UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 16, 2000
Wasatch Interactive Learning Corporation
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(Exact name of registrant as specified in its charter)
Washington 000-23180 911253514
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(State or Other Jurisdiction (Commission File Number (IRS Employer Ident. No.)
of Incorporation)
5250 South Commerce Drive, Suite 101, Salt Lake City, Utah 84107
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(Address of Principal Executive Offices) (Zip Code)
(801) 261-1001
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Registrant's telephone number, including area code
N/A
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Former Name, if Changed Since Last Report
N/A
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Former Address, if Changed Since Last Report
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Item 5. Other Events
On March 16, 2000, Wasatch Interactive Learning Corporation (the
"Company") entered into an agreement (the "Securities Purchase Agreement") with
Brock Road, LLC, a Cayman Islands limited liability company, to sell a 7%
convertible debenture (the "Debenture"), and warrants to purchase 196,078 shares
of the Company's common stock (the "Warrants") for a total purchase price of
$4,000,000. The Company intends to use the net proceeds of approximately
$3,560,000 for expansion of its direct sales force, delivery over the Internet
of its comprehensive educational software product offering, and the balance for
working capital. The securities were offered and sold pursuant to an exemption
from registration under Regulation D under the Securities Act.
The Debenture matures on March 16, 2003 and is convertible at any time
prior to maturity into shares of the Company's common stock at a per share price
equal to the lesser of (i) $6.25 or (ii) 80% of the average closing bid price of
any five (5) non-consecutive trading days during a twenty (20) day trading
period, and is subject to earlier redemption by the Company. The Warrants have
an exercise price of $5.31 per share and expire on March 16, 2005.
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Pursuant to the Securities Purchase Agreement, the Company entered into
a Registration Rights Agreement, whereby the Company committed to file, within
30 days of the funding on March 21, 2000, a registration statement for the
common stock underlying the Debenture (including interest) and the Warrants, and
the Company must use its best efforts to cause the registration statement to
become effective within 120 days of the closing or otherwise be subject to
penalties.
The Company also announced the completion of an interim funding of
$950,000 consisting of 158,334 shares of Common Stock sold at $6.00 per share.
The shares were sold to a group of private investors and the proceeds are being
used for expansion of the Company's direct sales force and working capital.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
99.1. Securities Purchase Agreement dated as of March 16, 2000 by and
between the Company and Brock Road, LLC.
99.2. 7% Convertible Debenture due March 16, 2003.
99.3. Common Stock Purchase Warrant.
99.4. Registration Rights Agreement dated as of March 16, 2000 by and
between the Company and Brock Road, LLC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASATCH INTERACTIVE
LEARNING CORPORATION
(Registrant)
Date: April 4, 2000 By:/s/ ________________________
Barbara Morris, President
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of March 16, 2000, is entered into
by and between Wasatch Interactive Learning Corporation, a Washington
corporation, with headquarters located at 5250 South Commerce Drive, Suite 101,
Salt Lake City, UT 84107 (the "Company"), and the undersigned (referred to
individually as the "Buyer" and collectively as the ("Buyers").
W I T N E S S E T H:
WHEREAS, the Company and the Buyers are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, by Rule 506 under Regulation
D ("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act;
WHEREAS, in consideration of the foregoing, the Buyers desire
to purchase, upon the terms and subject to the conditions of this Agreement, a
7% Secured Convertible Debenture, in the principal amount of $4,000,000, issued
by the Company (which may be issued to each individual Buyer in series) (the
"Debentures"), the form of which is attached hereto as Annex I, which will be
convertible into shares of Common Stock, par value $0.0001 per share of the
Company (the "Common Stock"), together with the Common Stock Purchase Warrants
described herein (the "Warrants"), upon the terms and subject to the conditions
of such Debenture, and subject to acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. Purchase; Certain Definitions. (i) The undersigned hereby
agrees to purchase from the Company the Debentures in the amount set forth on
the signature page of this Agreement, out of a total offering of Debentures in
the principal amount of $4,000,000, and having the terms and conditions set
forth therein. The form of Debenture is attached hereto as Annex I (the
"Debenture"). The purchase price for the Debenture shall be as set forth on the
signature page hereto (the "Purchase Price") and shall be payable in United
States Dollars.
(ii) As used herein, the term "Securities" means the
Debentures, the Warrants and the Common Stock issuable upon conversion of the
Debentures and the exercise of the Warrants.
b. Form of Payment. The Buyer shall pay the Purchase Price for
the Debentures by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions"). No
later than the Closing Date (as defined below), the Company shall deliver the
original Debentures duly executed on behalf of the Company to the Escrow Agent.
By signing this Agreement, the Buyer and the Company, and subject to acceptance
by the Escrow Agent, each agrees to all of the terms and conditions of, and
becomes a party to, the Joint Escrow Instructions, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
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c. Method of Payment. Payment into escrow of the Purchase
Price for the Debentures shall be made by wire transfer of funds to:
City National Bank
1950 Avenue of the Stars
Los Angeles, CA 90067
ABA# 122016066
For credit to the account of Law Office
of Michael S. Rosenblum
Escrow for Brock Street, LLC
Account No.: 009477772
Not later than 1:00 p.m., PST time, on the date which is one (1) New York Stock
Exchange trading day after the Company shall have accepted this Agreement and
returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, each Buyer shall deposit with the Escrow Agent the purchase price for
the Debenture being acquired by it, in immediately available funds. Time is of
the essence with respect to such payment, and failure by the Buyer to make such
payment shall allow the Company to cancel this Agreement.
d. Escrow Property. The Purchase Price and the Debentures
delivered to the Escrow Agent as contemplated by Sections 1(b) and (c) hereof
are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Each Buyer represents and warrants to, and covenants and
agrees with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement (as that term is defined in the
Registration Rights Agreement defined below), the Buyer is purchasing the
Debenture and will be acquiring the shares of Common Stock issuable upon
conversion of the Debenture or the exercise of the Warrant (the "Converted
Shares") for its own account for investment, and not with a view towards the
public sale or distribution thereof and not with a view to or for sale in
connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the Securities
Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the
kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers (if an entity)
and professional advisors (who are not affiliated with or compensated in any way
by the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities.
c. All subsequent offers and sales of the Debenture and the
shares of Common Stock representing the Converted Shares (such Common Stock
sometimes referred to as the "Shares") by the Buyer shall be made pursuant to
registration of the Shares under the Securities Act or pursuant to an exemption
from registration.
d. The Buyer understands that the Debenture is being offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Debenture.
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e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Debenture and the
offer of the Shares which have been requested by the Buyer. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received complete and satisfactory answers to any such
inquiries. Without limiting the generality of the foregoing, the Buyer has also
had the opportunity to obtain and to review (i) the Company's annual report on
Form 10-KSB for the year ending April 30, 1999, (ii) the Company's reports on
Form 10-QSB for the periods ending July 31, 1999, and October 30, 1999 (the "SEC
Reports");
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors' rights
generally.
i. Notwithstanding the provisions hereof or of the Debenture,
in no event (except with respect to an automatic conversion of the Debenture as
provided therein) shall each Buyer be entitled to convert any Debenture to the
extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by such Buyer and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Debenture), and (2) the number of
shares of Common Stock issuable upon the conversion of the Debenture with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by such Buyer and its affiliates of more than 4.99% of
the outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"). Any issuance by the Company to the Buyer in excess of the
limit contained in this Paragraph 2.i. shall be null and void, ab initio, and
upon notice of such invalid issuance, the Company shall correct its books and
cause its transfer agent's books to be corrected forthwith to reflect that the
Buyer's ownership of Common Stock is within the limit set forth herein. Buyer
shall immediately deliver any certificates for invalidly issued Common Stock to
the Company's transfer agent. The Company further agrees to (i) immediately
reissue certificates for Common Stock to the extent that a portion of the Common
Stock represented by said certificates have been validly issued and (ii)
immediately reissue all or a portion of those shares which were deemed invalidly
issued (at a price set forth in the original conversion notices applicable to
such shares) upon notice from the Buyer that the reissuance of such shares would
not cause such Buyer to have a beneficial ownership interest in excess of 4.99%.
The Company hereby indemnifies and holds Holder free and harmless in connection
with any and all liabilities, losses, costs and expenses, including, without
limitation, attorneys' fees and costs arising from or relating to claims made by
any third parties alleging that any Holder has violated Sections 13(d) and/or
16, to the extent such violation is premised on the fact that, notwithstanding
this Section 4.E., the Holder is the beneficial owner of all of the shares of
Common Stock which would be issuable, from time to time, if Holder converted the
entire principal and interest balance of the Debenture.
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j. Buyer represents that it neither is nor will be obligated
for any finders' fee or commission nor is it aware of any such fee or commission
payable in connection with this transaction other than as set forth on the Joint
Escrow Instructions (attached hereto as Annex II). Buyer agrees to indemnify and
to hold harmless the Company from any liability for any commission or
compensation in the nature of a finders' fee (and the costs and expenses of
defending against such liability or asserted liability) for which such Buyer or
any of its officers, partners, employees, or representatives is responsible.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants and hereby covenants and
agrees with each Buyer that:
a. Concerning the Debenture and the Shares. The Debentures
have been duly authorized and, when issued, will be duly and validly issued,
fully paid and non-assessable and will not subject the holder thereof to
personal liability by reason of being such holder. There are no preemptive
rights of any stockholder of the Company, as such, to acquire the Securities.
b. Reporting Company Status. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or prospects or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole. The Company has registered its Common Stock
pursuant to Section 12 of the 1934 Act, and the Common Stock is listed and
traded on the "NASD OTC Bulletin Board." The Company has received no notice,
either oral or written, with respect to the continued eligibility of the Common
Stock for such listing, and the Company has maintained all requirements for the
continuation of such listing.
c. Authorized Shares. The Company has at February 29, 2000,
7,500,000 shares of Common Stock issued and outstanding, and has sufficient
authorized and unissued Shares as may be reasonably necessary to effect the
conversion of the Debentures (assuming all future conversions occurred are based
upon an average 5-day closing bid of the Common Stock, as reported by Bloomberg,
LP which was one-half (1/2) of the closing bid price of the Common Stock on the
Closing Date [the "Closing Date Bid"]) and exercise of the Warrants (as defined
in Section 4.k.) at the Closing Date Bid. The Common Stock has been duly
authorized and, when issued upon conversion of the Debentures in accordance with
their terms, will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder.
d. Securities Purchase Agreement; Registration Rights
Agreement and Debenture. This Agreement, the Debenture, the Registration Rights
Agreement, the form of which is attached hereto as Annex IV (the "Registration
Rights Agreement") and the transactions contemplated hereby and thereby, have
been duly and validly authorized by the Company, this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the Debentures
and the Registration Rights Agreement, when executed and delivered by or on
behalf of the Company, will be, valid and binding agreements of the Company
enforceable in accordance with their respective terms, subject, as to
enforceability, to general principles of equity and to bankruptcy, insolvency,
moratorium, and other similar laws affecting the enforcement of creditors'
rights generally.
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e. Non-contravention. The execution and delivery of this
Agreement, the Debentures and the Registration Rights Agreement by the Company,
the issuance of the Securities, and the consummation by the Company of the other
transactions contemplated by this Agreement, the Debentures and the Registration
Rights Agreement do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default under (i)
the articles of incorporation or by-laws of the Company, each as currently in
effect, (ii) except as disclosed in Annex V, any indenture, mortgage, deed of
trust, or other material agreement or instrument to which the Company is a party
or by which it or any of its properties or assets are bound, including any
listing agreement for the Common Stock (except as herein set forth), (iii) to
its knowledge, any existing applicable law, rule, or regulation or any
applicable decree, judgment, or order of any court, United States federal or
state regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) any
listing agreement for its Common Stock, except such conflict, breach or default
which would not have a material adverse effect on the transactions contemplated
herein.
f. Approvals. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC Filings. To the best of the Company's knowledge, none
of the Company's SEC Reports filed since January, 1998 contained, at the time
they were filed, any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances under which they were made, not
misleading, except as corrected by an amended filing made prior to the date
hereof. The Company has since January 1998 filed all requisite forms, reports
and exhibits thereto with the SEC.,
h. Absence of Certain Changes. Since October 31, 1999, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in Annex V or in the Company's SEC Reports. Since October 31, 1999,
the Company has not (i) incurred or become subject to any material liabilities
(absolute or contingent) except liabilities incurred in the ordinary course of
business consistent with past practices; (ii) discharged or satisfied any
material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. Full Disclosure. There is no fact known to the Company
(other than general economic conditions known to the public generally or as
disclosed in the Company's SEC Reports), that has not been disclosed in writing
to the Buyer that (i) would reasonably be expected to have a material adverse
effect on the business or financial condition of the Company or (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements").
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j. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition. results of operation or prospects of the Company and its subsidiaries
taken as a whole or the transactions contemplated by any of the Transaction
Agreements or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, any of
the Transaction Agreements.
k. Absence of Events of Default. Except as set forth in Annex
V hereto, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the Company's
financial condition or results of operations.
l. Prior Issues. Except as set forth in Annex V hereto,
during the twelve (12) months preceding the date hereof, the Company has not
issued any Common Stock or convertible securities in capital transactions which
have not been fully disclosed in the Company's filings with the SEC. Except as
set forth in Annex V hereto, all such issuances (except for issuances to Buyer)
have been fully converted into shares of common stock and there are no
outstanding unconverted debt or convertible securities from those transactions.
m. No Undisclosed Liabilities or Events. Except as set forth
in Annex V, the Company has no liabilities or obligations other than those
disclosed in the Company's SEC Reports or those incurred in the ordinary course
of the Company's business since December 31, 1998, and which, individually or in
the aggregate, do not or would not have a material adverse effect on the
properties, business, condition (financial or otherwise), results of operations
or prospects of the Company and its subsidiaries, taken as a whole. No event or
circumstances has occurred or exists with respect to the Company or its
properties, business, condition (financial or otherwise), results of operations
or prospects, which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed.
n. No Default. Except as disclosed in Annex V, hereto, the
Company is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it or its property is bound.
o. No Integrated Offering. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, made any offer or sales of any security or solicited any offers to
buy any security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D in connection with the offer
and sale of the Securities as contemplated hereby.
p. Dilution. The number of Shares issuable upon conversion of
the Debentures may increase substantially in certain circumstances, including,
but not necessarily limited to, the circumstance wherein the trading price of
the Common Stock declines prior to the conversion of the Debentures. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded
that, in its good faith business judgment, such issuance is in the best
interests of the Company. The Company specifically acknowledges that its
obligation to issue the Shares upon conversion of the Debentures is binding upon
the Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other shareholders of the Company.
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q. Acknowledgment by Company. Company represents and warrants
that neither the Buyer, nor any persons or entities representing or purporting
to represent the Buyer have made any representation or warranty which is not
contained expressly in this Agreement or any other agreements referred to
herein. Without limiting the foregoing, Company specifically acknowledges that
the Buyer has made no representations that it is a "long term" investor in the
Company, or that it intends to hold the Debentures or shares of stock in the
Company (obtained by conversions of the Debentures) for any period beyond that
which is required under the Securities Act. Company further acknowledges that
the Buyer may hedge the shares of stock in the Company prior to or after the
conversions of any of the Debentures, provided that such hedging is done in
compliance with the Securities Act, the 1934 Act, any rules applicable to
securities traded on the NASD OTC Bulletin Board and the express terms of this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement.
r. Brokers Fee. The Company represents that it neither is nor
will be obligated for any finders' fee or commission nor is it aware of any such
fee or commission payable in connection with this transaction other than as set
forth on the Joint Escrow Instructions (attached hereto as Annex II). The
Company agrees to indemnify and to hold harmless the Buyer from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, partners, employees, or
representatives is responsible.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. Transfer Restrictions. Each Buyer acknowledges that (1) the
Debentures have not been and is not being registered under the provisions of the
Securities Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the Securities Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the Securities Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the Securities Act, may require compliance
with some other exemption under the Securities Act or the rules and regulations
of the SEC thereunder; and (3) neither the Company nor any other person is under
any obligation to register the Securities (other than pursuant to the
Registration Rights Agreement) under the Securities Act or to comply with the
terms and conditions of any exemption thereunder.
b. Restrictive Legend. The Buyer acknowledges and agrees that
the Debentures and, until such time as the Common Stock has been registered
under the Securities Act as contemplated by the Registration Rights Agreement
and sold pursuant to an effective Registration Statement, certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR
OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED.
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c. Registration Rights Agreement. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Closing Date.
d. Filings. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Debentures to the Buyer
under any United States laws and regulations, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer promptly
after such filing.
e. Reporting Status. So long as any Buyer beneficially holds
the Debentures, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination.
f. Use of Proceeds. The Company will use the proceeds from the
sale of the Debentures (excluding amounts paid by the Company for legal fees,
finder's fees and escrow agent fees in connection with the sale of the
Debentures) for general capital purposes and, without limiting the foregoing,
shall not, directly or indirectly, use any of such proceeds for investment in
any other affiliate.
g. Certain Agreements. (i) The Company covenants and agrees
that it will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock with any third party until one hundred eighty (180) days after
the Effective Date (as defined below).
(ii) The provisions of subparagraph 4.i.(i) will not apply to
(A) Common Stock issued as "restricted stock" as defined in SEC Rule 144,
provided the holder thereof holds such Common Stock for at least one year from
the date of issuance; (B) a secondary public offering of shares of Common Stock
at market; (C) an offering of convertible securities at market or above; (D) the
issuance of securities (other than for cash) in connection with a merger,
consolidation, sale of assets, disposition or the exchange of the capital stock
for assets, stock or other joint venture interests; (E) the grant or exercise of
employee stock options and other employment compensation; and (F) the conversion
of securities or the exercise of warrants referenced in Schedule 5(b) of the
Registration Rights Agreement; provided with regard to (A) through (D) above,
such securities would not be included in the Registration Statement relating to
the Shares and a registration statement in respect of such stock shall not be
filed prior to sixty (60) days after the Effective Date.
(iii) The term "Effective Date" means the effective date of
the Registration Statement covering the Registrable Securities (as defined in
the Registration Rights Agreement).
(iv) In the event the Company breaches the provisions of this
Paragraph 4.G.i., the Conversion Price shall be amended to equal the conversion
formula set forth in Section 4.A. of the Debenture and each Buyer may, within
thirty (30) days after it receives written notice of such breach from the
Company, require the Company to immediately redeem the Debenture held by it in
accordance with Section 6(y) of the Debenture.
h. Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock equal to two hundred percent (200%) of the number of shares of
Common Stock issuable upon conversion of all of the outstanding Debentures, and
the exercise of the Warrants.
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i. Warrants. The Company agrees to issue to Buyer at the
Closing, transferable divisible warrants with cashless exercise provisions (the
"Warrants") for 196,078 shares of Common Stock. Such Warrants shall bear an
exercise price equal to $5.31, and shall be exercisable immediately upon
issuance, and for a period of five (5) years thereafter, in the form annexed
hereto as Annex VI, together with piggy-back registration rights, and demand
registration rights set forth under the Registration Rights Agreement.
j. Limitation on Issuance of Shares. The Debenture shall
provide that the Company shall take all steps reasonably necessary to be in a
position to issue shares of Common Stock on conversion of the Debentures without
violating the "Cap Regulations". If despite taking such steps, the Company is
limited in the number of shares of Common Stock it may issue by the "Cap
Regulations," to the extent that the Company cannot issue such shares of Common
Stock, due upon a Notice of Conversion, without violating the Cap Regulations,
the Company shall immediately notify each Buyer the principal amount of its
Debenture which is not convertible as a result of said Cap Regulations (the
"Debenture Balance") and the Buyer, shall have the option, exercisable in its
sole and absolute discretion, to elect any of the remedies in Section 6 of the
Debenture.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
aggregate purchase price for the Debentures in accordance with Section 1(c)
hereof, the Company will irrevocably instruct its transfer agent to issue Common
Stock from time to time upon conversion of the Debentures in such amounts as
specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the Securities Act, registered in the name of
the Buyer or its nominee and in such denominations to be specified by each Buyer
in connection with each conversion of its Debenture. The Company warrants that
no instruction other than such instructions referred to in this Section 5 and
stop transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the Securities Act will be given by
the Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the Securities Act, the Company shall
(except as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Shares, promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without legend in such name and in such denominations as specified by the Buyer.
b. (i) The Company will permit each Buyer to exercise its
right to convert its Debenture by telecopying an executed and completed Notice
of Conversion (as defined in the Debenture) to the Company and delivering within
three (3) business days thereafter, the original Notice of Conversion, together
with the original Debenture, by express courier.
(ii) The term "Conversion Date" means, with respect to any
conversion elected by the holder of the Debentures after the Effective Date, the
date specified in the Notice of Conversion, provided the copy of the Notice of
Conversion is telecopied to or otherwise delivered to the Company in accordance
with the provisions hereof so that is received by the Company on or before such
specified date. The Conversion Date for any mandatory conversion at maturity
shall be the Maturity Date of the Debentures.
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(iii) The Company shall, at its expense, take all actions and
use all means necessary and diligent to cause its transfer agent to transmit the
certificates representing the Shares issuable upon conversion of any Debentures
to the Buyer via express courier, by electronic transfer or otherwise, within
three (3) business days after receipt by the Company of the later of (i) receipt
by the Company of the copy of the original Notice of Conversion (and the
original Debenture upon the final conversion) and (ii) the Conversion Date (the
"Delivery Date").
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer in the event that due entirely to the Company's
failure to issue and deliver the Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond five (5) business days from Delivery Date):
Late Payment For Each $10,000
of principal and interest of
No. Business Days Late Debenture Being Converted
---------------------- -----------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
>5 $500 +$200 for each Business
Day Late beyond 5 days from
The Delivery Date
The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Nothing herein shall limit each
Buyer's right to pursue actual damages or to cause the Company to redeem its
Debentures as provided below for the Company's actions or inactions resulting in
the transfer agent's failure to issue and deliver the Common Stock to the Buyer.
Furthermore, in addition to any other remedies which may be available to the
Buyer, in the event that the Company fails to deliver such shares of Common
Stock within five (5) business days after the Delivery Date, the Buyer will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the Buyer shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion. In the event the Company's actions or inactions result in
the transfer agent's failure to issue and deliver the Common Stock to the Buyer
within ten (10) days after the Delivery Date, each Buyer may, at its option,
require the Company (without limiting its other remedies hereunder) to
immediately redeem the remaining interest and principal balance of its Debenture
in accordance with Section 6(y) of the Debenture.
d. If, by the relevant Delivery Date, the Company fails for
any reason to deliver the Shares to be issued upon conversion of the Debentures
and after such Delivery Date, the holder of the Debentures being converted (a
"Converting Holder") purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") in order to make delivery in
satisfaction of a sale of Common Stock by the Converting Holder made after a
Conversion Date (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Shares to be issued upon such conversion (a
"Buy-In"), the Company shall pay to the Converting Holder, in addition to all
other amounts contemplated in other provisions of the Transaction Agreements,
and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The
"Buy-In Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Converting Holder's total purchase price (including brokerage commissions, if
any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Buyer in
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<PAGE>
immediately available funds immediately upon demand by the Converting Holder. By
way of illustration and not in limitation of the foregoing, if the Converting
Holder purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which Company will be required to pay to the Converting Holder will be $1,000.
The remedies set forth in paragraphs 5(c) and (d) shall be cumulative.
e. In lieu of delivering physical certificates representing
the unlegended securities issuable upon conversion, provided the Company's
transfer agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Buyer and its
compliance with the provisions contained in this paragraph, so long as the
certificates therefor do not bear a legend and the Buyer thereof is not
obligated to return such certificate for the placement of a legend thereon, the
Company shall use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Buyer by crediting the
account of Buyer's Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.
f. The original Debenture shall be delivered by the Buyer to
the Company simultaneous with the final Notice of Conversion.
6. DELIVERY INSTRUCTIONS.
The Debentures shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, on a delivery against payment basis, no
later than on the Closing Date.
7. CLOSING DATE.
(i) The closing of the issuance and sale of the Debentures
shall occur on the date (the "Closing Date") which is the first NYSE trading day
after the fulfillment or waiver of all closing conditions pursuant to Sections 8
and 9 hereof or such other date and time as is mutually agreed upon by the
Company and the Buyer.
(ii) The closing of the purchase and issuance of Debentures
shall occur on the Closing Date, at the offices of the Escrow Agent and shall
take place no later than 12:00 Noon, PST, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
(iii) Notwithstanding anything to the contrary contained
herein, the Escrow Agent will be authorized to release the Escrow Property (as
defined in the Escrow Agreement) only upon satisfaction of the conditions set
forth in Sections 8 and 9 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Debentures on the Closing Date and to the Buyer pursuant to this Agreement
is conditioned upon:
a. The receipt and acceptance by the Buyer of this Agreement
as evidenced by execution of this Agreement by the Buyer for Four Million
Dollars ($4,000,000) in aggregate principal amount of the Debentures (or such
lesser amount as the Company, in its sole discretion, shall determine on the
Closing Date);
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the Debentures in
accordance with Section 1(c) hereof;
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<PAGE>
c. The accuracy on the Closing Date of the representations and
warranties of the Buyer contained in this Agreement as if made on the Closing
Date, and the performance by the Buyer on or before the Closing Date of all
covenants and agreements of the Buyer required to be performed on or before the
Closing Date;
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Debentures on the Closing Date is conditioned upon:
a. Acceptance by the Company of this Agreement for the sale of
Debentures, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the
Debentures, in accordance with this Agreement;
c. The accuracy in all material respects on the Closing Date
of the representations and warranties of the Company contained in this Agreement
as if made on the Closing Date and the performance by the Company on or before
the Closing Date of all covenants and agreements of the Company required to be
performed on or before the Closing Date and as to Debentures, the conditions set
forth in Paragraph 4g; and
d. On the Closing Date, Buyer having received (i) an opinion
of counsel for the Company, dated the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer, to the effect set forth in Annex III
attached hereto, (ii) the Registration Rights Agreement, and (iii) the Warrants.
e. No statute, rule, regulation, executive order, decree,
ruling or injunction shall be enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction which prohibits or
adversely effects any of the transactions contemplated by this Agreement or the
Transaction Documents, and no proceeding or investigation shall have been
commenced or threatened which may have the effect of prohibiting or adversely
effecting any of the transactions contemplated by this Agreement or the
Transaction Documents.
f. From and after the date hereof to and including the Closing
Date, the trading of the Common Stock shall not have been suspended by the SEC,
or the NASD and trading in securities generally on the New York Stock Exchange,
NASDAQ/Small Cap, or NASD OTC Bulletin Board, as applicable, shall not have been
suspended or limited, nor shall minimum prices been established for securities
traded on NASDAQ/Small Cap or the NASD OTC Bulletin Board, as applicable, nor
shall there be any outbreak or escalation of hostilities involving the United
States or any material adverse change in any financial market that in either
case in the reasonable judgment of the Buyer makes it impracticable or
inadvisable to purchase the Debentures.
10. GOVERNING LAW; MISCELLANEOUS.
a. This Agreement and all agreements entered into in
connection herewith shall be governed by and interpreted in accordance with the
laws of the State of California for contracts to be wholly performed in such
state and without giving effect to the principles thereof regarding the conflict
of laws. Any litigation based thereon, or arising out of, under, or in
connection with, this agreement or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Company or Buyer shall be
brought and maintained exclusively in the state or Federal courts of the State
of California, sitting in the City of Los Angeles. The Company hereby expressly
and irrevocably submits to the jurisdiction of the state and federal Courts of
the State of California for the purpose of any such litigation as set forth
12
<PAGE>
above and irrevocably agrees to be bound by any final judgment rendered thereby
in connection with such litigation. The Company further irrevocably consents to
the service of process by registered mail, postage prepaid, or by personal
service within or without the State of California. The Company hereby expressly
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may have or hereafter may have to the laying of venue of any such
litigation brought in any such court referred to above and any claim that any
such litigation has been brought in any inconvenient forum. To the extent that
the Company has or hereafter may acquire any immunity from jurisdiction of any
court or from any legal process (whether through service or notice, attachment
prior to judgment, attachment in aid of execution or otherwise) with respect to
itself or its property, the Company hereby irrevocably waives such immunity in
respect of its obligations under this Agreement and the related agreements
entered into in connection herewith.
b. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
c. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
d. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
e. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
f. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
g. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
h. Except as otherwise set forth herein, all costs and
expenses, including reasonable attorneys' fees, incurred by the Buyer in the
enforcement of this Agreement or any agreements related thereto, shall be paid
by the Company upon demand.
11. NOTICES. Any notice or communication required or permitted
by this Agreement shall be given in writing addressed as follows:
COMPANY: Wasatch Interactive Learning Corporation
5250 South Commerce Drive, Suite 101
Salt Lake City, UT 84107
ATTN: CEO
Telephone No.: (801) 261-1001
Telecopier No.: (801) 269-1509
with a copy to:
Snow, Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Elliot H. Lutzker, Esq.
Telephone: (212) 687-3860
Facsimile: (212) 949-7052
BUYER: At the address set forth on the signature page of
this Agreement.
ESCROW AGENT: Law Offices of Michael S. Rosenblum
1875 Century Park East, Suite 700
Los Angeles, CA 90067
Telephone: (310) 286-2100
Telecopier No. (310) 286-3010
13
<PAGE>
All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Debentures and the Purchase Price, and
shall inure to the benefit of the Buyer and its successors and assigns.
13. SHORTING THE COMMON STOCK.The Buyer hereby represents that
as of the date of this Agreement it is not "short" (as that term is defined in
the Securities Act and the 1934 Act) the Common Stock. On the condition that the
Company is not in default of any of its obligations set forth in any of the
Transaction Agreements, including this Agreement, the Debenture and the
Registration Rights Agreement and on the further condition that the Registration
Statement for the Common Stock is declared effective within 120 days of this
Agreement, Buyer hereby agrees that it will not "short" the Common Stock until
after it has converted all amounts due under the Debenture into Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
AGGREGATE PURCHASE PRICE OF THE DEBENTURES: $4,000,000*
*As detailed below
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf as of this 16th day of March, 2000.
Printed Names of Buyers:
Brock Road, LLC, a Cayman Islands
Limited Liability Company
By:/s/
-----------------------------------
Navigator Management, LTD, Director
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
Wasatch Interactive Learning Corporation, a Washington corporation
By:/s/
- ------------------
Barbara Morris
Title: President
Date: March 16, 2000
15
ANNEX I
TO
SECURITIES PURCHASE AGREEMENT
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
NNo. 001-US $4,000,000
WASATCH INTERACTIVE LEARNING CORPORATION
7% CONVERTIBLE DEBENTURE DUE MARCH 16, 2003
FOR VALUE RECEIVED, between Wasatch Interactive Learning Corporation, a
Washington corporation (the "Company") promises to pay to Brock Road, LLC, a
Cayman Islands limited liability company, the registered holder hereof (the
"Holder"), the principal sum of Four Million Dollars and 00/100 Dollars (US
$4,000,000) on March 16, 2003 (the "Maturity Date") and to pay interest on the
principal sum outstanding from time to time in arrears (i) prior to the Maturity
Date, quarterly, on the last day of March, June, September and December of each
year, (ii) upon conversion as provided herein or (iii) on the Maturity Date, at
the rate of seven percent (7%) per annum accruing from March 16, 2000, the date
of the issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been made
or duly provided for.
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This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject
to the following provisions of this Section 4, to convert all or a portion of
this Debenture into shares of Common Stock of the Company, $0.0001 par value per
share ("Common Stock") of the Company at any time until the Maturity Date, at a
conversion price for each share of Common Stock (the "Conversion Rate") equal to
the lower of (x) $6.25, or (y) the Current Market Price (as defined below)
multiplied by eighty percent (80%); provided that the principal amount being
converted is the lower of (x) at least $10,000 (unless if at the time of such
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less than Ten Thousand Dollars $10,000, then the whole amount
thereof) or (y) the maximum amount which the Holder can then convert pursuant to
the terms of Section 4.E. hereof .
B. For purposes of this Debenture, the following terms have
the meanings indicated below:
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<PAGE>
(i) "Market Price of the Common Stock" means (x) the closing
bid price of the Common Stock for the period indicated in the relevant
provision, as reported by Bloomberg, LP or, if not so reported, as reported on
the NASD OTC Bulletin Board or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange, as reported in The Wall Street
Journal.
(ii) "Current Market Price" means the average of the Market
Price of the Common Stock for any five non-consecutive trading days of the
Common Stock (which may include some consecutive days) during the twenty day
trading period ending on the trading day immediately before the relevant
Conversion Date (as defined below). On the relevant Conversion Date, Holder may
select, in its sole discretion, either of the formulas contained in (A) and (B)
in the immediately preceding sentence.
C. The Holder of this Debenture is entitled, at its option, to
convert this Debenture at any time which is after the earlier of (x) the
thirtieth (30th) day after the Initial Closing Date or (y) the Effective Date of
the Registrable Securities applicable to the Initial Debentures (as those terms
are defined in the Securities Purchase Agreement).
D. Conversion shall be effectuated by surrendering the
Debentures to be converted to the Company's transfer agent, Executive Registrar
and Transfer Agency, accompanied by or preceded by facsimile or other delivery
to the Company of the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion hereof, and accompanied, if
required by the Company, by proper assignment hereof in blank. Subject to the
provisions of Section 4.E hereof, interest accrued or accruing from the date of
issuance to the date of conversion shall, at the option of the Company, be paid
in cash or Common Stock upon conversion at the Conversion Rate applicable to
such conversion. No fractional shares of Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date on
which the Holder faxes or otherwise delivers the conversion notice ("Notice of
Conversion"), substantially in the form annexed hereto as Exhibit A, duly
executed, to the Company, provided that the Holder shall deliver to the
Company's transfer agent or the Company the original Debentures being converted
within five (5) business days thereafter (and if not so delivered with such
time, the Conversion Date shall be the date on which the later of the Notice of
Conversion and the original Debentures being converted is received by the
Company). Facsimile delivery of the Notice of Conversion shall be accepted by
the Company at facsimile number (801) 269-1509; ATTN: Barbara Morris, Chief
Executive Officer. Certificates representing Common Stock upon conversion will
be delivered within three (3) business days from the date later of the Notice of
Conversion is delivered to the Company as contemplated in the first sentence of
this paragraph C or the original Debenture is delivered to the Company's
transfer agent or the Company.
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<PAGE>
E. Notwithstanding any other provision hereof, of the Warrants
or of any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture or shall the Company have the obligation, to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture) to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion or exercise). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
Any issuance by the Company to the Buyer in excess of the limit contained in
this Section 4.E. shall be null and void, ab initio, and upon notice of such
invalid issuance, the Company shall correct its books and cause its transfer
agent's books to be corrected forthwith to reflect that the Buyer's ownership of
Common Stock is within the limit set forth herein. Holder shall immediately
deliver any certificates for invalidly issued Common Stock to the Company's
transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
the Conversion Price set forth in the original conversion notice(s) applicable
to such shares) upon notice from Holder that the reissuance of such shares would
not cause such Holder to have a beneficial ownership interest in excess of
4.99%. Notwithstanding the foregoing, Holder may elect, by providing the Company
written notice at any time prior to the reissuance of shares, to cancel that
portion of a prior conversion applicable to shares of Common Stock surrendered
by it pursuant to this Section 4.E. The Company hereby indemnifies and holds
Holder free and harmless in connection with any and all liabilities, losses,
costs and expenses, including, without limitation, attorneys' fees and costs
arising from or relating to claims made by any third parties alleging that any
Holder has violated Sections 13(d) and/or 16, to the extent such violation is
premised on the fact that, notwithstanding this Section 4.E., the Holder is the
beneficial owner of all of the shares of Common Stock which would be issuable,
from time to time, if Holder converted the entire principal and interest balance
of the Debenture. The Holder, by its acceptance of this Debenture, further
agrees that if the Holder transfers or assigns any of the Debentures to a party
who or which would not be considered such an affiliate, such assignment shall be
made subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 4(E) as if such transferee or assignee were the
original Holder hereof.
F. Anything herein to the contrary notwithstanding, in the
event the Company breaches the provisions of Section 4(g) of the Securities
Purchase Agreement, the Conversion Rate shall be amended to be equal to (i) 90%
of (ii) the Conversion Rate determined in accordance with the other provisions
of this Debenture without regard to this Section 4.F., and the Holder may
require the Company to immediately redeem the outstanding portion of this
Debenture in accordance with clause (y) of Section 6 hereof.
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<PAGE>
G. During the forty (40) trading day period commencing on the
Effective Date (as defined in the Registration Rights Agreement) and ending on
the thirty ninth (39th) trading day after the Effective Date (the "Post
Effective Trading Period"), the Holder hereby agrees that, if the average Market
Price of the Common Stock for a five (5) consecutive trading day period is less
than $3.50 per share (which amount shall be subject to adjustment pursuant to
the anti-dilution provisions contained in Section 10 hereof), it shall suspend
selling the Common Stock for a period of twenty (20) trading days immediately
after the first such occurrence. If during the Post Effective Trading Period
(but after the end of the first suspension period) the average Market Price of
the Common Stock for a five (5) consecutive trading day period is less than
$3.50 per share for a second time, the Holder agrees to suspend selling the
Common Stock for the remainder of the Post Effective Trading Period. If there
has been no suspension of selling the Common Stock during the Post Effective
Trading Period (pursuant to this Section 4.G.), the Holder hereby agrees that,
if the average Market Price of the Common Stock for a five (5) consecutive
trading day period is less than $3.50 per share (which amount shall be subject
to adjustment pursuant to the anti-dilution provisions contained in Section 10
hereof), it shall suspend selling the Common Stock for a period of twenty (20)
trading days immediately after the first such occurrence. If the average price
Market Price for the Common Stock for any five-(5) consecutive days thereafter
is less than $3.50 the Holder shall have no obligation to suspend selling Common
Stock.
5. On the condition that the Company is not then in default hereunder,
any portion of the principal balance and accrued interest of the Debentures not
previously converted as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind (except the delivery
of unrestricted Common Stock in connection with such conversion) by the Company
or any of its agents, employees or representatives, as of the Maturity Date at
the Conversion Rate applicable on the Maturity Date ("Mandatory Conversion"),
and the Company shall have no further obligation to repay the Debentures. If the
Company is in default hereunder, (i) there shall be no Mandatory Conversion,
(ii) Holder shall retain all of its rights set forth in Section 15 below, and
(iii) Holder may, in addition to its other rights, unilaterally extend the
Maturity Date by one (1) year by providing written notice to the Company on or
before the Maturity Date.
6. The Holder recognizes that the Company may be limited in the number
of shares of Common Stock it may issue by (i) reason of its authorized shares,
or (ii) the applicable rules and regulations of the principal securities market
on which the Common Stock is listed or traded (collectively, the"Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such Holder's Notice of Conversion relating to the
Unconverted Debenture at a conversion purchase price equal to the
average of the closing bid price per share of Common Stock for any five
(5) consecutive trading days (subject to the equitable adjustments for
certain events occurring during such period as provided in this
Debenture) during the sixty (60) trading days immediately preceding the
date of the Notice of Conversion; or
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<PAGE>
(y) require the Company to redeem each Unconverted Debenture
for an amount (the "Cap Redemption Amount"), payable in cash, equal to:
V x M
-----
CP
where:
"V" means the outstanding principal plus accrued interest
through the Cap Redemption Date (as defined below) of an Unconverted
Debenture;
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice from the
Holder electing this remedy; and
"M" means the highest closing ask price during the period
beginning on the Cap Redemption Date and ending on the date of payment
of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement, dated
March 16, 2000 (the "Securities Purchase Agreement"), between the Company and
the Holder (or the Holder's predecessor in interest), no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the coin or currency, herein prescribed. This
Debenture and all other Debentures now or hereafter issued of similar terms are
direct obligations of the Company.
8. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5 hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
9. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder's Debentures outstanding on the record date (the "Record Date") for
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<PAGE>
determining the amount and number of Spin Off Securities to be issued to
security holders of the Company (the "Outstanding Debentures") been converted as
of the close of business on the trading day immediately before the Record Date
(the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
conversion of all or any of the Outstanding Debentures, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by
(y) a fraction, of which (I) the numerator is the principal amount of the
Outstanding Debentures then being converted, and (II) the denominator is the
principal amount of the Outstanding Debentures.
10. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Base Price shall be equitably adjusted to reflect such action.
By way of illustration, and not in limitation, of the foregoing (i) if the
Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to
any conversion for which the Company issues the shares after the record date of
such split, the Base Price shall be deemed to be one-half of what it had been
calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such reverse split; and (iii) if the Company declares a stock dividend of one
share of Common Stock for every 10 shares outstanding, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such dividend, the Base Price shall be deemed to be the amount of such Base
Price calculated immediately prior to such record date multiplied by a fraction,
of which the numerator is the number of shares (10) for which a dividend share
will be issued and the denominator is such number of shares plus the dividend
share(s) issuable or issued thereon (11).
11. All payments contemplated hereby to be made "in cash" shall be made
in immediately available good funds in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. All payments of cash and each delivery of shares of
Common Stock issuable to the Holder as contemplated hereby shall be made to the
Holder at the address last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time; except that the Holder
can designate, by notice to the Company, a different delivery address for any
one or more specific payments or deliveries.
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture and all agreements entered into in connection
herewith shall be governed by and interpreted in accordance with the laws of the
State of California for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Any litigation based thereon, or arising out of, under, or in connection with,
this agreement or any course of conduct, course of dealing, statements (whether
oral or written) or actions of the Company or Holder shall be brought and
maintained exclusively in the state or Federal courts of the State of
California, sitting in the City of Los Angeles. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal Courts of the
State of California for the purpose of any such litigation as set forth above
and irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of California. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
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<PAGE>
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property, the Company hereby irrevocably waives such immunity in respect
of its obligations under this Agreement and the related agreements entered into
in connection herewith.
14. In the event that any action is taken by the Company or Holder in
connection with this Note, or any related document or matter, the losing party
in such legal action, in addition to such other damages as he or it may be
required to pay, shall pay reasonable attorneys' fees to the prevailing party.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture and same shall continue
for a period of three (3) days; or
b. Any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement,
the Registration Rights Agreement or in any
certificate or financial or other written statements
heretofore or hereafter furnished by the Company in
connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall
be false or misleading in any material respect at the
time made; or
c. The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when
required by this Debenture or the Registration Rights
Agreement, and such transfer is otherwise lawful, or
fails to remove any restrictive legend or to cause
its Transfer Agent to transfer on any certificate or
any shares of Common Stock issued to the Holder upon
conversion of this Debenture as and when required by
this Debenture, the Agreement or the Registration
Rights Agreement and such legend removal is otherwise
lawful, and any such failure shall continue uncured
for five (5) business days; or
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of this
Debenture and such failure shall continue uncured for
a period of ten (10) days after written notice from
the Holder of such failure; or
e. The Company shall fail to perform or observe, in any
material respect, any covenant, term, provision,
condition, agreement or obligation of the Company
under the Securities Purchase Agreement, the
Registration Rights Agreement, the Warrant and such
failure shall continue uncured for a period of ten
(10) days after written notice from the Holder of
such failure (other than a failure to cause the
Registration Statement to become effective no later
than the Required Effective Date, as defined and
provided in the Registration Rights Agreement, as to
which no such cure period shall apply); or
8
<PAGE>
f. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
g. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
h. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or
delisted from an exchange or the NASD OTC Bulletin
Board from trading for in excess of five (5) trading
days.
l. An Event of Default has occurred under the terms of
any other Debenture (in this series) issued pursuant
to the Securities Purchase Agreement.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, at its option,
consider this Debenture immediately due and payable in cash (and not by
conversion into Common Stock), without presentment, demand, protest or notice of
any kinds, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's rights and remedies
provided herein, or any other rights or remedies afforded by law.
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<PAGE>
16. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the Company
or the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, the ipso facto the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully collectible as interest, then such
amount (to the extent of such excess not returned to the Company) shall, without
further agreement or notice between or by the Company or the Holder, be deemed
applied to the payment of principal, if any, hereunder immediately upon receipt
of such excess funds by the Holder, with the same force and effect as though the
Company had specifically designated such sums to be so applied to principal and
the Holder had agreed to accept such sums as an interest-free prepayment of this
Debenture. If any part of such excess remains after the principal has been paid
in full, whether by the provisions of the preceding sentences of this Section 17
or otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand by
the Company. The provisions of this Section 17 shall control every other
provision of this Debenture.
18. Time is of the essence as to the performance of each and every
obligation of the Company and Holder pursuant to this Debenture.
19. A. On the conditions that the Company (i) is not in default under
this Debenture (and no event has occurred that would ripen into a default with
the passage of time), and (ii) has previously honored all prior Redemption
Notices, the Company may, at its option, repay, in whole or in part, the then
outstanding principal and interest balance of this Debenture on the date of the
Redemption Notice (after deducting the principal and interest subject to
outstanding Conversion Notices) at the Redemption Price (as defined below). This
Debenture is redeemable, in whole or in part, by the Company by providing
written notice (the "Redemption Notice") to the Holder via facsimile at its
address set forth herein (the Business Day between the hours of 6:30 a.m. and
3:00 p.m. Pacific Time the Redemption Notice is received by the Holder via
facsimile is defined to be the "Redemption Notice Date"). Within seven (7)
Trading Days after the Redemption Notice Date the Company shall make payment of
the Redemption Price (as defined below) in immediately available funds to the
Holder (such date of payment referred to as the "Redemption Date"). Partial
redemptions shall be in an aggregate principal amount of at least $400,000. The
Company shall redeem, pro-rata amongst the Holder and the holders of other
Debentures in the series (if any) based on then outstanding balance due under
the Debenture and the other Debentures in the series.
B. In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 125% of the outstanding principal and
interest balance of the Debenture, or (ii) the "Economic Benefit" of the
principal and interest of the Debenture which are the subject of such Redemption
Notice. "Economic Benefit" shall mean the dollar value derived if the principal
(and interest) which was the subject of the Redemption Notice was converted on
the Redemption Notice Date and sold on the Redemption Notice Date at the Closing
Bid Price of the Common Stock on the Redemption Notice Date.
C. The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price,(iii) a statement of
or reference to the conversion right set forth herein, and (iv) confirmation
that the Company has the full Redemption Price reserved as set forth in F.
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below. The notice shall specify the principal and interest balance hereof to be
redeemed. Within five Trading Days of the Redemption Notice Date, the Company
shall wire transfer the appropriate amount of funds to the Holder. If the
Company fails to comply with the redemption provisions set forth herein by the
sixth Trading Day after the Redemption Notice Date (or in the case of a public
offering as contemplated in F. below, by the sixth Trading Day after the
Redemption Notice Date) relating to the Redemption Notice, the redemption will
be declared null and void and the Company shall not be permitted to serve
another Redemption Notice. For the first five Trading Days after the Redemption
Notice Date, the Holder will retain its conversion rights with respect to a
maximum of twenty percent (20%) of the principal and interest amount subject to
the redemption. If the Holder elects to so convert the said principal and
interest after the receipt of the Redemption Notice, the Company must receive
notice of such election within two (2) business days from the time the
Redemption Notice was received by the Holder. In the event the Company has not
complied with the redemption provisions set forth herein the Company must comply
with the delivery requirements of any then outstanding Conversion Notice as set
forth herein. If the entire balance of interest and principal of this Debenture
is redeemed hereunder, the Holder shall deliver to the Company the original of
this Debenture within three (3) Business Days after it has received good funds
for the Redemption Price.
D. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event of any
stock dividend, stock split, combination of shares or similar event.
E. Intentionally Deleted.
F. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash,
available in a demand or other immediately available
account in a bank or similar financial institution,
specifically allotted for such redemption;
(b) immediately available credit facilities, in the full
amount of the Redemption Price with a bank or similar
financial institution specifically allotted for such
redemption; or
(c) a combination of the items set forth in (i) and (ii)
above, aggregating the full amount of the Redemption
Price.
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.
G. Upon its receipt of a Conversion Notice, the Company may, at its
option, repay that portion of the accrued interest of this Debenture which is
subject to such outstanding Conversion Notice, at the Redemption Price, provided
that the Company delivers to Holder a Redemption Notice with respect thereto
within two (2) business days after the date of the subject Conversion Notice. On
the Redemption Date, the Company shall make payment of the Redemption Price in
immediately available funds to the Holder.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: as of March 16, 2000
WASATCH INTERACTIVE LEARNING CORPORATION,
a Washington corporation
By:/s/__________________________________
Barbara Morris
President
-----------------------------------------
(Title)
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________
of the principal amount (and $________________ of accrued interest thereon) of
the above Debenture No. ___ into Shares of Common Stock of WASATCH INTERACTIVE
LEARNING CORPORATION (the "Company") according to the conditions hereof, as of
the date written below.
Conversion Date*
- -------------------------------------------------------------------
Applicable Conversion Price
- -------------------------------------------------------------------
Signature
- -------------------------------------------------------------------
[Name]
Address:
- -------------------------------------------------------------------
- -------------------------------------------------------------------
* This original Debenture must be received by the Company or its transfer agent
by the third business day following the Conversion Date.
13
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
COMMON STOCK PURCHASE WARRANT
1. Issuance. In consideration of good and valuable
consideration, the receipt of which is hereby acknowledged by Wasatch
Interactive Learning Corporation, a Washington corporation (the "Company"),
Brock Road, LLC, a Cayman Islands limited liability company, or registered
assigns (the "Holder") is hereby granted the right to purchase at any time until
5:00 P.M., Pacific Coast time, on March 16, 2005 (the "Expiration Date"), One
Hundred Ninety Six Thousand and Seventy Eight (196,078) fully paid and
nonassessable shares of the Company's Common Stock, no par value per share (the
"Common Stock") at an exercise price of $5.31 per share (the "Exercise Price")
subject to further adjustment as set forth in Section 6 hereof.
2. Exercise of Warrants. This Warrant is exercisable in whole
or in part for whole shares of the Company's Common Stock at the Exercise Price
per share of Common Stock payable hereunder, payable in cash or by certified or
official bank check. In lieu of paying cash to exercise this Warrant, the Holder
may, by designating a "cashless" exercise on the Notice of Exercise Form,
acquire a number of whole shares of the Company's Common Stock equal to (a) the
difference between (i) the Market Value of the Company's Common Stock and (ii)
the Exercise Price, multiplied by (b) the number of shares of Common Stock
purchasable under the portion of the Warrant tendered to the Company, divided by
(c) the Market Value of the Company's Common Stock. Upon surrender of this
Warrant Certificate with the annexed Notice of Exercise Form duly executed,
together with payment of the Exercise Price for the shares of Common Stock
purchased, the Holder shall be entitled to receive a certificate or certificates
for the shares of Common Stock so purchased. For the purposes of this Section 2,
"Market Value" shall be an amount equal to the average closing bid price of a
share of Common Stock for the five (5) business days immediately preceding the
Company's receipt of the Notice of Exercise Form duly executed.
3. Reservation of Shares. The Company hereby agrees that at
all times during the term of this Warrant there shall be reserved for issuance
upon exercise of this Warrant such number of shares of its Common Stock as shall
be required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company
of evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
5. Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
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6. Adjustments to Exercise Terms.
If the Company at any time prior to the full execution of this
Warrant shall, by subdivision, combination, merger, spin-off, re-classification
or like capital adjustment of the securities, change any of the securities to
which purchase rights under this Warrant exist into the same or different number
of securities of any class or classes, this Warrant shall thereafter entitle the
Holder to acquire such number and kind of securities as would have been issuable
as a result of such change with respect to the securities acquirable immediately
prior to such transaction. If shares of the securities acquirable upon exercise
of this Warrant are subdivided into a greater number of securities, including
any stock dividend, or if such securities are combined into a lesser number of
securities, then the purchase price for the securities acquirable upon exercise
of this Warrant and the securities acquirable pursuant to this Warrant shall be
proportionately and equitably adjusted.
7. Transfer to Comply with the Securities Act; Registration
Rights.
(a) This Warrant has not been registered under the Securities
Act of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act and applicable state securities laws relating to such
security, unless in the opinion of counsel satisfactory to the Company, such
registrations are not required under the Act. Each certificate for the Warrant,
the Warrant Shares and any other security issued or issuable upon exercise of
this Warrant shall contain a legend on the face thereof, in form and substance
satisfactory to counsel for the Company, setting forth the restrictions on
transfer contained in this Section.
(b) The Company agrees to file a registration statement, which
shall include the Warrant Shares, on Form SB-2 or another available form (the
"Registration Statement"), pursuant to the Act, pursuant to a Registration
Rights Agreement between the Company and Holder dated as of the date hereof (the
"Registration Rights Agreement").
8. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if the to Company, to:
Wasatch Interactive Learning Corporation
5250 South Commerce Drive, Suite 101
Salt Lake City, UT 84107
ATTN: CEO
Telephone No.: (801) 261-1001
Telecopier No.: (801) 269-1509
(ii) if to the Holder, to:
c/o Thomson Kernaghan & Co.
365 Bay Street, Suite 1000, 10th Fl.
Toronto, Ontario M5H 2V2
Telephone No.: (416) 860-4160
Telecopier No.: (416) 860-8313
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant
may be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant contains the full understanding of the parties
hereto with respect to the subject matter hereof and thereof and there are no
representations, warranties, agreements or understandings other than expressly
contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a
contract made under the laws of the State of California and for all purposes
shall be governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such State.
11. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 16th day of March, 2000.
Wasatch Interactive Learning Corporation,
a Washington corporation
By:/s/_________________________________
Name: Barbara Morris
Title:President
Attest:
/s/
- ------------------------
Name: Carol Loomis
Title: Vice President
3
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 16, 2000
(this "Agreement"), is made by and between Wasatch Interactive Learning
Corporation, a Washington corporation (the "Company"), and the each entity named
on the signature page hereto (individually referred to as the "Initial Investor"
and collectively referred to as the "Initial Investors").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of March 16, 2000, between the Initial
Investors and the Company (the "Securities Purchase Agreement"; capitalized
terms not otherwise defined herein shall have the meanings ascribed to them in
the Securities Purchase Agreement), the Company has agreed to issue and sell to
the Initial Investors a 7% Convertible Debenture, in the principal amount of
$4,000,000 (which may be issued to each individual Buyer in series) (the
"Debentures") which term, as used herein shall have the meaning ascribed to it
in the Securities Purchase Agreement); and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investors in connection with the issuance of the Debentures; and
WHEREAS, the Debentures are convertible into shares of Common
Stock (the "Conversion Shares") upon the terms and subject to the conditions set
forth therein; and
WHEREAS, the Warrants to be issued to the Initial Investors
may be exercised for the purchase of shares of Common Stock (the "Warrant
Shares") upon the terms and conditions of the Warrants; and
WHEREAS, to induce the Initial Investors to execute and
deliver the Securities Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the "Securities Act"), with respect to the Conversion Shares and
the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
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(a) "Investors" means the Initial Investors and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(b) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. Registration.
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(a) Mandatory Registration. The Company shall prepare and file
with the SEC, as soon as possible after the Closing Date, but no later than
thirty (30) days following the Closing Date, a Registration Statement on Form
SB-2, registering for resale by the Investors all of the Registrable Securities,
but in no event less than two hundred percent (200%) of the aggregate number of
shares into (i) which the Debentures would be convertible at the time of filing
of the Registration Statement (assuming for such purposes that the entire
principal and interest balance of all Debentures had been eligible to be
converted, and had been converted, into Conversion Shares in accordance with
their terms, whether or not such eligibility or conversion had in fact occurred
as of such date), and (ii) which would be issued upon exercise of all of the
Warrants at the time of filing of the Registration Statement (assuming for such
purposes that all such Warrants had been eligible to be exercised and had been
exercised in accordance with their terms, whether or not such eligibility or
exercise had in fact occurred as of such date). The Registration Statement shall
also state that, in accordance with Rule 416 and 457 under the Securities Act,
it also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Debentures and the exercise of the
Warrants (and the Existing Warrants) to prevent dilution resulting from stock
splits, or stock dividends. The Company will use its best efforts to cause the
Registration Statement to be declared effective no later than one hundred twenty
days (120) days after the Closing Date. If at any time the number of shares of
Common Stock into which the Debentures may be converted and which would be
issued upon exercise of the Warrants equals more than seventy five percent (75%)
of the aggregate number of shares of Common Stock then registered, the Company
shall, within ten (10) business days after receipt of a written notice from any
Investor, either (i) further amend the Registration Statement filed by the
Company pursuant to the preceding sentence, if such Registration Statement has
not been declared effective by the SEC at that time, to register 200% of the
aggregate of all shares of Common Stock into which the Debentures may then or in
the future be converted and which would be issued currently or in the future
upon exercise of the Warrants, or (ii) if such Registration Statement has been
declared effective by the SEC at that time, file with the SEC an additional
Registration Statement on Form SB-2, as may be appropriate, to register (A) 200%
of the aggregate shares of Common Stock into which the Debentures may then or in
the future be converted and which would be issued currently or in the future
upon exercise of the unexercised Warrants, less (B) the aggregate number of
shares of Common Stock already registered which have not been issued upon
conversions of the Debentures or the exercise of Warrants. The Registration
Statement shall not include any shares other than the Registrable Securities,
and certain other shares that the Company is obligated to Register as set forth
in Schedule 5(b), without the consent of the Investors.
(b) Payments by the Company.
(i) If the Registration Statement covering the Registrable
Securities is not filed with the SEC on or before thirty (30) days after the
Closing Date (the "Required Filing Date"), then the Company shall pay each
Investor a late filing penalty (collectively "Late Filing Penalties"), (i) on
the first day after the Required Filing Date, an amount equal to two percent
(2%) of the original purchase price paid pursuant to the Securities Purchase
Agreement (the "Purchase Price") for the Debentures, and (ii) on each subsequent
monthly anniversary of the Required Filing Date, if the Registration Statement
has not been filed in proper form on or before such date, an amount equal to
three percent (3%) of the Purchase Price for the Debentures.
(ii) If the Registration Statement covering the Registrable
Securities is not effective within the earlier of (a) five (5) days after notice
by the SEC that it may be declared effective (including the issuance by the SEC
of a "no review letter"), or (b) one hundred twenty (120) days following the
Closing Date (the "Required Effective Date"), then the Company shall pay each
Investor a late effective date penalty (collectively "Late Effective Date
Penalties")(sometimes Late Filing Penalties and Late Effective Penalties are
3
<PAGE>
collectively referred to as "Late Penalties"), (i) on the first day after the
Required Effective Date, an amount equal to two percent (2%) of the Purchase
Price for the Debentures and (ii) on each subsequent monthly anniversary of the
Required Effective Date, if the Registration Statement has not been declared
effective on or before such date, an amount equal to three percent (3%) of the
Purchase Price for the Debentures.
(iii) By way of illustration and not in limitation of the
foregoing, assuming a Closing Date of February 3, 2000 (X) if the Registration
Statement is timely filed but is not declared effective until July 15, 2000
(assuming for the purpose of this example that the SEC has not previously
provided notice that it may be declared effective), the aggregate Late Effective
Date Penalty will equal 5% percent of the Purchase Price (2% on June 4, the
120th day after the Closing Date, plus 3% on July 2) or (Y) if the Registration
is filed on April 9 and is not declared effective until June 15, 2000 (assuming
for the purpose of this example that the SEC has not previously provided notice
that it may be declared effective), the aggregate Late Filing Penalty will equal
8% of the Purchase Price (2% on March 5, the 30th day after the Closing Date,
plus 3% on April 4 and May 4) and the aggregate Late Effective Date Penalty will
equal 2% percent of the Purchase Price (2% on June 4, the 120th day after the
Closing Date).
(iv) Additionally, if the Registration Statement is not filed
within seventy five (75) days from the Closing Date, each Investor may, at its
option, require the Company to redeem the Debentures in full, within three (3)
days, in cash, in accordance with Section 6 of the Debenture.
(v) Late Penalties will be payable to the Investor by the
Company in cash or other immediately available funds on the date such Late
Penalty is incurred.
(vi) The parties acknowledge that the damages which may be
incurred by the Investors if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by the Required Registration Date may be difficult to ascertain. The
parties agree that the Late Penalties represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages. The payment of the Late Penalties to the Investors shall not limit the
Investors' other rights and remedies hereunder or under any other document
entered into in connection herewith.
(vii) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Investors or their counsel
if the Company timely forwards to counsel any required documents or in the event
all of the Registrable Securities may be sold pursuant to Rule 144 or another
available exemption under the Act.
3. Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
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<PAGE>
(a) Prepare promptly, and file with the SEC by the Required
Filing Date, the Registration Statement with respect to not less than the number
of Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause each Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two (2) years after the Closing
Date, (ii) the date when the Investors may sell all Registrable Securities under
Rule 144 or (iii) the date the Investors no longer own any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm or counsel
designated by the Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects.
(d) Notify the Investors, their counsel and managing
underwriters, if any, immediately (and, in the case of (i)(A) below, not less
than five (5) days prior to such filing) and (if requested by any such Person)
confirm such notice in writing no later than one (1) Business Day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) whenever
the Commission notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or representatives of
the Company receive on its behalf) any oral or written comments from the
Commission in respect of a Registration Statement (copies or, in the case of
oral comments, summaries of such comments shall be promptly furnished by the
Company to the Investors); and (D) with respect to the Registration Statement or
any post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
5
<PAGE>
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) Business Day in advance of the
filing of such responses with the Commission so that the Investors shall have
the opportunity to comment thereon.
(e) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one (1) copy of the Registration
Statement, each preliminary prospectus and prospectus, and each amendment or
supplement thereto, and (ii) such number of copies of a prospectus, and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(f) As promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of a Notice of Effectiveness or any notice of effectiveness
or any stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to a
Potential Material Event until such Investor receives written notice from the
Company that such Potential Material Event either has been disclosed to the
public or no longer constitutes a Potential Material Event; provided, however,
that the Company may not so suspend the right to such holders of Registrable
Securities for more than two twenty (20) day periods in the aggregate during any
12-month period ("Suspension Period") with at least a ten (10) business day
interval between such periods, during the periods the Registration Statement is
required to be in effect;
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<PAGE>
(i) Use its reasonable efforts to secure or maintain, as
applicable, NASD OTC Bulletin Board authorization and quotation for such
Registrable Securities and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(j) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(k) Cooperate with the Investors who hold Registrable
Securities (or, subject to receipt by the Company of appropriate notice and
documentation, as may be required by the Securities Purchase Agreement, the
Debentures, the Warrants or this Agreement, securities convertible into
Registrable Securities) being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be offered pursuant
to the Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request, and, within five (5) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the transfer agent for the Registrable
Securities (with copies to the Investors whose Registrable Securities or
securities convertible into Registrable Securities are included in such
Registration Statement) an appropriate instruction and opinion of such counsel;
provided, however, that nothing in this subparagraph (j) shall be deemed to
waive any of the provisions regarding the conditions or method of conversion of
The Debentures or exercise of Warrants into Registrable Securities; and
(l) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the
registration of the Registrable Securities, each Investor shall have the
following obligations:
(a) As a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor, such Investor shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of the Registrable Securities held
by it, as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days prior
to the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor (the "Requested Information") if such Investor elects to have any
of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
7
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(b) To cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(e) or 3(f), above,
such Investor shall immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
5. Expenses of Registration. (a) All reasonable expenses
(other than underwriting discounts and commissions of each Investor and legal
fees of counsel to each Investor) incurred in connection with registrations,
filings or qualifications pursuant to Section 3, including, without limitation,
all registration, listing, and qualifications fees, printers and accounting
fees, the fees and disbursements of counsel for the Company, and a fee for a
single counsel for the Investors not exceeding $3,500, shall be borne by the
Company.
(b) Except as and to the extent specifically set forth in
Schedule 5(b) attached hereto, neither the Company nor any of its subsidiaries
has, as of the date hereof, nor shall the Company nor any of its subsidiaries,
on or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Investors
herein or otherwise conflicts with the provisions hereof. Except as and to the
extent specifically set forth in Schedule 5(b) attached hereto, neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
person or entity. Without limiting the generality of the foregoing, without the
written consent of the Investors of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any person the right to
request the Company to register any securities of the Company under the
Securities Act unless the rights so granted are subject in all respects to the
prior rights in full of the Investors set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
6. Indemnification. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
8
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(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (each, an "Indemnified Person" or "Indemnified Party"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective amendment
thereof, or any prospectus included therein: (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
any post-effective amendment thereof or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements made therein, in
light of the circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law (the matters in the foregoing clauses (i) through (iii) being, collectively,
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investors, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (I) apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made available
by the Company; or (III) apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Each Investor will indemnify
the Company and its officers, directors and agents against any claims arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
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(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any reasonable legal or other reasonable
out-of-pocket expenses subsequently incurred by such Indemnified Person or
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action of its final conclusion. The Indemnified Person or Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and reasonable out-of-pocket
expenses of such counsel shall not be at the expense of the indemnifying party
if the indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the Indemnified Person or Indemnified Party. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in its
ability to defend such action. The indemnification required by this Section 6
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
7. Contribution. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. Reports under Exchange Act. With a view to making available
to the Investors the benefits of Rule 144 promulgated under the Securities Act
or any other similar rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
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(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. Assignment of the Registration Rights. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by an Investor to any transferee of the Registrable
Securities (or all or any portion of any Debentures of the Company which is
convertible into such securities) permitted or allowable by the terms of the
Securities Purchase Agreement only if: (a) such Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment, (b)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with or in favor of the Company to be bound by all of the provisions
contained herein, a copy of which shall be provided to the Company. The copies
referred to in clauses (a) and (d) of the immediately preceding sentence may be
redacted to delete certain financial and other details of the transaction
between the Investor and its transferee if the same is included in the document
to be provided to the Company. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
10. Amendment of Registration Rights. Any provision of each
such Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold collectively eighty (80%) percent of the Debentures. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. Miscellaneous.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
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(b) Any notice or communication required or permitted by this
Agreement shall be given in writing addressed as follows:
If to Company: Wasatch Interactive Learning Corporation
5250 South Commerce Drive, Suite 101
Salt Lake City, UT 84107
ATTN: CEO
Telephone No.: (801) 261-1001
Telecopier No.: (801) 269-1509
with a copy to:
Snow, Becker Krauss P.C.
605 Third Avenue
New York, New York 10158-0125
Attention: Elliot H. Lutzker, Esq.
Telephone: (212) 687-3860
Facsimile: (212) 949-7052
If to Investors: c/o Thomson Kernaghan & Co.
365 Bay Street, Suite 1000, 10th Fl.
Toronto, Ontario M5H 2V2
Telephone No.: (416) 860-4160
Telecopier No.: (416) 860-8313
with a copy to: Michael S. Rosenblum, Esq.
Law Offices of Michael S. Rosenblum
1875 Century Park East, Suite 700
Los Angeles, California 90067
All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Any litigation based thereon, or arising out of,
under, or in connection with, this agreement or any course of conduct, course of
dealing, statements (whether oral or written) or actions of the Company or
Purchaser shall be brought and maintained exclusively in the state or Federal
courts of the State of California, sitting in the City of Los Angeles. The
Company hereby expressly and irrevocably submits to the jurisdiction of the
state and federal Courts of the State of California for the purpose of any such
litigation as set forth above and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with such litigation. The Company
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of
California. The Company hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
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to above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the Company
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement and the related agreements entered into in connection herewith.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(j) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement, the Securities Purchase Agreement and the
other documents referenced therein constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement may be amended only by an instrument in writing signed by
the party to be charged with enforcement thereof.
(l) Any default by an individual Investor hereunder or any
related agreement, including, without limitation, the Securities Purchase
Agreement, shall not be deemed a default by any other Investor and shall not
excuse the Company's performance hereunder or thereunder with respect to the
non-defaulting Investors.
(m) In the event of any action for breach of or to enforce or
declare rights under any provision of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and costs, to be paid by the losing
party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
Wasatch Interactive Learning Corporation,
a Washington corporation
By:/s/
-----------------------------------
Name: Barbara Morris
Title: President
Brock Road, LLC, a Cayman Islands
limited liability company
By:/s/
-----------------------------------
Navigator Management, LTD, Director
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