5,300,000 shares of Series C Preferred Stock are reflected as outstanding,
although the physical certificates will be issued subsequent to that date.
The holders of Series C Preferred Stock are entitled to receive dividends at
the rate of $.10 per annum for the first five years subsequent to that date.
The holders of series C Preferred Stock are entitled to receive dividends at
the rate of $.10 per annum for the first five years subsequent to June 30,
1995. However, during this first five year epriod, dividends shall not be
cumulative and shall be payable when and if declared by the Board of
Directors. After the expiration of five years, dividends shall accrue on a
cumulative basis and must be declared, set apart and paid in each ensuing
year before payment of any dividends on Series B Preferred Stock or Common
Stock.
<PAGE>
Note 6 STOCKHOLDERS' EQUITY (continued)
The dividends that accrue on a cumulative basis will do so at a rate that
increases from the initial $.10 per annum by the sum of (1) $.02 per share
plus (2) $.02 per share multiplied by the difference between the number of
one year periods elapsed since June 30, 1995 and the number of annual
dividends of at least $.10 per share which were in fact paid during the first
five years after June 30, 1995.
The Company has the right to redeem its Series C Preferred Stock at any time
by paying the redemption price as defined in the stock purchase agreement,
which is $1.10 per share during the first year subsequent to June 30, 1995.
Thereafter, this redemption price is adjusted each year by adding to the
previous redemption price an amount equal to (1) $.10 per share plus (2)
$.01 per share multiplied by the difference between the number of years
elapsed since June 30, 1995 and the number of annual dividends paid in an
amount of at least $.10 per share during the first five years after June 30,
1995, plus (3) an amount equal to all accrued and unpaid dividends.
Upon the dissolution or merger of the Company, holders of the Series C
Preferred Stock are entitled to receive an amount equal to the redemption
price which was in effect prior to the commencement of the current year
before any amounts are paid to the holders of Series A Preferred Stock,
Series B Preferred Stock or Common Stock. For the first year subsequent to
June 30, 1995, the liquidation preference is $1 per share.
Stock Warrants
The following table summarizes warrants outstanding at June 30, 1995.
<TABLE>
<CAPTION>
Warrants Outstanding
at June 30, 1995 Expiration Dates Exercise Price
<C> <C> <C>
103,173 12/31/94 - 12/31/96 $4.20 - $9.00
381,680 6/30/2000 $1.31
775,714 8/31/98 $.50
3,773,092 6/30/2000 $.50
---------
5,033,659
=========
</TABLE>
During the fiscal year ended June 30, 1994, the Company issued warrants to
purchase 600,000 shares of Common Stock at a price of $.50 per share in
connection with the extension of due dates on related party debt. In
connection with the exchange of debt for Series C Preferred Stock and Common
Stock discussed in Note 3, 489,490 additional warrants with an exercise price
of $.50 per share were issued. Existing warrants totaling 3,665,082 with
expiration dates ranging from April 1997 through February were amended to
extend the expiration dates to June 30, 2000. The exercise price of all of
these warrants exceeded the fair market value of the COmpany's Common Stock
as of their grant dates.
<PAGE>
Note 6 STOCKHOLDERS' EQUITY (continued)
Stock Options
The following table summarizes stock option activity for all stock option
plans combined.
<TABLE>
<CAPTION>
Fiscal Fiscal
Year ended Year ended
June 30, 1995 June 30, 1994
<S> <C> <C>
Number of options:
Outstanding at the beginning
of the year 1,791,428 1,505,198
Granted - 1,661,000
Exercised - -
Canceled or expired (392,910) (1,374,770)
Outstanding at the end --------- ---------
of the year 1,398,518 1,791,428
========= =========
Option price range per share:
Outstanding at the beginning
of the year $.50-$3.00 $.50-$3.00
Granted - $.50-$0.60
Canceled or expired $.50-$3.00 $.50-$3.00
Outstanding at the end
of the year $.50-$3.00 $.50-$3.00
</TABLE>
The Company has granted nonqualified stock options to officers and
employees under the 1989 Stock Option Plan. On March 14, 1991, the Board of
Directors approved a repricing of all non-performance based options issued to
officers and employees with exercise prices in excess of $3.00 to be repriced
to $3.00, that all three part performance based options issued prior to March
14, 1991 be repriced to $3.00 and that the option agreement be amended to
reflect an eight year vesting schedule with one-eighth of the option vested
at the end of the first year and the remainder vesting monthly on a
proportional basis. For each profitable quarter, one-third of the options
subject to the eight year vesting will accelerate to a four year vesting
beginning with the first day of the profitable quarter. Certain performance
options issued in 1988 were repriced to $3.00 and amended to reflect an
eight eyar vesting effective on the issue date with one-sixth of the total
accelerated to four years when any consecutive three quarter period results
in a 50% increase in cumulative gross profit over the same period twelve
monthe earlier.
On March 14, 1991, the Company issued 33,689 options to employees at a price
of $3.00 per share, with vesting according to the three part performance plan
discussed above. On the same date, the Company also issued 25,000 options to
an officer of the Company at a price of $3.00 per share, which is subject to
an eight year vesting with six performance triggers related to gross profit
also discussed above.
On January 12, 1994, the Company adopted the 1994 Executive Officer Stock
Option Plan (the "EOSO Plan") and reserved 1,750,000 shares of Common Stock
for issuance thereunder. A summary of the EOSO PLan is a follows:
<PAGE>
Note 6 STOCKHOLDER' EQUITY (continued)
The EOSO plan permits the granting of options that are intended to qualify
either as Incentive Stock Options ("ISOs") or Nonqualified Stock Options
("NQSOs"). The option exercise price for each ISO must be no less than 100%
of the "fair market value" (as defined in the EOSO Plan) of a share of Common
Stock at the time such option is granted (except in the case of a 10%
stockholder, in which case the exercise price must be no less than 110% of
the fair market value). The exercise price for each NQSO option is determined
by the Committee at the time of grant.
As of June 30, 1995, 1,190,000 options had been granted to officers and
directors. Of these, 1,020,000 options were granted at an exercise price of
$.50 per share and 170,000 options were granted at an exercise price of $.60
per share, which was the fair market value on the respective dates of grant.
The options for 1,020,000 shares of Common Stock were fully vested as of
March 1994. The options for 170,000 shares become exercisable as to 33 1/3
percent of the total option shares at option grant date, and shall be
exercisable as to an additional 1/36th of the total option shares at each one
month interval thereafter until the option is exercisable with respect to
100% of the total option shares. The option shall expire ten years from date
of grant.
On January 12, 1994, the Company adopted the 1994 Employee Stock Option Plan
(the "ESOP Plan") and reserved 300,000 shares of Common Stock for issuance
thereunder. The ESOP Plan permits the granting of options that are intended
to qualify either as ISOs or NQSOs. The exercise price for each ISO option
must be no less than 100% of the "fair market value"(as defined in the ESOP
Plan) of a share of Common Stock at the time such option is granted (except
in the case of a 10% stockholder, in which case the exercise price must be no
less than 110% of the fair market value). The stock exercise price for each
NQSO option is determined be the Committee at the time of grant.
As of June 30, 1995, 81,000 options had been granted to employees at $.60
per share, which was the fair market value at the date of grant. The options
become exercisable as to 25 percent of the total option shares at date of
grant, and shall be exercisable as to an additional 1/48th of the total
option shares at each one month interval thereafter until the option is
exercisable with respect to 100% of the total option shares. The options
expire ten years from date of grant.
The EOSO and ESOP Plans are administered by a committee of the Board (the
"Committee") consisting of at least two members of the Board who are
"disinterested persons" as that term is defined under the Securities and
Exchange Act. Subject to the terms of the EOSO and ESOP Plans, the Committee
determines the persons who are to receive options, the number of shares
subject to each option and the terms and conditions of such option. The
Committee also has the authority to construe and interpret any provisions of
the EOSO and EOSP Plans or any option granted thereunder.
Due to the lack of stockholder ratification, both the 1994 EOSO plan and
the 1994 ESOP plan lapsed. New EOSO and ESOP plans were adopted on September
30, 1995. These 1995 plans are identical to the 1994 plans in all respects.
All options granted under the 1994 plans were granted again under the 1995
plans, with identical terms including a vesting schedule based on the
original January 12, 1994 issuance date. Options were not granted to any
employees who have left the employment of the Company. Options granted to
Officer and Directors under the 1995 EOSO Plan on September 30, 1995 were
identical to those listed as outstanding on June 30, 1995. Options granted
to employees on Setpember 1, 1995 were identical in terms as those
outstanding as of June 30, 1995; however, the number of options granted under
the 1995 plan numbered only 56,000 compared to 81,000 options outstanding
as of June 30, 1995, due to the termination of certain employees.
<PAGE>
Note 7 401(k) PLAN
The Company adopted a 401(k) salary deferral plan (the "Plan") during 1990,
covering substantially all employees. While the plan allows for Company
contributions, none were made during the fiscal years ended June 30, 1995
and 1994. The Company paid expenses on behalf of the Plan for 1995 and 1994
which were nominal and included only administration costs.
Note 8 SIGNIFICANT CUSTOMERS
The Company sells its products and services almost exclusively to school
districts and other governmental organizations located across the continental
United States, principally in California, Illinois, Indiana, Missouri and
Texas. Historically, the Company has experienced a low level of uncollectible
accounts receivable and expects this trend to continue in the future. During
the fiscal years ended June 30, 1995 and 1994, ten percent or more of the
Company's revenues were generated from individual customers as follows:
<TABLE>
<CAPTION>
Fiscal year ended Fiscal year ended
June 30, June 30,
1995 1994
<S> <C> <C>
Sales to Customer A $291,000 $978,000
Percentage of Total Revenues 5% 18%
Sales to Customer B $721,000 $ -0-
Percentage of Total Revenues 13%
</TABLE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 14, 1994, Wasatch Education Systems Corporation dismissed its
independent accountant, Ernst & Young, LLP and engaged Arthur Andersen LLP
as its new independent public accountants.
Ernst & Young LLP's report on the financial statements for fiscal years 1993
and 1992 did not contain an adverse opinion, or disclaimer of opinion and was
not modified or qualified in any way. There were no disagreements with Ernst
& Young, LLP with respect to any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
The decision to change accountants was recommended and approved by the
Company's Board of Directors.
<PAGE>
FORM 10-KSB
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
REGISTRANT; Compliance with Section 16(a) of the Exchange Act.
The following table lists certain information regarding the executive
officers and directors of the Company as of June 30, 1995.
<TABLE>
<CAPTION>
Name Age Position
<C> <C> <C>
Barbara Morris 47 Chairman of the Board of Directors
President and Chief Executive Officer
Gregory George 46 Director
Jeffrey Keimer 52 Director, Secretary
Carolyn Poe 55 Director
Carol Hamil 47 Vice President of Development
Ralph Brown 45 Chief Financial Officer
</TABLE>
Barbara Morris has been President, Chief Executive Officer and a director of
the Company since February 1992 and was elected to the position of the
Chairman of the Board of Directors in February 1995. She was President of
Tapestry Learning, a wholly-owned subsidiary of Jostens Learning Corporation,
both educational software companies, from March 1990 to October 1991. From
May 1986 to March 1990, Ms. Morris was Vice President of Sales and Marketing
for Prescription Learning Corporation, an educational company, and Jostens
Learning Coorporation.
Gregory George has been a Vice President of TFI since August 1985 and has
been a general partner of Technology Funding Limited since July 1987. Mr.
George is a director of ViewLogic, Inc., a public corporation.
Jeffrey Keimer has been the Company's Corporate Secretary since February
1992 and a director since August 1991. Mr. Keimer has been President and
Chief Executive Officer of Ally International Securities, a broker dealer and
a member of the National Association of Securities Dealers, Inc. (the
"NASD"), since 1987.
Carolyn Poe has been a Vice President of TFI since August 1993. She was a
senior Vice President of the Boston Company, an investment management company
, from January of 1990 Ms. Poe was a Vice President of Silicon Valley Bank.
Carol Hamil been the Company's Vice President of Development since January
1992. Previously, she served as Vice President of Development for Tapestry
Learning, a wholly-owned subsidiary of Jostens Learning Corporation, from
March 1990 to January 1992. From 1984 to 1990, Ms, Hamil served as Director
of Language Arts and software designer for Prescription Learning Corporation.
Ralph Brown has been the Company's Chief Financial Officer since April 1993.
Prior to joining the Company, Mr. Brown was Chief Financial Officer for
Conpack Inc., a packaging company, from January 1986 until March 1993.
<PAGE>
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered in all capacities to the Company for the fiscal
year ended June 30, 1995 by (i) the Company's Chief Executive Officer and
(ii) the Company's other executive officers whose annual salary and bonus
exceeded $100,000 (the "Named Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Name and Annual Compensation(1) Long-Term Compensation Awards
Principal
Position Year Salary($) Bonus($) Options(#)
<S> <C> <C> <C> <C>
Barbara Morris 1995 175,000 -0- -0-
President and Chief 1994 175,000 -0- 680,000(2)
Executive Officer 1993 120,000 102,400 680,000(3)
Carol Hamil 1995 120,000 -0- -0-
Vice President of 1994 115,000 50,000 340,000(2)
Development 1993 100,000 50,000 340,000(3)
<FN>
<F1>
(1) The salary and bonus amounts (i) include all amounts attributable to
services performed in each fiscal year even if payment for such services was
in the next fiscal year, and (ii) excludes all amounts attributable te paid
in the indicated fiscal year.
<F2>
(2) These options were issued in January 1994 to replace options granted in
the fiscal year ended June 30, 1993. These options lapsed in January 1995 due
to the lack of shareholder ratification. On September 30, 1995, replacement
options in the same amount and terms were issued under the new 1995 EOSO plan
; however, based on the original Board of Directors grant of these options,
they survived the lapse of the 1994 EOSO plan as Non-Qualified Stock Options
with similar terms.
<F3>
(3) These options were canceled and replacement options in the same amounts
were issued in January 1994.
</FN>
</TABLE>
<PAGE>
The following table sets forth certain information concerning stock options
granted during the fiscal year ended June 30, 1995 to the Named Officers:
Option Grants in Last Fiscal Year
Individual Grants
Percent of Total
Options granted to
Options Employees Exercise Expiration
Name Granted(#) in Fiscal Year Price($/share) Date
No options were granted in fiscal year 1995.
The following table sets forth information regarding exercises of stock
options during the fiscal year ended June 30, 1995 by the Named Officers and
presents certain information with respect to the number of shares covered by
both exercisable and unexercisable stock options held on June 30, 1995 by
each of the Named Officers. Also reported are values for "in-the-money" stock
options that represent the positive spread between the respective exercise
prices of outstanding stock options and the fair market value of the Common
Stock as of June 30, 1995 ($0.125) based upon the average bid price reported
by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values
Value of
Number of Unexercised
Number Unexercised In-the-Money
of Shares Options Options
Acquire at Fiscal at Fiscal
on Value Year-end($) Year-end($)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Barbara
Morris - - 680,000 -0- -0- -0-
Carol
Hamil - - 340,000 -0- -0- -0-
</TABLE>
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT
The following tables set forth the number of shares beneficially owned as of
June 30, 1995 by (i) each Director of the Company, (ii) each Named Officer(as
defined below), (iii) all executive officers and directors as a group and (iv)
all persons known to the Company to be beneficial owners of more than five
percent of the Company's outstanding shares of Common Stock and Preferred
Stock, respectively:
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Percentage of
Beneficially Outstanding Shares
Name of Beneficial Owner Owned (1) of Common Stock (2)
<S> <C> <C>
Technology Funding, Inc.(3) 7,465,517 86.5
2000 Alameda de las Pulgas
San Mateo, CA 94403
Loyalhanna Venture Fund (formerly 417,254 11.5
Trivest Venture Fund) (4)
223 4th Avenue, 17th Floor
Pittsburgh, Pa.
Barbara Morris (5) 680,000 19.1
5250 South 300 West
Salt Lake City, Utah 84107
Jeffrey Keimer (6) 235,629 6.6
702 Marshall Road
Redwood City, California 94063
Carol Hamil (7) 340,000 9.5
5250 South 300 West
Salt Lake City, Utah 84107
Ralph Brown (8) 146,761 4.1
5250 South 300 West
Salt Lake City, Utah 84107
Directors and Executive Officers 1,401,493 35.2
as a group (6 persons) (9)
<PAGE>
Preferred Stock
Number
of Shares Percentage of
Name of Beneficial Beneficially Outstanding Shares of
Owner Owned (1) Preferred STock
Technology Funding, Inc.(3)
2000 Alameda de las Pulgas
San Mateo, CA 94403 7,300,000 53.9
Jeffrey Keimer(6) 9,629 *
Directors and Executive
Officers as a group (6
persons) (9) 9,629 *
* Less than 1%
<FN>
<F1>
(1) Unless otherwise noted, each person or group identified possesses sole
voting and investment power with respect to all shares shown as beneficially
owned, subject to community property laws where applicable. A person is
deemed to be the beneficial owner of Common Stock or Preferred Stock,
respectively, that can be aquired by such person within 60 days of JUne 30,
1995 upon the exercise of options or warrants.
<F2>
(2) Each beneficial owner's percentage ownership is determined by assuming
options and warrants that are held by such person (but not those held by any
other person) and which are exercisable for Common Stock or Preferred Stock,
respectively, within 60 days of June 30, 1995 have been exercised.
<F3>
(3) Ms. Carolyn Poe and Mr. Gregory T. George, directors of the Company, are
employees of Technology Funding, Inc., which is a managing partner of
Software Fund II, Technology Funding Partners I, Technology Funding Partners
II, Technology Funding Private Reserve Fund and Technology Funding Secured
Investors III (collectively referred to as the "TFI Funds"). Together, these
funds own 2,400,486 shares of Common Stock, hold warrants to purchase an
additional 3,065,031 shares of Common Stock and own 2,000,000 shares of
Series A Preferred Stock that is convertible on a share for share basis into
Common Stock. Additionally, these funds own 5,300,000 shares of Seires C
Preferred Stock which is not convertible into Common Stock.
<F4>
(4) Includes 51,836 shares of Common Stock subject to warrants exercisable
within 60 days of June 30, 1995.
<F5>
(5) Represents 680,000 shares of Common Stock subject to options exercisable
within 60 days of June 30, 1995.
<F6>
(6) Represents 226,000 shares of Common Stock subject to warrants exercisable
and 9,629 shares of Series "A" Preferred Stock that is convertible into
Common Stock within 60 days of June 30, 1995.
<F7>
(7) Represents 340,000 shares of Common Stock subject to options exercisable
within 60 days of June 30, 1995.
<F8>
(8) Represents 146,761 shares of Common Stock subject to options exercisable
within 60 days of June 30, 1995.
<PAGE>
<F9>
(9) Includes 9,629 shares of Series A Preferred Stock convertible into
Common Stock within 60 days of June 30, 1995 and 1,020,000 shares of Common
Stock subject to options and 226,000 shares of Common Stock subject to
warrants exercisable within 60 days of June 30, 1995.
</FN>
</TABLE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During April 1992, Technology Funding Secured Investors III ("TFSI III")
extended to the Company a $1,000,000 term loan, bearing interest at 12% per
annum and having an initial maturity date of October 1, 1992. In April of
1993, the Maturity Date of the loan was extended to April 1, 1994 and
warrants were issued allowing TFSI III to purchase 150,000 shares of Common
stock at $0.50 per share. In addition, existing warrants held by various TFI
funds were restated to allow TFSI III to purchase 2,000,000 shares of Common
Stock at $.50 per share. In April of 1993, the Company borrowed an additional
$300,000 from TFSI III, bringing the loan balance to $1,300,000. On April 14,
1994 the Company borrowed an additional $200,000 from TFSI III on a secured
promissory note. On April 29, 1994 and again on May 17, 1994 an additional
$250,000 was borrowed by issuing secured promissory notes.
On December 31, 1991, TFSI III extended to the Company a $2,000,000
revolving line of credit (limited to 95% of "eligible" accounts receivable),
bearing interest at 12% per annum and having an initial maturity date of
November 30, 1992. The maturity date of the loan was extended to December 31,
1993 in April 1993. In connection with this revolving line of credit, the
Company granted warrants to TFSI III for 166,667 shares of the Company's
Common Stock at $3.00 per share. In April 1993, these warrants were repriced
to $.50 per share, and additonal warrants were issued to TFSI III for 166,000
shares of Common Stock at $.50 per share. In JUly 1993, the total amount
the Company could borrow under this revolving line of credit increased from
$2,000,000 to $3,000,000 for which the Company issued warrants for the
purchase of 50,000 shares of Common Stock at an exercise price of $.50 per
share. In February 1994, the credit limit under the revolving line of credit
was again increased from $3,000,000 to $3,500,000 and the maturity date was
extended to June 30, 1994, for which the Company issued warrants for the
purchase of 550,000 shares of Common Stock at a price of $.50 per share.
Under the new agreement, if net borrowings exceed 95% of eligible receivables
a higher interest rate would result to the Company.
On June 30, 1995, the Company converted all related party debt totaling
$5.5 million into a combination of Series C non-convertible preferred stock
and common stock. 5,300,000 shares of Series C non-convertible preferred
stock were issued with a $1.00 per share face value and a $1.23 preferred
liquidation value and 1,666,666 shares of common stock were issued at $0.12
per share. No additional warrants were issued in connection with the
conversion.
<PAGE>
FORM 10-KSB
PART III
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
3.1 Articles of Incorporation*
3.2 Bylaws*
10.5 Agreement dated October 14, 1987, between Wasatch Education Systems,
Inc. and Grant Von Harrison*
10.6 Agreement dated April 30, 1987, between Dr. Dale Johnson, Bonne vonHoff
Johnson and Wasatch Education Systems, Inc.*
10.7 License Agreement between Harvard Associates, Inc. and Wasatch
Education Systems*
10.11 Letter Agreement dated May 21, 1987, between Computerware Consultants,
Inc., and Wasatch Education Systems for marketing Kinderlogo product*
10.12 Office Space Lease Agreement dated September 11, 1987, between
Westbard Corporation and Wasatch Education Systems, Inc.*
10.13 First, Second and Third Addendum to Office Space Lease Agreement
between Westbard Corporation and Wasatch Education Systems, Inc.,
dated March 16, 1989, May 5, 1989 and March 1, 1990, respectively***
10.15 Preferred Stock Purchase Agreement between Wasatch Education Systems,
Inc. and Purchasers (Ronald E. Berger, et al.)*
10.20 Form of Warrant Certificates between Wasatch Education Systems, Ltd.
and Technology Funding Partners, Trivest Venture Fund and Frank
Weisser*
10.21 Amendment to Warrant Certificate of Wasatch Education Systems, Ltd.*
10.22 Second Amendment to Warrant Certificate by and between Wasatch
Education Systems Corporation and Technology Funding Partners II,
dated September 23, 1988*
10.23 Second Amendment to Warrant Certificate by and between Wasatch
Education Systems Corporation and Trivest Venture Fund dated September
23, 1988*
10.29 Secured Promissory Notes and related documents (restated) in the
aggregate amount of $4,050,000 dated September 19, 1990, September 19,
1990, January 8, 1991, and March 22, 1991, by the Company to
Technology Funding Private Reserve Fund, Technology Funding Software
Fund II, Technology Funding Partners I and Technology Funding Secured
Investors III (Lenders), respectively****
10.30 Licensing Agreement effective March 31, 1991 between the Company and
Computer Curriculum Corporation****
10.32 Secured Promissory Notes and related documents in the aggregate amount
of $1,000,000 dated April 8, 1992 by the Company to Technology Funding
Secured Investors III (Lender)
10.33 Secured Promissory Notes and related documents in the aggregate amount
of $2,000,000 May 5, 1992 by the Company to Technology Funding
Partners I (Lender)
10.34 Licensing agreement dated January 8, 1993 between the Company and
Rutgers University.
10.35 Licensing agreement dated June 1, 1993 between the Company and Science
Research Associates.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (continued)
10.36 Software development agreement dated May 20, 1993 between the Company
and Learningways Inc.
10.37 Secured promissory note dated April 16, 1993 and related documents in
the aggregate of $300,000 between the Company and Technology Funding
Secured Investors III.
10.38 Amendments to secured promissory note dated June 25, 1993 in the
aggregate of $1,300,000 and related documents between the Company and
Technology Funding Secured Investors III.
10.39 Amendment to secured promissory note dated June 25, 1993 in the
aggregate of $2,000,000 and the related documents between the Company
and Technology Funding Secured Investors III.
10.40 Amendment to secured promissory note dated June 25, 1993 in the
aggregate of $2,000,000 and related documents between the Company and
Technology Funding Partners I.
10.41 Private Placement Memorandum for up to $1,000,000 in new cash sales of
Series "A" preferred stock.
10.42 Amendment to secured promissory note dated July 14, 1993 in the
aggregate of $3,000,000 and related docu94 in the aggregate of
$3,500,000 and related documents between the Company and Technology
Funding Secured Investors III.
10.44 Secured promissory note dated April 14, 1994 in the aggregate of
$200,000 and related documents between the Company and Technology
Funding Secured Investors III.
10.45 Secured promissory note dated April 29, 1994 in the aggregate of
$250,000 and related documents between the Company and Technology
Funding Secured Investors III.
10.46 Secured promissory note dated May 17, 1994 in the aggregate of
$250,000 and related documents between the Company and Technology
Funding Secured Investors III.
10.47 Agreement dated February 7, 1994 between Pinnacle Software Corporation
and Wasatch Education Systems Corporation.
10.48 Agreement dated March 16, 1994 between Wasatch Education Systems
Corporation and Corporate Investments Limited.
10.49 Computer City Direct Value-Added Resale Agreement dated April 28, 1994
between Computer City Direct and Wasatch Education Systems Corporation
10.50 Wasatch Education Systems Corporation 1994 Executive Officer Stock
Option Plan, adopted January 12, 1994.
10.51 Wasatch Education Systems Corporation 1994 Employee Stock Option Plan,
adopted January 12, 1994.
10.52 Wasatch Education Systems Corporation Executive Officer Stock Option
Plan of 1994 form.
10.53 Wasatch Education Systems Corporation Employee Stock Option Plan of
1994 form.
10.54 Agreement dated January 3, 1990 between Wasatch Education Systems
Corporation and Educational Testing Service ("ETS").
10.55 Software development agreement dated October 6, 1994 between the
Company and Integrated Information Systems, Inc.
10.56 Systems integration alliance agreement dated May 18, 1995 between BDM
Federal, Inc. and Wasatch Education Systems Corporation.
10.57 Debt to Equity conversion agreement dated June 30, 1995 between the
Company and Technology Funding Secured Investors III.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-KSB (continued)
11 Earnings per share calculation
11.1 Earnings per share calculation
16 Letter on change in certifying accountant.
*Previously filed as Exhibits to Registration Statement No. 33-23885 which
became effective October 4, 1988, which are incorporated herein by
reference.
**Previously filed as Exhibits to Registration Statement No. 33026448 which
became effective January 19, 1989, which are incorporated herein by
reference.
***Previously filed as exhibits to report on Form 10-K for the year ended
December 31, 1989.
****Previously filed as exhibits to report on Form 10-K for the year ended
December 31, 1990.
*****Previously filed as exhibits to report on Form 10-K for the year ended
December 31, 1991.
(B) Reports on Form 8-KSB
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WASATCH EDUCATION SYSTEMS CORPORATION
By: /s/ Barbara Morris
Barbara Morris, President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Barbara Morris Chairman of the Date: September 30 , 1995
Barbara Morris Board of Directors,
President and CEO
/s/ Ralph J. Brown Chief Financial Officer Date: September 30 , 1995
Ralph J. Brown
/s/Jeffrey W. Keimer Director Date: September 30 , 1995
Jeffrey W. Keimer
/s/Gregory T. George Director Date: September 30 , 1995
Gregory T. George
/s/Carolyn Poe Director Date: September 30 , 1995
Carolyn Poe
38
WASATCH EDUCATION SYSTEMS CORPORATION
87-0458433
(I.R.S. Employer Identification No.)
EXHIBIT INDEX:
10.55 Software development agreement dated October 6, 1994 between the
Company and Integrated Information Systems, Inc.
10.56 Systems integration alliance agreement dated May 18, 1995 between BDM
Federal, Inc. and Wasatch Education Systems Corporation.
10.57 Debt to Equity conversion agreement dated June 30, 1995 between the
Company and Technology Funding Secured Investors III.
11.1 Earnings per share calculation
Exhibit 10.55
MASTER DEVELOPMENT AGREEMENT NO. 94101
THIS MASTER DEVELOPMENT AGREEMENT (this "Agreement) is made and entered into
this 6th day of October, 1994, by and between Wasatch Education Systems Cop.
(hereinafter "Sponsor"), a Utah corporation with offices at 5250 South 300
West, Salt Lake City, Utah, and Integrated Information Systems, Inc.
(hereinafter "Developer"), and Arizona Corporation with offices at 1130 E.
University Drive Suite 105, Tempe, Arizona:
WITNESSETH:
WHEREAS, Sponsor desires to engage Developer pursuant to the attached Work
Statements to develop, create, test, and deliver certain programming
materials as works made for hire, and Developer is interested in accepting
such engagements, subject to the parties' further agreement on the scope and
terms of such Work Statement; and
WHEREAS, Sponsor and Developer mutually desire to set forth in this
Agreement certain terms applicable to all such engagements;
NOW, THEREFORE, Sponsor and Developer, intending to be legally bound, hereby
agree as follows:
Section 1
DEFINITIONS
When used in this Agreement and in the Work Statement issued hereunder, the
capitalized terms listed in this Section 1 shall have the following meanings:
1.1 Code -- shall mean computer programming code. If not otherwise specified
, Code shall include both Object Code and Source Code. Code specifically
includes any software tools used by Developer in developing the Version 1.0
Production System.
1.1.1 Object Code -- shall mean the machine-readable form of the Code.
1.1.2 Source Code -- shall mean the human-readable form of the Code and
related system documentation including all comments and any procedural code
such as job control language.
1.2 Deliverables -- shall mean all Code, Documentation, and other materials
developed for or delivered to sponsor by Developer under this Agreement and
under the Work Statement issued hereunder.
1.3 Derivative Work -- shall mean a work that is based upon one or more
preexisting words, such as a revision, modification, translation, abridgment,
condensation, expansion, or any other form in which such preexisting works
may be recast, transformed, or adapted, and that, if prepared without
<PAGE>
authorization of the owner of the copyright in such preexisting work, would
constitute a copyright infringement. For purposes hereof, a Derivative Work
shall also include any compilation that incorporates such a preexisting work.
1.4 Documentation -- shall mean user manuals and other written materials
that related to particular Code, including materials useful for design (e.g.,
logic manuals, flow charts, and principles of operation).
1.5 Work Statement -- shall mean a purchase offer of Sponsor, a proposal of
Developer, or another written instrument that meets the following
requirements:
1. Includes substantially the following statement: "This is a Work Statement
under Master Development Agreement No. .... ."
2. Is signed on behalf of both parties by their authorized representatives
3. Contains the following five mandatory items:
a. Description and /or specifications of the services to be performed and
the Deliverables to be delivered to Sponsor
b. The name and address of a Technical Coordinator for each of Sponsor
and Developer
c. The amount, schedule, and method of payment
d. The time schedule for performance and for delivery of the Deliverables
e. Completion and acceptance criteria for the Deliverables
In addition, when applicable, the Work Statement may include:
1. Provisions for written and/or oral progress reports by the Developer
2. Detailed functional and technical specifications and standards for all
services and Deliverables, including quality standards
3. Documentation standards
4. Lists of any special equipment to be procured by Developer of provided
by Sponsor for use in performance of the work
5. Test plans and scripts
6. Such other terms and conditions as may be mutually agreeable between
parties
<PAGE>
Section 2
CONTRACT ADMINISTRATION
2.1 Contract Coordinator. Upon execution of this Agreement, each party
shall notify the other party of the name, business address, and telephone
number of its Contract Coordinator. The Contract Coordinators of
2.2 Technical Coordinator. Each Work Statement shall state the nam, business
address, and telephone number of the technical Coordinator of each party. The
Technical Coordinators of each party designated for a particular Work
Statement shall be responsible for technical and performance matters, and the
transmission and receipt of both Deliverables and technical information
between the parties, insofar as they relate to such Work Statement.
2.3 Issuane of Work Statements. The Work Statement agreed to by both parties
is set forth as an attachment to this agreement.
Section 3
CHANGES
Changes in the Work Statement or in any of the Specifications or
Deliverables under the Work Statement shall become effective only when a
written change request is executed by authorized representatives of both
parties. Change requests that do not substantially affect the nature of
Deliverables, their performance or functionality, and that do not change
schedules by more than two (2) weeks or dollar amounts by more that 5% may
be requested and/or accepted by the parties; Technical Coordinators. All
other change requests with respect to this Agreement, the Work Statement, or
any Specifications or Deliverables must be requested and/or accepted by both
parties' Contract Coordinators. Developer may not decline to accept any
change requests that reduce the cost of performance, provided that an
equitable adjustment in compensation is made for reasonable out-of-pocket
costs of any performance or preparation already undertaken. Developer
further may not decline any change requests that increase the cost or
magnatude of performance, provided that a commensurate increase in
compensation is fixed.
Section 4
COMPENSATION
4.1 Payments. Sponsor will pay Developer the fixed price amounts in
accordance with the Payment Schedule specified in the Work Statement following
acceptance by Sponsor of the Deliverables specified in the Work Statement in
accordance with the terms of Section 9.
<PAGE>
4.2 Payment Holdback. In the event Developer delivers the Demo Version ten
(10) or more calendar days later than the delivery specified for such
deliverable in the Work Statement, Sponsor, in its sole discretion, will have
the right to withhold from the amount payable to Developer for such Deliverable
the amount of ten thousand dollars ($10,000) (the "Holdback Amount").
Developer will be entitled to such Holdback Amount, and sponsor agrees to pay
Developer such Holdback Amount, only if Developer delivers the Version 1.0
Production System on or before the date specified in the Work Statement for
the Version 1.0 Production System.
4.3 Bonus Payment. In the event that the Developer delivers to Sponsor the
Version 1.0 Production System prior to the date specified in the Work Statement
for the Version 1.0 Production System (and the Version 1.0 Production System
is accepted by Sponsor in accordance with Section 9), then Sponsor will
increase the payment corresponding to such Deliverable in accordance with the
following:
(a) If Developer delivers the Verion 1.0 Production System thirty (30)
calendar days or more prior to the date specified in the Work Statement, then
Sponsor will increase the corresponding payment for such Deliverable by twenty
percent (20%), which equals $25,000.
(b) If Developer delivers the Version 1.0 Production System ten (10) or
more calendar days (but less than thirty (30) calendar days) prior to the date
specified in the Work Statement, then Sponsor will increase the corresponding
payment for such deliverable by ten percent (10%), which equals $12,500.
Section 5
RECORDS AND AUDIT
Developer shall maintain complete and accurate accounting records in
accordance with sound accounting pratices to substantiate Developer's charges
under the Work Statement. Such records shall include payroll records, job cards
, attendance cards, and job summaries. Developer shall preserve such records
for a period of at least two (2) years after completion of the pertinent work.
Sponsor shall have access to such records for purposes of audit, either through
its own representatives or through an accounting firm selected and paid by
Sponsor. Any such review of Developer's records shall be conducted at
reasonable times during business hours, and no more than twice annually.
Section 6
MOST FAVORED CUSTOMER
Developer agrees that the charges established under this Agreement and the
work Statement issued hereunder shall not exceed those offered or imposed with
respect to similar services provided to other customers of Developer. If,
during the term of this Agreement, Developer offers or accepts lower charges
<PAGE>
for similar services involving other customers under similar terms and condition
, Developer shall notify Sponsor and remit as a credit to Sponsor the
differences between the amount of the payments theretofore made by Sponsor for
such similar services and the amount that would have been payable if such lower
charges had been in effect.
Section 7
EXPENSES
Except as expressly agreed otherwise by Sponsor in the Work Statement,
Developer shall bear all of its own expenses arising form its performance of
its obligations under this Agreement ad each Work Statement issued hereunder,
including (without limitation) expenses for facilities, work spaces, utilities
, management, clerical and reproduction services, supplies, and the like.
Section 8
REPORTS
8.1 Monthly Reports. Developer agrees to provide to Sponsor at least monthly
with a written report, in a form reasonably requested by Sponsor, of the
progress of the work required under the Work Statement issued hereunder, any
anticipated problems (resolved or unresolved), and any indication of delay in
fixed or tentative schedules.
8.2 Project Review Meetings. The Sponsor and Developer agree to meet
periodically to review the progress of all activities in support of open work
statements. The meetings will be scheduled as needed and as agreed to by the
parties and are anticipated to last approximately 4 to 6 hours. During each of
these project review meetings the Developer's management shall describe the
status of the work required under the Work Statement issued hereunder. Such
presentation shall provide projections of the time of completion, and the
status of Developer's Service and deliverables, and shall address any problems
that have come to Developer's attention and Developer's views as to how such
problems may be resolved.
8.3 Site Visits. Developer shall, from time to time and upon reasonable notice
, allow access to its premises by Sponsor for purposes of design review, "walk
throughs," and discussions between Sponsor and Developer's management and
personnel concerning the status and conduct of work being performed under the
Work Statement issued hereunder.
Section 9
DELIVERY AND ACCEPTANCE
Developer shall deliver all Deliverables, upon completion, to Sponsor's
Technical Coordinator for testing and acceptance. Developer shall memorialize
such delivery in a Delivery Confirmation that sets forth the nature and
condition of the Deliverables, the medium of deliver, ad the date of their
delivery. Sponsor's Technical Coordinator shall countersign such Delivery
<PAGE>
Confirmation so as to indicate its receipt of the contents described therein,
and the Delivery Confirmation shall thereupon be transmitted to the parties'
Contract Coordinators. Unless a different procedure for testing and acceptance
is set forth in a Work Statement, Sponsor's Technical Coordinator shall commence
acceptance testing following its receipt of the Deliverables. Upon completion
of such testing, Sponsor shall issue to Developer's Technical Coordinator
notice of acceptance or rejection of the Deliverables. In the event of
rejection, Sponsor shall give its reasons for rejection to Developer's
Technical Coordinator in reasonable detail. Developer shall use best efforts
to correct any deficiencies or non-conformities and resubmit the rejected items
as promptly as possible. The foregoing procedure will be repeated until Sponsor
issues to developer's Technical Coordinator a notice acceptance or a final
notice of rejection of the Deliverable.
Section 10
OWNERSHIP AND RIGHTS
10.1 Ownership of Work Product by Sponsor. Subject to the terms set forth
below, all Deliverables shall be the sole and exclusive property of Sponsor.
Sponsor shall own all United States and international patents, patent
applications, copyrights, trade secrets, trademarks, and other intellectual
property rights (collectively, "Intellectual Property Rights") in the
Deliverables and Developer hereby assigns all of its Intellectual Property
rights in the deliverables to Sponsor.
Sponsor acknowledges and agrees that Developer has used certain third party
software in the development of the Deliverables, including certain "beta test"
products provided by third parties to Developer. Sponsor agrees that its use
of the Deliverables may be subject to the terms of licenses for such third
party software development tools. In the case of the "beta test" software
such license terms may be subject to modifications as such products evolve to
commercial products and then become the subject of such third parties
commercial licensing of those products. Sponsor further acknowledges and
agrees to allow the use of such "beta test" software, because of the enhanced
features and capabilities offered by such software, although further
acknowledging that such "beta test" software may have not been fully tested and
approved by its manufacturer for commercial release.
10.2 Vesting of Rights. Upon creation of each Deliverable, Developer hereby
transfers and assigns to Sponsor, its successors and assigns, ownership of all
United States and international Intellectual Property Rights in each and every
Deliverable, insofar as any such Deliverable by operation of law, may not be
considered work made for hire by Developer from Sponsor. From time to time upon
Sponsor's request, Developer and/or its personnel shall confirm such assignment
by execution and delivery of such assignments, confirmations or assignment, or
other written instruments as Sponsor may request and will otherwise provide
reasonable assistance and cooperation to Sponsor to acquire, transfer, maintain
, perfect and enforce Sponsor's Intellectual Property Rights in the
Deliverables. Sponsor, its successors and assign, shall have the right to
obtain and hold in its or their own name(s) all copyright registrations and
other evidence of Intellectual Property Rights that may be available for
Deliverables.
Section 11
INFRINGEMENTS INDEMNITY
11.1 Avoidance of Infringement. In performing services under this Agreement,
Developer agrees to avoid designing or developing any items that infringe one
or more patents or other intellectual property rights of any third party
anywhere in the United States. If Developer becomes aware of any such possible
infringement in the course of performing work under the Work Statement issued
hereunder, Developer shall immediately so notify Sponsor in writing.
11.2 Infringement Indemnity. Developer will indemnify, hold harmless, and at
Sponsor's request defend, Sponsor and Sponsor's customers from and against any
claims, liabilities damages, losses, costs and expenses (including but not
limited to reasonable fees of attorneys) arising from or resulting from any
claim that the Deliverables infringe or misappropriate the Intellectual Property
Rights of any third party; provided that Sponsor: (i) gives prompt notice to
Developer of the claim; (ii)provides Developer with all reasonable information
and assistance to defend or settle such a claim; and (iii)grants Developer sole
authority and control of the defense or settlement of such a claim. Developer
may settle any such claim on a basis where, (i)Developer obtains the right of
Sponsor to continue using the Deliverables, (ii) Developer modifies the
Deliverables to make them non-infringing, or (iii) Developer substitutes other
products which provide substantially similar functionality for the Deliverables.
Developer will have no obligations under this section 11.2 to the extent any
third party claim is directly attributable to the "Preexisting Work" (as defined
in the Work Statement) provided to Developer by Sponsor.
Section 12
CONFIDENTIAL INFORMATION
12.1 No Confidential Information of Developer. It is understood and agreed
that Sponsor does not wish to receive form Developer any confidential
information of Developer or of any third party. Developer represents and
warrants that any information provided to Sponsor in the course of entering into
this Agreement or any Work Statement or performing work under the work Statement
issued hereunder shall not be confidential or proprietary to Developer.
12.2 Confidential Information of Sponsor. Sponsor may provide its own
confidential business and technical information to Developer in connection with
the work to be performed by Developer under the Work Statement issued hereunder.
Such information shall be designated as confidential upon or prior to disclosure
by Sponsor. In addition, the preparation and specifications of the Deliverables
shall in all instances be treated as confidential, unless and until disclosed
publicly by Sponsor. All confidential written materials shall be marked with
the legend "Sponsor--Confidential." Developer shall not disclose or, except as
expressly permitted in this agreement, use any of Sponsor's confidential
<PAGE>
information, and will use the same degree of care to maintain the
confidentiality of all Sponsor confidential information in its possession or
control that it uses to maintain the confidentiality of its own information of
similar importance, but in no event will it use less than reasonable care.
Section 13
AGREEMENTS WITH EMPLOYEES
Developer shall obtain and maintain in effect written agreements with each of
its employees (and independent contractors, if any) who participate in any of
Developer's work under any Work Statements issued hereunder. Such agreements
shall contain terms sufficient for Developer to comply with all provisions of
the Agreement and to support all grants and assignments of rights ad ownership
hereunder. Such agreement also shall impose an obligation of confidence on
such employees with respect to Sponsor's confidential information. For a
period of one (1) year following the Expiration Date of this Agreement, neither
Developer nor Sponsor shall directly solicit employment of any employee of the
other who is directly involved in the performance of this Agreement.
Section 14
REPRESENTATIONS AND WARRANTIES
Developer makes the following representations and warranties for the benefit
of Sponsor, as a present and ongoing affirmation of facts in existence at all
times when this Agreement or the Work Statement issued hereunder is in effect:
14.1 No Conflict. Developer represents and warrants that it is under no
obligation or restriction, nor will it assume any such obligation or restriction
that does or would in any way interfere or conflict with, or that does or would
present a conflict of interest concerning, the work to be performed by Developer
under this Agreement and Work Statement issued hereunder.
14.2 Ownership Rights. Developer represents and warrants that: (1) it is and
will be the sole author of all works employed by the Developer in preparing any
and all Deliverables, except that it may use certain third party software
development tools in the development of the Deliverables, and as to those
software development tools, it has the permission and right to use such tools
in the development of the deliverables; (2) it has and will have full power,
right and authority to enter into this Agreement, to carry out its obligations
under this Agreement and to assign or grant the rights and/or licenses granted
in the Deliverables pursuant to this Agreement: (3) it has not and will not
permit the Deliverables to be published under circumstances that would cause
any loss of Intellectual Property Rights therein: (4) all Deliverables,
including all preexisting works addressed in this Agreement, do not and will
not infringe any patents, copyright, trademarks, or their intellectual property
rights (including trade secrets), privacy or similar rights of any third party
, nor has any claim (whether or not embodied in an action, past or present) of
such infringement been threatened or asserted, nor is such a claim pending,
against Developer (or, insofar as Developer is aware, any entity from which
<PAGE>
Developer has obtained such rights); and (5) Developer has not previously
granted, and will not grant, any rights in the Deliverables to any third party
which are inconsistent with the rights granted to Sponsor under this Agreement.
14.3 Conformity, Performance, and Compliance. Developer represents and
warrants (1) that all Deliverables shall be prepared in a workmanlike manner
and with professional diligence and skill; (2) that all Deliverables will
function on the machines and with operating systems specified in the Work
Statement; (3) that all deliverables will substantially conform to the
functional specifications set forth in the Work Statement; and (4) that
Developer will perform all work called for by the Work Statement issued
hereunder in compliance with applicable law. Developer will, at no additional
charge, correct any errors reported by Sponsor in the performance or operation
of the Deliverables.
Section 15
TERM AND TERMINATION
15.1 Term of Agreement. This Agreement shall be effective upon the date
specified at the beginning and shall remain in force until completion of the
development work hereunder, unless terminated earlier in accordance with the
terms of this Agreement.
15.2 Termination for Breach. Either party may terminate this Agreement in
the event of a material breach by the other party of this Agreement if such
breach continues uncured for a period of thirty (30) days after written
notice.
15.3 Termination for Convenience. Sponsor will have the right to terminated
this Agreement for convenience at any time upon five (5) days prior written
notice to Developer. Upon such termination, Developer will be entitled to
retain all payments made by sponsor prior to the effective date of such
termination. In addition to such payments, as Developer's sole additional
compensation, Sponsor will reimburse Developer for all work performed by
Developer under this Agreement, prior to the effective dated of Sponsor's
notice or termination, for which Developer has not yet received payment from
sponsor. Developer's reimbursement shall be calculated as a pro-rata amount
of the next scheduled payment set forth in the Work Statement, taking into
account the actual number of days that Developer performed work under this
Agreement since the last scheduled payment (as evidenced by written
documentation), the number of days until the next scheduled payment set forth
in the Work Statement, and the next scheduled payment amount.
15.4 Effect of Termination; Non-Exclusive Remedy. Neither party will be
liable to the other for damages of any sort arising form the termination of
this Agreement in accordance with its terms. The exercise by either party of
any remedy under this Agreement will be without prejudice to its other
remedies under this Agreement or otherwise. upon any termination of this
Agreement, Developer will immediately deliver to Sponsor all work in process
in the Deliverables, in whole and in part, including all versions and portions
thereof.
<PAGE>
15.5 Survival. In the event of any termination of this Agreement, Section
10 through 16 hereof shall survive and continue in effect and shall inure to
the benefit of and be binding upon the parties and their legal representatives
, heirs, successors, and assigns.
Section 16
MISCELLANEOUS
16.1 Force Majeure. Either party shall be excused from delays in performing
or from its failure to perform hereunder to the extent that such delays or
failures result from causes beyond the reasonable control of such party (each
a "Force Majeure"); provided that, in order to be excused form delay or failure
to perform, such party (i)gives prompt written notice thereof to the other
party, and in any event within fifteen (15) days of discovery thereof; and
(ii)uses its reasonable efforts to correct such failure or delay in its
performance. The delayed party's time for performance or cure under this
Section 16.1 shall be extended for a period equal to the duration of the Force
Majeure, but in no event longer than sixty (60) days.
16.2 No Agency. Developer, in rendering performance under Work Statements
issued hereunder form time to time, is acting solely as an independent
contractor. Sponsor does not undertake by this Agreement or otherwise to
perform any obligation of Developer, whether by regulation or contract. In
no way is Developer to be construed as the agent, partner, joint venture,
franchiser or employee of Sponsor in any respect.
16.3 Multiple Counterparts. This Agreement may be executed in several
counterparts, all of which taken together shall constitute one single
Agreement between the parties.
16.4 Section Headings; Exhibits. The section and subsection headings used
herein are for reference and convenience only, and shall not enter into the
interpretation hereof. The exhibits referred to herein and attached hereto,
or to be attached hereto, including all Work Statements issued hereunder form
time to time, are incorporated herein to the same extent as if set forth in
full herein.
16.5 Required Approvals. Where agreement, approval, acceptance, or consent
by either party is required by any provision of this Agreement, such action
shall not be unreasonably delayed or withheld.
16.6 No Waiver. No waiver of any breach of this Agreement will be effective
unless the same is in writing and signed by the authorized representative of
each party. The waiver of any breach of any provision of this Agreement shall
not constitute a waiver of any subsequent breach of the same other provisions
herein.
16.7 Authority of Developer. Developer has the sole right and obligation to
supervise, manage, contract, direct, procure, perform, or cause to be
performed all work to be carried out by Developer hereunder unless otherwise
provided herein.
<PAGE>
16.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to or
application of conflicts of law rules.
16.9 Entire Agreement. This Agreement and the exhibits annexed hereto,
together with the Work Statements issued from time to time hereunder,
constitute the entire agreement between the parties. Regarding the subject
matter hereof and supersedes all prior understanding and agreements, whether
written or oral, with respect to the subject matter hereof. No change,
waiver, or discharge hereof shall be valid unless it is in writing and is
executed by both parties.
16.10 Notices. Under this Agreement if one party is required to give notice
to the other, such notice shall be deemed given if delivered personally, or
upon receipt mailed by certified or registered U.S. mail, postage prepaid, or
recognized commercial carrier; or by confirmed facsimile transmission and
addressed to the Technical Coordinators as identified in the Work Statement.
16.11 No Assignment. Neither party may, without the prior written consent
of the other party, assign or transfer this Agreement or any obligation
incurred hereunder. Any attempt to do so in contravention of this Section
shall be void and of no force and effect. Subject to the foregoing, the
rights and liabilities of the parties under this Agreement will bind and
inure to the benefit of the parties' respective successors and assigns, as
the case may be.
16.12 Equitable Remedies. Due to the proprietary and sensitive nature of
the Agreement, Sponsor has the right to enforce this Agreement and any of its
provisions by injunction, specific performance or other equitable relief
without prejudice to any other rights and remedies that Sponsor may have for
a breach of the Agreement.
16.13 Severability. If any part of this Agreement is found to be invalid or
unenforceable by a court of competent jurisdiction, then it will be enforced
to the maximum extent permitted by applicable law and the remaining provisions
shall remain in full force and effect.
IN WITNESS THEREOF, Sponsor and Developer have caused this Agreement to be
signed and delivered by their duly authorized officers, all as of the date
first hereinabove written.
Wasatch Education Systems Corp. Integrated Information Systems, Inc.
By: /s/ BARBARA MORRIS By: /s/ JAMES G. GARVEY JR.
Title: CEO _ Title: PRESIDENT
Date: 10/6/94 _ Date: 10/10/94 _
<PAGE>
WORK STATEMENT
1. GENERAL
This is a Work Statement under Master Development Agreement No. 94101 (the
"Agreement") effective on October 4, 1994, by and between Wasatch Education
Systems Corp. ("Sponsor") and Integrated Information Systems, Inc.
("Developer") and is incorporated therein by reference.
2. NAMES OF TECHNICAL COORDINATORS
Developer Sponsor
John Blair Carol Hamil
Integrated Information Systems, Inc. Wasatch Education Systems
1130 E. University Drive, Suite 105 5250 South 300 West
Tempe, AZ 85281 Salt Lake City, UT
(602) 966-8800 (801) 261-1001
3. SUMMARY OF PURPOSE FOR STATEMENT OF WORK
Developer will convert Sponsor's educational software, Projects for the Real
World (K-3 and 4- 8), ABE, Rutgers Math and the Management System
(collectively, the "Preexisting Work") to the Macintosh and Power Mac
platform yielding a single, integrated environment operating on a network or
stand alone CD-ROM. Another result will be a product which will operate
stand a lone CD-ROM and on a Novell NetWare or Microsoft Windows NT network
or "Chicago incorporating the functions of the Management System and allowing
the addition of any combination of the K-3, 4-8, ABE and/or Rutgers Math
program.
4. IDENTIFICATION OF PREEXISTING WORKS
The Deliverables in this Work Statement constitute a Derivative Work of the
Preexisting Work owned by Sponsor. Sponsor warrants to Developer that it is
the owner of the Preexisting Work and authorizes Developer to employ the
Preexisting Work in the preparation of this Deliverable.
5. DESCRIPTION OF DELIVERABLES
A. Joint Requirements Planning (JRP) Workshop
This will be a document summarizing the initial planning workshop conducted
between Sponsor and Developer. This document will be delivered by Developer
5 working days after the workshop is held. The workshop is intended to take
place within 10 days of Work Statement acceptance.
<PAGE>
B. Project Plan
A project plan will be delivered by Developer at the same time as the Joint
Requirements Planning Workshop Summary.
C. Concept Design Specification
This will be a conceptual specification of the system with special emphasis
on the presentation engine and its role in the overall system operation.
The specification will include descriptions of the converted Projects for
the Real World (K-3, 4-8), Adult Basic Education (ABE), Rutgers Math and the
Management System. Emphasis will be on any changes to the operation of
functionality of the Windows - based system. The Concept Design
Specification will be delivered 30 days after Work Statement acceptance.
D. Demo Version of System
A demonstration system intended to show proof-of-concept, especially of the
presentation engine, will be delivered 70 days after work Statement
acceptance. This demonstration system will also be intended for use as a
marketing tool for Sponsor. This demonstration system must, at a minimum,
show one unit of Projects 4-8 running successfully on the hardware specified.
E. Progress Reports
Monthly, written, progress reports will be provided by Developer to Sponsor.
These reports will track performance against the currents project plan as
well as recommend changes to the project plan. In addition, brief, weekly,
teleconferences are planned. The initial monthly report will be delivered
approximately 35 days after contract award. Subsequent reports will occur at
30 day intervals. The weekly teleconferences will be scheduled at a mutually
agreed upon time.
<PAGE>
F. Initial Module for Quality Assurance (QA)
The initial system module (function to be determined) will be delivered to
the joint Sponsor/Developer QA team for evaluation. The joint QA team will
also determine and prepare the system and acceptance testing specification
to be used for project sign-off. This initial system module and testing
specification delivery is planned occur 90 days after Work Statement
acceptance.
G. Production System Specifications
The initial requirements document (JRP Workshop Summary) will be updated
based upon the experience with the demonstration system, the design progress,
initial QA and the Data Conversion/Categorization work. This document will
describe the Version 1.0 production system. This specification will be
delivered 105 days after Work Statement acceptance.
H. Version 1.0 Production System
The Macintosh-based, fully functioning system for network and standalone
CD-ROM will be in completed form 180 days after Work Statement acceptance.
The Sponsor's responsibility in the delivery of the Production System:
1.) Setting up a test facility and sharing testing and quality assurance
responsibilities.
2.) Hiring experienced personnel for support who will work with the product
during development.
3.) Providing sufficient resources to review the product for sign-off.
4.) Being responsible for all final System and End-User documentation.
6. SPECIAL TERMS
The Developer is entering into this agreement with the Sponsor with the
intent to use to the greatest extent possible development tools, proven
development techniques, prior experience, Preexisting Developer Work and
Management methods (collectively "Development Tools") in order to quickly
deliver to the Sponsor the needed products and services. Developer grants
to Sponsor non-exclusive, royalty-free, irrevocable, perpetual, worldwide,
fully paid license to the Development Tools with the stipulation that such
license not preclude the Developer from using the Development Tools in future
work of the Developer so long as such use would have no harmful impact to
the Sponsor.
7. MODE OF PAYMENT AND PAYMENT SCHEDULE
Sponsor will pay Developer a fixed price if five-hundred eighty-thousand
dollars ($580,000.00) for the work described herein and in accordance with
the payment schedule below.
<PAGE>
<TABLE>
<CAPTION>
Day Payment Deliverable
<S> <C> <C>
Begin $125,000
+30 66,000 Approval of Concept
Design Specification
+60 66,000 Demo Version
+90 66,000
+120 66,000
+150 66,000
+180 125,000 Release Version 1.0
</TABLE>
<TABLE>
8. SCHEDULE AND PERFORMANCE MILESTONES
Schedule and Performance Milestones
<CAPTION>
Milestone Responsible Party Target Date (after Work
Statement Acceptance)
<S> <C> <C>
JRP Workshop Summary Sponsor/Developer +10
Project Plan Developer +10
Concept Design Specification Developer +30
Demo Version of System Developer +70
Progress Reports Developer Monthly
Initial Module for QA and
Testing Specification Sponsor/Developer +90
QA Feedback Reports Sponsor/Developer +120 and +150
Production System
Specifications Developer +105
Version 1.0 Production System Developer +180
</TABLE>
<TABLE>
9. HARDWARE ARCHITECTURE
<CAPTION>
Hardware architecture for the Server Platform:
<S> <C>
Microprocessor Macintosh 68040 or equivalent
Speed 50-66 Mhz
Memory 32 MB of RAM
Diskette Storage Internal Apple Super Drive Floppy
Disk Drive (standard)
Hard Disk Storage 1.7 GB Hard Disk Drive
Expansion Slots Three
I/O Ports 2 Serial
Power Supply 300 - 500 Watts
Monitor VGA or SVGA Monitor
Network Port Ethernet
Operating System Macintosh version, Ethertalk
Topology Ethernet
LAN Card Ethernet Card
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hardware architecture for the Student Platform:
<S> <C>
Microprocessor 68030 or 68040
Speed 25 Mhz minimum
Memory 8MB of RAM minimum
Diskette Storage Internal Apple SuperDrive Floppy
Disk Drive (standard)
Hard Disk Storage 40MB minimum
Expansion Slots One (1)
I/O Ports 2 Serial
Power Supply 300+ Watts
Monitor 13-14" RGB minimum (640x480)
Sound Card Built-in
Microphone Built-in
Headphone One per student station
Operating System System 7
Topology Ethernet
Network Card Ethernet
</TABLE>
<TABLE>
<CAPTION>
The minimum hardware requirements for the local CD-ROM system is:
<S> <C>
Microprocessor 68030 or 68040
Speed 25 Mhz minimum
Memory 8MB or RAM minimum
Diskette Storage Internal Apple SuperDrive Floppy
Disk Drive (standard)
Expansion Slots One (1)
I/O Ports 2 Serial
Power Supply 300+ Watts
Monitor 13-14" RGB minimum (640x480)
Sound Card Built-in
Microphone Built-in
Headphone One per student station
Operating System System 7
CD-ROM player ISO 9660-min 200MS Access Time
300KB Transfer Rate (double speed)
</TABLE>
10. FUNCTIONAL SPECIFICATIONS
The functionality of the Version 1.0 Production System will not vary materially
from the functionality of the Preexisting Work in both the network and
standalone version.
<PAGE>
11. LOCATION OF WORK FACILITIES
Substantially all of the work will be conducted by Developer at its regular
office located in Tempe, AZ.
THEREFORE, the parties have executed this Work Statement in duplicate
originals.
DEVELOPER SPONSOR
Integrated Information Systems, Inc. Wasatch Education Systems
1130 E. University Drive, Suite 105 5250 South 300 West
Tempe, AZ 85281 Salt Lake City, UT 84107
/s/ JAMES G. GARVEY, JR. /s/ BARBARA MORRIS
(Sign) (Sign)
JAMES G. GARVEY, JR. BARBARA MORRIS
Name (Print) Name (Print)
President CEO
Title Title
10/10/94 10/6/94
Date Date
Exhibit 10.56
BDM INTERNATIONAL, INC.
SYSTEMS INTEGRATION ALLIANCE AGREEMENT
GLOSSARY OF TERMS
As used in this Agreement, the following terms have the meanings outlined
below:
"Agreement"-- this non-exclusive Systems Integration Alliance Agreement and
any documents incorporated by reference to this Agreement.
"Customer(s)" - identified as K-12 school districts (public and private),
correctional institutions, Job Training Partnership Act (JTPA) (and similar
governmental programs), adult learning centers (public and private), and
institutions of higher education (public and private).
"Project" - a specific opportunity that has been identified and agreed to, in
writing by BDM and Seller as a project for which BDM may market and re-sell
or cause to be delivered under subcontract or purchase agreement Seller's
Products and Services to customer(s).
"BDM Systems Integration Solutions" - identified as project management,
infrastructure, training and skills enhancement, consulting, hardware,
software, and other professional services as may be required.
Project Management - shall include but not be limited to project oversight,
day-to-day project management, project implementation planning, supervising
and coordination other vendors and leading sub projects and tasks.
Infrastructure - shall include but not be limited to room selection and site
preparation, cabling, system hardware and software, requirements definition
and needs assessment, network architecture and design, system design, database
design data conversion, migration, installation and integration, and system
implementation of infrastructure technology.
Training and Skills enhancement - shall include but not be limited to training
, staff development and skills enhancement programs; developing and providing
materials to support training and staff development; evaluation; technical
support; and other training related services as may be required.
Consulting - shall include but not be limited to organizational analysis,
business process re-engineering, standards and specifications development,
technology planning, budgeting, curriculum correlation, institutionalizing
programs, programmatic evaluation, continuous improvement and other services
as may be required.
Hardware (administrative and instructional) - shall include but not be limited
to mainframes, mini-computers, workstations, printers, servers, peripherals,
network components, telecommunications components, operating systems, databases
, system utilities, productivity tools, installation and other components and
technologies required to support the infrastructure and technical environment.
Software (administrative and instructional) - shall include but not be limited
to administrative and instructional software, application packages, courseware
, integrated learning systems productivity tools, office automation software
and other software technologies as my be appropriate and installation and
maintenance of those packages.
<PAGE>
Other professional Services - shall include but not be limited to data center
review, facilities planning, operational and systems services, technical
support, operations management, trouble shooting, hot-line support ,programming
and software maintenance, network management, computer operations, quality
control, remote processing/outsourcing, and other services as may be required.
ARTICLE 1
OBJECTIVE
This agreement is made between BDM Federal, Inc., a Delaware corporation with
a place of business located at 1801 Randolph Road SE, Albuquerque, New Mexico
87106, hereinafter referred to as "BDM" or "Buyer" and Wasatch Education
Systems, a Utah corporation having a place of business at 5250 South 300 West
, Suite 101, Salt Lake City, Utah 84107, hereinafter referred to as "WES" or
"Seller."
WITNESSETH:
WHEREAS, BDM is engaged in the business of providing professional and technical
consulting, systems integration and outsourcing solutions and services to K-12
school districts worldwide, hereinafter referred to as the BDM Solutions, AND:
WHEREAS, WES is engaged in the business of developing interactive educational
software and providing training and support services for effective utilization
of such software t K-12 school Districts and adult education sites worldwide,
hereinafter referred to as Seller's Products and Services, AND:
WHEREAS, Seller agrees to provide BDM rights to market and resell or to obtain
and deliver under subcontract or other purchase agreement the Products and
Services set forth in this Agreement as Part of BDM Systems Integration
Solutions and in the following attached and designated Exhibit, which is
incorporated fully and made part of this Agreement.
EXHIBIT A: (Description of Products and Services, which both parties
agree may be amended from time to time.)
NOW THEREFORE, in consideration of the representations and agreements
contained herein, the parties hereby covenant and agree to enter into this
Agreement with the objective of conduction mutually beneficial business
activities based on incorporation of Seller's Products and Services into BDM
Systems Integration Solutions.
ARTICLE 2
BDM RIGHTS
Seller hereby grants to BDM, on a non-exclusive basis, the right to market
and resell or to procure and deliver under subcontract or purchase agreement
under the terms of this Agreement Seller's Products and Services that encompass
BDM Systems Integration Solutions pursuant to this Agreement. This right does
not preclude BDM from recommending, marketing and or reselling comparable
products and services. The right to resell includes integration of standard
Seller's Products and Services into comprehensive all-inclusive (hardware,
software, training an/or support) BDM system integration solution.. In
addition, Seller grants BDM the right to provide training to BDM customers on
Seller's Products and Services.
<PAGE>
The parties acknowledge that customer(s) may make certain recommendations to
BDM with regard to Customer(s) requirement. The parties also recognize that
BDM is ultimately responsible for adoption, rejection, or use of such
recommendations and, accordingly, BDM retains full control over, and is solely
responsible for, the procurement of products or services obtained for any
projects that encompass BDM Systems Integration Solutions.
ARTICLE 3
TERRITORY
Except as otherwise agreed to by both BDM and Seller, it is understood that
BDM may market and resell Seller's Products and Services to Customers
worldwide for Projects.
Seller understands and agrees that BDM will utilize a combination of BDM
employees, field based as well as corporate, to market the Seller's Products
and Services and complete projects. BDM will exercise complete control over
these resources.
ARTICLE 4
BDM OBLIGATIONS
BDM obligations under this agreement are:
(1) Provide Customers with the benefit of skilled support in making product
and services decisions, that fairly represent Seller's Products and Services.
(2) Assign BDM staff member(s) to receive training on Seller's Products and
Services so they can market, demonstrate, install, use, train, and provide
support services to better serve Customer in selecting and utilizing Seller's
Products and Services.
(3) Within the first six months of the signed Agreement, discuss options to
provide training and ongoing support of Seller's Products and Services
utilizing BDM staff.
(4) Invite Seller to participate in projects that encompass BDM Systems
Integration Solution.
(5) Recommend to the Customer purchase of Seller's Annual Maintenance
Agreement with each sale of Seller's Products.
(6) Present the Seller's solution to BDM prospects, as appropriate.
(7) Conform to WES hardware / network specifications.
(8) Make prompt payment in full of valid Wasatch invoices according to the
agreed to credit terms.
(9) Provide installation and training that meets Wasatch standards.
ARTICLE 5
SELLER'S OBLIGATIONS
Seller's obligations under this agreement are:
(1) Recommend BDM to Customers requiring systems integration services and/or
BDM Systems Integration Solutions.
<PAGE>
(2) Provide reasonable training at Seller's expense for BDM personnel on how
to market, demonstrate, install, use, and train Seller's Products and Services.
(3) Provide reasonable marketing assistance and marketing materials to BDM,
at its own expense, to support projects and opportunities for BDM Systems
Integration Solutions.
(4) Provide Software for demonstration purposes.
(5) Conduct annual executive briefings.
(6) Conduct semi-annual sales and marketing briefings.
(7) When acting as a subcontractor to BDM in providing products and services
to BDM's Customers, Seller agrees to communicate all actions to BDM as
requested, and work to the best of its ability to achieve the common project
goals of quality service and customer satisfaction.
(8) For projects, help BDM determine which hardware and software system
configurations would best suit Customer needs, and provide both pre and post
sale, software support, technical support, information, assistance, and advice
to assist Customers in applying and using Seller's Products.
ARTICLE 6
RELATIONSHIP OF THE PARTIES
Both parties are independent contractors and nothing in the Agreement
authorizes the other party to act as a legal representative or employee of
the for any purpose whatsoever. This Agreement does not constitute a joint
venture, pooling arrangement, partnership, or formal business organization of
any kind and the rights and obligations of the parties shall be only those
expressly set forth herein. Neither party shall have the power to bind the
other with respect to any obligation to any third party or Customer(s).
ARTICLE 7
PRICING
Seller agrees to sell Seller's Products and Services to BDM for resale at the
following discounted prices:
Discount from Current Seller's Published Retail Price (current Seller's
Published Retail price to include quantity discounts, if any).
15% discount on software provided
10% discount on printed materials
WES provided installment - no discount
WES provided training - no discount
(Schedule of products and services and associated discounts.)
BDM may resell Seller's Products and Services to BDM customer(s) at a price
determined by BDM. Actual procurement of Seller's Products and Services, if
an, by BDM will be procured under a BDM purchase order and terms and conditions
contained therein.
<PAGE>
ARTICLE 8
USE OF TRADEMARKS AND LOGOS
During the term of this Agreement, BDM is authorized and permitted by Seller
to use and display the registered trademarks and logos of Seller, and other
trademarks, service marks and names belonging or licensed to Seller solely in
connection with projects, or BDM support and service capabilities for Seller's
products and/or consumables, promotion, distribution and sale of Seller's
Products and/or Services. BDM will not remove any of the Seller's marks from
any Authorized Products or Consumables nor shall BDM add any such marks to
such products.
Seller agrees to provide BDM a copy of its logo(s) (electronic and printed)
for use in any of BDM's advertising, promotional or proposed material.
Seller shall not use BDM's logo on any of Seller's advertising or promotional
materials without BDM's prior written consent.
Seller shall submit to BDM all advertising or promotional material, that use
BDM's name, to distributed or used pursuant to this Agreement for BDM's prior
written approval to such use or distribution.
ARTICLE 9
COSTS
Each party to this Agreement will bear the respective costs, risks, and
liabilities incurred by it as a result of its obligations and efforts under
this Agreement. Except for purchase orders or contract issued pursuant to
the "Pricing" article of this agreement, neither party shall have any right
to any reimbursement, payment, or compensation of any kind from each other.
ARTICLE 10
REPRESENTATIONS OF THE PARTIES
The parties represent and agree that they will conduct their marketing,
implementation and /or support activities in an ethical, professional,
business-like manner, and in so doing shall not violate, cause or permit to
be violated any federal, state, or local statute, ordinance or regulation as
a party to this Agreement.
Seller represents and agrees that Seller's products provided pursuant to this
Agreement shall conform to the general description as contained in Seller's
documentation, brochures and technical publications of such product and shall
be operable upon installation.
For any items procured that are warranted, Seller shall provide to the
Customer, through BDM, the Commercial warranties acquired and transferable
from Seller at the time of execution of the final acceptance certificate for
that item(s).
ARTICLE 11
ASSIGNMENTS
Seller may not transfer, assign, terminate or delegate its interests, rights,
obligations, duties or responsibilities under this Agreement to any third
party, without the express written consent of BDM.
BDM reserves the right to assign its rights and responsibilities hereunder
to a subsidiary, affiliated corporation, if approved in advance by Wasatch,
such approval will not be unreasonable written.
<PAGE>
The terms and conditions of this agreement shall be binding on and inure to
the benefit of any successor of either party.
ARTICLE 12
TERMINATION
This Agreement may be terminated upon the occurrence of any of the following
events:
Either party may terminated this agreement by giving the other party at least
ninety (90) days written notice of such termination;
Insolvency or bankruptcy of either party;
If this Agreement is terminated for any reason, Seller agrees to allow BDM to
complete its efforts for any project already underway, or a period of one year
form the date the agreement terminated.
ARTICLE 13
CONFIDENTIALITY
The parties shall devote their best efforts to protect the confidentiality of
proprietary information, which are identified in writing as being confidential
, which efforts shall be at least as careful as the practices and procedures
under which the party protects its own most valuable proprietary information
and materials.
The parties, both during the term of this agreement and at all times
thereafter, shall not disclose to any third party without specific written
permission, of the other party, any of the Confidential Information
transmitted to it. Each party will take all necessary steps to ensure that
all of its personnel who shall have any access to the Confidential
information shall have undertaken confidentiality obligations similar to
those hereunder.
The confidentiality and non-disclosure obligations set forth above do not
apply to information that (a) can be demonstrated to have been in the public
domain prior to its disclosure, (b) can be demonstrated to have been in the
possession of the Parties prior to the date of this Agreement, (c) becomes
part of the public domain by publication or otherwise not due to any
unauthorized act of publication or otherwise not due to any unauthorized act
of commission by the other party, its agents, employees, affiliates,
consultants, successors and assign, (d) is supplied to the other by a third
party as a mater of right, or (e) and can be demonstrated to have been
subsequently and independently developed by employees or consultants of the
other who had no knowledge of information.
ARTICLE 14
PUBLICITY
All publicity notices issued by either party shall give recognition to the
contribution of the other party.
<PAGE>
ARTICLE 15
ADDRESSEES
All communications relating to this Agreement shall be directed to the
specific individuals identified below:
BDM's Technical Brenda Raker
Representative: Marketing Manager
Education Technologies Division
1501 BDM Way
McLean, VA 22102
(703) 848-6337
BDM's Contractual Brian L. Tulga
Representatives: Manager, Contract Administration
(505) 848-5783/5942 (Fax)
Seller's Technical Cary Evans
Representative: Sr. Technical Support
808-261-1001
Seller's Contractual Ralph Brown
Representative: Chief Financial Officer
5250 South 300 West, Suite 101
Salt Lake City, UT 84107
ARTICLE 16
APPLICABLE STATE LAW
This agreement shall be governed by and interpreted under the Laws of the
Commonwealth of Virginia, United States of America.
ARTICLE 17
HOLD HARMLESS
Neither party shall be liable to the other for lost profits, loss of use or
interruption of business, nor consequential, indirect, special, punitive, or
incidental damages under this Agreement.
ARTICLE 18
NON-WAIVER OF RIGHTS
Either party's failure to exercise any of its rights under this Agreement
shall not constitute a waiver of any past, present, or future right or remedy.
ARTICLE 19
SEVERABILITY
If any provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, the remaining provisions
shall remain in full force and effect.
<PAGE>
ARTICLE 20
MODIFICATIONS TO THE AGREEMENT
The terms and conditions contained in this Agreement may not be changed,
amended, or modified, except by a written bilateral modification executed by
the contractual representatives of the parties. The contractual
representatives are those found in Article 15 of the Agreement.
ARTICLE 21
SCOPE OF THE AGREEMENT
This Agreement contains the entire agreement of the parties and cancels and
supersedes any previous understanding or agreement related to the subject
matter contained herein. All changes or modifications to this Agreement
must be agreed to in writing between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed.
BDM
BDM FEDERAL, INC. WASATCH EDUCATION SYSTEMS
BY: /s/ BRIAN L. TULGA _ BY: /s/ BARBARA MORRIS _
NAME TYPED: BRIAN L. TULGA _ NAME TYPED: BARBARA MORRIS _
TITLE: CONTRACTS MANAGER _ TITLE: PRESIDENT / CEO _
DATE: 5/18/95 _ DATE: 5/15/95 _
EXHIBIT 10.57
Debtor Name: Wasatch Education Systems Corporation
Exhibit C to Stock Purchase Agreement
Document defined as "Registration Rights Agreement"
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into by and among
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Salt Lake City, Utah
84107 ("Debtor"), and the undersigned California limited partnership
investment funds, each having a principal place of business at 2000 Alameda
de las Pulgas, Suite 250, San Mateo, California 94403 (collectively, "Lenders").
This Agreement shall be effective as of the 30th day of June, 1995.
R E C I T A L S
A. Debtor and Lenders are parties to that certain Stock Purchase Agreement
of even date herewith (the "Stock Purchase Agreement") pursuant to which
Debtor's indebtedness to Lenders will be converted to stock in Debtor. All
capitalized terms used in this Agreement and not specifically defined herein
shall have the meanings given in the Stock Purchase Agreement.
B. Pursuant to the Stock Purchase Agreement, Debtor will issue Debtor's
Warrants to purchase shares of Debtor's Common Stock (collectively, the
"Warrants") and, to two Lenders, an aggregate of 1,666,666 shares of Debtor's
Common Stock (the "Shares").
C. As a condition to the entering into the Stock Purchase Agreement, Lenders
have required that Debtor execute and deliver this Agreement.
A G R E E M E N T
NOW THEREFORE, in consideration of the terms and conditions contained herein,
the parties hereto hereby agree as follows:
1. This Agreement is made with respect to that certain Registration Rights
Agreement by and among Debtor and Lenders dated as of the 31st day of
December , 1991, whereby Debtor has contractually undertaken certain
obligations to register certain of Debtor's capital stock held by such parties
under the Securities Act of 1933, as amended (such agreement being referenced
herein as the "Master Registration Rights Agreement").
2. Debtor agrees that the term "Registrable Securities", as defined in
Section 1.3 of the Master Registration Rights Agreement, includes within the
meaning of such term the Shares and all shares of Common Stock issued or
issuable upon exercise of the Warrants (or issued in respect of such Shares
or Common Stock by way of stock dividend or otherwise).
3. Each Lender and its permitted assignees shall have all rights of a "Holder"
within the meaning given in Section 1.7 of the Master Registration Rights
Agreement and shall be treated for all purposes as a Holder under the Master
Registration Rights Agreement. Each Lender hereby assumes the obligations of
a Holder of Registrable Securities under the Master Registration Rights
Agreement.
4. In addition to any rights Lenders may have as Holders with respect to
Registrable Securities under the Master Registration Rights Agreement, as
supplemented by this Agreement, and notwithstanding any provision of the
Master Registration Rights Agreement to the contrary, Lenders shall have the
following registration rights, but only with respect to Lenders' Registrable
Securities comprising the Shares (the "Supplemental Registrable Securities"):
If any registration of which Debtor gives notice pursuant to Section 2.1(i)
of the Master Registration Rights Agreement is for an underwritten public
offering of Common Stock pursuant to a registration statement which is to
become effective on or before December 31, 1996, Debtor shall so advise Lenders
as a part of the written notice given pursuant to Section 2.1(i) of the Master
Registration Rights Agreement. If the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten with
respect to the secondary portion of such registration, Debtor shall so advis
e Lenders and the other holders of Common Stock distributing their securities
through such registration and underwriting. Thereafter, the underwriter may
exclude some or all of the Supplemental Registrable Securities from such
registration and underwriting, but only in accordance with the procedure set
forth in the following sentence. The securities to be included in the
secondary portion of such registration shall be allocated first to Supplemental
<PAGE>
Registrable Securities until the Supplemental Registrable Securities are
exhausted and thereafter allocated as otherwise provided in the Master
Registration Rights Agreement. The Lenders shall also have the demand
registration rights with respect to the Shares as set forth in Section 5
below.
5. Registration on Form S-3.
5.1 Eligibility of Debtor. Debtor shall use its best efforts to continue to
be eligible for the use of Form S-3 (or under any similar successor forms) and
, to that end, Debtor shall comply with the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "34 Act"). While Debtor is
qualified for the use of Form S-3 (or successor forms), the Lenders shall have
the right to request an unlimited number of registrations on Form S-3 (or
successor forms) with regard to the Shares. Such requests shall be in writing
and shall state the number of Shares to be distributed and the intended method
of disposition of such Shares by the Lenders. The foregoing shall be subject
only to the following limitations:
Debtor shall not be obligated to cause a registration on Form S-3 (or
successor forms) to become effective prior to the expiration of at least
ninety (90) days following the effective date of the most recent Debtor-
initiated registration (other than a registration on Form S-8 or any similar
form which may be promulgated in the future relating solely to employee
benefit plans, or on Form S-4 or similar forms which may be promulgated in
the future relating solely to an SEC Rule 145 transaction); provided, however
, that Debtor shall use its best efforts to achieve such effectiveness promptly
following such ninety (90) day period;
Debtor shall not be required to effect a registration pursuant to this
Section 5 unless the Lenders requesting registration propose to dispose of
Shares of Registrable Securities which have an aggregate offering price of at
least Two Hundred Thousand Dollars ($200,000).
5.2 Best Efforts of Debtor. Subject to the foregoing, Debtor will use its
best efforts to effect promptly the registration of all Shares of Registrable
Securities on Form S-3 (or successor forms), to the extent requested pursuant
to Section 5.
5.3 Incorporation of Master Registration Rights Agreement. For purposes of
this Section 5, the overall procedures and definitions as specified in the
Master Registration Rights Agreement shall control in the same manner as if
set forth in full herein.
6. Debtor represents and warrants that all waivers and consents of all
parties necessary to effectively grant the registration rights to Lender, as
provided herein, and to effectively make each Lender a party to the Master
Registration Rights Agreement (in the manner contemplated and provided hereby)
have been obtained and that this Agreement represents the valid, binding and
enforceable obligation of Debtor.
7. The breach of any of the terms hereof shall be an event of default under
the Stock Purchase Agreement.
8. This Agreement may be executed in any number of counterparts, each of
which shall be an original as against any party whose signature appears
thereon and all of which together shall constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative identified below.
DEBTOR: WASATCH EDUCATION SYSTEMS CORPORATION
By: /s/ Barbara Morris
Barbara Morris, President and CEO
LENDERS:
SOFTWARE FUND II, a California TECHNOLOGY FUNDING PRIVATE RESERVE FUND,
Limited Partnership a California Limited Partnership
By: Technology Funding Inc. By: Technology Funding Inc.
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory T. George By: /s/ Gregory T. Georg
Gregory T. George Gregory T. George
Vice President Vice President
TECHNOLOGY FUNDING PARTNERS I, TECHNOLOGY FUNDING PARTNERS II,L.P.
L.P., a California Limited a California Limited Partnership
Partnership
By: Technology Funding Inc. By: Technology Funding Inc.
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory T. George By: /s/ Gregory T. Georg
Gregory T. George Gregory T. George
Vice President Vice President
TECHNOLOGY FUNDING SECURED TECHNOLOGY FUNDING SECURED INVESTORS III,
INVESTORS III, a California an Income and Growth Partnership, L.P.
Limited Partnership a California Limited Partnership
By: Technology Funding Inc. By: Technology Funding Inc.
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory T. George By: /s/ Gregory T. Georg
Gregory T. George Gregory T. George
Vice President Vice President
EXHIBIT 10.57
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), effective as of June 30,
1995, is made by and among WASATCH EDUCATION SYSTEMS CORPORATION (the "Company")
and the undersigned limited partnership investment funds (each individually,
a "Fund" and collectively, the "Funds").
R E C I T A L S
A. The Company has an indebtedness to the Funds aggregating to approximately
$6,700,000, which includes $5,500,000 in principal plus accrued interest and
other reimbursable amounts, all pursuant to several loan agreements listed on
Schedule 1 to this Agreement (the "Loan Agreements").
B. The Company and the Funds now desire to convert the $5,500,000 of
outstanding principal balance under the Loan Agreements into shares of Common
Stock and Preferred Stock of the Company (the "Conversion"), and to have the
Funds forgive the remainder of the indebtedness.
C. In conjunction with the Conversion, the Company will amend and restate
various unexercised warrants held by the Funds, as listed on Schedule 2 to
this Agreement (the "Old Warrants"), and issue the Warrants listed on Schedule
3 to this Agreement, to amend and the restate the Old Warrants (the "New
Warrants").
A G R E E M E N T
NOW, THEREFORE, the parties hereto agree as follows:
1. Issuance of Shares and Warrants. The Company shall issue 5,300,000 shares
of Series C Preferred Stock, at a price per share of $1.00 (the "Preferred
Shares") to the various Funds in accordance with the table set forth on
Schedule 4. The rights, preferences and privileges of the Preferred Shares
will be as agreed upon by the Company and the Funds but will include terms at
least as favorable as those set out on Exhibit A to this Agreement. The
Company also shall issue 1,666,666 shares of the Common Stock at a price per
share of $0.12 (the "Common Shares") to various Funds in accordance with the
table set forth on Schedule 4. The Preferred Shares and Common Shares are
sometimes collectively referred to herein as the Shares. In addition to the
issuance of the Shares, the Company shall amend and restate the Old Warrants
by issuing the New Warrants.
2. Cancellation of Debt. In consideration of receipt of the Shares and New
Warrants, each Fund hereby agrees that the Company's outstanding indebtedness
under each Loan Agreement is paid in full.
3. Closing. A closing will take place at such time and place as may be
agreed to by the Company and the Funds (the "Closing"). At the Closing the
Company will deliver to each Fund certificates representing the Shares to be
issued to that Fund. Each Fund will deliver to the Company instruments
effecting cancellation of indebtedness and cancellation of perfection of
security interests as well as originals of all currently outstanding Promissory
Notes for cancellation.
<PAGE>
4. Warrants. Simultaneously with the Closing, the Company will amend and
restate all Old Warrants and issue the New Warrants in the forms of Exhibit
B-1 to B-8 to this Agreement.
5. Registration Rights Agreement. Simultaneously with the Closing, the
Company and the Funds will execute a Registration Rights Agreement in the
form of Exhibit C to this Agreement.
6. Statement of Designation. On or before the date of the Closing, the
Company shall have adopted and filed with the Utah Department of Commerce,
Division of Corporations and Commercial Code, a Statement of Designation of
Series C Preferred Stock setting forth the rights, restrictions, preferences
and privileges of the Series C Preferred Stock (the provisions of which shall
incorporate the rights described on Exhibit A and such Statement of Designation
shall be subject to the reasonable review and approval of the Funds).
7. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Funds:
(a) The Company has all requisite corporate power to enter into this Agreement
, to issue the Shares and New Warrants hereunder and to carry out and perform
its other obligations under this Agreement.
(b) All corporate action on the part of the Company, its officers, directors
and shareholders necessary for (i) the issuance of the Shares and New Warrants
pursuant hereto and (ii) the execution, performance and delivery by the
Company of this Agreement has been taken or will be taken prior to the Closing.
This Agreement is a valid and binding obligation of the Company, enforceable
against it in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and rules or laws concerning equitable remedies.
(c) The Shares and New Warrants, when issued in compliance with the provisions
of this Agreement will be validly issued, fully paid and non-assessable;
provided, however, that the Shares and New Warrants will be subject to
restrictions on transfer under state and federal securities law.
8. Representations and Warranties of the Funds. Each Fund hereby represents
and warrants to the Company:
(a) The Shares and New Warrants (collectively, the "Securities") are being
acquired for such Fund's own account for investment and not with a view to,
or for resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), the California Corporate Securities Law of 1968, as amended (the
"California Law") or the Utah Uniform Securities Act (the "Utah Law").
<PAGE>
(B) Such Fund understands that the Securities have not been registered under
the Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section
4(2) thereof and that each Fund must therefore bear the economic risk of such
investment indefinitely, unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration. Such Fund
further understands that the Securities have not been qualified under the
California Law by reason of their issuance in a transaction exempt from the
qualification requirements of the California Law pursuant to Section 25102(f)
thereof, which exemption depends upon, among other things, the bona fide
nature of each Fund's investment intent as expressed herein.
(C) During the negotiation of the transactions contemplated herein, such Fund
has had, by virtue of its relationship with the Company, or has otherwise been
afforded, full access to the corporate books, records, documents and other
information concerning the Company and has been afforded an opportunity to
ask such questions of the Company's officers and representatives concerning
the Company's business, operations, prospects, financial condition, assets,
liabilities and other relevant matters as it has determined to be necessary
or desirable, and has been given all such information as has been requested,
in order to evaluate the merits and risks of the equity investment in the
Company contemplated herein.
(D) Such Fund has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the purchase
of the Securities pursuant to the terms of this Agreement.
(E) Such Fund has all requisite power and authority to enter into and
perform its obligations under this Agreement. All partnership action on the
part of such Fund necessary for the execution of this Agreement has been taken
or will be taken prior to the Closing. This Agreement is a valid and binding
obligation of such Fund, enforceable against it in accordance with its terms,
except as such enforcement may be limited by applicable bankruptcy, insolvency
, reorganization, moratorium or other laws of general application relating to
or affecting enforcement of creditors' rights and rules or laws concerning
equitable remedies.
(F) Such Fund will take any further action as required to effectuate an
exemption for the transfer or issuance of Securities under the Utah Law.
9. Legends. Each certificate representing the Securities may be endorsed
with legends referring to the limitations on transferability imposed under
the Securities Act, the California Law and other applicable securities laws.
The Company need not register a transfer of any such Securities and may also
instruct its transfer agent not to register the transfer of any such Securities
, unless the conditions specified in such legends are satisfied.
<PAGE>
10. Miscellaneous.
(A) Entire Agreement. This Agreement, the Exhibits and Schedules hereto,
the documents referenced herein, constitute the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, representations or warranties,
express or implied, written or oral, between the parties with respect hereto
and thereto. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
(B) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon, and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative identified below.
COMPANY: WASATCH EDUCATION SYSTEMS CORPORATION
By: /s/ Barbara Morris
Barbara Morris, President and CEO
THE FUNDS:
SOFTWARE FUND II, a California TECHNOLOGY FUNDING PRIVATE RESERVE FUND,
Limited Partnership a California Limited Partnership
By: Technology Funding Inc. By: Technology Funding Inc.
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory T. George By: /s/ Gregory T. Georg
Gregory T. George Gregory T. George
Vice President Vice President
<PAGE>
TECHNOLOGY FUNDING PARTNERS I, TECHNOLOGY FUNDING PARTNERS II,L.P.
L.P., a California Limited a California Limited Partnership
Partnership
By: Technology Funding Inc. By: Technology Funding Inc.
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory T. George By: /s/ Gregory T. Georg
Gregory T. George Gregory T. George
Vice President Vice President
TECHNOLOGY FUNDING SECURED TECHNOLOGY FUNDING SECURED INVESTORS III,
INVESTORS III, a California an Income and Growth Partnership, L.P.
Limited Partnership a California Limited Partnership
By: Technology Funding Inc. By: Technology Funding Inc.
Its Managing General Partner Its Managing General Partner
By: /s/ Gregory T. George By: /s/ Gregory T. Georg
Gregory T. George Gregory T. George
Vice President Vice President
<PAGE>
EXHIBIT AND SCHEDULE LIST
DESIGNATION DESCRIPTION
Exhibit A Summary of Rights, Preferences and Privileges of Series C
Preferred Stock
Exhibit B Restated Warrants (Exhibits B-1 through B-8) as fully set
forth in Schedule 3
Exhibit C Registration Rights Agreement
Schedule 1 Listing of Loan Agreements
Schedule 2 List of Existing Warrants to be Surrendered
Schedule 3 List of Restated Warrants to be issued
Schedule 4 Listing of Series C Preferred Stock and Common Stock to be
issued
<PAGE>
EXHIBIT A
Summary of Rights, Preferences and Privileges
of
Series C Preferred Stock
1. Designation and Number of Shares. 5,300,000 shares of the Preferred Stock
of the Company shall constitute a Series of Preferred Stock designated as
Series C Redeemable Preferred Stock, $1.00 par value (the "Series C Preferred
Stock").
2. Dividends. The holders of Series C Preferred Stock shall be entitled to
receive dividends at the rate of $.10 per annum (the "Minimum Dividend Rate)
for the first five years following the effective date of the Agreement before
any dividend shall be declared, set apart, or paid upon the Common Stock of
the Company. During such first five year period, dividends shall not be
cumulative and shall be payable when and if declared by the Board of Directors.
After the expiration of five years, dividends shall accrue on a cumulative
basis at the Minimum Dividend Rate (which rate shall increase annually as
provided below) and must be declared, set apart and paid in each ensuing year
before payment of any dividends on Series A Preferred Stock, Series B Preferred
Stock or Common Stock. Such Minimum Dividend Rate which accrues on a
cumulative basis shall be adjusted on the expiration of five (5) years after
the effective date of the Agreement (and on the expiration of each one year
period thereafter) by increasing the prior Minimum Dividend Rate by the sum
of (1) $0.02 per share plus (2) $0.02 per share times the difference between
the number of one year periods elapsed since the effective date of the
Agreement and the number of annual dividends of at least $0.10 per share
which were in fact paid during the first five years after the effective date.
No holder of any Series C Preferred Stock shall have any prior right or
preference in the payment of dividends over the holder of any other Series C
Preferred Stock. Reference is made to the table attached hereto for sample
calculations as to dividends, as well as with respect to the Redemption Price
under Section 3. The payment of dividends and payment of the Redemption Price
shall be made out of assets and funds legally available under Utah law.
3. Redemption of Series C Preferred Stock. The Company shall have the right
to redeem its Series C Preferred Stock, or any number of shares thereof, at
any time by paying to the holder thereof the "Redemption Price," as defined
herein. The Redemption Price shall be equal to an amount based upon the
formula stated below. The Redemption Price is $1.10 per share during the
first year following the effective date of the Agreement. Thereafter, the
Redemption Price is adjusted each year by adding to the previous Redemption
Price an amount equal to (1) $0.10 per share plus (2) $0.01 per share times
the difference between the number of years elapsed since the effective date
of the Agreement and the number of annual dividends declared and paid in an
amount of at least $0.10 per share during the first five years after the
effective date, plus (3) an amount equal to all accrued and unpaid dividends.
See the attached table for sample calculations as to such Redemption Price.
The Series C Preferred Stock has senior redemption priority over the Series A
Preferred Stock and Series B Preferred Stock of the Company and no Series A
Preferred Stock or Series B Preferred Stock may be redeemed prior to the
redemption of all outstanding Series C Preferred Stock.
At least thirty (30) days' previous notice by mail, postage prepaid, shall
be given to the holders of record of the Series C Preferred Stock to be
<PAGE>
redeemed, such notice to be addressed to each such shareholder at his or her
address as shown on the records of the Company. On or after the date fixed
for redemption as stated in such notice, each holder of Series C Preferred
Stock called for redemption shall surrender his or her certificate evidencing
such shares to the Company at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price. In case
less than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
If such notice of redemption shall have been duly given, and if on the date
fixed for redemption the funds necessary for the redemption shall be available
therefor, then notwithstanding that the certificates evidencing any Series C
Preferred Stock so called for redemption shall not have been surrendered, all
rights with respect to the shares so called for redemption shall forthwith
after such date cease, except only the right of the holders to receive the
Redemption Price thereof without interest upon surrender of their certificates
therefor.
4. Rights Upon Dissolution, Merger, Etc. Upon (i) the dissolution of the
Company, (ii) its liquidation otherwise, (iii) any consolidation or merger of
the Company with or into another corporation (other than a reincorporation in
another state or a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification,
change or exchange of outstanding securities), (iv) any sale or transfer to
another corporation of all, or substantially all, of the property of the
Company, or (v) any distribution of its assets by way of return of capital,
the holders of the Series C Preferred Stock shall be entitled to receive and
be paid, whether such dissolution, liquidation, or distribution of assets
shall be voluntary or involuntary, an amount equal to the Redemption Price
which was in effect prior to the commencement of the current year before any
sum shall be paid to the holders of Series A Preferred Stock, Series B
Preferred Stock or Common Stock. For purposes of the first year after the
effective date, the liquidation preference shall be $1.00 per share.
5. Voting Rights. The Series C Preferred Stock shall have no voting rights
unless required by applicable law or the rules of any stock exchange on which
the Company's securities may then be listed.
6. Conversion. The Series C Preferred Stock shall not be convertible.
<PAGE>
EXHIBIT B
[Form of Warrant]
<PAGE>
EXHIBIT C
[Registration Rights Agreement]
<PAGE>
<TABLE>
SCHEDULE 1
[Loan Agreements]
<CAPTION>
DATE DESCRIPTION LEAD ORIGINAL FY94 FY95 CURRENT
ORIGINATED LENDER PRINCIPAL INTEREST INTEREST BALANCE
<S> <C> <C> <C> <C> <C> <C>
12/31/91 AR LINE TFSI III 3,500,000 284,607 581,055 4,365,662
LOAN 9 8.13% 16.60%
4/8/92 TERM TFP I 1,000,000 91,000 121,667 1,212,667
LOAN 12 9.10% 12.17%
4/16/93 LOAN 25 TFP I 300,000 44,100 36,500 380,600
4/14/94 BRIDGES TFSI III 200,000 4,333 20,278 224,611
LOAN 36 2.17% 10.14%
4/29/94 LOAN 39 TFSI III 250,000 4,375 25,347 279,722
1.75% 10.14%
5/18/94 LOAN 41 TFSI III 250,000 3,056 25,347 278,403
1.22% 10.14%
--------- ------- ------- ---------
TOTALS 5,500,000 431,471 810,195 6,741,665
7.84% 14.73%
========================================
FY94+FY95 INTEREST 1,241,666
</TABLE>
<PAGE>
<TABLE>
SCHEDULE 2
EXISTING WARRANTS TO BE SURRENDERED
<CAPTION>
HOLDER ISSUE DATE EXERCISE PRICE NUMBER OF
PER SHARE SHARES
<S> <C> <C> <C>
TFP I 4/25/93 $0.50 200,000
TFP I 5/05/92 $1.31 381,679
TFSI III 4/25/93 $0.50 3,083,332
</TABLE>
<PAGE>
<TABLE>
SCHEDULE 3
RESTATED WARRANTS TO BE ISSUED
<CAPTION>
EXERCISE
REISSUE PRICE PER NUMBER OF AGGREGATE
HOLDER DATE SHARE SHARES PRICE
<S> <C> <C> <C> <C>
SF II
(Exhibit B-1) 6/30/95 $ 0.50 224,000 $112,000.00
TFPR I
(Exhibit B-2) 6/30/95 $ 0.50 224,000 $112,000.00
TFP I
(Exhibit B-3) 6/30/95 $ 0.50 744,000 $372,000.00
TFP I
(Exhibit B-4) 6/30/95 $ 1.31 248,092 $325,000.52
TFP II
(Exhibit B-5) 6/30/95 $ 0.50 462,000 $231,000.00
TFP II
(Exhibit B-6) 6/30/95 $ 1.31 133,588 $175,000.28
TFSI II
(Exhibit B-7) 6/30/95 $ 0.50 959,546 $479,773.00
TFSI III
(Exhibit B-8) 6/30/95 $ 0.50 1,159,546 $579,773.00
</TABLE>
<PAGE>
<TABLE>
SCHEDULE 4
SERIES C PREFERRED STOCK
AND COMMON STOCK TO BE ISSUED
<CAPTION>
NAME PREFERRED C SHARES COMMON SHARES
<S> <C> <C>
SF II 0 833,333
TFPR I 0 833,333
TFP I 475,000 0
TFP II 175,000 0
TFSI II 1,741,550 0
TFSI III 2,908,450 0
--------- ---------
TOTALS 5,300,000 1,666,666
</TABLE>
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED APRIL 8, 1992 AND JUNE 25, 1993, BETWEEN THE COMPANY AND
THE PURCHASER, AS DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK
WARRANT HAS BEEN ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT
PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-1 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of April 8, 1992, (1) Aggregate Price:
and June 25, 1993 $112,000.00
(2) Warrant Price:
Restated as of the 30th day $0.50 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 224,000
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND
COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID REGISTRATION
IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT APPLICABLE STATE
SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is located
at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any party to
whom this Warrant is assigned in compliance with the terms hereof (Purchaser
and any such assignee being hereinafter sometimes referenced as "Holder"), is
entitled to subscribe for and purchase, during the period commencing at the
issue date set forth above and ending at 5:00 p.m., San Mateo, California,
local time, on June 30, 2000, the number of shares of fully paid and
nonassessable Common Stock of WASATCH EDUCATION SYSTEMS CORPORATION, a Utah
corporation (the "Company"), that have an aggregatepurchase price equal to
the Aggregate Price as defined below. The purchase price of each such share
shall be equal to the Warrant Price, as defined below.This Warrant was issued
to Purchaser pursuant to the Stock Purchase Agreement (as defined below).
Capitalized terms used and not otherwise defined herein shall have the same
meanings given such terms in the Stock Purchase Agreement.
ARTICLE I
DEFINITIONS
"Additional Warrant Terms" shall mean the additional provisions set forth on
Exhibit "A". Any reference to a Section or Article of this Warrant shall be
deemed for all purposes hereof to additionally refer to the corresponding
Section or Article of the Additional Warrant Terms set forth on Exhibit "A".
<PAGE>
In the case of any inconsistency, the terms set forth on Exhibit "A" shall
control over the terms in the main body of this Warrant (this uniform part of
the Warrant being referred to as the "Standard Warrant Terms"). As to this
particular Warrant, the Sections in the Standard Warrant Terms which are
affected or modified by the Additional Warrant Terms include, but are not
necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common Stock
or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
ARTICLE II
EXERCISE AND PAYMENT
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
<PAGE>
2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value of
one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of determination
of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's Common
Stock upon such expiration shall be the fair market value determined pursuant
to Section 2.3 above. To the extent this Warrant or any portion thereof is
deemed automatically exercised pursuant to this Section 2.5, the Company
agrees to notify Holder within a reasonable period of time of the number of
shares of the Company's Common Stock, if any, Holder is to receive by reason
of such automatic exercise.
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
<PAGE>
2.7 Fractional Shares. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing services
for the Company if such plan is approved by the Board of Directors), (Y)
Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for stock
splits, combinations of shares and stock dividends as set forth in Sections 3.3
and 3.5 but not as previously adjusted by Section 3.1 or 3.4, plus (b) the
sum of (X) number of shares of Common Stock issued subsequent to the original
issue of this Warrant (excluding sales of Common Stock pursuant to stock
option, stock purchase or other equity incentive plans for employees or other
persons performing services for the Company if such plan is approved by the
Board of Directors), (Y) the Maximum Shares Upon Exercise of Common Stock
Equivalents sold in Dilution Sales subsequent to the original issue of this
Warrant, plus (Z) the Maximum Shares Upon Exercise of Convertible Securities
which are not debt securities issued subsequent to the original issue of this
Warrant (as provided in Section 3.1.2), in all cases adjusted for stock splits
, combinations of shares and stock dividends occurring after the date of issue
of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the Maximum
Shares Upon Exercise relating to such Convertible Securities at a consideration
equal to the product of (i) the Effective Price and (ii) the Maximum Shares
Upon Exercise. Debt securities not sold in Dilution Sales shall be excluded
from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant Price
is initially fixed by the Additional Warrant Terms, this Section 3.1.3 shall
not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
<PAGE>
equivalent in all substantive respects as practicable to this Warrant, and the
adjustments provided in this Article III and the provisions of this Section
3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common Stock
& Common Stock Equivalents issued pursuant to any stock option, stock purchase
or other equity incentive plan for employees or other persons performing
services for the Company and which plan is approved by the Board of Directors)
for an Effective Price less than the Warrant Price, as adjusted and as then
in effect, shall be a Dilution Sale and the Warrant Price shall be adjusted
as set forth in Section 3.1 hereof, provided that for the purposes of such
adjustments: (i) the consideration received for such Dilution Sale shall be
the Minimum Consideration received in such sale; and (ii) the number of shares
issued in the present Dilution Sale shall be the Maximum Shares Upon Exercise
for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock Equivalents
has occurred during the term hereof and a contingent event not considered in
the computation of Minimum Consideration or Maximum Shares Upon Exercise
occurs, which if considered at the time of the Dilution Sale or at the time of
another sale of Common Stock or Common Stock Equivalents would have had the
effect of reducing the Warrant Price, the Warrant Price shall be retroactively
adjusted to reflect such contingent event and additional shares of Common
Stock or other securities as required hereunder shall be issued to Holder, if
it previously exercised all or any part of its rights hereunder, to reflect
the additional shares to which Holder would have been entitled had the
retroactively adjusted Warrant Price been in effect on the date of exercise
of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4An amendment to the terms and conditions of a Common Stock Equivalent
(e.g., an amendment to the Company's Articles or Certificate of Incorporation)
which has the effect of reducing the Effective Price of such Common Stock
Equivalent shall be treated for purposes of Section 3 of this Warrant as the
sale of new Common Stock Equivalents for the consideration previously received
upon sale of such Common Stock Equivalent prior to such amendment. Such new
sale shall be deemed to have occurred on the effective date of such amendment.
Concurrent with such date for purposes of Section 3 of this Warrant, the
Common Stock Equivalents to be amended which are issued and outstanding
immediately prior to such amendment shall be deemed to be terminated without
exercise or conversion and the Warrant Price shall be adjusted pursuant to
Section 3.4.3. Such adjustment to the Warrant Price pursuant to Section 3.4.3
shall be made before the adjustment to the Warrant Price required under this
Section 3.4.4.
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
<PAGE>
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares of
such securities or any securities convertible into or exchangeable for such
securities shall be issued or sold for a consideration per share such as to
dilute the purchase rights evidenced by this Warrant, then and in each such
case the Warrant Price and the number of shares purchasable hereunder shall
be adjusted substantially in the manner provided in this Section 3, so as to
protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions, compensation
or concessions paid or allowed by the Company in connection with such issue
or sale, to the extent that the aggregate of all such commissions and expenses
exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which covers
both, the consideration for the issue or sale of such Common Stock or Common
Stock Equivalents shall be deemed to be the portion of such consideration
allocated thereto in good faith by the Board of Directors of the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price shall
be adjusted downward and the number of shares purchasable hereunder adjusted
upward in such manner and at such time as the Board of Directors of the
Company shall in good faith determine to be equitable under the circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the Company's
capital stock taken for the purpose of entitling shareholders to receive a
distribution or dividend payable in Common Stock or Common Stock Equivalents,
provided that such division, combination, distribution or dividend actually
occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
<PAGE>
and shall cause to be prepared and furnished to Holder a Certificate (executed
by the Company's President or Chief Financial Officer) setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including: (i) the consideration received
or to be received by the Company for any additional shares of Common Stock or
Common Stock Equivalents issued or sold or deemed to have been issued or sold;
(ii) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (iii) the adjusted Warrant Price. As a part of the annual
audit performed by the Company's independent certified public accountants, the
Company shall cause such accountants to review and verify the calculations
contained in any Certificate specified above, which verification shall be
confirmed in writing to the Holder by the accounting firm (unless such
verification is waived by Holder at or after the time of receipt of such
Certificate of adjustment from the Company). The Company shall, upon the
written request at any time of Holder, furnish or cause to be furnished to
Holder a like Certificate setting forth: (i) all such adjustments and
readjustments to date; (ii) the Warrant Price at that time in effect; and
(iii) the number of shares which at the time would be received upon exercise.
All certificates and verifications provided to Holder in accordance with
this Section shall be mailed or otherwise sent in accordance with Section 6.8
of this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements under
any other law or regulation applicable to the issuance or transfer of such
shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock covered
thereby, the Aggregate Price of such shares, the percentage stated in Section
4.1 above, and any other changes which are necessary in order to prevent the
Warrant exchange from changing the respective rights and obligations of the
Company and the Holder as they existed immediately prior to such exchange.
<PAGE>
4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the Company.
Holder shall have all rights of a shareholder with respect to securities
purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder that
quantity of such securities which will enable Holder to maintain its pro rata
equity interest in the Company. Holder's pro rata equity interest in the
Company, for purposes of this right of participation, shall be calculated
based upon the ratio the number of shares of Common Stock held by such Holder
bears to all shares of Common Stock then issued and outstanding, in each
instance calculated assuming complete exercise of all options, warrants
(including this Warrant) or other rights to purchase Common Stock and the
conversion of all securities convertible into Common Stock. Holder shall
have ten (10) days from receipt of such notice to agree to purchase all or
any part of the securities so offered by delivery of written notice thereof
to the Company stating the quantity of securities to be purchased. Any
purchase of securities by the Holder shall be made at the price and upon the
same terms as specified in the Company's notice; provided, however, that the
purchase price for any such securities purchased by Holder hereunder shall by
payable either in cash or, at Holder's option, by offsetting any amounts due
Holder in inverse order of maturity pursuant to the Note. The Company shall
have ninety (90) days after it provides written notice of a Dilution Sale to
Holder (whether or not Holder has yet provided notice of its intent to
purchase the securities so offered) to sell such securities at a price and
upon general terms no more favorable than those specified in the Company's
notice. If the Company has not sold such securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any such securities
, without first offering such securities to Holder in the manner provided
above. The rights of Holder under this Section 5.2 shall not apply to
securities issued pursuant to the Company's initial offering and sale of
securities as part of a firmly underwritten public offering registered under
the 1933 Securities Act and the rights of Holder under this Section 5.2 shall
terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all permits
, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant
, and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
<PAGE>
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF THIS
WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS RELATIONSHIP
BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR OR
MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A. EACH
PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION AND
VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant within
ten (10) days of written notice thereof shall constitute an event of default
under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
Company: Address as set forth on signature page.
Holder: c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the addressee
thereof; but if sent by certified mail in the manner set forth above, they
shall be effective three (3) business days after being deposited in the United
States mail. Any party may change its address for such communications by
giving notice thereof to the other party in conformity with this Section.
<PAGE>
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested
by any other party to better evidence and reflect the transactions described
herein and contemplated hereby, and to carry into effect the intents and
purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-1)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the Amended
and Restated Common Stock Warrant dated as of the 30th day of June, 1995,
issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its principal
place of business at 5250 South 300 West, Suite 350, Salt Lake City, Utah
84107 ("Company").
ARTICLE I
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be One Hundred Twelve
Thousand Dollars ($112,000).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($0.50) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to Section
3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount equal
to the price per share of Common Stock or Common Stock Equivalents received
by the Company in such Dilution Sale. The price per share of Common Stock or
Common Stock Equivalents received in a Dilution Sale shall be calculated by
dividing the Total Consideration received in the Dilution Sale by the Total
Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the cash
exercise provisions of Section 2.1 of the Warrant. Therefore, Holder makes
payment with this Notice of Exercise by way of check payable to the Company
in the amount of $ . Such check is payment in full under the
Warrant for shares of Common Stock based upon the Warrant
Price of $ per share, as currently in effect under the Warrant.
Holder requests that the certificates for the purchased shares of Common Stock
be issued in the name of and delivered to "Technology Funding Secured Investors
II, a California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price, a Replacement Warrant representing the remainder of the
Aggregate Price and otherwise of like form, tenor and effect should be
delivered to Holder along with the share certificates evidencing the Common
Stock issued in response to this Notice of Exercise.
SOFTWARE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
SOFTWARE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED APRIL 8, 1992 AND JUNE 25, 1993, BETWEEN THE COMPANY
AND THE PURCHASER, AS DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK
WARRANT HAS BEEN ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT
PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-2 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of April 8, 1992, (1) Aggregate Price:
and June 25, 1993 $112,000.00
(2) Warrant Price:
Restated as of the 30th day $0.50 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 224,000,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE, ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE MADE WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES ACT AND
COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is located
at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any party to
whom this Warrant is assigned in compliance with the terms hereof (Purchaser
and any such assignee being hereinafter sometimes referenced as "Holder"), is
entitled to subscribe for and purchase, during the period commencing at the
issue date set forth above and ending at 5:00 p.m., San Mateo, California,
local time, on June 30, 2000, the number of shares of fully paid and
nonassessable Common Stock of WASATCH EDUCATION SYSTEMS CORPORATION, a Utah
corporation (the "Company"), that have an aggregate purchase price equal to
the Aggregate Price as defined below. The purchase price of each such share
shall be equal to the Warrant Price, as defined below. This Warrant was
issued to Purchaser pursuant to the Stock Purchase Agreement (as defined
below). Capitalized terms used and not otherwise defined herein shall have
the same meanings given such terms in the Stock Purchase Agreement.
ARTICLE I
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set forth
on Exhibit "A". Any reference to a Section or Article of this Warrant shall
be deemed for all purposes hereof to additionally refer to the corresponding
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Section or Article of the Additional Warrant Terms set forth on Exhibit "A".
In the case of any inconsistency, the terms set forth on Exhibit "A" shall
control over the terms in the main body of this Warrant (this uniform part of
the Warrant being referred to as the "Standard Warrant Terms"). As to this
particular Warrant, the Sections in the Standard Warrant Terms which are
affected or modified by the Additional Warrant Terms include, but are not
necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common Stock
or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
ARTICLE II
EXERCISE AND PAYMENT
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
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2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i)The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
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2.7 Fractional Shares. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing services
for the Company if such plan is approved by the Board of Directors), (Y)
Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent to
the original issue of this Warrant (excluding sales of Common Stock pursuant
to stock option, stock purchase or other equity incentive plans for employees
or other persons performing services for the Company if such plan is approved
by the Board of Directors), (Y) the Maximum Shares Upon Exercise of Common
Stock Equivalents sold in Dilution Sales subsequent to the original issue of
this Warrant, plus (Z) the Maximum Shares Upon Exercise of Convertible
Securities which are not debt securities issued subsequent to the original
issue of this Warrant (as provided in Section 3.1.2), in all cases adjusted
for stock splits, combinations of shares and stock dividends occurring after
the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
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of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant, and
the adjustments provided in this Article III and the provisions of this
Section 3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common Stock
and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the purposes
of such adjustments: (i) the consideration received for such Dilution Sale
shall be the Minimum Consideration received in such sale; and (ii) the number
of shares issued in the present Dilution Sale shall be the Maximum Shares
Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock Equivalents
has occurred during the term hereof and a contingent event not considered in
the computation of Minimum Consideration or Maximum Shares Upon Exercise
occurs, which if considered at the time of the Dilution Sale or at the time
of another sale of Common Stock or Common Stock Equivalents would have had
the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional shares
of Common Stock or other securities as required hereunder shall be issued to
Holder, if it previously exercised all or any part of its rights hereunder,
to reflect the additional shares to which Holder would have been entitled had
the retroactively adjusted Warrant Price been in effect on the date of
exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock E
quivalent (e.g., an amendment to the Company's Articles or Certificate of
Incorporation) which has the effect of reducing the Effective Price of such
Common Stock Equivalent shall be treated for purposes of Section 3 of this
Warrant as the sale of new Common Stock Equivalents for the consideration
previously received upon sale of such Common Stock Equivalent prior to such
amendment. Such new sale shall be deemed to have occurred on the effective
date of such amendment. Concurrent with such date for purposes of Section 3
of this Warrant, the Common Stock Equivalents to be amended which are issued
and outstanding immediately prior to such amendment shall be deemed to be
terminated without exercise or conversion and the Warrant Price shall be
adjusted pursuant to Section 3.4.3. Such adjustment to the Warrant Price
pursuant to Section 3.4.3 shall be made before the adjustment to the Warrant
Price required under this Section 3.4.4.
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
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of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale, to the extent that the aggregate of all such commissions
and expenses exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the Company's
capital stock taken for the purpose of entitling shareholders to receive a
distribution or dividend payable in Common Stock or Common Stock Equivalents,
provided that such division, combination, distribution or dividend actually
occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
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and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like Certificate setting forth: (i) all such adjustments
and readjustments to date; (ii) the Warrant Price at that time in effect; and
(iii) the number of shares which at the time would be received upon exercise.
All certificates and verifications provided to Holder in accordance with this
Section shall be mailed or otherwise sent in accordance with Section 6.8 of
this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated
in Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
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4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its
pro rata equity interest in the Company. Holder's pro rata equity interest
in the Company, for purposes of this right of participation, shall be
calculated based upon the ratio the number of shares of Common Stock held by
such Holder bears to all shares of Common Stock then issued and outstanding,
in each instance calculated assuming complete exercise of all options,
warrants (including this Warrant) or other rights to purchase Common Stock
and the conversion of all securities convertible into Common Stock. Holder
shall have ten (10) days from receipt of such notice to agree to purchase all
or any part of the securities so offered by delivery of written notice
thereof to the Company stating the quantity of securities to be purchased.
Any purchase of securities by the Holder shall be made at the price and upon
the same terms as specified in the Company's notice; provided, however, that
the purchase price for any such securities purchased by Holder hereunder
shall by payable either in cash or, at Holder's option, by offsetting any
amounts due Holder in inverse order of maturity pursuant to the Note. The
Company shall have ninety (90) days after it provides written notice of a
Dilution Sale to Holder (whether or not Holder has yet provided notice of its
intent to purchase the securities so offered) to sell such securities at a
price and upon general terms no more favorable than those specified in the
Company's notice. If the Company has not sold such securities within such
ninety (90) day period, the Company shall not thereafter issue or sell any
such securities, without first offering such securities to Holder in the
manner provided above. The rights of Holder under this Section 5.2 shall not
apply to securities issued pursuant to the Company's initial offering and
sale of securities as part of a firmly underwritten public offering registered
under the 1933 Securities Act and the rights of Holder under this Section 5.2
shall terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to
Article IV above, or the assignment or transfer of securities purchased upon
exercise hereof, subject in each case to restrictions set forth in the
Registration Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant,
and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
<PAGE>
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE
IN PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE
FOREGOING JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH
SUIT IN ANY JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS
INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the addressee
thereof; but if sent by certified mail in the manner set forth above, they
shall be effective three (3) business days after being deposited in the
United States mail. Any party may change its address for such communications
by giving notice thereof to the other party in conformity with this Section.
<PAGE>
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-2)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Suite 350, Salt Lake
City, Utah 84107 ("Company").
ARTICLE I
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be One Hundred Twelve
Thousand Dollars ($112,000).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($0.50) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the cash
exercise provisions of Section 2.1 of the Warrant. Therefore, Holder makes
payment with this Notice of Exercise by way of check payable to the Company
in the amount of $ . Such check is payment in full under the
Warrant for shares of Common Stock based upon the Warrant
Price of $ per share, as currently in effect under the Warrant.
Holder requests that the certificates for the purchased shares of Common
Stock be issued in the name of and delivered to "Technology Funding Secured
Investors II, a California Limited Partnership", 2000 Alameda de las Pulgas,
San Mateo, California 94403. To the extent the foregoing exercise is for
less than the full Aggregate Price, a Replacement Warrant representing the
remainder of the Aggregate Price and otherwise of like form, tenor and effect
should be delivered to Holder along with the share certificates evidencing
the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING PRIVATE RESERVE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING PRIVATE RESERVE FUND,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED APRIL 8, 1992 AND MAY 5, 1992, BETWEEN THE COMPANY AND
THE PURCHASER, AS DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK
WARRANT HAS BEEN ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT
PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-3 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of April 8, 1992, (1) Aggregate Price:
and May 5, 1992 $372,000.00
(2) Warrant Price:
Restated as of the 30th day $0.50 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 744,000,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is
located at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"Holder"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m., San
Mateo, California, local time, on June 30, 2000, the number of shares of
fully paid and nonassessable Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation (the "Company"), that have an aggregate
purchase price equal to the Aggregate Price as definedbelow. The purchase
price of each such share shall be equal to the Warrant Price, as defined
below. This Warrant was issued to Purchaser pursuant to the Stock Purchase
Agreement (as defined below). Capitalized terms used and not otherwise
defined herein shall have the same meanings given such terms inthe Stock
Purchase Agreement.
ARTICLE I
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set
forth on Exhibit "A". Any reference to a Section or Article of this Warrant
shall be deemed for all purposes hereof to additionally refer to the
<PAGE>
corresponding Section or Article of the Additional Warrant Terms set forth on
Exhibit "A". In the case of any inconsistency, the terms set forth on
Exhibit "A" shall control over the terms in the main body of this Warrant
(this uniform part of the Warrant being referred to as the "Standard Warrant
Terms"). As to this particular Warrant, the Sections in the Standard Warrant
Terms which are affected or modified by the Additional Warrant Terms include,
but are not necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common Stock
or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
ARTICLE II
EXERCISE AND PAYMENT
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
<PAGE>
Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section
2.1, Holder may elect to receive shares equal to the value of this Warrant
determined in the manner described below (or of any portion thereof remaining
unexercised) by surrender of this Warrant at the principal office of the
Company together with the form of Notice of Cashless Exercise attached hereto
as Exhibit "B-2", in which event the Company shall issue to Holder a number
of shares of the Company's Common Stock computed using the following formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
<PAGE>
2.7 Fractional Shares. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this W
arrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing
services for the Company if such plan is approved by the Board of Directors),
(Y) Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent to
the original issue of this Warrant (excluding sales of Common Stock pursuant
to stock option, stock purchase or other equity incentive plans for employees
or other persons performing services for the Company if such plan is approved
by the Board of Directors), (Y) the Maximum Shares Upon Exercise of Common
Stock Equivalents sold in Dilution Sales subsequent to the original issue of
this Warrant, plus (Z) the Maximum Shares Upon Exercise of Convertible
Securities which are not debt securities issued subsequent to the original
issue of this Warrant (as provided in Section 3.1.2), in all cases adjusted
for stock splits, combinations of shares and stock dividends occurring after
the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
<PAGE>
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant, and
the adjustments provided in this Article III and the provisions of this
Section 3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common
Stock and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the
purposes of such adjustments: (i) the consideration received for such
Dilution Sale shall be the Minimum Consideration received in such sale; and
(ii) the number of shares issued in the present Dilution Sale shall be the
Maximum Shares Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock Equivalents
has occurred during the term hereof and a contingent event not considered in
the computation of Minimum Consideration or Maximum Shares Upon Exercise
occurs, which if considered at the time of the Dilution Sale or at the time
of another sale of Common Stock or Common Stock Equivalents would have had
the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional
shares of Common Stock or other securities as required hereunder shall be
issued to Holder, if it previously exercised all or any part of its rights
hereunder, to reflect the additional shares to which Holder would have been
entitled had the retroactively adjusted Warrant Price been in effect on the
date of exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock Equivalent
(e.g., an amendment to the Company's Articles or Certificate of Incorporation)
which has the effect of reducing the Effective Price of such Common Stock
Equivalent shall be treated for purposes of Section 3 of this Warrant as the
sale of new Common Stock Equivalents for the consideration previously
received upon sale of such Common Stock Equivalent prior to such amendment.
Such new sale shall be deemed to have occurred on the effective date of such
amendment. Concurrent with such date for purposes of Section 3 of this
Warrant, the Common Stock Equivalents to be amended which are issued and
outstanding immediately prior to such amendment shall be deemed to be
terminated without exercise or conversion and the Warrant Price shall be
adjusted pursuant to Section 3.4.3. Such adjustment to the Warrant Price
pursuant to Section 3.4.3 shall be made before the adjustment to the Warrant
Price required under this Section 3.4.4.
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
<PAGE>
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions, compensation
or concessions paid or allowed by the Company in connection with such issue
or sale, to the extent that the aggregate of all such commissions and expenses
exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the Company's
capital stock taken for the purpose of entitling shareholders to receive a
distribution or dividend payable in Common Stock or Common Stock Equivalents,
provided that such division, combination, distribution or dividend actually
occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
<PAGE>
and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like Certificate setting forth: (i) all such adjustments
and readjustments to date; (ii) the Warrant Price at that time in effect; and
(iii) the number of shares which at the time would be received upon exercise.
All certificates and verifications provided to Holder in accordance with
this Section shall be mailed or otherwise sent in accordance with Section 6.8
of this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated
in Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
<PAGE>
4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its
pro rata equity interest in the Company. Holder's pro rata equity interest
in the Company, for purposes of this right of participation, shall be
calculated based upon the ratio the number of shares of Common Stock held by
such Holder bears to all shares of Common Stock then issued and outstanding,
in each instance calculated assuming complete exercise of all options,
warrants (including this Warrant) or other rights to purchase Common Stock
and the conversion of all securities convertible into Common Stock. Holder
shall have ten (10) days from receipt of such notice to agree to purchase
all or any part of the securities so offered by delivery of written notice
thereof to the Company stating the quantity of securities to be purchased.
Any purchase of securities by the Holder shall be made at the price and upon
the same terms as specified in the Company's notice; provided, however, that
the purchase price for any such securities purchased by Holder hereunder
shall by payable either in cash or, at Holder's option, by offsetting any
amounts due Holder in inverse order of maturity pursuant to the Note. The
Company shall have ninety (90) days after it provides written notice of a
Dilution Sale to Holder (whether or not Holder has yet provided notice of its
intent to purchase the securities so offered) to sell such securities at a
price and upon general terms no more favorable than those specified in the
Company's notice. If the Company has not sold such securities within such
ninety (90) day period, the Company shall not thereafter issue or sell any
such securities, without first offering such securities to Holder in the
manner provided above. The rights of Holder under this Section 5.2 shall not
apply to securities issued pursuant to the Company's initial offering and
sale of securities as part of a firmly underwritten public offering
registered under the 1933 Securities Act and the rights of Holder under this
Section 5.2 shall terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant,
and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
<PAGE>
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn : Contracts Administration
Such communications shall be effective when they are received by the addressee
thereof; but if sent by certified mail in the manner set forth above, they
shall be effective three (3) business days after being deposited in the
United States mail. Any party may change its address for such communications
by giving notice thereof to the other party in conformity with this Section.
<PAGE>
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-3)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its principal
place of business at 5250 South 300 West, Suite 350, Salt Lake City, Utah
84107 ("Company").
ARTICLE I
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be Three Hundred Seventy-
Two Thousand Dollars ($372,000).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($0.50) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the cash
exercise provisions of Section 2.1 of the Warrant. Therefore, Holder makes
payment with this Notice of Exercise by way of check payable to the Company
in the amount of $ . Such check is payment in full under
the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "Technology Funding
Secured Investors II, a California Limited Partnership", 2000 Alameda de las
Pulgas, San Mateo, California 94403. To the extent the foregoing exercise
is for less than the full Aggregate Price, a Replacement Warrant representing
the remainder of the Aggregate Price and otherwise of like form, tenor and
effect should be delivered to Holder along with the share certificates
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING FUNDING PARTNERS I, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING FUNDING PARTNERS I, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED MAY 5, 1992, BETWEEN THE COMPANY AND THE PURCHASER, AS
DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK WARRANT HAS BEEN
ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT PURSUANT TO THAT
CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-4 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of May 5, 1992, (1) Aggregate Price:
$325,000.52
(2) Warrant Price:
Restated as of the 30th day $1.31 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 248,092,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is
located at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"Holder"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m., San
Mateo, California, local time, on June 30, 2000, the number of shares of
fully paid and nonassessable Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation (the "Company"), that have an aggregate
purchase price equal to the Aggregate Price as defined below. The purchase
price of each such share shall be equal to the Warrant Price, as defined
below. This Warrant was issued to Purchaser pursuant to the Stock Purchase
Agreement (as defined below). Capitalized terms used and not otherwise
defined herein shall have the same meanings given such terms in the Stock
Purchase Agreement.
ARTICLE I
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set
forth on Exhibit "A". Any reference to a Section or Article of this Warrant
shall be deemed for all purposes hereof to additionally refer to the
<PAGE>
corresponding Section or Article of the Additional Warrant Terms set forth on
Exhibit "A". In the case of any inconsistency, the terms set forth on
Exhibit "A" shall control over the terms in the main body of this Warrant
(this uniform part of the Warrant being referred to as the "Standard Warrant
Terms"). As to this particular Warrant, the Sections in the Standard Warrant
Terms which are affected or modified by the Additional Warrant Terms include,
but are not necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common
Stock or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
ARTICLE II
EXERCISE AND PAYMENT
Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
<PAGE>
2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
<PAGE>
2.7 Fractional Shares. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing
services for the Company if such plan is approved by the Board of Directors),
(Y) Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent
to the original issue of this Warrant (excluding sales of Common Stock
pursuant to stock option, stock purchase or other equity incentive plans for
employees or other persons performing services for the Company if such plan
is approved by the Board of Directors), (Y) the Maximum Shares Upon Exercise
of Common Stock Equivalents sold in Dilution Sales subsequent to the original
issue of this Warrant, plus (Z) the Maximum Shares Upon Exercise of
Convertible Securities which are not debt securities issued subsequent to
the original issue of this Warrant (as provided in Section 3.1.2), in all
cases adjusted for stock splits, combinations of shares and stock dividends
occurring after the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart
from that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant,
the kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
<PAGE>
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant, and
the adjustments provided in this Article III and the provisions of this
Section 3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common
Stock and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the
purposes of such adjustments: (i) the consideration received for such
Dilution Sale shall be the Minimum Consideration received in such sale; and
(ii) the number of shares issued in the present Dilution Sale shall be the
Maximum Shares Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock
Equivalents has occurred during the term hereof and a contingent event not
considered in the computation of Minimum Consideration or Maximum Shares Upon
Exercise occurs, which if considered at the time of the Dilution Sale or at
the time of another sale of Common Stock or Common Stock Equivalents would
have had the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional shares
of Common Stock or other securities as required hereunder shall be issued to
Holder, if it previously exercised all or any part of its rights hereunder,
to reflect the additional shares to which Holder would have been entitled had
the retroactively adjusted Warrant Price been in effect on the date of
exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock
Equivalent (e.g., an amendment to the Company's Articles or Certificate of
Incorporation) which has the effect of reducing the Effective Price of such
Common Stock Equivalent shall be treated for purposes of Section 3 of this
Warrant as the sale of new Common Stock Equivalents for the consideration
previously received upon sale of such Common Stock Equivalent prior to such
amendment. Such new sale shall be deemed to have occurred on the effective
date of such amendment. Concurrent with such date for purposes of Section 3
of this Warrant, the Common Stock Equivalents to be amended which are issued
and outstanding immediately prior to such amendment shall be deemed to be
terminated without exercise or conversion and the Warrant Price shall be
adjusted pursuant to Section 3.4.3. Such adjustment to the Warrant Price
pursuant to Section 3.4.3 shall be made before the adjustment to the Warrant
Price required under this Section 3.4.4.
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
<PAGE>
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale, to the extent that the aggregate of all such commissions
and expenses exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in Common Stock or Common Stock
Equivalents, provided that such division, combination, distribution or
dividend actually occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
<PAGE>
and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like Certificate setting forth: (i) all such adjustments
and readjustments to date; (ii) the Warrant Price at that time in effect; and
(iii) the number of shares which at the time would be received upon exercise.
All certificates and verifications provided to Holder in accordance with
this Section shall be mailed or otherwise sent in accordance with Section 6.8
of this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.1 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall
be the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated in
Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
<PAGE>
4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.1 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its pro
rata equity interest in the Company. Holder's pro rata equity interest in
the Company, for purposes of this right of participation, shall be calculated
based upon the ratio the number of shares of Common Stock held by such Holder
bears to all shares of Common Stock then issued and outstanding, in each
instance calculated assuming complete exercise of all options, warrants
(including this Warrant) or other rights to purchase Common Stock and the
conversion of all securities convertible into Common Stock. Holder shall
have ten (10) days from receipt of such notice to agree to purchase all or
any part of the securities so offered by delivery of written notice thereof
to the Company stating the quantity of securities to be purchased. Any
purchase of securities by the Holder shall be made at the price and upon the
same terms as specified in the Company's notice; provided, however, that the
purchase price for any such securities purchased by Holder hereunder shall
by payable either in cash or, at Holder's option, by offsetting any amounts
due Holder in inverse order of maturity pursuant to the Note. The Company
shall have ninety (90) days after it provides written notice of a Dilution
Sale to Holder (whether or not Holder has yet provided notice of its intent
to purchase the securities so offered) to sell such securities at a price and
upon general terms no more favorable than those specified in the Company's
notice. If the Company has not sold such securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any such securities
, without first offering such securities to Holder in the manner provided
above. The rights of Holder under this Section 5.2 shall not apply to
securities issued pursuant to the Company's initial offering and sale of
securities as part of a firmly underwritten public offering registered under
the 1933 Securities Act and the rights of Holder under this Section 5.2
shall terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant
, and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
<PAGE>
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth
above, they shall be effective three (3) business days after being deposited
in the United States mail. Any party may change its address for such
communications by giving notice thereof to the other party in conformity with
this Section.
<PAGE>
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-4)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Suite 350, Salt Lake City
, Utah 84107 ("Company").
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be Three Hundred Twenty-
Five Thousand Dollars and Fifty-Two Cents ($325,000.52).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($1.31) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the cash
exercise provisions of Section 2.1 of the Warrant. Therefore, Holder makes
payment with this Notice of Exercise by way of check payable to the Company
in the amount of $ . Such check is payment in full under the
Warrant for shares of Common Stock based upon the Warrant
Price of $ per share, as currently in effect under the Warrant.
Holder requests that the certificates for the purchased shares of Common
Stock be issued in the name of and delivered to "Technology Funding Secured
Investors II, a California Limited Partnership", 2000 Alameda de las Pulgas,
San Mateo, California 94403. To the extent the foregoing exercise is for
less than the full Aggregate Price, a Replacement Warrant representing the
remainder of the Aggregate Price and otherwise of like form, tenor and effect
should be delivered to Holder along with the share certificates evidencing
the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING FUNDING PARTNERS I, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING FUNDING PARTNERS I, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED APRIL 8, 1992 AND JUNE 25, 1993, BETWEEN THE COMPANY
AND THE PURCHASER, AS DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK
WARRANT HAS BEEN ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT
PURSUANT TO THAT CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-5 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of April 8, 1992, (1) Aggregate Price:
and June 25, 1993 $231,000.00
(2) Warrant Price:
Restated as of the 30th day $0.50 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 462,000,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is
located at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"Holder"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m., San
Mateo, California, local time, on June 30, 2000, the number of shares of
fully paid and nonassessable Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation (the "Company"), that have an aggregate
purchase price equal to the Aggregate Price as defined below. The purchase
price of each such share shall be equal to the Warrant Price, as defined
below. This Warrant was issued to Purchaser pursuant to the Stock Purchase
Agreement (as defined below). Capitalized terms used and not otherwise
defined herein shall have the same meanings given such terms in the Stock
Purchase Agreement.
ARTICLE I
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set
forth on Exhibit "A". Any reference to a Section or Article of this Warrant
shall be deemed for all purposes hereof to additionally refer to the
<PAGE>
corresponding Section or Article of the Additional Warrant Terms set forth on
Exhibit "A". In the case of any inconsistency, the terms set forth on Exhibit
"A" shall control over the terms in the main body of this Warrant (this
uniform part of the Warrant being referred to as the "Standard Warrant Terms").
As to this particular Warrant, the Sections in the Standard Warrant Terms
which are affected or modified by the Additional Warrant Terms include, but
are not necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common
Stock or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
ARTICLE II
EXERCISE AND PAYMENT
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
<PAGE>
2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
<PAGE>
2.7 Fractional Shares. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing
services for the Company if such plan is approved by the Board of Directors),
(Y) Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent to
the original issue of this Warrant (excluding sales of Common Stock pursuant
to stock option, stock purchase or other equity incentive plans for employees
or other persons performing services for the Company if such plan is approved
by the Board of Directors), (Y) the Maximum Shares Upon Exercise of Common
Stock Equivalents sold in Dilution Sales subsequent to the original issue of
this Warrant, plus (Z) the Maximum Shares Upon Exercise of Convertible
Securities which are not debt securities issued subsequent to the original
issue of this Warrant (as provided in Section 3.1.2), in all cases adjusted
for stock splits, combinations of shares and stock dividends occurring after
the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the
right to exercise such new Warrant and purchase upon such exercise, in lieu
of each share of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of securities, money and property receivable
upon such reclassification, change, consolidation, merger, sale or transfer
by a holder of one share of Common Stock issuable upon exercise of this
Warrant had this Warrant been exercised immediately prior to such
<PAGE>
reclassification, change, consolidation, merger, sale or transfer. Such new
Warrant shall be as nearly equivalent in all substantive respects as
practicable to this Warrant, and the adjustments provided in this Article III
and the provisions of this Section 3.2 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common
Stock and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the purposes
of such adjustments: (i) the consideration received for such Dilution Sale
shall be the Minimum Consideration received in such sale; and (ii) the number
of shares issued in the present Dilution Sale shall be the Maximum Shares
Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock Equivalents
has occurred during the term hereof and a contingent event not considered in
the computation of Minimum Consideration or Maximum Shares Upon Exercise
occurs, which if considered at the time of the Dilution Sale or at the time
of another sale of Common Stock or Common Stock Equivalents would have had
the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional shares
of Common Stock or other securities as required hereunder shall be issued to
Holder, if it previously exercised all or any part of its rights hereunder,
to reflect the additional shares to which Holder would have been entitled had
the retroactively adjusted Warrant Price been in effect on the date of
exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock Equivalent
(e.g., an amendment to the Company's Articles or Certificate of Incorporation)
which has the effect of reducing the Effective Price of such Common Stock
Equivalent shall be treated for purposes of Section 3 of this Warrant as the
sale of new Common Stock Equivalents for the consideration previously received
upon sale of such Common Stock Equivalent prior to such amendment. Such new
sale shall be deemed to have occurred on the effective date of such amendment.
Concurrent with such date for purposes of Section 3 of this Warrant, the
Common Stock Equivalents to be amended which are issued and outstanding
immediately prior to such amendment shall be deemed to be terminated without
exercise or conversion and the Warrant Price shall be adjusted pursuant to
Section 3.4.3. Such adjustment to the Warrant Price pursuant to Section 3.4.3
shall be made before the adjustment to the Warrant Price required under this
Section 3.4.4.
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
<PAGE>
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale, to the extent that the aggregate of all such commissions
and expenses exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in Common Stock or Common Stock
Equivalents, provided that such division, combination, distribution or
dividend actually occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
<PAGE>
and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like Certificate setting forth: (i) all such adjustments
and readjustments to date; (ii) the Warrant Price at that time in effect; and
(iii) the number of shares which at the time would be received upon exercise.
All certificates and verifications provided to Holder in accordance with this
Section shall be mailed or otherwise sent in accordance with Section 6.8 of
this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.12 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated in
Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
<PAGE>
4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its pro
rata equity interest in the Company. Holder's pro rata equity interest in
the Company, for purposes of this right of participation, shall be calculated
based upon the ratio the number of shares of Common Stock held by such Holder
bears to all shares of Common Stock then issued and outstanding, in each
instance calculated assuming complete exercise of all options, warrants
(including this Warrant) or other rights to purchase Common Stock and the
conversion of all securities convertible into Common Stock. Holder shall
have ten (10) days from receipt of such notice to agree to purchase all or
any part of the securities so offered by delivery of written notice thereof
to the Company stating the quantity of securities to be purchased. Any
purchase of securities by the Holder shall be made at the price and upon the
same terms as specified in the Company's notice; provided, however, that the
purchase price for any such securities purchased by Holder hereunder shall
by payable either in cash or, at Holder's option, by offsetting any amounts
due Holder in inverse order of maturity pursuant to the Note. The Company
shall have ninety (90) days after it provides written notice of a Dilution
Sale to Holder (whether or not Holder has yet provided notice of its intent
to purchase the securities so offered) to sell such securities at a price and
upon general terms no more favorable than those specified in the Company's
notice. If the Company has not sold such securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any such securities
, without first offering such securities to Holder in the manner provided
above. The rights of Holder under this Section 5.2 shall not apply to
securities issued pursuant to the Company's initial offering and sale of
securities as part of a firmly underwritten public offering registered under
the 1933 Securities Act and the rights of Holder under this Section 5.2 shall
terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant
, and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
<PAGE>
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth
above, they shall be effective three (3) business days after being deposited
in the United States mail. Any party may change its address for such
communications by giving notice thereof to the other party in conformity with
this Section.
<PAGE>
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-5)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Suite 350, Salt Lake City
, Utah 84107 ("Company").
ARTICLE I
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be Two Hundred Thirty-One
Thousand Dollars ($231,000.00).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($0.50) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the cash
exercise provisions of Section 2.1 of the Warrant. Therefore, Holder makes
payment with this Notice of Exercise by way of check payable to the Company
in the amount of $ . Such check is payment in full under the
Warrant for shares of Common Stock based upon the Warrant
Price of $ per share, as currently in effect under the Warrant.
Holder requests that the certificates for the purchased shares of Common
Stock be issued in the name of and delivered to "Technology Funding Secured
Investors II, a California Limited Partnership", 2000 Alameda de las Pulgas,
San Mateo, California 94403. To the extent the foregoing exercise is for
less than the full Aggregate Price, a Replacement Warrant representing the
remainder of the Aggregate Price and otherwise of like form, tenor and effect
should be delivered to Holder along with the share certificates evidencing
the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING PARTNERS II,L.P.
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING PARTNERS II,L.P.
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED MAY 5, 1992, BETWEEN THE COMPANY AND THE PURCHASER, AS
DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK WARRANT HAS BEEN
ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT PURSUANT TO THAT
CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-6 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of May 5, 1992, (1) Aggregate Price:
$175,000.28
(2) Warrant Price:
Restated as of the 30th day $1.31 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 133,588,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is
located at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"Holder"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m., San
Mateo, California, local time, on June 30, 2000, the number of shares of
fully paid and nonassessable Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation (the "Company"), that have an aggregate
purchase price equal to the Aggregate Price as definedbelow. The purchase
price of each such share shall be equal to the Warrant Price, as defined
below. This Warrant was issued to Purchaser pursuant to the Stock Purchase
Agreement (as defined below). Capitalized terms used and not otherwise
defined herein shall have the same meanings given such terms inthe Stock
Purchase Agreement.
ARTICLE I
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set
forth on Exhibit "A". Any reference to a Section or Article of this Warrant
shall be deemed for all purposes hereof to additionally refer to the
<PAGE>
corresponding Section or Article of the Additional Warrant Terms set forth on
Exhibit "A". In the case of any inconsistency, the terms set forth on
Exhibit "A" shall control over the terms in the main body of this Warrant
(this uniform part of the Warrant being referred to as the "Standard Warrant
Terms"). As to this particular Warrant, the Sections in the Standard Warrant
Terms which are affected or modified by the Additional Warrant Terms include,
but are not necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common
Stock or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
ARTICLE II
EXERCISE AND PAYMENT
Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
<PAGE>
2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
<PAGE>
2.7 Fractional Shares. No fractional share of Common Stock will be issued in
connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing
services for the Company if such plan is approved by the Board of Directors),
(Y) Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent to
the original issue of this Warrant (excluding sales of Common Stock pursuant
to stock option, stock purchase or other equity incentive plans for employees
or other persons performing services for the Company if such plan is approved
by the Board of Directors), (Y) the Maximum Shares Upon Exercise of Common
Stock Equivalents sold in Dilution Sales subsequent to the original issue of
this Warrant, plus (Z) the Maximum Shares Upon Exercise of Convertible
Securities which are not debt securities issued subsequent to the original
issue of this Warrant (as provided in Section 3.1.2), in all cases adjusted
for stock splits, combinations of shares and stock dividends occurring after
the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
<PAGE>
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant, and
the adjustments provided in this Article III and the provisions of this
Section 3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common
Stock and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the
purposes of such adjustments: (i) the consideration received for such
Dilution Sale shall be the Minimum Consideration received in such sale; and
(ii) the number of shares issued in the present Dilution Sale shall be the
Maximum Shares Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock
Equivalents has occurred during the term hereof and a contingent event not
considered in the computation of Minimum Consideration or Maximum Shares Upon
Exercise occurs, which if considered at the time of the Dilution Sale or at
the time of another sale of Common Stock or Common Stock Equivalents would
have had the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional shares
of Common Stock or other securities as required hereunder shall be issued to
Holder, if it previously exercised all or any part of its rights hereunder,
to reflect the additional shares to which Holder would have been entitled had
the retroactively adjusted Warrant Price been in effect on the date of
exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock
Equivalent (e.g., an amendment to the Company's Articles or Certificate of
Incorporation) which has the effect of reducing the Effective Price of such
Common Stock Equivalent shall be treated for purposes of Section 3 of this
Warrant as the sale of new Common Stock Equivalents for the consideration
previously received upon sale of such Common Stock Equivalent prior to such
amendment. Such new sale shall be deemed to have occurred on the effective
date of such amendment. Concurrent with such date for purposes of Section 3
of this Warrant, the Common Stock Equivalents to be amended which are issued
and outstanding immediately prior to such amendment shall be deemed to be
terminated without exercise or conversion and the Warrant Price shall be
adjusted pursuant to Section 3.4.3. Such adjustment to the Warrant Price
pursuant to Section 3.4.3 shall be made before the adjustment to the Warrant
Price required under this Section 3.4.4.
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
<PAGE>
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale, to the extent that the aggregate of all such commissions
and expenses exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless otherwise
specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in Common Stock or Common Stock
Equivalents, provided that such division, combination, distribution or
dividend actually occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
<PAGE>
and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like Certificate setting forth: (i) all such adjustments
and readjustments to date; (ii) the Warrant Price at that time in effect; and
(iii) the number of shares which at the time would be received upon exercise.
All certificates and verifications provided to Holder in accordance with this
Section shall be mailed or otherwise sent in accordance with Section 6.8 of
this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated in
Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
<PAGE>
4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its pro
rata equity interest in the Company. Holder's pro rata equity interest in
the Company, for purposes of this right of participation, shall be calculated
based upon the ratio the number of shares of Common Stock held by such Holder
bears to all shares of Common Stock then issued and outstanding, in each
instance calculated assuming complete exercise of all options, warrants
(including this Warrant) or other rights to purchase Common Stock and the
conversion of all securities convertible into Common Stock. Holder shall
have ten (10) days from receipt of such notice to agree to purchase all or
any part of the securities so offered by delivery of written notice thereof
to the Company stating the quantity of securities to be purchased. Any
purchase of securities by the Holder shall be made at the price and upon the
same terms as specified in the Company's notice; provided, however, that the
purchase price for any such securities purchased by Holder hereunder shall by
payable either in cash or, at Holder's option, by offsetting any amounts due
Holder in inverse order of maturity pursuant to the Note. The Company shall
have ninety (90) days after it provides written notice of a Dilution Sale to
Holder (whether or not Holder has yet provided notice of its intent to
purchase the securities so offered) to sell such securities at a price and
upon general terms no more favorable than those specified in the Company's
notice. If the Company has not sold such securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any such
securities, without first offering such securities to Holder in the manner
provided above. The rights of Holder under this Section 5.2 shall not apply
to securities issued pursuant to the Company's initial offering and sale of
securities as part of a firmly underwritten public offering registered under
the 1933 Securities Act and the rights of Holder under this Section 5.2 shall
terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant
, and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
<PAGE>
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth
above, they shall be effective three (3) business days after being deposited
in the United States mail. Any party may change its address for such
communications by giving notice thereof to the other party in conformity with
this Section.
<PAGE>
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-6)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Suite 350, Salt Lake City
, Utah 84107 ("Company").
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be One Hundred Seventy-Five
Thousand Dollars and Twenty Eight Cents ($175,000.28).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($1.31) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the cash
exercise provisions of Section 2.1 of the Warrant. Therefore, Holder makes
payment with this Notice of Exercise by way of check payable to the Company
in the amount of $ . Such check is payment in full under the
Warrant for shares of Common Stock based upon the Warrant
Price of $ per share, as currently in effect under the Warrant.
Holder requests that the certificates for the purchased shares of Common
Stock be issued in the name of and delivered to "Technology Funding Secured
Investors II, a California Limited Partnership", 2000 Alameda de las Pulgas,
San Mateo, California 94403. To the extent the foregoing exercise is for
less than the full Aggregate Price, a Replacement Warrant representing the
remainder of the Aggregate Price and otherwise of like form, tenor and effect
should be delivered to Holder along with the share certificates evidencing
the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING PARTNERS II,L.P.
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING PARTNERS II,L.P.
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED DECEMBER 31, 1991, APRIL 16, 1993, APRIL 25, 1993, JULY
14, 1993 AND FEBRUARY 1, 1994, BETWEEN THE COMPANY AND THE PURCHASER, AS
DEFINED BELOW. THIS AMENDED AND RESTATED COMMON STOCK WARRANT HAS BEEN
ISSUED UPON SURRENDER OF THE EXISTING COMMON STOCK WARRANT PURSUANT TO THAT
CERTAIN STOCK PURCHASE AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-7 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of December 31, 1991, (1) Aggregate Price:
April 16, 1993, April 25, 1993, July 14, 1993 $479,773.00
and February 1, 1994
(2) Warrant Price:
Restated as of the 30th day $0.50 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 959,546,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is
located at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"Holder"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m., San
Mateo, California, local time, on June 30, 2000, the number of shares of
fully paid and nonassessable Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation (the "Company"), that have an aggregate
purchase price equal to the Aggregate Price as definedbelow. The purchase
price of each such share shall be equal to the Warrant Price, as defined
below. This Warrant was issued to Purchaser pursuant to the Stock Purchase
Agreement (as defined below). Capitalized terms used and not otherwise
defined herein shall have the same meanings given such terms inthe Stock
Purchase Agreement.
<PAGE>
ARTICLE I
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set
forth on Exhibit "A". Any reference to a Section or Article of this Warrant
shall be deemed for all purposes hereof to additionally refer to the
corresponding Section or Article of the Additional Warrant Terms set forth on
Exhibit "A". In the case of any inconsistency, the terms set forth on
Exhibit "A" shall control over the terms in the main body of this Warrant
(this uniform part of the Warrant being referred to as the "Standard Warrant
Terms"). As to this particular Warrant, the Sections in the Standard Warrant
Terms which are affected or modified by the Additional Warrant Terms include,
but are not necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common
Stock or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto,
as such amount may be adjusted from time to time pursuant to the terms hereof.
<PAGE>
ARTICLE II
EXERCISE AND PAYMENT
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed
in good faith by the Company's Board of Directors. The cost of such
appraisal shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
<PAGE>
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
2.7 Fractional Shares. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing
services for the Company if such plan is approved by the Board of Directors),
(Y) Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent to
the original issue of this Warrant (excluding sales of Common Stock pursuant
to stock option, stock purchase or other equity incentive plans for employees
or other persons performing services for the Company if such plan is approved
by the Board of Directors), (Y) the Maximum Shares Upon Exercise of Common
Stock Equivalents sold in Dilution Sales subsequent to the original issue of
this Warrant, plus (Z) the Maximum Shares Upon Exercise of Convertible
Securities which are not debt securities issued subsequent to the original
issue of this Warrant (as provided in Section 3.1.2), in all cases adjusted
for stock splits, combinations of shares and stock dividends occurring after
the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
<PAGE>
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant, and
the adjustments provided in this Article III and the provisions of this
Section 3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common
Stock and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the
purposes of such adjustments: (i) the consideration received for such
Dilution Sale shall be the Minimum Consideration received in such sale; and
(ii) the number of shares issued in the present Dilution Sale shall be the
Maximum Shares Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock
Equivalents has occurred during the term hereof and a contingent event not
considered in the computation of Minimum Consideration or Maximum Shares Upon
Exercise occurs, which if considered at the time of the Dilution Sale or at
the time of another sale of Common Stock or Common Stock Equivalents would
have had the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional shares
of Common Stock or other securities as required hereunder shall be issued to
Holder, if it previously exercised all or any part of its rights hereunder,
to reflect the additional shares to which Holder would have been entitled had
the retroactively adjusted Warrant Price been in effect on the date of
exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock
Equivalent (e.g., an amendment to the Company's Articles or Certificate of
Incorporation) which has the effect of reducing the Effective Price of such
Common Stock Equivalent shall be treated for purposes of Section 3 of this
Warrant as the sale of new Common Stock Equivalents for the consideration
previously received upon sale of such Common Stock Equivalent prior to such
amendment. Such new sale shall be deemed to have occurred on the effective
date of such amendment. Concurrent with such date for purposes of Section 3
of this Warrant, the Common Stock Equivalents to be amended which are issued
and outstanding immediately prior to such amendment shall be deemed to be
terminated without exercise or conversion and the Warrant Price shall be
adjusted pursuant to Section 3.4.3. Such adjustment to the Warrant Price
pursuant to Section 3.4.3 shall be made before the adjustment to the Warrant
Price required under this Section 3.4.4.
<PAGE>
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale, to the extent that the aggregate of all such commissions
and expenses exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received by
the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in Common Stock or Common Stock
Equivalents, provided that such division, combination, distribution or
dividend actually occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
<PAGE>
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to be
furnished to Holder a like Certificate setting forth: (i) all such
adjustments and readjustments to date; (ii) the Warrant Price at that time in
effect; and (iii) the number of shares which at the time would be received
upon exercise. All certificates and verifications provided to Holder in
accordance with this Section shall be mailed or otherwise sent in accordance
with Section 6.8 of this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
<PAGE>
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated in
Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
4.4 Loss or Mutilation. Upon receipt by the Company of evidence
satisfactory to it of the ownership of, and the loss, theft, destruction or
mutilation of, this Warrant and (in the case of loss, theft, or destruction)
of indemnity satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation hereof, the Company will execute and deliver in
lieu hereof a new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its
pro rata equity interest in the Company. Holder's pro rata equity interest
in the Company, for purposes of this right of participation, shall be
calculated based upon the ratio the number of shares of Common Stock held by
such Holder bears to all shares of Common Stock then issued and outstanding,
in each instance calculated assuming complete exercise of all options,
warrants (including this Warrant) or other rights to purchase Common Stock
and the conversion of all securities convertible into Common Stock. Holder
shall have ten (10) days from receipt of such notice to agree to purchase all
or any part of the securities so offered by delivery of written notice
thereof to the Company stating the quantity of securities to be purchased.
Any purchase of securities by the Holder shall be made at the price and upon
the same terms as specified in the Company's notice; provided, however, that
the purchase price for any such securities purchased by Holder hereunder
shall by payable either in cash or, at Holder's option, by offsetting any
amounts due Holder in inverse order of maturity pursuant to the Note. The
Company shall have ninety (90) days after it provides written notice of a
Dilution Sale to Holder (whether or not Holder has yet provided notice of its
intent to purchase the securities so offered) to sell such securities at a
price and upon general terms no more favorable than those specified in the
Company's notice. If the Company has not sold such securities within such
ninety (90) day period, the Company shall not thereafter issue or sell any
such securities, without first offering such securities to Holder in the
manner provided above. The rights of Holder under this Section 5.2 shall not
apply to securities issued pursuant to the Company's initial offering and
sale of securities as part of a firmly underwritten public offering
registered under the 1933 Securities Act and the rights of Holder under this
Section 5.2 shall terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant
, and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
<PAGE>
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
<PAGE>
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth
above, they shall be effective three (3) business days after being deposited
in the United States mail. Any party may change its address for such
communications by giving notice thereof to the other party in conformity with
this Section.
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-7)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Suite 350, Salt Lake City
, Utah 84107 ("Company").
ARTICLE I
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be Four Hundred Seventy-
Nine Thousand Seven Hundred Seventy-Three Dollars ($479,773).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($0.50) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price
(if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full
under the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "Technology Funding
Secured Investors II, a California Limited Partnership", 2000 Alameda de las
Pulgas, San Mateo, California 94403. To the extent the foregoing exercise
is for less than the full Aggregate Price, a Replacement Warrant representing
the remainder of the Aggregate Price and otherwise of like form, tenor and
effect should be delivered to Holder along with the share certificates
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING SECURED INVESTORS II,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price (if
any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING SECURED INVESTORS II,
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
EXHIBIT 10.57
THE ORIGINAL COMMON STOCK WARRANT WAS ISSUED BY THE COMPANY PURSUANT TO THE
LOAN AGREEMENT, DATED DECEMBER 31, 1991, APRIL 16, 1993, JULY 14, 1993 AND
FEBRUARY 1, 1994, BETWEEN THE COMPANY AND THE PURCHASER, AS DEFINED BELOW.
THIS AMENDED AND RESTATED COMMON STOCK WARRANT HAS BEEN ISSUED UPON SURRENDER
OF THE EXISTING COMMON STOCK WARRANT PURSUANT TO THAT CERTAIN STOCK PURCHASE
AGREEMENT DATED AS OF JUNE 30, 1995.
Debtor Name: Wasatch Education Systems Corporation
Exhibit B-8 to Stock Purchase Agreement
Document defined as "Restated Warrant"
Originally Issued as of December 31, 1991, (1) Aggregate Price:
April 16, 1993, April 25, 1993, July 14, 1993, $579,773.00
and February 1, 1994
(2) Warrant Price:
Restated as of the 30th day $0.50 ,
of June , 1995 subject to adjustment as
provided herein
(3) Number of Shares Currently
Subject to Warrant: 1,159,546,
NEITHER THIS WARRANT, NOR THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF,
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933
SECURITIES ACT"), OR QUALIFIED OR REGISTERED UNDER CALIFORNIA OR OTHER
APPLICABLE SECURITIES LAWS ("STATE SECURITIES LAWS"), AND THIS WARRANT HAS
BEEN, AND THE COMMON STOCK TO BE ISSUED UPON EXERCISE HEREOF WILL BE,
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION
WITH, ANY DISTRIBUTION THEREOF. NO SUCH SALE OR OTHER DISPOSITION MAY BE
MADE WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 SECURITIES
ACT AND COMPLIANCE WITH THE APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER AND ITS COUNSEL, THAT SAID
REGISTRATION IS NOT REQUIRED UNDER THE 1933 SECURITIES ACT AND THAT
APPLICABLE STATE SECURITIES LAWS HAVE BEEN COMPLIED WITH.
RESTATED COMMON STOCK WARRANT
This certifies that TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA
LIMITED PARTNERSHIP ("Purchaser"), whose principal executive office is
located at 2000 Alameda de las Pulgas, San Mateo, California 94403, or any
party to whom this Warrant is assigned in compliance with the terms hereof
(Purchaser and any such assignee being hereinafter sometimes referenced as
"Holder"), is entitled to subscribe for and purchase, during the period
commencing at the issue date set forth above and ending at 5:00 p.m., San
Mateo, California, local time, on June 30, 2000, the number of shares of
fully paid and nonassessable Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation (the "Company"), that have an aggregate
purchase price equal to the Aggregate Price as definedbelow. The purchase
price of each such share shall be equal to the Warrant Price, as defined
below. This Warrant was issued to Purchaser pursuant to the Stock Purchase
Agreement (as defined below). Capitalized terms used and not otherwise
defined herein shall have the same meanings given such terms in the Stock
Purchase Agreement.
<PAGE>
DEFINITIONS
1.1 "Additional Warrant Terms" shall mean the additional provisions set
forth on Exhibit "A". Any reference to a Section or Article of this Warrant
shall be deemed for all purposes hereof to additionally refer to the
corresponding Section or Article of the Additional Warrant Terms set forth on
Exhibit "A". In the case of any inconsistency, the terms set forth on
Exhibit "A" shall control over the terms in the main body of this Warrant
(this uniform part of the Warrant being referred to as the "Standard Warrant
Terms"). As to this particular Warrant, the Sections in the Standard Warrant
Terms which are affected or modified by the Additional Warrant Terms include
, but are not necessarily limited to, the following:
1.2, 1.11, 3.1
1.2 "Aggregate Price" shall mean the price set forth in or determined by the
Additional Warrant Terms attached as Exhibit "A" hereto.
1.3 "Common Stock Equivalents" means Convertible Securities and Rights.
1.4 "Convertible Securities" means any securities which are directly or
indirectly convertible into Common Stock.
1.5 "Dilution Sale" shall refer to circumstances where the Company issues or
sells shares of its Common Stock for a price per share less than the Warrant
Price as adjusted and then in effect, or issues or sells Common Stock
Equivalents in a manner described in Section 3.4 (in each case, other than:
(i) in a transaction or as the result of a transaction described in Sections
3.2, 3.3 or 3.5 hereof, (ii) Common Stock or Common Stock Equivalents issued
to any employee, officer, director, consultant or other individual performing
services for the Company pursuant to a stock option, stock purchase or other
equity incentive plan for employees or other persons performing services for
the Company and which plan is approved by the Board of Directors, or (iii)
upon exercise or conversion of Common Stock Equivalents outstanding on the
date of original issue of this Warrant).
1.6 "Effective Price" means the quotient obtained by dividing (i) Minimum
Consideration by (ii) Maximum Shares Upon Exercise.
1.7 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement
between the Purchaser and the Company, dated as of the 30th day of June, 1995.
1.8 "Maximum Shares Upon Exercise" means the maximum number of shares of
Common Stock issuable under a Common Stock Equivalent upon complete exercise
and full conversion of all Rights and Convertible Securities represented
thereby, computed without regard to contingent adjustments to the number of
shares issuable upon such exercise and conversion (other than adjustments
caused solely by the passage of time which increase the number of shares
issuable upon exercise and conversion).
1.9 "Minimum Consideration" means the minimum aggregate consideration paid
or payable at any time for the purchase of the Common Stock Equivalents and
for complete exercise and full conversion of the Common Stock Equivalents,
computed without regard to contingent adjustments to exercise or conversion
price (other than adjustments caused solely by the passage of time which
reduce such minimum aggregate consideration).
1.10 "Rights" means any options, warrants, or rights to purchase Common
Stock or Convertible Securities.
1.11 "Warrant Price" shall mean the purchase price of each such share as set
forth in or determined by the Additional Warrant Terms on Exhibit "A" hereto
, as such amount may be adjusted from time to time pursuant to the terms
hereof.
<PAGE>
ARTICLE II
EXERCISE AND PAYMENT
2.1 Cash Exercise. The purchase rights represented by this Warrant may be
exercised by Holder, in whole or in part, by the surrender of this Warrant at
the principal office of the Company, located at the address set forth on the
signature page hereof, accompanied by the form of Notice of Cash Exercise
attached hereto as Exhibit "B-1", and by the payment to the Company, by cash
or by certified, cashier's or other check acceptable to the Company, of an
amount equal to the aggregate Warrant Price of the shares being purchased.
2.2 Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 2.1, Holder may elect to receive shares equal to the value of this
Warrant determined in the manner described below (or of any portion thereof
remaining unexercised) by surrender of this Warrant at the principal office
of the Company together with the form of Notice of Cashless Exercise attached
hereto as Exhibit "B-2", in which event the Company shall issue to Holder a
number of shares of the Company's Common Stock computed using the following
formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock purchasable under
this Warrant (at the date of such calculation).
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation).
B = Warrant Price (as adjusted to the date of such
calculation).
2.3 Fair Market Value. For purposes of this Article II, fair market value
of one share of the Company's Common Stock shall mean:
(i) The average of the closing bid and asked prices of the Common Stock
quoted in the Over-The-Counter Market Summary, the last reported sale price
of the Common Stock or the closing price quoted on the NASDAQ National Market
System ("NMS") or on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of The Wall
Street Journal for the ten (10) trading days prior to the date of
determination of fair market value; or
(ii) If the Common Stock is not traded Over-The-Counter, on the NMS or on
an exchange, the per share fair market value of the Common Stock shall be as
determined by mutual agreement of the Company and the Holder; provided,
however that if such agreement cannot be reached within twenty (20) calendar
days, such value shall be determined by an independent appraiser appointed in
good faith by the Company's Board of Directors. The cost of such appraisal
shall be borne by the Company.
2.4 Stock Certificates. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to Holder within a reasonable time and, unless
this Warrant has been fully exercised or has expired, a new Warrant
representing the remaining unexercised Aggregate Price shall also be issued
to Holder at such time.
2.5 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Common
Stock is greater than the Warrant Price, as adjusted, this Warrant shall be
deemed automatically exercised in accordance with Section 2.2 hereof (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Common Stock upon such expiration shall be the fair market value determined
pursuant to Section 2.3 above. To the extent this Warrant or any portion
thereof is deemed automatically exercised pursuant to this Section 2.5, the
Company agrees to notify Holder within a reasonable period of time of the
number of shares of the Company's Common Stock, if any, Holder is to receive
by reason of such automatic exercise.
<PAGE>
2.6 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all securities which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (excluding taxes based on the income of Holder). The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved for issuance a sufficient number of shares of
its Common Stock or other securities as would be required upon the full
exercise of the rights represented by this Warrant.
2.7 Fractional Shares. No fractional share of Common Stock will be issued
in connection with any exercise hereof; in lieu of a fractional share upon
complete exercise hereof, Holder may purchase a whole share by delivering
payment equal to the appropriate portion of the then effective Warrant Price.
ARTICLE III
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES PURCHASABLE AND WARRANT PRICE
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time upon the happening of certain events, as follows:
3.1 Weighted Average Adjustment. If the Company issues or sells shares of
its Common Stock in a Dilution Sale:
3.1.1 Subject to Section 3.1.4 below, the Warrant Price shall be adjusted
to an amount equal to the quotient obtained by dividing (i) the sum of (a)
Aggregate Price, plus (b) the consideration received by the Company from all
sales subsequent to the original issue of this Warrant of (X) Common Stock
(excluding sales of Common Stock pursuant to stock option, stock purchase or
other equity incentive plans for employees or other persons performing
services for the Company if such plan is approved by the Board of Directors),
(Y) Common Stock Equivalents sold in Dilution Sales, plus (Z) Convertible
Securities as provided in Section 3.1.2, by (ii) a number equal to the sum of
(a) Aggregate Price divided by the initial Warrant Price as adjusted for
stock splits, combinations of shares and stock dividends as set forth in
Sections 3.3 and 3.5 but not as previously adjusted by Section 3.1 or 3.4,
plus (b) the sum of (X) number of shares of Common Stock issued subsequent
to the original issue of this Warrant (excluding sales of Common Stock
pursuant to stock option, stock purchase or other equity incentive plans for
employees or other persons performing services for the Company if such plan
is approved by the Board of Directors), (Y) the Maximum Shares Upon Exercise
of Common Stock Equivalents sold in Dilution Sales subsequent to the original
issue of this Warrant, plus (Z) the Maximum Shares Upon Exercise of
Convertible Securities which are not debt securities issued subsequent to the
original issue of this Warrant (as provided in Section 3.1.2), in all cases
adjusted for stock splits, combinations of shares and stock dividends
occurring after the date of issue of the relevant security.
3.1.2 For purposes of Section 3.1.1, the sale of Convertible Securities
which are not debt securities, if such sale is not a Dilution Sale, shall be
treated as the sale of a number of shares of Common Stock equal to the
Maximum Shares Upon Exercise relating to such Convertible Securities at a
consideration equal to the product of (i) the Effective Price and (ii) the
Maximum Shares Upon Exercise. Debt securities not sold in Dilution Sales
shall be excluded from calculations under Section 3.1.1.
3.1.3 If a sale occurs prior to the date the Warrant Price is fixed under
the Additional Warrant Terms, and such sale would be a Dilution Sale based on
such initial price, then the Warrant Price when determined shall be adjusted
as set forth herein to reflect all such Dilution Sales. This Section 3.1.3
applies if the Warrant Price is not fixed and is therefore subject to
adjustment by the Additional Warrant Terms, i.e., in the event the Additional
Warrant Terms specify adjustment to the Warrant Price separate and apart from
that provided by these Standard Warrant Terms. In the event the Warrant
Price is initially fixed by the Additional Warrant Terms, this Section 3.1.3
shall not be applicable.
3.1.4 Under no circumstances shall the Warrant Price be increased as a
result of Sections 3.1, 3.4.1 or 3.4.2.
3.2 Reclassification, Consolidation or Merger. In case of: (i) any
reclassification or change of outstanding securities issuable upon exercise
of this Warrant; (ii) any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which
the Company is a continuing corporation and which does not result in any
reclassification, change or exchange of outstanding securities issuable upon
<PAGE>
exercise of this Warrant); or (iii) any sale or transfer to another
corporation of all, or substantially all, of the property of the Company,
then, and in each such event, the Company or such successor or purchasing
corporation, as the case may be, shall execute a new Warrant of like form,
tenor and effect and which will provide that Holder shall have the right to
exercise such new Warrant and purchase upon such exercise, in lieu of each
share of Common Stock theretofore issuable upon exercise of this Warrant, the
kind and amount of securities, money and property receivable upon such
reclassification, change, consolidation, merger, sale or transfer by a holder
of one share of Common Stock issuable upon exercise of this Warrant had this
Warrant been exercised immediately prior to such reclassification, change,
consolidation, merger, sale or transfer. Such new Warrant shall be as nearly
equivalent in all substantive respects as practicable to this Warrant, and
the adjustments provided in this Article III and the provisions of this
Section 3.2 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
3.3 Subdivision or Combination of Shares. If the Company shall at any time
while this Warrant remains outstanding and less than fully exercised: (i)
divide its Common Stock, the Warrant Price shall be proportionately reduced;
or (ii) shall combine shares of its Common Stock, the Warrant Price shall be
proportionately increased.
3.4 Issue or Sale of Common Stock Equivalents.
3.4.1 The issue or sale of Common Stock Equivalents (excluding Common
Stock and Common Stock Equivalents issued pursuant to any stock option, stock
purchase or other equity incentive plan for employees or other persons
performing services for the Company and which plan is approved by the Board
of Directors) for an Effective Price less than the Warrant Price, as adjusted
and as then in effect, shall be a Dilution Sale and the Warrant Price shall
be adjusted as set forth in Section 3.1 hereof, provided that for the
purposes of such adjustments: (i) the consideration received for such
Dilution Sale shall be the Minimum Consideration received in such sale; and
(ii) the number of shares issued in the present Dilution Sale shall be the
Maximum Shares Upon Exercise for such Common Stock Equivalents.
3.4.2 In the event a Dilution Sale or other sale of Common Stock
Equivalents has occurred during the term hereof and a contingent event not
considered in the computation of Minimum Consideration or Maximum Shares Upon
Exercise occurs, which if considered at the time of the Dilution Sale or at
the time of another sale of Common Stock or Common Stock Equivalents would
have had the effect of reducing the Warrant Price, the Warrant Price shall be
retroactively adjusted to reflect such contingent event and additional shares
of Common Stock or other securities as required hereunder shall be issued to
Holder, if it previously exercised all or any part of its rights hereunder,
to reflect the additional shares to which Holder would have been entitled
had the retroactively adjusted Warrant Price been in effect on the date of
exercise of such rights.
3.4.3 If the Company has issued Common Stock Equivalents subsequent to the
date of original issue of this Warrant, and any of said Common Stock
Equivalents subsequently expire without being converted or exercised, by
reason of lapse of time or otherwise and (except payment of the principal,
interest and a reasonable prepayment premium or the redemption price and a
reasonable redemption premium in the case of a convertible note or preferred
stock voluntarily paid or redeemed by the Company, respectively) without
payment of any kind or nature to, or for the direct or indirect benefit of,
any present or prior holder of the Common Stock Equivalents by any party in
connection with such Common Stock Equivalents, then, and in such event, the
Warrant Price shall be recalculated and adjusted in accordance with Section 3
hereof as if such Common Stock Equivalents had never been issued by taking
into account all events which would have been Dilution Sales if such Common
Stock Equivalents are disregarded; provided, however, that this Section 3.4.3
shall not have any effect on any exercise of this Warrant prior to the
expiration date of such expired Common Stock Equivalents.
3.4.4 An amendment to the terms and conditions of a Common Stock
Equivalent (e.g., an amendment to the Company's Articles or Certificate of
Incorporation) which has the effect of reducing the Effective Price of such
Common Stock Equivalent shall be treated for purposes of Section 3 of this
Warrant as the sale of new Common Stock Equivalents for the consideration
previously received upon sale of such Common Stock Equivalent prior to such
amendment. Such new sale shall be deemed to have occurred on the effective
date of such amendment. Concurrent with such date for purposes of Section 3
of this Warrant, the Common Stock Equivalents to be amended which are issued
and outstanding immediately prior to such amendment shall be deemed to be
terminated without exercise or conversion and the Warrant Price shall be
adjusted pursuant to Section 3.4.3. Such adjustment to the Warrant Price
pursuant to Section 3.4.3 shall be made before the adjustment to the Warrant
Price required under this Section 3.4.4.
<PAGE>
3.5 Stock Dividends. If the Company, at any time while this Warrant is
outstanding and unexpired, shall pay a dividend payable in, or make any other
distribution to holders of, Common Stock or Common Stock Equivalents (except
any distribution described in Sections 3.2 and 3.3 hereof) then the Warrant
Price shall be adjusted to that price determined by multiplying the Warrant
Price then in effect by a fraction, the numerator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (ii) the Maximum Shares Upon
Exercise of all Common Stock Equivalents outstanding immediately prior to
such dividend or distribution, and the denominator of which shall be the sum
of (i) the total number of shares of Common Stock outstanding immediately
after such dividend or distribution and (ii) the Maximum Shares Upon Exercise
of the total Common Stock Equivalents outstanding after such dividend or
distribution.
3.6 Dilution in Case of Other Stock or Securities. In case any securities,
other than Common Stock of the Company, shall at the time be receivable by
Holder upon the exercise of this Warrant, and in case any additional shares
of such securities or any securities convertible into or exchangeable for
such securities shall be issued or sold for a consideration per share such as
to dilute the purchase rights evidenced by this Warrant, then and in each
such case the Warrant Price and the number of shares purchasable hereunder
shall be adjusted substantially in the manner provided in this Section 3, so
as to protect Holder against the effect of such dilution.
3.7 Expenses Deducted. For purposes of this Section 3, upon any issuance or
sale of any Common Stock, Common Stock Equivalents, or other securities, the
consideration received therefor shall be deemed to be the amount received by
the Company (after deducting underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale, to the extent that the aggregate of all such commissions
and expenses exceed 15% of the consideration received by the Company).
3.8 Determination of Value of Non-Cash Consideration. Upon any issuance or
sale for a consideration other than cash, or a consideration part of which is
other than cash, of any shares of Common Stock, Common Stock Equivalents, or
other securities, the amount of the consideration other than cash received
by the Company shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company. In case
any Common Stock or Common Stock Equivalents shall be issued or sold together
with other securities or assets of the Company for a consideration which
covers both, the consideration for the issue or sale of such Common Stock or
Common Stock Equivalents shall be deemed to be the portion of such
consideration allocated thereto in good faith by the Board of Directors of
the Company.
3.9 Other Action Affecting Common Stock. If the Company takes any action
affecting its Common Stock after the date hereof, other than an action
described in any of Sections 3.1 through 3.6 hereof inclusive, which would
have an adverse effect upon Holder's rights hereunder, the Warrant Price
shall be adjusted downward and the number of shares purchasable hereunder
adjusted upward in such manner and at such time as the Board of Directors of
the Company shall in good faith determine to be equitable under the
circumstances.
3.10 Time of Adjustments to the Warrant Price. All adjustments to the
Warrant Price and the number of shares purchasable hereunder, unless
otherwise specified herein, shall be effective as of the earlier of:
(i) the date of issue of the security causing the adjustment;
(ii) the date of sale of the security causing the adjustment;
(iii) the effective date of a division or combination of shares;
(iv) the record date of any action of holders of any class of the
Company's capital stock taken for the purpose of entitling shareholders to
receive a distribution or dividend payable in Common Stock or Common Stock
Equivalents, provided that such division, combination, distribution or
dividend actually occurs.
If the Company shall issue Common Stock Equivalents with different Effective
Prices and such Common Stock Equivalents would under this Section 3.10
require adjustments to the Warrant Price on the same day, then the Warrant
Price and the number of shares purchasable hereunder shall be adjusted
seriatim for each type of Common Stock Equivalent with a different Effective
<PAGE>
Price, adjusting the Warrant Price and the number of shares purchasable
hereunder first for the Common Stock Equivalent with the highest Effective
Price, followed by the adjustment for the Common Stock Equivalent with the
next highest Effective Price and so on until all adjustments to the Warrant
Price and the number of shares purchasable hereunder have been made.
3.11 Notice of Adjustments in Warrant Price. On the occurrence of each
adjustment and readjustment of the Warrant Price (and number of shares
purchasable hereunder), the Company, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant
and shall cause to be prepared and furnished to Holder a Certificate
(executed by the Company's President or Chief Financial Officer) setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based, including: (i) the
consideration received or to be received by the Company for any additional
shares of Common Stock or Common Stock Equivalents issued or sold or deemed
to have been issued or sold; (ii) the number of shares of Common Stock
outstanding or deemed to be outstanding, and (iii) the adjusted Warrant Price.
As a part of the annual audit performed by the Company's independent certified
public accountants, the Company shall cause such accountants to review and
verify the calculations contained in any Certificate specified above, which
verification shall be confirmed in writing to the Holder by the accounting
firm (unless such verification is waived by Holder at or after the time of
receipt of such Certificate of adjustment from the Company). The Company
shall, upon the written request at any time of Holder, furnish or cause to
be furnished to Holder a like Certificate setting forth: (i) all such
adjustments and readjustments to date; (ii) the Warrant Price at that time in
effect; and (iii) the number of shares which at the time would be received
upon exercise. All certificates and verifications provided to Holder in
accordance with this Section shall be mailed or otherwise sent in accordance
with Section 6.8 of this Warrant.
3.12 Duration of Adjusted Warrant Price. Following each adjustment of the
Warrant Price, such adjusted Warrant Price shall remain in effect until a
further adjustment of the Warrant Price.
3.13 Adjustment of Number of Shares. Upon each adjustment of the Warrant
Price pursuant to this Article III, the number of shares of Common Stock
purchasable hereunder shall be adjusted to the nearest whole share, to the
number obtained by dividing the Aggregate Price by the Warrant Price as
adjusted.
ARTICLE IV
TRANSFER, EXCHANGE AND LOSS
4.1 Transfer. This Warrant is transferable on the books of the Company at
its principal office by the registered Holder hereof upon surrender of this
Warrant properly endorsed, subject to compliance with federal and state
securities laws. The Company shall issue and deliver to the transferee a new
Warrant or Warrants representing the Warrants so transferred. Upon any
partial transfer, the Company will issue and deliver to Holder a new Warrant
or Warrants with respect to the Warrants not so transferred. Notwithstanding
the foregoing, Holder shall not be entitled to transfer a number of shares or
an interest in this Warrant representing less than five percent (5%) of the
aggregate shares initially covered by this Warrant (as presently constituted,
with appropriate adjustment being made in the event of stock splits,
combinations, reorganizations and the like occurring after the issue date
hereof). Holder shall not have any right to transfer any portion of this
Warrant to any direct competitor of the Company. Any transferee shall be
subject to the same restrictions on transfer with respect to this Warrant as
the Purchaser.
4.2 Securities Laws. In connection with the issuance to Purchaser of this
Warrant, Purchaser agrees to execute an investment intent letter in such form
as reasonably requested by the Company and its counsel and as may be required
to comply with federal and applicable state securities laws. Upon any
issuance of shares of Common Stock upon exercise of this Warrant, it shall be
the Company's responsibility to comply with the requirements of: (1) the
1933 Securities Act; (2) the Securities Exchange Act of 1934, as amended; (3)
any applicable listing requirements of any national securities exchange; (4)
any state securities regulation or "Blue Sky" laws; and (5) requirements
under any other law or regulation applicable to the issuance or transfer of
such shares. If required by the Company, in connection with each issuance of
shares of Common Stock upon exercise of this Warrant, the Holder will give:
(i) assurances in writing, satisfactory to the Company, that such shares are
not being purchased with a view to the distribution thereof in violation of
applicable laws, (ii) sufficient information, in writing, to enable the
Company to rely on exemptions from the registration or qualification
requirements of applicable laws, if available, with respect to such exercise,
and (iii) its cooperation to the Company in connection with such compliance.
4.3 Exchange. This Warrant is exchangeable at the principal office of the
Company for Warrants which represent, in the aggregate, the Aggregate Price
hereof; each new Warrant to represent the right to purchase such portion of
<PAGE>
the Aggregate Price as Holder shall designate at the time of such exchange.
Each new Warrant shall be identical in form and content to this Warrant,
except for appropriate changes in the number of shares of Common Stock
covered thereby, the Aggregate Price of such shares, the percentage stated in
Section 4.1 above, and any other changes which are necessary in order to
prevent the Warrant exchange from changing the respective rights and
obligations of the Company and the Holder as they existed immediately prior
to such exchange.
4.4 Loss or Mutilation. Upon receipt by the Company of evidence satisfactory
to it of the ownership of, and the loss, theft, destruction or mutilation of,
this Warrant and (in the case of loss, theft, or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation hereof, the Company will execute and deliver in lieu hereof a
new Warrant.
ARTICLE V
HOLDER RIGHTS
5.1 No Shareholder Rights Until Exercise. No Holder hereof, solely by
virtue hereof, shall be entitled to any rights as a shareholder of the
Company. Holder shall have all rights of a shareholder with respect to
securities purchased upon exercise hereof as provided in Article II hereof.
5.2 Right to Participate in Dilution Sales. In the event the Company
proposes to issue or sell shares of its Common Stock or Common Stock
Equivalents in a Dilution Sale, the Company shall give Holder written notice
of such proposed Dilution Sale (which shall include a description of the
securities proposed to be issued, the price, and the general terms upon which
the Company proposes to issue the same) and shall offer to sell to Holder
that quantity of such securities which will enable Holder to maintain its pro
rata equity interest in the Company. Holder's pro rata equity interest in
the Company, for purposes of this right of participation, shall be calculated
based upon the ratio the number of shares of Common Stock held by such Holder
bears to all shares of Common Stock then issued and outstanding, in each
instance calculated assuming complete exercise of all options, warrants
(including this Warrant) or other rights to purchase Common Stock and the
conversion of all securities convertible into Common Stock. Holder shall
have ten (10) days from receipt of such notice to agree to purchase all or
any part of the securities so offered by delivery of written notice thereof
to the Company stating the quantity of securities to be purchased. Any
purchase of securities by the Holder shall be made at the price and upon the
same terms as specified in the Company's notice; provided, however, that the
purchase price for any such securities purchased by Holder hereunder shall by
payable either in cash or, at Holder's option, by offsetting any amounts due
Holder in inverse order of maturity pursuant to the Note. The Company shall
have ninety (90) days after it provides written notice of a Dilution Sale to
Holder (whether or not Holder has yet provided notice of its intent to
purchase the securities so offered) to sell such securities at a price and
upon general terms no more favorable than those specified in the Company's
notice. If the Company has not sold such securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any such
securities, without first offering such securities to Holder in the manner
provided above. The rights of Holder under this Section 5.2 shall not apply
to securities issued pursuant to the Company's initial offering and sale of
securities as part of a firmly underwritten public offering registered under
the 1933 Securities Act and the rights of Holder under this Section 5.2 shall
terminate upon the closing of such initial public offering.
5.3 Registration Rights Under 1933 Securities Act. Holder shall be entitled
to the registration rights contained in the Registration Rights Agreement.
The rights to cause the Company to register securities granted Holder
hereunder may not be assigned or transferred except in connection with an
assignment or transfer of all or any part of this Warrant pursuant to Article
IV above, or the assignment or transfer of securities purchased upon exercise
hereof, subject in each case to restrictions set forth in the Registration
Rights Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Governmental Approvals. The Company will from time to time take all
action which may be necessary to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and
securities acts filings under federal and state laws, which may be or become
requisite in connection with the issuance, sale, and delivery of this Warrant
, and the issuance, sale and delivery of the Common Stock or other securities
or property issuable or deliverable upon exercise of this Warrant.
<PAGE>
6.2 GOVERNING LAWS. IT IS THE INTENTION OF THE PARTIES HERETO THAT EXCEPT
AS SET FORTH BELOW, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, U.S.A.
(IRRESPECTIVE OF ITS CHOICE OF LAW PRINCIPLES) SHALL GOVERN THE VALIDITY OF
THIS WARRANT, THE CONSTRUCTION OF ITS TERMS, AND THE INTERPRETATION AND
ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES HERETO. NOTWITHSTANDING
THE FOREGOING, IF THE COMPANY IS ORGANIZED UNDER THE LAWS OF A STATE OTHER
THAN CALIFORNIA, THE CORPORATION LAWS OF THAT STATE SHALL GOVERN THE
PROCEDURAL AND SUBSTANTIVE MATTERS PERTAINING TO THE DUE AUTHORIZATION,
ISSUANCE, DELIVERY AND EXERCISE OF THIS WARRANT AND OF THE CAPITAL STOCK UPON
EXERCISE HEREOF (INCLUDING ANY CAPITAL STOCK ISSUABLE UPON CONVERSION OF ANY
CONVERTIBLE SECURITY ISSUABLE UPON EXERCISE HEREOF). EXCEPT AS SET FORTH
BELOW, THE PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF
THIS WARRANT ARISING OUT OF OR BASED UPON THIS WARRANT OR THE BUSINESS
RELATIONSHIP BETWEEN ANY OF THE PARTIES HERETO SHALL BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OR THE SUPERIOR
OR MUNICIPAL COURT IN AND FOR THE COUNTY OF SAN MATEO, CALIFORNIA, U.S.A.
EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL HAVE IN PERSONAM JURISDICTION
AND VENUE WITH RESPECT TO SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING
JURISDICTION, HOLDER, AT ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY
JURISDICTION IN WHICH THE COMPANY HAS A BUSINESS OFFICE OR IS INCORPORATED.
6.3 Binding Upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Warrant, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the
benefit of the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
6.4 Severability. If any one or more provisions of this Warrant, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Warrant and the application of such
provisions to other persons or circumstances shall be interpreted so as best
to reasonably effect the intent of the parties hereto. The parties further
agree to replace any such void or unenforceable provisions of this Warrant
with valid and enforceable provisions which will achieve, to the extent
possible, the economic, business and other purposes of the void or
unenforceable provisions.
6.5 Default, Amendment and Waivers. This Warrant may be amended upon the
written consent of the Company and those Persons holding in the aggregate the
right to purchase a majority of the number of unexercised shares covered by
the Warrant initially issued by the Company pursuant to the Stock Purchase
Agreement. The waiver by a party of any breach hereof for default in payment
of any amount due hereunder or default in the performance hereof shall not be
deemed to constitute a waiver of any other default or any succeeding breach
or default. The failure to cure any breach of any term of this Warrant
within ten (10) days of written notice thereof shall constitute an event of
default under this Warrant.
6.6 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
6.7 Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Warrant, the prevailing party shall be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses
and fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party
is entitled to recover costs or attorneys' fees.
6.8 Notices. Whenever any party hereto desires or is required to give any
notice, demand, or request with respect to this Warrant, each such
communication shall be in writing and shall be effective only if it is
delivered by personal service or mailed, United States certified mail,
postage prepaid, return receipt requested, addressed as follows:
<PAGE>
Company: Address as set forth on signature page.
Holder : c/o Technology Funding Inc.
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
Attn: Contracts Administration
Such communications shall be effective when they are received by the
addressee thereof; but if sent by certified mail in the manner set forth
above, they shall be effective three (3) business days after being deposited
in the United States mail. Any party may change its address for such
communications by giving notice thereof to the other party in conformity with
this Section.
6.9 Time. Time is of the essence of this Warrant.
6.10 Construction of Agreement. A reference in this Warrant to any Section
shall include a reference to every Section the number of which begins with
the number of the Section to which reference is specifically made (e.g., a
reference to Section 3 shall include a reference to Sections 3.10 and 3.11).
Additionally, any reference to a Section or Article shall be deemed to
additionally refer to and incorporate the corresponding Section or Article
set forth in the Additional Warrant Terms attached as Exhibit "A", if any,
and, in the case of any inconsistency, the terms set forth on Exhibit "A"
shall control over the terms of the Standard Warrant Terms. The titles and
headings herein are for reference purposes only and shall not in any manner
affect the interpretation of this Warrant.
6.11 No Endorsement. Holder understands that no federal or state securities
administrator has made any finding or determination relating to the fairness
of investment in the Company or purchase of the Common Stock hereunder and
that no federal or state securities administrator has recommended or endorsed
the offering of securities by the Company hereunder.
6.12 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person, persons, entity or entities may require.
6.13 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and to carry into effect the
intents and purposes of this Warrant.
DEBTOR:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
<PAGE>
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Debtor Name: WASATCH EDUCATION SYSTEMS CORPORATION
Exhibit: A to Restated Warrant (B-8)
Document defined as "Additional Warrant Terms"
EXHIBIT "A" TO AMENDED AND RESTATED COMMON STOCK WARRANT
"ADDITIONAL WARRANT TERMS"
The provisions set forth in this Exhibit "A" constitute the Additional
Warrant Terms under the Warrant. To the extent of any inconsistency between
the provisions below and the provisions in the main body of the Warrant
(referred to as the "Standard Warrant Terms"), the provisions below shall
control in that the Additional Warrant Terms have been specifically drafted
for this Warrant and have been agreed by Purchaser and the Company to be
applicable to this Warrant. The parties acknowledge and agree (the Company,
by its execution of this Exhibit "A", and Purchaser by its acceptance of this
Warrant under the Stock Purchase Agreement) that the terms contained in this
Exhibit "A" shall supersede any contrary or otherwise inconsistent provisions
in the Standard Warrant Terms. As to the terms of any other Debt Instrument
mentioned or described herein, any conflict or inconsistency of any
description or summary herein with the terms of any other Debt Instrument
shall be resolved in favor of such other Debt Instrument, whose terms and
conditions shall control over any description contained herein.
These Additional Warrant Terms constitute Exhibit "A" attached to the
Amended and Restated Common Stock Warrant dated as of the 30th day of June,
1995, issued to TECHNOLOGY FUNDING SECURED INVESTORS II, A CALIFORNIA LIMITED
PARTNERSHIP ("Purchaser") (Purchaser and any party to whom the Warrant may be
assigned in accordance with the Warrant being referred to as "Holder"), by
WASATCH EDUCATION SYSTEMS CORPORATION, A UTAH CORPORATION having its
principal place of business at 5250 South 300 West, Suite 350, Salt Lake City
, Utah 84107 ("Company").
DEFINITIONS
A. New Definitions. The following terms shall, for all purposes of the
Warrant, have the meanings given below:
None.
B. Supplemental Definitions. The definitions in Article I of the Warrant
are modified, expanded and clarified as follows:
1.2 Aggregate Price. The Aggregate Price shall be Five Hundred Seventy-
Nine Thousand Seven Hundred Seventy-Three Dollars ($579,773.00).
1.11 Warrant Price. The Warrant Price hereunder shall be Fifty Cents
($0.50) per share of Common Stock issuable under this Warrant (subject to
adjustment under Article III hereof).
ARTICLE III.
CERTAIN ADJUSTMENTS OF NUMBER OF SHARES
PURCHASABLE AND WARRANT PRICE
Section 3.1 is hereby amended as follows:
Notwithstanding anything contained in Section 3.1 of the Warrant to the
contrary, each and every time that the Company issues or sells shares of its
Common Stock or Common Stock Equivalents in a Dilution Sale subject to
Section 3.1.4 of the Warrant, the Warrant Price shall be reduced to an amount
equal to the price per share of Common Stock or Common Stock Equivalents
received by the Company in such Dilution Sale. The price per share of Common
Stock or Common Stock Equivalents received in a Dilution Sale shall be
calculated by dividing the Total Consideration received in the Dilution Sale
by the Total Shares issued in the Dilution Sale.
<PAGE>
IN WITNESS WHEREOF, the Company has executed and delivered these Additional
Warrant Terms (Exhibit "A" to Warrant) as of the 30th day of June, 1995.
COMPANY:
WASATCH EDUCATION SYSTEMS CORPORATION,
a Utah corporation
5250 South 300 West, Suite 350
Salt Lake City, Utah 84107
By: /s/ Barbara Morris
Title: President & CEO
Name of Counsel to Lender Name of Counsel to Debtor
Tomlinson, Zisko, Morosoli & Maser Fenwick & West
200 Page Mill Road, Second Floor Two Palo Alto Square, Suite 800
Palo Alto, California 94306 Palo Alto, California 94306
Attention: Jim C. Curlett Attention: Robert B. Dellenbach
Telephone: (415) 325-8666 Telephone: (415) 494-0600
Fax: (415) 324-1808 Fax: (415) 857-0361
<PAGE>
Exhibit B-1
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
BY CASH PAYMENT OF WARRANT PRICE
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASH EXERCISE
Gentlemen:
The undersigned registered Holder of the Common Stock Warrant delivered
herewith ("Warrant"), hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price
(if any) equal to $ . Such exercise shall be pursuant to the
cash exercise provisions of Section 2.1 of the Warrant. Therefore, Holder
makes payment with this Notice of Exercise by way of check payable to the
Company in the amount of $ . Such check is payment in full
under the Warrant for shares of Common Stock based upon the
Warrant Price of $ per share, as currently in effect under the
Warrant. Holder requests that the certificates for the purchased shares of
Common Stock be issued in the name of and delivered to "Technology Funding
Secured Investors II, a California Limited Partnership", 2000 Alameda de las
Pulgas, San Mateo, California 94403. To the extent the foregoing exercise
is for less than the full Aggregate Price, a Replacement Warrant representing
the remainder of the Aggregate Price and otherwise of like form, tenor and
effect should be delivered to Holder along with the share certificates
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING SECURED INVESTORS III,
AN INCOME AND FROWTH PARTNERSHIP, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
<PAGE>
Exhibit B-2
NOTICE OF EXERCISE OF COMMON STOCK WARRANT
PURSUANT TO NET ISSUE ("CASHLESS") EXERCISE PROVISIONS
, 199
Wasatch Education Systems Corporation Aggregate Price
5250 South 300 West, Suite 350 of Warrant
Salt Lake City, Utah 84107 Before Exercise: $
Aggregate Price
Attention: Being Exercised: $
Warrant Price: $
per share
Number of Shares of
Common Stock to
be Issued Under
this Notice:
Remainder Aggregate
Price (if any)
After Issuance: $
CASHLESS EXERCISE
Gentlemen:
The undersigned, registered Holder of the Common Stock Warrant delivered
herewith ("Warrant", hereby irrevocably exercises such Warrant for, and
purchases thereunder, shares of the Common Stock of WASATCH EDUCATION SYSTEMS
CORPORATION, a Utah corporation, as provided below. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given in the
Warrant. The portion of the Aggregate Price (as defined in the Warrant) to
be applied toward the purchase of Common Stock pursuant to this Notice of
Exercise is $ , thereby leaving a remainder Aggregate Price
(if any) equal to $ . Such exercise shall be pursuant to the net
issue exercise provisions of Section 2.2 of the Warrant; therefore, Holder
makes no payment with this Notice of Exercise. The number of shares to be
issued pursuant to this exercise shall be determined by reference to the
formula in Section 2.2 of the Warrant which requires the use of the current
per share fair market value of the Company's Common Stock. The current fair
market value of one share of the Company's Common Stock shall be determined
in the manner provided in Section 2.3, which amount has been determined or
agreed to by Holder and the Company to be $ , which figure is
acceptable to Holder for calculations of the number of shares of Common Stock
issuable pursuant to this Notice of Exercise [SPECIFY ANY ALTERNATIVE
ARRANGEMENTS TO THE FOREGOING, IF NECESSARY OR APPLICABLE]. Holder requests
that the certificates for the purchased shares of Common Stock be issued in
the name of and delivered to "Technology Funding Secured Investors II, a
California Limited Partnership", 2000 Alameda de las Pulgas, San Mateo,
California 94403. To the extent the foregoing exercise is for less than the
full Aggregate Price of the Warrant, a replacement Warrant representing the
remainder of the Aggregate Price (and otherwise of like form, tenor and
effect) shall be delivered to Holder along with the share certificate
evidencing the Common Stock issued in response to this Notice of Exercise.
TECHNOLOGY FUNDING SECURED INVESTORS III,
AN INCOME AND GROWTH PARTNERSHIP, L.P.
A CALIFORNIA LIMITED PARTNERSHIP
By: Technology Funding Inc.,
Managing General Partner
By:
Vice President
NOTE
The execution to the foregoing Notice of Exercise must exactly correspond to
the name of the Holder as typed on Warrant.
