As filed with the Securities and Exchange Commission on April 20, 2000
Registration No. 333- _____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
WASATCH INTERACTIVE LEARNING CORPORATION
(Name of Small Business Issuer in Its Charter)
Washington 7372 911253514
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
5250 South Commerce Drive
Suite 101
Salt Lake City, Utah 84107
(801) 261-1001
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Ms. Barbara J. Morris
President and Chief Executive Officer
Wasatch Interactive Learning Corporation
Suite 101
5250 South Commerce Drive
Salt Lake City, Utah 84107
(801) 261-1001
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Elliot H. Lutzker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, NY 10158
Tel: (212) 687-3860
Fax: (212) 949-7052
Approximate Date of Proposed Sale to the Public:
As soon as practicable after the registration Statement becomes effective.
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If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed
Title of Maximum Proposed
Each Class Amount Offering Maximum Amount of
of Securities to be Price Aggregate Registration
to be Registered Registered Per Unit(1) Offering Price Fee
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<S> <C> <C> <C> <C>
Class A Common Stock
Purchase Warrants 1,500,000 wts.(2) $14(3) $21,000,000(3) $5,544(3)
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Common Stock,
$.0001 par value 1,500,000 shs.(4)(5) (6) (6) (6)
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Class B Common Stock
Purchase Warrants 1,500,000 wts.(7) $28(8) $42,000,000(8) $11,088(8)
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Common Stock,
$.0001 par value 1,500,000 shs.(9)(10) (6) (6) (6)
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Common Stock,
$.0001 par value 158,334 shs.(11) $3.00(12) $475,002 (12) $125.40(12)
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Common Stock
Purchase Warrants 31,667 wts.(13) $14(3) $443,338(3) $117.04(3)
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Common Stock,
$.0001 par value 31,667 shs.(5)(14) (6) (6) (6)
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Class B Common Stock
Purchase Warrants 31,667 wts.(15) $28(8) $886,676(8) $234.08(8)
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Common Stock,
$.0001 par value 31,667 shs.(10)(16) (6) (6) (6)
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Common Stock,
$.0001 par value 3,400,348 shs.(17)(18) $3.00(12) 10,201,044(12) $2,693.08(12)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.0001 par value 392,156 shs.(19)(20) $2.65 $1,041,174 $274.87
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
$.0001 par value 1,134,727 shs.(21) $3.00(12) $3,404,181(12) $898.70(12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total 8,148,899 -- $80,492,589 $20,975.17
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 (the "Act").
(2) Consists of Class A common stock purchase warrants ("Class A warrants")
distributed by the registrant to holders of record of its common stock on
February 15, 2000.
(3) Pursuant to Rule 457(g) under the Act, the registration fee has been
calculated on the basis of the price at which the Class A warrants may be
exercised.
(4) Consists of shares of common stock issuable upon exercise of the Class A
warrants described in footnote 2 above.
(5) Pursuant to Rule 416(a) under the Act, this registration statement also
relates to such number of shares of common stock as may become issuable as a
result of antidilution adjustments in accordance with the terms of the Class A
warrants.
(6) Pursuant to Rule 457(g) under the Act, no additional registration is
required for these securities.
(7) Consists of Class B common stock purchase warrants ("Class B warrants")
issuable upon exercise of the Class A warrants referred in footnote 2 above.
(8) Pursuant to Rule 457(g) under the Act, the registration fee has been
calculated on the basis of the price at which the Class B warrants may be
exercised.
(9) Consists of shares of common stock issuable upon exercise of the Class B
warrants.
(10) Pursuant to Rule 416(a) under the Act, this registration statement also
relates to such number of shares of common stock as may become issuable as a
result of antidilution adjustments in accordance with the terms of the Class B
warrants.
(11) Consists of shares of common stock being offered by selling securityholders
who purchased $950,000 of units consisting of one share of Common Stock and
one-fifth of a warrant for every $6 invested.
(12) Pursuant to Rule 457(c) under the Act, the registration fee has been
calculated on the closing price per share of common stock of $3.00 on April 18,
2000 as reported by the National Quotation Bureau, Inc.
(13) Consists of Class A warrants being offered by selling securityholders
referred to in footnote ll above.
(14) Consists of shares of common stock issuable upon exercise of Class A
warrants being offered by selling securityholders.
(15) Consists of Class B warrants issuable upon exercise of Class A warrants
being offered by selling securityholders.
(16) Consists of Common Stock issuable upon exercise of Class B warrants
described in footnote l5 above.
(17) Consists of 2,816,902 shares (200%) of common stock currently issuable to a
selling securityholder upon conversion of $4 million aggregate principal amount
of, and 583,446 shares (200%) the common stock
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currently issuable to such selling stockholder on conversion of accrued unpaid
interest on, a 7% convertible debenture due March 16, 2003 (the "Debenture") of
the registrant held by such selling securityholder.
(18) Pursuant to Rule 416(a) under the Act, this registration statement also
relates to such number of shares of common stock as may become issuable as a
result of anti-dilution adjustments in accordance with the terms of the
Debenture.
(19) Consists of 200% of the shares of common stock issuable upon exercise of
common stock purchase warrants issued to the holder of the Debenture.
(20) Pursuant to Rule 416(a) under the Act, this registration statement also
relates to such number of shares of common stock as may become issuable as a
result of anti-dilution adjustments in accordance with the terms of common stock
purchase warrants referred to in footnote 19.
(21) Consists of common stock being offered by members of management and other
selling securityholders acquired in connection with the Registrant's merger,
which became effective on February 4, 2000.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION - DATED April 20, 2000
WASATCH INTERACTIVE LEARNING CORPORATION
6,252,647 shares of common stock, par value $.0001 per share
1,531,667 Class A common stock purchase warrants
1,531,667 Class B common stock purchase warrants
This prospectus relates to up to 1,500,000 shares of our common stock,
par value $.0001 per share, issuable upon exercise of up to 1,500,000 of our
Class A common stock purchase warrants distributed by us to holders of record of
our common stock on February 15, 2000; up to 1,500,000 shares of our common
stock issuable upon exercise of up to 1,500,000 of our Class B common stock
purchase warrants issuable upon exercise of our Class A warrants; up to 31,667
shares of our common stock issuable upon exercise of up to 31,667 of our Class A
warrants held by selling securityholders named in this prospectus; up to 31,667
shares of our common stock issuable upon exercise of up to 31,667 of our Class B
warrants issuable upon exercise of the Class A warrants held by these selling
securityholders; up to 1,408,451 shares of our common stock, subject to
adjustment, currently issuable upon conversion of $4 million principal amount of
a 7% convertible debenture due March 16, 2003 we issued to a selling
securityholder named in this prospectus and up to 291,723 additional shares of
our common stock issuable upon conversion of accrued interest on this debenture,
which, at our option, may be paid in shares of common stock under the terms of
this debenture; up to 196,078 shares of our common stock issuable upon exercise
of our common stock purchase warrants held by the selling securityholder that
holds this debenture; and 1,293,061 shares of common stock being offered by
selling securityholders named in this prospectus. This prospectus also relates
to 1,531,667 Class A warrants and 1,531,667 Class B warrants issuable upon
exercise of the Class A warrants referred to above.
Our common stock and warrants are speculative investments and involve a
high degree of risk. You should read "Risk Factors" beginning on page 6 before
purchasing our common stock or warrants.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The common stock is quoted on the Over-The-Counter Electronic Bulletin
Board, also referred to as the "OTCBB," under the symbol "ILRN." On April 19,
2000, the closing price per share of our common stock on the OTCBB was $2.50.
Our executive offices are located at Suite 101, 5250 South Commerce Drive,
Salt Lake City, Utah 84107. Our telephone number is (801) 261-1001.
This prospectus relates to securities to be sold by selling
securityholders. See Page 15.
The date of this prospectus is ___________, 2000.
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TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND MORE INFORMATION...........................................2
PROSPECTUS SUMMARY............................................................3
RISK FACTORS..................................................................6
FORWARD-LOOKING STATEMENTS...................................................16
USE OF PROCEEDS..............................................................17
CASH DIVIDEND POLICY.........................................................17
CAPITALIZATION...............................................................18
SELECTED FINANCIAL DATA......................................................19
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION................................................20
BUSINESS.....................................................................27
MANAGEMENT...................................................................41
RELATED PARTY TRANSACTIONS...................................................48
PRINCIPAL SHAREHOLDERS.......................................................50
SELLING SECURITYHOLDERS......................................................51
PLAN OF DISTRIBUTION.........................................................54
DESCRIPTION OF SECURITIES....................................................56
ADDITIONAL INFORMATION.......................................................58
LEGAL MATTERS................................................................59
CHANGES IN CERTIFYING ACCOUNTANTS............................................59
EXPERTS......................................................................59
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different.
This prospectus is intended to offer no securities other than the common stock
and the warrants. This prospectus may be used only where it is legal to offer
and sell these securities. The information in this prospectus may be accurate on
the date of this document only.
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WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the SEC. You
may read and copy any document we file at the Public Reference Room of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the SEC at Seven World Trade Center, Suite 1300, New York,
New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Please call 1-800-SEC-0330 for further information concerning the
Public Reference Room. Our filings also are available to the public from the
SEC's website at www.sec.gov. We will distribute to our shareholders annual
reports containing audited financial statements.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus.
Unless the context otherwise requires, references in this prospectus to "we"
"us" and "our" are to Wasatch Interactive Learning Corporation, a Washington
corporation, and our predecessor, Wasatch Interactive Learning Corporation, a
Utah corporation. As used in this prospectus, "Class A warrants" refers to our
Class A common stock purchase warrants, "Class B warrants" refers to our Class B
common stock purchase warrants and "warrants" refers to our Class A warrants and
Class B warrants, collectively, "debenture" refers to our 7% convertible
debenture due March 16, 2003 and "debenture warrants" refers to our common stock
purchase warrants issued to the selling securityholder listed under "Selling
Securityholders" below that holds this debenture.
The Company
We provide curriculum-based educational software, also known as courseware,
to two segments of the educational technology market:
o the kindergarten through 8th grade, or K-8, market; and
o the adult market, which includes adult basic education and alternative
education students.
Our educational courseware titles address the majority of curriculum
objectives for grade levels K- 8, adult basic education, and preparation for a
general education diploma, or GED. Our products offer instructional and
"packaging" flexibility and feature problem-solving, simulations, advanced
tools, and graphics. Our products are highly interactive and encourage users to
be "active doers." These products can be used on an individual computer running
from a CD-ROM, on a local area or a wide area network, in a computer laboratory
setting, in the back of a classroom, by a teacher on a demonstration teaching
station, or online via the Internet and are designed for both Microsoft and
Apple operating environments. Our educational courseware management system
allows use of our educational courseware at home, or lessons running on the
Internet, with updated results sent to the parents and/or school.
We believe that the Internet is an integral component in improving academic
skills in schools and privately through home access. To enable our comprehensive
educational courseware products to be delivered online via the Internet, we have
completed a research and development program under which we:
o developed a multimedia Internet development platform for rapid
conversion of existing or enhanced products for online delivery via
the Internet; and
o developed, in conjunction with a business partner, an Internet
compatible educational courseware management system.
Our Internet development platform permitted us to release in 1999 over 400
hours of Internet- deliverable comprehensive K-8 mathematics courseware. We are
using a substantial portion of the $4 million proceeds of our March 2000
debenture financing to expand our direct sales force and a small portion of such
proceeds to enable online delivery via the Internet of all of our products by
September 2000. Our CD-ROM based products currently are licensed to, and
installed in, approximately 1,500 schools in the United States and are used by
approximately 750,000 students. We intend, beginning in the fall of 2000,
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that purchasers will be able to choose to receive our products online via our
wasatchnet.com Web site. Our Web site will also give purchasers access to a
range of interactive demonstrations and free supplemental educational
activities, tools, and resources. It is our intention that, through annual
subscriptions paid by schools or school districts for their enrolled students,
or by parents or home schoolers, students will have access to our courseware,
assessment products, and educational resources online via the Internet.
Our goal is to become a leading provider of curriculum-based educational
courseware. To achieve this goal, we must receive substantial proceeds from the
exercise of our Class A warrants or alternative financing. See "Use of
Proceeds." Our strategies to attain this goal include the following, the
implementation of which will require substantial funding:
o capitalize on the strength of our content;
o aggressively expand the marketing and distribution of our
comprehensive product offering by traditional means and online
delivery via the Internet; and
o pursue strategic acquisitions and relationships.
Wasatch Interactive Learning Corporation, a Utah corporation, was
incorporated in July 1996 and commenced operations on February 14, 1997. On
February 7, 1997, WILC-Utah entered into an asset purchase and software license
agreement with Wasatch Education Systems Corporation, of which Barbara J.
Morris, our chief executive officer, and Carol E. Loomis, our vice-president of
development, were formerly the chief executive officer and vice president of
development, respectively. Under this agreement, WILC- Utah purchased from WESC,
substantially all of their assets, other than intellectual property rights
relating to educational courseware, consisting of computer programs, multimedia
materials and related documentation, which WESC licensed to its customers for
use in the educational technology market. This educational courseware was
developed by Ms. Morris and Ms. Loomis during their affiliation with WESC, and
WESC granted to us, subject to our obligation to pay royalties to them,
exclusive perpetual worldwide rights to use, reproduce, and modify this
educational courseware. See "Business--Intellectual Property."
On January 20, 2000, WILC-Utah entered into an agreement and plan of
reorganization with AG Holdings, Inc. under which:
o AG Holdings was the surviving corporation of a merger with WILC-Utah
and our corporate name was changed from AG Holdings, Inc. to Wasatch
Interactive Learning Corporation; and
o we issued an aggregate of 3,605,205 shares of our common stock to the
stockholders of WILC- Utah, representing approximately 48% of our
outstanding shares of common stock, after giving effect to this
issuance.
As a result of these transactions, the shareholders of WILC-Utah became our
controlling shareholders; all of our then officers and directors resigned; Ms.
Morris was elected as our president and chief executive officer and one of our
directors; and Ms. Loomis was elected as our vice-president of development,
secretary and one of our directors.
We were incorporated on May 17, 1984 under the laws of the State of
Washington under the name Image Productions, Inc., subsequently changing our
name to Bahui USA, Inc., and then to AG Holdings, Inc.
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The Offering
Securities Offered:
o 1,500,000 of our Class A warrants, distributed by us to holders of
record of our common stock on February 15, 2000, and up to 1,500,000
shares of our common stock issuable upon exercise of these Class A
warrants;
o up to 1,500,000 of our Class B warrants issuable upon exercise of the
Class A warrants we distributed to our shareholders and up to
1,500,000 shares of our common stock issuable upon exercise of these
Class B warrants;
o an aggregate of 158,334 shares of our common stock held by selling
securityholders, 31,667 of our Class A warrants held by these selling
securityholders, up to 31,667 shares of our common stock and up to
31,667 Class B warrants issuable upon exercise of these Class A
warrants and up to 31,667 shares of our common stock issuable upon
exercise of these Class B warrants;
o an aggregate 1,134,727 shares of common stock held by selling
securityholders, which shares were acquired in connection with the
merger of WILC-Utah with and into us; and
o up to 196,078 shares of our common stock issuable upon exercise of our
debenture warrants issued to a selling securityholder, together with
up to 1,408,451 shares of our common stock currently issuable, subject
to adjustment, upon conversion of the $4 million principal amount of
the debenture held by this selling securityholder and up to 291,723
shares issuable in payment of accrued interest on this debenture, as
permitted by the terms of this debenture.
OTCBB Common Stock Symbol:................................................ILRN
Number of Shares of Common
Stock Outstanding as
of April 14, 2000...................................................7,658,334
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RISK FACTORS
The securities offered by this prospectus are speculative and involve a
high degree of risk. Accordingly, you should carefully consider the following
factors before making a decision to invest.
Since We Commenced Operations, We Have Spent The Majority Of Our Efforts On
Development Of Our Products. Accordingly, We Have a Limited Operating History
That Makes an Evaluation of Our Business Difficult.
Since we commenced operations in February 1997, we have concentrated the
majority of our efforts on product development and less time and expense on
marketing and sales. In 1998, we completed a research and development program
involving the development and testing of our proprietary Internet development
platform and our Internet compatible courseware management system. Since the
completion of this research and development program, we have been utilizing our
Internet development platform to accelerate the process of making our products
deliverable online via the Internet. In 1999, we released more than 400 hours of
Internet-deliverable math courseware for the K-8 market under the umbrella, Math
Expeditions. Therefore, our products have a limited history of client acceptance
and use, and as such, we have a limited trading history on which you can
evaluate our future performance. We are at an early stage in our development and
it is possible that our products may not sell in the volumes or at the prices
that we anticipate. In those circumstances, we would receive less than the
projected income from sales of our products and our profitability would suffer.
Before investing, you should carefully evaluate the risks, uncertainties,
expenses, and difficulties frequently encountered by early stage companies.
We Expect a Substantial Increase in Expenses and May Not Sustain Significant
Profitability, Which May Cause Our Stock Price to Fall.
Since we commenced operations in February 1997, we have primarily incurred
losses. As of February 29, 2000, we had an accumulated deficit of approximately
$2,784,000. We had net income of $77,000 for the fiscal year ended February 29,
2000, after incurring a net loss of approximately $1,662,000 for the fiscal year
ended February 28, 1999 and a net loss of approximately $1.2 million for the
period from February 14, 1997, the date we commenced operations, to February 28,
1998.
Although we had net income of $77,000 in fiscal 2000, we expect to incur
operating losses and to have a negative cash flow for the foreseeable future,
until we are able to substantially increase our revenues as we incur costs and
expenses related to:
o hiring personnel, including direct sales representatives, marketing,
and product development personnel;
o continued development and expansion of our Internet offerings and
content; and
o advertising, marketing, and promotional activities.
Our ability to achieve sustained profitability depends on our ability to
generate and sustain substantially higher revenues while maintaining reasonable
expense levels. Although we intend to increase our spending on the activities
listed above, these efforts may not result in increased revenues. We conduct
operations using estimates as to future expense levels based on our expectations
of future revenues. We
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cannot guarantee that we will be able to predict our future revenues accurately
or that we will be able to adjust spending to compensate for any unexpected
revenue shortfall. If we achieve profitability, we cannot be certain that we
will be able to sustain or increase profitability in the future.
We May Need Additional Financing to Meet Our Strategic Business Objectives,
Which May Not Be Available and, If Available, Might Hurt our Existing
Stockholders.
Revenue from our operations is not sufficient to finance the cost of fully
implementing our strategic plan to expand distribution of our products, develop
a Web site capable of online delivery of our educational courseware and convert
all of our courseware, so that it can be delivered online via the Internet. We
currently anticipate that the net proceeds from our March 2000 debenture
offering will be sufficient to meet our anticipated needs for working capital
and capital expenditures through the fall of 2000, when we expect to deliver our
products online via the Internet. However, we may need to raise additional funds
prior to that time. In order to aggressively expand our level of operations and
market over the Internet, we will need the proceeds from the Class A warrants
offered hereby or alternative financing. If we raise additional funds through
the issuance of equity or debt securities that have rights senior to those of
our stockholders, our stockholders may experience additional dilution or may
lose other rights. We cannot be certain that additional financing will be
available to us on favorable terms when required, or at all. If we cannot raise
funds on acceptable terms, if and when needed, we may not be able to take
advantage of future opportunities, grow our business or respond to competitive
pressures or unanticipated developments.
Our Quarterly Revenues are Volatile and Difficult to Forecast, Which Could Cause
the Price of Our Common Stock to Decline.
Our quarterly operating results have fluctuated greatly since our
inception. We expect significant fluctuations in our quarterly net sales and
operating results to continue. One reason for these fluctuations is that demand
for our products and services is subject to seasonal influences based on school
calendars, budget cycles and the timing of school districts' funding sources.
Our sales could be delayed from quarter to quarter due partly to our need to
educate school district decision-makers regarding the uses and benefits of our
educational courseware, and the lengthy multiple approval process that typically
accompanies significant capital expenditures by school districts. If a
significant sale expected to occur in a particular quarter is delayed and does
not occur until a future quarter, or does not occur at all, our quarterly
performance may be worse than expected. If our financial results for one or more
quarters fall below the expectations of investors, the trading price of our
common stock may decline. In response to changes in the competitive environment,
we make pricing, service or marketing decisions that could have a material
adverse effect on our business, financial condition, operating results and cash
flows.
We May be Unsuccessful in Adding an Online Delivery System to our
CD-ROM-based and Local Area Network Delivery System.
We are currently in the process of adding online delivery via the Internet
to our distribution of products online delivery via the Internet. Given the
purchasing practice in United States schools, we cannot guarantee that school
systems will want to subscribe to our products online.
Schools may not have Internet access for all students; may be too concerned
about outside influences from the Internet such as advertising and lack of user
control; and may not have adequate infrastructure to access educational software
online. Therefore, we may be unsuccessful in our efforts to
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migrate our existing and future customer base from the purchase of perpetual
licenses to subscribing to online access to our courseware via the Internet.
Failure to Retain and Integrate Our Sales Force Could Result in Lower Revenue.
We depend on our marketing and sales department to maintain and increase
our sales. As of April 1, 2000, our marketing and sales department consisted of
11 direct sales representatives and two sales support persons. The success of
our marketing and sales department is subject to a number of risks, including
the competition we face from other companies in hiring and retaining personnel
and the length of time it takes new marketing and sales personnel to become
productive. Our business, results of operations, cash flow and financial
condition could be materially and adversely affected if we do not maintain and
adequately compensate an effective marketing and sales department.
Full Internet-enablement of Our Products May Not be Commercially Successful.
Our educational courseware employs full-screen graphics, simulations and
sound technology in its presentation. To facilitate online delivery of these
media-rich products via the Internet, we are converting our existing products to
a new development platform. The full Internet-enablement of our products may not
be successful as a result of this new development platform. Also, full
Internet-enablement may not be completed according to our strict timetable,
which may result in the loss of our competitive position. Accordingly, delays in
our timetable for full Internet-enablement may reduce sales of our products and
have a material adverse effect on our financial condition, operating results and
cash flows.
Expansion of Our Limited Operations Will Strain Our Resources, and Failure to
Manage This Growth Effectively Could Disrupt Our Operations and Prevent Us From
Generating the Revenues We Expect.
We expect that significant expansion of our limited operations will be
required to successfully implement our business strategy. For example, our plan
to increase the distribution of existing software products and the development
of our Internet business will require increased expenditures as well as
increased development efforts. This expansion will strain our management,
operational, financial, and technological resources. We may not be able to
project accurately the rate or timing of growth in our business, or the cost of
expanding and upgrading our systems and infrastructure to accommodate any growth
in a timely manner. If we fail to manage our growth successfully, our ability to
maintain and increase our user base, and to maintain the integrity of our
systems and infrastructure will be impaired and, as a result, our business will
suffer.
The growth of our educational courseware business may strain the resources
of our professional development staff during periods of heavy implementation by
purchasing school districts. Our growth depends on our ability to attract and
retain qualified employees and consultants, particularly marketing and sales
personnel and to enter into agreements with independent educational sales
companies. Our failure to manage our growth in a manner that minimizes these
strains on our resources will disrupt our operations and ultimately prevent us
from generating the revenues we expect.
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Sales of Our Curriculum-Based Products are Geographically Concentrated, Which
Could Have a Material Adverse Effect on Sales of Our Products.
A substantial portion of our sales are concentrated in the States of
Missouri, Kentucky, Indiana and Illinois, which accounted for approximately
$402,000, $382,000, $271,000 and $261,000, respectively, of our net sales for
fiscal 2000. If large numbers of schools or a district controlling a large
number of schools in such states were to discontinue purchasing our products,
our financial condition, cash flows, and results of operations would be
materially and adversely affected.
Our Curriculum-Based Courseware May be Unable to Achieve or Maintain Broad
Market Acceptance, Which Inability Would Cause our Future Revenue Growth and
Profitability to Suffer.
Revenue from sublicenses of our courseware constituted approximately 70%
and 77%, respectively, of our total revenues in our fiscal years ended February
29, 2000 and February 28, 1999. The balance of our revenue came from customer
support, installation, and training. We expect to continue to generate a
substantial portion of our revenues from courseware sublicenses, and will need
to increase these revenues in order to more effectively grow in other areas of
our business. Revenues from licenses of our educational courseware will depend
principally on broadening market acceptance of our courseware, which may not
occur due to a number of factors, including:
o teacher, parent and student preferences for interactive educational
technology are subject to changes in educational theory;
o some teachers may be reluctant to use interactive educational
technology to supplement their customary teaching practices;
o we may be unable to control how a school uses our courseware and to
demonstrate improvements in academic performance at schools that use
our courseware; and
o our failure to detect defects in our courseware could result in
product failures or poor product performance.
If market acceptance of our courseware is not broadened, our future revenue
growth will suffer and we may never achieve sustained profitability.
Changes in Funding for Public School Districts Could Reduce Our Revenues and
Impede the Growth of Our Internet Business.
Substantially all of our revenue is derived from sales to public school
districts, which is heavily dependent on funding from federal, state and local
governments. Government budget deficits may adversely affect the availability of
this funding. In addition, the government appropriations process is often slow,
unpredictable and subject to factors outside of our control. Curtailments,
delays or reductions in the funding of schools, could delay or reduce our
revenues, in part, because schools may not have sufficient capital to purchase
our products or services. Funding difficulties experienced by schools could also
cause those institutions to be more resistant to price increases of our
products, compared to other businesses that might better be able to pass on
price increases to their customers. The growth of our business depends on
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continued investment by public school systems in interactive educational
technology and products. Changes in funding of public school systems could slow
this kind of investment.
We are Dependent on a Licensing Agreement Relating to a Substantial Portion of
Our Educational Courseware, Which Agreement Requires Us to Pay Royalties.
We are dependent on a licensing agreement between us and Wasatch Education
Systems Corporation for the right to market and sublicense to customers in the
education market for much of our curriculum-based educational courseware. Under
this license agreement, as amended in April 2000, we pay WESC royalties equal to
2.5% of our net revenues from licensed programs, but not for enhancements or
other modifications we make to licensed programs, which we will own, and our
license to market and distribute licensed programs becomes exclusive for all
markets.
If We Fail to Enhance Our Existing Products and to Successfully Introduce New
Products, Our Future Revenues from Sales Could be Less than We Expect.
The K-8 and adult education markets, in which we compete are characterized
by evolving industry standards, frequent product introductions, and
technological change. Our future success will depend, to a significant extent,
on a number of factors, including our ability to enhance our existing products
and develop and successfully introduce new products. We attempt to maintain high
standards for the effectiveness of our products. Our adherence to these
standards could delay or inhibit our introduction of new products. We cannot
assure that the products will not be rendered obsolete or that we will have
sufficient resources to make the necessary investments or be able to develop and
market the products required to maintain our competitive position. See "Business
- - Product Development."
The Success of Our Long-Term Business Model Requires Us to Generate Revenue From
Growth in Use of the Internet.
The successful implementation of our long-term business model depends, in
part, on our ability to generate significant revenues from growth in the use of
the Internet. If a substantial portion of the Class A warrants are exercised, or
we otherwise obtain funding to aggressively implement our Internet strategy, and
Internet usage does not continue to grow, our financial condition, cash flow and
operating results could be adversely affected. Some of the methods of generating
revenues from Internet usage are relatively new to us and largely untested. Our
ability to generate and increase our revenues from these sources depends on:
o improvement of the accessibility and ease of use of our Web site;
o development of a Web site that is sufficiently engaging to increase
and retain the number of teacher, student and parent visitors;
o purchases by parents and teachers of the products being offered at our
Web site; and
o our success in marketing the online delivery of our courseware on a
subscription fee basis, while maintaining our revenues from the CD-Rom
and network delivery of our courseware to schools.
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If we are unable to generate significant revenues from our Internet
business, we will not be able to implement our long-term business model and
achieve the profitability we currently anticipate.
If We Fail to Enhance Our Internet Products and Services Without Systems
Interruptions and Adapt Those Products and Services to Changes in Technology,
Our Future Revenue Growth and Profitability Could Be Less Than We Expect.
We believe that, if we are successful in our long-term funding goals
through the exercise of our Class A warrants, or otherwise, our future revenue
growth will depend in large part on whether we are able to enhance and improve
our Web site and services as planned. We cannot assure you, however, that any
enhancements and improvements will gain market acceptance or be launched on
schedule and without systems interruptions. The Internet is rapidly changing,
and we expect that we will continually need to adapt our Web site and its
related technology to emerging Internet standards and practices, technological
advances developed by our competition, and changing subscriber, user, and
sponsor preferences. Ongoing adaptation of our Web site and its related
technology will entail significant expense and technical risk, and we may use
new technologies ineffectively or fail to adapt our Web site and its related
technology on a timely and cost-effective basis. If our enhancements,
improvements, and adaptations of our Web site and its related technology are
either delayed, result in systems interruptions, or do not gain market
acceptance, our future revenue growth will suffer and we may never achieve
sustained profitability.
The Educational Technology Market is Intensely Competitive and We Expect
Competition to Increase Significantly in the Future, Which Could Prevent Us From
Successfully Implementing Our Business Strategy.
The educational technology market is intensely competitive and rapidly
changing. Barriers to entering Internet markets are relatively low, and we
expect competition to further intensify in the future, as more businesses use
the Internet to enter the education and home markets for education-oriented
products and services. Competition among Internet companies is also intensifying
for Web site sponsorships. We also may be adversely affected by pricing and
other operational decisions, like the decision of several companies that offer
educational content on the Internet to offer a free service rather than charge a
fee, which could hurt our potential subscription revenues.
Our competitors include:
o software publishers that market educational curriculum products to
schools and homes;
o on-line education-related content and electronic commerce providers
(including Internet content providers that license education-oriented
content from third parties and Internet retailers that may enter the
education electronic commerce market); and
o programs that enable remote learning, assume management of schools, or
provide concentrated tutoring services.
Many of our current and potential competitors have longer operating
histories, larger customer or user bases, greater brand recognition, and
significantly greater financial, technical, marketing, and other resources than
we do. Many of these current and potential competitors can devote substantially
greater
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resources than we can to product development, marketing and promotional
campaigns, and Web site and systems development.
It is possible that new competitors or alliances among our competitors may
emerge and rapidly acquire market share. Increased competition may result in
reduced operating margins, loss of market share, and diminished brand franchise,
any of which could materially adversely affect our financial condition, cash
flows, and operating results. We cannot assure that we will be able to compete
successfully against current or future competitors, or that competitive
pressures faced by us will not materially and adversely affect our financial
condition, cash flows, and operating results. See "Business--Competition."
Any Future Acquisition of Other Businesses and/or Involvement in Strategic
Relationships May Not Be Successful, Which Activities Could Distract Our
Management or Cause Us To Incur Additional Expenses.
We may acquire businesses in the future. Our integration of any future
acquisitions could distract our management or cause us to incur additional
expenses, and could cause our business and operations to suffer. We also may
enter into strategic relationships with complementary businesses. We cannot
assure that we will implement any strategic relationships or other arrangements.
If implemented, other strategic relationships we may enter into, may increase
our expenses or divert efforts of our management and may not be successful.
We Will Not Be Able to Grow Our Internet Business if the Market for This
Business Does Not Develop.
The success of our Internet business will depend in large part on the
continued emergence and growth of a market for Internet-based educational
technology products. The market for educational technology is characterized by
rapid technological change and product innovation, unpredictable product life
cycles, and unpredictable preferences among students, teachers, and parents.
Internet commercial businesses and services are evolving markets as well, and it
is difficult to estimate how and when growth or other changes in those markets
will occur. We therefore cannot predict that the market for Internet-based
educational technology products will continue to grow.
Unless We Maintain a Strong Brand Identity, Our Business May Not Grow and Our
Financial Results May Suffer.
We believe that maintaining and enhancing the value of our curriculum-based
educational courseware is critical to attracting purchasers for our courseware
and sponsors, subscribers and users of our Internet business. Our success in
maintaining brand awareness will depend on our ability to continually provide
educational technology that students enjoy using and teachers and parents
consider beneficial to the learning process. We cannot assure that we will be
successful in maintaining our brand equity. We may also need to spend
significant amounts in the future to maintain the value of our brands as they
relate to our curriculum-based educational software business. Revenues from
these activities may not be sufficient to offset associated costs.
Our Future Success is Dependent on the Performance and Continued Service of Our
Executive Officers and Other Key Employees and Our Ability to Attract and Retain
Skilled Personnel.
Our performance and future operating results are substantially dependent on
the continued service and performance of Barbara Morris, our president and chief
executive officer, and Carol Loomis, our vice
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president of development and secretary, and key technical and sales personnel.
To the extent that either Ms. Morris or Ms. Loomis' services became unavailable,
our business or prospects may be adversely affected. Each is employed under an
employment agreement which may be terminated by us or the employee at any time
upon 10 days' notice. We do not know whether we would be able to employ
qualified persons to replace either of these key individuals. We do not
currently maintain "key man" insurance for any of our executive officers or
other key employees.
We intend to hire additional marketing and sales personnel. Competition for
such personnel is intense, and we cannot assure that we can retain our key
technical, sales, and managerial employees or that we will be able to attract or
retain highly-qualified technical, sales and managerial personnel in the future.
The loss of the services of any of our senior management or other key employees
and our inability to attract and retain the necessary technical, sales and
managerial personnel could have a material adverse effect on our financial
condition, operating results, and cash flows.
We depend on our internal marketing and sales department to maintain and
increase our sales. As of April 1, 2000, our marketing and sales staff consisted
of 13 employees. The success of our marketing and sales department is subject to
a number of risks, including the competition we face from other companies in
hiring and retaining personnel, and the length of time it takes new marketing
and sales personnel to become productive.
We May Not Be Able to Prevent Others From Using Our Trademarks, Copyrights,
Software, and Other Intellectual Property Rights. If Others Do Use These Assets,
Their Value to Us, and Our Ability to Use Them to Generate Revenues, May
Decrease.
Our success is dependent on our ability to protect our intellectual
property rights. We rely principally on a combination of trade secret laws,
non-disclosure agreements, and other contractual provisions to establish and
maintain our proprietary rights. We currently license the rights to educational
courseware developed by WESC, including the right to modify and develop new
courseware programs based on this licensed courseware and the right to market
and sublicense this licensed courseware and any new courseware we derive from
this licensed courseware. We are aware that significant copying occurs within
the software industry, and if a significant amount of unauthorized copying of
our products were to occur our financial condition, cash flows, and operating
results could be adversely affected.
As part of our confidentiality procedures, we generally enter into
non-disclosure and confidentiality agreements with each of our key employees,
consultants, and business partners and limit access to and distribution of our
technology, documentation, and other proprietary information. In particular, we
have entered into non-disclosure agreements with each of our key employees and
business partners. Despite our efforts to protect our intellectual property
rights, unauthorized third parties, including competitors, may from time to time
copy or reverse engineer portions of our technology and use such information to
create competitive products.
Policing the unauthorized use of our software is difficult, and while we
are unable to determine the extent to which piracy of our software exists, such
piracy can be expected to be a persistent problem.
It is possible that the scope, validity, and/or enforceability of our
intellectual property rights could be challenged by competitors or other
parties. The results of such challenges before administrative bodies or courts
depend on many factors which cannot be accurately assessed at this time.
Unfavorable decisions
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by these administrative bodies or courts could have a negative impact on our
intellectual property rights. These challenges whether with or without merit,
could be time-consuming, result in costly litigation, and diversion of
resources, cause product shipment delays, or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all. In the event of a claim of
infringement against us and our failure or inability to license the infringed or
similar software, our financial condition, cash flows and operating results
could be materially adversely affected.
Although We Exhaustively Test Our Products, Defects May be Discovered by
Customers That Could Have a Material Adverse Effect on Our Business.
Prior to the release of new products or upgrades to existing products, we
rigorously test those products. However, despite testing, new products or
enhancements may contain undetected errors or "bugs" that are discovered only
after a product has been installed and used by customers. We cannot assure that
errors will not be discovered in the future. Any errors can cause delays in
shipments and materially and adversely affect our competitive position and
operating results. Although we have not experienced material adverse effects
resulting from any such errors to date, we cannot assure that any new or
enhanced products or releases will be error-free even after commencement of
commercial shipments. Discovery of errors in our products after the commencement
of commercial shipping could result in the following:
o loss of revenues;
o delays in market acceptance;
o diversion of development resources;
o damage to our reputation; and
o increased service and warranty costs.
Any of these occurrences could have a material adverse effect upon our
financial condition, cash flows, and results of operations.
Our Web Site May be Vulnerable to Security Risks.
The secure transmission of confidential information over the Internet is a
critical element of our operations. To date, we have not in the past experienced
significant network security problems. However, our Web Site may be vulnerable
to unauthorized access, computer viruses, and other security problems. Persons
that circumvent security measures could use our confidential information or our
customers' confidential information wrongfully or cause interruptions or
malfunctions in our operations. We may be required to expend significant
additional resources to protect against the threat of security breaches or to
alleviate problems caused by any breaches. We may not be able to implement
security measures that will protect sufficiently against security risks.
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Our Stock Price is Particularly Volatile Because of the Industry We are in.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated to or
disproportionate to the operating performance of these companies. The market
prices of the equity securities of some of our competitors have been
particularly volatile because of lower than anticipated operating results. These
broad market fluctuations could adversely affect the market price of our stock.
Our Executive Officers, Directors and Their Relatives Control Approximately 48%
of Our Common Stock Before This Offering.
Our executive officers, directors and their relatives in the aggregate,
beneficially own approximately 48% of 7,658,334 shares of our outstanding common
stock. Our executive officers, directors, and their relatives would own
approximately 41.3% of our common stock after this offering, giving effect to
exercise of all 3,063,334 Warrants, but not the conversion of the principal of,
and accrued interest on, the debenture we issued to one of the selling
securityholders or the exercise of the debenture warrants held by that
securityholder. These stockholders should be able to influence all matters
requiring approval by our stockholders, including the election of directors and
the approval of corporate transactions. This concentration of ownership may also
delay, deter or prevent a change in control of our company and may make some
transactions more difficult or impossible to complete without the support of
these stockholders.
There is No Prior Market for Our Warrants, and our Stock Price May Decline After
the Offering.
After this offering, the market price of our common stock may remain below
the exercise price of the Class A warrants. In addition, active public markets
for the Class A warrants or Class B warrants may not develop or be sustained
after this offering.
Approximately 59% of the Outstanding Shares of Our Common Stock Are Restricted
From Immediate Resale But May Be Sold Into the Market in the Future. We May Also
Issue Additional Stock Following This Offering. This Will Increase the Supply of
Common Stock Available for Resale, and Could Increase Trading Activity and Cause
the Market Price of Our Common Stock to Drop Significantly, Even if Our Business
is Doing Well.
Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common stock
to decline. After completion of this offering and the exercise of the 1,531,667
Class A warrants and the debenture warrants to purchase up to 196,078 shares of
our common stock and the assumed issuance of 1,408,451 shares of our common
stock upon conversion (at an assumed price of $2.84 per share) of the principal,
but not accrued interest on, the debenture we issued to a selling
securityholder, we will have 10,794,530 shares of common stock outstanding,
based on 7,658,334 shares of our Common Stock outstanding on April 14, 2000. Of
the 7,658,334 shares of our common stock outstanding, approximately 4,548,000
shares are deemed to be "restricted securities." Of these restricted securities,
1,293,061 are being registered hereby and will be eligible for sale in the
public market beginning on the date of this prospectus, but 800,000 of such
shares are subject to a six month lock-up agreement with the holder of the
debenture we issued in March 2000 and the remaining 493,061 shares are subject
to a similar three month lock-up agreement. The remaining 3,255,000 restricted
shares of our common stock include 2,805,000 shares issued in the merger that
are eligible for
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sale under Rule l44 under the Securities Act commencing January 20, 2001 and
450,000 shares which are currently eligible for sale under Rule 144.
Disclosure Relating to Low-Priced Stocks.
Our common stock, which is traded on the OTCBB, is subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended. The Exchange Act imposes
various sales practice requirements on broker-dealers who sell securities
governed by Rule 15g-9 to persons other than established customers and
accredited investors (generally institutions with assets in excess of $5,000,000
or individuals with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse). For transactions
covered by Rule 15g-9, the broker-dealer must make a special suitability
determination for the purchaser to have received the purchaser's written consent
to the transaction prior to sale. Consequently, Rule 15g-9 may have an adverse
effect on the ability of broker-dealers to sell our securities and may affect
the ability of purchasers in this offering to sell our securities in the
secondary market and otherwise affect the trading market in the common stock.
The Securities and Exchange Commission has adopted rules that regulate
broker-dealer practices in connection with transactions in "penny stocks."
Because our securities are subject to the penny stock rules, investors in the
offering may find it more difficult to sell their shares. Penny stocks generally
are equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in that security is provided by the exchange or system). The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market. The broker-dealer
also must provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction , and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker-dealer salesperson compensation information, must be given to the
customer orally or in writing before or with the customer's confirmation. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue"
or "opportunity," the negative of these terms or other comparable terminology.
These statements are only predictions. Statements made by us in the prospectus
concerning our ability, and our marketing and sales efforts, to deliver products
and services over the Internet and the effectiveness of our products, are all
forward-looking statements that involve risks and uncertainties. These risks and
uncertainties include: our ability to market our products and services both
online and off-line, the timely development and acceptance of new products and
services, the impact of competitive products and pricing, the timely funding of
school budgets, customer payments to us, and other risks described above under
"Risk Factors" and elsewhere in this prospectus. Actual events or results may
differ materially. In evaluating these statements, you should specifically
consider various
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factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform them
to actual results or to changes in our expectations.
USE OF PROCEEDS
We will not receive any proceeds from sales of our common stock by selling
security holders. We may, however, receive up to $65,371,188 of gross proceeds
from the exercise of our Class A warrants ($21,443,338), Class B warrants
($42,886,676), offered hereby and the exercise of the debenture warrants
($1,041,179), we issued to the holder of the debenture we sold in a private
offering in March 2000, assuming all of these warrants and debenture warrants
are exercised at their initial exercise prices. We cannot assure that any of our
warrants or debenture warrants will be exercised at their initial exercise
prices, or at all.
We currently intend to use the net proceeds from any exercises of our
warrants and debenture warrants for working capital and other general corporate
purposes. These purposes may include funding an increase in our direct sales
force, expanding into new markets, increasing branding and marketing campaigns
and other promotional activities, continued development, and expansion of our
Internet offerings and content, repayment of long-term debt, working capital
purposes, and funding anticipated operating losses. In addition, we may apply a
portion of these net proceeds to finance the evaluation and acquisition of
potential acquisition candidates and/or the consideration of, and the making of,
strategic investments in businesses, technologies, other products or services
which complement our product offering. We have no arrangements, agreements or
understandings concerning any possible acquisition. We cannot assure, however,
that we will, in fact, make any acquisitions or investments. Excess cash
balances from any proceeds will be invested in short-term interest bearing
investment-grade securities, including, but not limited to, short-term U.S.
Treasury securities, repurchase agreements, and bank deposits. In addition, we
expect to fund future expenditures from the proceeds of additional equity
offerings, debt financings, and cash flow from operations.
CASH DIVIDEND POLICY
We have never paid or declared any cash dividends on our shares. We
currently expect to retain future earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate paying cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of February 29, 2000:
Cash and cash equivalents $ 72,000
===========
Indebtedness(1):
Long-term debt $ 16,000
Capitalized lease obligations (2) 67,000
-----------
Total long-term debt 83,000
Stockholders' equity:
Common stock $.0001 par value,
authorized 100,000,000 shares,
issued and outstanding
7,658,334 shares 1,000
Additional paid-in capital 4,087,000
Stock subscription receivable (84,000)
Accumulated deficit (2,784,000)
-----------
Total shareholders' equity 1,220,000
-----------
Total capitalization $ 1,303,000
===========
- ----------
(1) Includes the current maturities of long-term debt and capital lease
obligations. See Notes 8 and 20 of the Notes to Financial Statements
included elsewhere in this prospectus for information relating to our
outstanding indebtedness and indebtedness incurred by us subsequent to
February 29, 2000.
(2) See Note 9 of the Notes to Financial Statements included elsewhere in this
prospectus for information relating to capitalized lease obligations.
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SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following table presents selected historical financial data for us and
is qualified in its entirety by reference to, and should be read in conjunction
with, our historical financial statements and the related notes included
elsewhere in this prospectus. Our historical financial data for our fiscal years
ended February 29, 2000 and February 28, 1999 and as of February 29, 2000, have
been derived from our financial statements which have been audited by Tanner +
Co., independent certified public accountants. Historical financial information
may not be indicative of our future performance. See "Management's Discussion
and Analysis Financial Condition and Results of Operations" and "Business".
<TABLE>
<CAPTION>
Fiscal Years Ended
February 29, 2000 February 28, 1999
----------------- -----------------
(in thousands of dollars)
<S> <C> <C>
Statement of Operations Data:
Net Sales $ 2,224 $ 1,948
Income (loss) from operations 153 (1,565)
Net income (loss) 77 (1,662)
Basic and diluted net income (loss) per share .02 (.49)
Weighted average number of common shares
outstanding - basic and diluted 3,855 3,379
<CAPTION>
As of
February 29, 2000
-----------------
Balance Sheet Data:
Total current assets $ 1,019
Total assets 1,723
Working capital 558
Long-term debt 42
Accumulated deficit (2,784)
Total stockholder's equity 1,220
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Overview
We develop, market, and sell curriculum-based educational courseware and
related services to schools, school districts, and adult education sites located
in the United States. Our comprehensive courseware library includes over 1,400
hours of instruction addressing the curriculum objectives for grades K-8, adult
basic education, and GED preparation. The subject areas covered include reading,
writing, mathematics, science, social studies, self-esteem, conflict resolution,
and life and job skills. All of our products have been integrated under our
Internet-compatible courseware management system, which allows the delivery of
our courseware on local area and wide area networks, by a teacher on a
demonstration teaching station, in a computer laboratory setting, or at home
through online access via the Internet and monitors student progress, tracks
time-on-task, assigns courseware, and prints progress reports. We recently
released a new mathematics product series which includes over 400 hours of
comprehensive instruction. These new products are deliverable online via the
Internet. By September 2000, we expect that virtually all of our products will
be Internet-deliverable.
Merger
On January 20, 2000, we entered into an agreement and plan of
reorganization with Wasatch Interactive Learning Corporation, a Utah
corporation, under which WILC-Utah merged with and into us. In connection with
the merger, we issued 3,605,205 shares of our common stock to the stockholders
of WILC- Utah, representing 48% of our outstanding shares of common stock after
such issuance, and we changed our name from AG Holdings, Inc. to Wasatch
Interactive Learning Corporation.
The merger has been accounted for as a reverse acquisition, whereby the
surviving company reflects the combined assets and liabilities of the surviving
company and the acquired company at their historical book values and the
historical operations of the combined companies are those of WILC-Utah. While
our common stock remains outstanding, for financial reporting purposes, the
accumulated deficit in retained earnings is that of WILC-Utah. The statement of
operations for the fiscal years ended February 29, 2000 and February 28, 1999
reflect WILC-Utah's operations for the two years ended February 29, 2000 and the
operations of the surviving entity of the merger from January 20, 2000, date of
reorganization, through February 29, 2000. As our financial operations for the
time periods discussed above were immaterial in relation to those of WILC-Utah,
a separate breakout of financial data for AG Holdings, Inc. has not been
presented.
Revenue
Our revenue is derived substantially from the sale of curriculum-based
educational courseware licenses to U.S. schools and school districts in the K-8
market, and adult education sites, which includes adult basic education and GED
preparation. We also generate revenue from installation, training, and customer
support services, for which we charge fees. Annual renewal fees are charged to
existing customers based on the number of file servers loaded with our software
at each school or adult education site. The renewal fee includes access to our
customer support representatives for a 12-month period and one software upgrade
of their licensed courseware. The average courseware sale is $30,000 and
consists of 40 network licenses, on-site installation, and two days of on-site
training. Courseware revenue is recognized
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when the software is shipped, collectability is probable, and there are no
significant obligations remaining. Installation and training revenue is
generally recognized when installation and training is complete, which normally
occurs within 30 days after product shipment. Renewal fee revenue is generally
deferred at the time of sale and recognized ratably over a 12-month period.
The majority of our revenue has been derived from the sale to schools and
adult education sites of workstation licenses of our licensed courseware and our
proprietary courseware.
Licensed courseware. Licensed courseware includes six suites entitled,
"Beginning Reading," "Projects for the Real World K-3," "Projects for the Real
World 4-8," "Basic Skills," "Job Skills," and "Windows Instructional Management
System." Wasatch Education Systems Corporation originally developed this
courseware, and we have the exclusive license to sell these products in the
education market. We have enhanced these products during the last three years,
updating the products to run on Microsoft's Windows 95, 98, and NT operating
systems. Under our license agreement with WESC, we own these enhanced products.
The majority of our revenues over the last three years has been generated from
the sale of WESC licensed courseware. When we sold WESC licensed courseware, we
were required to pay WESC a royalty based on 10% of net sales of licensed
courseware. However, our license agreement with WESC has been amended to reduce
royalties to 2.5% of our net sales commencing March 1, 2000.
Proprietary courseware. The following five suites of products constitute
our proprietary courseware:
o our comprehensive "Math Expeditions" courseware, which reinforces the
necessary mathematics skills for K-adult education market;
o our interactive set of tools and manipulatives that make abstract
mathematical skills concrete;
o our Java-based instructional management system; and
o our Student TRAX curriculum manager; and
o video test assessment product.
Installation, Training, Customer Support, and Print Revenue. Service
revenue includes fees for installation, on-site customer training, customer
support access via an 800 help number, and printed materials such as teachers'
manuals.
Future Revenue Sources. We anticipate that our revenue mix will change over
time. In the future, we plan to generate revenue from other sources, such as new
titles that may be developed to expand our proprietary courseware offering,
subscriptions to the online offering of our educational courseware, and related
services.
Cost of Revenue
Costs associated with our revenue include CD-ROMs, software documentation,
packaging, shipping, customer support labor, training support labor, royalties,
amortization of our licensed courseware capital costs, and other costs
associated with the production and delivery of our courseware and services.
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Operating Expenses
Our operating expenses are comprised of:
o research and development costs, which consist of employee labor costs
associated with the programming, graphic design, art production,
development, maintenance, and testing of our educational courseware
content and for making our content available online over the Internet.
We retain outside contractors from time to time to develop proprietary
software products. The decision to use our employees or outside
contractors to develop products rests with management and is usually
based on time constraints and cost effectiveness. It is our policy to
charge research and development costs to expense as incurred.
o sales and marketing costs, which consists of salaries, commissions,
related payroll and travel costs of our sales force, advertising,
promotion and displays at educational conferences, and marketing costs
associated with reaching our customers.
o general and administrative expense, which include salaries, benefits
and related payroll costs for our executive officers and
administrative personnel, office rent and equipment lease costs,
professional fees, and other general corporate expenses.
We expect our operating expenses to increase significantly as the number of
direct sales representatives increases, we continue to develop our Web site and
Web-based products, and we increase the number of employees in sales support,
marketing, and product development functions.
Results of Operations
The following table sets forth statement of operations data for our fiscal
years ended February 29, 2000 and February 28, 1999. This information has been
derived from our audited financial statements. You should read this information
in conjunction with our audited financial statements and the related notes
appearing elsewhere in this prospectus.
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<TABLE>
<CAPTION>
Fiscal Years Ended
February 29, 2000 February 28, 1999
----------------- -----------------
(in thousands of U.S. dollars)
<S> <C> <C>
Revenue:
Licensed courseware $ 1,068 $ 1,214
Proprietary courseware 635 145
Service income 521 589
------- -------
Total revenue 2,224 1,948
Cost of revenues 451 1,139
------- -------
Gross margin 1,773 809
Operating expenses:
Research and development 587 820
Sales and marketing 455 851
General and administrative 578 703
------- -------
Total operating expenses 1,620 2,374
------- -------
Income (loss) from operations 153 (1,565)
Other income (expense),
Interest expense, net (75) (97)
Provision for income taxes (1) (--)
------- -------
Net income (loss) $ 77 $(1,662)
======= =======
</TABLE>
Fiscal Year Ended February 29, 2000 Compared to Fiscal Year Ended February
28, 1999
Revenues
Our revenue increased to $2,224,000 in the fiscal year ended February 29,
2000 from $1,948,000 for the fiscal year ended February 28, 1999, an increase of
14%. The components of these revenues consisted of the following:
o Licensed Courseware Revenue. Licensed courseware revenue of $1,068,000
for fiscal 2000 decreased $146,000, or 12%, from the year ago level of
$1,214,000, as a result of our sales force concentrating their selling
efforts on our new "Math Expeditions" proprietary courseware, which
was released in September 1999.
o Proprietary Courseware Revenue. Sales of our proprietary courseware
increased $490,000, from $145,000 for fiscal 1999, to $635,000 for
fiscal 2000. This increase was attributable to market acceptance of
our new "Math Expeditions" product.
o Service Revenue. Service revenue of $521,000 for fiscal 2000 decreased
$68,000, or 11%, from the year ago level of $589,000. This decrease
was primarily attributable to a decrease in customer support fees for
DOS-based products, which are no longer being supported by us.
At February 29, 2000, our deferred revenue of $78,000 consisted of renewal
customer support fees of $61,000, training revenue of $11,000 and installation
revenue of $6,000.
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Cost of Revenues
Our cost of revenues decreased 60% to $451,000 for fiscal 2000, down from
$1,139,000 for the comparable period in 1999. Gross margin, as a percentage of
total revenues increased to 80%, an increase of 38% from fiscal 1999. The
substantial variance in our cost of sales and gross profit for fiscal 2000 as
compared to fiscal 1999, was the result of the following factors:
o Under our license agreement with WESC, we had the right to extend the
exclusivity period for licensed programs during each license year by
paying $500,000 to WESC. We elected not to extend the exclusivity
period for license year 2000, thereby saving $545,000 of expense, as
compared to fiscal 1999. In addition, when we elected not to extend
the exclusivity period, we had the right under the license agreement
to apply excess royalties paid since the date we commenced operations
(the difference between minimum royalties paid when we elected
exclusivity and the 10% royalties due if we did not elect exclusivity)
against future royalty expense. As of February 29, 2000, we recorded
as an asset, a $45,000 pre-paid royalty credit which we reasonably
expect to apply toward fiscal 2001 royalty expense.
o Training support labor costs decreased $132,000, or 66%, for fiscal
2000, as compared to the year ago level, as a result of our reduction
of our workforce by two employees in June of 1999 and a shift to using
less expensive independent contractors for on-site installation
services.
We expect our gross margin to remain in the 80%-85% range as we have
modified the terms of our license agreement with WESC and reduced our licensed
royalties from 10% to 2.5% effective March 1, 2000 and are introducing new
proprietary products.
Operating Expenses
Research and Development Costs. Research and development costs decreased by
28% to $587,000 for fiscal 2000, as compared to $820,000 for the previous fiscal
year. The decrease was attributable to the completion of development of our
Internet development platform and Java-based Internet courseware management
system in April 1999. Development of these products has enabled us to
dramatically reduce programming costs and speed up the development and delivery
of new courseware products. During fiscal 1999, we paid an outside contractor
approximately $240,000 to develop our Java-based Internet courseware management
system.
Sales and Marketing Expenses. Sales and marketing expenses of $455,000 for
fiscal 2000 decreased $396,000, or 47%, from $851,000 for fiscal 1999. The
decrease was primarily attributable to a reduction of 1.5 direct sales
representatives, one sales support employee, and a reduction in marketing and
educational conference participation in fiscal 2000, as compared to fiscal 1999.
We increased our sales force from 1.5 to 11 direct sales representatives in
April 2000 and expect to further expand our direct sales force to 20 by August
2000.
General and Administrative Expenses. In line with other operating expenses,
general and administrative expenses decreased $125,000, or 18%, from $703,000
for fiscal 1999 to $578,000 for fiscal 2000. The decrease reflects a decrease in
office lease expense, personnel, and office maintenance expenses. The decreases
in general and administrative expenses were partially offset by an increase in
professional expenses.
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Operating Income (Loss)
Income from operations for fiscal 2000 was $153,000, as compared to a loss
of $1,565,000 for fiscal 1999. This realization of income from operations was
due, in large part, to the significantly reduced operating expenses discussed
above. Income (loss) from operations for fiscal 2000 and fiscal 1999 include
non-cash charges for asset depreciation and intangible asset amortization of
$381,000 and $375,000, respectively.
Net Interest Expense
Net interest expense of $75,000 for fiscal 2000 decreased $22,000, or 22%,
from $97,000 for fiscal 1999 as a result of our repayment of borrowing under a
$500,000 line of credit earlier than anticipated.
Income Taxes
As of February 29, 2000, we had net operating loss carryforwards for tax
purposes of $1,500,000, which are available to offset future taxable income. The
Tax Reform Act of 1986 limits the annual amount, which can be used for certain
of these carryforwards as a result of our recent change in control. Our net
operating loss carryforwards begin to expire in 2017.
Net Income (Loss)
As a result of the foregoing factors, we had net income of $77,000 for
fiscal 2000, as compared to a loss of $1,662,000 for fiscal 1999.
Liquidity and Capital Resources
Historically, we have financed our operations by borrowings under secured
term loans, working capital lines of credit and loans from related parties.
During the fiscal year ended February 29, 2000, we received proceeds of
$1,220,000 from the sale of our common stock and repaid $576,000 of debt. The
remainder of the proceeds were used for working capital purposes.
Our cash position was $72,000 at February 29, 2000. Net cash used in
operating activities for fiscal 2000 was $540,000, as compared to $929,000 for
fiscal 1999. We used $32,000 for equipment purchases during fiscal 2000. No cash
was used for equipment purchases during fiscal 1999. Net cash flow provided to
us from financing activities was $644,000 for fiscal 2000 and $24,000 of net
cash was used by us in financing activities during fiscal 1999.
Current and long-term debt of $83,000 at February 29, 2000 is primarily
composed of capital lease obligations of $67,000. These leases have imputed
interest rates ranging from 11% to 18% per annum and expire in 2005. The
remainder of our debt is comprised of a $16,000 note payable to a financial
institution, which bears interest at a rate of 11% per annum and matures on
April 30, 2000. Long-term debt in the amount of $394,000 owed to two officers
and a shareholder was satisfied during fiscal 2000 through the issuance of
common stock. In addition, the same two officers forgave $658,000 in accrued
salaries during fiscal 2000. This forgiveness was recorded as a contribution of
capital. See "Related Party Transactions."
We have issued as a dividend, Class A warrants to shareholders of record as
of February 15, 2000, on the basis of one Class A warrant for each five shares
of our common stock outstanding on that date. Each Class A warrant entitles its
holder to acquire one share of common stock and one Class B warrant for
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$14 prior to February 15, 2002. Each Class B warrant entitles its holder to
purchase one share of our common stock for $28 prior to February 15, 2004.
Our future capital requirements will depend on a variety of factors,
including market acceptance of our products and the resources we devote to
developing, marketing, selling, and supporting our products. We expect to devote
substantial capital resources from the proceeds of exercises of the Class A and
Class B warrants, for the following purposes:
o increase distribution of our educational products by increasing our
direct sales force from 20 to 60 direct sales representatives and
expanding into new markets;
o development and expansion of our Internet offerings and content;
o branding, marketing campaigns, and promotional activities;
o strategic acquisitions and strategic relationships; and o working
capital.
On February 29, 2000, we completed an interim equity financing in which we
sold, for an aggregate of $950,000, 158,334 shares of our common stock and
31,667 Class A warrants sold at $6.00 per unit. In March 2000, we completed a $4
million private placement of a 7% convertible debenture sold to one
institutional investor. The $4 million debenture matures on March 16, 2003, and
was issued with warrants to purchase up to 196,078 shares of our common stock
exercisable at $5.31 per share. The debenture bears an interest rate of 7% per
annum with interest payable quarterly. The debenture is convertible into shares
of our common stock at the lesser of:
o $6.25 per share and
o 80% of the closing bid price of our common stock for any five
non-consecutive trading days during the 20-day trading period prior to
conversion.
We realized approximately $3,580,000 in net proceeds from the sale of the
debenture, which proceeds we intend to use for the following purposes:
o the hiring of 18 direct sales representatives and sales support
personnel;
o the hiring of additional personnel for product development, finance,
and customer support;
o continued conversion of our products to 32-bit/Internet enabled code;
o increased marketing activities, including participation at national
educational conferences; and
o other working capital needs.
We plan to raise at least an additional $3.0 million of capital within the
next six months through the sale of equity or debt securities as determined by
our board of directors at their sole judgment. We currently plan to use the
proceeds from the sale of our securities for continued implementation of our
growth strategy, working capital purposes and if we raise in excess of $3.0
million to either pay-off long-term debt or accelerate our growth strategy.
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BUSINESS
Overview
We provide curriculum-based educational courseware to two segments of the
educational technology market:
o the kindergarten through 8th grade, or K-8, market; and
o the adult market, which includes adult basic education and alternative
education students.
Our educational courseware titles address the majority of curriculum
objectives for grade levels K-8, adult basic education, and preparation for a
general education diploma, or GED. Our products offer instructional and
"packaging" flexibility and feature problem-solving, simulations, advanced
tools, and graphics. Our products are highly interactive and encourage users to
be "active doers."
Our products can be used on an individual computer running from a CD-ROM,
on a local area network, on a wide-area network, in a computer laboratory
setting, in the back of a classroom, and by a teacher on a demonstration
teaching station. Our educational courseware management system also allows use
of our educational courseware at home, or lessons running on the Internet, with
updated results sent to the parents and/or school.
We believe that the Internet is an integral component in improving academic
skills in schools and privately through home access. To enable our educational
courseware products to be delivered online via the Internet, we have completed a
research and development program under which we:
o developed a multimedia Internet development platform for rapid
conversion of existing or enhanced products for online delivery via
the Internet; and
o developed in conjunction with a business partner, our Internet
compatible educational courseware management system.
Our Internet development platform permitted us to release in 1999, over 400
hours of Internet- deliverable comprehensive K-8 mathematics courseware, as well
as a series of interactive mathematics tools.
Markets
The educational technology market can be divided into four segments:
o the school market;
o the adult education market;
o the home schooling market; and
o the Internet market.
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School Market. In this market segment, the primary emphasis is on content
and instructional methodology. Product life spans are much greater than retail,
marketing costs are lower, and the greater emphasis on content and instructional
methodology means development costs are lower, which may result in greater
profitability.
The school market for educational software is large and growing. According
to a report by Quality Education Data, Inc., or QED, in the 1998-1999 school
year, K-12 schools spent more than $6.7 billion on educational technology,
representing an increase of approximately 25% from previous year spending
levels. This report also indicates that spending on instructional software
increased by approximately 74% in the 1998-99 school year and is attributed, in
part, to the increased number of multimedia computers at school district and
individual school levels. QED research shows that in the last two years, the
average number of multimedia computers per school has increased nearly 200% and
that in the average school, two-thirds of the installed base of computers are
now multimedia. QED projects that K-12 districts will buy almost a third more
multimedia computers for instructional use in the 1999-2000 school year. Based
on 1999 data from Market Data Retrieval, the K-12 marketplace in the United
States consists of approximately 109,175 public and private schools, 14,349
school districts, and 51.4 million students. New schools are being added at a
rate of approximately 778 per year. Title I is the largest federally funded
education program at $7.7 billion, up 4% from the prior year, and it is
estimated to be the largest single source of funding for technology-related
products.
Internet access in schools is increasing as more teachers use the Internet
in their instruction. According to a recently released study by the National
Center for Educational Statistics of the U.S. Department of Education,
approximately 95% of U.S. schools were connected to the Internet last year,
compared with about one-third in 1994.
Adult Education Market. Based on data from the National Institute for
Literacy, approximately 4.0 million Americans are enrolled in adult education
courses which are generally provided through high schools, community colleges,
adult learning centers, and correctional facilities. A National Adult Literacy
Survey found that over 40 million Americans age 16 and older have significant
literacy needs and more than 20% of adults read at or below a fifth-grade level,
far below the level needed to earn a living wage. Management believes, based on
its knowledge of the industry, that there are a variety of other factors
involved in the dramatic growth of adult education programs in the United
States, including:
o high school dropouts establishing qualifications for job
opportunities;
o immigrant population seeking to develop English language skills;
o corporations trying to improve job performance of employees;
o a requirement to qualify for welfare; and
o prevention of recidivism in the nation's prisons.
It is generally accepted that funding for adult education is in the
billions, considering that Welfare-to-Work grants totaled $3 billion in 1998-99,
federal and state governments provided over $1.3 billion in 1997, the Job
Training Partnership Act grants are in the hundreds of millions of dollars, and
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millions of dollars more are provided through private funding. Use of
instructional technology is rapidly increasing to meet the demands of this
fast-growing market segment.
Homeschooling Market. According to the National Home Education Research
Institute, or NHERI, between 700,000 and 1.5 million children in the grade K-12
age group are being home-schooled in the United States, and the numbers are
growing every year. We believe that home schooling is growing at a significant
rate due, in part, to:
o increasing school violence;
o lowering opinions of public education standards; and
o the desire to protect children from undesirable influences outside the
home.
Another reason home schooling is growing at record numbers is that the
Internet is providing resources that make it easier for parents to teach their
children at home. On the Internet, families can create a virtual schoolhouse in
their living rooms. Almost every state has annual statewide homeschooling and
family learning conferences. While educational technology expenditures for this
market are difficult to estimate, homeschoolers have a great need for
comprehensive, effective managed educational courseware based on sound
educational research. A 1996-1999 NHERI study found that 86% of homeschoolers
have computers in their home, and 84% of them use their computers for
homeschooling. This market is accessible through conferences, direct mail,
advertising in specialized newsletters and magazines, and on the Internet.
Internet Market. The Internet is becoming an increasingly important part of
U.S. education, with teachers and parents viewing the Internet as a powerful
learning communication and information resource for use in both schools and in
homes. A Newsweek/Kaplan Poll of parents with children in grades K-8 shows that
approximately 75% of these parents have computers at home, and 62% are connected
to the Internet. More than half of the children in grades K-4 use computers at
least a few times a week. Teachers are seeking ways to effectively harness the
resources available on the Internet and offer their students safe and
appropriate materials.
As more parents and schools see personal computers and educational
courseware as possibly the most important investment they can make for their
children and students, there is a very large revenue potential from the online
accessibility of educational courseware. Internet-deliverable content is
becoming a valuable commodity as Internet companies are aggressively acquiring
content-providers. We believe that we are in the unique position of having
access to a broad range of educational content that is, or can be quickly and
cost-effectively, made Internet-deliverable.
Market Opportunity
We believe that increased spending on educational technology, a growing
commitment to improving student achievement, and rising demand for educational
programs that are built around or include educational technology has created a
significant market opportunity for providers of educational courseware and
Internet-deliverable educational products and services.
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While many technology companies are attempting to position themselves to
take advantage of this opportunity, we believe that none dominates the education
market, creating a competitive advantage for companies like us, that have a
comprehensive offering of educational courseware products.
We encourage learning by offering high-quality, media-rich, interactive,
curriculum-based content. Under our license agreement with WESC, we have:
o a perpetual, world-wide license to use and reproduce over 1,000
instructional hours of educational courseware for the K-8 and adult
education markets developed by Ms. Morris and Ms. Loomis while they
were at WESC and the right to enhance and upgrade this courseware or
prepare new courseware products using the code and/or instructional
content of this licensed courseware; and
o a perpetual world-wide license to directly or indirectly market,
distribute, sell and sublicense this licensed courseware and the new
courseware products we derive from the original courseware, as defined
in this license agreement.
We believe that our courseware is highly interactive, allowing the student
to respond to problems and receive immediate feedback. Through a combination of
animation, graphics, and sound, we provide a rich user interface that is
visually engaging and stimulating to students. Our consistent problem- solving
approach explains abstract concepts in the context of the student's everyday
life. We believe that this context improves the student comprehension and, as a
result, his or her overall performance in school. See "--Products" and
"--Intellectual Property."
We Expect to Offer a Broad Range of Products and Services. Our broad range
of products enables us to offer integrated school/home educational solutions.
Teachers will be able to access online tools, such as correlations, to help them
integrate our courseware into existing curricula and utilize a variety of tools
to evaluate student performance. Specifically, we are developing an online
assessment product that, while correlating to all national and state standards,
measures student performance through online tests. This diagnostic functionality
then can be used to prescribe specific components of our educational content
that address diagnosed areas of weakness in student performance. We believe that
these tools will improve the overall instructional capabilities in an
environment in which teachers are becoming increasingly accountable for the
performance of their students, and will allow teachers to increase their control
of the learning process.
We expect that parents will be able to use our various online services to
help them monitor the progress of their children and communicate with other
parents and teachers. Students will be able to use our Web site to complete
homework assignments.
Our newly developed Internet development platform accelerates our ability
to make our existing products Internet-deliverable and our courseware management
system permits students to rapidly access, and teachers to effectively manage
the use of our products by their students. Through the use of our proprietary
Internet development platform, we released for distribution in 1999 more than
400 hours of comprehensive K-8 mathematics courseware which is deliverable
online via the Internet, as well as a series of interactive mathematics software
tools. We believe we were able to complete this project in half the time and at
a cost reduction of approximately of 50%, as compared to the time and cost that
would be required by our competitors to complete a similar project. In addition,
we believe that our
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Internet compatible remote-access courseware management system, under which all
of our products have been integrated, gives us a competitive advantage in the
educational technology market and a significant advantage in the Internet
segment of that market. We believe that the availability of this remote-access
management system for use with our educational courseware will significantly
enhance our ability to sell our products to school districts and schools.
Our experienced professional development staff, coupled with our library of
educational courseware, and our Internet development platform, will facilitate
the rapid development of new products for the educational technology market. In
addition to our current educational courseware offering, we have the right under
our license agreement with WESC to additional content from a family of
educational courseware which is currently being used in over 250 schools. We
believe this courseware provides high quality content for new products. We
believe that this content, coupled with our professional development staff, lead
by Ms. Morris and Ms. Loomis, and our proprietary Internet development platform,
will facilitate the rapid development of new products which will be deliverable
on a CD-Rom to Windows and MacIntosh users and deliverable online via the
Internet.
Strategy
Our objective is to become a leading provider of technology-delivered,
curriculum-based educational material in the K-8, adult education and home
segments of the educational technology market. To achieve this objective, we
intend to pursue the following strategies:
Expand the Distribution of Our Products. We intend to implement the
following strategy over the next six months:
o Expand the geographic distribution of our courseware products from 19
states as of April 1, 2000 to 30 states. Starting with 1.5 direct
sales representatives in l999, we expanded to ll representatives by
April 1, 2000. We expect to further increase our direct sales force to
20 representatives and increase the number of independent educational
reseller companies for our products from two to 10 companies.
o Expand our product sales to niche markets within the educational
technology market, such as adult basic education programs, alternative
high schools, correctional institutions, charter school, private
schools, home schooling, community colleges, and home usage via the
Internet.
o Increase our participation at educational conferences.
Develop and Enhance Our Educational Web site. We intend to make our Web
site accessible to parents, students and teachers by offering online application
products targeted at the needs of these constituencies, on a subscription fee
basis, rather than the traditional one-time license fee. For example, we intend
to offer programs on our Web site that will permit:
o parents to diagnose learning deficiencies of their children, select
courseware for improving academic performance, then monitor a child's
academic progress;
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o students to use our Web site to complete online lessons, submit
completed homework assignments, use research tools, or chat with
experts;
o teachers to customize instructions for individual children,
communicate with parents, submit homework assignments to students,
obtain home progress reports, and discuss effective instructional
techniques with other teachers;
o parents engaged in home schooling to use our Web site to test children
on standard learning objectives, assign specific courseware, and
discuss teaching strategies online; and
o adults seeking to further their basic education to complete their GED
requirements, learn English, or improve basic skills.
Enhance and Upgrade Existing Products and Develop New Products. Our
research and development strategy is to:
o utilize our Internet development platform to make all of our existing
products Internet- deliverable as rapidly as possible;
o complete development and testing of an educational assessment product
that will have applications in all segments of the educational
technology market. We believe that this assessment product will be
especially attractive to parents because it will permit parents to
determine the educational skills of their children, as compared to
applicable state standards, and will recommend, and permit parents to
purchase from us online, specific software products designed to
address the specific educational deficiencies identified by our
assessment product; and
o enhance our courseware management system so that it can be used in
e-commerce transactions on our Web site.
Capitalize on the Experience of Our Management and Product Development
Personnel. We have a management team with extensive educational technology
experience led by Barbara Morris and Carol Loomis. They were responsible for the
development of the licensed programs available to us under our license agreement
with WESC. Both have had extensive management experience with leading
educational technology companies, and Ms. Morris has extensive experience in
educational sales management. In addition, Ms. Loomis has significant experience
in developing multi-media educational courseware, and both have hands-on
experience in the teaching profession. Other key members of our development
staff have extensive experience in the development of educational courseware or
multi- media computer programming. Our national sales manager has six years of
experience in educational technology sales, beginning his career at WESC. Prior
to that time, he was technology director for an Indiana school district, an
assistant principal and a teacher.
Pursue Strategic Acquisitions and Relationship. As financial resources
become available, we intend to enter into strategic acquisitions and
relationships to facilitate the growth of our business through diversification
of revenue sources and revenue growth and the addition of technological
resources and experience. While several candidates have been identified, we have
not had any
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negotiations with these candidates and have no commitments to acquire any
company or to enter into any strategic relationship.
Products
Our products and services include technology-based educational tools and
resources that can be used by teachers, students, and parents to increase
student performance. Our products address curriculum objectives for grade levels
K-8, adult basic education, and GED preparation. Customers may choose from one
or a series of products that address curriculum objectives on a specific grade
level or multiple grade levels. For example, our Projects for the Real World
series is packaged by grade level, by interdisciplinary thematic unit, or as a
comprehensive collection of K-8 units containing skills correlated to textbooks
for reading, math, and writing. Our products are highly interactive and
encourage users to be active "doers."
Our products can be used on an individual computer running from a CD-ROM,
on local area networks, on wide-area networks, in a computer laboratory setting,
in the back of classrooms and by teachers on a demonstration teaching station.
Our newest products are deliverable online via the Internet. Our courseware
management system allows use of courseware at home, or lessons running on the
Internet, with updated results sent to the parents and/or school.
Our products are developed to encompass the skills and objectives
traditionally presented as necessary skills at specific grade levels. Each
series of products is designed to have broad appeal and to be interesting and
motivating to children and adults requiring the skills. Each product has from
six to 12 interactive tools that are accessible and integrated into the lessons
or can also be accessed from the desktop and used independently for other
content or subject areas.
Our Math Expeditions product series consists of 145 units and 402 lessons
designed to teach mathematics skills for grades K-8. The product is available by
grade level, as individual skill lessons, by strands across grade levels (e.g.,
numeration) and as a comprehensive set of lessons. Our Math Tools product series
is packaged as individual tools or as a set of four tools. Our Math Expeditions
product series can be delivered on an individual computer running from a CD-ROM,
over local area and wide area networks, and online via the Internet, using
Microsoft or Netscape browsers.
Our Projects for the Real World, K-3 product series consists of 26 units
containing 485 activities, targeted to teach and reinforce the skills in
reading, mathematics, writing, science, social studies and self esteem taught in
grades K-3. The user identifies with 12 "Wasatch kids" animated characters, who
serve as mentors modeling learning and problem-solving strategies.
The online recorder tool allows the user to record his/her own voice
reading a passage and play it back comparing it to the original passage.
Our Projects for the Real World, 4-8 product series consists of 20 units
containing 235 scored learning activities, combined with integrated online
tools, designed to teach and reinforce skills in reading, writing, mathematics,
social studies, and science for grades 4-8. This series is also appropriate for
teenagers and adults needing to learn grade 4-8 skills. The online studio tool
allows the user to produce a fully automated, voiced computer slide show. The
product presents projects based on real world issues and content.
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Our Beginning Reading/Phonics K-5 product series consist of three units
containing 56 lessons for the K-5 market, designed to give users the skills to
become independent readers, writers, and thinkers. This is a self-contained
multi-media phonics and language development program. The product offers a
series of lively adventures featuring original graphics and photographs. This
series is designed to complement our Projects for the Real World product series.
Our Basic Skills for the Real World product series consists of eight units
containing 80 hours of instruction, arranged in 159 lessons, designed to teach
and reinforce reading, writing, mathematics, problem-solving, and job skills in
meaningful contexts, targeted at the grade 7-adult basic education market.
Our Job Skills For The Real World product series consists of three units
containing approximately 30 hours of instruction, arranged in 28 lessons,
targeted at the grade 7-adult education market. This product series is designed
to teach and reinforce the job skills and competencies outlined in the U.S.
Department of Labor publication, "What Work Requires of Schools."
All of these products have been integrated under our Internet compatible
courseware management system. This courseware management system allows a teacher
to monitor student progress, provides automatic tracking of student
time-on-task, assigns software, administers online testing, and prints progress
reports. This product features a teacher-friendly design, online help, notice of
student difficulty, and customizable features and can be accessed remotely by
the teacher via the Internet.
All of our products have been updated to run on Microsoft's Windows 95,
Windows 98, Windows NT and Novell versions. Currently, our Math Expeditions
product series runs on Apple's MacIntosh Operating System. We expect that by
September of 2000, all of our products will be updated to run on the MacIntosh
operating system.
In addition, we have the right under our license agreement with WESC to use
exploit the content of a family of courseware products which products are
actively being used in over 250 schools and provide, we believe, excellent
content for new products.
These products consist of the following titles:
o Communication Arts: Beginning Reading, Help Yourself Read, Reading
Comprehension, Literature Bridge and Language Development - five
courses designed to develop reading and writing skills of students in
grades 3-8.
o Science: Life, Earth, Physical and Biology - four comprehensive
courses based on discovery and exploration; simulations model
real-world phenomena, and targeted at grades 5-adult basic education.
o Writing: Writing, Reading, Thinking Lab - five writing tools with
curriculum designed to develop the writing skills of students,
targeted at grades 3-adult basic education.
o Mathematics: Math for Life and Algebra - targeted at grades 5-adult
basic education.
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o Adult/Alternative Education: Life Skills, Building Work Skills, Steps
to Reading, Steps to Success, and GED Preparation - targeted at
teenagers and adults.
Product Design and Development
We consider successful product design and development to be essential to
maintaining and growing the market for our curriculum-based products. We expect
to continue enhancing our existing curriculum-based products while significantly
increasing our efforts to develop new courseware.
Our product series includes a diverse mix of media, formats, and visual
presentations. Our products are built according to the following fundamental
design principles, which we believe differentiate our products from competitive
products:
o we correlate each title to state and national academic standards; and
o we create interesting characters in engaging situations that unfold
with the help of real-world simulations, audio, and sophisticated
interactivity.
Product concepts originate within our professional development staff led by
Barbara Morris and Carol Loomis. The products are designed and developed by our
development staff, which is occasionally augmented by external consultants and
contractors. All creative work for the products is done in-house, including
original concepts, storyboards, and animation design. Audio is recorded at a
local studio and integrated into the product by our development staff.
Educational consultants are involved throughout the development process.
Our development plans include making all existing products deliverable
online via the Internet by September 2000. We intend for these products to have
features and functionality specific to the content and to have the consistency
of use provided by our Internet development platform. Each series is
self-contained or complements other products targeted at the same grade level
when purchased together.
Marketing and Sales
We sell our curriculum-based educational courseware directly to school
districts, public and private schools, alternative high schools, and adult
education sites. We target sites that use technology for interactive computer
learning. Schools are becoming more involved in the decision process as site-
based management is implemented within school districts. The sales cycle for the
initial purchase of our curriculum-based educational courseware is typically six
months.
During fiscal 2000, approximately 41% of our revenue came from the States
of Kentucky, Illinois, Indiana and Missouri; 9% from Georgia; and 8% from
Arizona.
As of April 1, 2000, we employed 11 direct sales representatives. As of
that date, this sales force was supported by our two person inside sales support
staff. Our inside sales support staff provides pre- and post-sales support and
works with schools currently using our products to identify additional sales
opportunities. While our sales personnel and sales support team are focused on
selling into new accounts and increasing our presence in current accounts, they
also act as partners with implementing schools in
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identifying funding sources. Each of our direct sales representatives has
substantial experience in educational technology sales, is generally working in
his or her home territory and has extensive contacts in school districts within
that territory. We also currently distribute our products through two
independent educational reseller companies. Our direct sales representatives
currently service Kentucky, Illinois, Indiana, Michigan, Missouri, Ohio,
Virginia, West Virginia, North Carolina, South Carolina, Mississippi, Louisiana,
Texas, Arkansas, Georgia, Florida, California, Arizona, and Utah. The Company's
current independent educational reseller sales companies service Chicago,
Illinois and Dade County, Florida.
Currently, we are focusing our efforts on broadening our geographical
distribution by hiring up to nine additional direct sales representatives and
engaging up to 10 additional independent educational reseller companies.
Our products are sold to several other school districts outside the
distribution areas described above, either through existing customer updates,
customer references, or exposure at national conferences. In fiscal 2000, school
districts in California purchased approximately $110,000 of our products through
direct purchases without any direct sales representation.
We have been successful selling products in those states where our products
are marketed. We believe that sales will accelerate with the direct marketing in
the other states where there is currently no exposure to our products.
Professional Development and Support Services
We believe that successfully implementing our products and services in
schools is necessary to realize potential improvements in student achievement.
We also believe that improvements in student achievement are best realized with
comprehensive curriculum-based products and training and support after the
initial installation for courseware. Our goal is to become a partner to schools
that implement our products and services. We believe the features of our
curriculum-based courseware and our effective service and support differentiate
us from our competitors.
As of April 1, 2000, we employed a three-person professional development
staff to provide pre-sale planning and post-sale implementation, customer
support, training services and motivation for teachers, administrators, and
parents in schools using our products. We also operate a toll-free, five-day per
week technical and curriculum support telephone help line. Schools may purchase
a yearly customer support package that includes access to our toll-free help
line and courseware update. Schools may purchase additional professional
development or support services. We offer installation of our software products
on a fee per site basis and on-site training on a fee per day basis. We
recommend installation services for customers that operate a local or wide area
network. We believe that the on-site training provided by our professional
development staff is a key factor in the successful implementation of our
programs and in encouraging school districts to implement our products in more
schools within the district and in additional classrooms within an individual
school.
Competition
The market for educational technology dollars is highly competitive, with
no company having significant market penetration. We generally compete for
educational technology dollars with
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companies providing single-title retail products, software publishers Internet
content and service providers and computer hardware companies, among others. We
believe we compete favorably with educational courseware products in these
categories on a price and performance basis.
As Internet and broadband services become more widely deployed in the K-8
and adult education segments of the educational technology market, we believe
new and as yet unidentified competition will enter the market. Traditional media
companies and rapidly expanding Internet companies are likely to present new
competition. Many of our current and potential competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. In
addition, many of these current and potential competitors can devote
substantially greater resources to product development, marketing, promotional
campaigns, and Web site and systems development than we can.
In the K-8 segment of the educational courseware market, we compete with
comprehensive curriculum software publishers which distribute various
computer-based learning systems, including Computer Curriculum Corporation,
Compass Learning Corporation (formerly Jostens Learning), and Curriculum
Advantage Corporation.
We believe that we compete favorably with these companies on the basis of
price and quantity of our products, their comprehensive coverage of skills in
grades K-8, and the number of our products that are deliverable online via the
Internet and an Internet compatible courseware management system.
In the adult education segment of the educational courseware market, PLATO
Learning is one of our largest competitors and both Pearson Education and
McGraw-Hill have acquired educational software companies that compete in this
market. We believe that:
o no one educational software company dominates this rapidly growing
market segment;
o we believe we compete favorably with these companies in the quality
and depth of coverage of our product; and
o we believe we can compete favorably by having all of our products
deliverable online via the Internet by September 2000.
Intellectual Property
We rely principally upon a combination of copyright, trademark, and trade
secret laws and contractual restrictions to protect our proprietary rights.
To the extent our products consist of licensed programs under our license
agreement with WESC, we have the exclusive, perpetual, worldwide license to use,
copy, display, modify and prepare licensee derivative works from the licensed
programs. "Licensee derivative works" are educational courseware products
containing a substantial amount of code or instructional content derived from
licensed programs.
WESC has also granted to us under the license agreement, the exclusive
perpetual, worldwide right to market, distribute, sell and sublicense in the
education market, licensed programs, third-party
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courseware, and licensee derivative works. Commencing March 1, 2000, our license
to market, distribute and sublicense licensed programs became exclusive as to
all markets.
The licenses granted to us are subject to our obligation to pay prescribed
royalties to WESC on the net revenues we receive from the distribution or
sublicensing of the licensed programs. The license agreement also grants to us
an exclusive, perpetual, worldwide, royalty-free license to use all trade names
and logos associated with the licensed products.
Our Internet compatible instructional management system was developed for
us, on a contract fee basis, by PlaNet Software, Inc. as a unique version of
their proprietary Internet compatible instructional management system. The fee
we paid to PlaNet included a royalty-free license to distribute this product. In
this connection, PlaNet has granted us a perpetual, worldwide, non-exclusive
right to reproduce and distribute this product in object code form only and a
similar license to produce from the source code for PlaNet's instructional
management system, enhanced versions of the original product. However, we are
prohibited from distributing this source code. PlaNet continues to technically
support, provide error-correction service and enhance and update our Internet
compatible instructional management system pursuant to our software maintenance
agreement with them.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties, but we cannot assure you that third parties
will not claim infringement by us or by our licensees with respect to past,
current or future technologies. We expect that participants in our markets
increasingly will be subject to infringement claims as the number of services
and competitors in our industry segment grows. Any such claim, whether or not it
has merit, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have a material adverse effect on
our business, results of operations and financial condition.
Seasonality
Our operating results are expected to vary significantly from quarter to
quarter because of seasonal influences on demand for our curriculum-based
products and our services are based on school calendars, budget cycles and
timing of school districts' funding sources. Our revenues have historically been
highest in our fourth fiscal quarter, and lowest in our first fiscal quarter.
Government Regulation
In general, existing laws and regulations apply to transactions and other
activities on the Internet. However, the precise applicability of these laws and
regulations to the Internet is sometimes uncertain. Many of these laws were
adopted prior to the advent of the Internet and, as a result, do not contemplate
or address the unique issues of the Internet or electronic commerce.
Nevertheless, numerous U.S. federal and state government agencies have already
demonstrated significant activity in promoting consumer protection and enforcing
other regulatory and disclosure statutes related to the Internet. Additionally,
due to the increasing use of the Internet as a medium for commerce and
communication, it is likely that new laws and regulations may be enacted with
respect to the Internet and electronic commerce covering issues such as user
privacy, freedom of expression, advertising, pricing, content and quality of
products and services, taxation, intellectual property rights and information
security. The adoption of such laws or
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regulations, and the applicability of existing laws and regulations to the
Internet, may adversely impact the growth of use of the Internet in general and
our ability to conduct our business in particular, which would affect our
business negatively.
Specific laws and regulations concerning the use of the Internet have been
enacted. In particular, acting under the mandate contained in the Children's
Online Privacy Protection Act, the Federal Trade Commission, or FTC, recently
adopted regulations, effective April 21, 2000, that prohibit unfair and
deceptive acts and practices in connection with the collection and use on the
Internet of personal information from children under 13 years of age. The Child
Online Protection Act of 1998, also known as COPA, prohibits harmful commercial
communications over the world wide web that are available to any person under l7
years of age. COPA, however, was declared unconstitutional by a federal district
court earlier this year and that decision is currently on appeal. If the
district court's decision is overturned and that ruling is upheld upon further
appeal, providing information to minors over the Internet would be greatly
limited. The FTC has strongly advocated that even general audience Web sites
establish privacy policies that include procedures to disclose and notify users
of privacy and security policies, obtain consent from users for collection and
use of information, and provide users with the ability to access, correct and
delete personal information stored by the Web site. We cannot assure you that we
will adopt policies that conform with regulations adopted or policies advocated
by the FTC or any other federal or state governmental entity.
It is also possible that "cookies" may become subject to laws limiting or
prohibiting their use. "Cookies" refers to information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge or consent, which is used to track
demographic information and to target advertising. Some of the currently
available Internet browsers allow users to modify their browser settings to
remove cookies at any time or prevent cookies from being stored on their hard
drives. In addition, a number of Internet commentators, advocates and
governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
eliminations of the use of cookies could restrict the effectiveness of our
targeting of advertisements, which could have a material adverse effect on our
ability to general advertising revenue.
The U.S. government has proposed legislation that would afford broader
protection to owners of databases of information, such as stock quotes and
sports scores. If enacted, this legislation could result in an increase in the
price of services that provide data to Web sites. In addition, this legislation
could create potential liability for unauthorized use of this data.
Because our services will be accessible throughout the United States, a
state may claim that we are required to qualify to do business as a foreign
corporation in that state. We are currently qualified to do business in each
state in which we are soliciting sales of our products. Our failure to qualify
as a foreign corporation in a state in which we are required to do so could
subject us to taxes and penalties and could result in our inability to enforce
contracts in those states. Any new legislation or regulation, or the application
of laws or regulations from jurisdictions the laws of which do not apply to our
business currently, could have a material adverse effect on our business.
Legal Proceedings
We are not a party to any material legal proceedings.
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Employees
As of April 1, 2000, we employed 26 persons, including our three executive
officers, nine in technology and development, one in general and administrative
and 13 in marketing and sales. We expect that our headcount will increase,
particularly in sales, technology and development. None of our employees is
represented by a labor union and we consider our employee relations to be
satisfactory.
Facilities
Our headquarters are located at 5250 South Commerce Drive, Salt Lake City,
Utah 84107, where we currently lease approximately 8,900 square feet under a
lease expiring in 2002. We consider this facility to be adequate for our current
and foreseeable needs.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information as of April 1, 2000 concerning
our executive officers and directors:
Name Age Position
---- --- --------
Barbara Morris 52 President, chief executive officer and a
director
Carol Loomis 53 Vice president of development, secretary
and a director
Todd Brashear 37 Chief financial officer
Barbara Morris has served as our president and chief executive officer and
one of our directors since January 20, 2000, the effective date of the
reorganization of Wasatch Interactive Learning Corporation, a Utah corporation,
with and into us. She served as president and a director of WILC-Utah from
February 1997 to February 4, 2000, the effective date of the merger of WILC-Utah
with and into us. Ms. Morris served as chairman of the board and chief executive
officer of Wasatch Education Systems Corporation from 1992 to February 1997,
when she resigned from her positions with WESC to join WILC-Utah. From 1988 to
1991, she was affiliated with Jostens Learning Corporation, now called Compass
Learning Corporation, initially as group vice president of sales and then as
president of Tapestry Learning Corporation, a subsidiary of Jostens Learning
Corporation. From 1980 to 1988, Ms. Morris served in increasingly responsible
positions with Prescription Learning Corporation, initially as an educational
consultant and finally as vice president of sales and general manager. Prior to
joining Prescription Learning, she was a teacher of mathematics for more than 10
years.
Carol Loomis has served as our vice president of development and secretary
and as one of our directors since January 20, 2000, the effective date of the
reorganization of WILC- Utah with and into us. She served as vice president of
development and a director of WILC-Utah from February 1997 to February 4, 2000.
Ms. Loomis served as vice president of development for WESC from 1992 to
February, 1997, when she resigned from her positions with WESC to join
WILC-Utah. From 1988 to 1991, she was affiliated with Jostens Learning
Corporation, initially as director of language arts and software design and then
served as vice president of development for Tapestry Learning Corporation. From
1984 to 1988, Ms. Loomis served as director of language arts development for
Prescription Learning Corporation. Prior to joining Prescription Learning, Ms.
Loomis served as a reading education specialist for more than 11 years.
Todd Brashear has served as our chief financial officer since February 14,
2000. He served as chief financial officer for TransWest Air Service, Inc., Six
Ranch, Inc. and other profit and not-for-profit entities of L.S. Skaggs from
July 1997 to February 2000. From 1992 to June 1997, he served as finance and
human resource manager for the Housing Authority of Salt Lake City, Utah. Mr.
Brashear is a licensed certified public accountant in the State of Utah and has
a B.A. in accounting from the University of Utah and a Master of International
Management from the American Graduate School of International Management.
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Directors hold office until the next annual business meeting of our
shareholders and the election and qualification of their successor. Our board of
directors has not established an audit or compensation committee. Decisions
concerning salaries and incentive of employees and incentive compensation of
employees are made by our board of directors. Officers are elected by our board
and serve at the discretion of the board.
Key Employee
Thomas Collins, age 50, has served as our national sales manager since
February 14, 2000 and a senior sales representative since January 20, 2000, the
date of the reorganization. Prior thereto, he served as senior sales
representative for WILC-Utah from February 1997. Mr. Collins served as a sales
account executive for WESC from 1995 to February 1997. From 1970 to 1995, Mr.
Collins was a mathematics teacher, an assistant principal and technology
director for an Indiana school district.
Directors Compensation
Our directors do not currently receive any cash compensation for services
on the board of directors or reimbursement for expenses incurred in connection
with attendance at board meetings.
Executive Compensation
Salary at the annual rate of $150,000 was accrued by us for Barbara Morris,
our president and chief executive officer, for the period February 14, 1997
through February 28, 1998 and fiscal 1999 and 2000, but not paid by us to Ms.
Morris. Salary at the annual rate of $120,000 was paid to Carol Loomis, our vice
president of development and secretary, for the period February 14, 1997 to
February 28, 1998. For fiscal 1999 and 2000, salary was accrued for Ms. Loomis
at the annual rate of $120,000, but only $35,000 was paid to her. In December
1999, Ms. Morris and Ms. Loomis released us from liability to make these salary
payments to them and the accrued amounts were deemed to be a contribution to our
capital by these officers. In fiscal 2000, each of Ms. Morris and Ms. Loomis
received bonus compensation from us of $15,000 and the grant of options to
purchase up to 250,000 shares of our common stock. No other annual or long-term
compensation was provided, accrued or paid by us for them. See "--Employment
Agreements" and "Related Party Transactions."
Option Grants In Last Fiscal Year
The table below includes the number of stock options granted during fiscal
2000 to our executive officers:
<TABLE>
<CAPTION>
Individual Grants
Number of Securities Percent of Total Options
Underlying Options Granted to Employees in Exercise Expiration
Name Granted Fiscal Year Price $/sh Date
- ---- -------------------- ------------------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Barbara Morris 250000(1) 41% $4.00(2) Jan. 19, 2005
Carol Loomis 250000(1) 41% $4.00(2) Jan. 19, 2005
</TABLE>
- ----------
(1) See "--Employment Agreements" below for information as to the vesting
schedules of these options.
(2) See "--Employment Agreements" below for information as to the exercise
prices of these options.
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2000 Stock Option Plan
A total of 1,500,000 shares of common stock are currently reserved for
issuance pursuant to our 2000 Stock Option Plan. The 2000 Plan provides for the
grant of options to our directors, officers, employees, consultants and certain
of our advisors. As of April 14, 2000, options to purchase 630,000 shares under
the 2000 Plan were outstanding, and 870,000 shares remained available for
issuance pursuant to the 2000 Plan.
The 2000 Plan permits the granting of options intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to employees (including officers and employee directors) and
nonstatutory stock options to employees (including officers and employee
directors), directors and consultants (including non-employee directors). In
addition, the 2000 Plan permits the granting of stock bonuses and rights to
purchase restricted stock. No person is eligible to be granted options covering
more than 500,000 shares of common stock in any calendar year.
The 2000 Plan is administered by the board or a committee appointed by the
board. Subject to the limitations set forth in the 2000 Plan, the board has the
authority to select the persons to whom grants are to be made, to designate the
number of shares to be covered by each stock award, to determine whether an
option is to be an incentive stock option or a nonstatutory stock option, to
establish vesting schedules, to specify the option exercise price and the type
of consideration to be paid upon exercise and, subject to certain restrictions,
to specify other terms of stock awards.
The maximum term of options granted under the 2000 Plan is ten years. The
aggregate fair market value, determined at the time of grant, of the shares of
common stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year (under all of our
incentive plans) may not exceed $100,000 or the options or portion thereof which
exceed such limit (according to the order in which they are granted) shall be
treated as nonstatutory stock options. Stock options granted under the 2000 Plan
generally are non-transferable. Options expire six months after the termination
of an optionee's service.
The exercise price of options granted under the 2000 Plan is determined by
the board of directors in accordance with the guidelines set forth in the 2000
Plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant. Options granted
under the 2000 Plan vest at the rate specified in the option agreement. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of our capital stock must be at least 110% of the fair
market value of such stock on the date of grant and the term of such incentive
stock options cannot exceed five years.
Any stock bonuses or restricted stock purchase awards granted under the
2000 Plan shall be in such form and will contain such terms and conditions as
the board deems appropriate. The purchase price under any restricted stock
purchase agreement will not be less than 85% of the fair market value of our
common stock on the date of grant. Stock bonuses and restricted stock purchase
agreements awarded under the 2000 Plan are generally transferable.
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Pursuant to the 2000 Plan, shares subject to stock awards that have expired
or otherwise terminated without having been exercised in full again become
available for grant, but exercised shares repurchased by us pursuant to a right
of repurchase will not again become available for grant.
Upon certain changes in control, all outstanding stock awards under the
2000 Plan must either be assumed or substituted for by the surviving entity. In
the event the surviving entity does not assume or substitute for such stock
awards, such stock awards will be accelerated and then terminated to the extent
not exercised prior to such change in control.
The 2000 Plan was adopted in January 2000 and expires in January 2010.
The board has the authority to amend or terminate the 2000 Plan. The
existence of the 2000 Plan does not affect the board's ability to grant other
incentives or compensation under other authority that it has.
401 (k) Plan
We have established a tax-qualified employee savings and retirement plan.
Our 401 (k) Plan provides that each participant may contribute up to 15% of his
or her pre-tax gross compensation (up to a statutorily prescribed annual limit
of $10,000 in 2000). Employees must be at least eighteen years old to
participate and are eligible on the first day of the quarter following eight
months as our employee. All amounts contributed by employee participants and
earnings on these contributions are fully vested at all times. Employee
participants may elect to invest their contributions in various established
funds.
Employment Agreements
WILC-Utah entered into employment agreements with Barbara Morris, our
president, and Carol Loomis, our vice president of development, prior to the
merger of WILC-Utah with and into us, and we assumed the obligations of WILC -
Utah under these employment agreements by operation of the merger. We entered
into an employment agreement with Todd Brashear, our chief financial officer, on
February 8, 2000. Accordingly, we are obligated to pay salaries to each of these
employees, at the following annual rates, together with bonuses in such amounts
as our board of directors may determine:
(1) to Ms. Morris, $175,000;
(2) to Ms. Loomis, $125,000; and
(3) to Mr. Brashear, $110,000.
These salary rates may be increased from time to time at the discretion of
our board of directors.
In addition, we have granted options to purchase shares of our common stock
to each of these officers, as provided in these employment agreements. The
agreements with Ms. Morris and Ms. Loomis provide that each is granted options
to purchase up to 250,000 shares of our common stock. The options granted to Ms.
Morris and Ms. Loomis, as well as certain other employee options granted prior
to the merger between WILC-Utah and us, were assumed by operation of the merger.
The agreement with Mr. Brashear provides that he is granted options to purchase
up to 50,000 shares of our common stock.
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The options granted to Ms. Morris and Ms. Loomis become exercisable
commencing on January 20, 2000, the effective date of the reorganization, and on
the first through the fourth anniversaries of that date, as to 50,000 shares on
each date, at exercise prices ranging from $4.00 per share for the first 50,000
shares to $10.00 per share for the 50,000 that become exercisable on the fourth
anniversary of the effective date of the merger, subject to immediate vesting of
all remaining options at such time as we achieve revenues for any fiscal year of
$18.0 million prior to such fourth anniversary. All options that vest early by
reason of our achievement of this revenue milestone, will be exercisable at the
exercise price for the anniversary year in which this milestone is achieved.
The options granted to Mr. Brashear become exercisable over a three year
period commencing on February 14, 2001 and on the first and second anniversaries
of that date, as to 16,667 shares on the first and last dates, and 16,666 shares
on the second anniversary date, at exercise prices ranging from $5.00 to $8.00
per share.
In the event Ms. Morris and Ms. Loomis cease to "control" us, as that term
is defined in the employment agreements, and their employment is terminated as
result of this loss of control, all options granted to Ms. Morris, Ms. Loomis
and Mr. Brashear that are not yet exercisable, become immediately exercisable at
the exercise price for the year their employment is terminated.
Either party may terminate an employment agreement by giving the other
party 10 days notice of termination. We may terminate an employment agreement
without notice for cause. The employment agreements with Ms. Morris and Ms.
Loomis provide that during the term of their employment by us and for a period
of two years following termination of their employment, they will not, directly
or indirectly, have an interest in or assist or aid in conducting any business
which competes with the business conducted by us and our affiliated companies
during the period of their employment by us or our affiliated companies. Upon
the termination of the employment of Ms. Morris or Ms. Loomis as a result of a
loss of "control," in addition to the immediate vesting of all unvested stock
options granted under the employment agreements with them, each employee is
entitled to termination pay equal to two years salary at the annual rate of
$l75,000 and $125,000, respectively, and continuing insurance coverage for two
years under our insurance plan. In addition, if these employees provide up to
six months of cooperative transition support, they will be compensated at a rate
equal to their salary rate at the time of employment termination, in addition to
receiving termination pay.
Our employment agreements with Ms. Morris and Ms. Loomis provide that if we
issue in excess of 9.0 million shares of our common stock in the connection with
our efforts to raise net proceeds of $7.5 million through sales of our equity
securities, including through the sale of convertible debt securities, we will
issue additional shares of our common stock to these officers to avoid dilution
of their respective percentage ownership interests in our common stock and cash
to pay taxes on the extra shares issued.
Indemnification of Directors and Officers
Our by-laws provide that we must indemnify our directors and officers, any
former directors and officers, or any person who may have served at our request
as the director or officer of another corporation in which we own shares of
capital stock or of which we are a creditor and the personal representatives of
all such persons, against expenses actually and necessarily incurred in
connection with the defense of any action, suit or proceeding in which they, or
any of them, were made party, by reason of being or having been one of directors
or officers, or a director officer of another corporation under the
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circumstances described above, except in relation to matters as to which the
indemnified director or officer or other person shall have been adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of any duty owed to us. This indemnification is not exclusive of any
other rights to which those indemnified may be entitled, independently of this
provision, by law, under any other by-law, agreement, vote of stockholders or
otherwise.
Section 23B.08.510 of the Washington Business Corporation Act, or WBCA,
provides that:
(1) Except as set forth in item (2) below, a corporation may indemnify an
individual made a party to an action, suit or proceeding because the individual
is or was a director of the corporation against liability incurred in the
action, suit or proceeding if:
o the individual acted in good faith; and
o the individual reasonably believed:
(a) in the case of conduct in the individual's official capacity with
the corporation, that the individual's conduct was in its best
interests; and
(b) in all other cases, that the individual's conduct was at least
not opposed to its best interests; and
o in the case of any criminal proceeding, the individual had no
reasonable cause to believe his conduct was unlawful.
(2) A corporation may not indemnify a director under Section 23B.08.510 of
the WBCA:
o in connection with an action, suit or proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation; or
o in connection with any other action, suit or proceeding charging
improper personal benefit to the director, whether or not involving
action in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly
received by the director.
Indemnification permitted under Section 23B.08.510 in connection with an action,
suit or proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the action, suit or proceeding.
Section 23B.08.520 of the WBCA provides that unless limited by its articles
of incorporation, a corporation must indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any action, suit or
proceeding to which the director was a party because of being a director of the
corporation against reasonable expenses incurred by the director in connection
with the proceeding.
Section 23B.08.530 of the WBCA provides that a corporation may pay for or
reimburse the reasonable expenses incurred by a director who is a party to an
action, suit or proceeding in advance of final disposition of the action, suit
or proceeding if:
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o the director furnishes the corporation with a written affirmation of
the director's good faith belief that the director has met the
standard of conduct described in Section 23B.08.510; and
o the director furnishes the corporation an undertaking to repay the
advance if it is ultimately determined that the director did not meet
this standard of conduct.
Section 23B.08.540 of the WBCA provides that unless a corporation's
articles of incorporation provide otherwise, a director of a corporation who is
a party to an action, suit or proceeding may apply for indemnification or
advance of expenses to the court conducting the proceeding or to another court
of competent jurisdiction. On receipt of an application, after giving
appropriate notice, the court may order indemnification or advance of expenses
if it determines:
o the director is entitled to mandatory indemnification under Section
23B.08.520, in which case the court shall also order the corporation
to pay the director's reasonable expenses incurred to obtain
court-ordered indemnification;
o the director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not the director
met the standard of conduct set forth in Section 23B.08.510 of the
WBCA or was adjudged liable as described in Section 23B.08.510, but if
the director was adjudged so liable, the director's indemnification is
limited to reasonable expenses incurred unless the articles of
incorporation or a bylaw, contract, or resolution approved or ratified
by the shareholders pursuant to Section 23B.08.560 of the WBCA
provides otherwise; or
o in the case of an advance of expenses, the director is entitled
pursuant to the articles of incorporation, bylaws, or any applicable
resolution or contract, to payment or reimbursement of the director's
reasonable expenses incurred as a party to the action, suit or
proceeding in advance of final disposition of the proceeding.
Section 23B.08.550 of the WBCA provides that:
(1) A corporation may not indemnify a director under Section 23B.08.510 of
the WBCA unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section
23B.08.510.
(2) The determination shall be made, by among others,
o the board of directors, by majority vote of a quorum consisting of
directors not at the time parties to the action, suit or proceeding;
or
o by the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be
voted on the determination.
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Section 23B.08.570 of the WBCA provides that unless a corporation's
articles of incorporation provide otherwise:
o an officer of the corporation who is not a director is entitled to
mandatory in demnification under Section 23B.08.520 of the WBCA, and
is entitled to apply for court-ordered indemnification under Section
23B.08.540 of the WBCA, in each case to the same extent as a director;
o the corporation may indemnify and advance expenses, under Sections
23B.08.510 through 23B.08.560 of the WBCA, to an officer, employee, or
agent of the corporation who is not a director to the same extent as
to a director; and
o a corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent
with law, that may be provided by its articles of incorporation,
bylaws, general or specific action of its board of directors, or
contract.
Section 2311.08.580 of the of the WBCA provides that a corporation may
purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee, or agent of the corpo ration, or who, while a
director, officer, employee, or agent of the corporation, is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, against
liability asserted against or incurred by the individual in that capacity or
arising from the individual's status as a director, officer, employee, or agent,
whether or not the corporation would have power to indemnify the individual
against the same liability under Section 23B.08.510 or 23B.08.520 of the WBCA.
Insofar as indemnification for liabilities arising under the Securities Act
of l933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing by-law or statutory provisions, or otherwise, we have
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
RELATED PARTY TRANSACTIONS
The following is a description of transactions occurring after February 7,
1997 to which we have been a party in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of our
common stock had or will have a direct or indirect material interest, other than
compensation arrangements and beneficial interest anti-dilution provisions
relating to common stock beneficially owned by Barbara Morris, our president,
and Carol Loomis, our vice president of development, which are described under
"Management - Executive Compensation - Employment Agreements." All pre-merger
issuances of common stock have been adjusted to reflect the exchange of shares
of AG Holdings, Inc. for common stock of WILC-Utah pursuant to an Agreement and
Plan of Reorganization dated January 20, 2000.
Barbara Morris, our president, chief executive officer, a director and our
largest stockholder, may be considered to be our "founder"as such term is
defined under the Securities Act of 1933. We
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issued 225,000 shares of common stock to Ms. Morris in February 1997 in
consideration of the issuance of her personal guaranty to a bank in connection
with a $1.5 million revolving line of credit extended to us by that bank, as
discussed below. In March, 1998, Ms. Morris purchased 2,025,000 shares of common
stock from us for $1 million.
Between April 1, 1997 and August 1999, Ms. Morris made loans to us on an
open account basis. We agreed to repay these loans on demand, together with
interest on the principal amount at annual rates ranging from 6% to 12%. The
highest amount of these loans during this period was approximately $367,000. On
January 17, 2000, we issued to Ms. Morris 82,909 shares in full satisfaction of
our indebtedness. These shares were valued at $4.00 per share, the
contemporaneous price paid for our securities by a non-affiliate.
Between March 1, 1998 and May 1999, Ms. Loomis and her spouse, Scott
Loomis, made loans to us on an open account basis. In each case, we agreed to
repay the loans on demand, together with interest at the annual rate of 6% on
the principal amount we borrowed. The highest amount of the loans during this
period was approximately $106,000. On January 17, 2000, we issued to Ms. Loomis
and Mr. Loomis, in full satisfaction of our indebtedness to them, 4,795 and
12,500 shares of our common stock, respectively, valued at $4.00 per share.
As of December 15, 1999, we had accrued as liabilities an aggregate of
approximately $462,500 and $195,000, respectively, of salaries for the period
commencing February 14, 1997 through December 15, 1999, which were not paid by
us to Ms. Morris and Ms. Loomis. For financial reporting purposes, the release
of these liabilities was accounted for as a contribution to our capital. On
January 17, 2000, Ms. Morris and Ms. Loomis released us from liability for these
accrued salaries. On February 29, 2000, we paid to Ms. Morris and Ms. Loomis,
respectively, in reimbursement of expenses incurred for our account by these
officers over the period commencing on February 14, 1997 through February 29,
2000, which we had accrued as liabilities, approximately $104,000 and $10,300,
respectively.
In March 1997, we borrowed an aggregate of $250,000 from Utah Technology
Finance Corporation pursuant to a promissory note which matures on April 30,
2000 and accrued interest at a variable rate equal to the prime rate of interest
as quoted in The Wall Street Journal plus 2.25%. The repayment of this loan by
us was personally guaranteed by Barbara J. Morris. At February 29, 2000, the
principal balance of this loan was $16,000. We anticipate that this loan will be
fully paid by us by April 30, 2000.
In February 1997, we entered into revolving line of credit with a bank
which allowed us to borrow up to $1.5 million from this bank. This credit
arrangement expired on March 1, 1998 and all amounts due under this arrangement
were paid in full when due. A new line of credit arrangement with this bank was
entered into in April 1998, which allowed us to borrow up to $500,000. This
credit arrangement matured on November 1, 1999 with a balance due of
approximately $493,000. In December 1999, this bank extended the maturity of the
amount due to March 31, 2000 and made other modifications to line of credit
arrangements. This loan was paid in full on January 31, 2000. The repayment of
all principal and interest indebtedness under these line of credit arrangements
were personally guaranteed by Ms. Morris, Ms. Loomis and Scott Loomis, the
spouse of Ms. Loomis.
On January 28, 2000, we entered into an agreement with Western Financial
Communications, Inc., one of our principal shareholders, under which we agreed
to pay this shareholder a fee equal to
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2.5% of the gross proceeds we received from a lender or equity investor
introduced to us by this shareholder and a fee of 2.0% of the gross
consideration in connection with an acquisition by us from an acquisition
candidate introduced to us by this shareholder. There are limitations on the
fees payable to this shareholder based on any obligation we may have to pay fees
with a particular financing or acquisition to other intermediaries. In
connection with our March 2000 debenture offering, we paid Western Financial a
$100,000 fee.
PRINCIPAL SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of our common stock as of April 14, 2000:
o each of our executive officers named in the Summary Compensation Table
under "Management-Executive Officers and Directors;"
o each of our directors;
o each other person known by us to beneficially to own more than 5% of
our common stock; and
o all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address each director and officer named in the
following table is c/o Wasatch Interactive Learning Corporation, Suite 101, 5250
South Commerce Drive, Salt Lake City, Utah 84107. Except as indicated by
footnote, we believe that the persons named in the following table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them, including shares of our common stock underlying options and
warrants to purchase our common stock which are exercisable within 60 days after
April 14, 2000. Percentage of beneficial ownership is based on 7,658,334 shares
of our common stock outstanding as of April 14, 2000.
Name of Beneficial Owner Number Percentage
- ------------------------ ------ ----------
Barbara Morris 2,750,000(1) 33.7%
Carol Loomis 775,754(2) 9.9%
Western Financial Communications, Inc.(3) 1,440,000(4) 18.2%
Johnny R. Thomas (5) 745,824(6) 9.6%
All directors and executive officers as
a group (three persons) 3,525,754(1)(2) 42.4%
- ----------
(1) Includes up to 450,000 shares of our common stock issuable upon exercise of
our Class A warrants held by Ms. Morris and up to 50,000 shares of our
common stock currently issuable upon exercise of stock options, but
excludes up to 450,000 shares issuable upon exercise of our Class B
warrants and an additional 200,000 stock options not currently exercisable
unless specified performance criteria are met. Does not include potential
shares issuable under the
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antidilution provisions of our employment agreement with this officer. See
"Management-- Executive Compensation--Employment Agreements."
Also excludes 308,642 shares and 41,454 shares of our common stock held by
Hickory Creek LLC and Dormax LLC, respectively, established for estate
planning purposes, of which Ms. Morris is not a manager, exercises no
control to vote or dispose of the shares, and of which she disclaims
beneficial ownership.
(2) Includes up to 120,959 shares of our common stock issuable upon exercise of
our Class A warrants held by Ms. Loomis and up to 50,000 shares of our
common stock currently issuable upon exercise of stock options, but
excludes up to 120,959 shares issuable upon exercise of our Class B
warrants and an additional 200,000 stock options not currently exercisable
unless specified performance criteria are met. Does not include potential
shares of our common stock issuable under the antidilution provisions of
our employment agreement with this officer. See "Management -- Employment
Agreements."
Also excludes 346,251 shares and 137,500 shares of common stock held by
Desert Allegro LLC and Berea Holdings LLC, respectively, established by
Scott Loomis, the husband of Ms. Loomis, with pre-marital assets, of which
Ms. Loomis is not a beneficiary or a manager, exercises no control to vote
or dispose of the shares, and of which she disclaims beneficial ownership.
(3) The address of Western Financial Communications Inc. is 3rd floor, 495
Miller Avenue, Mill Valley, California. See "Related Party Transactions."
(4) Includes up to 240,000 shares of our common stock issuable upon exercise of
our Class A warrants held by this stockholder. All other 1,200,000 shares
of common stock are restricted securities.
(5) The address of this person is 1700 West Horizon Ridge Parkway, Suite 202,
Henderson, NV 89012.
(6) Includes up to 142,586 shares of our common stock issuable upon exercise of
our Class A Warrants. The securities are held of record by various entities
established by Mr. Thomas for estate planning purposes, Mr. Thomas has sole
power to vote or dispose of the shares or warrants, but disclaims
beneficial ownership of any additional shares owned by those entities for
which his relatives have sole power to vote or dispose of those shares or
warrants.
SELLING SECURITYHOLDERS
The following table sets forth, with respect to each selling
securityholder, based upon information as of April 14, 2000, obtained from the
selling securityholders, the number of shares of common stock beneficially
owned, the number of shares of common stock and Class A warrants to be sold, and
the number and percentage of outstanding shares of common stock beneficially
owned after the sale of the shares offered hereby assuming all shares and
warrants offered hereby will be sold. Other than Ms. Morris and Ms. Loomis, none
of the selling securityholders has been an affiliate of ours during the
preceding three years, and none of them will beneficially own 5% of our
outstanding stock after this offering. The table assumes that each of the
selling securityholders will sell all of the shares of common stock and Class A
warrants offered by this prospectus. See "Description of Securities."
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On April 14, 2000, we had 7,658,334 shares of common stock outstanding. For
purposes of computing the number and percentage of shares beneficially owned by
a selling securityholder, any shares which such person has the right to acquire
within 60 days are deemed to be outstanding, but those shares are not deemed to
be outstanding for the purpose of computing the percentage ownership of any
other selling securityholder.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Shares of Common Amount of Shares of Beneficially
Stock Beneficially Class A Common Owned
Name of Owned Warrants Stock After
Selling Securityholder Before Offering (1) To Be Sold To Be Sold Offering (2)
- ---------------------- ------------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Brock Road LLC 1,604,259(3)(4) -- 1,604,259(4) -0-
Barbara Morris (5) 2,750,000(6) 450,000 1,050,000(7) 18.5%
Carol Loomis (8) 775,754(9) 120,959 320,959(10) 4.4%
Desert Allegro LLC 415,501(11) 69,250 241,877(12) 1.1%
Berea Holdings LLC 165,000(11) 27,500 165,000(13) -0-
JRT Trust (14) 169,401(15) 27,234 83,901(16) *
Estancia, LLC (14) 222,730(17) 37,122 70,455(18) 1.3%
Manzano Limited
Partnership (14) 264,372(19) 44,230 70,897(20) 2.1%
HHT Trust (14) 141,001(21) 24,334 46,001(22) 1.0%
Falcon Financial
Group, LLC (14) 254,001(23) 8,000 28,000(24) 2.5%
Randall Baker (25) 15,000(26) 2,500 14,800(27) *
Robert J. Filiatreaux (25) 15,000(26) 2,500 14,800(27) *
------- ---------
Totals................................... 813,630 3,711,220
======= =========
</TABLE>
- --------
* less than 1% of the total number of shares issued and outstanding.
(1) Unless otherwise noted, we believe that all persons named in the table have
sole voting and investment power with respect to all shares of common stock
beneficially owned by them. A person is deemed to be the beneficial owner
of securities that can be acquired by such person within 60 days from the
effective date of this prospectus upon the exercise of warrants or other
convertible securities.
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(2) Based on 9,190,001 shares of common stock outstanding after the exercise of
1,531,667 Class A Warrants.
(3) This Cayman Islands limited liability company holds a debenture convertible
at any time prior to March 16, 2003 into shares of our common stock at a
per share price equal to the lesser of (1) $6.25 and (2) 80% of the average
closing bid price of any five non-consecutive trading days during a 20 day
trading period, and is subject to earlier redemption by us. We have assumed
a conversion price of $2.84 per share and 1,408,451 shares issuable upon
conversion of the debenture; however, pursuant to the terms of the
debenture, the holder is prohibited from owning in excess of 4.99% of our
outstanding common stock. Also includes up to 196,078 additional shares of
our common stock issuable upon the exercise of debenture warrants held by
this shareholder. Excludes shares of our common stock issuable upon
conversion of accrued interest on this debenture, at our option,
(4) Includes 196,078 shares of common stock issuable upon exercise of debenture
warrants held by the selling securityholder.
(5) Barbara Morris is our president, chief executive officer and one of our
directors.
(6) See note 1 to the table under "Principal Shareholders."
(7) Of this amount, 600,000 shares of common stock are subject to a six-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 450,000 shares
are issuable upon exercise of Class A warrants.
(8) Carol Loomis is our vice-president of development, secretary and one of our
directors.
(9) See note 2 to the table under "Principal Shareholders."
(10) Of this amount, 200,000 shares of common stock are subject to a six-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 120,959 shares
are issuable upon exercise of Class A warrants.
(11) Includes up to 69,251 and 27,500 shares of our common stock issuable upon
exercise of Class A Warrants by Desert Allegro LLC and Berea Holdings LLC,
respectively. These entities were established by Scott Loomis, the husband
of Carol Loomis, our vice president of development, with Mr. Loomis'
pre-marriage assets, for which Ms. Loomis is not a beneficiary, nor a
manager, exercises no control to vote or dispose of the shares and of which
she disclaims beneficial ownership.
(12) Of this amount, 172,627 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 69,250 shares are
issuable upon exercise of Class A warrants.
(13) Of this amount, 137,500 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 27,500 shares are
issuable upon exercise of Class A warrants.
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(14) This investor purchased a portion of its shares on or about February 29,
2000 as part of an interim funding of $950,000, consisting of 158,334
shares of common stock sold at $6.00 per share plus 31,667 Class A
Warrants.
(15) Includes 27,234 shares of common stock issuable upon exercise of Class A
warrants.
(16) Of this amount, 56,667 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 27,234 shares are
issuable upon exercise of Class A warrants.
(17) Includes 37,122 shares of common stock issuable upon exercise of Class A
warrants.
(18) Of this amount, 33,333 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 37,122 shares are
issuable upon exercise of Class A warrants.
(19) Includes 44,230 shares of common stock issuable upon exercise of Class A
warrants.
(20) Of this amount, 26,667 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 44,230 shares are
issuable upon exercise of Class A warrants.
(21) Includes 24,334 shares of common stock issuable upon exercise of Class A
warrants.
(22) Of this amount, 21,667 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 24,334 shares are
issuable upon exercise of Class A warrants.
(23) Includes 8,000 shares of common stock issuable upon exercise of Class A
warrants.
(24) Of this amount, 20,000 shares of common stock are subject to a three-month
lock-up agreement commencing on the effective date of this prospectus,
between the selling securityholder and Brock Road LLC and 8,000 shares are
issuable upon exercise of Class A warrants.
(25) Randall Baker and Robert J. Filiatreaux are former officers and directors
of AG Holdings who resigned on January 20, 2000.
(26) Includes 2,500 shares of Common Stock issuable upon exercise of Class A
warrants.
(27) Of this amount, 12,300 shares are subject to a three-month lock-up
agreement commencing on the effective date of this prospectus, between the
selling securityholder and Brock Rock LLC and 2,500 shares are issuable
upon exercise of Class A warrants.
PLAN OF DISTRIBUTION
The shares of common stock issuable upon exercise of our warrants and
debenture warrants and conversion of the principal of, and interest on this
debenture covered by this prospectus are being offered
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by us directly to the securityholders, without an underwriter. The holders of
the warrants who exercise such warrants and the holder of the debenture who
converts such debentures may sell the common stock purchased upon their exercise
from time to time in public transactions, on or off the NASD's electronic
bulletin board, or private transactions, at prevailing market prices or at
privately negotiated prices. They may sell their shares in the following types
of transactions:
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction,
- purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus; and
- face-to-face transactions between sellers and purchasers without a
broker-dealer, or otherwise.
To our knowledge, the selling securityholders have not entered into any
underwriting arrangements for the sale of the shares. As used in this
prospectus, selling securityholders include donees, pledgees, distributees,
transferees and other successors-in-interest of the selling securityholders
named in this prospectus.
The shares have been registered pursuant to registration rights granted to
the selling securityholders. All costs for the registration will be paid by us.
Each selling securityholder must pay brokerage commissions and discounts for the
sale of its shares. We have agreed to indemnify the selling securityholders
against certain liabilities, including liabilities under the Securities Act. The
selling securityholders may agree to indemnify any agent, dealer or
broker-dealer participating in sales of the shares against certain liabilities,
including liabilities under the Securities Act. The selling securityholders have
agreed to indemnify us and our directors, officers and controlling persons
against certain liabilities related to the sale of the shares, including
liabilities under the Securities Act. Insofar as indemnification for liabilities
under the Securities Act may be permitted to our directors, officers or
controlling persons, in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
The 1,531,667 outstanding Class A warrants being offered by this prospectus
are being offered and 1,531,667 Class B warrants issuable upon exercise of the
Class A warrants will be offered by the holders of these securities and may be
sold by these holders in the over-the-counter market, or privately, or through
broker-dealers selected by these holders, or as principals.
There are 1,293,061 shares of outstanding common stock covered by this
prospectus offered by the holders thereof for their own account and not that of
the Company. Such shares may be sold in the over-the-counter market through
brokers, or otherwise.
Usual and customary or negotiated brokerage fees or commissions may be paid
by the holders in connection with such sales.
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The selling securityholders, their respective transferees, intermediaries,
donees, pledgees or other successors in interest through whom the selling
securityholders' common stock and warrants are sold may be deemed "underwriters"
within the meaning of Section 2(11) of the Securities Act, with respect to the
securities offered and any profits realized or commissions received may be
deemed to be underwriting compensation. Any broker-dealers that participate in
the distribution of the selling securityholders' securities may be deemed to be
"underwriters," as defined in the Securities Act, and any commissions,
discounts, concessions or other payments made to them, or any profits realized
by them upon the resale of any selling securityholders' securities purchased by
them as principals, may be deemed to be underwriting commissions or discounts
under the Securities Act.
We will pay all expenses incident to the registration of the securities
covered by this prospectus. We will not pay, among other expenses, commissions
and discounts of brokers, dealers or agents.
The sale of the common stock and warrants are subject to the prospectus
delivery and other requirements of the Securities Act. To the extent required,
we will use our best efforts to file and distribute, during any period in which
offers or sales are being made, one or more amendments or supplements to this
prospectus or a new registration statement to describe any material information
with respect to the plan of distribution not previously disclosed in this
prospectus, including, but not limited to, the number of securities being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by the
underwriter for securities purchased from a selling securityholder, any
discounts, commissions or concessions allowed or reallowed or paid to dealers
and the proposed selling price to the public.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of our securities offered by this prospectus may not
simultaneously engage in market-making activities with respect to our common
stock during the applicable "cooling off" period five business days prior to the
commencement of this distribution. The selling securityholders will also be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, Regulation M, in connection with transactions
in the securities, which provisions may limit the timing of purchases and sales
of securities by the selling securityholders.
DESCRIPTION OF SECURITIES
The following summary descriptions of our securities are qualified in their
entirety by reference to our articles of incorporation, as amended, and by-laws,
as amended, copies of which are available upon request.
Common Stock
We are authorized to issue 100,000,000 shares of common stock, par value
$.0001 per share, of which 7,658,334 shares were issued and outstanding on April
4, 2000. As of such date, there were approximately 726 record holders of our
common stock. All of the outstanding shares of our common stock are duly and
validly issued, fully paid and non-assessable.
Holders of common stock are entitled to receive, pro rata, such dividends
and distributions as may, from time to time, be declared by our board of
directors, from funds legally available therefor. We
56
<PAGE>
have not paid any cash dividends on our common stock and do not anticipate
paying cash dividends in the foreseeable future. In the event of our
liquidation, dissolution or winding-up, holders of our common stock are entitled
to share ratably in our assets available for distribution to these holders,
subject to the rights of our creditors. Holders of our common stock are not
subject to redemption, further calls or assessments by us. Holders of our common
stock have no preemptive, subscription or conversion rights. See "Dividend
Policy".
Holders of our common stock are entitled to one vote per share on all
matters submitted to our stockholders, and the holders of the majority of the
outstanding shares of our common stock currently constitute a quorum at any
meeting of our stockholders.
Since our common stock does not have cumulative voting rights, holders of
more than 50% of the outstanding shares can elect our directors. Our board of
directors currently has two directors.
Class A Common Stock Purchase Warrants
Each of our Class A warrants entitles its holder to purchase one share of
our common stock and one of our Class B warrants through February 14, 2002, at
an exercise price of $14. We have the right, at any time, without the consent of
the registered holders of our Class A warrants, to extend the expiration date
for all Class A warrants or all Class B warrants and/or to decrease the exercise
price for all Class A warrants or all Class B warrants.
The Class A warrants may be redeemed by us in whole, but not in part, at
any time prior to the earlier of their exercise and expiration, upon at least 30
days notice to the registered holders of these Class A warrants at a price of
$.0001 per warrant. Notice of redemption must specify the redemption date of the
Class A warrants and that the right to exercise the Class A warrants terminates
on the business day immediately preceding the redemption date. We have reserved
the right to have standby purchasers for all unexercised Class A warrants on the
redemption date exercise these Class A warrants during the two week period
following the redemption date. We will receive the aggregate exercise price of
these unexercised Class A warrants and we will pay the redemption price to the
registered holders of these unexercised Class A warrants.
The Class A warrants contain provisions that protect the holders of these
warrants against dilution. The exercise price is subject to adjustment in the
event of stock splits, stock dividends, reclassifications, recapitalizations,
reorganizations, mergers or consolidations and other events.
A Class A warrant may be exercised by surrender of the Class A warrant
certificate on or prior to the expiration date at our offices, with the exercise
form attached to the Class A warrant certificate completed and executed as
indicated, accompanied by full payment of the exercise price by check payable to
us for the number of Class A warrants being exercised. The Class A warrant
holders do not have the right or privileges of holders of our common stock.
There are 1,531,667 shares of common stock and 1,531,667 Class B warrants
issuable upon exercise of our Class A warrants covered by this prospectus and
1,531,667 shares of our common stock issuable upon exercise of our Class B
warrants.
57
<PAGE>
Class B Common Stock Purchase Warrants
Each of our Class B warrants entitles its holder, to purchase one share of
our common stock through February 14, 2004, at an exercise price of $28. We have
the right, at any time, without the consent of the registered holders of our
Class B warrants, to extend the expiration date for all Class A warrants or all
Class B warrants and/or to decrease the exercise price for all Class A warrants
or all Class B warrants.
The Class B warrants may be redeemed by us in whole, but not in part, at
any time prior to the earlier of their exercise and expiration, upon at least 30
days notice to the registered holders of these Class B warrants at a price of
$.0001 per warrant. Notice of redemption must specify the redemption date of the
Class B warrants and that the right to exercise the Class B warrants terminates
on the business day immediately preceding the redemption date. We have reserved
the right to have standby purchasers for all unexercised Class B warrants on the
redemption date exercise these Class B warrants during the two week period
following the redemption date. We will receive the aggregate exercise price of
these unexercised Class B warrants and we will pay the redemption price to the
registered holders of these unexercised Class B warrants.
The Class B warrants contain provisions that protect the holders thereof
against dilution. The exercise price is subject to adjustment in the event of
stock splits, stock dividends, reclassifications, recapitalizations,
reorganizations, mergers or consolidations and other events.
A Class B warrant may be exercised by surrender of the Class B warrant
certificate on or prior to the expiration date at our offices, with the exercise
form attached to the Class B warrant certificate completed and executed as
indicated, accompanied by full payment of the exercise price by check payable to
us for the number of Class B warrants being exercised. The Class B warrant
holders do not have the right or privileges of holders of our common stock.
There are 1,531,667 shares of common stock issuable upon exercise of our
Class B warrants covered by this prospectus.
Reports to Stockholders
We will distribute to our shareholders annual reports containing financial
statements audited and reported upon by our independent certified public
accountants after the end of each fiscal year, and make available other periodic
reports as we may deem to be appropriate or as may be required by law or by the
rules or regulations of any stock exchange on which our common stock is listed.
Our fiscal year ends on February 28 or 29.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act, with respect to the common stock and warrants that we may
distribute under the prospectus. This prospectus, which is a part of the
registration statement, does not include all the information contained in the
registration statement and its exhibits. For further information with respect to
us and our common stock and warrants, you should consult the registration
statement and its exhibits. Statements contained in this prospectus concerning
the provisions of any documents are summaries of those documents, and
58
<PAGE>
we refer you to the documents filed with the SEC for more information. The
registration statement and any of its amendments, including exhibits filed as a
part of the registration statement or an amendment to the registration
statement, are available for inspection and copying as described above.
You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with additional or different
information. The common stock and warrants are not being offered in any state
where the offer is not permitted. You should not assume that the information in
this prospectus is accurate as of any date other than the date on the front of
the prospectus.
LEGAL MATTERS
The legality of the securities offered by this prospectus will be passed
upon for us by Snow Becker Krauss P.C., New York, New York. Snow Becker Krauss
P.C. beneficially owns 2,000 shares of our common stock.
CHANGES IN CERTIFYING ACCOUNTANTS
Effective March 23, 2000, Tanner + Co. has been engaged as certifying
accountants for our fiscal year ended February 29, 2000. We changed our
certifying accountants because our board of directors and WILC-Utah had a prior
relationship established with Tanner + Co. and also wanted an independent
accounting firm located in close proximity to our principal business office
location in Salt Lake City, Utah. Tanner + Co. has issued audited financial
statements of WILC-Utah since it commenced operations on February 14, 1997. The
change in the certifying accountants has been approved by our board of
directors.
Upon the engagement of Tanner + Co., we dismissed David M. Winings, our
certifying accountant for the fiscal year ended April 30, 1999.
For the audit of our financial statements for the fiscal years ended 1999
and 2000, there were no disagreements on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure which
if not satisfactorily resolved would have caused our former accountant to make
reference to such matter in its report. Through March 23, 2000, there were no
disagreements on any matter of accounting financial statement disclosure, or
auditing scope or procedure with our former accountant. The former accountant's
report for fiscal 1999 contained a modified opinion with an explanatory
paragraph stating that the financial statements had been prepared on a
going-concern basis. This report was on the financial statements of AG Holdings,
Inc. which are not included in this prospectus.
EXPERTS
The audited financial statements, included in this Prospectus, have been
examined by Tanner + Co., independent certified public accountants, and are
included in this prospectus in reliance upon the report of that firm given upon
their authority as experts in accounting and auditing.
59
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Financial Statements
February 29, 2000 and February 28, 1999
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Index to Financial Statements
- ------------------------------------------------------------------------------------------------------
Page
----
<S> <C>
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Financial Statements F-7
- ------------------------------------------------------------------------------------------------------
F-1
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Wasatch Interactive Learning Corporation
We have audited the balance sheet of Wasatch Interactive Learning Corporation
(the Company) as of February 29, 2000, and the related statements of operations,
stockholders' equity, and cash flows for the years ended February 29, 2000 and
February 28, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wasatch Interactive Learning
Corporation as of February 29, 2000, and the results of its operations and its
cash flows for the years ended February 29, 2000 and February 28, 1999, in
conformity with generally accepted accounting principles.
Salt Lake City, Utah
March 24, 2000,
except for Notes 16 and 20
which are dated
April 14, 2000
- --------------------------------------------------------------------------------
F-2
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Balance Sheet
February 29, 2000
- ----------------------------------------------------------------------------------------------------------
Assets
------
<S> <C>
Current assets:
Cash $ 72,000
Receivables 892,000
Other 55,000
------------------
Total current assets 1,019,000
Property and equipment, net 104,000
License agreement, net 600,000
------------------
$ 1,723,000
------------------
- ----------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 58,000
Accrued expenses 283,000
Income tax payable 1,000
Deferred revenue 78,000
Current portion of long-term debt 41,000
------------------
Total current liabilities 461,000
Long-term debt 42,000
------------------
Total liabilities 503,000
------------------
Commitments -
Stockholders' equity:
Common stock, $.0001, par value, 100,000,000 shares authorized;
7,658,334 shares issued and outstanding 1,000
Additional paid-in capital 4,087,000
Stock subscription receivable (84,000)
Accumulated deficit (2,784,000)
------------------
Total stockholders' equity 1,220,000
------------------
$ 1,723,000
------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Statement of Operations
Years Ended February 29 and 28,
- ----------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------
<S> <C> <C>
Net sales $ 2,224,000 $ 1,948,000
Cost of sales 451,000 1,139,000
-----------------------------------
Gross profit 1,773,000 809,000
-----------------------------------
Operating expenses:
Research and development 587,000 820,000
Sales and marketing 455,000 851,000
General and administrative 578,000 703,000
-----------------------------------
1,620,000 2,374,000
-----------------------------------
Income (loss) from operations 153,000 (1,565,000)
Other income (expense):
Interest income 1,000 -
Interest expense (76,000) (97,000)
-----------------------------------
Income (loss) before (provision) benefit for
income taxes 78,000 (1,662,000)
(Provision) benefit for income taxes (1,000) -
-----------------------------------
Net income (loss) $ 77,000 $ (1,662,000)
-----------------------------------
Net income (loss) per share - basic and diluted $ 02 $ (.49)
-----------------------------------
Weighted average common shares - basic and diluted 3,855,000 3,379,000
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Statement of Stockholders' Equity
Years Ended February 29, 2000 and February 28, 1999
- ----------------------------------------------------------------------------------------------------------
Common Stock Additional Stock
------------------------ Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 1, 1998 15,000,000 $ 1,500,000 $ - $ - $ (1,199,000 $ 301,000
Restatement for reverse acquisition
of AG Holdings, Inc. by Wasatch
Interactive (see Note 1) (11,621,442) (1,500,000) 1,500,000 - - -
Net loss - - - - (1,662,000) (1,662,000)
---------------------------------------------------------------------------------
Balance, February 28, 1999 3,378,558 - 1,500,000 - (2,861,000) (1,361,000)
Stock issued for:
Cash 234,419 - 1,220,000 - - 1,220,000
Debt 90,763 - 394,000 - - 394,000
Receivable 59,799 - 334,000 (84,000) - 250,000
Acquisition of AG Holdings, Inc.
(see Note 1) 3,894,795 1,000 (19,000) - - (18,000)
Contribution of capital - - 658,000 - - 658,000
Dividend on common stock - - - - - -
Net income - - - - 77,000 77,000
---------------------------------------------------------------------------------
Balance, February 29, 2000 7,658,334 $ 1,000 $ 4,087,000 $ (84,000) $ (2,784,000) $ 1,220,000
---------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WASATCH INTERACTIVE LEARNING CORPORATION
Statement of Cash Flows
Years Ended February 29 and 28,
- ----------------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 77,000 $ (1,662,000)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Provision for losses on receivables (5,000) (10,000)
Depreciation and amortization 381,000 375,000
Gain on disposal of assets (1,000) -
(Increase) decrease in:
Receivables (463,000) (84,000)
Inventory - 23,000
Other assets (45,000) 19,000
Increase (decrease) in:
Cash overdraft (16,000) 16,000
Accounts payable (26,000) (34,000)
Accrued expenses (393,000) 414,000
Income tax payable 1,000 -
Deferred revenue (50,000) 14,000
-----------------------------------
Net cash used in
operating activities (540,000) (929,000)
-----------------------------------
Cash flows from investing activities:
Purchases of property and equipment (41,000) -
Proceeds from disposal of assets 9,000 -
-----------------------------------
Net cash used in
investing activities (32,000) -
-----------------------------------
Cash flows from financing activities:
Payments on note payable (417,000) (92,000)
Payments on long-term debt (159,000) (116,000)
Proceeds from issuance of stock 1,220,000 -
Proceeds from long-term debt - 185,000
-----------------------------------
Net cash provided by (used in)
financing activities 644,000 (24,000)
-----------------------------------
Net increase (decrease) in cash 72,000 (953,000)
Cash, beginning of year - 953,000
-----------------------------------
Cash, end of year $ 72,000 $ -
-----------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-6
</TABLE>
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
February 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------
1. Organization and Presentation
On January 20, 2000, Wasatch Interactive Learning Corporation (formerly AG
Holdings, Inc.) (WIL) merged in Wasatch Interactive Learning Corporation of Utah
(the Acquiree) (collectively the Company). The terms of the agreement provide
that the stockholders of the Acquiree received 3,605,205 shares of WIL common
stock.
The financial statements at February 29, 2000 and February 28, 1999 assume the
acquisition of WIL by the Acquiree, occurred March 1, 1998. Because the shares
issued in the acquisition of the Acquiree represent control of the total shares
of WIL's common stock issued and outstanding immediately following the
acquisition, the Acquiree is deemed for financial reporting purposes to have
acquired WIL in a reverse acquisition. The business combination has been
accounted for as a recapitalization of WIL giving effect to the acquisition of
100% of the outstanding common shares of the Acquiree. The surviving entity
reflects the assets and liabilities of WIL and the Acquiree at their historical
book value and the historical operations of the Company is that of the
Acquiree's. The issued common stock is that of WIL and the accumulated deficit
is that of the Acquiree. The statement of operations is that of the Acquiree for
the years ended February 29, 2000 and February 28, 1999 and that of WIL from
January 20, 2000 (date of acquisition) through February 29, 2000. Separate
breakout of operations for WIL have not been presented as the amounts not
related to the Acquiree are immaterial.
2. Nature of Business Activities
The Company's primary business is the development and sales of curriculum based
educational software and related services for use by educational institutions
throughout the United States.
3. Significant Accounting Policies
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash includes all highly liquid
investments with original maturities of three months or less.
- --------------------------------------------------------------------------------
F-7
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Significant Accounting Policies Continued
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and
amortization. Depreciation and amortization on capital leases and property and
equipment is determined using the straight-line method over the estimated useful
lives of the assets or terms of the lease. Expenditures for maintenance and
repairs are expensed when incurred and betterments are capitalized. Gains and
losses on sale of property and equipment are reflected in net income.
License Agreement
The license agreement reflects the payment of cash in exchange for certain
rights to market and sell software to the education market. The license
agreement is being amortized on a straight-line basis over five years.
Income Taxes
Income taxes are determined in accordance with Statement of Financial Accounting
Standards ("SFAS") 109, which requires recognition of deferred income tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred income tax liabilities and assets are determined based on the
difference between financial statement and tax bases of assets and liabilities
using estimated tax rates in effect for the year in which the differences are
expected to reverse. SFAS 109 also provides for the recognition of deferred tax
assets only if it is more likely than not that the asset will be realized in
future years.
Revenue Recognition and Deferred Revenue
Revenue from software sales is generally recognized when the software has been
shipped, collectibility is probable, and there are no significant obligations
remaining.
Revenue attributable to software support and enhancements is recognized ratably
over the contracts life, generally within twelve months.
Research and Development
Research and development expenditures are charged to operations as incurred.
- --------------------------------------------------------------------------------
F-8
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Significant Accounting Policies Continued
Advertising
The Company expenses advertising production costs as they are incurred and
advertising communication costs the first time the advertising takes place.
During the years ended February 29, 2000 and February 28, 1999, the Company had
advertising expenses aggregating approximately $2,000 and $1,000, respectively.
Earnings Per Share
The computation of basic earnings per common share is based on the weighted
average number of shares outstanding during each year.
The computation of diluted earnings per common share is based on the weighted
average number of shares outstanding during the year plus the common stock
equivalents, which would arise from the exercise of stock options and warrants
outstanding using the treasury stock method and the average market price per
share during the year. Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive. The stock
options and warrants had no dilutive effect on the net income for the year ended
February 29, 2000.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been within the range
of management's expectations.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
- --------------------------------------------------------------------------------
F-9
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
3. Significant Accounting Policies Continued
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions,
primarily related to software revenue recognition, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
Certain amounts in the prior year financial statements have been reclassified to
conform with the current year presentation.
4. Receivables
Receivables are comprised of the following at February 29, 2000:
Trade receivables $ 642,000
Stock subscription receivable 250,000
-----------------
$ 892,000
-----------------
5. Property and Equipment
Property and equipment consists of the following at February 29, 2000:
Computers and equipment $ 299,000
Office furniture and fixtures 19,000
-----------------
318,000
Less accumulated depreciation and amortization (214,000)
-----------------
$ 104,000
-----------------
Depreciation and amortization expense for the years ended February 29, 2000 and
February 28, 1999 totaled $81,000 and $75,000, respectively.
- --------------------------------------------------------------------------------
F-10
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
6. License Agreement
The license agreement consists of the following at February 29, 2000:
Software License Agreement $ 1,500,000
Less accumulated amortization (900,000)
-----------------
$ 600,000
-----------------
Amortization expense for each of the years ended February 29, 2000 and February
28, 1999 was $300,000.
7. Accrued Expenses
Accrued expenses consist of the following at February 29, 2000:
Commissions $ 138,000
Payroll and benefits 116,000
Other 29,000
-----------------
$ 283,000
-----------------
8. Long-Term Debt
Long-term debt is comprised of the following at February 29, 2000:
Note payable to a financial institution
in monthly installments of $8,207,
including interest at 11%, secured
by accounts receivable, inventory and
property and equipment, guaranteed
by an officer, due April 30, 2000 $ 16,000
Capital lease obligations (see note 9) 67,000
-----------------
83,000
Less current portion (41,000)
-----------------
$ 42,000
-----------------
- --------------------------------------------------------------------------------
F-11
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
8. Long-Term Debt Continued
Future maturities of long-term debt are as follows:
Years Ending February 28: Amount
------------------------- -----------------
2001 $ 41,000
2002 13,000
2003 12,000
2004 10,000
2005 7,000
-----------------
$ 83,000
-----------------
9. Capital Lease Obligations
The Company leases certain office equipment and furniture, under noncancellable
capital leases. The terms of the leases include options to purchase the
equipment at the end of the lease, and have imputed interest rates ranging from
11% to 18%.
Future minimum lease payments at February 29, 2000 are as follows:
Years Ending February 28: Amount
------------------------- ------------------
2001 $ 32,000
2002 17,000
2003 15,000
2004 12,000
2005 7,000
------------------
83,000
Less amount representing interest (16,000)
------------------
Present value of future minimum lease payments $ 67,000
------------------
- --------------------------------------------------------------------------------
F-12
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
9. Capital Lease Obligations Continued
Property and equipment under capital lease at February 29,2000 are as follows:
Computers and equipment $ 113,000
Office furniture and fixtures 19,000
-----------------
132,000
Less accumulated amortization (69,000)
-----------------
$ 63,000
-----------------
Amortization expense for the years ended February 29, 2000 and February 28, 1999
was $31,000, and $27,000, respectively.
- --------------------------------------------------------------------------------
F-13
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
10. Income Taxes
The (provision) benefit for income taxes differs from the amount computed at
federal statutory rates as follows for the year ended:
February 29, February 28,
2000 1999
---------------------------------
Income tax (provision) benefit
at statutory rates $ (27,000) $ 565,000
Forgiveness of accrued salaries (73,000) (85,000)
Other (1,000) (1,000)
Change in valuation allowance 100,000 (479,000)
---------------------------------
$ (1,000) $ -
---------------------------------
Deferred tax assets consist of the following at February 29, 2000:
Net operating loss carryforward $ 510,000
Excess book depreciation and amortization
over tax 205,000
Other accrued liabilities 2,000
Valuation allowance (717,000)
-----------------
$ -
-----------------
At February 29, 2000, the Company has net operating loss carryforwards for tax
purposes of approximately $1,500,000 which are available to offset future
taxable income. The Tax Reform Act of 1986 limits the annual amount that can be
utilized for certain of these carryforwards as a result of the greater than 50%
change in ownership. In addition, the nature of the Company's operations must
remain substantially the same for a period of two years following the merger or
the net operating loss will be deemed forfeited. The net operating loss
carryforwards begin to expire in 2017. A valuation allowance has been
established for the net deferred tax asset due to the uncertainty of realization
caused by the recurring losses generated in previous years.
- --------------------------------------------------------------------------------
F-14
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
11. Supplemental Cash Flow Information
February 29, 2000
o The Company satisfied $394,000 of long-term debt due to officers and a
shareholder through issuance of common stock.
o The Company acquired computer equipment in exchange for capital lease
obligations totaling $56,000.
o For financial statement purposes, the Company purchased all of the
outstanding common stock of AG Holdings, Inc. in a reverse acquisition
transaction. The Company issued shares of common stock and recorded net
liabilities from the acquisition of $18,000.
o The Company issued common stock in exchange for stock subscription
receivables totaling $334,000, of which $250,000 was received in March 2000
and, therefore, has been classified as a current asset.
o The Company had two officers forgive accrued salaries for the years 1997,
1998 and 1999 which aggregated $658,000. The forgiveness was recorded as a
contribution of capital.
February 28, 1999
o The Company purchased property and equipment in the amount of $16,546 with
long-term debt.
Supplemental Disclosures of Cash Flow Information:
Operations reflect actual amounts paid for interest and income taxes as follows
for the year ended:
February 29, February 28,
2000 1999
-----------------------------------
Interest paid $ 76,000 $ 88,000
-----------------------------------
Income taxes paid $ - $ -
-----------------------------------
- --------------------------------------------------------------------------------
F-15
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
12. Major Customers
Sales of computer software and related services to customers accounting for more
than 10% of total sales are as follows for the years ended February 29 and 28:
Major Customers 2000 1999
- -------------------------------------------------------------------------------
School A $ 380,000 $ 218,000
School B $ 244,000 $ 257,840
13. Related Party Transactions
During the year ended February 29, 2000, the Company satisfied debt of $394,000
due certain officers and a shareholder by issuing them common stock. In
addition, these same officers made capital contributions to the Company by
forgiving accrued salaries due to them totaling $658,000.
14. Profit Sharing Plan
The Company has a 401(k) retirement savings plan (the Plan). All full-time
employees who are at least 18 years of age and have a minimum of eight months of
service are eligible to participate. The Plan allows for matching contributions
by the Company which are limited to two percent of the employee's gross wages up
to certain limits. The Company made no contributions to the Plan during the
years ended February 29, 2000 and February 28, 1999.
15. Commitments and Contingencies
Operating Lease
The Company leases certain office space pursuant to a lease agreement which
terminates on March 30, 2002 or sooner if the Company provides the Lessor with
twelve months prior written notice. Under this lease, the Company recognized
rent expense of approximately $101,000, and $143,000 for the years ended
February 29, 2000 and February 28, 1999, respectively.
- --------------------------------------------------------------------------------
F-16
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Commitments and Contingencies Continued
Future minimum payments under the operating lease are as follows:
Year Ending Amount
- ----------- -----------------
2001 $ 140,000
2002 147,000
2003 9,000
-----------------
$ 296,000
-----------------
Employment Agreements
The Company has entered into employment agreements with certain officers. The
agreements provide the officers with an annual base salary, vacation time,
business expense reimbursement and the grant of options to purchase 550,000
shares of Company stock. The options have exercise prices ranging from $4.00 to
$10.00 a share and vest incrementally over a period not to exceed approximately
four years. In the event there is a material change to the President's and Vice-
President's duties or if the Company ownership is significantly changed, with
such event resulting in the President and Vice-President being terminated or
resigning, all unvested options will vest immediately and the President and
Vice-President will be entitled to receive their salaries plus benefits for a
period of up to two years and six months. In return, the officers have
covenanted not to compete or disclose proprietary information during their
employment and for a period of two years after termination.
In addition, the Company has entered into employment agreements with certain
employees. The agreements provide the employees with an annual salary, vacation
time, business expense reimbursement and the grant of options to purchase a
total of 80,000 shares of Company stock. The stock options have exercise prices
ranging from $5.00 to $8.00 a share and vest in one case based on the attainment
of certain annual revenue goals and in the other case over a period of three
years.
- --------------------------------------------------------------------------------
F-17
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
15. Commitments and Contingencies Continued
Royalty Agreements
The Company has entered into an agreement that provides it with a perpetual,
worldwide software license. The agreement requires payment of royalties based on
sales of the licensed software through February 2002. In addition, the agreement
allows the Company to purchase the exclusive right to sell the licensed software
to the educational market for a minimum annual royalty of $500,000. As of
February 29, 2000, minimum royalties paid exceeded the actual royalties due by
approximately $580,000. Under the agreement, these excess royalties paid can be
applied to future royalties due. During the year ended February 29, 2000, the
Company utilized approximately $60,000 in previously paid royalty credit.
Royalty expense totaled approximately $500,000 for the year ended February
28,1999.
In addition, the Company has entered into an agreement with a California
corporation, to license certain text-to-speech voice technology. A royalty is
due for each unit of software sold by the Company that incorporates the
technology. Royalty expense under this agreement for the years ended February
29, 2000 and February 28, 1999 totaled approximately $3,000, and $5,000,
respectively.
Consulting Agreements
The Company has agreed to pay one of its principal shareholders a fee of 2.5% of
the gross proceeds received from a lender or equity investor introduced to the
Company by the principal shareholder. Additionally, the Company has agreed to
pay a fee of up to 2.0% of the gross consideration paid in connection with an
acquisition of an entity introduced to the Company by the principal shareholder.
During the years ended February 29, 2000 and February 28, 1999, the Company did
not incur any expenses related to these agreements.
- --------------------------------------------------------------------------------
F-18
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Stock Options and Warrants
The Company has adopted a stock option plan (2000 Stock Option Plan) where it is
authorized to issue up to 1,500,000 shares of common stock to officers,
directors, employees, consultants and other advisors. The Plan permits the
granting of options and nonstatutory stock options. As of February 29, 2000
options have been granted to purchase 630,000 shares under the stock option
plan.
Information regarding stock options and warrants is summarized below:
Number of Option and
Options and Warrant Price
Warrants Per Share
-----------------------------------
Outstanding at March 1, 1999 - $ -
Granted 3,693,334 4.00 - 28.00
Exercised - -
Forfeited - -
-----------------------------------
Outstanding at February 29, 2000 3,693,334 $ 4.00 - 28.00
-----------------------------------
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation expense has been recognized for stock options and
warrants granted to employees. Had compensation expense for the Company's stock
options and warrants been determined based on the fair value at the grant date
consistent with the provisions of SFAS No. 123, the Company's results of
operations would have been reduced to the pro forma amounts indicated below:
Years Ended
February 29 and 28,
-------------------------------
2000 1999
-------------------------------
Net income (loss) - as reported $ 77,000 $ (1,662,000)
Net loss - pro forma $ (253,000) $ (1,662,000)
Income (loss) per share - as
reported $ .02 $ (.49)
Loss per share - pro forma $ (.07) $ (.49)
- --------------------------------------------------------------------------------
F-19
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
16. Stock Options and Warrants Continued
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
February 29 and 28,
-----------------------------
2000 1999
-----------------------------
Expected dividend yield $ - $ -
Expected stock price volatility .01% -
Risk-free interest rate 8% -
Expected life of options and warrants 2 - 5 years -
-----------------------------
The weighted average fair value of options and warrants granted during 2000 and
1999, was $.29, and $0, respectively.
The following table summarizes information about stock options and warrants
outstanding at February 29, 2000:
Outstanding Exercisable
- --------------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Exercisable Price
- --------------------------------------------------------------------------------
$ 4.00 - 5.00 243,333 4.90 $ 4.59 100,000 $ 4.00
6.00 - 8.00 286,667 4.90 7.00 - -
10.00 - 14.00 1,631,667 2.14 13.75 1,531,667 14.00
28.00 1,531,667 3.96 28.00 - -
- --------------------------------------------------------------------------------
$ 4.00 - 28.00 3,693,334 3.29 $ 18.53 1,631,667 $ 13.39
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
F-20
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
17. Dividend on Common Stock
On February 15, 2000, the Company issued as a dividend to all stockholders an
"A" and "B" warrant. The "A" warrants entitle each shareholder who has 5 shares
of the Company's common stock to acquire one additional share for $14 prior to
February 15, 2002 plus a "B" warrant. The "B" warrant entitles each shareholder
one additional share of the Company's common stock for $28 prior to February 15,
2004. There were no amounts recorded in the financial statements for this
dividend because the fair value of these warrants was determined to be $0 using
the Black-Scholes pricing model.
18. Fair Value of Financial Instruments
The Company's financial instruments consist of cash, receivables, payables, and
notes payable. The carrying amount of cash, receivables, and payables
approximates fair value because of the short-term nature of these items. The
carrying amount of notes payable approximates fair value as the individual
borrowings bear interest at market interest rates.
19. Recent Accounting Pronouncements
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of FASB
Statement No. 133." SFAS 133 establishes accounting and reporting standards for
derivative instruments and requires recognition of all derivatives as assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. SFAS 133 is now effective for fiscal years beginning
after June 15, 2000. The Company believes that the adoption of SFAS 133 will not
have any material effect on the financial statements of the Company.
20. Subsequent Events
On March 16, 2000, the Company issued a convertible debenture and warrants to
purchase 196,078 shares of the Company's common stock. The debenture bears
interest at a 7% rate, is convertible with certain limitations, into common
stock at anytime subsequent to April 17, 2000 and prior to March 16, 2003 at a
rate of the lesser of $6.25 per share or 80% of the Company's stock price for
any five non-consecutive trading days during the twenty day trading period prior
to conversion. The gross proceeds were $4 million with the Company realizing
approximately $3,580,000. Under terms of its agreement with a major shareholder,
the Company paid a commission of $100,000 to the shareholder for their
assistance in obtaining the convertible debenture (see Note 15).
- --------------------------------------------------------------------------------
F-21
<PAGE>
WASATCH INTERACTIVE LEARNING CORPORATION
Notes to Financial Statements
Continued
- --------------------------------------------------------------------------------
20. Subsequent Events Continued
On April 14, 2000, the Company entered into a non binding letter of intent to
modify the terms of its royalty agreement described in note 15. The non binding
letter of intent which is subject to a final agreement and approval provides
that the Company will have perpetual exclusivity and will have a royalty
obligation of 2.5% of all revenues from the licensed technology commencing March
1, 2000 on a binding basis.
On April 14, 2000, the Company amended the employment agreements of the
Company's President and Vice President. The amended terms provide that if the
Company issues in excess of 9.0 million shares of its common stock in connection
with its efforts to raise net proceeds of $7.5 million through sales of its
equity securities, including through the sale of convertible debt securities,
the Company will issue additional shares of its common stock to these officers
to avoid dilution of their respective percentage ownership interests in the
Company's common stock and the cash to pay taxes on the additional shares
issued.
- --------------------------------------------------------------------------------
F-22
<PAGE>
6,252,647 Shares of
Common Stock
and 3,063,334 Common
Stock Purchase Warrants
of
WASATCH INTERACTIVE LEARNING CORPORATION
-----------
PROSPECTUS
-----------
________________, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The following statutes and by-law provisions are the only statutes, charter
provisions, by- laws, contracts or other arrangements known to the registrant
that insure or indemnify a controlling person, director or officer of the
registrant in any manner against liability which he or she may incur in his or
her capacity as such.
Article X of the registrant's by-laws provide that:
The registrant shall indemnify any and all of its directors or officers, or
former directors or officers, or any person who may have served at its request
as a director or officer of another corporation in which the registrant own
shares of capital stock or of which it is a creditor and the personal
representatives of all such persons, against expenses actually and necessarily
incurred in connection with the defense of any action, suit or proceeding in
which they, or any of them, were made parties, or a party, by reason of being or
having been directors or officer of the registrant, or of such other
corporation, except in relation to matters as to which any such director or
officer or person shall have been adjudged in such action, suit or proceeding to
be liable for negligence or misconduct in the performance of any duty owed to
the registrant. Such indemnification shall not be deemed exclusive of any other
rights to which those indemnified may be entitled, independently of Article X of
the registrant's by-laws, by law, under any by-law, agreement, vote of
stockholders or otherwise.
Section 23B.08.510 of the Washington Business Corporation Act ("WBCA"),
provides that:
(1) Except as set forth in item (2) below, a corporation may indemnify an
individual made a party to an action, suit or proceeding because the individual
is or was a director of the corporation against liability incurred in the
action, suit or proceeding if:
(a) the individual acted in good faith; and
(b) the individual reasonably believed:
(i) in the case of conduct in the individual's official capacity with
the corporation, that the individual's conduct was in its best
interests; and
(ii) in all other cases, that the individual's conduct was at least
not opposed to its best interests; and
(c) In the case of any criminal proceeding, the individual had no
reasonable cause to believe his conduct was unlawful.
II-1
<PAGE>
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the best interests of the
participants and beneficiaries of the plan is conduct that satisfies the
requirements subsection 1(b)(ii) of Section 23B.08.510 of the WBCA.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in Section 23B.08.510.
(4) A corporation may not indemnify a director under Section 23B.08.510 of
the WBCA:
(a) In connection with an action, suit or proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation; or
(b) In connection with any other action, suit or proceeding charging
improper personal benefit to the director, whether or not involving
action in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly
received by the director.
(5) Indemnification permitted under Section 23B.08.510 in connection with
an action, suit or proceeding by or in the right of the corporation is limited
to reasonable expenses incurred in connection with the action, suit or
proceeding.
Section 23B.08.520 of the WBCA provides that unless limited by its articles
of incorporation, a corporation must indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any action, suit or
proceeding to which the director was a party because of being a director of the
corporation against reasonable expenses incurred by the director in connection
with the proceeding.
Section 23B.08.530 of the WBCA provides that a corporation may pay for or
reimburse the reasonable expenses incurred by a director who is a party to an
action, suit or proceeding in advance of final disposition of the action, suit
or proceeding if:
(a) The director furnishes the corporation with a written affirmation of
the director's good faith belief that the director has met the
standard of conduct described in Section 23B.08.510; and
(b) The director furnishes the corporation an undertaking to repay the
advance if it is ultimately determined that the director did not meet
this standard of conduct.
Authorization of payments under Section 23B.08.530 may be made by provision
in the articles of incorporation, by-laws, or resolution adopted by the
shareholders or board of directors, or by contract.
Section 23B.08.540 of the WBCA provides that unless a corporation's
articles of incorporation provide otherwise, a director of a corporation who is
a party to an action, suit or proceeding may apply for indemnification or
advance of expenses to the court conducting the proceeding
II-2
<PAGE>
or to another court of competent jurisdiction. On receipt of an application,
after giving appropriate notice, the court may order indemnification or advance
of expenses if it determines:
(1) The director is entitled to mandatory indemnification under Section
23B.08.520 of the WBCA, in which case the court shall also order the corporation
to pay the director's reasonable ex penses incurred to obtain court-ordered
indemnification;
(2) The director is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not the director met the
standard of conduct set forth in Section 23B.08.510 of the WBCA or was adjudged
liable as described in Section 23B.08.510(4), but if the director was adjudged
so liable, the director's indemnification is limited to reasonable expenses
incurred unless the articles of incorporation or a bylaw, contract, or
resolution approved or ratified by the shareholders pursuant to Section
23B.08.560 of the WBCA provides otherwise; or
(3) In the case of an advance of expenses, the director is entitled
pursuant to the articles of incorporation, bylaws, or any applicable resolution
or contract, to payment or reimbursement of the director's reasonable expenses
incurred as a party to the action, suit or proceeding in advance of final
disposition of the proceeding.
Section 23B.08.550 of the WBCA provides that:
(1) A corporation may not indemnify a director under Section 23B.08.510 of
the WBCA unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section
23B.08.510.
(2) The determination shall be made:
(a) By the board of directors, by majority vote of a quorum consisting of
directors not at the time parties to the action, suit or proceeding;
or
(b) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be
voted on the determination.
(c) By special legal counsel:
(i) Selected by the board of directors or its committee in the manner
prescribed in (a) or (b) of this subsection; or
(ii) If a quorum of the board of directors cannot be obtained under
(a) of this subsection and a committee cannot be designated under
(b) of this subsection, selected by majority vote of the full
board of directors, in which selection directors who are parties
may participate; or
(d) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be
voted on the determination.
II-3
<PAGE>
(3) Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(2)(c) of this section to select counsel.
Section 23B.08.560 of the WBCA provides as follows:
(1) If authorized by the articles of incorporation, a by-law adopted or
ratified by the shareholders, or a resolution adopted or ratified, before or
after the event, by the shareholders, or a resolution adopted or ratified,
before or after the event, by the shareholders, a corporation shall have power
to indemnify or agree to indemnify a director made a party to a proceeding, or
obligate itself to advance or reimburse expenses incurred in a proceeding,
without regard to the limitations in 23B.08.510 through 23B.08.550 of the WBCA,
provided that no such indemnity shall indemnify any director from or on account
of:
(a) Acts or omissions of th director finally adjudged to be intentional
misconduct or a knowing violation of law;
(b) Conduct of the director finally adjudged to be in violation of RCW
23B.08.310; or
(c) Any transaction with respect to which it was finally adjudged that
such director personally received a benefit in money, property, or
services to which the director was not legally entitled.
(2) Unless the articles of incorporation, or a by-law or resolution adopted
or ratified by the shareholders, provide otherwise, any determination as to
indemnity or expense is to be made in accordance with Section 23B.08.550 of the
WBCA.
Section 23B.08.510-570 of the WBCA provides as follows:
Unless a corporation's articles of incorporation provide otherwise:
(1) An officer of the corporation who is not a director is entitled to
mandatory indemnification under RCW 23B.08.520, and is entitled to apply for
court-ordered indemnification under RCW 23B.08.540, in each case to the same
extent as a director;
(2) The corporation may indemnify and advance expenses under RCW 23B.08.510
through 23B.08.560 to an officer, employee, or agent of the corporation who is
not a director to the same extent as to a director; and
(3) A corporation may also indemnify and advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with law,
that may be provided by its articles of incorporation, by-laws, general or
specific action of its board of directors, or contract.
Section 2311.08.580 of the of the WBCA provides that a corporation may
purchase and maintain insurance on behalf of an individual who is or was a
director, officer, employee, or agent of the corporation, or who, while a
director, officer, employee, or agent of the corporation, is or was serving at
II-4
<PAGE>
the request of the corporation as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, against
liability asserted against or incurred by the individual in that capacity or
arising from the individual's status as a director, officer, employee, or agent,
whether or not the corporation would have power to indemnify the individual
against the same liability under Section 23B.08.510 or 23B.08.520 of the WBCA.
Item 25. Other Expenses of Issuance and Distribution
SEC Registration Fee.......................................... $ 20,975.17
Printing Expenses............................................. 10,000.00
Legal Fees and Expenses....................................... 50,000.00
State Securities Qualification Fees and Expenses.............. 3,000.00
Accounting and Auditing Fees and Expenses..................... 15,000.00
Miscellaneous................................................. 1,024.83
-----------
Total.................................................... $100,000.00
===========
Item 26. Recent Sale of Unregistered Securities
(a) The registrant issued an aggregate of 3,605,205 shares of its common
stock to the 6 holders of the outstanding common stock of Wasatch Interactive
Learning Corporation, a Utah corporation ("WILC-Utah"), in connection with the
statutory merger of WILC-Utah with and into the registrant on February 4, 2000
pursuant to an Agreement and Plan of Reorganization dated January 20, 2000, and
in exchange for and cancellation of the outstanding shares of common stock of
WILC-Utah. There were no underwriters with respect to the above transaction. The
registrant believes that the shares were issued in a transaction not involving a
public offering in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended (the "Act").
(b) The registrant distributed as a dividend to holders of record of its
common stock as of February 15, 2000 an aggregate of 1,500,000 Class A common
stock purchase warrants. See "Description of Securities--Class A Common Stock
Purchase Warrants" in the prospectus included in this registration statement for
a description of these Class A warrants. There were no underwriters with respect
to the above transaction. The registrant believes that these securities were
issued in a transaction not involving a "sale" as defined in Section 2(3) of the
Act.
(c) As of February 29, 2000, the registrant issued an aggregate of 158,334
shares of its common stock and 31,667 Class A common stock purchase warrants to
a group of five private investors for $950,000 in cash. The registrant is using
the proceeds for working capital and the general corporate purposes, including
expansion of its direct sales. There were no underwriters in connection with the
above transaction. The registrant believes that these securities were issued in
a transaction not involving a public offering in reliance upon an exemption from
registration provided by Section 4(2) of the Act.
(d) On March 16, 2000, the registrant issued a 7% convertible debenture due
March 16, 2003 in the aggregate principal amount of $4 million and common stock
purchase warrants to purchase 196,078 shares of common stock at an exercise
price of $5.31 per share expiring on March 16, 2005. In connection with the
issuance of these securities, the registrant received aggregate cash
consideration of $4 million. Although there were no underwriters in connection
with this transaction, the registrant paid a
II-5
<PAGE>
$100,000 finders fee to a principal shareholder as disclosed under "Related
Party Transactions" in the prospectus forming part of this registration
statement. The registrant believes that these securities were issued in a
transaction not involving a public offering in reliance upon the exemption from
registration provided by Section 4(2) of the Act.
The board of directs and executive offices were elected as of January 20,
2000 and are not aware of any other sales of unregistered securities of the
registrant.
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits
2.1 Agreement and Plan of Reorganization dated as of January 20, 2000
between AG Holdings, Inc. and Wasatch Interactive Learning
Corporation, a Utah Corporation ("WILC-Utah"). (1)
3.1 Article of Incorporation of the registrant, as amended. (2)
3.2 By-Laws of the registrant, as amended. (2)
4.1 Specimen Common Share Certificate.
4.2 Specimen Class A Warrant Certificate.
4.3 Specimen Class B Warrant Certificate.
*5.1 Opinion of Snow Becker Krauss P.C.
10.1 Employment Agreement dated January 17, 2000 between the registrant
and Barbara Morris as amended on April 14, 2000.
10.2 Employment Agreement dated January 17, 2000 between the registrant
and Carol Loomis as amended on April 14, 2000.
10.3 Employment Agreement dated February 8, 2000 between the registrant
and Todd Brashear.
10.4 1999 Stock Option Plan.
10.5 Lease Agreement dated April 7, 1999 between the registrant and The
Atrium Building LLC, as amended.
10.6 Education Market License dated February 7, 1997 between WILC-Utah
and Wasatch Education Systems Corporation, as amended.
10.7 Letter Amendment to Asset Purchase and Software License Agreement
dated April 14, 2000 between registrant and Wasatch Education
Systems Corporation.
II-6
<PAGE>
10.8 Software License Agreement dated November 4, 1997 between
WILC-Utah and PlaNet Software, Inc.
10.9 Finder Fee Agreement dated January 29, 2000 between the registrant
and Western Financial Communications, Inc.
10.10 Securities Purchase Agreement dated as of March 16, 2000 between
the registrant and Brock Road, LLC. (3)
10.11 7% Convertible Debenture due March 16, 2003. (3)
10.12 Common Stock Purchase Warrant. (3)
10.13 Registration Rights Agreement dated as of March 16, 2000 between
the registrant and Brock Road, LLC. (3)
16.1 Letter on change in certifying accountants (4)
23.1 Consent of Tanner + Co. is included in Part II of this
registration statement.
23.2 Consent of Snow Becker Krauss P.C. is included in part II of this
registration statement.
24. Powers of Attorney are included on the signature page of this
registration statement.
27. Financial Data Schedule
- ----------
* To be filed by amendment to this Registration Statement.
(1) Incorporated by reference to Exhibit 2.1 to the registrant's
current report on Form 8-K dated January 20, 2000.
(2) The original Articles of Incorporation of the registrant as filed
with the Secretary of State of Washington on May 17, 1984 and
amendments thereto as filed through April 9, 1992 and the original
by-laws as amended through April 5, 1985 are incorporated by
reference to Exhibit 2 to the registrant's registration statement
on Form 10-SB, file no. 0-23180.
(3) Incorporated by reference to Exhibits 99.1-99.4 to the
registrant's current report on Form 8-K dated March 16, 2000.
(4) Incorporated by reference to Exhibits to registrant's current
report on Form 8-K dated March 23, 2000.
Item 28. Undertakings
The registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
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<PAGE>
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, to treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a Director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) For determining any liability under the Securities Act, to treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Act as part of this registration statement as of the time the
Commission declared it effective.
(7) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Salt Lake City, State of Utah, on the 19th day of
April, 2000.
WASATCH INTERACTIVE LEARNING CORPORATION
By: /s/ Barbara Morris
--------------------------------
Barbara Morris, President
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below, hereby constitutes and appoints
Barbara Morris his or her true and lawful attorney-in-fact and agent, with power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying all that said attorney-in-fact and agent
or his substitute or substitutes, or any of them, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated:
Signature Title Date
- --------- ----- ----
/s/ Barbara Morris President, CEO April 19, 2000
- ------------------------- (Principal Executive Officer)
Barbara Morris and Chairman of the Board
/s/ Todd Brashear Chief Financial Officer April 19, 2000
- ------------------------- (Principal Financial Officer)
Todd Brashear
/s/ Carol Loomis Vice President of Development, April 19, 2000
- ------------------------- Secretary and Director
Carol Loomis
II-9
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
3.1 Amendment to the Articles of Incorporation of the registrant.
3.2 Amendment to the By-Laws of the registrant.
4.1 Specimen Common Share Certificate.
4.2 Specimen Class A Warrant Certificate.
4.3 Specimen Class B Warrant Certificate.
*5.1 Opinion of Snow Becker Krauss P.C.
10.1 Employment Agreement dated January 17, 2000 between the registrant and
Barbara Morris, as amended.
10.2 Employment Agreement dated January 17, 2000 between the registrant and
Carol Loomis, as amended.
10.3 Employment Agreement dated February 8, 2000 between the registrant and
Todd Brashear.
10.4 1999 Stock Option Plan.
10.5 Lease Agreement dated April 7, 1999 between the registrant and The Atrium
Building LLC, as amended.
10.6 Education Market License dated February 7, 1997 between WILC-Utah and
Wasatch Education Systems Corporation, as amended.
10.7 Letter Amendment to Asset Purchase and Software License Agreement dated
April 14, 2000 between registrant and Wasatch Education Systems
Corporation.
10.8 Software License Agreement dated November 4, 1997 between WILC-Utah and
PlaNet Software, Inc.
10.9 Finder Fee Agreement dated January 29, 2000 between the registrant and
Western Financial Communications, Inc.
23.1 Consent of Tanner + Co.
<PAGE>
23.2 Consent of Snow Becker Krauss P.C.
24. Powers of Attorney are included on the signature page of this
registration statement.
27. Financial Data Schedule
Exhibit 3.1
FILED
STATE OF WASHINGTON
NOV 21 1997
RALPH [ILLEGIBLE]
SECRETARY OF STATE
AMENDMENT TO
ARTICLES OF INCORPORATION
OF
AG HOLDINGS, INC.
- --------------------------------------------------------------------------------
1. The name of the Corporation is AG Holdings, Inc.
2. The following amendment to the Articles of Incorporation of the
Corporation was adopted by the Board of Directors on November 9, 1997 without
shareholder action pursuant to Section 23B.10.020.(5) of the Washington Business
Corporation Act.
3. Article 1 of the Articles of Incorporation of the Corporation is hereby
amended in its entirety to read as follows:
The name of this corporation shall be "Balmi USA, Inc."
Executed this 20th day of November, 1997.
/s/ Robert Filiatrentix
----------------------------------
Robert Filiatrentix
President
Exhibit 3.2
WASATCH INTERACTIVE LEARNING CORPORATION
Action By Unanimous Written Consent of Directors
Pursuant to Section 08.210 of the Washington Business Corporation Act
The undersigned, being all the directors of Wasatch Interactive Learning
Corporation, a Washington corporation (the "Corporation"), acting pursuant to
Section 08.210 of the Washington Business Corporation Act, do hereby consent in
writing to the adoption of the following resolutions:
RESOLVED, that the certificate of amendment of the Corporation's
certificate of incorporation, filed in the office of the Secretary of State of
the State of Washington on February 10, 2000, for the purpose of changing the
name of the Corporation from AG Holdings, Inc. to Wasatch Interactive Learning
Corporation be and it hereby is adopted, ratified, confirmed and approved; and
be it further
RESOLVED, that the officers of this Corporation are, and each acting alone
is, hereby authorized to do and perform any and all such acts, including
execution of any and all documents and certificates, as such officers shall deem
necessary or advisable, to carry out the purposes and intent of the foregoing
resolution; and be it further
RESOLVED, that any actions taken by the officers of this Corporation prior
to the date of the foregoing resolutions adopted hereby that are within the
authority conferred thereby are hereby ratified, confirmed and approved as the
acts and deeds of this corporation; and be it further
RESOLVED, that the title of the By-laws of this Corporation is hereby
amended to delete such title in its entirety and to replace such title with the
following:
BY-LAWS
OF
WASATCH INTERACTIVE LEARNING CORPORATION
and be it further
RESOLVED, that Section 1 of Article I of the By-laws of this Corporation is
hereby amended to delete such Section in its entirety and to replace such
Section with the following:
Section 1. Offices. The principal offices of the Corporation shall be
at 5250 South Commerce Drive, Suite 101, Salt Lake City, Utah 84107, and
the Corporation shall have other offices at such places as the Board of
Directors may from time to time determine.
and be it further
RESOLVED, that Section 2 of Article II of the By-laws of this corporation
is hereby amended to delete the first sentence of such Section and to replace
such sentence with the following:
<PAGE>
The annual meetings of the stockholders of the Corporation for the election
of directors to succeed those whose terms expire, and for the transaction
of such other business as may properly come before the meeting, shall be
held each year on August 15, beginning in the year 2000.
and be it further
RESOLVED, that Section 1 of Article III of the By-laws of this Corporation
is hereby amended to delete the second sentence of such Section and to replace
such sentence with the following:
Management of the affairs, property and business of the Corporation
shall be vested in the Board of Directors, which shall consist of not less
than two and not more than eleven members, who shall be elected at the
annual meeting of stockholders by a plurality vote for a term of one year,
and shall hold office until their successors are elected and quality.
and be it further
RESOLVED, that Section 1 of Article IV of the By-laws of this Corporation
is hereby amended to delete the first sentence of such Section and to replace
such sentence with the following:
The officers of the Corporation shall consist of a President, one or
more Vice Presidents, a Secretary and a Treasurer, any of which may be
combined and held by one person, who shall be serve at the discretion of
the Board of Directors.
and be it further
RESOLVED, that Section 3 of Article VI of the By-laws of this Corporation
is hereby amended to delete such Section in its entirety and to replace such
Section with the following:
Section 3. Fiscal Year. Unless the Board of Directors by resolution
shall determine otherwise, the fiscal year of the Corporation shall begin
on the first day of March and end on the last day of February.
Dated: February 10, 2000
/s/ Barbara Morris
------------------------------
Barbara Morris
/s/ Carol Loomis
------------------------------
Carol Loomis
Exhibit 4.1
Wasatch Interactive Learning Corporation
INCORPORATED UNDER THE LAWS OF THE STATE OF WASHINGTON
AUTHORIZED 100,000,000 COMMON SHARES, $.0001 PAR VALUE
NUMBER SHARES
THIS CERTIFIES THAT
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 936794 10 6
is the owner of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF THE PAR VALUE OF $.0001 EACH OF
Wasatch Interactive Learning Corporation
transferable on the books of the Corporation in person or by attorney upon
surrender of this Certificate duly endorsed or assigned. This Certificate is not
valid unless countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signature
of its duly authorized officers.
Dated: , 2000
Carol Loomis Barbara Morris
--------------------------------- ---------------------------------
Secretary President
Corporate
SEAL
COUNTERSIGNED:
Executive Registrar & Transfer Agency, Inc.
P.O. Box 56715, Phoenix, AZ 85079
By
---------------------------------------
Transfer Agent and Authorized Signature
<PAGE>
Wasatch Interactive Learning Corporation
Executive Registrar & Transfer Agency, Inc.
Transfer Fee: As Required
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT ACT- _______Custodian for ________
(Cust.) (Minor)
under Unform Gifts to Minors
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of Act of _________________________
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list.
For value received_______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
----------------------------------------
Please print or type name and address of assignee
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
_______________________________________________________________ Shares of the
Common Stock represented by the within Certificate and do hereby irrevocably
constitute and appoint ______________________________________________________
---------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated _________________________ 20______
SIGNATURE GUARANTEED: X
---------------------------------
X
---------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. THE SIGNATURE(S) MUST BE GURARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan
Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM.
Exhibit 4.2
THIS WARRANT AND THE STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND CAN BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE ACT AND APPLICABLE STATE SECURITIES
LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT, UNLESS, IN THE OPINION OF
COUNSEL FOR THE COMPANY OR COUNSEL FOR THE REGISTERED HOLDER (WHICH SHALL BE IN
FORM AND FROM SUCH COUNSEL AS SHALL BE REASONABLY SATISFACTORY TO THE COMPANY),
SUCH REGISTRATION IS NOT THEN REQUIRED.
WASATCH INTERACTIVE LEARNING CORPORATION
No. WA-___ __________________ Redeemable Class A Common Stock Purchase
Warrants
VOID AFTER February 14, 2002
REDEEMABLE CLASS A WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
This certifies that FOR VALUE RECEIVED, ___________________________, or
registered assigns (the "Registered Holder"), is the owner of the number of
redeemable Class A common stock purchase warrants (each, "Class A Warrant" and
collectively, the "Class A Warrants") specified above. Each Class A Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate, one fully paid and
nonassessable share of common stock, par value $0.0001 per share the ("Common
Stock"), and one redeemable Class B common stock purchase warrant (collectively,
"Class B Warrants" and each, a "Class B Warrant") of Wasatch Interactive
Learning Corporation , a Washington corporation (the "Company") , at any time
between February 15, 2000, and the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
subscription form hereon duly executed, at the principal office of the Company,
accompanied by payment of $14.00, subject to adjustment as hereinafter provided
(the "Exercise Price"), in lawful money of the United States of America in cash
or by official bank check or certified check made payable to the Company. The
Class B Warrants shall be represented by a Warrant Certificate substantially in
the form of Exhibit A annexed hereto.
Each Class A Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all of the Class A Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor for the balance of such Class A Warrants. Each Class
A Warrant
<PAGE>
shall be deemed to have been exercised immediately prior to the close of
business on the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Class A Warrant as of the close of
business on the Exercise Date. Promptly following, and in any event within five
Business Days after the Exercise Date, the Company shall cause to be issued and
delivered by the Transfer Agent, to the person or persons entitled to receive
the same, a certificate or certificates for the securities deliverable upon such
exercise (plus a certificate for any remaining unexercised Class A Warrants of
the Registered Holder), unless prior to the date of issuance of such
certificates, the Company refrains from issuing certificates pending clearance
of checks received in payment of the Exercise Price of such Class A Warrants.
Definitions. The following terms will have the following definitions when used
in this Warrant Certificate, unless the context otherwise expressly requires:
"Common Stock" means capital stock of the Company of any class, whether now
or hereafter authorized, which has the right to participate in the distribution
of earnings and assets of the Company without limit as to amount or percentage.
"Board" means the board of directors of the Company or its successor as the
same may be constituted from time to time.
"Business Day" means a day which, in the State of Utah, is not a public
holiday or a day on which banks are permitted or required to be closed.
"Exercise Date" means, as to the Class A Warrants represented by this
Warrant Certificate, the date on which the Company shall have received both (1)
this Warrant Certificate, with the subscription form hereon duly executed by the
Registered Holder hereof or his attorney duly authorized in writing, and (2)
payment in cash, by electronic funds transfer to a deposit account designated by
the Company or by official bank check or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Exercise Price.
"Exercise Price" means the price to be paid upon exercise of each Class A
Warrant in accordance with the terms hereof, subject to (i) adjustment from time
to time pursuant to the adjustment provisions of this Warrant Certificate and
(ii) the Company's right to reduce the Exercise Price as provided herein.
"Expiration Date" means 5:00 p.m. (Salt Lake City, Utah time) on February
14, 2002, or such earlier date as the Class A Warrants shall be redeemed. If
such date shall not be a Business Day, then the Expiration Date shall mean 5:00
p.m. (Salt Lake City, Utah time) on the next succeeding day which is a Business
Day. The Company shall have the right to extend the Expiration Date, provided
prior notice is given to all Registered Holders.
-2-
<PAGE>
"Issue Date" means, with respect to the Warrants represented by this
certificate, February 15, 2000.
"Redemption Price" means the price at which the Company may, at its option,
redeem the Class A Warrants represented by this certificate, in accordance
herewith, which price shall be $0.0001 per Warrant.
"Registered Holder" means as to any Class A Warrant and as of any
particular date, the person in whose name a Warrant Certificate shall be
registered on that date on the books maintained by the Company for such purpose.
"Transfer Agent" means Executive Registrar and Transfer Agency, Inc., in
its capacity as the transfer agent for the Common Stock, or its authorized
successor, as such transfer agent.
Reservation of Shares; Payment of Taxes
(a) The Company will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon exercise of the
Class A Warrants, such number of whole shares of Common Stock as shall then be
issuable upon the exercise of all outstanding Class A Warrants. Shares of Common
Stock issuable upon exercise of Class A Warrants shall, at the time of delivery,
be duly and validly issued, fully paid, nonassessable and free from all taxes
(including, but not limited to, transfer taxes), liens and charges with respect
to the issue thereof (other than those taxes, liens or charges which the Company
shall promptly pay or discharge) , and upon issuance, such shares shall be
listed on each national securities exchange or eligible for inclusion in each
automated quotation system, if any, on or in which the other shares of
outstanding Common Stock of the Company are then listed or eligible for
inclusion.
(b) If any securities to be reserved for the purpose of exercise of Class A
Warrants hereunder require registration with, or approval of, any governmental
authority under any federal securities law before such securities may be validly
issued or delivered upon such exercise, then the Company will, in good faith and
as expeditiously as reasonably possible, endeavor to secure such registration or
approval. The Company will use commercially reasonable efforts to obtain
appropriate approvals or registrations under applicable state securities laws.
With respect to any such securities, however, Warrants may not be exercised by,
or shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company will pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of Class A
Warrants, or the issuance, or delivery of any shares of Common Stock upon
exercise of the Class A Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the Registered
Holder, then no such delivery shall be made unless the person requesting the
same has paid to the Company the amount of transfer taxes or charges incident
thereto, if any.
-3-
<PAGE>
Exchange and Registration of Transfer.
(a) This Warrant Certificate may be exchanged for other Warrant
Certificates representing an equal aggregate number of Class A Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Company at its principal office, and upon
satisfaction of the terms and provisions hereof, the Company shall execute,
issue and deliver in exchange therefor, the Warrant Certificate or Certificates
which the Registered Holder making the exchange shall be entitled to receive.
(b) The Company shall keep at its principal office books in which it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute, issue and deliver to the transferee or transferees, a new Warrant
Certificate or Certificates representing an equal aggregate number of Class A
Warrants.
(c) If this Warrant Certificate is presented for registration of transfer,
or for exchange or exercise, the subscription or assignment form, as applicable,
hereon shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer or subscription, as applicable in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Company for any exchange or
registration of transfer of Warrant Certificates.
Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it
of the ownership of, and loss, theft, destruction or mutilation of, this Warrant
Certificate and, in case of loss, theft or destruction, of indemnity
satisfactory to it, and, in the case of mutilation, upon surrender and
cancellation thereof, the Company shall, in the absence of notice that this
Warrant Certificate has been acquired by a bona fide purchaser, execute, sign
and deliver to the Registered Holder, in lieu thereof, a new Warrant Certificate
of like tenor representing an equal aggregate number of Warrants. Applicants for
a substitute Warrant Certificate shall comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Redemption.
(a) Upon not less than 30 days notice given at any time after the
applicable date of issuance thereof, the outstanding Class A Warrants
represented by this Warrant Certificate may be redeemed, at the option of the
Company, at a Redemption Price of $0.0001 per Class A Warrant. All Class A
Warrants must be redeemed if any are redeemed.
(b) If the conditions set forth in clause (a) above are satisfied, and the
Company desires to exercise its rights to redeem Warrants, it shall request the
Warrant Agent to send a notice of redemption to each of the Registered Holders
of the Warrants to be redeemed, first class mail,
-4-
<PAGE>
postage prepaid, not later than the 30th day before the Redemption Date, at
their last address as shall appear on the Class A Warrant register maintained by
the Company. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
(c) The notice of redemption shall specify: (i) the Redemption Price; (ii)
the date fixed for redemption (the "Redemption Date"); (iii) the place where
Warrant Certificates shall be delivered and the redemption price paid; and (iv)
that the right to exercise the Class A Warrants shall terminate at 5:00 p.m.
(Salt Lake City, Utah time) on the Business Day immediately preceding the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such
redemption, except as to a Registered Holder (a) to whom notice was not mailed
or (b) whose notice was defective. An affidavit of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be conclusive evidence of the facts stated therein.
(d) Any right to exercise a Class A Warrant shall terminate at 5:00 p.m.
(Salt Lake City, Utah time) on the Business Day immediately preceding the
Redemption Date. Except as provided in clause (e) below, on and after the
Redemption Date, Registered Holders of the Class A Warrants shall have no
further rights, except to receive, upon surrender of the Warrant Certificates
representing such Class A Warrants, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of this Warrant
Certificates, deliver or cause to be delivered to or upon the written order of
such holder a sum of cash equal to the Redemption Price of each such Warrant,
provided that if the aggregate amount payable to any Registered Holder in
redemption of Class A Warrants held by such Registered Holder is $5.00 or less,
the Company shall have no liability to make payment of the Redemption Price to
such Registered Holder; such Registered Holder will have no claim against the
Company for the payment of such Redemption Price; and the Class A Warrants held
by such Registered Holders shall, nevertheless, be deemed to have been duly
redeemed on the applicable Redemption Date, whether or not the same are
surrendered. From and after the Redemption Date and upon the deposit or setting
aside by the Company of a sum sufficient to redeem all the Class A Warrants
called for redemption, such Class A Warrants shall expire and become void and
all rights hereunder and under the Warrant Certificates shall cease, except the
right, if any, to receive payment of the Redemption Price.
(f) The Company reserves the right to have standby purchasers of all
unexercised Class A Warrants on the Redemption Date exercise such Class A
Warrants during the two week period following the Redemption Date, with the
Company receiving the Exercise Price and paying the redemption price to the
registered holders of unexercised Class A Warrants.
Adjustment of Exercise Price and Number of Shares of Common Stock and Class B
Warrants. After each adjustment of the Exercise Price pursuant to these
adjustment provisions, the number of
-5-
<PAGE>
shares of Common Stock and Class B Warrants purchasable upon the exercise of
each Class A Warrant shall, in each case, equal the number of shares of Common
Stock and Class B Warrants receivable upon exercise thereof prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
original Exercise Price and the denominator of which shall be such adjusted
Exercise Price.
The Exercise Price shall be subject to adjustment as set forth below:
(a) (i) In case the Company shall hereafter: (A) pay a dividend or make a
distribution on shares of its Common Stock in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class), (B)
subdivide its outstanding shares of Common Stock, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock, any shares of capital stock of
the Company, the Exercise Price in effect immediately prior to such action shall
be adjusted so that the Registered Holder of any Class A Warrant thereafter
exercised shall be entitled to receive the number of securities of the Company
which it would have owned immediately following such action had such Class A
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this subsection shall become effective immediately after the record date in the
case of a dividend or distribution of shares of Common Stock and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made pursuant
to this clause (a)(i), the Registered Holder of any Class A Warrant thereafter
exercised shall become entitled to receive two or more securities of the
Company, the Board (whose determination shall be conclusive and shall be
described in a statement filed with the Warrant Agent) shall determine the
allocation of the adjusted Exercise Price between or among such securities.
(ii) In any case in which this clause (a) shall require that an adjustment
to the Exercise Price be made immediately following a record date, the Company
may elect to defer, but only until five Business Days following the filing with
the Secretary of the Company of the certificate of its chief financial officer
described in clause (d)(i) below, issuing to the holder of any Class A Warrants
exercised after such record date the shares of Common Stock and securities of
the Company issuable upon such exercise over and above the shares of Common
Stock and other securities of the Company issuable upon such exercise on the
basis of the Exercise Price prior to adjustment.
(iii) No adjustment in the Exercise Price shall be required to be made
unless such adjustment would require an increase or decrease of at least $0.25;
provided, however, that any adjustments which by reason of this subsection are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under these adjustment provisions shall
be made to the nearest cent or to the nearest one-one hundredth of a share, as
the case may be, but in no event shall the Company be obligated to issue
fractional shares upon the exercise of any Class A Warrant.
(iv) No adjustment of the Exercise Price shall be made, except on the
conditions set forth in this clause (a) . Without limitation to the foregoing,
there shall be no adjustment pursuant to this
-6-
<PAGE>
clause (a) should the Company issue any capital stock for cash or other
consideration on terms approved by the Board.
(b) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Class A Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary of the Company, in which merger, the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other securities
issuable upon exercise of the Class A Warrants, other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in the case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a condition
of such reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each Class A
Warrant then outstanding shall have the right thereafter to receive on exercise
of such Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger
sale or conveyance by a holder of the number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and the Company or its
successors shall forthwith file with its Secretary a statement setting forth
such provisions signed by (1) its President or a Vice President and (2) by its
Secretary or an Assistant Secretary, evidencing such provisions. Such provisions
shall include a provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in clause (a) above. The
provisions of this clause (b) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(c) Before taking any action which would cause an adjustment reducing the
Exercise Price below the then par value of the shares of Common Stock issuable
upon exercise of the Class A Warrants, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Exercise Price.
(d) (i) Upon any adjustment of the Exercise Price required to be made
pursuant to these adjustment provisions, the Company within 30 days thereafter
shall (A) cause to be filed with the Secretary of the Company a certificate of
its Chief Financial Officer setting forth the Exercise Price after such
adjustment and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation was based, which certificate shall be
conclusive evidence of the correctness of such adjustment, and (B) cause to be
mailed to the Registered Holder of this Warrant Certificate written notice of
such adjustment. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the notice
provisions set forth below.
-7-
<PAGE>
(ii) In case at any time:
(A) the Company shall declare any dividend upon its Common Stock
payable otherwise than in cash or in shares of Common Stock of the Company;
or
(B) the Company shall offer for subscription to the holders of its
Common Stock (other than pursuant to the terms of the Warrants) any
additional shares of stock of any class or any other securities convertible
or exercisable into, or exchangeable for shares of Common Stock or any
rights to subscribe thereto; or
(C) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another corporation (other than a merger with a subsidiary of the Company
in which merger the Company is the continuing corporation and which does
not result in any reclassification or change of the then outstanding shares
of Common Stock or other capital stock issuable upon exercise of the Class
A Warrants other than a change in par value, or from par value to no par
value, or from no par value to par value); or
(D) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; then, in any one or more of such cases;
the Company shall cause to be mailed to the Registered Holder of this Warrant
Certificate, at the earliest practicable time (and, in any event, not less than
20 days before any record date or other date set for definitive action), written
notice of the date on which the books of the Company shall close or a record
shall be taken for such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Exercise Price and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of the Class A Warrants. Such
notice shall also specify the date as of which the holders of the Common Stock
of record shall participate in dividend, distribution or subscription rights or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
consolidation, merger., dissolution, liquidation or winding up as the case may
be (on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise the Class A
Warrants shall terminate).
(iii) Without limiting the obligation of the Company to provide notice to
the Registered Holders of the Warrant Certificates of corporate actions
hereunder, the failure of the Company to give notice shall not invalidate such
corporate action of the Company.
-8-
<PAGE>
Fractional Securities.
(a) If the number of shares of Common Stock and other securities
purchasable upon the exercise of each Class A Warrant is adjusted as above
provided, the Company, nevertheless, shall not be required to issue fractions of
shares or Class B Warrants pertaining to fractional shares upon exercise of the
Class A Warrants or otherwise, or to distribute certificates that evidence
fractional shares or the right to purchase fractional shares. With respect to
any fraction of a share or Class B Warrant that would relate to a fraction of a
share called for upon any exercise hereof, the Company shall pay to the
Registered Holder an amount in cash equal to such fraction multiplied by the
current market value of such fractional share or Class B Warrants relating to
fractional shares, determined as follows:
(i) If the Common Stock or Class B Warrant is listed on a national
securities exchange or admitted to unlisted trading privileges on such exchange
or listed for quotation on the Nasdaq Stock Market Inc. ("Nasdaq"), the current
value shall be the last reported sale price of the Common Stock on such exchange
or Nasdaq on the last business day prior to the date of exercise of this Warrant
or if no such sale is made on such day, the average of the closing bid and asked
prices for such day on such exchange or Nasdaq; or
(ii) If the Common Stock or Class B Warrants are not listed or admitted to
unlisted trading privileges, the current value shall be the mean of the last
reported bid and asked prices reported by the NASD's Over-the-Counter Electronic
Bulletin Board or the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Class A Warrant; or
(iii) If the Common Stock or Class B Warrants are not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may be
prescribed by the Board.
Agreement of Warrant Holders. The Registered Holder of this Warrant Certificate,
by his acceptance thereof, consents and agrees with the Company and every other
Registered Holder of a Warrant that:
(a) The Class A Warrants are transferable only on the Class A Warrant
registry books of the Company by the Registered Holder hereof in person or by
his attorney duly authorized in writing and only if this Warrant Certificate is
surrendered at the office of the Company, with the transfer form hereon attached
hereto duly endorsed, or accompanied by a proper instrument of transfer
satisfactory to the Company in its sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name this Warrant
Certificate is registered as the Registered Holder thereof and as the absolute,
true and lawful owner of the Warrants represented hereby for all purposes, and
the Company shall not be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided herein.
-9-
<PAGE>
Cancellation of Warrant Certificates. If the Company shall purchase or acquire
the Class A Warrants represented hereby, this Warrant Certificate shall be
surrendered to the Company and shall be canceled by the Company and retired.
Right to Extend Expiration Date or Reduce Exercise Price. The Company shall have
the right at any time, without the consent of the Registered Holders of any of
the Class A Warrants, (a) to extend the Warrant Expiration Date for all
Warrants, and (b) to decrease the Exercise Price for all Class A Warrants and/or
all Class B Warrants (provided prior written notice is given to all Registered
Holders).
Notices. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first class registered or certified mail, postage prepaid as follows:
(a) if to the Registered Holder of this Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Company;
(b) if to the Company, at 5250 South Commerce Drive, Salt Lake City, Utah
84107, or at such other address as may have been furnished to the Registered
Holders in writing by the Company;
Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Washington without reference to choice of law
rules thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by an officer thereof duly authorized.
WASATCH INTERACTIVE
LEARNING CORPORATION
Dated: February 15, 2000 By __________________________
Barbara Morris, President
-10-
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in order to Exercise Class A Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Class A Warrants represented by this Warrant Certificates, and to purchase the
securities issuable upon the exercise of such Class A Warrants, and requests
that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-----------------------------------------
-----------------------------------------
-----------------------------------------
[please print or type name and address]
and be delivered to
-----------------------------------------
-----------------------------------------
-----------------------------------------
[please print or type name and address]
-11-
<PAGE>
and if such number of Class A Warrants shall not be all of the Class A Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class A Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
Dated: ____________________________ x_________________________________
----------------------------------
Address
----------------------------------
----------------------------------
Taxpayer Identification Number
----------------------------------
Signature Guaranteed
-12-
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class A Warrants
FOR VALUE RECEIVED, ______________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
_____________________of the Class A Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
_________________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:________________________ x____________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
-13-
Exhibit 4.3
WASATCH INTERACTIVE LEARNING CORPORATION
No. WB __________________ Redeemable Class B Common Stock Purchase Warrants
VOID AFTER February 14, 2004
REDEEMABLE CLASS B WARRANT CERTIFICATE FOR
PURCHASE OF COMMON STOCK
This certifies that FOR VALUE RECEIVED, _________________________________,
or registered assigns (the "Registered Holder"), is the owner of the number of
redeemable Class B common stock purchase warrants (each, "Class B Warrant" and
collectively, the "Class B Warrants") specified above. Each Class B Warrant
initially entitles the Registered Holder to purchase, subject to the terms and
conditions set forth in this Warrant Certificate, one fully paid and
nonassessable share of common stock, par value $0.0001 per share (the "Common
Stock") of Wasatch Interactive Learning Corporation, a Washington corporation
(the "Company"), at any time between February 15, 2000, and the Expiration Date
(as hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the subscription form hereon duly executed, at the principal
office of the Company, accompanied by payment of $28.00, subject to adjustment
as hereinafter provided (the "Exercise Price"), in lawful money of the United
States of America in cash or by official bank check or certified check made
payable to the Company. The Class B Warrants shall be exercisable at $28 per
warrant for one share of Common Stock and shall expire on February l4, 2004
subject to earlier redemption. The Class A Warrant Certificates shall otherwise
contain the same terms and conditions as this Class B Warrant Certificate.
Each Class B Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all of the Class B Warrants represented
hereby, the Company shall cancel this Warrant Certificate upon the surrender
hereof and shall execute and deliver a new Warrant Certificate or Warrant
Certificates of like tenor for the balance of such Class B Warrants. Each Class
B Warrant shall be deemed to have been exercised immediately prior to the close
of business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of those securities upon the exercise of the Class B Warrant as of
the close of business on the Exercise Date. Promptly following, and in any event
within five Business Days after the Exercise Date, the Company shall cause to be
issued and delivered by the Transfer Agent, to the person or persons entitled to
receive the same, a certificate or certificates for the securities deliverable
upon such exercise (plus a certificate for any remaining unexercised Class B
Warrants of the Registered Holder), unless prior to the date
<PAGE>
of issuance of such certificates, the Company refrains from issuing certificates
pending clearance of checks received in payment of the Exercise Price of such
Class B Warrants.
Definitions. The following terms will have the following definitions when used
in this Warrant Certificate, unless the context otherwise expressly requires:
"Common Stock" means capital stock of the Company of any class, whether now
or hereafter authorized, which has the right to participate in the distribution
of earnings and assets of the Company without limit as to amount or percentage.
"Board" means the board of directors of the Company or its successor as the
same may be constituted from time to time.
"Business Day" means a day which, in the State of Utah, is not a public
holiday or a day on which banks are permitted or required to be closed.
"Exercise Date" means, as to the Class B Warrants represented by this
Warrant Certificate, the date on which the Company shall have received both (1)
this Warrant Certificate, with the subscription form hereon duly executed by the
Registered Holder hereof or his attorney duly authorized in writing, and (2)
payment in cash, by electronic funds transfer to a deposit account designated by
the Company or by official bank check or certified check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Exercise Price.
"Exercise Price" means the price to be paid upon exercise of each Class B
Warrant in accordance with the terms hereof, subject to (i) adjustment from time
to time pursuant to the adjustment provisions of this Warrant Certificate and
(ii) the Company's right to reduce the Exercise Price as provided herein.
"Expiration Date" means 5:00 p.m. (Salt Lake City, Utah time) on February
14, 2004, or such earlier date as the Class B Warrants shall be redeemed. If
such date shall not be a Business Day, then the Expiration Date shall mean 5:00
p.m. (Salt Lake City, Utah time) on the next succeeding day which is a Business
Day. The Company shall have the right to extend the Expiration Date, provided
prior notice is given to all Registered Holders.
"Issue Date" means, with respect to the Warrants represented by this
certificate, February 15, 2000.
"Redemption Price" means the price at which the Company may, at its option,
redeem the Class B Warrants represented by this certificate, in accordance
herewith, which price shall be $0.0001 per Warrant.
-2-
<PAGE>
"Registered Holder" means as to any Class B Warrant and as of any
particular date, the person in whose name a Warrant Certificate shall be
registered on that date on the books maintained by the Company for such purpose.
"Transfer Agent" means Executive Registrar and Transfer Agency, Inc., in
its capacity as the transfer agent for the Common Stock, or its authorized
successor, as such transfer agent.
Reservation of Shares; Payment of Taxes
(a) The Company will at all times reserve and keep available out of its
authorized Common Stock, solely for the purpose of issue upon exercise of the
Class B Warrants, such number of whole shares of Common Stock as shall then be
issuable upon the exercise of all outstanding Class B Warrants. Shares of Common
Stock issuable upon exercise of Class B Warrants shall, at the time of delivery,
be duly and validly issued, fully paid, nonassessable and free from all taxes
(including, but not limited to, transfer taxes), liens and charges with respect
to the issue thereof (other than those taxes, liens or charges which the Company
shall promptly pay or discharge), and upon issuance, such shares shall be listed
on each national securities exchange or eligible for inclusion in each automated
quotation system, if any, on or in which the other shares of outstanding Common
Stock of the Company are then listed or eligible for inclusion.
(b) If any securities to be reserved for the purpose of exercise of Class B
Warrants hereunder require registration with, or approval of, any governmental
authority under any federal securities law before such securities may be validly
issued or delivered upon such exercise, then the Company will, in good faith and
as expeditiously as reasonably possible, endeavor to secure such registration or
approval. The Company will use commercially reasonable efforts to obtain
appropriate approvals or registrations under applicable state securities laws.
With respect to any such securities, however, Warrants may not be exercised by,
or shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company will pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of Class B
Warrants, or the issuance, or delivery of any shares of Common Stock upon
exercise of the Class B Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the Registered
Holder, then no such delivery shall be made unless the person requesting the
same has paid to the Company the amount of transfer taxes or charges incident
thereto, if any.
Exchange and Registration of Transfer.
(a) This Warrant Certificate may be exchanged for other Warrant
Certificates representing an equal aggregate number of Class B Warrants of the
same class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Company at its principal office, and upon
satisfaction of the terms and provisions hereof, the
-3-
<PAGE>
Company shall execute, issue and deliver in exchange therefor, the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Company shall keep at its principal office books in which it shall
register Warrant Certificates and the transfer thereof. Upon due presentment for
registration of transfer of any Warrant Certificate at such office, the Company
shall execute, issue and deliver to the transferee or transferees, a new Warrant
Certificate or Certificates representing an equal aggregate number of Class B
Warrants.
(c) If this Warrant Certificate is presented for registration of transfer,
or for exchange or exercise, the subscription or assignment form, as applicable,
hereon shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer or subscription, as applicable in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Company for any exchange or
registration of transfer of Warrant Certificates.
Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it
of the ownership of, and loss, theft, destruction or mutilation of, this Warrant
Certificate and, in case of loss, theft or destruction, of indemnity
satisfactory to it, and, in the case of mutilation, upon surrender and
cancellation thereof, the Company shall, in the absence of notice that this
Warrant Certificate has been acquired by a bona fide purchaser, execute, sign
and deliver to the Registered Holder, in lieu thereof, a new Warrant Certificate
of like tenor representing an equal aggregate number of Warrants. Applicants for
a substitute Warrant Certificate shall comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
Redemption.
(a) Upon not less than 30 days notice given at any time after the
applicable date of issuance thereof, the outstanding Class B Warrants
represented by this Warrant Certificate may be redeemed, at the option of the
Company, at a Redemption Price of $0.0001 per Class B Warrant. All Class B
Warrants must be redeemed if any are redeemed.
(b) If the conditions set forth in clause (a) above are satisfied, and the
Company desires to exercise its rights to redeem Class B Warrants, it shall
request the Warrant Agent to send a notice of redemption to each of the
Registered Holders of the Class B Warrants to be redeemed, first class mail,
postage prepaid, not later than the 30th day before the Redemption Date, at
their last address as shall appear on the Class B Warrant register maintained by
the Company. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice.
-4-
<PAGE>
(c) The notice of redemption shall specify: (i) the Redemption Price; (ii)
the date fixed for redemption (the "Redemption Date"); (iii) the place where
Warrant Certificates shall be delivered and the redemption price paid; and (iv)
that the right to exercise the Class B Warrants shall terminate at 5:00 p.m.
(Salt Lake City, Utah time) on the Business Day immediately preceding the
Redemption Date. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceedings for such
redemption, except as to a Registered Holder (a) to whom notice was not mailed
or (b) whose notice was defective. An affidavit of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be conclusive evidence of the facts stated therein.
(d) Any right to exercise a Class B Warrant shall terminate at 5:00 p.m.
(Salt Lake City, Utah time) on the Business Day immediately preceding the
Redemption Date. Except as provided in clause (e) below, on and after the
Redemption Date, Registered Holders of the Class B Warrants shall have no
further rights, except to receive, upon surrender of the Warrant Certificates
representing such Class B Warrants, the Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of this Warrant
Certificates, deliver or cause to be delivered to or upon the written order of
such holder a sum of cash equal to the Redemption Price of each Class B Warrant,
provided that if the aggregate amount payable to any Registered Holder in
redemption of Class B Warrants held by such Registered Holder is $5.00 or less,
the Company shall have no liability to make payment of the Redemption Price to
such Registered Holder; such Registered Holder will have no claim against the
Company for the payment of such Redemption Price; and the Class B Warrants held
by such Registered Holders shall, nevertheless, be deemed to have been duly
redeemed on the applicable Redemption Date, whether or not the same are
surrendered. From and after the Redemption Date and upon the deposit or setting
aside by the Company of a sum sufficient to redeem all the Class B Warrants
called for redemption, such Class B Warrants shall expire and become void and
all rights under this Warrant Certificate shall cease, except the right, if any,
to receive payment of the Redemption Price.
(f) The Company reserves the right to have standby purchasers of all
unexercised Class B Warrants on the Redemption Date exercise such Class B
Warrants during the two week period following the Redemption Date, with the
Company receiving the Exercise Price and paying the redemption price to the
registered holders of unexercised Class B Warrants.
Adjustment of Exercise Price and Number of Shares of Common Stock. After each
adjustment of the Exercise Price pursuant to these adjustment provisions, the
number of shares of Common Stock purchasable upon the exercise of each Class B
Warrant shall, in each case, equal the number of shares of Common Stock
receivable upon exercise thereof prior to such adjustment multiplied by a
fraction, the numerator of which shall be the original Exercise Price and the
denominator of which shall be such adjusted Exercise Price.
-5-
<PAGE>
The Exercise Price shall be subject to adjustment as set forth below:
(a) (i) In case the Company shall hereafter: (A) pay a dividend or make a
distribution on shares of its Common Stock in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class), (B)
subdivide its outstanding shares of Common Stock, (C) combine its outstanding
shares of Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock, any shares of capital stock of
the Company, the Exercise Price in effect immediately prior to such action shall
be adjusted so that the Registered Holder of any Class B Warrant thereafter
exercised shall be entitled to receive the number of securities of the Company
which it would have owned immediately following such action had such Class B
Warrant been exercised immediately prior thereto. An adjustment made pursuant to
this subsection shall become effective immediately after the record date in the
case of a dividend or distribution of shares of Common Stock and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made pursuant
to this clause (a)(i), the Registered Holder of any Class B Warrant thereafter
exercised shall become entitled to receive two or more securities of the
Company, the Board (whose determination shall be conclusive and shall be
described in a statement filed with the Warrant Agent) shall determine the
allocation of the adjusted Exercise Price between or among such securities.
(ii) In any case in which this clause (a) shall require that an adjustment
to the Exercise Price be made immediately following a record date, the Company
may elect to defer, but only until five Business Days following the filing with
the Secretary of the Company of the certificate of its chief financial officer
described in clause (d)(i) below, issuing to the holder of any Class B Warrants
exercised after such record date the shares of Common Stock and securities of
the Company issuable upon such exercise over and above the shares of Common
Stock and other securities of the Company issuable upon such exercise on the
basis of the Exercise Price prior to adjustment.
(iii) No adjustment in the Exercise Price shall be required to be made
unless such adjustment would require an increase or decrease of at least $0.25;
provided, however, that any adjustments which by reason of this subsection are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under these adjustment provisions shall
be made to the nearest cent or to the nearest one-one hundredth of a share, as
the case may be, but in no event shall the Company be obligated to issue
fractional shares upon the exercise of any Class B Warrant.
(iv) No adjustment of the Exercise Price shall be made, except on the
conditions set forth in this clause (a). Without limitation to the foregoing,
there shall be no adjustment pursuant to this clause (a) should the Company
issue any capital stock for cash or other consideration on terms approved by the
Board.
-6-
<PAGE>
(b) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of the Class B Warrants (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary of the Company, in which merger, the Company is
the continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other securities
issuable upon exercise of the Class B Warrants, other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in the case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a condition
of such reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each Class B
Warrant then outstanding shall have the right thereafter to receive on exercise
of such Class B Warrant the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger sale or conveyance by a holder of the number of shares of
Common Stock issuable upon exercise of such Class B Warrant immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance and the
Company or its successors shall forthwith file with its Secretary a statement
setting forth such provisions signed by (1) its President or a Vice President
and (2) by its Secretary or an Assistant Secretary, evidencing such provisions.
Such provisions shall include a provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
clause (a) above. The provisions of this clause (b) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(c) Before taking any action which would cause an adjustment reducing the
Exercise Price below the then par value of the shares of Common Stock issuable
upon exercise of the Class B Warrants, the Company will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Exercise Price.
(d) (i) Upon any adjustment of the Exercise Price required to be made
pursuant to these adjustment provisions, the Company within 30 days thereafter
shall (A) cause to be filed with the Secretary of the Company a certificate of
its Chief Financial Officer setting forth the Exercise Price after such
adjustment and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation was based, which certificate shall be
conclusive evidence of the correctness of such adjustment, and (B) cause to be
mailed to the Registered Holder of this Warrant Certificate written notice of
such adjustment. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the notice
provisions set forth below.
-7-
<PAGE>
(ii) In case at any time:
(A) the Company shall declare any dividend upon its Common Stock
payable otherwise than in cash or in shares of Common Stock of the Company;
or
(B) the Company shall offer for subscription to the holders of its
Common Stock (other than pursuant to the terms of the Warrants) any
additional shares of stock of any class or any other securities convertible
or exercisable into, or exchangeable for shares of Common Stock or any
rights to subscribe thereto; or
(C) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or a sale of all or substantially all of
the assets of the Company, or a consolidation or merger of the Company with
another corporation (other than a merger with a subsidiary of the Company
in which merger the Company is the continuing corporation and which does
not result in any reclassification or change of the then outstanding shares
of Common Stock or other capital stock issuable upon exercise of the Class
B Warrants other than a change in par value, or from par value to no par
value, or from no par value to par value); or
(D) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; then, in any one or more of such cases;
the Company shall cause to be mailed to the Registered Holder of this Warrant
Certificate, at the earliest practicable time (and, in any event, not less than
20 days before any record date or other date set for definitive action), written
notice of the date on which the books of the Company shall close or a record
shall be taken for such reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the Exercise Price and the kind and amount of the shares of stock and other
securities and property deliverable upon exercise of the Class B Warrants. Such
notice shall also specify the date as of which the holders of the Common Stock
of record shall participate in dividend, distribution or subscription rights or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, sale,
consolidation, merger., dissolution, liquidation or winding up as the case may
be (on which date, in the event of voluntary or involuntary dissolution,
liquidation or winding up of the Company, the right to exercise the Class B
Warrants shall terminate).
(iii) Without limiting the obligation of the Company to provide notice to
the Registered Holders of the Warrant Certificates of corporate actions
hereunder, the failure of the Company to give notice shall not invalidate such
corporate action of the Company.
-8-
<PAGE>
Fractional Securities.
(a) If the number of shares of Common Stock and other securities
purchasable upon the exercise of each Class B Warrant is adjusted as above
provided, the Company, nevertheless, shall not be required to issue fractions of
shares pertaining to fractional shares upon exercise of the Class B Warrants or
otherwise, or to distribute certificates that evidence fractional shares or the
right to purchase fractional shares. With respect to any fraction of a share
that would relate to a fraction of a share called for upon any exercise hereof,
the Company shall pay to the Registered Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share
relating to fractional shares, determined as follows:
(i) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for quotation
on the Nasdaq Stock Market Inc. ("Nasdaq"), the current value shall be the last
reported sale price of the Common Stock on such exchange or Nasdaq on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange or Nasdaq; or
(ii) If the Common Stock is not listed or admitted to unlisted trading
privileges, the current value shall be the mean of the last reported bid and
asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Class B Warrant; or
(iii) If the Common Stock is not listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current value shall
be an amount determined in such reasonable manner as may be prescribed by the
Board.
Agreement of Warrant Holders. The Registered Holder of this Warrant Certificate,
by his acceptance thereof, consents and agrees with the Company and every other
Registered Holder of a Warrant that:
(a) The Class B Warrants are transferable only on the Class B Warrant
registry books of the Company by the Registered Holder hereof in person or by
his attorney duly authorized in writing and only if this Warrant Certificate is
surrendered at the office of the Company, with the transfer form hereon attached
hereto duly endorsed, or accompanied by a proper instrument of transfer
satisfactory to the Company in its sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name this Warrant
Certificate is registered as the Registered Holder thereof and as the absolute,
true and lawful owner of the Warrants represented hereby for all purposes, and
the Company shall not be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided herein.
-9-
<PAGE>
Cancellation of Warrant Certificates. If the Company shall purchase or acquire
the Class B Warrants represented hereby, this Warrant Certificate shall be
surrendered to the Company and shall be canceled by the Company and retired.
Right to Extend Expiration Date or Reduce Exercise Price. The Company shall have
the right at any time, without the consent of the Registered Holders of any of
the Class B Warrants, (a) to extend the Warrant Expiration Date for all
Warrants, and (b) to decrease the Exercise Price for all Class B Warrants
(provided prior written notice is given to all Registered Holders).
Notices. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first class registered or certified mail, postage prepaid as follows:
(a) if to the Registered Holder of this Warrant Certificate, at the address
of such holder as shown on the registry books maintained by the Company;
(b) if to the Company, at 5250 South Commerce Drive, Salt Lake City, Utah
84107, or at such other address as may have been furnished to the Registered
Holders in writing by the Company;
Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Washington without reference to choice of law
rules thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by an officer thereof duly authorized.
WASATCH INTERACTIVE
LEARNING CORPORATION
Dated: February 15, 2000 By _________________________
Barbara Morris, President
-10-
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in order to Exercise Class B Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise the
Class B Warrants represented by this Warrant Certificates, and to purchase the
securities issuable upon the exercise of such Class B Warrants, and requests
that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
-----------------------------------------
-----------------------------------------
-----------------------------------------
[please print or type name and address]
and be delivered to
-----------------------------------------
-----------------------------------------
-----------------------------------------
[please print or type name and address]
<PAGE>
and if such number of Class B Warrants shall not be all of the Class B Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class B Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
Dated: ____________________________ x_________________________________
----------------------------------
Address
----------------------------------
----------------------------------
Taxpayer Identification Number
----------------------------------
Signature Guaranteed
-2-
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class B Warrants
FOR VALUE RECEIVED, ______________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
--------------------------------------
--------------------------------------
--------------------------------------
[please print or type name and address]
_____________________of the Class B Warrants represented by this Warrant
Certificate, and hereby irrevocably constitutes and appoints
_________________________________________ Attorney to transfer this Warrant
Certificate on the books of the Company, with full power of substitution in the
premises.
Dated:________________________ x____________________________
Signature Guaranteed
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of January 2000, is by and
between Barbara J. Morris (hereinafter referred to as "Employee") and Wasatch
Interactive Learning, a Utah Corporation (hereinafter referred to a "Company").
WITNESSETH
WHEREAS, the Company desires to employ the Employee; and
WHEREAS, the Employee desires to accept such employment with the Company; and
WHEREAS, the Employee and the Company desire to set forth their employment
relationship in a written agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants herein set
forth, and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.00 - EMPLOYMENT
1.01 EMPLOYMENT. The Company hereby offers to employ the Employee upon the
terms and conditions hereinafter set forth and the Employee accepts such offer
and agrees to abide by the terms and conditions hereof, and the terms and
conditions of the Company's and its affiliated corporations' Articles of
Incorporation, Bylaws and Employee Policy Manuals.
1.02 DUTIES. Employee shall serve as President, Director, and Officer of
the Company. Employee shall develop, fund, and implement an aggressive growth
plan for the Company, including an Internet strategy, as appropriate funding is
available. The Company is in the process of implementing a strategy to become an
OTC publicly traded company by a reverse merger with a publicly traded company
(the "Merger"). The strategy includes a funding plan to capitalize the Company
with a net of Seven Million Five Hundred Thousand Dollars ($7,500,000.00). This
is based on there being Nine Million shares (9,000,000) issued and outstanding.
Employee will have Two Million Two Hundred Fifty Thousand shares (2,250,000) and
Carol Loomis will have Seven Hundred Fifty Thousand shares (750,000) initially
in the Company following the Merger (3,000,000 shares equals the conversion of
the original owners, Barbara Morris and Carol Loomis (the "Founders") so that
they have 33% of the issued and outstanding shares of capital stock of the
Company (the "Anti-Dilution Percentage") but excludes shares exchanged for
debt). In the event shares are issued to acquire a business or its assets, the
Company shall be free to issue stock in such acquisition without regard to
Founders' percentage ownership interest in the Company; provided, however, that
the percentage interest of capital stock held by the Founders' immediately
following such acquisition shall thereafter be the new Anti-Dilution Percentage
and future issuance of stock shall thereafter continue to be subject to this
paragraph 1.02 at the new Anti-Dilution Percentage.
<PAGE>
ARTICLE 2.00 - TERM AND TERMINATION
2.01 TERM. The Company agrees to employ the Employee commencing on January
1, 2000. Such employment shall continue until terminated per this Agreement.
2.02 TERMINATION. The Company may, by giving zero (0) days notice to the
Employee, terminate this Agreement with cause. Notwithstanding the above, this
Agreement shall terminate immediately upon the death of the Employee, and shall
terminate upon ten (10) days notice by the Company if, because of illness or
injury, Employee becomes unable to perform services required pursuant to this
Agreement with or without reasonable accommodation as required under the
Americans with Disabilities Act of 1990. Any decision to terminate this
Agreement by the Company shall not be voted upon by the Employee in any capacity
whatsoever. In no event shall termination of this Agreement relieve the parties
hereto of any rights or obligations that survive the termination of this
Agreement as set forth herein. The Company may, by giving ten (10) days notice
to the employee, terminate this agreement without cause. The Employee may, by
giving ten (10) days notice to the Company, terminate this agreement.
ARTICLE 3.00 - COMPENSATION
3.01 SALARY. The Company covenants and agrees to pay Employee, as
consideration for her services, a salary of One Hundred Seventy Five Thousand
Dollars ($175,000.00) per year, payable in equal bimonthly installments, less
payroll deductions for income tax, FICA, withholding and any other deductions as
authorized by the Employee. For the purpose of causing Employee's compensation
to equal the reasonable value of his services to the Company, the Company may
increase the Employee's salary in any amount determined by the Company in its
sole discretion.
3.02 OPTIONS. Employee is granted options to purchase Two Hundred Thousand
(250,000) shares of common stock of the Company, post reverse merger. Said
options shall be vested and exercised on the following schedule and terms:
A. 50,000 options vest upon closing of the reverse merger into an OTC
publicly trading company. The Exercise Price for these options is
$4.00 per share.
B. 50,000 options vest on the one-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options is $5.00
per share.
C. 50,000 options vest on the two-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options is $6.00
per share.
D. 50,000 options vest on the three-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options is $8.00
per share.
E. 50,000 options vest on the four-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options if $10.00
per share.
All options shall vest upon achievement of revenue in a fiscal year of
$18,000,000, as verified and confirmed by financial reporting. The exercise
price of all options vested early due to the achievement of $18,000,000 in
revenue shall have an adjusted exercise price equal to the exercise price
for the anniversary year in which the milestone was reached. For example,
if the options scheduled to vest in (D) were to vest early in the same year
as C then all C and D options would have the $6.00 exercise price.
<PAGE>
3.03 BONUSES. For the purpose of causing the Employee's compensation to
equal the reasonable value of her services to the Company and to reflect any
outstanding contribution to the Company's revenue by Employee, the Company may
pay Employee, in addition to the salary for services described in Section 3.01
above, a bonus in any amount determined by the Company in its sole discretion.
The Bonus, if any, less payroll deductions for income taxes, FICA, withholding
and any other deductions authorized by the Employee, shall be paid by the
Company to the Employee at such time or times as the Company in its sole
discretion determines.
3.04 VACATION. During the term of this Agreement, the Employee shall be
entitled to an annual four week vacation during which time Employee's salary
shall be paid in full.
3.05 CHANGE OF CONTROL. In the event that the Founders cease to "control
the Company" and Employee's employment is terminated as a result of said loss of
control,
F. All unvested options shall vest immediately at the exercise price for
the year the Employee's employment is terminated
G. Employee shall receive a salary of One Hundred Seventy Five Thousand
Dollars ($175,000.00) per year for two years and continue on the
Company's insurance plan (as defined in the Company Employee Policy
Manuals) for two years, paid in full by the Company.
Founders ceasing to "control the Company" is defined as a subsequent material
change in Employees duties, which are materially adverse to the Founders or the
Company is acquired, merged, consolidated or otherwise adversely changed against
the Founders wishes. Resignation by the Employee following a change of control
shall constitute a termination due to loss of control for purposes of this
section. Employee shall be willing to provide up to six (6) months of
cooperative transition support, in the event of termination due to a loss of
control. The Employee will be paid at her salary rate for the cooperative
transition support and the salary paid for this cooperative transition support
time will be in addition to the salary stated in 3.05 B.
ARTICLE 4.00 - SPECIFIC OBLIGATIONS OF THE PARTIES
4.01 COMPANY'S OBLIGATIONS. The Company shall provide the employee with and
pay Employee's expenses for the following:
H. Such equipment, materials and supplies as the Employee requires for
the performance of her services.
I. Costs, including tuition, meals, lodging, and transportation incurred
by the Employee as stated in the Company's Travel and Expense Policy;
and
J. Suitable offices for the performance of Employee's services.
4.02 EMPLOYEE'S OBLIGATIONS. The Employee agrees that during the term of
this Agreement, she shall:
K. Faithfully and to the best of her ability and skill serve the Company
and perform her duties pursuant to this Agreement;
L. Maintain records in the manner established by the Company; and
M. Keep current all records, reports, insurance records and clerical work
required by Company.
<PAGE>
ARTICLE 5.00 - COVENANTS
5.01 COVENANT NOT TO COMPETE. Employee does hereby covenant and represent
that for the period of time Employee is employed with the Company and its
affiliated corporations and for a period of two (2) years commencing upon the
termination of Employee's employment with Company and its affiliated
corporations and within the borders of the United States of America, she will
not, directly or indirectly, on her own account or in any capacity for or on
behalf of any other firm, partnership, corporation or other entity, conduct,
engage in, be connected with, have an interest in or aid or assist in conducting
or operating a business which is competitive to the business conducted by
Company or its affiliated corporations during Employee's employment with Company
and its affiliated corporations. The parties hereto stipulate and agree that the
area and time period set forth above are necessary and reasonable, and that this
covenant shall not terminate upon termination of this Agreement, but shall
continue in full force and effect during the period of time Employee is employed
with the Company and its affiliated corporations and for a period of two (2)
years after such employment is terminated. Employee recognizes that her services
are special, unique and extraordinary, and that in the event of a violation the
Company could not be adequately compensated with legal remedies. Accordingly,
Employee agrees that this covenant may be enforced by specific performance or
any available legal or equitable remedy, including, but not limited to temporary
restraining order or preliminary and permanent injunctions, and the Company and
its affiliated corporations shall be entitled to recover from Employee all court
costs and reasonable attorney's fees incurred in enforcing this covenant and
vice versa. The remedies hereunder shall not be exclusive of each other, but
shall be cumulative.
5.02 COVENANT FOR PROTECTION OF PROPRIETARY INFORMAITON. The parties hereto
recognize that the Company and its affiliated corporations and Employee are
desirous of exchanging information during the term of this Agreement and during
the period time the Employee is employed with the Company and its affiliated
corporations relating to the research, development, and marketing of technology
for application in the general field of education and that during the above
periods of time, the Company and its affiliated corporations may disclose to the
Employee certain information pursuant to this Agreement which the Company and
its affiliated corporations deem proprietary.
In order to protect said information, the parties hereto agree that during
the period of Employee's employment with the Company and its affiliated
corporations, and for a period of two (2) years from the termination date of any
employment with the Company and its affiliated corporations employee shall not
disclose information she receives or has received from the Company or its
affiliated corporations, including, but not limited to information marked
PROPRIETARY or CONFIDENTIAL or STRICTLY PRIVATE or INTERNAL DATA, to any other
person, firm or corporation, or use no less stringent degree of care to avoid
disclosure or use of such information than Employee employs with respect to her
own proprietary information which she does not wish to be disseminated,
published or disclosed.
<PAGE>
The parties hereto agree that information shall not be deemed proprietary
and Employee shall have no obligation with respect to any such information
which:
N. Is already known to Employee through lawful channels of communication;
O. Is or becomes publicly known through no wrongful act of Employee;
P. Is rightfully received from a third party without similar restriction
and without breach of this Agreement;
Q. Is independently developed by Employee without breach of this
agreement or of Employee's duties of loyalty to the Company;
R. Is furnished to a third party by Company and its affiliated
corporations without a similar restriction on the third party's
rights; or
S. Is approved for release by written authorization of Company or its
affiliated corporations. Either party may, without breach of this
Agreement, disclose proprietary information to the government by
reason of a governmental requirement or to a court by reason of
operation of law.
Employee shall not liable for (1) inadvertent disclosure or use of
proprietary information provided that (a) she used no less than the same
degree of care in safeguarding such information as she uses for her own
information of like importance, and (b) upon discovery of such inadvertent
disclosure or use of such information she endeavored to prevent any further
inadvertent disclosure or use, or (2) unauthorized disclosure or use of
information by persons who are or who have been in her employ, unless she
fails to safeguard such information with not less than the same degree of
care as she uses for her own proprietary information of like importance.
In the event proprietary information should be lost, stolen or otherwise
compromised, the party formerly in possession of that information shall promptly
notify the Company by phone, and follow up with a detailed report in writing
within ten (10) days. A coordinated effort shall then be made to recover such
information.
All copies of written data delivered by the Company to the Employee
pursuant to this Section shall be and remain the property of the Company, and
all such written data, and any copies thereof, shall be promptly returned to the
Company upon written request, or destroyed at the Company's option.
Nothing contained in this Section shall be construed as granting or
conferring to Employee any rights by license or otherwise, expressly, implied
by, or otherwise for any invention, discovery or improvement made, conceived, or
acquired at any time.
Employee and Company agree that the period set further herein is reasonable
and further that the period set forth herein does not terminate at the
termination of this Agreement, but shall continue throughout any additional
period of employment, and or a two (2) year period thereafter. This covenant may
be enforced by specific performance or any available legal or equitable remedy,
including, but not limited to, temporary restraining orders or preliminary and
permanent injunctions, and the Company and its affiliated corporations shall be
entitled to recover from Employee all court costs and reasonable attorney's fees
incurred in enforcing this covenant. The remedies hereunder shall not be
exclusive of each other, but shall be cumulative.
<PAGE>
5.03 DEFINITION OF AFFILIATION. Affiliation, as used in this Article, shall
mean any proprietary, employment or fiduciary relationship of the Employee with
the Company and its affiliated corporations, including, but not limited to, the
position of Employee as director, officer, employee or consultant of the Company
or its affiliated corporations.
ARTICLE 6.00 - GENERAL MATTER
6.01 UTAH LAW. This Agreement shall be governed by the laws of the State of
Utah and shall be construed in accordance therewith.
6.02 NO WAIVER. No provision of this Agreement may be waived except by an
agreement in writing signed by the waiving party.
6.03 BINDING EFFECT. This Agreement shall be binding upon the parties,
their heirs, executors, administrators, successors or assignees. The parties
agree to do any and all things necessary to effectuate the purpose of this
Agreement.
6.04 CONSTRUCTION. Throughout this Agreement, the singular shall include
the plural; the plural shall include the singular; and the masculine and neuter
shall include the feminine, wherever the context so requires.
6.05 TEXT TO CONTROL. The headings of articles and sections are included
solely for convenience of reference. If any conflict between any heading and the
text of this agreement exists, the text shall control.
6.06 SEVERABILITY. If any provision of this agreement is declared by any
court of competent jurisdiction to be invalid for any reason, such invalidity
shall not affect the remaining provisions. On the contrary, such remaining
provisions shall be fully severable, and this Agreement shall be construed and
enforced as if such invalid provisions never had been inserted in this
Agreement.
6.07 AMENDMENT. This Agreement may be amended, altered or revoked at any
time, in whole or in part, by filing with this Agreement a written instrument
setting forth such charges, signed by the Company and the Employee.
<PAGE>
6.08 NOTICES. All notices required to be given by this Agreement shall be
made in writing either by:
T. Personal delivery to the party requiring notice and securing a written
receipt, or
U. Mailing notice in the U.S. mails to the last known address of the
party requiring notice, which shall be the address shown on the
records of the Corporation for the Employee, by certified mail, return
receipt requested.
The effective date of the notice shall be the date of the written receipt
received upon delivery in Paragraph A above or four (4) days after the date the
notice was delivered to the U. S. mail as posted on the receipt in paragraph B
above.
The parties hereby execute this Employment Agreement on the day and year first
written above.
WASATCH INTERACTIVE LEARNING CORPORATION
/s/ Carol E. Loomis
--------------------------------------------
Carol E. Loomis, Director
EMPLOYEE:
/s/ Barbara J. Morris
------------------------------------
Barbara J. Morris
<PAGE>
AMENDMENT
This Agreement (the "Amendment") is made and entered into on April 14,
2000, by and among Barbara J. Morris and Wasatch Interactive Learning
Corporation, a Washington corporation (the "Company").
WITNESSETH
WHEREAS, Barbara J. Morris and Wasatch Interactive Learning Corporation, a
Utah Corporation ("WILC-Utah") entered into an Employment Agreement (the
"Agreement") dated January 17, 2000, pursuant to which Barbara J. Morris was
employed as President, Director and Officer of WILC-Utah.
WHEREAS, as a result of the statutory merger with WILC-Utah, on February 4,
2000, the Company assumed the Agreement by operation of law.
WHEREAS, the parties to this Amendment desire to amend the Agreement
conditioned upon the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the material covenants
and agreements hereinafter set forth, the parties agree as follows:
1. Section 1.02 of the Agreement is amended to incorporate the
following sentence: "In the event the Company shall issue in excess of nine
(9) million shares at the time of the completion of the net $7,500,000 of
funding the Founders shall be issued such number of additional shares, at
no cost, to maintain their Anti-Dilution Percentage and such additional
cash to pay taxes on the extra shares issued."
2. Other than as provided herein, the Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WASATCH INTERACTIVE
LEARNING CORPORATION
By: /s/ Carol E. Loomis
------------------------------------
Carol E. Loomis, Vice-President
By: /s/ Barbara J. Morris
------------------------------------
Barbara J. Morris
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 17th day of January 2000, is by and
between Carol E. Loomis (hereinafter referred to as "Employee") and Wasatch
Interactive Learning, a Utah Corporation (hereinafter referred to a "Company").
WITNESSETH
WHEREAS, the Company desires to employ the Employee; and
WHEREAS, the Employee desires to accept such employment with the Company; and
WHEREAS, the Employee and the Company desire to set forth their employment
relationship in a written agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants herein set
forth, and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.00 - EMPLOYMENT
1.01 EMPLOYMENT. The Company hereby offers to employ the Employee upon
the terms and conditions hereinafter set forth and the Employee accepts such
offer and agrees to abide by the terms and conditions hereof, and the terms and
conditions of the Company's and its affiliated corporations' Articles of
Incorporation, Bylaws and Employee Policy Manuals.
1.02 DUTIES. Employee shall serve as Vice President of Development, a
Director and Officer of the Company. Employee shall develop, fund, and implement
an aggressive growth plan for the Company, including an Internet strategy, as
appropriate funding is available. The Company is in the process of implementing
a strategy to become an OTC publicly traded company by a reverse merger with a
publicly traded company (the "Merger"). The strategy includes a funding plan to
capitalize the Company with a net of Seven Million Five Hundred Thousand Dollars
($7,500,000.00). This is based on there being Nine Million shares (9,000,000)
issued and outstanding. Employee will have Seven Hundred Fifty Thousand shares
(750,000) and Barbara Morris will have Two Million Two Hundred Fifty Thousand
shares (2,250,000) initially in the Company following the Merger (3,000,000
shares equals the conversion of the original owners, Barbara Morris and Carol
Loomis (the "Founders") so that they have 33% of the issued and outstanding
shares of capital stock of the Company (the "Anti-Dilution Percentage") but
excludes shares exchanged for debt). In the event shares are issued to acquire a
business or its assets, the Company shall be free to issue stock in such
acquisition without regard to Founders' percentage ownership interest in the
Company; provided, however, that the percentage interest of capital stock held
by the Founders' immediately following such acquisition shall thereafter be the
new Anti-Dilution Percentage and future issuance of stock shall thereafter
continue to be subject to this paragraph 1.02 at the new Anti-Dilution
Percentage.
<PAGE>
ARTICLE 2.00 - TERM AND TERMINATION
2.01 TERM. The Company agrees to employ the Employee commencing on January
1, 2000. Such employment shall continue until terminated per this Agreement.
2.02 TERMINATION. The Company may, by giving zero (0) days notice to the
Employee, terminate this Agreement with cause. Notwithstanding the above, this
Agreement shall terminate immediately upon the death of the Employee, and shall
terminate upon ten (10) days notice by the Company if, because of illness or
injury, Employee becomes unable to perform services required pursuant to this
Agreement with or without reasonable accommodation as required under the
Americans with Disabilities Act of 1990. Any decision to terminate this
Agreement by the Company shall not be voted upon by the Employee in any capacity
whatsoever. In no event shall termination of this Agreement relieve the parties
hereto of any rights or obligations that survive the termination of this
Agreement as set forth herein. The Company may, by giving ten (10) days notice
to the employee, terminate this agreement without cause. The Employee may, by
giving ten (10) days notice to the Company, terminate this agreement.
ARTICLE 3.00 - COMPENSATION
3.01 SALARY. The Company covenants and agrees to pay Employee, as
consideration for her services, a salary of One Hundred Twenty Five Thousand
Dollars ($125,000.00) per year, payable in equal bimonthly installments, less
payroll deductions for income tax, FICA, withholding and any other deductions as
authorized by the Employee. For the purpose of causing Employee's compensation
to equal the reasonable value of his services to the Company, the Company may
increase the Employee's salary in any amount determined by the Company in its
sole discretion.
3.02 OPTIONS. Employee is granted options to purchase Two Hundred Fifty
Thousand (250,000) shares of common stock of the Company, post reverse merger.
Said options shall be vested and exercised on the following schedule and terms:
A. 50,000 options vest upon closing of the reverse merger into an OTC
publicly trading company. The Exercise Price for these options is
$4.00 per share.
B. 50,000 options vest on the one-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options is $5.00
per share.
C. 50,000 options vest on the two-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options is $6.00
per share.
D. 50,000 options vest on the three-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options is $8.00
per share.
E. 50,000 options vest on the four-year anniversary of the vesting of
options in (A) above. The Exercise Price for these options if $10.00
per share.
All options shall vest upon achievement of revenue in a fiscal year of
$18,000,000, as verified and confirmed by financial reporting. The exercise
price of all options vested early due to the achievement of $18,000,000 in
revenue shall have an adjusted exercise price equal to the exercise price
for the anniversary year in which the milestone was reached. For example,
if the options scheduled to vest in (D) were to vest early in the same year
as C then all C and D options would have the $6.00 exercise price.
<PAGE>
3.03 BONUSES. For the purpose of causing the Employee's compensation to
equal the reasonable value of her services to the Company and to reflect any
outstanding contribution to the Company's revenue by Employee, the Company may
pay Employee, in addition to the salary for services described in Section 3.01
above, a bonus in any amount determined by the Company in its sole discretion.
The Bonus, if any, less payroll deductions for income taxes, FICA, withholding
and any other deductions authorized by the Employee, shall be paid by the
Company to the Employee at such time or times as the Company in its sole
discretion determines.
3.04 VACATION. During the term of this Agreement, the Employee shall be
entitled to an annual four week vacation during which time Employee's salary
shall be paid in full.
3.05 CHANGE OF CONTROL. In the event that the Founders cease to "control
the Company" and Employee's employment is terminated as a result of said loss of
control,
A. All unvested options shall vest immediately at the exercise price for
the year the Employee's employment is terminated
B. Employee shall receive a salary of One Hundred Twenty Five Thousand
Dollars ($125,000.00) per year for two years and continue on the
Company's insurance plan (as defined in the Company Employee Policy
Manuals) for two years, paid in full by the Company.
Founders ceasing to "control the Company" is defined as a subsequent material
change in Employees duties, which are materially adverse to the Founders or the
Company is acquired, merged, consolidated or otherwise adversely changed against
the Founders wishes. Resignation by the Employee following a change of control
shall constitute a termination due to loss of control for purposes of this
section. Employee shall be willing to provide up to six (6) months of
cooperative transition support, in the event of termination due to a loss of
control. The Employee will be paid at her salary rate for the cooperative
transition support and the salary paid for this cooperative transition support
time will be in addition to the salary stated in 3.05 B.
ARTICLE 4.00 - SPECIFIC OBLIGATIONS OF THE PARTIES
4.01 COMPANY'S OBLIGATIONS. The Company shall provide the employee with and
pay Employee's expenses for the following:
A. Such equipment, materials and supplies as the Employee requires for
the performance of her services.
B. Costs, including tuition, meals, lodging, and transportation incurred
by the Employee as stated in the Company's Travel and Expense Policy;
and
C. Suitable offices for the performance of Employee's services.
4.02 EMPLOYEE'S OBLIGATIONS. The Employee agrees that during the term of
this Agreement, she shall:
A. Faithfully and to the best of her ability and skill serve the Company
and perform her duties pursuant to this Agreement;
B. Maintain records in the manner established by the Company; and
C. Keep current all records, reports, insurance records and clerical work
required by Company.
<PAGE>
ARTICLE 5.00 - COVENANTS
5.01 COVENANT NOT TO COMPETE. Employee does hereby covenant and represent
that for the period of time Employee is employed with the Company and its
affiliated corporations and for a period of two (2) years commencing upon the
termination of Employee's employment with Company and its affiliated
corporations and within the borders of the United States of America, she will
not, directly or indirectly, on her own account or in any capacity for or on
behalf of any other firm, partnership, corporation or other entity, conduct,
engage in, be connected with, have an interest in or aid or assist in conducting
or operating a business which is competitive to the business conducted by
Company or its affiliated corporations during Employee's employment with Company
and its affiliated corporations. The parties hereto stipulate and agree that the
area and time period set forth above are necessary and reasonable, and that this
covenant shall not terminate upon termination of this Agreement, but shall
continue in full force and effect during the period of time Employee is employed
with the Company and its affiliated corporations and for a period of two (2)
years after such employment is terminated. Employee recognizes that her services
are special, unique and extraordinary, and that in the event of a violation the
Company could not be adequately compensated with legal remedies. Accordingly,
Employee agrees that this covenant may be enforced by specific performance or
any available legal or equitable remedy, including, but not limited to temporary
restraining order or preliminary and permanent injunctions, and the Company and
its affiliated corporations shall be entitled to recover from Employee all court
costs and reasonable attorney's fees incurred in enforcing this covenant and
vice versa. The remedies hereunder shall not be exclusive of each other, but
shall be cumulative.
5.02 COVENANT FOR PROTECTION OF PROPRIETARY INFORMAITON. The parties hereto
recognize that the Company and its affiliated corporations and Employee are
desirous of exchanging information during the term of this Agreement and during
the period time the Employee is employed with the Company and its affiliated
corporations relating to the research, development, and marketing of technology
for application in the general field of education and that during the above
periods of time, the Company and its affiliated corporations may disclose to the
Employee certain information pursuant to this Agreement which the Company and
its affiliated corporations deem proprietary.
In order to protect said information, the parties hereto agree that during
the period of Employee's employment with the Company and its affiliated
corporations, and for a period of two (2) years from the termination date of any
employment with the Company and its affiliated corporations employee shall not
disclose information she receives or has received from the Company or its
affiliated corporations, including, but not limited to information marked
PROPRIETARY or CONFIDENTIAL or STRICTLY PRIVATE or INTERNAL DATA, to any other
person, firm or corporation, or use no less stringent degree of care to avoid
disclosure or use of such information than Employee employs with respect to her
own proprietary information which she does not wish to be disseminated,
published or disclosed.
<PAGE>
The parties hereto agree that information shall not be deemed proprietary
and Employee shall have no obligation with respect to any such information
which:
A. Is already known to Employee through lawful channels of communication;
B. Is or becomes publicly known through no wrongful act of Employee;
C. Is rightfully received from a third party without similar restriction
and without breach of this Agreement;
D. Is independently developed by Employee without breach of this
agreement or of Employee's duties of loyalty to the Company;
E. Is furnished to a third party by Company and its affiliated
corporations without a similar restriction on the third party's
rights; or
F. Is approved for release by written authorization of Company or its
affiliated corporations. Either party may, without breach of this
Agreement, disclose proprietary information to the government by
reason of a governmental requirement or to a court by reason of
operation of law.
Employee shall not liable for (1) inadvertent disclosure or use of
proprietary information provided that (a) she used no less than the same
degree of care in safeguarding such information as she uses for her own
information of like importance, and (b) upon discovery of such inadvertent
disclosure or use of such information she endeavored to prevent any further
inadvertent disclosure or use, or (2) unauthorized disclosure or use of
information by persons who are or who have been in her employ, unless she
fails to safeguard such information with not less than the same degree of
care as she uses for her own proprietary information of like importance.
In the event proprietary information should be lost, stolen or otherwise
compromised, the party formerly in possession of that information shall promptly
notify the Company by phone, and follow up with a detailed report in writing
within ten (10) days. A coordinated effort shall then be made to recover such
information.
All copies of written data delivered by the Company to the Employee
pursuant to this Section shall be and remain the property of the Company, and
all such written data, and any copies thereof, shall be promptly returned to the
Company upon written request, or destroyed at the Company's option.
Nothing contained in this Section shall be construed as granting or
conferring to Employee any rights by license or otherwise, expressly, implied
by, or otherwise for any invention, discovery or improvement made, conceived, or
acquired at any time.
Employee and Company agree that the period set further herein is reasonable
and further that the period set forth herein does not terminate at the
termination of this Agreement, but shall continue throughout any additional
period of employment, and or a two (2) year period thereafter. This covenant may
be enforced by specific performance or any available legal or equitable remedy,
including, but not limited to, temporary restraining orders or preliminary and
permanent injunctions, and the Company and its affiliated corporations shall be
entitled to recover from Employee all court costs and reasonable attorney's fees
incurred in enforcing this covenant. The remedies hereunder shall not be
exclusive of each other, but shall be cumulative.
<PAGE>
5.03 DEFINITION OF AFFILIATION. Affiliation, as used in this Article, shall
mean any proprietary, employment or fiduciary relationship of the Employee with
the Company and its affiliated corporations, including, but not limited to, the
position of Employee as director, officer, employee or consultant of the Company
or its affiliated corporations.
ARTICLE 6.00 - GENERAL MATTER
6.01 UTAH LAW. This Agreement shall be governed by the laws of the State of
Utah and shall be construed in accordance therewith.
6.02 NO WAIVER. No provision of this Agreement may be waived except by an
agreement in writing signed by the waiving party.
6.03 BINDING EFFECT. This Agreement shall be binding upon the parties,
their heirs, executors, administrators, successors or assignees. The parties
agree to do any and all things necessary to effectuate the purpose of this
Agreement.
6.04 CONSTRUCTION. Throughout this Agreement, the singular shall include
the plural; the plural shall include the singular; and the masculine and neuter
shall include the feminine, wherever the context so requires.
6.05 TEXT TO CONTROL. The headings of articles and sections are included
solely for convenience of reference. If any conflict between any heading and the
text of this agreement exists, the text shall control.
6.06 SEVERABILITY. If any provision of this agreement is declared by any
court of competent jurisdiction to be invalid for any reason, such invalidity
shall not affect the remaining provisions. On the contrary, such remaining
provisions shall be fully severable, and this Agreement shall be construed and
enforced as if such invalid provisions never had been inserted in this
Agreement.
6.07 AMENDMENT. This Agreement may be amended, altered or revoked at any
time, in whole or in part, by filing with this Agreement a written instrument
setting forth such charges, signed by the Company and the Employee.
<PAGE>
6.08 NOTICES. All notices required to be given by this Agreement shall be
made in writing either by:
A. Personal delivery to the party requiring notice and securing a written
receipt, or
B. Mailing notice in the U.S. mails to the last known address of the
party requiring notice, which shall be the address shown on the
records of the Corporation for the Employee, by certified mail, return
receipt requested.
The effective date of the notice shall be the date of the written receipt
received upon delivery in Paragraph A above or four (4) days after the date
the notice was delivered to the U. S. mail as posted on the receipt in
paragraph B above.
The parties hereby execute this Employment Agreement on the day and year
first written above.
WASATCH INTERACTIVE LEARNING CORPORATION
/s/ Barbara Morris
----------------------------------------
Barbara Morris, President
EMPLOYEE:
/s/ Carol E. Loomis
- ------------------------------------------
Carol E. Loomis
<PAGE>
AMENDMENT
This Agreement (the "Amendment") is made and entered into on April 14,
2000, by and among Carol E. Loomis and Wasatch Interactive Learning Corporation,
a Washington corporation (the "Company").
WITNESSETH
WHEREAS, Carol E. Loomis and Wasatch Interactive Learning Corporation, a
Utah Corporation ("WILC-Utah") entered into an Employment Agreement (the
"Agreement") dated January 17, 2000, pursuant to which Carol E. Loomis was
employed as Vice-President of Development, a Director and Officer of WILC-Utah.
WHEREAS, as a result of the statutory merger with WILC-Utah, on February 4,
2000, the Company assumed the Agreement by operation of law.
WHEREAS, the parties to this Amendment desire to amend the Agreement
conditioned upon the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and the material covenants
and agreements hereinafter set forth, the parties agree as follows:
1. Section 1.02 of the Agreement is amended to incorporate the following
sentence: "In the event the Company shall issue in excess of nine (9) million
shares at the time of the completion of the net $7,500,000 of funding the
Founders shall be issued such number of additional shares, at no cost, to
maintain their Anti-Dilution Percentage and such additional cash to pay taxes on
the extra shares issued."
2. Other than as provided herein, the Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
WASATCH INTERACTIVE
LEARNING CORPORATION
By: /s/ Barbara J. Morris
--------------------------------
Barbara J. Morris, President
By: /s/ Carol E. Loomis
--------------------------------
Carol E. Loomis
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into this 8th day of February 2000, is by and
between Todd Brashear (hereinafter referred to as "Employee") and Wasatch
Interactive Learning, a Utah Corporation (hereinafter referred to a "Company").
WITNESSETH
WHEREAS, the Company desires to employ the Employee; and
WHEREAS, the Employee desires to accept such employment with the Company; and
WHEREAS, the Employee and the Company desire to set forth their employment
relationship in a written agreement.
NOW THEREFORE, in consideration of the mutual promises and covenants herein set
forth, and for other valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.00 - EMPLOYMENT
1.01 EMPLOYMENT. The Company hereby offers to employ the Employee upon the
terms and conditions hereinafter set forth and the Employee accepts such offer
and agrees to abide by the terms and conditions hereof, and the terms and
conditions of the Company's and its affiliated corporations' Articles of
Incorporation, Bylaws and Employment Policy Manuals.
1.02 DUTIES. Employee shall serve as Chief Financial Officer of the
Company. Employee shall manage all financial affairs and reporting of the
Company. Employee responsibilities shall include, but not be limited to,
accurate monthly financial statements, implementing and managing all SEC
reporting, annual reports and public and investor relations, written and oral
reports to Board of Directors, lending institutions, news releases, etc., create
and implement strategic planning and budgeting systems, assess organizational
needs and implement effective administrative procedures, and play a key role in
acquisitions.
ARTICLE 2.00 - TERM AND TERMINATION
2.01 TERM. The Company agrees to employ the Employee commencing on February
14, 2000. Such employment shall continue until terminated per this Agreement.
2.02 TERMINATION. The Company may, by giving zero (0) days notice to the
Employee, terminate this Agreement with cause, defined as written notice of any
deficiencies and an opportunity to cure said deficiencies to the satisfaction of
the Company. Notwithstanding the above, this Agreement shall terminate
immediately upon the death of the Employee, and shall terminate upon ten (10)
days notice by the Company if, because of illness or injury, Employee becomes
unable to perform services required pursuant to this Agreement with or without
reasonable accommodation as required under the Americans with Disabilities Act
of 1990. In no event shall termination of this Agreement relieve the parties
hereto of any rights or obligations that survive the termination of this
Agreement as set forth herein. The Company may, by giving ten
<PAGE>
(10) days notice to the employee, terminate this agreement without cause. The
Employee may, by giving ten (10) days notice to the Company, terminate this
agreement.
Initials_______
<PAGE>
ARTICLE 3.00 - COMPENSATION
3.01 SALARY. The Company covenants and agrees to pay Employee, as
consideration for his services, a salary of One Hundred Ten Thousand Dollars
($110,000.00) per year, payable in equal bimonthly installments, less payroll
deductions for income tax, FICA, withholding and any other deductions as
authorized by the Employee. For the purpose of causing Employee's compensation
to equal the reasonable value of his services to the Company, the Company may
increase the Employee's salary in any amount determined by the Company in its
sole discretion.
3.02 OPTIONS. Employee is granted options to purchase Fifty Thousand
(50,000) shares of common stock of the Company. Said options shall be vested and
exercised on the following schedule and terms:
A. 16,667 options vest on the one-year anniversary of the Employee's
employment with the Company. The Exercise Price for these options is
$5.00 per share.
B. 16,666 options vest on the two-year anniversary of the Employee's
employment with the Company. The Exercise Price for these options is
$6.00 per share.
C. 16,667 options vest on the three-year anniversary of the Employee's
employment with the Company. The Exercise Price for these options is
$8.00 per share.
3.03 BONUSES. For the purpose of causing the Employee's compensation to
equal the reasonable value of his services to the Company and to reflect any
outstanding contribution to the Company's revenue by Employee, the Company may
pay Employee, in addition to the salary for services described in Section 3.01
above, a bonus in any amount determined by the Company in its sole discretion.
The Bonus, if any, less payroll deductions for income taxes, FICA, withholding
and any other deductions authorized by the Employee, shall be paid by the
Company to the Employee at such time or times as the Company in its sole
discretion determines.
3.04 VACATION. During the term of this Agreement, the Employee shall be
entitled to an annual vacation during which time Employee's salary shall be paid
in full. Employee shall be entitled to three weeks annual vacation during the
first two years of employment and four weeks annual vacation on the third year
and subsequent years of employment.
3.05 CHANGE OF CONTROL. In the event that the Founders ("Barbara Morris or
Carol Loomis") cease to "control the Company" and their employment is terminated
as a result of said loss of control, all unvested options of the Employee shall
vest immediately at the exercise price for the year the Founders employment is
terminated
Founders ceasing to "control the Company" is defined as a subsequent material
change in Founders duties, which are materially adverse to the Founders or the
Company is acquired, merged, consolidated or otherwise adversely changed against
the Founders wishes. Resignation by the Founders following a change of control
shall constitute a termination due to loss of control for purposes of this
section.
Initials_______
<PAGE>
ARTICLE 4.00 - SPECIFIC OBLIGATIONS OF THE PARTIES
4.01 COMPANY'S OBLIGATIONS. The Company shall provide the employee with and
pay Employee's expenses for the following:
A. Such equipment, materials and supplies as the Employee requires for
the performance of her services.
B. Costs, including tuition, meals, lodging, and transportation incurred
by the Employee as stated in the Company's Travel and Expense Policy;
and
C. Suitable offices for the performance of Employee's services.
4.02 EMPLOYEE'S OBLIGATIONS. The Employee agrees that during the term of
this Agreement, he shall:
A. Faithfully and to the best of his ability and skill serve the Company
and perform his duties pursuant to this Agreement;
B. Maintain records in the manner established by the Company; and
C. Keep current all records, reports, insurance records and clerical work
required by Company.
ARTICLE 5.00 - COVENANTS
5.01 COVENANT FOR PROTECTION OF PROPRIETARY INFORMAITON. The parties hereto
recognize that the Company and its affiliated corporations and Employee are
desirous of exchanging information during the term of this Agreement and during
the time period the Employee is employed with the Company and its affiliated
corporations relating to the financial planning, strategic plans, investments,
research, development, and marketing of technology for application in the
general field of education and that during the above periods of time, the
Company and its affiliated corporations may disclose to the Employee certain
information pursuant to this Agreement which the Company and its affiliated
corporations deem proprietary.
In order to protect said information, the parties hereto agree that during
the period of Employee's employment with the Company and its affiliated
corporations, and for a period of two (2) years from the termination date of any
employment with the Company and its affiliated corporations employee shall not
disclose information he receives or has received from the Company or its
affiliated corporations, including, but not limited to information marked
PROPRIETARY or CONFIDENTIAL or STRICTLY PRIVATE or INTERNAL DATA, to any other
person, firm or corporation, or use no less stringent degree of care to avoid
disclosure or use of such information than Employee employs with respect to his
own proprietary information which he does not wish to be disseminated, published
or disclosed.
Initials_______
<PAGE>
The parties hereto agree that information shall not be deemed proprietary
and Employee shall have no obligation with respect to any such information
which:
A. Is already known to Employee through lawful channels of communication;
B. Is or becomes publicly known through no wrongful act of Employee;
C. Is rightfully received from a third party without similar restriction
and without breach of this Agreement;
D. Is independently developed by Employee without breach of this
agreement or of Employee's duties of loyalty to the Company;
E. Is furnished to a third party by Company and its affiliated
corporations without a similar restriction on the third party's
rights; or
F. Is approved for release by written authorization of Company or its
affiliated corporations. Either party may, without breach of this
Agreement, disclose proprietary information to the government by
reason of a governmental requirement or to a court by reason of
operation of law.
Employee shall not liable for (1) inadvertent disclosure or use of
proprietary information provided that (a) he used no less than the same
degree of care in safeguarding such information as he uses for his own
information of like importance, and (b) upon discovery of such inadvertent
disclosure or use of such information he endeavored to prevent any further
inadvertent disclosure or use, or (2) unauthorized disclosure or use of
information by persons who are or who have been in his employ, unless he
fails to safeguard such information with not less than the same degree of
care as he uses for her own proprietary information of like importance.
In the event proprietary information should be lost, stolen or otherwise
compromised, the party formerly in possession of that information shall promptly
notify the Company by phone, and follow up with a detailed report in writing
within ten (10) days. A coordinated effort shall then be made to recover such
information.
All copies of written data delivered by the Company to the Employee
pursuant to this Section shall be and remain the property of the Company, and
all such written data, and any copies thereof, shall be promptly returned to the
Company upon written request, or destroyed at the Company's option.
Nothing contained in this Section shall be construed as granting or
conferring to Employee any rights by license or otherwise, expressly, implied
by, or otherwise for any invention, discovery or improvement made, conceived, or
acquired at any time.
Employee and Company agree that the period set further herein is reasonable
and further that the period set forth herein does not terminate at the
termination of this Agreement, but shall continue throughout any additional
period of employment, and or a two- (2) year period thereafter. This covenant
may be enforced by specific performance or any available legal or equitable
remedy, including, but not limited to, temporary restraining orders or
preliminary and permanent injunctions, and the Company and its affiliated
corporations shall be entitled to recover from Employee all court costs and
reasonable attorney's fees incurred in enforcing this covenant. The remedies
hereunder shall not be exclusive of each other, but shall be cumulative.
Initials_______
<PAGE>
5.03 DEFINITION OF AFFILIATION. Affiliation, as used in this Article, shall
mean any proprietary, employment or fiduciary relationship of the Employee with
the Company and its affiliated corporations, including, but not limited to, the
position of Employee as director, officer, employee or consultant of the Company
or its affiliated corporations.
ARTICLE 6.00 - GENERAL MATTER
6.01 UTAH LAW. This Agreement shall be governed by the laws of the State of
Utah and shall be construed in accordance therewith.
6.02 NO WAIVER. No provision of this Agreement may be waived except by an
agreement in writing signed by the waiving party.
6.03 BINDING EFFECT. This Agreement shall be binding upon the parties,
their heirs, executors, administrators, successors or assignees. The parties
agree to do any and all things necessary to effectuate the purpose of this
Agreement.
6.04 ARBITRATION. Any controversy or claim arising out of, or relating to,
this Agreement, or the breach thereof, shall be settled in Utah in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction thereof.
6.05 CONSTRUCTION. Throughout this Agreement, the singular shall include
the plural; the plural shall include the singular; and the masculine and neuter
shall include the feminine, wherever the context so requires.
6.06 TEXT TO CONTROL. The headings of articles and sections are included
solely for convenience of reference. If any conflict between any heading and the
text of this agreement exists, the text shall control.
6.07 SEVERABILITY. If any provision of this agreement is declared by any
court of competent jurisdiction to be invalid for any reason, such invalidity
shall not affect the remaining provisions. On the contrary, such remaining
provisions shall be fully severable, and this Agreement shall be construed and
enforced as if such invalid provisions never had been inserted in this
Agreement.
6.08 AMENDMENT. This Agreement may be amended, altered or revoked at any
time, in whole or in part, by filing with this Agreement a written instrument
setting forth such charges, signed by the Company and the Employee.
Initials_______
<PAGE>
6.09 NOTICES. All notices required to be given by this Agreement shall be
made in writing either by:
A. Personal delivery to the party requiring notice and securing a written
receipt, or
B. Mailing notice in the U.S. mails to the last known address of the
party requiring notice, which shall be the address shown on the
records of the Corporation for the Employee, by certified mail, return
receipt requested.
The effective date of the notice shall be the date of the written
receipt received upon delivery in Paragraph A above or four (4) days
after the date the notice was delivered to the U. S. mail as posted on
the receipt in paragraph B above.
The parties hereby execute this Employment Agreement on the day and year
first written above.
WASATCH INTERACTIVE LEARNING CORPORATION
/s/ Barbara Morris
-----------------------------------------
Barbara Morris, President
EMPLOYEE:
/s/ Todd Brashear
- ------------------------------------------
Todd Brashear
Exhibit 10.4
WASATCH INTERACTIVE LEARNING CORPORATION
2000 STOCK OPTION PLAN
1. Purposes.
The WASATCH INTERACTIVE LEARNING CORPORATION 2000 STOCK OPTION PLAN (the
"Plan") is intended to provide the employees, directors, independent contractors
and consultants of Wasatch Interactive Learning Corporation (the "Company")
and/or any subsidiary or parent thereof with an added incentive to commence
and/or continue their services to the Company and to induce them to exert their
maximum efforts toward the Company's success. By thus encouraging employees,
directors, independent contractors and consultants and promoting their continued
association with the Company, the Plan may be expected to benefit the Company
and its stockholders. The Plan allows the Company to grant Incentive Stock
Options ("ISOs") as defined in Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"), Non-Qualified Stock Options ("NQSOs") not
intended to qualify under Section 422(b) of the Code and Stock Appreciation
Rights ("SARs") (collectively the "Options"). The vesting of one or more Options
granted hereunder may be based on the attainment of specified performance goals
of the participant or the performance of the Company, one or more subsidiaries,
parent and/or division of one or more of the above.
2. Shares Subject to the Plan.
The total number of shares of Common Stock of the Company, $.0001 par value
per share (the "Common Stock"), that may be subject to Options granted under the
Plan shall be one million- five hundred thousand (1,500,000) in the aggregate,
subject to adjustment as provided in Paragraph 8 of the Plan; however, the grant
of an ISO to an employee together with a tandem SAR or any NQSO to an employee
together with a tandem SAR shall only require one share of Common Stock
available subject to the Plan to satisfy such joint Option. The Company shall at
all times while the Plan is in force reserve such number of shares of Common
Stock as will be sufficient to satisfy the requirement of outstanding Options
granted under the Plan. In the event any Option granted under the Plan shall
expire or terminate for any reason without having been exercised in full or
shall cease for any reason to be exercisable in whole or in part, the
unpurchased shares subject thereto shall again be available for granting of
Options under the Plan.
3. Eligibility.
ISO's or ISO's in tandem with SAR's (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a) through (e)
inclusive) may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as the
quoted terms are defined within Section 424 of the Code. An Officer is an
employee for such purposes. However, a director of the Company who is not
otherwise an employee is not deemed an employee for such purposes. NQSOs and
NQSOs in tandem with SARs may be granted
1
<PAGE>
from time to time under the Plan to one or more employees of the Company,
Officers, members of the Board of Directors, independent contractors,
consultants and other individuals who are not employees of, but are involved in
the continuing development and success of the Company and/or of a subsidiary of
the Company, including persons who have previously been granted Options under
the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the Company
as such Board of Directors may be composed from time to time or by a Stock
Option Committee (the "Compensation Committee") which shall be comprised solely
of at least two Outside Directors (as such term is defined in regulations
promulgated from time to time with respect to section 162(m)(4)(C)(i) of the
Code)) appointed by such Board of Directors of the Company and/or an Option
Committee, comprised of such individual or individuals as the Board of Directors
of the Company may designate from time to time (such Option Committee and the
compensation committee are collectively hereinafter referred to as the
"Committee"). As and to the extent authorized by the Board of Directors of the
Company, a Committee may exercise the power and authority vested in the Board of
Directors under the Plan. Within the limits of the express provisions of the
Plan, the Board of Directors or Committee shall have the authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, Options shall be granted, the character of such Options (whether ISOs,
NQSOs, and/or SARs in tandem with NQSOs, and/or SARs in tandem with ISOs) and
the number of shares of Common Stock to be subject to each Option, the manner
and form in which the optionee can tender payment upon the exercise of his
Option, and to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
Option agreements that may be entered into in connection with Options (which
need not be identical), subject to the limitation that agreements granting ISOs
must be consistent with the requirements for the ISOs being qualified as
"incentive stock options" as provided in Section 422 of the Code, and to make
all other determinations and take all other actions necessary or advisable for
the administration of the Plan. In making such determinations, the Board of
Directors and/or a Committee may take into account the nature of the services
rendered by such individuals, their present and potential contributions to the
Company's success, and such other factors as the Board of Directors and/or a
Committee, in its discretion, shall deem relevant. The Board of Directors'
and/or a Committee's determinations (to the extent authorized by the Company's
Board of Directors) on the matters referred to in this Paragraph shall be
conclusive.
(b) Notwithstanding anything contained herein to the contrary, at anytime
during the period the Company's Common Stock is registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended, (the "1934 Act"), the
Compensation Committee, if one has been appointed to administer all or part of
the Plan, shall have the exclusive right to grant Options to Covered Employees
as defined under Section 162 (m)(3) of the Code (generally persons subject to
Section 16 of the 1934 Act) and set forth the terms and conditions thereof. With
respect to persons subject to Section 16 of the 1934 Act, transactions under the
Plan are intended, to the extent possible, comply with all applicable conditions
of Rule 16b-3, as amended from time to time (and its successor provisions, if
any) under the 1934 Act and Section 162(m)(4)(C) of the Code, as amended. To the
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extent any provision of the Plan or action by the Board of Directors or
Compensation Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Board of Directors
and/or such Compensation Committee.
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Board of
Directors or a Committee may grant either ISOs or NQSOs or SARs in tandem with
NQSOs or SARs in tandem with ISOs. An ISO or an NQSO enables the optionee to
purchase from the Company, at any time during a specified exercise period, a
specified number of shares of Common Stock at a specified price (the "Option
Price"). The optionee, if granted a SAR in tandem with a NQSO or ISO, may
receive from the Company, in lieu of exercising his option to purchase shares
pursuant to his NQSO or ISO, at one of the certain specified times during the
exercise period of the NQSO or ISO as set by the Board of Directors or a
Committee, the excess of the fair market value upon such exercise (as determined
in accordance with subparagraph (b) of this Paragraph 5) of one share of Common
Stock over the Option Price per share specified upon grant of the NQSO or
ISO/SAR multiplied by the number of shares of Common Stock covered by the SAR so
exercised. The character and terms of each Option granted under the Plan shall
be determined by the Board of Directors and/or a Committee consistent with the
provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years from
the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each ISO and
each SAR issued in tandem with an ISO shall not be less than the fair market
value of such shares of Common Stock at the time such ISO is granted. Such fair
market value shall be determined by the Board of Directors and, if the shares of
Common Stock are listed on a national securities exchange or traded on the
over-the-counter market, the fair market value shall be the closing price on
such exchange, or the mean of the closing bid and asked prices of the shares of
Common Stock on the over-the-counter market, as reported by the Nasdaq Stock
Market, the National Association of Securities Dealers OTC Bulletin Board or the
National Quotation Bureau, Inc., as the case may be, on the day on which the
Option is granted or, if there is no closing price or bid or asked price on that
day, the closing price or mean of the closing bid and asked prices on the most
recent day preceding the day on which the Option is granted for which such
prices are available. If an ISO or SAR in tandem with an ISO is granted to any
individual who, immediately before the ISO is to be granted, owns (directly or
through attribution) more than 10% of the total combined voting power of all
classes of capital stock of the Company or a subsidiary or parent of the
Company, the Option Price of the shares of Common Stock subject to such ISO
shall not be less than 110% of the fair market value per share of the shares of
Common Stock at the time such ISO is granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO or an
SAR in tandem with a NQSO granted pursuant to the Plan shall be determined by
the Board of Directors or a Committee, in its sole discretion, subject to a
minimum Option Price established from time to time under any state securities
laws with respect to grants in such state.
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(d) In no event shall any Option granted under the Plan have an expiration
date later than 10 years from the date of its grant, and all Options granted
under the Plan shall be subject to earlier termination as expressly provided in
Paragraph 6 hereof. If an ISO or an SAR in tandem with an ISO is granted to any
individual who, immediately before the ISO is granted, owns (directly or through
attribution) more that 10% of the total combined voting power of all classes of
capital stock of the Company or of a subsidiary or parent of the Company, such
ISO shall by its terms expire and shall not be exercisable after the expiration
of five (5) years from the date of its grant.
(e) An SAR may be exercised at any time during the exercise period of the
ISO or NQSO with which it is granted in tandem and prior to the exercise of such
ISO or NQSO. Notwithstanding the foregoing, the Board of Directors and/or a
Committee shall in their discretion determine from time to time the terms and
conditions of SAR's to be granted, which terms may vary from the afore-described
conditions, and which terms shall be set forth in a written stock option
agreement evidencing the SAR granted in tandem with the ISO or NQSO. The
exercise of an SAR granted in tandem with an ISO or NQSO shall be deemed to
cancel such number of shares subject to the unexercised Option as were subject
to the exercised SAR. The Board of Directors or a Committee has the discretion
to alter the terms of the SARS if necessary to comply with Federal or state
securities law. Amounts to be paid by the Company in connection with an SAR may,
in the Board of Director's or a Committee's discretion, be made in cash, Common
Stock or a combination thereof.
(f) An Option granted under the Plan shall become exercisable, in whole at
any time or in part from time to time, but in no event may an Option (i) be
exercised as to less than one hundred (100) shares of Common Stock at any one
time, or the remaining shares of Common Stock covered by the Option if less than
one hundred (100), and (ii) except with respect to performance based Options,
become fully exercisable more than five years from the date of its grant nor
shall less than 20% of the Option become exercisable in any of the first five
years of the Option, if not terminated as provided in Section 6 hereof. The
Board of Directors or a Committee, if applicable, shall, in the event it so
elects in its sole discretion, set one or more performance standards with
respect to one or more Options upon which vesting is conditioned (which
performance standards may vary among the Options).
(g) An Option granted under the Plan shall be exercised by the delivery by
the holder thereof to the Company at its principal office (to the attention of
the Secretary) of written notice of the number of full shares of Common Stock
with respect to which the Option is being exercised, accompanied by payment in
full, which payment at the option of the optionee shall be in the form of (i)
cash or certified or bank check payable to the order of the Company, of the
Option Price of such shares of Common Stock, or, (ii) if permitted by a
Committee or the Board of Directors, as determined by a Committee or the Board
of Directors in its sole discretion at the time of the grant of the Option with
respect to an ISO and at or prior to the time of exercise with respect to a
NQSO, by the delivery of shares of Common Stock having a fair market value equal
to the Option Price or the delivery of an interest-bearing promissory note
having an original principal balance equal to the Option Price and an interest
rate not below the rate which would result in imputed interest under the Code
(provided, in order to qualify as an ISO, more than one year shall have passed
since the date
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of grant and one year from the date of exercise), or (iii) at the option of a
Committee or the Board of Directors, determined by a Committee or the Board of
Directors in its sole discretion at the time of the grant of the Option with
respect to an ISO and at or prior to the time of exercise with respect to a
NQSO, by a combination of cash, promissory note and/or such shares of Common
Stock (subject to the restriction above) held by the employee that have a fair
market value together with such cash and principal amount of any promissory note
that shall equal the Option Price, and, in the case of a NQSO, at the discretion
of a Committee or Board of Directors by having the Company withhold from the
shares of Common Stock to be issued upon exercise of the Option that number of
shares having a fair market value of the Common Stock equal to the exercise
price and/or the tax withholding amount due. Furthermore, a Committee or the
Board of Directors, in its sole discretion, may provide for withholding as set
forth in Paragraph 9(c) hereof. In the event an employee is granted an ISO or
NQSO in tandem with an SAR and desires to exercise such SAR, such written notice
shall so state such intention. To the extent allowed by applicable Federal and
state securities laws, the Option Price may also be paid in full by a
broker-dealer to whom the Optionee has submitted an exercise notice consisting
of a fully endorsed Option, or through any other medium of payment as the Board
of Directors and/or a Committee, in its discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a stockholder
with respect to the shares of Common Stock covered by such holder's Option until
such shares of Common Stock shall be issued to such holder upon the exercise of
the Option.
(i) All ISOs or SARs in tandem with ISOs granted under the Plan shall not
be transferable otherwise than by will or the laws of descent and distribution
and may be exercised during the lifetime of the holder thereof only by the
holder. The Board or a Committee, in its sole discretion, shall determine
whether an Option other than an ISO or SAR in tandem with an ISO shall be
transferable. No Option granted under the Plan shall be subject to execution,
attachment or other process.
(j) The aggregate fair market value, determined as of the time any ISO or
SAR in tandem with an ISO is granted and in the manner provided for by
Subparagraph (b) of this Paragraph 5, of the shares of Common Stock with respect
to which ISOs granted under the Plan are exercisable for the first time during
any calendar year and under incentive stock options qualifying as such in
accordance with Section 422 of the Code granted under any other incentive stock
option plan maintained by the Company or its parent or subsidiary corporations,
shall not exceed $100,000. Any grant of Options in excess of such amount shall
be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, an SAR which
was granted in tandem with an ISO shall (i) expire no later than the expiration
of the underlying ISO; (ii) be for no more than 100% of the spread at the time
the SAR is exercised; (iii) shall only be transferable when the underlying ISO
is transferable; (iv) only be exercised when the underlying ISO is eligible to
be exercised; and (v) only be exercisable when there is a positive spread.
(l) In no event shall an employee be granted Options for more than 500,000
shares of Common Stock during any calendar year period; provided, however, that
the limitation set forth in this Section 5(l) shall be subject to adjustment as
provided in Section 8 herein.
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<PAGE>
6. Death or Termination of Employment/Consulting Relationship.
(a) Except as provided herein, or otherwise determined by the Board of
Directors or a Committee in its sole discretion, upon termination of employment
with the Company voluntarily by the employee, or termination of a consulting
relationship with the Company prior to the termination of the term thereof, a
holder of an Option under the Plan may exercise such Options to the extent such
Options were exercisable as of the date of termination at any time within six
(6) months after the date of such termination, subject to the provisions of
Subparagraph (d) of this Paragraph 6. Notwithstanding anything contained herein
to the contrary, unless otherwise determined by the Board of Directors or a
Committee in its sole discretion, any options granted hereunder to an optionee
and then outstanding shall immediately terminate in the event the optionee is
terminated as a result of performing services for the Company in bad faith or
has been convicted of a felony committed against the Company, or is terminated
for cause, and the other provisions of this Section 6 shall not be applicable
thereto. For purposes of this Section 6, termination for cause shall be deemed
the decision of the Company, in its sole discretion.
(b) If the holder of an Option granted under the Plan dies (i) while
employed by the Company or a subsidiary or parent corporation or while providing
consulting services to the Company or a subsidiary or parent corporation or (ii)
within six (6) months after the termination of such holder's
employment/consulting, such Options may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised by a legatee or legatees of
such Option under such individual's last will or by such individual's personal
representatives or distributees at any time within such time as determined by
the Board of Directors or a Committee in its sole discretion, but in any event
within twelve months, less one (1) day after the individual's death, to the
extent such Options were exercisable as of the date of death or date of
termination of employment, whichever date is earlier.
(c) If the holder of an Option under the Plan becomes disabled within the
definition of section 22(e)(3) of the Code while employed by the Company or a
subsidiary or parent corporation, such Option may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised at any time within six months
less one day after such holder's termination of employment due to the
disability.
(d) Except as otherwise determined by the Board of Directors or a Committee
in its sole discretion, an Option may not be exercised pursuant to this
Paragraph 6 except to the extent that the holder was entitled to exercise the
Option at the time of termination of employment, consulting relationship or
death, and in any event may not be exercised after the original expiration date
of the Option. Notwithstanding anything contained herein which may be to the
contrary, such termination or death prior to vesting shall, unless otherwise
determined by the Board of Directors or Committee, in its sole discretion, be
deemed to occur at a time the holder was not entitled to exercise the Option.
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<PAGE>
(e) The Board of Directors or a Committee, in its sole discretion, may at
such time or times as it deems appropriate, if ever, accelerate all or part of
the vesting provisions with respect to one or more outstanding options. The
acceleration of one Option shall not infer that any Option is or shall be
accelerated.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period as
such individual's right to reemployment is guaranteed either by statute or by
contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are hereafter
changed by reason of recapitalization, reclassification, stock split-up,
combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors, as determined by the Board
of Directors and/or a Committee, in the aggregate number of shares of Common
Stock available under the Plan, in the number of shares of Common Stock issuable
upon exercise of outstanding Options, and the Option Price per share. In the
event of any consolidation or merger of the Company with or into another
company, or the conveyance of all or substantially all of the assets of the
Company to another company for solely stock and/or securities, each then
outstanding Option shall upon exercise thereafter entitle the holder thereof to
such number of shares of Common Stock or other securities or property to which a
holder of shares of Common Stock of the Company would have been entitled to upon
such consolidation, merger or conveyance; and in any such case appropriate
adjustment, as determined by the Board of Directors of the Company (or successor
entity) shall be made as set forth above with respect to any future changes in
the capitalization of the Company or its successor entity. In the event of the
proposed dissolution or liquidation of the Company, or, except as provided in
(b) below, the sale of substantially all the assets of the Company for other
than stock and/or securities, all outstanding Options under the Plan will
automatically terminate, unless otherwise provided by the Board of Directors of
the Company or any authorized committee thereof.
(b) Any Option granted under the Plan, may, at the discretion of the Board
of Directors of the Company and said other corporation, be exchanged for options
to purchase shares of capital stock of another corporation which the Company,
and/or a subsidiary thereof is merged into, consolidated with, or all or a
substantial portion of the property or stock of which is acquired by said other
corporation or separated or reorganized into. The terms, provisions and benefits
to the optionee of such substitute option(s) shall in all respects be identical
to the terms, provisions and benefits of optionee under his Option(s) prior to
said substitution. To the extent the above may be inconsistent with Sections
424(a)(1) and (2) of the Code, the above shall be deemed interpreted so as to
comply therewith.
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<PAGE>
(c) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock. No adjustment shall be made with respect to stock
dividends or splits which do not exceed 5% on any fiscal year, cash dividends or
the issuance to shareholders of the grantor of rights to subscribe for
additional shares of Common Stock or other securities.
(d) Notwithstanding anything contained in this Plan, including, but not
limited to, Section 5 hereof, an option granted under the plan of another
corporation which either (i) sells substantially all of its and or its
subsidiaries assets to the Company and or a subsidiary thereof or (ii) is merged
into, consolidated with, or all or a substantial portion of its stock is
acquired by the Company and/or a subsidiary thereof may be exchanged for Options
to purchase shares of the Company's Common Stock upon substantially the same
terms and conditions of the acquired company's plan. To the extent the above may
be inconsistent with Sections 424(a)(1) and (2) of the Code, the above shall be
deemed interpreted so as to comply therewith.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the exercise of an
Option have been registered with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended, prior to the exercise of the Option,
an optionee must represent in writing to the Company that such shares of Common
Stock are being acquired for investment purposes only and not with a view
towards the further resale or distribution thereof, and must supply to the
Company such other documentation as may be required by the Company, unless in
the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange on which the
shares of Common Stock may then be listed or until there has been qualification
under or compliance with such state or federal laws, rules or regulations as the
Company may deem applicable.
(c) The Board of Directors or Committee may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of any
taxes that the Company is required by any law or regulation of any governmental
authority, whether federal, state or local, domestic or foreign, to withhold in
connection with the exercise of any Option, including, but not limited to, (i)
the withholding of payment of all or any portion of such Option and/or SAR until
the holder reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, or (ii) the cancelling of any number of
shares of Common Stock issuable upon exercise of such Option and/or SAR in an
amount sufficient to reimburse the Company for the amount it is required to so
withhold, (iii) the selling of any property contingently credited by the Company
for the purpose of exercising such Option, in order to withhold or reimburse the
Company for the amount
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<PAGE>
it is required to so withhold, or (iv) withholding the amount due from such
employee's wages if the employee is employed by the Company or any subsidiary
thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board of Directors, or the date the Plan is approved by the stockholders of the
Company, or such date of termination, as hereinafter provided, and no Option
shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time, prior to ten
(10) years from the earlier of the date of the adoption of the Plan by such
Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or amendments of
the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, increase (except as provided by Paragraph 8) the maximum number of
shares of Common Stock as to which Options or shares may be granted under the
Plan, or materially change the standards of eligibility under the Plan. Any
amendment to the Plan which, in the opinion of counsel to the Company, will be
deemed to result in the adoption of a new Plan, will not be effective until
approved by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote thereon.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of Directors of
the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon within one year before or after adoption of the
Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed pursuant
hereto shall be deemed to confer upon any individual to whom an Option is or may
be granted hereunder any right to remain in the employ of the Company or of a
subsidiary or parent of the Company or in any way
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<PAGE>
limit the right of the Company, or of any parent or subsidiary thereof, to
terminate the employment of any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
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EXHIBIT 10.5
ATRIUM BUILDING
THIS LEASE AGREEMENT (the "Lease") is made this 9th day of April 1998
between THE ATRIUM BUILDING LLC ("Lessor") and WASATCH INTERACTIVE LEARNING
("Lessor").
W I T N E S S E T H:
ARTICLE I
Section 1.1 Premises. The Lessor hereby leases to Lessee, and Lessee leases
from Lessor, upon the term and conditions of this Lease, those premises outlined
on a floor plan attached hereto as Exhibit "C" and made a part hereof (the
"Premises"), and containing approximately 6,584 rentable square feet ("RSF") and
5,725 useable square feet ("USF") located on the floor, Suite 101 of the
building known as the Atrium Building (the "Property") located at 5250 South
Commerce Drive, Salt Lake City, UT 54107.
Lessor and Lessee are aware and acknowledge that the foregoing area
contains Lessee's allocated share of the common area of the Property.
Section 1.2 Term. This Lease shall be for a term of three (3) years and
zero (0) months, unless sooner terminated as provided herein, commencing on the
1st day of April 1999 and terminating on the 31st day of March 2002.
ARTICLE II
Section 2.1 Possession. If Lessor is unable to deliver possession of the
Premises by the date specified for the commencement of the term as a result of
causes beyond its reasonable control, this Lease shall nevertheless continue in
full force and effect but rent shall abate until the Premises are ready for
occupancy or until Lessor is able to deliver possession, as the case may be, and
Lessor shall have no liability whatsoever on account thereof. Should this
commencement date be other than the first day of the term, Lessor and Lessee
shall execute, promptly upon Lessees' occupancy, a Declaration of Occupancy
which shall be attached hereto and by this reference made a part hereof.
ARTICLE III
Section 3.1 Base Rental. Lessee agrees to pay Lessor at 6322 South 3000
East, Salt Lake City, Utah 84121 or such other places as the Lessor may from
time to time designate an annual rental for the use of the Premises in the
amount of $98,760.00 (the "Base Rental"), payable in equal monthly installments
$8,230.00 each, the monthly installments of rental to be paid in advance without
demand, deduction or offset, on the first day of each and every calendar month
during the term hereof (the "Due Date"). Rental payments shall commence on the
1st day of April, 1999, or on the date the Lessee occupies the Premises
whichever occurs first. If such commencement day for the payment of rentals
occurs on a day other than the first day of a calendar month, Lessee shall pay
rent for the fractional calendar month involved on a per diem basis (calculated
on the basis of a thirty (30) day month).
Section 3.2 Late Charge and Interest. Lessee acknowledges that late payment
by Lessee to Lessor of rent will cause Lessor to incur costs not contemplated by
this Lease, the exact amount of such costs being extremely difficult and
impracticable to fix. Such costs include, without limitation, processing and
accounting charges and late charges that may be imposed on Lessor by
the terms of any encumbrance and note secured by any encumbrance covering the
Premises. Therefore, if any installment or rent due from Lessee is not received
by Lessor within five (5) days following the Due Date, Lessee shall pay to
Lessor an additional sum of five percent (5%) of the overdue rent as a late
charge. The parties agree that this late charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of late payment by
Lessee. Acceptance of any late charge shall not constitute a waiver of Lessee's
default with respect to the overdue amount or prevent Lessor from exercising any
of the other rights and remedies available to Lessor.
Rent not paid when due also shall bear interest at the rate of twelve
percent (12%) per annum from the Due Date until paid. Any late charges also
shall bear interest at the rate set forth above, commencing five (5) days
following the Due date.
Section 3.3 Returned Checks. In the event a check comes back due to
insufficient funds, a service charge of $25 will be assessed to the Lessee.
Section 3.4 Deposit. Lessee, concurrently with the execution of this Lease,
has deposited with Lessor the sum of $9,985.84 the receipt being hereby
acknowledged, which sum shall be retained by Lessor for the faithful performance
of the covenants of this Lease. If at any time Lessee shall be in default in any
of the provisions of this Lease, Lessor shall have the right to use the deposit,
or so much thereof as may be necessary in payment of any rent in default, or in
payment of any damages incurred by Lessor by reason or such default of Lessee,
or in payment of any other sum due hereunder, or at Lessor's option, the same
may be retained by Lessor in liquidation of part of the damages suffered by
Lessor by reason of the default. Lessee shall immediately on demand pay to
Lessor a sum equal to the portion of the security deposit expended or applied by
Lessor as provided in this Section 3.4 as well as interest at the annual rate of
twelve percent (12%) per annum from the date of withdrawal so as to maintain the
security deposit in the sum initially deposited with Lessor, and to compensate
Lessor for any losses it may incur. If Lessee is not in default at the
expiration or termination of this Lease, Lessor shall return the security
deposit to Lessee.
ARTICLE IV
Section 4.1 Rent Escalation. Commencing on each anniversary date of this
Lease, Lessee's monthly Base Rental amount shall be increased by five percent
(5%) of the monthly rent paid in the preceding lease year.
<PAGE>
ARTICLE V
Section 5.1 Use. Lessee shall use the Premises only as general office and
for no other business of purpose, without the prior written consent of Lessor.
Section 5.2 Building Rules. Attached hereto are the rules and regulations
relating to the Premises and the entire Property of which the Premises are a
part. Lessor shall have the right, at any time or times hereafter to adopt other
or additional rules and regulations, and to rescind or amend all or any of the
attached rules and regulations or of amendments to any of the rules and
regulations attached. The Lessee shall faithfully observe and strictly comply
with and abide by all such rules and regulations from time to time in force and
shall cause Lessee employees, guests and invitees to observe and comply with the
same.
(a) Section VIII of Building rules states that, in compliance with the
Utah Clean Air Act, it is our policy to have tenants refrain from smoking
in the buildings.
(b) Section IX of Building Rules states that chair mats are required
under [ILLEGIBLE].
[SEAL]
<PAGE>
ATRIUM BUILDING #101
Page 3
Section 5.3 Use Prohibited. Lessee shall not do or permit anything to be
done in or about the Premises nor bring or keep anything therein which shall in
any way increase the rate of or affect any fire or other insurance upon the
Building or any of its contents or cause a cancellation of any insurance policy
covering said Building or contents. Lessee shall not do or permit anything to be
done in or about the Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building or injure or annoy
them, or use or allow the Premises to be used for any immoral, unlawful or
objectionable purpose, nor shall Lessee cause, maintain or permit any nuisance
in, or about the Premises. No loud speakers or other similar device, system or
apparatus which can be heard or experienced outside the Premises shall, without
the prior written approval of Lessor, be used in or at the Premises. Lessees
shall not commit or suffer to be committed any waste in or upon the Premises.
The provision of this Section 5.3 are for the benefit of Lessor only and are not
nor shall they be construed to be for the benefit of any tenant or occupant of
the Building.
ARTICLE VI
Section 6.1 Utilities. Lessor agrees to furnish reasonable amounts of heat
and air conditioning during generally recognized business hours and during the
usual and appropriate season, and to furnish electricity and water in reasonable
amounts; but Lessor shall not be liable for any loss or damage caused by or
resulting from any variation, interruption or failure of such services due to
any cause other than the gross negligence or willful misconduct of Lessor; and
no temporary interruption or failure of such services incident to the making of
repairs, alterations or improvements or due to accidents or strikes or
conditions or events not under Lessor's control shall be deemed as an eviction
of Lessee or relieve Lessee from any of Lessee's obligations hereunder.
Section 6.2 Excess Consumption of Utilities. Lessee must have prior written
consent of the Lessor to add any equipment to, or in any other way make use of,
the Premises which may cause or result in a larger than normal use of heat, air
conditioning, electricity, gas, water, sewer, refuse removal or other services.
In the event Lessor consents to the installation of such equipment, or such use,
Lessor may assess the estimated additional expense to the Lessee and Lessee
shall pay said amount at the same time he pays his monthly rental installment.
Section 6.3 Janitorial and Other Services. Lessor agrees to supply
janitorial service for all interior and exterior common areas. Lessee shall
provide janitorial service for the interior portion of the leased unit.
(a) Janitorial service includes vacuuming and dumping of trash cans.
(b) Lessee shall be responsible for carpet cleaning, blind cleaning,
window cleaning and, when applicable, stripping and waxing of floors.
(c) Lessor shall be responsible for normal repairs to the basic
plumbing, heating, air conditioning and electrical systems.
(d) Lessee shall be responsible for the purchase, replacement, and
installment of all light bulbs within leased premises.
(e) in the event of negligence or willful destruction by Lessee or
Lessee's clients, Lessee shall be responsible for plumbing and electrical
repairs, the replacement of carpets, draperies, wall coverings, floor tile,
light fixtures and related attachments, and any other hardware items within
the Premises.
(f) Lessee further agrees that any redecorating done during the term
of this Lease shall be at the expense of Leasee.
ARTICLE VII
Section 7.1 Right of Entity. Lessor shall have the right of access to the
Premises at all reasonable times for the purposes of, including, without
limitation, inspecting, cleaning and repairing the same, or to exhibit the
Premises at any time before the expiration of this Lease.
Section 7.2 Maintenance and Repair. Lessee shall maintain and repair the
interior of the Premises in the same condition as delivered to it, ordinary wear
and tear excepted. Lessee shall not damage or destroy the Premises. In the event
Lessee shall fail to comply with its obligations hereunder, Lessor shall have
the right to enter onto the Premises and effect such repair and maintenance and
charge the costs thereof to the Lessee together with twelve percent (12%)
interest per annum on the costs so expended, said amounts to be considered as
additional rent hereunder.
Section 7.3 Improvements. Lessee hereby accepts the Premises in its present
condition without any obligation upon Lessor to make any repairs or restoration
thereto except as provided on Addendum "A" attached hereto and made a part
hereof. It is further agreed that this Lease is made by the Lessor and accepted
by the Lessee under the distinct understanding and agreement that the Lessor
shall have the right and privilege to make and build additions to the Building
as it may deem wise and advisable without any liability to the Lessee therefor.
(a) Lessee shall not make any alterations, additions or improvements
in or to the Premises without first obtaining the prior written consent of
Lessor, Lessee hereby waives all rights to make repairs at the expense of
Lessor as provided by any law or statute or ordinance now or hereafter in
effect.
(b) All alterations, additions or improvements to the Premises,
installed at the expense of Lessor or Lessee, except movable office
furniture. Lessee's trade fixtures and equipment, shelf, unless Lessor
selects otherwise in writing, become the property of Lessor upon the
installation thereof, and shall be surrendered with the Premises at the
expiration or termination of this Lease.
Section 7.4 Liens. Lessee shall not permit any mechanics', materialmen's or
other liens arising out of work performed by Lessee or on Lessee's behalf, to be
filed against the Property, the Building, or the Premises, nor against Lessee's
leasehold interest in the Premises. Lessor shall have the right at all
reasonable times to post and keep posted on the Premises any notices which it
deems necessary for protection from such liens. If any such liens are so filed,
Lessor may, upon thirty (30) days written notice to Lessee, without waving its
rights based on such breach by Lessee and without releasing Lessee from any
obligations, pay and satisfy the same and in such event the sums so paid by
Lessor, with interest at the rate of twelve percent (12%) per annum from the
date of payment, shall be due and payable by Lessee at once without notice or
demand.
Section 7.5 Taxes. Lessee agrees to pay, before delinquency, any and all
taxes levied or assessed and which become payable during the term hereof upon
Lessee's equipment, furniture, fixtures, and other personal property located in
the Premises, including carpeting installed by Lessee even though said carpeting
has become a part of the Premises; and any and all taxes or increases therein
levied or assessed on Lessor or Lessee by virtue of alterations, additions, or
improvements to the Premises made by Lessee. In the event said taxes are charged
to or paid or payable to Lessor, Lessee, forthwith upon demand therefor, shall
reimburse Lessor for all such taxes paid by Lessor. Any taxes paid by Lessor on
behalf of Lessee shall bear interest at the annual rate of twelve percent (12%)
per annum from the date of payment by Lessor thereof.
<PAGE>
ARTICLE VIII
Section 5.1 Damages or Destruction. If the Premises or the Building shall
be damaged by fire or other casualty, the damage (exclusive of any improvements
or other changes made to the Premises and paid for by Lessee) may, at the option
of Lessor, be repaired by and all the expense of Lessor to as near condition
which existed immediately prior to such damage or destruction as reasonably
possible; provided, however, that if as a result of damage by fire or other
casualty more than fifty percent (50%) of the net rental area of the Building is
rendered untenantable, then and in such event either Lessor or Lessee shall have
the right and option (exercised, if at all, by giving written notice to the
other party within thirty (30) days of such destruction or casualty) to
terminate this Lease as of the date of such casualty. Subject to the foregoing,
the Lessor shall commence such repair within sixty (60) days after such casualty
and shall complete the same within a reasonable time thereafter, subject to acts
of God, strikes and other occurrence not within the control of Lessor. In the
event Lessor fails to commence such repair or restoration within such period or
shall fail to prosecute such repair and restoration in a timely manner, then
Lessee shall have the right and option (exercised, if at all, by giving written
notice within fifteen within fifteen (15) days of such failure) to terminate
this Lease. In the event this Lease is terminated for any of the reasons
aforesaid, any rents or other payments shall be prorated as of the effective
date of such termination and proportionately refunded tot he Lessee or paid to
Lessor as the case may be. During any period in time which the Premises or any
portion thereof is rendered untenantable by fire or other casualty, the rent
shall abate proportionately to the area rendered untenantable for the period of
time during which the condition exists.
Section 5.2 Eminent Domain. If all or any part of the Premises are taken by
any public or quasi-public authority under the power of eminent domain, or
conveyed to such authority in lieu of such condemnation, then either party, at
its option, shall have the right to terminate this Lease as of the day
possession shall be taken by such authority. If, as a result of any such taking,
or conveyance in lieu of condemnation, more than fifty percent (50%) of the net
rentable area of the Building is rendered untenantable, then the Lessor shall
have the right and option (exercised, if at all, by giving written notice within
thirty within thirty (30) days of such taking or conveyance) to terminate this
Lease as of the date of such taking or conveyance.
If all or any part of the Building in which the Premises are located shall
be taken by any such authority, or conveyed in lieu of condemnation, then Lessor
shall have he right and option to terminate this Lease. In the event this Lease
is terminated for any of the reasons aforesaid, any rents or other payments
shall be prorated as of the effective date of such termination and
proportionately refunded to the Lessee or paid to the Lessor as the case may be,
and Lessee shall have no claim against Lessor for the value of any unexpired
term of the Lease. All damages awarded for such taking under the power of
eminent domain, or conveyance in lieu thereof, shall belong to and be the
property of Lessor irrespective of the basis upon which they were awarded;
provided, however, that Lessee shall be entitled to receive any damages
specifically awarded for his share of moving expenses.
ARTICLE IX
Section 9.1 Multiple Parties Tenant. If there is or comes to be more than
one party that constitutes Tenant hereunder (a) Their obligations shall be joint
and several and (b) Any notice required or permitted to be given to Tenant may
be given by or to any one of such parties and shall have the same force and
effect as if given by or to all on such parties.
Section 9.2 Assignment. Lessee may not assign, mortgage, pledge,
hypothecate, or encumber this Lease or sublet the Premises or any part thereof,
nor allow any other person (the agents and servants of Lessee excepted) to
occupy or use the Premises, or any part thereof, or any right or privilege
appurtenant thereto, without first obtaining Lessor's written consent, provided,
however, if Lessor consents to one or more assignments of this Lease or consents
to the subletting from time to time of the Premises or parts thereof, the Lessee
shall nevertheless remain liable for its performance of this Lease on its part
to be performed, including the payment of the rentals and other charges assumed
by Lessee hereunder. Lessor shall not withhold consent unreasonably.
Section 9.3 Subletting. Notwithstanding anything in Section 9.1 above to
the contrary, in the event at any time during the term of this Lease, Lessee
desires to sublet the Premises, Lessor reserves the prior right and option (a)
to require the Lessee to sublet the Premises to a sublessee approved by Lessor
at the same rent as Lessee is required to pay to Lessor under this Lease:
however should Lessee choose to sublease at a reduced rate, Lessee shall
continue to pay to Lessor the full amount due, or (b) to terminate this Lease.
Lessee shall notify Lessor in writing not less than sixty (60) days in advance
if Lessee proposes to sublet the Premises, designating the terms of the proposed
subletting. Lessor shall be allowed thirty (30) days after receipt of Lessee's
notice within which to approve the sub-tenant identified in Lessor's notice. In
the event lessor approves the sub-tenant identified in Lessee's notice, all of
the provisions of Section 9.1 above respecting subletting shall continue to be
in full force and effect; and nothing contained in this Section (9.3) shall be
construed as a waiver by Lessor of any of its rights under Section 9.1 above.
ARTICLE X
Section 10.1 Signs. The Lessee shall not place or maintain or permit to be
placed or maintained any signs for advertising of any kind whatsoever on the
exterior of the Building or on any exterior windows in the Building or elsewhere
within the Premises so as to be visible from the exterior of the Building, or on
the interior walls, including doorways of the Premises so as to be visible from
the public hallways or other public areas of the Building, except such numerals
and lettering on doorways as may be approved and permitted by Lessor in writing.
Section 10.2 Parking. Lessee shall have the right to use (3.5) parking
spaces per 1,000 actual square feet. In the event Lessee regularly uses more
parking spaces, Lessor shall have the right to charge Lessee for such excess use
at the rates specified below. Lessor shall have the sole and exclusive right to
designate, and from time to time in its discretion, redesignate the parking
space or spaces available for the use of Lessee, its employees, its agents,
officers and customers. Such parking facilities shall at all times be under the
exclusive control and management of Lessor, and Lessor shall have the right from
time to time to establish, modify and enforce rules and regulations with respect
to such parking facilities. The parking lot may not be used to store vehicles or
to work on vehicles. No vehicle shall be parked in the parking lot for more than
eighteen (18) consecutive hours without prior approval from Lessor. The tenant
agrees to assume responsibility for compliance by its employees with the parking
provisions contained herein. If the Tenant or its employees park in other than
such designated parking areas the Landlord may charge the Tenant, as additional
rent, Ten Dollars ($10.00) per day for each day or partial day each such vehicle
is parked in any part of the parking lot, or in a fire lane or handicapped area.
Any vehicles parked in the parking lots in breach of these terms may be towed
away at Lessee's expense. Lessee releases, indemnifies and holds harmless Lessor
and Lessor's officers, employees and agents from any claims arising from or
relating to such towing of vehicles including any consequential damages or loss
of the use of the vehicle or other property. The right to tow a vehicle in
addition to Lessor's rights under the Lease for default or breach of any of the
terms hereof.
Other than parking, egress and ingress, Lessee has no right to use the
common areas and Lessee shall not obstruct the common areas, including the
sidewalks, landscaped areas, paved areas, parking lots, or driveways.
ARTICLE XI
Section 11.1 Breach or Default. Lessee shall have breached this Lease and
shall be considered in default hereunder if (a) Lessee files a petition in
bankruptcy or insolvency or for reorganization under any bankruptcy act, or
makes an assignment for the benefit of creditors; (b) involuntary proceedings
are instituted against Lessee under any bankruptcy act; (c) Lessee assigns this
Lease for the benefit of creditors; (d) Lessee fails to pay any rent when due
and does not make the delinquent payments within five (5) days after receipt of
notice thereof from Lessor; or (e) Lessee fails to perform or comply with any of
the covenants or conditions of this Lease and such failure continues for a
period of thirty (30) days after receipt of notice thereof from
Lessor.
Section 11.2 Effect of Breach or Default. In the event of a breach of
this Lease as set forth in Section 11.1 above, the rights of Lessor shall be as
follows:
(a) Lessor shall have the right to cancel and terminate this
Lease, as well as all of the right, title, and interest of Lessee
hereunder, by giving to Lessee not less than ten (10) days notice of
the cancellation and termination. On expiration of the time fixed in
the notice, this Lease and the right, title and interest of Lessee
shall terminate in the same manner and with the same force and effect,
except as to Lessee's liability, as of the date fixed in the notice of
cancellation and termination were the end of the term herein
originally determined.
(b) Lessor may elect, but shall not be obligated, to make any
payment required by Lessee herein or comply with any agreement, term,
or condition required hereby to be performed by Lessee, and Lessor
shall have the right to enter the Premises for the purpose of
correcting or remedying such default and to remain until the default
has been corrected, or remedied, but any expenditure for the
correction by Lessor shall not be deemed to waive or release Lessee's
default or Lessor's right to take any action as may be otherwise
permissible hereunder or under the law in the case of any default.
(c) Lessor may re-enter the Premises immediately and remove the
property and personnel of Lessee, and store the property in a public
warehouse or at a place selected by Lessor, at the expense of lessee.
After re-entry, Lessor may terminate this Lease on giving ten within
ten (10) days written notice of termination to Lessee. Without such
notice, re-entry will not terminate this Lease. On termination, Lessor
may recover from Lessee all damages resulting from the breach,
including the cost of recovering the Premises and the worth of the
balance of this Lease over the reasonable rental value of the Premises
for the remainder of the Lease term, which such sum shall be
immediately due Lessor from Lessee.
After re-entry, Lessor may relet the Premises or any part thereof for any
term without terminating this Lease, at the rent and on the terms as Lessor may
choose. Lessor may make alterations and repairs to the Premises. The duties and
liabilities of the parties if the Premises are relet as provided herein shall be
as follows:
(I) In addition to Lessor's liability to Lessor for Breach of the
Lease, Lessee shall be liable for all expenses of the reletting, for
the alterations and repairs made, and for the difference between the
rent received by Lessor under the new lease agreement and the rent
installments that are due for the same period under this Lease.
(II) Lessor shall have the right to apply the rent received from
reletting the Premises (a) to reduce Lessee's indebtedness to Lessor
under this Lease, not including indebtedness for rent; (b) to expenses
of the reletting and alterations and repairs made; (c) to rent due
under this Lease; or (d) to payment of future rent under this Lease as
it becomes due.
If the new lessee does not pay a rent installment promptly to Lessor, and
the rent installment has been credited in advance of payment to the indebtedness
of Lessor as provided herein, and during any rent installment period, are less
than the rent payable for the corresponding installment period under this Lease,
Lessee shall pay Lessor the deficiency, separately for each rent installment
deficiency period and before the end of that period. Lessor may at any time
after a reletting terminate the Lease for the breach on which Lessor had based
the re-entry and subsequently relet the Premises.
(d) After re-entry, Lessor may procure the appointment of a
receiver to take possession and collect rents and profits of Lessee,
and, if necessary, to collect the rents and profits, the receiver may
take possession of the personal property used in the business of
Lessee, including inventory, trade fixtures and furnishing, and use
them without compensating Lessee. Proceedings for appointment of a
receiver by Lessor shall not terminate and forfeit this Lease unless
the Lessor has given written notice of termination to Lessee as
provided herein.
(e) In addition to the remedies provided in this Section 11.2,
the Lessor shall have all remedies now or hereafter provided by law
for the enforcement of the provisions of this Lease and Lessor's
rights hereunder.
Section 11.3 Abandonment. Lessee shall not vacate or abandon the
Premises at any time during the term hereof, and if Lessee shall abandon, vacate
or surrender the Premises, or be dispossessed by process of law, or otherwise,
any personal property belonging to Lessee and left on the Premises shall be
deemed to be abandoned, at the option of Lessor, except such property as may be
mortgaged to Lessor. However, Lessee reserves the right to vacate the premises
at any time and continue to pay monthly rental obligation.
Section 11.4 Lessor's Lien. As security for the payment and performance
by the Lessee of all terms, covenants and conditions on the part of the Lessee
to be paid or performed hereunder, the Lessee hereby grants to the Lessor a
security interest in all furniture, equipment, fixtures, furnishings and other
personal property of the Lessee now or hereafter situated in the Premises.
During any time that the Lessee is in default under the Lease, the Lessee shall
not have the right to remove from the Premises any such furniture, equipment,
fixtures, furnishings, or other personal property. In the event of any default
hereunder by the Lessee, the Lessor shall have all rights and remedies of a
secured party under the Utah Uniform Commercial Code, as now in force or as
hereafter amended. Such security interest of the Lessor shall be in addition to
any statutory lien or other security interest now or hereafter existing.
ARTICLE XII
Section 12.1 Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for
security now or hereafter placed upon the Property and to any and all
advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof. If
Lessor or any mortgagee, trustee, or ground lessor shall elect to have
this Lease prior to the lien of a mortgage, deed of trust or ground
lease, and shall give written notice thereof to Lessee, this Lease
shall be deemed prior to any such mortgage, deed of trust or ground
lease on the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate
such subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be
(including, without limitation, a Subordination, Non-Disturbance and
Attornment Agreement in the standard form used by Lessor's lender),
and failing to do so within ten (10) days after written demand, does
hereby make, constitute, and irrevocably appoint Lessor as Lessee's
attorney in fact and in Lessee's name, place and stead, to do so. Upon
Lessee's written request to Lessor, Lessor shall request that it's
tender issue to Lessee a non-disturbance agreement on such lender's
standard form; provided, however, the failure of such lender to issue
such a non-disturbance agreement shall in no way affect Lessee's
obligations under this Lease, including this Section 12.1
<PAGE>
Section 12.1 Mortgagee Protection.
(a) If, in connection with obtaining financing for the Property or any
portion thereof, Lessor's lender shall request reasonable modifications to
this Lease as a condition to such financing, Lessee shall not unreasonably
withhold, delay or defer its consent to such modifications, provided such
modifications do not materially adversely affect Lessee's rights or
increases Lessee's obligations under this Lease.
(b) Lessee agrees to give to any trust, deed or mortgage holder
("Holder"), by prepaid certified mail, return receipt requested, at the
same time as it is given to Lessor, a copy of any notice of default given
to Lessor, provided that prior to such Lessee has been notified, in
writing, (by way of notice of assignment of rents and losses, or otherwise)
of the address of such Holder. Lessee further agrees that if Lessor shall
have failed to cure such default within the time period provided for in
this Lease, then the Holder shall have an additional thirty (30) days after
expiration of such period, or after receipt of such notice from Lessee (if
such notice to the Holder is required by this section), whichever is last
to occur, within which to cure such default or if such default cannot be
cured within that time, then such additional time as may be necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings, if necessary, to effect such cure), in which event this lease
shall not be terminated.
ARTICLE XIII
Section 13.1 Indemnification. Lessee agrees to indemnify and save the
Lessor harmless from expenses, actions, costs of actions (including attorneys'
fees), for injury (including death), to any person or persons which may occur
in, or about the Premises. Lessee agrees to pay all sums of money in respect of
any labor, services, materials, suppliers or equipment furnished or alleged to
have been furnished to Lessee in or about the Premises which may be secured by
any mechanic's materialmen's or other lien against the Premises or the Lessee's
interest therein and will cause each such lien to be discharged, if filed,
provided that Lessee may contest such lien upon delivery to Lessor of cash or
marketable securities having a face amount not less than one and one-half (1
1/2) times the face amount of any such lien. If such lien is reduced to final
judgment, then and in such event lessee shall forthwith pay and discharge said
judgment.
Section 13.2 Assumption of Risk. The Lessee assumes all risk of damage of
Lessee's property within the Premises which may be caused by water leakage,
fire, windstorm, explosion, falling plaster or other cause, or by the act or
omission of any other tenant in the Building, unless caused by Lessor's
negligence.
ARTICLE XIV
Section 14.1 Notices. Any notice given to Lessor shall be in writing and
forwarded to the Lessor at Lessor's office by registered or certified mail. Any
notices given to the Lessee shall be in writing and forwarded to the Lessee at
the Premises by registered or certified mail. Either Party may designate another
place for service or notices by written direction served on the other party by
registered or certified mail. Any such notice shall be deemed to have been
resolved four (4) days after its mailing.
LESSOR: LESSEE:
Beckstrand & Associates Wasatch Interactive Learning
6322 South 3000 East, Suite 120 5250 South Commence Drive, Suite 101
Salt Lake City, UT 84121 Salt Lake City, UT 84107
ARTICLE XV
Section 15.1 [OMITTED]
ARTICLE XVI
Section 16.1 Notice of Surrender. At least ninety (90) days before the last
day of the term hereof, Lessee shall give to Lessor a written notice of
intention to surrender the Premises on that date, but nothing contained herein
shall be construed as an extension of the term hereof or as consent of Lessor to
any holding over by Lessee.
Section 16.2 Surrender at End of Term. Upon the expiration of the term
hereof or sooner termination of this Lease, Lessee agrees to surrender and yield
possession of the Premises to the Lessor peacefully and in good order and
condition, subject only to ordinary wear and reasonable use thereof, and subject
to such damage, destruction or condition as Lessee is not required to restore or
remedy under other terms and provisions of this Lease. Lessee shall promptly
surrender all keys for the Premises to Lessor at the place then fixed for
payment of rent and shall inform Lessor of combinations on any locks and sales
on the Premises. Any property left in the Premises after the expiration or
termination of this Lease shall be deemed to have been abandoned by Lessee and
the property of Lessor to dispose of as Lessor deems expedient. Lessee agrees
that, if Lessee does not surrender to Lessor, at the expiration of the term of
this Lease or upon any termination thereof, then Lessee will pay to Lessor all
damages that Lessor may suffer on account of Lessee's failure to surrender
possession to Lessor, and will indemnify and save Lessor harmless from and
against all claims made by any succeeding lessee of the Premises against Lessor
on account of such delay.
Section 16.3 Surrender of premises. The voluntary or other surrender of
this Lease by Lessee or a mutual cancellation thereof shall not work a merger,
and, at the option of Lessor, shall terminate all or any existing subleases or
subtenancies, or at the option of Lessor, may operate as an assignment to Lessor
of any or all such subleases or sub tenancies.
Section 16.4 Holding Over. In the event Lessee, with Lessor's consent,
remains in possession of the Premises after the expiration of this Lease and
without the execution of a new lease, such tenancy shall be deemed to be from
month to month, subject to all the conditions, provisions and obligations of
this Lease, at a rental equal to the last rental paid under this Lease, plus
annual increases as more particularly set forth in ARTICLE IV of this Lease.
Section 16.5 Quiet Enjoyment. The Lessor covenants and agrees with Lessee
that upon Lessee paying said rent and other charges and performing all of the
covenants and provisions aforesaid on Lessee's part to be observed and
performed, the Lessee shall any may peaceably and quietly have, held and enjoy
the Premises in accordance with this Lease.
Section 16.6 Light and Air. Lessee covenants and agrees that no diminution
of light, air or view by any structure which may hereafter be erected (whether
or not by Lessor) shall entitle Lessee to any reduction of rent hereunder,
result in any liability of Lessor to Lessee, or in any other way affect this
Lease.
<PAGE>
ARTICLE XVII
Section 17.1 Insurance. Lessee agrees to keep in force during the term
hereof, at Lessee's expense, public liability insurance with limits in the
amount of $1,000,000 for inquiries to or death of persons occurring on or about
the Premises and property damage insurance with limits of $200,000. Said policy
shall name Lessor as an additional insured, and shall insure Lessor against
liability as a respects acts, or omissions of Lessee; shall be issued by an
insurance company licensed to do business in the State of Utah; and shall
provide that said insurance shall not be cancelled unless ten (10) days prior
written notice to Lessor is first given. Insurance required hereunder shall be
in companies holding a "General Policyholders Rating" of at least B plus, or
such other rating as may be required by a lender having a lien on the Premises,
as set forth in the most current issue of "Best's Insurance Guide."
Said policy or a certificate thereof shall be delivered to Lessee upon
commencement of the term and upon such renewal of such insurance.
Section 17.2 Subrogation. As long as their respective insurers so permit,
Lessor and Lessee hereby mutually waive their respective rights of recovery
against each other for any loss insured by fire, extended coverage and other
property insurance policies existing for the benefit of the respective parties.
Each party shall obtain any special endorsements, if required by their insurer
to evidence compliance with the aforementioned waiver.
ARTICLE XVIII
Section 18.1 Obedience to Laws. Lessee shall, at Lessee's sole costs and
expense, promptly comply with all statutes, ordinances, rules, orders,
regulations and/or requirements of all county, municipal, state, federal, and
other applicable governmental authorities now in force, or which may hereinafter
be in force, pertaining to the Premises. Lessee shall not use or permit anything
to be done in or about the Premises which will in any way conflict with any
states, ordinances, rules, orders, regulations and/or requirements of all
county, municipal, state, federal, and other applicable governmental authorities
now in force, or which may hereinafter be in force.
Section 18.2 Governing Law. This Lease shall be construed and governed by
the laws of the State of Utah. Should any provision of this Lease be illegal or
not enforceable under such laws, it or they shall be considered severable and
this Lease and its conditions shall remain in force and be binding upon the
parties as though the said provisions had never been included.
Section 18.3 Waiver of liability. Lessor shall not be liable to Lessee, or
those claiming through or under Lessee, for injury, death or property damage
occurring in, on or about the Building and appurtenances thereto, and Lessee
shall indemnify Lessor and hold it harmless from any claim arising out of any
injury, death or property damage occurring in, on or about the Premises to
Lessee or any employee, customer or invitees of Lessee.
Section 18.4 Time. Time is of the essence of this Lease and each and all of
its provisions.
Section 18.5 Attorneys' Fees. If either Lessor or Lessee shall obtain legal
counsel or bring an action against the other by reason of the breach of any
covenant, warranty or condition hereof, or otherwise arising out of this Lease
the unsuccessful party shall pay to the prevailing party reasonable attorneys'
fees, which shall be payable whether or not any action is prosecuted to
judgment. The term "prevailing party" shall include, without limitation, a party
who obtains legal counsel or brings an action against the other by reason of the
other's breach or default and obtains substantially the relief sought, whether
by compromise, settlement or judgment.
Section 18.6 Waiver. No waiver of any condition or covenant of this Lease
or Lessor shall be deemed to imply or constitute a further waiver by lessor of
any other condition of this Lease. The rights and remedies created by this Lease
are cumulative and the use of one remedy shall not be taken to exclude or waive
the right to the use of another.
Section 18.7 Severability. If any provision of this Lease or the
application thereof to any person or circumstance shall be invalid or to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
Section 18.8 Addenda. Clauses, additional conditions, plats and riders, if
any, signed by Lessor and Lessee and endorsed on or affixed to the Lease are a
part hereof, and in the event of variation or discrepancy the duplicate original
hereof, including such clauses, additional conditions, plats and riders, if any,
held by Lessor shall control.
Section 18.9 Entire Agreement. This Lease constitutes the entire agreement
between Lessor and Lessee and no representations, express or implied, either
written or oral, not herein set forth shall be binding upon and inure to the
benefit of Lessor or Lessee. This Lease shall not be modified by an oral
agreement, either express or implied, and all modifications shall be in writing
and signed by both Lessor and Lessee. No surrender of the Premises, or of the
remainder of the term of this Lease shall be valid unless accepted by Lessor in
writing.
Section 18.10 No Waiver. Failure of Lessor to insist, in any one or more
instances, upon strict performance of any term, covenant or condition of this
Lease, or to exercise in any option herein contained, shall not be construed as
a waiver or relinquishment for the future of such term, covenant, condition or
option, but the same shall continue and remain in full force and effect. The
receipt by Lessor of rents with knowledge of a breach in any of the terms,
covenants or conditions of this Lease to be kept or performed by Lessee shall
not be deemed a waiver of such breach and Lessor shall not be deemed to have
waived any provisions of this Lease unless expressed in writing and signed by
Lessor.
Section 18.11 Heirs and Assigns. This Lease an all provisions, covenants
and conditions thereof shall be binding upon and inure to the benefit to the
heirs, legal representatives, successors and assigns of the parties hereto,
except that no person, firm, corporation or court officer holding under or
through Lessee in violation of any of the terms, provisions or conditions of
this Lease shall have any right, interest or equity in or to this Lease, the
terms of this Lease or the Premises covered by this Lease.
Section 18.12 Sale of Lessor. In the event of a sale or conveyance by
Lessor of the Building, the same shall operate to release Lessor from any future
liability upon any of the covenants or conditions, express or implied, herein
contained in favor of Lessee, and in such event Lessee agrees to look solely to
the responsibility of the successor in interest of Lessor in and to this Lease.
If any security be given by Lessee to secure the faithful performance of all or
any of the covenants of this Lease on the part of Lessee, Lessor may transfer
and/or deliver the security, as such, to the successor in interest of Lessor,
and thereupon Lessor shall be discharged from any further liability inference
thereto. Except as set forth in this Section 18.12 this Lease shall not be
affected by any such sale or conveyance provided new buyer agrees in writing to
assume all of the obligations of Lessor hereunder.
Section 18.13 Estoppel Certificates. At any time and from time to time,
upon not less than ten (10) days prior to request by Lessor, Lessee shall
execute, acknowledge and deliver to lessor a statement certifying the date of
commencement of this Lease, stating without limitation that (a) this Lease is
unmodified and in full force and effect (or if there have been modifications,
that this lease is in fully force and effect as modified and the date and nature
of such modifications); (b) the dates to which the rent has been paid; (c)
Lessee has no claims against Lessor; (d) neither Lessor nor Lessee is in default
under this Lease; and (e) setting forth such other matters as may reasonably be
requested by Lessor. Lessor and Lessee intend that by such statement delivered
pursuant to this Section 18.13 may be relied upon any mortgagee or the
beneficiary of any Deed of Trust or by any purchaser as prospective purchaser of
the Building.
<PAGE>
Section 18.14 Defined Terms: Headings. The words "Lessor" and "Lessee" as
used herein shall include the plural as well as the singular. Words used in
masculine gender include the feminine and neuter. If there be more than one
Lessee, the obligation hereunder implied upon Lessee shall be joint and several.
The headings to the paragraphs of this Lease are not a part of this Lease and
shall have no effect upon the construction or interpretation of any part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and year first above written.
LESSOR: LESSEE:
THE ATRIUM BUILDING L.L.C. WASATCH INTERACTIVE LEARNING
By and through it Manager The Atrium
Building Management Corporation
By /s/ JEFF PECK By /s/ BARBARA MORRIS
---------------------------- ----------------------------
Jeff Peck Barbara Morris
Its: Vice President Its: President
BY:
----------------------------
<PAGE>
ADDENDUM A
TENANT IMPROVEMENTS:
Lessor shall build a common area corridor to down size Lessee by 2,107 rentable
square feet. A the end of the corridor shall be one wall ("wall") that will
secure the Lessee's Premises from the corridor. Lessor shall install an exit
door with a panic bar (in the event of an emergency) in said wall. Lessor shall
finish the interior of the wall around the new door to match Lessee's other
interior walls. Changes to electrical, heating/cooling, overhead lights, light
switches, carpet repair, and the like because of said wall will be the
responsibility of Lessor.
SIGNAGE:
Lessor shall install Suite 101 on Lessee's new exit door. Lessee shall be
responsible for all other costs associated with additional signs as a result of
their down sizing. All signage shall be pre-approved with Lessor, and shall
comply with Building standard signage.
EARLY TERMINATION:
At any time during this Lease, the Lessee may terminate this Lease provided that
the Lessee has given Lessor 12 months prior written notice of its intentions to
terminate the Lease with no further rental payments or obligations under the
lease, provided Lessee is in compliance with all the terms and conditions of the
Lease.
AGENCY DISCLOSURE:
Lessor and Lessee warrant and represent that they have had no dealing with any
outside real estate broker or agent, and know of no one who is entitled to a
commission in connection to any potential Lease between Lessor and Lessee.
<PAGE>
ATRIUM BUILDING RULES
I. RENT
A. Rent is due on the first (1st) day of the month.
B. Rent shall be paid to Beckstrand and Associates at 6322 South 3000
East, Salt Lake City, UT 84121.
C. Checks returned due to insufficient funds will be assessed a $25
Service fee.
II. PROPERTY MANAGEMENT
A. The Atrium Building is owned by The Atrium Building L.L.C. and managed
by Beckstrand and Associates.
B. Beckstrand & Associates is the Property Management Company. Should you
have any maintenance questions or concerns, please call Stan Davis at
733-3560 (Digital pager *267-2054), or give the information to
whomever answers the phone and the message will be relayed.
III. SIGNS
A. Standard signs must be used on all office doors and entrances.
Beckstrand and Associates will order signs and bill the tenant for the
purchase price.
B. All signs are the property of Beckstrand and Associates and are not to
be removed without the express approval of Beckstrand and Associates.
IV. PARKING
A. In order to leave the most convenient space for customer's parking we
ask that tenants and their employees do not park directly in front of
the building.
B. Please refrain from parking in the spaces reserved for the
handicapped. Unauthorized vehicles parked in the spaces will be towed
away at the owner's expense.
C. Vehicle should not be left in the parking lot overnight. Any vehicle
left overnight without prior consent will be towed away at the owner's
expense.
D. Any vehicle parked on the premises for the purpose of setting that
vehicle will be towed away at the owner's expense.
E. The storage, repairs, or cleaning of vehicles will not be permitted on
the premises.
V. SECURITY
A. There is a "No Soliciting" sign posted on the building. We would
appreciate being notified if there is any soliciting on the premises.
B. All buildings are equipped with fire extinguishers. Please
fasmiliarize yourself with the location of them.
C. When you leave at the end of the day please make sure that all windows
are closed and that all doors are locked.
D. Please make sure you turn off your coffee makers and misc. equipement
each night to prevent fire. We stongly recommend that all coffee
makers be equipped with an automatic shutoff.
E. The distribution or posting of handbills on the premises is
expressively prohibited. We would appreciate being notified if
handbills are distributed or posted.
VII. TRASH DISPOSAL
A. Lessee may utilize available dumpsters for office waste only. Packing
skids, boxes, or garbage from home are not to be placed in or around
dumpsters. It is the sole responsibility of the Lessee to dispose of
excessive trash and packaging material somewhere else.
VIII. SMOKING
A. Due to the Utah Clean Air Act, it has become our policy to have
tenants refrain from smoking in the buildings.
IX. MISCELLANEOUS
A. Chair mats are required under all rolling chairs.
X. KEYS
A. Tenant will be given two sets of keys. Additional keys are the
responsibility of the tenant. You must contact Beckstrand & Assoc. before
rekeying any locks. Rekeying of locks will be at the expense of the Lessee.
Any rekeying of locks must be on Beckstrand & Assoc. master system.
B. A keyloss lock system is activated at the Main Entrance from 7:30 p.m. to
6:30 a.m., Monday - Friday and 3:00 p.m. to 7:00 a.m. on Saturday. Each
tenant is responsible for releasing entry codes and/or access cards only to
their employees in the event they need off-hours entry. The codecards may
be changed periodically for security purposes. If so, affected tenants will
be notified.
XI. INVOICING
A. Beckstrand and Associates does not invoice for monthly rents. Lessee is
responsible for keeping track of annual increases. As we audit files, we
will notify you as a courtesy, but we are not obligated to do so.
<PAGE>
<TABLE>
<S> <C> <C>
TENANT: Wasatch Interactive Learning Term: Twenty-Five (25) Months
Monthly Rent Summary per Lease From/to: Feb 1, 2000 - Feb 28, 2002
ATRIUM BUILDING Annual [ILLEGIBLE]: 5.0%
Building: 5250 S. Commerce Dr. Variable SP: 1,931
Suite: 170 Renewable SP: 2,317
Load [ILLEGIBLE]: 19.99%
Security Dep: 50.00
[ILLEGIBLE]: 50.00
</TABLE>
================================================================================
**RENTAL PAYMENT DUE ON THE FIRST OF THE MONTH**
Note Rent for February will be pro-rated based upon occupancy date.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
JAN $3,041.06 $3,193.11
FEB $2,896.25 $3,041.06 $3,199.11
MAR $2,896.25 $3,041.06
APR $3,041.06 $3,193.11
MAY $3,041.06 $3,193.11
JUN $3,041.06 $3,193.11
JUL $3,041.06 $3,193.11
AUG $3,041.06 $3,193.11
SEP $3,041.06 $3,193.11
OCT $3,041.06 $3,193.11
NOV $3,041.06 $3,193.11
DEC $3,041.06 $3,193.11
33,162.04 37,861.17 6,386.22 0.00 0.00
NUMBER OF MONTHS: 25.00
TOTAL RENT PER TERM OF LEASE $77,409.43
</TABLE>
================================================================================
ADDITIONAL NOTES:
- ----------------
Janitorial: Lessee
Utilities: Lessor
Pass thru: N/A Taxes: Landlord
% Complex: 5.18% Total Complex: 44,772
Tenant Improvements: $2.00 per square ft. allowance
Past due: 5 days
Late fee: 5%
Interest: 12%
[ILLEGIBLE]: $25
Total SF Cost
2317 Per SF
RENT/Mo. 2,896.25 15.00
T.L.O # Mo.* 210.41 1.09
Other/Mo. 0.00 0.00
---------- ---------
Net Rents: $2,685.84 $13.91
* Estimated Cost of Tenant Improvements
T.I. 4,654.00
--------------
$4,654.00
Interest Rate: 12.00%
<PAGE>
ARTIUM BUILDING INVESTMENT CORPORATION
FIRST AMENDMENT TO LEASE AGREEMENT
THIS AGREEMENT MADE and entered into this 9th day of February, 2000, by and
between Atrium Building Investment Corporation ("Lessor") and Wasatch
Interactive Learning ("Lessee").
RECITALS:
A. Beckstrand & Associates, as Lessor and Lessee previously entered into
a Lease Agreement dated April 17, 1999, for the premises located at
5250 South Commerce Drive, Suite 101 consisting of approximately 6,584
rentable square feet ("the Lease").
B. Lessor is the present owner of the building in which the leased
premises are located.
C. LESSOR AND LESSEE desire to amend the said Lease as set forth
hereinafter:
NOW, THEREFORE, in consideration of their mutual promises and covenants, the
parties agree as follows:
1. Expansion. Commencing on February 1, 2000 or upon occupancy, whichever
shall occur first (the "commencement date"), Lessee shall expand its facilities
into Suite 170 consisting of approximately 2,317 rentable square feet and 1,931
useable square feet, as outlined on Exhibit "A" (the "new space").
2. Term. Lessee shall be entitled to occupy the new space for a term of Two
(2) years and One (1) month, commencing on the commencement date and terminating
on the 28th day of February, 2002.
3. Base Rent. Upon the commencement date, Lessee shall pay Lessor $2,896.25
per month for the new space. Should commencement occur on any date other than
the first day of the month, rent shall be prorated.
4. Escalation. Rent shall escalate by Five percent (5%) effective each
April during the Term of this Amendment.
5. Tenant Improvements. Lessor shall provide Lessee with a $2.00 per
rentable square foot allowance ($4,634.00) for tenant improvements within the
space.
6. Provisions of Lease. During the term of the Lease, all terms and
conditions of the Lease shall apply except as modified by the First Amendment to
Lease.
IN WITTNESS WHEREOF, the parties have executed this First Amendment to Lease
Agreement as of the day and year first above written.
LESSOR: LESSEE:
ATRIUM BUILDING INVESTMENT CORPORATION WASATCHINTERACTIVE EARNING
By By
------------------------------------ -----------------------------
Jeff Peck
Its: Vice President Its: President
6322 South 3000 East, Salt Lake City, UT 84121 o (801) 733-3560
o Fax: (801) 733-3599
Exhibit 10.6
EDUCATION MARKET LICENSE
THIS EDUCATION MARKET LICENSE (the "License") is entered into by and
between WASATCH EDUCATION SYSTEMS CORPORATION, a Utah corporation (the
"Licensor"), and WASATCH INTERACTIVE LEARNING CORPORATION, a Utah corporation
(the "Licensee") effective as of February 7, 1997, pursuant to that certain
Asset Purchase and Software License Agreement, dated as of February 7, 1997 (the
"Asset Purchase Agreement"), by and between the Licensor and the Licensee.
RECITALS:
A. Licensor has previously developed or acquired rights in certain Licensed
Programs (defined below).
B. Pursuant to the Asset Purchase Agreement, Licensor has agreed to sell to
Licensee certain assets relating to its business in the Education Market
(defined below) and to license to Licensee the Licensed Programs for Licensee's
own internal use and development, together with the right to market, sell,
distribute and sublicense the Licensed Programs in various markets.
AGREEMENT:
NOW, THEREFORE, for TEN DOLLARS ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. As used in this License the following terms shall have the
meanings indicated:
Education Market shall mean the following markets for standalone products
(program resides and runs on one workstation only), networked products (program
runs on more than one workstation concurrently, with multiple workstations
connected to a common server), and products delivered via the Internet: (i)
preschool education institutions, facilities, and programs, both public and
private; (ii) K-12 education institutions, facilities, and programs, both public
and private; (iii) juvenile and adult basic education institutions, facilities,
and programs, both public and private; (iv) correctional facilities and
corporate sites; (v) post-secondary educational institutions, facilities, and
programs, including vocational schools and community colleges; (vi) individuals
or parents of minor students, provided the sales are made through educational
institutions, facilities, or programs (as opposed to retail sales); and (vii)
organizations directly affiliated with the above education institutions, such as
PTAs.
Education Market License
Exhibit D to Asset Purchase Agreement
Page 1 of 10
<PAGE>
Home Market shall mean end users who are not in the Education Market and
who purchase products through channels other than the Education Market. Such
other channels shall include direct Internet channels, retail or off-the-shelf
channels, and direct sales channels, including, without limitation, mail order.
Internet shall mean distribution or delivery over a wide area network using
electronic data communications technology as presently implemented in the
Internet or as hereafter designed for use in conjunction with telephone, cable,
wireless, or other types of data transmission systems.
Licensed Programs shall mean the computer programs, multimedia materials,
and print materials for all products and services heretofore sold and provided
by Licensor to the Education Market, including but not limited to the software
and courseware titles listed or described as Licensed Programs on Schedule 1.0
attached hereto, together with all lesson content, graphics and sound files,
management systems, interfaces, authoring tools, templates, development engines,
utilities, development and resting tools, and related technologies, trade
secrets, know-how, inventions, copyrights, and intellectual properties. For
purposes of this License, Licensed Programs shall not include the Third Party
Courseware.
Net Revenues shall mean gross monies actually received by Licensee from the
distribution or sublicensing of the Licensed Programs or Licensee Derivative
Works, less the following: sales, use, and excise taxes, tariff duties, packing,
insurance, shipping, and similar charges separately invoiced and reimbursed by
customers, reasonable amounts of credits or refunds for returns, and credits,
discounts, rebates, and promotional allowances. "Net Revenues" shall not include
monies received by Licensee for installation services, consulting or training
services, maintenance and upgrade services and support purchased separately from
the initial sublicense, sales or leases of hardware or peripheral devices, sales
or licenses of Third Party Courseware (as to which Licensee makes payment
directly to the original licensor thereof), sales of print materials other than
Licensed Programs, or sales, licenses, or sublicenses of software products or
works other than the Licensed Programs or Licensee Derivative Works of the
Licensed Programs.
Licensee Derivative Works shall mean any software programs offered by
Licensee an integral part of which includes substantial code or instructional
content of the Licensed Programs or Third Party Courseware, as the case may be.
Licensor Derivative Works shall mew any software programs offered by
Licensor an integral part of which includes substantial code or instructional
content of the Licensed Programs or Third Party Courseware, as the case may be.
Third Party Courseware shall mean the proprietary computer programs,
utilities, and tools, and related documentation, owned by third parties and
licensed to Licensor for
Education Market License
Exhibit D to Asset Purchase Agreement
Page 2 of 10
<PAGE>
commercial distribution into the Education Market as part of Licensor's product
offering, subject to royalty payments to the third parties, including those
programs identified as Third Party Courseware on Schedule 1.0.
Sell or sale, when used in the context of Licensed Programs, Third Party
Courseware, Licensor Derivative Works, and Licensee Derivative Works, means sale
of a non-exclusive sublicense to an end user to use the same in object code.
2. Grant of Licenses. Licensor hereby grants to Licensee, subject to the
royalty obligations set forth in Section 3 below, the following licenses and
distribution rights with respect to the Licensed Programs and Third Party
Courseware:
(a) A non-exclusive, perpetual, fully paid-up, worldwide right and license
to use, copy or otherwise reproduce, display, modify, correct defects or
deficiencies in, and to prepare Licensee Derivative Works based on, all or any
portion of the Licensed Programs (specifically including any and all lesson
content).
(b) A perpetual, worldwide right and license to market, distribute, sell
and sublicense the Licensed Programs and Licensee Derivative Works of the
Licensed Programs in the Education Market, directly or through sub-distributors,
dealers, Independent Marketing Representatives ("IMRs"), or other third parties.
The foregoing license shall be exclusive during the Exclusivity Period as
defined in Section 4 below.
(c) Commencing upon expiration of the Exclusivity Period, a non-exclusive,
perpetual, worldwide right and license to market, distribute, sell and
sublicense the Licensed Programs and Licensee Derivative Works of the Licensed
Programs in the Home Market.
(d) A non-exclusive perpetual, worldwide right and sublicense to use, copy
or otherwise reproduce, display, modify, correct defects or deficiencies in, and
to prepare Licensee Derivative Works based on, all or any portion of the Third
Party Courseware, subject to the provisions and royalties, if any, due to the
original licensors of the Third Party Courseware.
(e) A perpetual, worldwide right and sublicense to market, distribute, sell
and sublicense the Third Party Courseware and Licensee Derivative Works of the
Third Party Courseware in the Education Market, directly or through
sub-distributors, dealers, IMRs, or other third parties, subject to the
provisions and royalties, if any, due to the original licensors of the Third
Party Courseware. The foregoing license shall be exclusive during the
Exclusivity Period.
(f) Commencing upon expiration of the Exclusivity Period, a non-exclusive,
perpetual, worldwide right and sublicense to market, distribute, sell and
sublicense the Third
Education Market License
Exhibit D to Asset Purchase Agreement
Page 3 of 10
<PAGE>
Party Courseware and Licensee Derivative Works of the Third Party Courseware in
the Home Market, directly or through sub-distributors, dealers, IMRs, or other
third parties, subject to the provisions and royalties, if any, due to the
original licensors of the Third Party Courseware.
(g) A non-exclusive, perpetual, worldwide right and sublicense to market,
distribute, sell and sublicense the Licensed Programs, the Third Parry
Courseware, and Licensee Derivative Works of the Licensed Programs or Third
Party Courseware, in the Internet Market, directly or through sub-distributors,
dealers, IMRs, or other third parties, subject to the provisions and royalties,
if any, due to the original licensors of the Third Party Courseware and the
royalty provisions of Section 3 below.
All licenses of Licensed Programs and Third Party Courseware from Licensor to
Licensee shall include source code and object code, but all sublicenses from
Licensee shall be object code only.
3. Royalty Payments to Licensor. Licensee shall pay to Licensor royalties
based upon Net Revenues collected by Licensee from the distribution and
licensing of the Licensed Programs and Licensee Derivative Works of Licensed
Programs during the five (5) year period (the "Royalty Period") commencing on
the Closing Date (each of the five (5) years during this Royalty Period is
sometimes referred to as a "License Year.") The royalties shall be calculated as
follows:
(a) On Net Revenues derived from licenses of the Licensed Programs
(existing code and educational content), the royalty shall be ten percent (10%)
of said Net Revenues.
(b) On Net Revenues from Licensee Derivative Works which are modifications
or enhancements of the Licensed Programs (code and content), the royalty shall
be five percent (5%) of said Net Revenues until aggregate royalties paid to
Licensor on said Net Revenues are equal to the fully burdened cost of developing
such Licensee Derivative Works; thereafter the royalty shall be ten percent
(10%) of said Net Revenues.
(c) On Net Revenues from Licensee Derivative Works which are all new code,
but which are based substantially upon the educational content of the Licensed
Programs, the royalty shall be two and one-half percent (2.5%) of said Net
Revenues until aggregate royalties paid to Licensor on said Net Revenues are
equal to the fully burdened costs of developing such Licensee Derivative Works;
thereafter the royalty shall be five percent (5%) of said Net Revenues.
Royalties owed under this Section 3 for each License Year shall be due and
payable within forty five (45) days after each of the 1st, 2nd, 3rd, 4th, and
5th anniversaries of the Closing Date (the "Payment Dates"). From and after the
5th anniversary of the Closing Date, the above
Education Market License
Exhibit D to Asset Purchase Agreement
Page 4 of 10
<PAGE>
licenses with respect to Licensed Programs and Licensee Derivative works shall
be royalty-free. The above licenses with respect to Third Party Courseware shall
continue in accordance with the respective terms of the third party license.
4. Exclusivity Period and Minimum Royalties. The "Exclusivity Period" shall
be a period of one (1) year from the Closing Date; provided, however, that the
Exclusivity Period may be extended upon payment of certain minimum royalties
("Minimum Royalties") by Licensee to Licensor on or before the applicable
Payment Date (as defined in Section 3 above) as follows:
Minimum Royalty Payment Dates New Exclusivity Period
- ------------------------------------------------------------------------------
$ 500,000 1st License Year Two (2) License Years
$ 500,000 2nd License Year Three (3) License Years
$ 500,000 3rd License Year Four (4) License Years
$ 500,000 4th License Year Five (5) License Years
Minimum Royalties paid under this Section 4 shall be credited against royalties
due under Section 3 above for Net Revenues, and royalties paid under Section 3
above for Net Revenues shall be applied to satisfy the Minimum Royalty
obligations. In the event the royalties due under Section 3 above for any
License Year are less than the Minimum Royalty paid for that License Year, an
amount equal to the Minimum Royalty paid for that License Year, minus the actual
royalties payable for that License Year under Section 3 above, shall be credited
against royalties due under Section 3 above for Net Revenues in subsequent
License Years. In the event royalties paid under Section 3 above for Net
Revenues in any License Year exceed the Minimum Royalty due for that License
Year, an amount equal to the Section 3 royalties actually paid minus the Minimum
Royalty shall be credited against Minimum Royalties next falling due under this
Section 4 for subsequent License Years.
5. Education Market Exclusivity. During the Exclusivity Period, Licensee
shall have exclusive rights to exploit the Licensed Programs, Third Party
Courseware (as to which exclusivity will apply as between Licensor and
Licensee--or parties acting on behalf of Licensor--and not with respect to any
other third parties), and Licensee Derivative Works, directly or through third
parties, in the Education Market, including the exclusive right to market,
distribute, sell, and sublicense the Licensed Programs, Third Party Courseware
and Licensee Derivative Works to individual end-users through the institutional
channels defined in the Education Market. During the Exclusivity Period,
Licensor covenants that it shall not market, distribute, sell, or sublicense
Licensed Programs, Third Party Courseware, or Licensor Derivative Works,
directly or through third parties, to the Education Market (nor will
Education Marker License
Exhibit D to Asset Purchase Agreement
Page 5 of 10
<PAGE>
Licensor license development engines or tools to third parties to use in
developing products for the Education market). The foregoing covenants and
restrictions do not apply to new products or new services (i.e, which are not
Licensed Programs, Third Party Courseware or Licensor Derivative Works) offered
by Licensor. The foregoing covenants and restrictions will apply to all
successors and assigns of Licensor, and to all third parties claiming by,
through or under Licensor. Inadvertent or incidental sales of the Licensed
Programs, Third Party Courseware or Licensor Derivative Works to end users of
the Education Market will not be considered a material breach of the foregoing
covenant and agreement so long as the sales occur through an Internet or retail
distribution channel and result from general marketing activities or catalogs
that are not substantially directed or targeted at educators or educational
institutions in the Education Market.
6. Exclusive Use of Product Names. To the fullest extent allowed by law,
Licensor hereby grants to Licensee an exclusive, perpetual, worldwide, fully
paid-up license to use all tradenames and logos embodied in or associated with
the Licensed Programs and Third Party Courseware (the "Licensed Tradenames"),
which Licensed Tradenames are listed on Schedule 7.5 attached to the Asset
Purchase Agreement. To the extent Licensor does not have the right or power to
grant an "exclusive" license for Licensed Tradenames of Third Party Courseware,
the foregoing license shall be exclusive as between Licensor and Licensee. In
any event, Licensor shall not use in any product name, or grant any licenses to
any third party to use, the Licensed Tradenames. Licensor shall develop and use
new names for Licensed Products, Third Party Courseware, and Licensor Derivative
Works distributed into the Home Market; provided, that (a) Licensor shall not
use a new product name that combines an existing product name (or one that is
confusingly similar to an existing product name) with some special designation
such as "Home Edition" or "Family Edition" or "Personal Edition" or "New and
Improved"; (b) Licensor shall not use "Wasatch" or "Wasatch Education" in its
new product name. In all events, Licensor may continue to use "Wasatch Education
Systems Corporation" as its corporate name, including the following variations
thereof: "Wasatch", "Wasatch Education", and "Wasatch Education Systems"
(collectively, the "Corporate Name"), display the Corporate Name (but not the
"Wasatch" logo) prominently, and refer to the Corporate Name as the development
origin of the products it offers in the Home Market. In the event Licensor
introduces a "networked product" for the Home Market during the Exclusivity
Period, Licensor shall (a) provide Licensee at least 3 months' prior written
notice of the anticipated release date; and (b) label the "networked product" as
follows: "Not Intended for School Use".
7. Reservation of Rights. Notwithstanding the foregoing grants of licenses
and sublicenses to Licensee, Licensor reserves all rights not explicitly granted
herein, including (a) the perpetual, worldwide right to use, copy or otherwise
reproduce, display, modify, correct defects or deficiencies in, prepare and
distribute Licensor Derivative Works based upon, and market, distribute, sell,
and sublicense the Licensed Programs, Third Party Courseware and Licensor
Derivative Works, in the Home Market, directly or through sub-distributors,
dealers,
Education Market License
Exhibit D to Asset Purchase Agreement
Page 6 of 10
<PAGE>
IMRs, or other third parties, subject to the provisions and royalties, if any,
due to the original licensors of the Third Party Courseware, and (b) upon
expiration of the Exclusivity Period, the nonexclusive, worldwide right to
market, distribute, sell, and sublicense the Licensed Programs, Third Party
Courseware and Licensor Derivative Works, in the Education Market, directly or
through sub-distributors, dealers, IMRs, or other third parties.
8. Covenant of Home Market Exclusivity. During the Royalty Period (as
defined in Section 3 above), Licensor shall have exclusive rights to exploit the
Licensed Programs, Third Party Courseware, and Licensor Derivative Works,
directly or through third parties, in the Home Market. During the Royalty
Period, Licensee covenants that it will not market, distribute, sell, or
sublicense Licensed Programs, Third Party Courseware, or Licensee Derivative
Works, directly or through third parties, to the Home Market. The foregoing
covenants and restrictions do not apply to new products or new services (i.e,
not Licensee Derivative Works) offered by Licensee. The foregoing covenants and
restrictions will apply to all successors and assigns of Licensee, and to all
third parties claiming by, through or under Licensee. Inadvertent or incidental
sales of the Licensed Programs, Third Party Courseware or Licensee Derivative
Works to end users of the Home Market will not be considered a material breach
of the foregoing covenant and agreement so long as the sales occur through
Education Market distribution channels.
9. Ownership of Derivative Works. Except for the royalty obligations owed
by Licensee to Licensor on Licensee Derivative Works under Section 3 above,
neither Licensor nor Licensee shall acquire any intellectual property rights or
licenses in the Derivative Works of the other.
10. Limited Warranty. Licensor warrants and represents, to the best
knowledge of Licensor, that it is the sole and exclusive owner of all patent
rights, copyrights, trade secrets, and other propriety rights of any kind, in or
relating to the Licensed Programs, excepting the Third Party Courseware as to
which Licensor warrants that it has valid licenses to use, distribute, and
sublicense to Licensee hereunder, and that the Licensed Programs (excepting the
Third Party Courseware), to the best of Licensor's knowledge, do not infringe
any patent, copyright, trade secret, or other proprietary right of any third
party. Licensor further warrants and represents that it has not previously
granted any rights in the Licensed Programs which are inconsistent with the
rights granted to Licensee herein; and, to the best of Licensor's knowledge,
that Licensor has full power to enter into this License and grant the rights
herein granted to Licensee. The covenants and agreements set forth in Section
9.1 of the Asset Purchase Agreement shall apply as necessary or appropriate to
give effect to the provisions of this License. Licensor shall indemnify and hold
Licensee harmless from all damages (including costs and attorneys' fees)
resulting from any breach of the foregoing warranties. The foregoing warranties
of Licensor shall apply only to the Licensed Programs as originally delivered to
Licensee hereunder.
Education Market License
Exhibit D to Asset Purchase Agreement
Page 7 of 10
<PAGE>
11. No Support Obligation. Licensee acknowledges and agrees that the
Licensed Programs are being licensed "AS IS" with respect to their usefulness
and functionality, and that Licensor shall have no obligation to support or
maintain the Licensed Programs. IN NO EVENT SHALL LICENSOR BE LIABLE, UNDER ANY
LEGAL THEORY, FOR INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES
(INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, SAVINGS, OR DATA) RESULTING
FROM THE USE OR INABILITY TO USE THE LICENSED PROGRAMS, WHETHER OR NOT LICENSOR
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
12. Record Keeping; Payment; and Audit Rights. Licensee shall maintain
accurate accounting and licensing records in accordance with generally accepted
accounting practices. Licensor has the right to audit (at Licensor's cost and
expense) the records of Licensee not more than twice each year and for a period
of one year following termination of this License. If any discrepancy of more
than 10% is verified in any audit, Licensee shall reimburse Licensor the full
cost and expense of the audit, in addition to any amounts previously
underreported.
13. Entire License; Amendments. This License is delivered in connection
with the Asset Purchase Agreement between the parties, which supersedes and
replaces any and all prior agreements, conversations, understandings, and
writings. It is binding upon the parties and their respective successors and
assigns. This License can only be amended by specific written amendment signed
by both parties.
14. Governing Law; Notices. This License shall be governed and interpreted
in accordance with the laws of the State of Utah. Any notice or communication
required or permitted by this License shall be in writing and shall be delivered
as follows: (i) by personal delivery to the party to whom the notice is to be
given, (ii) by overnight delivery service, (iii) by prepaid registered or
certified mail, return receipt requested, or (iv) by facsimile. Except for
notice of a party's change of address, which shall be effective only upon actual
receipt, a notice or communication shall be effective (a) in the case of
personal service, upon receipt by the party, (b) by overnight delivery, one (1)
day after placing the notice of communication in the care of the delivery
service as confirmed by the receipt provided by such service, (c) by registered
or certified mail, five (5) days after mailing, as confirmed by the date on the
receipt provided by the postal service, and (d) by facsimile transmission, upon
transmission as confirmed by telephone that such notice or communication has
been received in legible form. All notices or other communications shall be sent
to the recipient at the address listed below (or such other address that the
receiving party may have provided for the purpose of receiving notices and other
communications iii accordance with this Section 14):
[remainder of page intentionally left blank]
Education Market License
Exhibit D to Asset Purchase Agreement
Page 8 of 10
<PAGE>
If to Licensor:
Wasatch Education Systems Corporation
c/o Technology Funding, Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Attention: Greg George
Fax: (415) 341-1400
with copy to:
Carolyn Poe
c/o Technology Funding, Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Jeff Keimer
Unison Capital Group
702 Marshall Street, Suite 401
Redwood City, CA 94063
If to Licensee:
Wasatch Interactive Learning Corporation
5250 South 300 West, Suite 101
Salt Lake City, UT 84107
Attention: Ralph Brown
Fax: (801) 269-1509
with copy to:
Neal B. Christensen, P.C.
20853 S. E. 123rd Street
Issaquah, WA 98027
Fax: (206) 235-9170
Education Market License
Exhibit D to Asset Purchase Agreement
Page 9 of 10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this License to be
executed by their respective officers thereunto duly authorized on the date
first written above.
LICENSOR: LICENSEE:
WASATCH EDUCATION SYSTEMS WASATCH INTERACTIVE
CORPORATION, a Utah corporation LEARNING CORPORATION, a Utah
corporation
By /s/ Gregory T. George By /s/ Barbara Morris
--------------------------- ---------------------------
Gregory T. George, Director Barbara Morris, President
Date Signed: February 7, 1997 Date Signed: February 7, 1997
Education Market License
Exhibit D to Asset Purchase Agreement
Page 10 of 10
EXHIBIT 10.7
April 14, 2000
Gregory T. George, President
Wasatch Education Systems Corporation
c/o Technology Funding, Inc.
2000 Alameda de las Pulgas
San Mateo, CA 94403
Re: Amendment to Asset Purchase and Software License Agreement
----------------------------------------------------------
Dear Greg:
Reference is made to our recent discussions relating to the amendment to
the Asset Purchase and Software License Agreement (the "License Agreement") by
and between Wasatch Education System Corporation ("WESC") and Wasatch
Interactive Learning Corporation ("WILC") dated as of February 7, 1997 and other
ancillary documents entered into between the parties (together, the
"Agreements"). Based upon our discussions and other conditions set forth herein,
we hereby confirm our agreement to amend certain sections of the Agreements
immediately upon the execution of this Letter Agreement with all other changes
to be embodied in a formal amendment to the License Agreement.
1. Effective as of March 1, 2000 and upon execution of this Letter Agreement,
all royalty obligations of WILC set forth in Section 3. "Royalty Payments to
Licensor" of the Education Market License ("EML") shall be discharged. In
substitution thereof, WILC agrees to pay WESC and WESC hereby agrees to accept a
royalty equal to two and one-half (2.5%) percent of Net Revenues (as defined in
the EML) derived from Licensed Programs (as defined), and from Licensee
Derivative Works. The 2.5% royalty shall be earned and accrued beginning
immediately, and paid on a quarterly basis hereafter commencing with the quarter
ending December 31, 2000.
2. Upon the execution of a formal amendment to the License Agreement (the
"Amendment"), WILC's license to the Licensed Programs shall be fully paid up and
perpetually exclusive in all markets.
3. Upon the execution of the Amendment, all royalties previously paid by WILC to
WESC under the EML and for which WILC had a credit against future obligations of
WILC shall be forgiven by WILC.
4. Except as provided hereinabove, the License Agreement, the EML and any
ancillary documents remain unchanged and in full force and effect. In
particular, WILC shall continue to own all Licensee Derivative Work and changes
made to Licensed Programs and no royalties are owed for any products
independently developed and owned by WILC without use of or reference to
Licensed Programs.
<PAGE>
Gregory T. George
April 14, 2000
Page 2
5. We continue to explore and negotiate the mechanism for eliminating royalty
payments completely or otherwise.
6. The parties will use their best efforts to execute the Amendment as soon as
possible. Therefore, following the execution of this Letter Agreement the
parties shall advise their respective attorneys, accountants and other advisors
that they want to expeditiously take all steps necessary to effect the
Amendment.
7. It is expected that the Amendment shall contain all customary covenants,
conditions, representations and warranties reciprocal to both parties and such
other matters as the parties may agree upon.
8. It is understood that (a) this letter is intended to be, and shall be
construed only as, a non-binding Letter Agreement summarizing the discussions
between WESC and WILC to the date hereof, and (b) no liability or obligation of
any nature whatsoever is intended to be created between the parties, except as
set forth in Section 1 above, and the respective rights and obligations of the
parties hereto remain to be defined in the definitive Amendment, into which this
Letter Agreement and all prior discussions shall merge upon the execution
thereof
If the foregoing conforms to your understanding, and meets with your
approval, please sign, date and return to us the enclosed copy of this letter,
whereupon this letter shall constitute a Letter of Agreement between the parties
in accordance with the terms and provisions set forth above.
Very truly yours,
WASATCH INTERACTIVE LEARNING
CORPORATION
By: /s/ Barbara Morris
--------------------------
Barbara Morris, President
ACCEPTED AND AGREED TO:
WASATCH EDUCATION SYSTEMS
CORPORATION
By: /s/ Gregory T. George
----------------------------
Gregory T. George, President
Exhibit 10.8
PlaNet
SOFTWARE
Software License Agreement
This is a Software License Agreement as defined and governed by the Software
Development Agreement executed by Wasatch Interactive Learning and PlaNet
Software, Inc. signed and dated Nov. 4, 1997.
This License agreement ("Agreement") is between Wasatch ("Licensee") and PlaNet
Software, Inc. ("PlaNet") for a source code copy of the PlaNet Manager software
program and documentation developed by PlaNet. The PlaNet Manager software is
based on and developed using the PlaNet Component Objects for Remote Education
("C.O.R.E.").
1. GRANT OF LICENSE. Subject to the terms of this agreement, PlaNet grants to
Licensee a perpetual, world-wide, nonexclusive right (the "Product
License") to reproduce and distribute in object code form only the Product
software and the C.O.R.E. objects on which it is based. Licensee is further
granted the perpetual, world-wide, non-exclusrve, right ("Source Code
License") to produce derivative works of the Product. The C.O.R.E. object
code may be used to produce derivative works of the Product, but may not be
used for any other purpose.
PlaNet agrees not to sell any version of the Product or the PlaNet Manager
to Wasatch Education Systems or to any subsidiary selling Wasatch Education
System's software.
2. DEFENITIONS:
o The Product is defined as the unique version of the PlaNet Manager
being developed by PlaNet under contract for the Licensee.
o Object Code is defined as the compiled, intermediate, or binary
program modules used to produce final software applications. These
files cannot be used to modify the code.
o Derivative Works is defined as software produced from pre-existing
code (as opposed to purely new development) for the purpose of
enhancing original product. Derivative works add substantially to the
value of the original product.
o Source Code is defined as the original code written by the software
developer in its native and uncompiled form.
3. REDISTRIBUTION REQUIREMENTS. If Licensee distributes the PlaNet Manager
software (or any part thereof), Licensee agrees to:
o Distribute the software in object code only
o Include a valid and visible copyright notice on such software
application
Page 1 November 4, 1997
<PAGE>
o Indemnify, hold harmless, and defend PlaNet from any claims or
lawsuits, including attorneys fees, that arise or result from the use
or distribution of such software application
o Not to incorporate the C.O.R.E. or any component thereof in any user
application which is a design tool, GUI builder, network management
tool, or other application which provides substantially similar
functionality as C.O.R.E. Any distribution of the source code for
PlaNet Manger or C.O.R.E. is strictly prohibited.
4. COPYRIGHT. Notwithstanding anything else, PlaNet retains all title to, and,
except as expressly and unambiguously licensed herein, all rights to the
PlaNet Manager and C.O.R.E.
5. TERMINATION OF LICENSE. The License remains effective unless terminated due
to a material breach by Licensee as determined by a court or by mediator as
provided for in section 9 of this agreement. Upon termination, Licensee
shall immediately cease all use of the Product and C.O.R.E. and return or
destroy all copies of the software and derivative works and so certify to
PlaNet.
6. WARRANTY DISCLAIMER. Licensee understands and acknowledges that the Product
and C.O.R.E. are based on the java programming language. And as such this
software is not intended for use in connection with any high risk or strict
liability activity (including without limitation, air travel, space travel,
fire fighting, police operations, power plane operation, military
operations, rescue operations, hospital and medical operations or the like)
and Licensee agrees not to use or allow the use of Product and/or C.O.R.E.
for or in connection with any such activity.
o The Product, C.O.R.E., and any services provided by PlaNet hereunder
are provided "as-is" without implied warranties including the implied
warranties of fitness for a particular purpose, noninfringement, and
merchantability, with regard to all work, deliverables, materials,
products, and/or services provided under this agreement.
o Further, PlaNet does not warrant, guarantee, or make any
representations regarding the use, or the results of the use, of
Product or C.O.R.E or written materials in terms of correctness,
accuracy, reliability, or otherwise.
7. TRANSFERABILITY/ASSIGNABILITY. The Product License is assignable by
Licensee with the following restriction. In the event that the License is
transferred or assigned, the C.O.R.E. may only be used to maintain and/or
enhance Product, the C.O.R.E may not be used for any other purpose or to
develop any Derivative Works. PlaNet may transfer or assign this Agreement
in whole or in part at any time. In the event PlaNet becomes unwilling or
unable to maintain the Product in the future, Licensee shall have access to
the source code held in escrow solely for the purpose of maintaining the
Product.
8. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision
of this Agreement is invalid or unenforceable, but that by limiting such
provision it would become valid and enforceable, then such provision shall
be deemed to be written, construed, and enforced as so limited.
Page 2 November 4, 1997
<PAGE>
9. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or
limitation of that party's right to subsequently enforce and compel strict
compliance with every provision of this Agreement.
10. MEDIATION AND DISPUTE RESOLUTlON.
o All claims, disputes and other matters in question, arising out of, or
relating to this agreement or the breach of this agreement shall be
submitted to non-binding mediation prior to any fling of any action in
court or to binding arbitration.
o Notice of the demand for non-binding mediation shall be filed in
writing with the other party to this agreement. The demand shall be
made within a reasonable time after the claim, dispute, or other
matter in question has arisen. In no event shall the demand for
non-binding mediation be made after institution of legal or equitable
proceedings based on such claim, dispute, or other matter in question
would be barred by the applicable statue of limitations.
o The award rendered by the mediators shall be non-binding. If a dispute
remains after the conclusion of the mediation, either party shall be
permitted to file an action in Court, and following the conclusion of
any such mediation, either party shall be allowed to file an action in
Court.
11. LIMITATIONS OF REMEDIES AND DAMAGES. Notwithstanding anything in this
agreement or otherwise, PlaNet shall not be liable or obligated with
respect to any subject matter of this agreement or under contract,
negligence, strict liability, or any other legal or equitable theory:
o for any amounts in excess in the aggregate of one half the fees paid
to PlaNet by Licensee for this copy of Product prior to the cause of
action,
o for any claim with respect to any end user application
o for any cost of procurement of substitute goods, technology, services
or rights
o for interruption of use or loss or corruption of data
o for any incidental or consequential damages
o for any action or omission by any third party
12. APPLICABLE LAW. This Agreement shall be governed by the laws of the State
of Utah. The parties agree to submit to the venue and jurisdiction of the
Utah courts located in Salt Lake City, Utah in disputes concerning this
agreement except as provided for in section 9 above.
By: /s/ Barbara Morris
------------------------------
Barbara Morris
President and CEO Wasatch Interactive Learning
Page 3 November 4, 1997
<PAGE>
By: /s/ Steven Curtis
------------------------------
Steven Curtis
President PlaNet Software, Inc
Page 4 November 4, 1997
Exhibit 10.9
FINDERS FEE AGREEMENT
This Finders Fee Agreement (the "Agreement"), effective as of January 28, 2000
is entered into by and between Wasatch Interactive Learning Corporation, a Utah
corporation (herein referred to as the "Company") and Western Financial
Communications, Inc., a California corporation (herein referred to as "WFC").
RECITALS
WHEREAS, the Company desires to raise capital; and
WHEREAS, WFC has contacts that might be willing to provide the Company capital;
and
NOW THEREFORE, the parties hereby agree to the following terms for paying a
finder's fee in the event WFC introduces the Company to a capital source, which
provides funds to the Company.
Financing "Finder's Fee". It is understood that in the event WFC introduces the
Company, or its nominees, to a lender or equity purchaser, not already having a
preexisting relationship with the Company, with whom the Company, or it
nominees, ultimately finances or causes the completion of such financing, the
Company agrees to compensate (WFC) for such services with a "finder's fee" in
the amount of 2.5% of the total gross finding provided by such lender or equity
purchaser, such fee to be payable in cash. This 2.5% fee will be in addition to
any fees payable by the Company to any other intermediary, if any, which shall
be the subject of separate agreements negotiated between the Company and such
other intermediary; however, the total of such fees payable by the Company to
all intermediaries, including WFC, relating to any single financing or
completion of financing shall not exceed ten percent (10%) of the total gross
funding provided by the introduced lender or purchaser for that particular
financing, and the Company shall, if necessary, reduce fee(s) to other
intermediaries in order to meet such limitation. It is also understood that in
the event WFC introduces the Company, or its nominees, to an acquisition
candidate, either directly or indirectly through another intermediary, not
already having a preexisting relationship with the Company, which the Company,
or its nominees, ultimately acquires or causes the completion of such
acquisition, the Company agrees to compensate WFC for such services with a
"finder's fee" in the amount of 2% of total gross consideration provided by such
acquisition. Such fee to be payable in cash. This 2% will be in addition to any
fees payable by the Company to any other intermediary, if any, which shall be
the subject of separate agreements negotiated between the Company and such other
intermediary; however, the total such fees payable by the Company to all
intermediaries including WFC, relating to any single acquisition or completion
thereof shall not exceed ten percent (10%) of the total gross consideration
provided by such acquisition, and the Company shall, if necessary reduce fee(s)
to other intermediaries in order to meet such limitation.
<PAGE>
Page 2
Finders's Fee Agreement
It is specifically understood that WFC is not and does not hold itself out to be
a Broker/Dealer, but is rather merely a "Finder" in reference to the Company
procuring financing sources and acquisition candidates.
Complete Agreement. This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof. This Agreement and its terms may not be
changed orally but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
AGREED TO:
"Company" WASATCH INTERACTIVE LEARNING CORPORATION
Date: 1/28/00 By: /s/ BARBARA MORRIS
-----------------------------------
Barbara Morris, President
"WFC" WESTERN FINANCIAL COMMUNICATIONS, INC.
Date: 1/28/00 By: /s/ JEFFREY V. WEAVER
-----------------------------------
Jeffrey V. Weaver, President
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 24, 2000, except for Notes 16 and 20 which are
dated April 14, 2000, in the Registration Statement on Form SB-2 and related
Prospectus of Wasatch Interactive Learning Corporation.
Tanner + Co.
Salt Lake City, Utah
April 19, 2000
EXHIBIT 23.2
CONSENT OF COUNSEL
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Prospectus contained in this Registration Statement.
SNOW BECKER KRAUSS P.C.
New York, New York
April 19, 2000
<TABLE> <S> <C>
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<LEGEND>
(Replace this text with the legend)
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-END> FEB-29-2000
<CASH> 72,000
<SECURITIES> 0
<RECEIVABLES> 892,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,019,000
<PP&E> 318,000
<DEPRECIATION> 214,000
<TOTAL-ASSETS> 1,723,000
<CURRENT-LIABILITIES> 461,000
<BONDS> 42,000
0
0
<COMMON> 1,000
<OTHER-SE> 1,219,000
<TOTAL-LIABILITY-AND-EQUITY> 1,723,000
<SALES> 2,224,000
<TOTAL-REVENUES> 2,225,000
<CGS> 451,000
<TOTAL-COSTS> 1,620,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,000
<INCOME-PRETAX> 78,000
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 77,000
<DISCONTINUED> 0
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