WordCruncher Internet Technologies, Inc.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
February 8, 1999
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT, dated as of February 8,
1999 (the "Agreement"), between the entities listed on Schedule A attached
hereto (collectively referred to as the "Investors"), and WORDCRUNCHER
INTERNET TECHNOLOGIES, INC. (OTC Bulletin Board symbol "WCTI"), a corporation
organized and existing under the laws of the State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the
Investors, and the Investors shall purchase up to an aggregate principal
amount of $15,000,000 of Preferred Stock (as defined below) pursuant to the
terms set forth herein and Warrants (as defined below) to purchase Warrant
Shares (as defined below) in two separate tranches; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended, and the regulations promulgated
thereunder (the "Securities Act"), and/or upon such other exemption from the
registration requirements of the Securities Act as may be available with
respect to any or all of the investments in Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
Section 1.1 "Additional Shares" shall have that meaning set forth in
Section 2.5 below.
Section 1.2 "Bid Price" shall mean the closing bid price (as reported
by Bloomberg L.P.) of the Common Stock on the Principal Market.
Section 1.3 "Business Day" means any day except Saturday, Sunday and
any day which shall be a Federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or
other government actions to close.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
of any other class of Common Stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.5 "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for, or
giving any right to, subscribe for any Capital Shares of the Company or any
warrants, options or other rights to subscribe for or purchase Capital Shares
or any such convertible or exchangeable securities.
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Section 1.6 "Certificate of Designation" shall mean the Company's
Certificate of Designation setting forth all of the rights, privileges and
preferences of the Preferred Stock, as annexed hereto as Exhibit A.
Section 1.7 "Closing" shall mean one of the closings of the purchase
and sale of the Preferred Stock and Warrants pursuant to Article II below.
Section 1.8 "Closing Date" shall mean the date of the closing(s) of the
purchase and sale of the Preferred Stock and Warrants pursuant to Article II
below.
Section 1.9 "Common Stock" shall mean the Company's common stock,
$0.001 par value per share.
Section 1.10 "Company Documents" shall mean the Company's Issuer
Information Statement Pursuant to SEC Rule 15c2-11 dated August 1, 1998.
Section 1.11 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses which shall include, but not be limited to, reasonable
attorney's fees, disbursements, costs and expenses of expert witnesses and
investigation.
Section 1.12 "Effective Date" shall mean the date on which the SEC
first declares effective the Registration Statement.
Section 1.13 "Escrow Agent" shall mean the law firm of The Goldstein
Law Group, P.C., pursuant to the terms of the Escrow Agreement attached as
Exhibit B.
Section 1.14 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.15 "First Tranche Purchase Price" shall mean up to
$10,000,000.
Section 1.16 "Initial Shares" shall mean the shares of Preferred Stock
issuable upon a Closing of the First Tranche as contained in Section 2.7
below.
Section 1.17 "Legend" shall have the meaning set forth in Article
VIII below.
Section 1.18 "Material Adverse Effect" shall mean any effect on the
business, operations, properties, earnings, prospects, Bid Price, trading
volume of the Common Stock, or financial condition of the Company that is
material and adverse to the Company and its subsidiaries and affiliates, taken
as a whole, and/or any condition, circumstance, or situation that would
prohibit or otherwise in any material respect interfere with the ability of
the Company to enter into and perform any of its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, or the
Warrants in any material respect.
Section 1.19 "NASD" shall mean the National Association of Securities
Dealers, Inc.
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Section 1.20 "Outstanding" when used with reference to shares of
Common Stock, or Capital Shares (collectively the "Shares"), shall mean, at
any date as of which the number of such Shares is to be determined, all issued
and outstanding Shares, and shall include all such Shares issuable in respect
of outstanding scrip or any certificates representing fractional interests in
such Shares; provided, however, that Outstanding shall not mean any such
Shares then directly or indirectly owned or held by or for the account of the
Company.
Section 1.21 "Person" shall mean an individual, a corporation, a
partnership, an association, a limited liability company, a trust or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
Section 1.22 "Preferred Stock" shall mean the Company's Series A
Preferred Stock with the rights, privileges and preferences, as set forth in
the Certificate of Designation.
Section 1.23 "Principal Market" shall mean the OTC Bulletin Board,
Nasdaq National Market, the Nasdaq Small Cap Stock Market, the American Stock
Exchange, or the New York Stock Exchange, whichever is at the time the
principal trading exchange or market for the Common Stock.
Section 1.24 "Purchase Price" shall mean collectively the First
Tranche Purchase Price, and the Second Tranche Purchase Price.
Section 1.25 "Registrable Securities" shall have the definition set
forth in the Registration Rights Agreement.
Section 1.26 "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company, and the Investors on
the Subscription Date annexed hereto as Exhibit C.
Section 1.27 "Registration Statement" shall mean a registration
statement on Form SB-2, for the registration of the resale by the Investors of
the Registrable Securities under the Securities Act.
Section 1.28 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.29 "Reset Period" shall have the meaning set forth in the
Certificate of Designation.
Section 1.30 "Reset Price" shall have the meaning set forth in the
Certificate of Designation..
Section 1.31 "Reset Shares" shall have the meaning set forth in the
Certificate of Designation.
Section 1.32 "SEC" shall mean the Securities and Exchange Commission.
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Section 1.33 "Second Tranche Purchase Price" shall mean that dollar
amount set forth in the option notice for the Secondary Shares which shall be
a minimum of $2,000,000 and a maximum of $5,000,000.
Section 1.34 "Secondary Shares" shall mean the shares of Preferred
Stock issuable upon the Closing of the Second Tranche as contained in Section
2.7 below.
Section 1.35 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.36 "Securities" shall mean the Initial Shares, Secondary
Shares, Additional Shares, Underlying Shares, and Warrant Shares.
Section 1.37 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.38 "Subscription Date" shall mean the date on which this
Agreement and all Exhibits and attachments hereto, are executed and delivered
by the parties hereto and all of the conditions relating to the issuance of
the Initial Shares and Warrants shall have been fulfilled.
Section 1.39 "Trading Day" shall mean any day during which the New
York Stock Exchange shall be open for business.
Section 1.40 "Underlying Shares" shall mean all shares of Common Stock
or other securities issued or issuable pursuant to conversion of the Preferred
Stock.
Section 1.41 "Warrant A" shall mean the Common Stock Purchase Warrant
A annexed hereto as Exhibit D.
Section 1.42 "Warrant B" shall mean the Common Stock Purchase Warrant
B annexed hereto as Exhibit E.
Section 1.43 "Warrant C" shall mean the Common Stock Purchase Warrant
C annexed hereto as Exhibit F.
Section 1.44 "Warrants" shall mean collectively the Warrant A, the
Warrant B, and the Warrant C.
Section 1.45 "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to the exercise of the Warrants.
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ARTICLE II
Purchase and Sale of the Preferred Stock and Warrants
Section 2.1 Closings. The Company will sell, and the Investors will
buy, on the Closing Dates of the two tranches as set forth in Section 2.7
below, an aggregate of up to $15,000,000 principal amount of Preferred Stock,
and shall acquire Warrants to purchase that number of Warrant Shares as set
forth in Section 2.4 below in exchange for the Purchase Price, provided each
of the conditions set forth in Section 2.7 below have been satisfied or waived
in writing.
Section 2.2 Form of Payment. The Investors shall pay the Purchase
Price by delivering good funds in United States Dollars by wire transfer to
the Escrow Agent, against delivery of the original shares of Preferred Stock
and Warrants. The parties have entered into an Escrow Agreement annexed
hereto as Exhibit B.
Section 2.3 Wire Instructions. Wire instructions for the Escrow
Agent are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York
Account No. 920-1-073195
In favor of:
The Goldstein Law Group, P.C. Attorney Escrow Account
Account No. 59-01405
Section 2.4 Warrants. On each Closing Date for the First Tranche,
the Company will issue to the Investors (pro rata based upon each Investor's
investment amount) (i) Warrant A's exercisable beginning on the applicable
Closing Date and then exercisable any time over the five year period
thereafter, to purchase an aggregate of that number of Warrant Shares at the
Exercise Price contained in the Warrant A equal to the sum of: (the First
Tranche Purchase Price divided by the Bid Price on the Trading Day immediately
preceding the applicable Closing Date for the First Tranche) multiplied by .3,
and (ii) Warrant B's exercisable beginning on the applicable Closing Date and
then exercisable any time
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over the five year period thereafter, to purchase an aggregate of that number
of Warrant Shares at the Exercise Price contained in the Warrant B equal to
the sum of: (the First Tranche Purchase Price divided by the Bid Price on the
Trading Day immediately preceding the applicable Closing Date for the First
Tranche) multiplied by .2. On the Closing Date for the Second Tranche, the
Company will issue to the Investors (pro rata based upon each Investor's
investment amount) (i) Warrant A's exercisable beginning on the Closing Date
for the Second Tranche and then exercisable any time over the five year period
thereafter, to purchase that number of Warrant Shares at the Exercise Price
contained in the Warrant A, equal to the sum of: (the Second Tranche Purchase
Price divided by the Bid Price on the Trading Day immediately preceding the
Closing Date for the Second Tranche) multiplied by .3, and (ii) Warrant B's
exercisable beginning on the Closing Date for the Second Tranche and then
exercisable any time over the five year period thereafter, to purchase that
number of Warrant Shares at the Exercise Price contained in the Warrant B,
equal to the sum of: (the Second Tranche Purchase Price divided by the Bid
Price on the Trading Day immediately preceding the Closing Date for the Second
Tranche) multiplied by .2. The Warrants shall be delivered by the Company to
the Escrow Agent, and delivered to the Investors pursuant to the terms of this
Agreement and the Escrow Agreement. The Warrant Shares shall be registered
for resale pursuant to the Registration Rights Agreement.
Section 2.5 Additional Shares. In the event that a "blackout period"
occurs which is defined as any period in which the effectiveness of the
Registration Statement is suspended for any reason whatsoever, and (b) the Bid
Price on the Trading Day immediately preceding such "blackout period" (the
"Old Bid Price") is greater than the Bid Price on the first Trading Day
following such "blackout period" (the "New Bid Price"), the Company shall
issue to the Investors the number of additional shares equal to the difference
between (y) the product of the number of Securities held by the Investors
during such "blackout period" that are or were not otherwise freely tradeable
and the Old Bid Price, divided by the New Bid Price and (z) the number of
Securities held by the Investors during such "blackout period" that were not
otherwise freely tradeable during such Blackout Period. In the event the
Company is obligated to issue these shares of Common Stock but such Investor
then owns more than five percent of the then outstanding shares of Common
Stock, the Company will issue such shares at such time as such Investor owns
less than five percent of the then outstanding shares of Common Stock.
Section 2.6 Liquidated Damages. In addition to any other provisions
for liquidated damages in this Agreement or any Exhibit annexed hereto, in the
event that the Company does not deliver unlegended Common Stock in connection
with the sale of such Common Stock by the Investor(s) as set forth in Article
VIII below within six Business Days of surrender by the Investor(s) of the
Common Stock certificate in accordance with the terms and conditions set forth
in Article VIII below (such date of receipt is referred to as the "Receipt
Date"), the Company shall pay to the Investor(s), in immediately available
funds, upon demand, as liquidated damages for such failure and not as a
penalty, one half of one percent of the value of the Common Stock undelivered
(based upon the Bid Price on the Receipt Date) for every day thereafter
through the tenth Business Day late, and one percent for every day thereafter
that the unlegended shares of Common Stock are not delivered, which liquidated
damages shall run from the seventh Business Day after the Receipt Date. The
parties hereto acknowledge and agree that the sum payable pursuant to the
Registration Rights Agreement and as set forth above, and the obligation to
issue Registrable Securities, shall constitute liquidated damages and not
penalties. The parties further acknowledge that the amount of loss or damages
likely to be incurred is incapable or is difficult to precisely estimate, and
the parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this
Agreement at arm's length. Any and all payments required pursuant to this
paragraph shall be payable only in cash, and any payment hereunder shall not
relieve the Company of its delivery obligations under this Section.
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Section 2.7 Closings. The Company agrees to sell and the Investors
agree to purchase up to an aggregate of $15,000,000 principal amount of
Preferred Stock and Warrants in two separate tranches of up to $10,000,000,
and up to $5,000,000, as is more fully set forth in (a) and (b) below. The
number of shares of Preferred Stock issuable upon the Closing(s) of each
tranche shall be determined by dividing the applicable Purchase Price by the
Stated Value of each share of Preferred Stock as defined in the Certificate of
Designation (the "Issuance Price").
(a) First Tranche. On each Closing Date for the First Tranche,
the Company will sell and the Investors will buy (in the amounts set forth on
Schedule A), in reliance upon the representations and warranties contained in
this Agreement, and upon the terms and satisfaction of each of the conditions
set forth below, that number of Initial Shares derived from dividing the First
Tranche Purchase Price by the Stated Value (as defined in the Certificate of
Designation), Warrant A's to purchase that number of Warrant Shares as set
forth in Section 2.4 above, and), Warrant B's to purchase that number of
Warrant Shares as set forth in Section 2.4 above. The conditions precedent to
each Closing of the First Tranche are as follows:
(i) Acceptance by each of the Investors of this Purchase
Agreement and due execution by all parties of this Agreement and the Exhibits
annexed hereto;
(ii) Delivery into escrow by the Company of the original
Initial Shares, original Warrant A's, and original Warrant B's as more fully
set forth in the Escrow Agreement attached hereto;
(iii) Delivery into escrow by the Investors of the Purchase
Price as set forth in the Escrow Agreement annexed hereto;
(iv) All representations, covenants, and warranties of the
Company contained herein shall remain true and correct in all material
respects as of the applicable Closing Date for the First Tranche;
(v) Each of the Investors shall have received an opinion of
counsel substantially in the form of Exhibit G annexed hereto dated as of the
applicable Closing Date for the First Tranche and the Instruction Letter to
the Transfer Agent annexed hereto as Exhibit H;
(vi) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Initial
Shares, Warrant A's, and Warrant B's (which permits and qualifications shall
remain in full force and effect as of the applicable Closing Date for the
First Tranche), or shall have the availability of exemptions therefrom. At
each Closing Date for the First Tranche, the sale and issuance of the Initial
Shares, Warrant A's, and Warrant B's shall be legally permitted by all laws
and regulations to which the Company and each of the Investors are subject;
and
(vii) Written proof that the Certificate of Designation has
been filed with the Secretary of State of the State of Nevada, and remains in
full effect as of each Closing Date for the First Tranche.
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(b) Second Tranche. At any time after 30 days after the
Effective Date (but in no event later than 90 days after the Effective Date)
at the Company's option (which must be in the form of written notice to the
Investors at least five Business Days prior to the Closing of the Second
Tranche setting forth the dollar amount which shall be a minimum of $2,000,000
and a maximum of $5,000,000) the Company will sell and the Investors will buy,
in reliance upon the terms, representations and warranties contained in this
Agreement, and upon the satisfaction of each of the conditions set forth
below, that number of Secondary Shares derived from dividing the dollar amount
set forth in the aforementioned option notice by the Stated Value (as defined
in the Certificate of Designation) (pro rata amongst the Investors based upon
each Investor's portion of the First Tranche Purchase Price), Warrant A's to
purchase that number of Warrant Shares equal to the sum of: (the Second
Tranche Purchase Price divided by the Bid Price on the Trading Day immediately
preceding the Closing Date for the Second Tranche) multiplied by .3, and
Warrant B's to purchase that number of Warrant Shares equal to the sum of:
(the Purchase Price divided by the Bid Price on the Trading Day immediately
preceding the Closing Date for the Second Tranche) multiplied by .2. The
conditions precedent to the Closing of the Second Tranche are as follows:
(i) Delivery into escrow by the Company of the original
Secondary Shares, Warrant A's, and Warrant B's, as more fully set forth in the
Escrow Agreement attached hereto;
(ii) Each of the Investors shall have received an opinion of
counsel of the Company as set forth in Exhibit F annexed to this Agreement,
dated on the Closing Date for the Second Tranche and the Instruction Letter to
the Transfer Agent shall remain in full force and effect;
(iii) Delivery into escrow by the Investors of the Purchase
Price as set forth in the Escrow Agreement annexed hereto;
(iv) The Registration Statement (which includes at least 200%
of the Initial Shares, 200% of the Secondary Shares, and 100% of the Warrant
Shares) has previously become effective and remains effective for at least 30
calendar days and during the ten (10) Trading Days immediately prior to the
Company's notice for the Second Tranche and the Closing Date for the Second
Tranche, and (A) neither the Company nor any of the Investors shall have
received notice that the SEC has issued or intends to issue a stop order with
respect to the Registration Statement or that the SEC otherwise has suspended
or withdrawn the effectiveness of the Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
SEC's concerns have been addressed and the Investors are reasonably satisfied
that the SEC no
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longer is considering or intends to take such action), and (B) no other
suspension of the use or withdrawal of the effectiveness of the Registration
Statement or related prospectus shall exist;
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the Secondary
Shares, Warrant A's, and Warrant B's, or shall have the availability of
exemptions therefrom (which permits and qualifications shall remain in full
force and effect as of the Closing Date for the Second Tranche). The sale and
issuance of the Secondary Shares shall be legally permitted by all laws and
regulations to which the Company is subject;
(vi) The Investors shall have received written certification
that the representations, covenants, and warranties of the Company contained
in this Agreement and all Exhibits annexed hereto are true and correct in all
material respects as of the Closing Date for the Second Tranche as though made
at each such time (except for representations and warranties specifically made
as of a particular date) with respect to all periods, and as to all events and
circumstances occurring or existing to and including the Closing Date for the
Second Tranche;
(vii) The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and
conditions required by this Agreement, the Certificate of Designation, the
Escrow Agreement, the Registration Rights Agreement and the Warrants, to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date for the Second Tranche;
(viii) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction that
prohibits or directly and adversely affects any of the transactions
contemplated by this Agreement or the Exhibits annexed hereto, and no
proceeding shall have been commenced that may have the effect of prohibiting
or adversely affecting any of the transactions contemplated by this Agreement
or the Exhibits annexed hereto;
(ix) The trading of the Common Stock is not suspended by the
SEC or the Principal Market, the Common Stock shall not have been delisted
from the OTC Bulletin Board, and the Company currently meets all applicable
listing requirements of the Principal Market;
(x) No change of control in the Company shall have occurred.
Change of Control shall mean the occurrence of any of (a) an acquisition after
the Subscription Date by a Person of in excess of 50% of the voting securities
of the Company, (b) a replacement of more than one half of the board of
directors in place as of the Subscription Date which is not approved by those
individuals who are members of the board of directors on the Subscription Date
in one or a series of transactions, (c) the merger of the Company with, or
into another entity, consolidation or sale of all or substantially all of the
assets of the
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Company in one or a series of related transactions, or (d) the execution by
the Company of an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth in (a), (b) or (c) herein;
(xi) The average Bid Price for the 20 consecutive Trading
Days immediately preceding the notice by the Company of its intention to
proceed with the Second Tranche and the 20 Trading Days immediately preceding
the Closing Date for the Second Tranche shall be greater than $10;
(xii) The average daily trading volume for the Common Stock
as reported by Bloomberg, LP for the 20 Trading Days immediately preceding the
Company's notice for the Second Tranche and for the 20 Trading Days
immediately preceding the Closing for the Second Tranche shall be a minimum of
150,000;
(xiii) Since the first Closing Date for the First Tranche no
Material Adverse Effect shall have occurred;
(xiv) As a result of the Closing of the Second Tranche none
of the Investor's would own or be deemed beneficially deemed to own, more than
4.99% of the outstanding shares of Common Stock. If any Investor would own,
or be deemed beneficially deemed to own, more than 4.99% of the outstanding
shares of Common Stock as a result of the Closing of the Second Tranche, such
Investor shall not be obligated to participate in the Second Tranche; and
(xv) Written proof that the Certificate of Designation is
filed with the Secretary of State of the State of Nevada and remains in full
effect as of the Closing of the Secondary Shares.
Notwithstanding the foregoing, the Investors will not be obligated to purchase
the Secondary Shares in the event the Registration Statement has not been
declared effective by the SEC prior to nine months after the first Closing
Date for the First Tranche.
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ARTICLE III
Representations and Warranties of the Investors
Each of the Investors represents and warrants to the Company that:
Section 3.1 Intent. Each of the Investors is entering into this
Agreement for its own account and has no present arrangement (whether or not
legally binding) at any time to sell the Common Stock to, or through any
person or entity; provided, however, that by making the representations
herein, the Investors do not agree to hold the Common Stock for any minimum or
other specific term and reserves the right to dispose of the Common Stock at
any time in accordance with federal and state securities laws applicable to
such disposition.
Section 3.2 Sophisticated Investors. Each of the Investors is a
sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D)
and an accredited investor (as defined in Rule 501 of Regulation D), and each
of the Investors has such experience in business and financial matters that it
is capable of evaluating the merits and risks of an investment in the Initial
Shares, Secondary Shares, Reset Shares, Additional Shares, and Warrants. Each
of the Investors acknowledges that an investment in the Common Stock is
speculative and involves a high degree of risk.
Section 3.3 Authority. This Agreement has been duly authorized and
validly executed and delivered by each of the Investors and is a valid and
binding agreement of the Investors enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application.
Section 3.4 Not an Affiliate. None of the Investors is an officer,
director or "affiliate" (as that term is defined in Rule 405 of the Securities
Act) of the Company.
Section 3.5 Organization and Standing. Each of the Investors is
duly organized, validly existing, and in good standing under the laws of the
countries and/or states of their incorporation or organization.
Section 3.6 Absence of Conflicts. The execution and delivery of
this Agreement and any other document or instrument executed in connection
herewith, and the consummation of the transactions contemplated thereby, and
compliance with the requirements thereof, will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on
Investors, or, to the Investors knowledge, (a) violate any provision of any
indenture, instrument or agreement to which any of the Investors are a party
or are subject, or by which any of the Investors or any of their assets is
bound; (b) conflict with or constitute a material default thereunder; (c)
result in the creation or imposition of any lien pursuant to the terms of any
such indenture, instrument or agreement, or constitute a breach of any
fiduciary duty owed by Investors to any third party; or (d) require the
approval of any third-party (which has not been
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obtained) pursuant to any material contract, agreement, instrument,
relationship or legal obligation to which any of the Investors is subject or
to which any of their assets, operations or management may be subject.
Section 3.7 Disclosure; Access to Information. Each of the
Investors has received all documents, records, books and other information
pertaining to Investors investment in the Company that have been requested by
Investors, including the opportunity to ask questions and receive answers.
Each of the Investors has reviewed or received copies of any such reports that
have been requested by it. Each of the Investors represents that it has
reviewed the Company Reports.
Section 3.8 Manner of Sale. At no time were any of the Investors
presented with or solicited by or through any leaflet, public promotional
meeting, television advertisement or any other form of general solicitation or
advertising.
Section 3.9 Registration or Exemption Requirements. Each of the
Investors further acknowledges and understands that the Securities may not be
transferred, resold or otherwise disposed of except in a transaction
registered under the Securities Act and any applicable state securities laws,
or unless an exemption from such registration is available. Each of the
Investors understands that the certificate(s) evidencing the Initial Shares,
Secondary Shares, Reset Shares, Additional Shares, and Warrants will be
imprinted with a legend that prohibits the transfer of these securities unless
(i) they are registered or such registration is not required, or (ii) if the
transfer is pursuant to an exemption from registration (with no limitations).
Section 3.10 No Legal, Tax or Investment Advice. Each of the
Investors understands that nothing in this Agreement or any other materials
presented to the Investors in connection with the purchase and sale of the
Initial Shares, Secondary Shares, Reset Shares, Additional Shares, and
Warrants constitutes legal, tax or investment advice. The Investors have
relied on, and have consulted with, such legal, tax and investment advisors as
they, in their sole discretion, have deemed necessary or appropriate in
connection with their purchase of the Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, and Warrants.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to the Investors that:
Section 4.1 Organization of the Company. The Company is a
corporation duly incorporated and existing in good standing under the laws of
the State of Nevada and has all requisite corporate authority to own its
properties and to carry on its business as now being conducted except as
described in the Company Documents. The Company is duly qualified to do
business as a foreign corporation and is in good standing in every
jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary, other than those in which the
failure so to qualify would not reasonably be expected to have a Material
Adverse Effect.
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Section 4.2 Authority. (i) The Company has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement, and all Exhibits annexed hereto, and to issue the Initial Shares,
Secondary Shares, Reset Shares, Warrants, Underlying Shares, Additional
Shares, and the Warrant Shares, (ii) the execution, issuance and delivery of
this Agreement, and all Exhibits annexed hereto, by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors, and (iii) this
Agreement, and all Exhibits annexed hereto, have been duly executed and
delivered by the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application. Upon their issuance and delivery pursuant to this Agreement, the
Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares,
Underlying Shares, and Additional Shares, will be validly issued, fully paid
and nonassessable and will be free of any liens or encumbrances other than
those created hereunder or by the actions of the Investors; provided, however,
that the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, and Additional Shares are subject to restrictions
on transfer under state and/or federal securities laws. The issuance and sale
of the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, and Additional Shares hereunder will not give rise
to any preemptive right or right of first refusal or right of participation on
behalf of any person.
Section 4.3 Capitalization. The authorized capital stock of the
Company consists of 60,000,000 shares of Common Stock, $0.001 par value per
share, of which approximately 11,877,000 shares are issued and outstanding,
and 50,000 shares of Preferred Stock, of which 15,000 have been designated as
Series A Preferred Stock and none are issued and outstanding. All of the
outstanding shares of Common Stock and Preferred Stock of the Company have
been duly and validly authorized and issued and are fully paid and
nonassessable. No shares of Common Stock are entitled to preemptive or
similar rights. Except for the proposed issuance of warrants to Columbia
Financial Group, Inc., as otherwise specifically disclosed in the Company
Documents, and pursuant to the Company's employee benefit plan, there are no
outstanding options, warrants, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or, except as a result of the purchase
and sale of the Initial Shares, Secondary Shares, Reset Shares, Underlying
Shares, Additional Shares, and the Warrants, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
subsidiary is or may become bound to issue additional shares of Common Stock
or securities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, other than as stated on Schedule 4.3
annexed hereto, no Person or group of Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of five percent of the Common Stock.
12
Section 4.4 Common Stock. The Common Stock has not been registered
pursuant to Section 12(g) of the Exchange Act. The Common Stock is currently
listed or quoted on the OTC Bulletin Board.
Section 4.5 Company Documents. The Company has delivered or made
available to the Investors true and complete copies of the Company Documents.
The Company has not provided to any of the Investors any information that,
according to applicable law, rule or regulation, should have been disclosed
publicly prior to the date hereof by the Company, but which has not been so
disclosed. None of the Company Documents contain any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company Documents comply as to form
in all material respects with applicable accounting requirements. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed
or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended.
Section 4.6 Valid Issuances. When issued and payment has been made
therefor, Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, and the Additional Shares, sold to the Investors
will be duly and validly issued, fully paid, and nonassessable. Neither the
issuance of the Initial Shares, Secondary Shares, Reset Shares, Warrants,
Warrant Shares, Underlying Shares, and Additional Shares, to the Investors,
pursuant to, nor the Company's performance of its obligations under this
Agreement, and all Exhibits annexed hereto will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant
Shares, Underlying Shares, or Additional Shares, issued to the Investors, or
any of the assets of the Company, or (ii) entitle the holders of Outstanding
Capital Shares to preemptive or other rights to subscribe to or acquire the
Capital Shares or other securities of the Company.
Section 4.7 No General Solicitation or Advertising in Regard to
this Transaction. Neither the Company nor any of its affiliates nor any
distributor or any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to any of the Initial
Shares, Secondary Shares, Reset Shares, Additional Shares, Warrants,
Underlying Shares, or Warrant Shares, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of the Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, Warrants, Underlying Shares, or Warrant Shares
under the Securities Act.
14
Section 4.8 Corporate Documents. The Company has furnished or
made available to each of the Investors true and correct copies of the
Company's Articles of Incorporation, as amended and in effect on the date
hereof, and the Company's by-laws, as amended and in effect on the date hereof
(the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Initial Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares,
Underlying Shares, and Additional Shares, do not and will not (i) result in a
violation of the Company's Articles of Incorporation or By-Laws, or (ii)
conflict with, or constitute a material default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
material agreement, indenture, instrument or any "lock-up" or similar
provision of any underwriting or similar agreement to which the Company is a
party, or (iii) result in a violation of any federal, state or local law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations) applicable to the Company or by which any
property or asset of the Company is bound or affected, nor is the Company
otherwise in violation of, conflict with or in default under any of the
foregoing as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in
the aggregate would not reasonably be expected to have a Material Adverse
Effect. The Company is not required under federal, state or local law, rule
or regulation to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under this Agreement
(including all Exhibits annexed hereto) or to issue and sell the Initial
Shares, Secondary Shares, Reset Shares, Warrants, Warrant Shares, Underlying
Shares, or Additional Shares in accordance with the terms hereof; provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.10 No Material Adverse Change. Since August 1, 1998, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as publicly announced.
Section 4.11 No Undisclosed Liabilities. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, that are not disclosed in the Company Documents or otherwise
publicly announced, other than those set forth in the Company's financial
statements or as incurred in the ordinary course of the Company's businesses
since August 1, 1998, and which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since August
1, 1998, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, 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 in the Company Documents.
15
Section 4.13 No Integrated Offering. To the Company's knowledge,
neither the Company, nor any of its affiliates, nor any person acting on its
or their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, other than pursuant to
this Agreement or pursuant to the Company's existing employee benefit plan,
under circumstances that would cause the offering of the Initial Shares,
Secondary Shares, Reset Shares, and Warrants pursuant to this Agreement to be
integrated with prior or future offerings by the Company for purposes of the
Securities Act or any applicable stockholder approval provisions.
Section 4.14 Litigation and Other Proceedings. There are no
lawsuits or proceedings pending or to the knowledge of the Company threatened,
against the Company, nor has the Company received any written or oral notice
of any such action, suit, proceeding or investigation, which would reasonably
be expected to have a Material Adverse Effect. Except as set forth in the
Company Documents, no judgment, order, writ, injunction or decree or award has
been issued by or, so far as is known by the Company, requested of any court,
arbitrator or governmental agency which would be reasonably expected to result
in a Material Adverse Effect.
Section 4.15 Acknowledgment of Dilution. The Company is aware and
acknowledges that issuance of Initial Shares, Secondary Shares, Reset Shares,
Underlying Shares, Additional Shares, and/or Warrant Shares, may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue the Additional Shares, Warrant Shares, and
Underlying Shares is unconditional and absolute regardless of the effect of
any such dilution.
Section 4.16 Employee Relations. The Company is not involved in any
labor dispute, nor, to the knowledge of the Company, is any such dispute
threatened which could reasonably be expected to have a Material Adverse
Effect. None of the Company's employees is a member of a union and the
Company believes that its relations with its employees are good.
Section 4.17 Environmental Laws. The Company is (i) in compliance
with any and all foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants and which
the Company know is applicable to them ("Environmental Laws"), (ii) has
received all permits, licenses or other approvals required under applicable
Environmental Laws to conduct its business, and (iii) is in compliance with
all terms and conditions of any such permit, license or approval.
Section 4.18 Insurance. The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company is engaged. The Company has no notice to
believe that it will not be able to renew its existing insurance coverage
16
as and when such coverage expires, or obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would not
materially and adversely affect the condition, financial or otherwise, or the
earnings, business or operation, of the Company.
Section 4.19 Board Approval. The board of directors of the Company
has concluded, in its good faith business judgment, that the issuances of the
securities of the Company in connection with this Agreement are in the best
interests of the Company.
Section 4.20 Integration. The Company shall not and shall use its
best efforts to ensure that no affiliate shall sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security of the Company
that would be integrated with the offer or sale of the Initial Shares,
Secondary Shares, Reset Shares, Additional Shares, and Warrants in a manner
that would require the registration under the Securities Act of the issue,
offer or sale of the Initial Shares, Secondary Shares, Reset Shares, and
Warrants to the Investors. The Initial Shares, Secondary Shares, Reset
Shares, Additional Shares, Warrants and Warrant Shares are being offered and
sold pursuant to the terms hereunder, are not being offered and sold as part
of a previously commenced private placement of securities.
Section 4.21 Patents and Trademarks. The Company has, or has rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses, trade secrets and other
intellectual property rights which are necessary for use in connection with
its business or which the failure to so have would have a Material Adverse
Effect (collectively, the "Intellectual Property Rights"). To the best
knowledge of the Company, none of the Intellectual Property Rights infringe on
any rights of any other Person, and the Company either owns or has duly
licensed or otherwise acquired all necessary rights with respect to the
Intellectual Property Rights. The Company has not received any notice from
any third party of any claim of infringement by the Company of any of the
Intellectual Property Rights, and has no reason to believe there is any basis
for any such claim. To the best knowledge of the Company, there is no
existing infringement by another Person on any of the Intellectual Property
Rights.
Section 4.22 Use of Proceeds. The Company represents that the net
proceeds from this offering will be used for working capital purposes, and not
for the repayment of any outstanding judgments against the Company (including
any affiliate or subsidiary) or any officer, director or employee of the
Company.
Section 4.23 Subsidiaries. Except as disclosed in the Company
Reports, the Company does not presently own or control, directly or
indirectly, any interest in any other corporation, partnership, association or
other business entity.
17
ARTICLE V
Covenants of the Investors
Section 5.1 4.99% Limitation. The number of shares of Common Stock
which may be acquired by any of the Investors pursuant to the terms of this
Agreement shall not exceed the number of such shares which, when aggregated
with all other shares of Common Stock then owned by any of the Investors,
would result in any of the Investors owning more than 4.99% of the then issued
and outstanding Common Stock.
The preceding paragraph shall not interfere with any Investor's right to
convert Preferred Stock or exercise the Warrants over time which in the
aggregate totals more than 4.99% of the then outstanding shares of Common
Stock so long as such Investor does not own more than 4.99% of the then
outstanding Common Stock at any given time.
ARTICLE VI
Covenants of the Company
Section 6.1 Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect so long as
any Registrable Securities remain outstanding and the Company shall comply in
all material respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has authorized and reserved and the Company shall continue to reserve
and keep available at all times, free of preemptive rights, shares of Common
Stock for the purpose of enabling the Company to satisfy any obligation to
issue the Additional Shares, Initial Shares, Secondary Shares, Reset Shares,
and Warrant Shares. The number of shares so reserved shall be increased or
decreased to reflect potential increases or decreases in the Common Stock that
the Company may thereafter be so obligated to issue by reason of adjustments
to the Warrants.
Section 6.3 Listing of Common Stock. If required by the Principal
Market, the Company shall (a) not later than the fifth Business Day following
the date the Principal Market requires, prepare and file with the Principal
Market (as well as any other national securities exchange, market or trading
facility on which the Common Stock is then listed) an additional shares
listing application covering at least the sum of (i) Initial Shares, Secondary
Shares, Reset Shares, Additional Shares, and (ii) the Warrant Shares issuable
upon exercise in full of the Warrants, (b) take all steps necessary to cause
such shares to be approved for listing on the Principal Market (as well as on
any other national securities exchange, market or trading facility on which
the Common Stock is then listed) as soon as possible thereafter, and (c)
provide to the Investors evidence of such listing, and the Company shall
maintain the listing of its Common Stock on such exchange or market. In
addition, if at any time the number of shares of Common Stock issuable
hereunder, and upon exercise in full of the Warrants is greater than the
number of shares of Common Stock theretofore listed with the Principal Market
(and any such other national securities exchange, market or trading facility),
the Company shall promptly take such action (including the actions described
in the preceding sentence) to file an additional shares listing application
with the Principal Market (and any such other national securities exchange,
market or trading facility) covering such number
18
of shares of Common Stock as would be necessary. Except as set forth in
Schedule 6.3, the Company (i) has not received any notice, oral or written,
affecting its continued listing on the OTC Bulletin Board, and (ii) is in full
compliance with the requirements for continued listing on the OTC Bulletin
Board. The Company will take no action which would impact its continued
listing or eligibility of the Company for such listing (except as set forth in
Section 6.11 below). The Company will comply with the listing and trading
requirements of its Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. In the event the Company receives
notification from the Principal Market or any other controlling entity stating
that the Company is not in compliance with the listing qualifications of such
Principal Market, the Company will take all action necessary to bring the
Company within compliance with all applicable listing standards of the
Principal Market.
Section 6.4 Exchange Act Registration. The Company agrees that,
once the Company is required by the Principal Market, or otherwise by law, it
will maintain the registration of its Common Stock under the Exchange Act, and
will not take any action or file any document (whether or not permitted by
Exchange Act or the rules thereunder) to terminate or suspend such
registration for so long as the Registrable Securities are owned by the
Investors.
Section 6.5 Legends. The Initial Shares, Secondary Shares,
Warrants, Warrant Shares, Underlying Shares, and Additional Shares to be
issued by the Company pursuant to this Agreement shall be free of legends,
except as set forth in Article VIII.
Section 6.6 Corporate Existence. The Company will take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Notice of Certain Events Affecting Registration. The
Company will immediately notify each of the Investors within three Business
Days after the occurrence of any of the following events in respect of a
registration statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information
by the SEC or any other federal or state governmental authority during the
period of effectiveness of the Registration Statement for amendments or
supplements to the Registration Statement or related prospectus; (ii) the
issuance by the SEC or any other federal or state governmental authority of
any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose; (iii) receipt 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; (iv) the happening of any event that makes any statement made in the
Registration Statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in the Registration Statement,
related prospectus or documents so that, in the case of the Registration
Statement, 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 not misleading, and that in the case of the related
prospectus, 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 the light of the circumstances under which
they were made, not misleading (the Company shall not be required to
19
notify the Investors in this case in the event such notification would be
deemed the release of nonpublic information); and (v) the Company's reasonable
determination that a post-effective amendment to the Registration Statement
would be appropriate. The Company will, within three Business Days of when
filed with the SEC make available to the Investors any such supplement or
amendment to the related prospectus.
Section 6.8 Consolidation; Merger. The Company shall not, at any
time after the date hereof, effect any merger or consolidation of the Company
with or into, or a transfer of all or substantially all of the assets of the
Company to, another entity (a "Consolidation Event") unless the resulting
successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investors such shares of stock
and/or securities as the Investors are entitled to receive pursuant to this
Agreement.
Section 6.9 Issuance of Underlying Shares and Warrant Shares. The
issuance of the Underlying Shares and Warrant Shares shall be made in
accordance with the provisions and requirements of Section 4(2) of the
Securities Act, or Regulation D and any applicable state securities law.
Section 6.10 Legal Opinion. The Company's independent counsel shall
deliver to the Investors on or prior to the Closing Dates for the First
Tranche and Second Tranche, an opinion in the form of Exhibit G annexed
hereto. The Company will obtain for the Investors, at the Company's expense,
any and all opinions of counsel which may be reasonably required in order to
remove the Legend from the Initial Shares, Secondary Shares, Reset Shares,
Additional Shares, Underlying Shares, and Warrant Shares. The Company will
obtain for the Investors, at the Company's expense, any and all opinions of
counsel which may be reasonably required in order to convert the Preferred
Stock and/or exercise the Warrants, including, but not limited to, obtaining
for the Investors an opinion of counsel, subject only to receipt of a notice
of conversion (the "Notice of Conversion") in the form of Exhibit I, and/or
subject only to a receipt of a notice of exercise in the form annexed to the
Warrant, directing the Transfer Agent to remove the legend from such
certificate.
Section 6.11 20% Rule Limitation. In the event the Principal Market
requires shareholder approval, the Company shall call a meeting of its
shareholders, to be held no later than 60 calendar days after the such date,
seeking shareholder approval of the below market issuances of shares of Common
Stock (and securities convertible into and exercisable for Common Stock) to
the Investors of an aggregate of 20% or more of the number of shares of Common
Stock outstanding as of Subscription Date. In the event that the
aforementioned proposal is not so approved within such 60 calendar day period,
or if no shareholder meeting is held, the Company shall seek a waiver from the
Principal Market for such below market issuances. In the event the Company
does not receive such waiver within the earlier of (the "Deadline Date"): (i)
ten calendar days after the aforementioned shareholders meeting, or (ii) 70
calendar days after Company becomes subject to a Principal Market that has
such a 20% limitation, the Company shall either delist the Common Stock from
the Principal Market and immediately (within two Trading Days thereafter) list
the Common Stock on a market or exchange that does not have such a
requirement, or the Company agrees that it will pay to the Investors the
Economic Benefit (as defined below) of that number of shares of Common Stock
issuable to the Investors above said twenty (20%) percent. The "Economic
Benefit" is defined
20
as the number of shares of Common Stock issuable to the Investors pursuant to
the terms hereunder in excess of twenty (20%) percent of the outstanding
Common Stock as of the Subscription Date multiplied by the Bid Price on the
Deadline Date.
Section 6.12 Conversion of Preferred Stock and Exercise of Warrants.
The Company will permit the Investors to exercise their right to convert the
Preferred Stock, and/or exercise the Warrants, by telecopying an executed and
completed Notice of Conversion, and Notice of Exercise (along with payment of
the applicable Exercise Price) to the Company as is set forth in the
Certificate of Designation, and Warrant respectively.
Section 6.13 Increase in Authorized Shares. At such time as the
Company would be, if a notice of exercise were to be delivered on such date,
precluded from honoring (i) the exercise in full of the Warrants, (ii) the
conversion in full of the Preferred Stock, and/or (iii) the Company's
obligation to issue Reset Shares and/or Additional Shares, due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall promptly
(and in any case within 60 calendar days from such date) hold a shareholders
meeting in which the shareholders would vote for authorization to amend the
Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least a number of
shares equal to the sum of (i) all shares of Common Stock then outstanding,
(ii) the number of shares of Common Stock issuable on account of all
outstanding warrants, options and convertible securities (other than the
Warrants) and on account of all shares reserved under any stock option, stock
purchase, warrant or similar plan, (iv) such number of Warrant Shares as would
then be issuable upon the exercise in full of the Warrants, (v) such number of
underlying Shares as would then be issuable upon conversion in full of the
Preferred Stock, and (vi) all Reset Shares and Additional Shares as would be
issuable on such date. In connection therewith, the Board of Directors shall
promptly (x) adopt proper resolutions authorizing such increase, (y) recommend
to and otherwise use its best efforts to promptly and duly obtain shareholder
approval to carry out such resolutions and (z) within three Business Days of
obtaining such shareholder authorization, file an appropriate amendment to the
Company's certificate of incorporation to evidence such increase. In no way
shall the aforementioned be deemed a waiver of the Company's obligations
contained in Section 6.2 above.
Section 6.14 Notice of Breaches. Each of the Company on the one
hand, and the Investors on the other, shall give prompt written notice to the
other of any breach by it of any representation, covenant, warranty or other
agreement contained in this Agreement or any Exhibit annexed hereto, as well
as any events or occurrences arising after the date hereof, which would
reasonably be likely to cause any representation, covenant, or warranty or
other agreement of such party, as the case may be, contained in this Agreement
or any Exhibit annexed hereto, to be incorrect or breached as of such date.
However, no disclosure by either party pursuant to this Section shall be
deemed to cure any breach of any representation, warranty or other agreement
contained in this Agreement or any Exhibit annexed hereto. Notwithstanding
the generality of the foregoing, the Company shall promptly notify each
Investor of any notice or claim (written or oral) that it receives from any
lender of the Company to the effect that the consummation of the transactions
contemplated by this Agreement or any Exhibit annexed hereto, violates or
would violate any written agreement or understanding between such lender and
the Company, and the Company shall promptly furnish by
21
facsimile to each Investor a copy of any written statement in support of or
relating to such claim or notice.
Section 6.15 Restrictions on Future Financings/Right of First
Refusal. The Company agrees that it will not enter into any equity or debt
financing in the form of any security convertible into Common Stock or any
below market issuance of Common Stock (but not including any secondary public
offering of Common Stock) until at least 90 calendar days after the Effective
Date, unless the Company has obtained the express written approval by all of
the Investors. The Company agrees that should it elect to enter into a
private transaction for convertible debt or equity financing at any time prior
to six months after the Effective Date, the Company will give each of the
Investors written notice of the terms and conditions of such offer (the "ROFR
Notice") via facsimile. The Investors shall have a right of first refusal to
commit to provide the funds pursuant to the terms as outlined in the ROFR
Notice. Each Investor shall have three Business Days to reply in writing
after receipt of the ROFR Notice from the Company. In the event such written
reply is not received by the Company within such three Business Day period,
the Company shall have the right to conclude a transaction with another
investor or investors provided the transaction is not materially different
from that outlined to the Investors as was provided in the ROFR Notice. In
the event the Company enters into a private financing through the sale of
Common Stock at a discount to the then current market price, or the Company
enters into a private financing through the sale of any security convertible
into shares of Common Stock within six months after the Effective Date, the
Company agrees that the Investors shall receive the benefit of any terms of
such offering which the Investors deem to be more beneficial than the terms
contained herein the Registration Rights Agreement, and in the Certificate of
Designation and Warrants. In such case the Company agrees to immediately take
all action necessary to amend this Agreement, the Registration Rights
Agreement, the Certificate of Designation and the Warrants.
Section 6.16 Transfer of Intellectual Property Rights. Except in
the ordinary course of the Company's business consistent with past practice or
in connection with the sale of all or substantially all of the assets of the
Company, the Company shall not transfer, sell or otherwise dispose of, any
Intellectual Property Rights, or allow the Intellectual Property Rights to
become subject to any liens, or fail to renew such Intellectual Property
Rights (if renewable and would otherwise expire).
Section 6.17 Additional Issuances of Preferred Stock. The Company
agrees that it will only issue shares of Preferred Stock to the Investors
listed on Schedule A annexed hereto.
ARTICLE VII
Due Diligence Review; Non-Disclosure of Non-Public Information
Section 7.1 Due Diligence Review. The Company shall make available
for inspection and review by the Investors, advisors to and representatives of
the Investors (who may or may not be affiliated with the Investors), any
underwriter participating in any disposition of the Registrable Securities on
behalf of the Investors pursuant to the Registration Statement, any such
registration statement or amendment or supplement thereto or any blue sky,
NASD or other filing, all financial
22
and other records, all Company Documents, and all other corporate documents
and properties of the Company as may be reasonably necessary for the purpose
of such review, and cause the Company's officers, directors and employees to
supply all such information reasonably requested by any of the Investors or
any such representative, advisor or underwriter in connection with such
Registration Statement (including, without limitation, in response to all
questions and other inquiries reasonably made or submitted by any of them),
prior to and from time to time after the filing and effectiveness of the
Registration Statement for the sole purpose of enabling the Investors and such
representatives, advisors and underwriters and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
Section 7.2 Non-Disclosure of Non-Public Information
(a) The Company has not disclosed, and hereafter shall not
disclose non-public information to the Investors, advisors to, or
representatives of, the Investors unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides each Investor, and its advisors and representatives
with the opportunity to accept or refuse to accept such non-public information
for review. The Company may, as a condition to disclosing any non-public
information hereunder, require each of the Investors advisors and
representatives to enter into a confidentiality agreement in form reasonably
satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose non-
public information to any of the Investors or their advisors or
representatives, and the Company represents that it does not disseminate non-
public information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts, provided,
however, that notwithstanding anything herein to the contrary, the Company
will, as hereinabove provided, immediately notify the advisors and
representatives of the Investors and, if any, underwriters, of any event or
the existence of any circumstance (without any obligation to disclose the
specific event or circumstance) of which it becomes aware, constituting non-
public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or entities),
which, if not disclosed in the prospectus included in the Registration
Statement would cause such prospectus to include a material misstatement or to
omit a material fact required to be stated therein in order to make the
statements, therein, in light of the circumstances in which they were made,
not misleading. Nothing contained in this Section shall be construed to mean
that such persons or entities other than the Investors (without the written
consent of the Investors prior to disclosure of such information) may not
obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent
any such persons or entities from notifying the Company of their opinion that
based on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VIII
Legends
23
Section 8.1 Legends. The Investors agree to the imprinting, so long
as is required by this Section, of the following legend (or such substantially
similar legend as is acceptable to the Investors and their counsel, the
parties agreeing that any unacceptable legended securities shall be replaced
promptly by and at the Company's cost) on the securities:
[FOR WARRANTS, INITIAL SHARES AND SECONDARY SHARES] NEITHER THESE SECURITIES
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE]
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[ONLY FOR RESET SHARES, ADDITIONAL SHARES AND WARRANT SHARES TO THE EXTENT THE
RESALE THEREOF IS NOT COVERED BY AN EFFECTIVE REGISTRATION STATEMENT AT THE
TIME OF ISSUANCE OR EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
The Warrant Shares, Reset Shares and Additional Shares shall not contain the
legend set forth above or any other restrictive legend if the issuance of such
occurs at any time while a Registration Statement is effective under the
Securities Act in connection with the resale of the shares of Common Stock or,
in the event there is not an effective Registration Statement at such time, if
in the opinion of counsel to the Company such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission).
The Company agrees that it will provide the Investors, upon request, with a
certificate or certificates representing the Warrant Shares, Reset Shares and
Additional Shares free from such legend at such time as such legend is no
longer required hereunder. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section.
Upon the execution and delivery hereof, the Company is issuing to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the
form of Exhibit H hereto. Such instructions shall be irrevocable by the
Company
24
from and after the date hereof or from and after the issuance thereof to any
such substitute or replacement transfer agent, as the case may be, except as
otherwise expressly provided in the Registration Rights Agreement. It is the
intent and purpose of such instructions, as provided therein, to require the
transfer agent for the Common Stock from time to time upon transfer of
Registrable Securities by the Investors to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and
under the following circumstances and except as provided below, without
consultation by the transfer agent with the Company or its counsel and without
the need for any further advice or instruction or documentation to the
transfer agent by or from the Company or its counsel or the Investors:
(a) at any time after the Effective Date, upon surrender of one
or more certificates evidencing the Warrants, Initial Shares, Secondary
Shares, Underlying Shares, Warrant Shares, Reset Shares and Additional Shares,
that bear the aforementioned Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the aforementioned legend
to replace those surrendered; provided that (i) the Registration Statement
shall then be effective; (ii) the Investor(s) confirm to the transfer agent
that it has sold, pledged or otherwise transferred or agreed to sell, pledge
or otherwise transfer such Common Stock in a bona fide transaction to a third
party that is not an affiliate of the Company; and (iii) the Investor(s)
confirm to the transfer agent that the Investor(s) have complied with the
prospectus delivery requirement.
(b) at any time upon any surrender of one or more certificates
evidencing Registrable Securities, that bear the aforementioned legend, to the
extent accompanied by a notice requesting the issuance of new certificates
free of such legend to replace those surrendered and containing
representations that (i) the Investor(s) is permitted to dispose of such
Registrable Securities, without limitation as to amount or manner of sale
pursuant to Rule 144(k) under the Securities Act or (ii) the Investor(s) has
sold, pledged or otherwise transferred or agreed to sell, pledge or otherwise
transfer such Registrable Securities, in a manner other than pursuant to an
effective registration statement, to a transferee who will upon such transfer
be entitled to freely tradeable securities. The Company shall have counsel
provide any and all opinions necessary for the sale under Rule 144, as
permitted under applicable law.
Any of the notices referred to above in this Section may be sent by
facsimile to the Company's transfer agent.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No
legend other than the one specified in this Article has been or shall be
placed on the share certificates representing the Common Stock, and no
instructions or "stop transfer orders," so called, "stock transfer
restrictions," or other restrictions have been or shall be given to the
Company's transfer agent with respect thereto other than as expressly set
forth in this Article.
Section 8.3 Investor's Compliance. Nothing in this Article shall
affect in any way any of the Investors obligations under any agreement to
comply with all applicable securities laws upon resale of the Common Stock.
25
ARTICLE IX
Choice of Law
Section 9.1 Choice of Law; Venue; Jurisdiction. This Agreement will
be construed and enforced in accordance with and governed by the laws of the
State of New York, except for matters arising under the Securities Act,
without reference to principles of conflicts of law. Each of the parties
consents to the exclusive jurisdiction of the United States District Court for
the Northern District of Georgia, Atlanta Division in connection with any
dispute arising under this Agreement and hereby waives, to the maximum extent
permitted by law, any objection, including any objection based on forum non
conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Agreement obtains a
judgment against it in such a proceeding, the party which obtained such
judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained,
and each party hereby waives any defenses available to it under local law and
agrees to the enforcement of such a judgment. Each party to this Agreement
irrevocably consents to the service of process in any such proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
such party at its address set forth herein. Nothing herein shall affect the
right of any party to serve process in any other manner permitted by law.
Each party waives its right to a trial by jury.
ARTICLE X
Assignment; Entire Agreement, Amendment; Termination
Section 10.1 Assignment. The Investor's interest in this Agreement
and its ownership of Preferred Stock and Warrants may be assigned or
transferred at any time, in whole or in part, to any other person or entity
(including any affiliate of the Investors) who agrees to, and truthfully can,
make the representations and warranties contained in Article III, and who
agrees to be bound by the covenants of Article V. The provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any transferee
of any of the shares of Preferred Stock and/or Warrants purchased or acquired
by the Investors hereunder with respect to the Common Stock held by such
person.
Section 10.2 Termination. This Agreement shall terminate upon the
earliest of (i) the date that all the Registrable Securities have been sold by
the Investors pursuant to the Registration Statement; (ii) the date the
Investors receive an opinion from counsel to the Company that all of the
Registrable Securities may be sold under the provisions of Rule 144, without
volume limitation; or (iii) five years after the last Closing Date; provided,
however, that the provisions of Articles III, IV, V, VI, VII, VIII, IX, X, XI,
and XII herein, and the registration rights provisions for the Registrable
Securities held by the Investors set forth in this Agreement, and the
Registration Rights Agreement, shall survive the termination of this
Agreement.
ARTICLE XI
Notices
Section 11.1 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be
in writing and, unless otherwise specified
26
herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a Business Day during normal business hours where such notice is
to be received), or the first Business Day following such delivery (if
delivered other than on a Business Day during normal business hours where such
notice is to be received), or (b) on the second Business Day following the
date of mailing by reputable courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Company:
WordCruncher Internet Technologies, Inc.
12450 South 405 East, Suite B
Draper, Utah 84020
Attention: Chief Financial Officer
Telephone: (801) 816-9904
Facsimile: (801) 816-9840
27
If to the Investors, at the addresses listed on Schedule A.
with a copy to:
The Goldstein Law Group, P.C.
65 Broadway, 10th Floor
New York, NY 10006
Attention: Scott H. Goldstein, Esq.
Telephone: (212) 809-4220
Facsimile: (212) 809-4228
and Cardinal Capital Management, Inc.
3340 Peachtree Road, N.E., Suite 620
Atlanta, Georgia 30326
Attention: Scott Koch
Telephone: (404) 264-0777
Facsimile: (404) 264-0007
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 11.1 by giving at least ten calendar
days' prior written notice of such changed address or facsimile number to the
other party hereto.
Section 11.2 Indemnification. The Company agrees to indemnify and
hold harmless each of the Investors and each officer, director of the
Investors or person, if any, who controls the Investors within the meaning of
the Securities Act against any losses, claims, damages or liabilities, joint
or several (which shall, for all purposes of this Agreement, include, but not
be limited to, all costs of defense and investigation and all attorneys'
fees), to which the Investors may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon the breach of any term of
this Agreement by the Company. This indemnity agreement will be in addition
to any liability which the Company may otherwise have.
Each Investor agrees that it will indemnify and hold harmless the Company, and
each officer, director of the Company or person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such officer, director or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the breach of any term of this
Agreement by the Investor. This indemnity agreement will be in addition to
any liability which the Investors or any subsequent assignee may otherwise
have.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise than
28
as to the particular item as to which indemnification is then being sought
solely pursuant to this Section. In case any such action is brought against
any 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 party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall not pursue the
action to its final conclusion. The 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 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 party;
provided that if the indemnified party is one of the Investors, the fees and
expenses of such counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically authorized in writing
by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Investors and the
indemnifying party and the Investors shall have been advised by such counsel
that there may be one or more legal defenses available to the indemnifying
party in conflict with any legal defenses which may be available to the
Investors (in which case the indemnifying party shall not have the right to
assume the defense of such action on behalf of the Investors, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the Investor(s), which firm shall be designated
in writing by the Investor(s)). No settlement of any action against an
indemnified party shall be made without the prior written consent of the
indemnified party, which consent shall not be unreasonably withheld.
Section 11.3 Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) the indemnified
party makes a claim for indemnification pursuant to Section 11.2 hereof but is
judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced in
such case notwithstanding the fact that the express provisions of Section 11.2
hereof provide for indemnification in such case, or (ii) contribution under
the Securities Act may be required on the part of any indemnified party, then
the Company and the applicable Investor shall contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), in either such
case (after contribution from others) on the basis of relative fault as well
as any other relevant equitable considerations. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages or liabilities
(or actions in respect thereof) referred to above in Section 11.2 shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation
29
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contributions from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE XII
Miscellaneous
Section 12.1 Counterparts; Facsimile; Amendments. This Agreement
may be executed in multiple counterparts, each of which may be executed by
less than all of the parties and shall be deemed to be an original instrument
which shall be enforceable against the parties actually executing such
counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended
only by a writing executed by the Company on the one hand, and the Investors,
on the other hand.
Section 12.2 Entire Agreement. This Agreement, the Exhibits or
attachments hereto, which include, but are not limited to the Warrant, the
Certificate of Designation, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the
parties, both oral and written relating to the subject matter hereof. The
terms and conditions of all Exhibits to this Agreement are incorporated herein
by this reference and shall constitute part of this Agreement as if fully set
forth herein.
Section 12.3 Survival; Severability. The representations,
warranties, covenants and agreements of the parties hereto shall survive each
Closing hereunder. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective
if it materially changes the economic benefit of this Agreement to any party.
Section 12.4 Title and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 12.5 Reporting Entity for the Common Stock. The reporting
entity relied upon for the determination of the trading price or trading
volume of the Common Stock on any given Trading Day for the purposes of this
Agreement and all Exhibits shall be Bloomberg, L.P. or any successor thereto.
The written mutual consent of the Investors and the Company shall be required
to employ any other reporting entity.
30
Section 12.6 Replacement of Certificates. Upon (i) receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of a certificate representing the Initial Shares,
Secondary Shares, Reset Shares, Warrants, Warrant Shares, or Additional
Shares, and (ii) in the case of any such loss, theft or destruction of such
certificate, upon delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or (iii) in the case of any
such mutilation, on surrender and cancellation of such certificate, the
Company at its expense will execute and deliver, in lieu thereof, a new
certificate of like tenor.
Section 12.7 Fees and Expenses. Each of the parties shall pay its
own fees and expenses (including the fees of any attorneys, accountants,
appraisers or others engaged by such party) in connection with this Agreement
and the transactions contemplated hereby, except that the Company shall pay
(i) on the first Closing Date for the First Tranche $15,000, and on the
Closing Date for the Second Tranche $5,000, in cash, out of the escrowed
funds, to the Escrow Agent for legal, administrative, and escrow fees, and
(ii) shall pay to the placement agent, out of escrow, on each Closing Date for
the First Tranche, and the Closing Date for the Second Tranche the sum of six
percent (6%) of the amount funded to the Company by the Investors, and issue
Warrant C's, exercisable beginning on the applicable Closing Date of each
tranche and then exercisable any time over the five year period thereafter, to
purchase 30,000 warrant shares per each one million dollars funded by the
Investors pursuant to this Agreement at an exercise price equal to one hundred
and five percent (105%) of the Bid Price on the Trading Day immediately
preceding the applicable Closing Date for each tranche.
Section 12.8 Publicity. The Company and the Investors shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and no party
shall issue any such press release or otherwise make any such public statement
without the prior written consent of the other parties, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if such disclosure is required by law, in which such case the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall not
publicly disclose the names of the Investors without the prior written consent
of the Investors, except to the extent required by law or in response to a
written SEC request, in which case the Company shall provide the Investors
with prior written notice of such public disclosure.
31
Exhibits:
A. Certificate of Designation
B. Escrow Agreement
C. Registration Rights Agreement
D. Warrant A
E. Warrant B
F. Warrant C
G. Opinion of Counsel
H. Instructions to Transfer Agent
I. Notice of Conversion
Schedules:
A. List of Investors
4.3 Beneficial Ownership
6.3 Listing of Common Stock
32
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have caused this Series A Preferred
Stock Purchase Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By /s/ Kenneth W. Bell
Name: Kenneth W. Bell
Title: Chief Financial Officer /s/ Tajunnisah Owesh
-----------------------------
MS. TAJUNNISAH OWESH
/s/ Ohoud F. Shargatly
------------------------------
OHOUD F. SHARBATLY
/s/ Khaled A. AlMubarak
-----------------------------
KHALED A. ALMUBARAK
/s/ Mohammad A. Al-Quaiz
-----------------------------
MOHAMMAD A. AL-QUAIZ
/s/ Abdulaziz A. Kamel
------------------------------
URBAN DEVELOPMENT ESTABLISHMENT
/s/ Yasser M. Zaldan
------------------------------
YASSER M. ZAIDAN
/s/ Signature illegible
-------------------------------
GIBRALTAR WORLDWIDE , INC.
/s/ Abdulwahhab A.Abdulwasea
--------------------------------
ABDULWAHHAB ABDULWASEA
SCHEDULE 4.3
Persons owning more than five percent (5%) of the Common Stock
James W. & Catherine F. Johnston
M. Daniel & Lori Lunt
Kenneth W. & Roberta L. Bell
Schedule 6.3
SCHEDULE A
Tajunnisah Owesh
House No. 6, 5th Main
Bilal Manzil
Jayamahal Extn
Bangalore 560046, Karnataka
Telephone: 01191803430312
Facsimile: 01191803331555
First Tranche Investment Amount: $2,500,000
Ohoud F. Sharbatly
P.O. Box 14322
Jeddah 21424
Saudi Arabia
Telephone: (9662) 698-80
Facsimile: (9662) 698-5523
First Tranche Investment Amount: $1,000,000
Mohammad A. Al-Quaiz
P.O. Box 51266
Jeddah 21543
Saudi Arabia
Telephone: (9661) 642-1755
Facsimile: (9662) 642-4075
First Tranche Investment Amount: $1,000,000
Urban Development Est.
P.O. Box 1032
Jeddah 21431
Saudi Arabia
Telephone: (9662) 698-7777
Facsimile: (9662) 662-3187
First Tranche Investment Amount: $500,000
Yasser M. Zaidan
P.O. Box 14322
Jeddah 21424
Saudi Arabia
Telephone: (9662) 698-8049
Facsimile: (9662) 698-5523
First Tranche Investment Amount: $500,000
Khaled A. Al-Mubarak
P.O. Box 51266
Jeddah 21543
Saudi Arabia
Telephone: (9662) 669-6533
Facsimile: (9662) 661-0037
First Tranche Investment Amount: $100,000
Gibraltor Worldwide, Inc.
P.O. Box 1522
Jeddah 21441
Saudi Arabia
Telephone: (9662) 698-0000
Facsimile: (9662) 698-1238
First Tranche Investment Amount: $500,000
EXHIBIT A
CERTIFICATE OF DESIGNATION
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
WORDCRUNCHER INTERNET TECHNOLOGIES, Inc., a corporation organized
and existing under the General Corporation Law of the State of Nevada (the
"Company"), hereby certifies that on January , 1999, the Board of
Directors of the Company (the "Board"), in accordance with Section 78.1955 of
the General Corporation Law and the Company's Certificate of Incorporation
(the "Certificate of Incorporation"), adopted resolutions creating out of the
50,000 shares of Preferred Stock, par value $0.01 per share, authorized in
Article II of the Certificate of Incorporation (the "Preferred Stock"), a
series of the Preferred Stock of the Company, par value $0.01 per share, and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
I. Designation and Amount. The shares of such series of Preferred Stock
shall be designated as "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 15,000. The Series A Preferred Stock shall have a stated value
(the "Stated Value") of $1,000 per share.
II. Dividends.
A. The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends, out of any assets legally available therefore,
prior to, and in preference to, any declaration or payment of any dividend on
the Common Stock of this Company, at a per share rate equal to six percent per
annum of the amount of the Stated Value of the Series A Preferred Stock, which
is payable upon conversion (including upon Redemption and Automatic
Conversion) as set forth below. Dividends shall begin to accrue as of the
Issuance Date and are based upon a 360 calendar day year. Any dividends
payable pursuant to the provisions of this paragraph shall, at the Company's
option, be payable in cash, or shares of Common Stock subject to an effective
registration statement within five Business Days of when due. The number of
shares of Common Stock to be issued by the Company in lieu of a cash payment
for dividends due as set forth herein shall be equal to the number of shares
of Common Stock resulting from dividing the dollar amount of dividends owed by
the Closing Bid Price of the Common Stock (as defined below) on such date as
the dividends are payable (if such date is not a Trading Day, then the next
Trading Day immediately thereafter).
2
B. Such dividends shall accrue on each share of Series A Preferred
Stock from the Issuance Date, and shall accrue from day to day whether or not
earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous or current annual dividend period, at the
annual rate specified above, shall not have been paid or declared and a sum
sufficient for the payment thereof set apart, for all Series A Preferred Stock
at the time outstanding, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared or set apart for
the Series A Preferred Stock or Common Stock. Dividends on the Series A
Preferred Stock shall be non-participating and the holders of the Series A
Preferred Stock shall not be entitled to participate in any other dividends
beyond the cumulative dividends specified herein.
III. Liquidation, Dissolution or Winding Up.
A. In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any distribution may be made
with respect to the Company's Common Stock or any other class or series of
capital stock, holders of each share of Series A Preferred Stock shall be
entitled to receive out of the assets available for distribution to
shareholders $1,000 plus six percent per annum thereon from the Issuance Date
(as defined below) to the Trading Day (as defined below) immediately prior to
such liquidation, dissolution or winding up of the Company (the "Liquidation
Amount").
B. If the assets of the Company available for distribution to
shareholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full Liquidation Amount to which they shall be entitled,
then any such distribution of assets of the Company shall be distributed
ratably to the holders of shares of Series A Preferred Stock.
C. After the payment of the Liquidation Amount shall have been made
in full to the holders of the Series A Preferred Stock or funds necessary for
such payment shall have been set aside by the Company in trust for the account
of holders of the Series A Preferred Stock so as to be available for such
payments, the holders of the Series A Preferred Stock shall be entitled to no
further participation in the distribution of the assets of the Company, and
the remaining assets of the Company legally available for distribution to
shareholders shall be distributed among the holders of Common Stock and any
other classes or series of Preferred Stock of the Company in accordance with
their respective terms.
IV. Voting. Holders of Series A Preferred Stock shall have no voting
rights except as expressly required by law or as expressly provided herein.
V. Conversion of Series A Preferred Stock. The holders of Series A
Preferred Stock shall have the right, at such holder's option, to convert the
Series A Preferred Stock into shares of Common Stock, on the following terms
and conditions:
A. At any time or times, upon the earlier to occur of (i) June 1,
1999, or (ii) the Effective Date, any holder of the Series A Preferred Stock
shall be entitled to convert any whole number of shares of Series A Preferred
Stock into that number of fully paid and nonassessable shares of Common Stock,
3
subject to the limitations below, which is determined (per share of Series A
Preferred Stock) by dividing (x) $1,000, by (y) the Conversion Price (as
defined below).
B. Each holder of the Series A Preferred Stock shall only be
entitled to convert 20% of the number of shares of Series A Preferred Stock
initially issued to such holder per calendar month subject to the conditions
of Section XI below. This shall be cumulative such that in the event the
holder chooses not to convert any shares of Series A Preferred Stock in one
calendar month it may convert that 20% in another month.
C. There will be three Reset Periods (as defined below). The first
Reset Period will commence on the 150th calendar day following the Issuance
Date (if such date is not a Trading Day, then the next subsequent Trading
Day). The second Reset Period shall commence on the 240th calendar day
following the Issuance Date (if such date is not a Trading Day, then the next
subsequent Trading Day). The third Reset Period shall commence on the 360th
calendar day following the Issuance Date (if such date is not a Trading Day,
then the next subsequent Trading Day).
In the event the Adjustment Price is less than the Reset Price then the
Company shall issue the number of shares of Common Stock (the "Reset Shares")
upon the expiration of each Reset Period calculated by the following formula:
[((Reset Price) - Adjustment Price) x (((1/3) x Stated Value of all
outstanding shares of Series A Preferred Stock) / 10.08) ] / Adjustment Price
Upon the expiration of each Reset Period the Company agrees to issue that
number of Reset Shares (if any) resulting from the above formula. Such shares
shall be delivered within five Business Days following the expiration of the
applicable Reset Period. In the event that the Company does not deliver
unlegended Reset Shares within six (6) Business Days after the expiration of a
Reset Period (if so required pursuant to the terms herein), the Company shall
pay to the holder(s), in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, one half of one
percent of the value of the Reset Shares undelivered (based upon the Bid Price
of the Common Stock on the Receipt Date) for every day after the sixth
Business Day through the tenth Business Day after the Reset Period, and one
percent per Business Day after the tenth Business Day after the Reset Period
that the unlegended Reset Shares are not delivered, which liquidated damages
shall run from the seventh Business Day after the expiration of the applicable
Reset Period. The sum payable herein shall constitute liquidated damages and
not penalties. Any payment by the Company of liquidated damages under this
paragraph shall not relieve the Company of its obligation to issue Reset
Shares or their cash equivalent (as provided below). The amount of loss or
damages likely to be incurred is incapable or is difficult to precisely
estimate. Any and all payments required pursuant to this paragraph shall be
payable only in cash, and any payment hereunder shall not relieve the Company
of its obligations under this Section to deliver Reset Shares. All Reset
Shares shall be included in the Registration Statement.
Notwithstanding the foregoing, in lieu of issuing Reset Shares as set
forth above, the Company may elect, at its option, to pay the holders the cash
value of the Reset Shares based upon
4
the Adjustment Price of the Common Stock during the applicable Reset Period.
The Company shall be required to pay to the holders the cash value of the
Reset Shares in the event the Company is unable to issue Reset Shares that are
included in an effective registration statement. This cash payment must be
made within the time limits for delivery of Reset Shares as set forth above in
immediate funds, and the Company shall be liable for liquidated damages as set
forth above if payment is not made in as set forth herein.
D. For purposes of this Certificate of Designation, the following
terms shall have the following meanings:
The "Adjustment Price" shall mean the average Closing Bid Prices of
the Common Stock during the Reset Period.
A "Business Day" shall be any day except Saturday, Sunday and any day
which shall be a Federal legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
actions to close.
The "Closing Bid Price" shall mean, for any security as of any date,
the closing bid price for such security for the Trading Day on the OTC
Electronic Bulletin Board as reported by Bloomberg L.P. ("Bloomberg"), or, if
the OTC Electronic Bulletin Board is not the principal trading market for such
security, the closing bid price of such security for the Trading Day on the
principal securities exchange or trading market where such security is listed
or traded as reported by Bloomberg, or if no closing bid or trade price is
reported for such security by Bloomberg, the Closing Bid Price shall be
determined by reference to the closing bid price for the Trading Day as
reported on the Principal Market, and if not so reported shall be determined
from the bid price of any market makers for such security as reported in the
"pink sheets" published by the National Quotation Bureau, Inc. If the Closing
Bid Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually agreed by the Company and the holders of two
thirds of the outstanding shares of Series A Preferred Stock.
The "Conversion Price" shall mean, as to each share of Series A
Preferred Stock, $10.08.
"Effective Date" shall mean the date on which the Securities and
Exchange Commission (the "SEC") first declares effective a registration
statement registering the resale of 200% of the number of shares of Common
Stock issuable (irrespective of any shareholder approval requirement) upon
conversion of all of the Series A Preferred Stock, and 100% of the number of
shares of Common Stock issuable upon exercise of all warrants of the Company
then held by any holder of the Series A Preferred Stock, outstanding on the
Trading Day immediately preceding the day such Registration Statement is filed
(the "Registration Statement").
The "Issuance Date" shall mean, with respect to each share of
Series A Preferred Stock, the date of issuance of the applicable share of
Series A Preferred Stock.
A "Reset Period" shall mean ten consecutive Trading Days.
5
The "Reset Price" shall mean $12.096.
A "Trading Day" shall mean a day on which the OTC Electronic
Bulletin Board is open.
The "Principal Market" shall mean the Nasdaq National Market, the
Nasdaq Small Cap Stock Market, the American Stock Exchange, the OTC Electronic
Bulletin Board operated by the National Association of Securities Dealers,
Inc., or the New York Stock Exchange, whichever is at the time the principal
trading exchange or market for the Common Stock.
E. Holders of Series A Preferred Stock may exercise their right to
convert the Series A Preferred Stock by telecopying an executed and completed
notice of conversion (the "Notice of Conversion") to the Company and
delivering to the Company the original Notice of Conversion and the
certificate representing the Series A Preferred Stock being converted by
reputable overnight courier. Each Business Day (between the hours of 9:00
a.m. and 5:00 p.m. Eastern Time) on which a Notice of Conversion is telecopied
to and received by the Company shall be deemed a "Conversion Date". The
Company will deliver the certificates representing shares of Common Stock
issuable upon conversion of any share of Series A Preferred Stock (the
"Conversion Shares") (together with the certificates representing the share or
shares of Series A Preferred Stock not so converted) to the holder thereof via
reputable overnight courier, by electronic transfer or otherwise within six
Business Days after the Conversion Date, provided the Company has received the
original Notice of Conversion and Series A Preferred Stock certificate being
so converted on or before the close of business of the fifth Business Day
after the Conversion Date. In addition to any other remedies which may be
available to the holders of shares of Series A Preferred Stock, in the
event that the Company fails to deliver such shares of Common Stock within
such six Business Day period, the holder will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and such holder shall each be restored to their
respective positions immediately prior to delivery of such Notice of
Conversion. The Notice of Conversion and Series A Preferred Stock
certificates representing the portion of the Series A Preferred Stock
converted shall be delivered as follows:
To the Company:
WordCruncher Internet Technologies, Inc.
12450 South 405 East, Suite B
Draper, Utah 84020
Attention: Chief Financial Officer
Telephone: (801) 816-9904
Facsimile: (801) 816-9840
In the event that shares representing the Common Stock issuable upon
conversion of the Series A Preferred Stock (the "Conversion Shares") are not
delivered by the Company within six Business Days after the Conversion Date,
in addition to all other available remedies which such holder may be entitled,
the Company shall pay to the holders thereof, in immediately available funds,
upon demand, as liquidated damages for such failure and not as a penalty, on
each date after such sixth Business Day
6
up to and including the tenth Business Day that delivery of the Conversion
Shares is not timely effected, an amount equal to one half of one percent of
the Stated Value of the Series A Preferred Stock subject to such conversion
and one percent of the Stated Value of the Series A Preferred Stock subject to
such conversion for every Business Day after such tenth Business Day. In the
event the Company fails to timely pay the liquidated damages as set forth
above, then such payment shall bear interest at the rate of two percent per
month (pro rated for partial months) until such payments are made. Any and
all payments required pursuant to this paragraph shall be payable only in
cash. Any payment required by the Company pursuant to this paragraph shall
not relieve the Company of its obligations to deliver Conversion Shares
pursuant to a Notice of Conversion.
F. If the nature and/or character of the Common Stock issuable upon
the conversion of the Series A Preferred Stock shall be changed into the same
or different number of shares of any class or classes of stock, whether by
capital reorganization, reclassification or otherwise, then and in each such
event, the holders of Series A Preferred Stock shall have the right thereafter
to convert such shares into the kind and amount of shares of stock and other
securities and property receivable upon such capital reorganization,
reclassification or other change which such holders would have received had
their shares of Series A Preferred Stock been converted immediately prior to
such capital reorganization, reclassification or other change. In such event
the holder may elect to waive the restrictions contained in Section XI below.
G. If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section)
or a merger or consolidation of the Company with or into another corporation
pursuant to which the Company is not the acquiring entity and pursuant to
which the stockholders of the Company are requested to exchange or convert
their securities for securities of an acquiring entity, or the sale of all or
substantially all of the Company's properties and assets to any other person
(any of which events is herein referred to as a "Reorganization"), then as a
part of such Reorganization, provision shall be made so that the holders of
the Series A Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock, the number of shares of Common
Stock or other securities or property of the Company, or of the successor
corporation resulting from such Reorganization, to which such holder would
have been entitled if such holder had converted its shares of Series A
Preferred Stock immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section with respect to the rights of the holders of the Series A
Preferred Stock after the Reorganization, to the end that the provisions of
this Section (including adjustment of the number of shares issuable upon
conversion of the Series A Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
H. Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series A Preferred Stock, the Company, at its expense,
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of such Series A Preferred
Stock a certificate executed by the president and chief financial officer (or
in the absence of a person designated as the chief financial officer, by the
treasurer) setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment are based. The Company
shall, upon written request at any time of any holder of Series A Preferred
Stock, furnish
7
or cause to be furnished to such holder a certificate setting forth (A) the
Conversion Price at the time in effect, and (B) the number or shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of Series A Preferred Stock.
I. Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of any Series A Preferred Stock certificate(s), and
(in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Company, and upon the cancellation of the
Series A Preferred Stock certificate(s), if mutilated, the Company shall
execute and deliver new certificates for Series A Preferred Stock of like
tenure and date. However, the Company shall not be obligated to reissue such
lost or stolen certificates for shares of Series A Preferred Stock if the
holder contemporaneously requests the Company to convert such shares of Series
A Preferred Stock into Common Stock.
J. The Company shall not issue any fraction of a share of Common
Stock upon any conversion. The Company shall round such fraction of a share
of Common Stock up to the nearest whole share.
K. In the event some but not all of the shares of Series A Preferred
Stock represented by a certificate or certificates surrendered by a holder are
converted, the Company shall execute and deliver to or on the order of the
holder, at the expense of the Company, a new certificate representing the
number of shares of Series A Preferred Stock which were not converted.
L. Each share of Series A Preferred Stock outstanding three years
from the Issuance Date shall automatically be converted into Common Stock on
such date, pursuant to the conversion terms set forth herein, with such date
being deemed a Conversion Date (referred to as "Automatic Conversion").
M. The Company shall pay any and all original issue and/or transfer
expenses which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon conversion of the Series A Preferred Stock.
VI. No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Company by reason of purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Company shall be
authorized to issue. The Company may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Series A Preferred Stock accordingly.
VII. Reservation of Shares. The Company shall, so long as any of the
Series A Preferred Stock are outstanding reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series A Preferred Stock then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than the number of
shares of Common Stock for which the Series A Preferred Stock are at any time
convertible and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to maintain such number of shares of
Common Stock, the Company shall take such corporate action as may be necessary
to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.
8
VIII. Restrictions and Limitations.
A. Except as expressly provided herein or as required by law, so
long as any shares of Series A Preferred Stock remain outstanding, the Company
shall not, without the approval by vote or written consent by the holders of
at least two thirds of the then outstanding shares of Series A Preferred
Stock, voting as a separate class, take any action that would have a material
adverse effect on the rights, preferences or privileges of the holders of
Series A Preferred Stock as set forth herein.
B. Without limiting the generality of the preceding paragraph, the
Company shall not so long as any shares of Series A Preferred Stock remain
outstanding amend its Certificate of Incorporation without the approval by the
holders of all of the then outstanding shares of Series A Preferred Stock
if such amendment would:
1. create any other class or series of capital stock entitled to
seniority as to the payment of dividends in relation to the holders of Series
A Preferred Stock;
2. reduce the amount payable to the holders of Series A
Preferred Stock upon the voluntary or involuntary liquidation, dissolution or
winding up of the Company, or change the relative seniority of the liquidation
preferences of the holders of Series A Preferred Stock to the rights upon
liquidation of the holders of other capital stock of the Company,
3. cancel or modify the conversion rights of the holders of
Series A Preferred Stock provided for in Section V herein;
4. cancel or modify the rights of the holders of the Series A
Preferred Stock provided for in this Section.
IX. No Dilution or Impairment. The Company shall not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Certificate of Designation set forth herein, but
shall at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate in
order to protect the rights of the holders of the Series A Preferred Stock
against impairment. Without limiting the generality of the foregoing, the
Company (a) shall not establish a par value of any shares of stock receivable
on the conversion of the Series A Preferred Stock above the amount payable
therefor on such conversion, (b) shall take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the conversion of all
Series A Preferred Stock from time to time outstanding, and (c) shall not
consolidate with or merge into any other person or entity, or permit any such
person or entity to consolidate with or merge into the Company (if the Company
is not the surviving person), unless such other person or entity shall
expressly assume in writing and will be bound by all of the terms of the
Series A Preferred Stock set forth herein.
X. Notices of Record Date. In the event of:
9
1. any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
2. any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger of the Company where the Company is not the surviving entity, or any
transfer of all or substantially all of the assets of the Company to any other
corporation, or any other entity or person, the result of any of such merger
is that the Holder is requested to convert or exchange its certificates
representing Series A Preferred Stock, or
3. any voluntary or involuntary dissolution, liquidation or
winding up of the Company, then and in each such event the Company shall mail
or cause to be mailed to each holder of Series A Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, merger,
dissolution, liquidation or winding up is expected to become effective and
(iii) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, merger, dissolution, liquidation or winding up. Such notice shall
be mailed at least ten Business Days prior to the date specified in such
notice on which such action is to be taken.
XI. 4.99% Limitation. The number of shares of Common Stock which may be
acquired by any holder upon conversion pursuant to the terms herein shall not
exceed the number of such shares which, when aggregated with all other shares
of Common Stock then owned by holder, not inclusive of all other shares of
Common Stock or securities convertible or exercisable into Common Stock, would
result in any holder owning more than 4.99% of the then issued and outstanding
Common Stock. The preceding shall not interfere with any holder's right to
convert the Series A Preferred Stock over time which in the aggregate totals
more than 4.99% of the then outstanding shares of Common Stock so long as such
Investor does not own more than 4.99% of the then outstanding Common Stock at
any given time. The foregoing limitation shall not apply to the Automatic
Conversion provision contained herein.
XII. Redemption. At any time after 60 calendar days after the Effective
Date, the Company shall have the right to redeem up to fifty percent of the
then outstanding shares of Series A Preferred Stock, in whole or in part, in
cash, at the Redemption Price (as defined below), by thereafter providing two
Business Days prior written notice (the "Redemption Notice") to the holder(s)
of the Series A Preferred Stock. The Company must exercise its right to
redeem pro rata amongst all holders of the Series A Preferred Stock. The
Company shall wire transfer the appropriate amount of funds into an escrow
account to complete the redemption which shall be on the second Business Day
after the Redemption Notice was served upon the holder of the Series A
Preferred Stock (the "Redemption Date"). On the Redemption Date, provided the
Company has fully complied with the redemption provisions contained herein,
the holder's right to convert the Series A Preferred Stock which is subject to
the Redemption Notice shall terminate and be canceled immediately.
10
The Redemption Notice shall set forth (i) the Redemption Date, (ii) the
redemption price, which shall be, for each share of Series A Preferred Stock
being redeemed, equal to 150% of Stated Value of such share of Series A
Preferred Stock, plus all accrued and unpaid interest (the "Redemption
Price"), (iii) a statement that interest on the shares of Series A Preferred
Stock being redeemed will cease to accrue on such Redemption Date, and (iv) a
statement of or reference to the conversion right set forth in this
Certificate of Designation (including that the right to give a notice of
conversion in respect of any shares to be redeemed shall terminate on the
Redemption Date). The Redemption Notice shall be irrevocable, and it shall be
mailed, postage prepaid, at least seven Business Days prior to the Redemption
Date to the holder of the Series A Preferred Stock at their address as the
same shall appear on the books of the Company. If fewer than all of the
shares of Series A Preferred Stock owned by such holder are then to be
redeemed, the notice shall specify the number of shares thereof that is to be
redeemed and, if practicable, the numbers of such certificates.
At any time up to the date immediately prior to the Redemption Date, the
holder shall have the right to convert the Series A Preferred Stock into
Common Stock as more fully provided hereof. Unless so converted, at the close
of business on the Redemption Date, subject to the satisfaction of each of the
conditions described herein, the shares of Series A Preferred Stock being
redeemed shall be automatically canceled and converted into a right to receive
the Redemption Price, and all rights of the Series A Preferred Stock,
including the right to conversion shall cease without further action.
Immediately following the Redemption Date, provided that the Company has
satisfied each of the conditions set forth herein, the holder shall surrender
their original shares of Series A Preferred Stock at the office of the
Company, and the Company shall issue to the holder a new Series A Preferred
Stock Certificate for the any shares that remain outstanding.
The Redemption Price shall be adjusted proportionally upon any adjustment
of the Conversion Price under the terms hereof in the event of any stock
dividend, stock split, combination of shares or similar event.
The Company shall not be entitled to send any Redemption Notice and begin
the redemption procedure hereunder unless it has:
(i) 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;
(ii) 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
(iii) a combination of the items set forth in (a) and
(b) above, aggregating the full amount of the Redemption Price specifically
allotted for such redemption.
11
Upon delivery of the Redemption Notice, the Company and the holder
shall agree on reasonable arrangements for a closing of the redemption of the
shares of Series A Preferred Stock.
In the event the Company does not wire transfer the appropriate amount of
funds into the escrow account on or before the Redemption Date and authorize
the release to the holder, or shall otherwise fail to comply with the
redemption provisions set forth herein, then it shall have must wait at least
45 calendar days until it may serve another Notice of Redemption.
XIII. Forced Conversion. In the event, at any time 60 days after the
Effective Date, the Closing Bid Price of the Common Stock is greater than
US$20.16 (the "Strike Price") per share for twenty (20) consecutive Trading
Days (the "Call Period"), and such registration statement remains effective
during the period commencing on the first Trading Day of the Call Period and
ending on the Call Date (as defined below), the Company shall have the right
to "Call" the shares of Series A Preferred Stock, in whole or in part, thereby
forcing conversion by the holder. The Strike Price shall be adjusted
proportionately to reflect any adjustments due to the payment of a stock
dividend, stock split, combination of shares or any other similar event. The
Company may exercise its right to Call by telecopying written notice (the
"Call Notice") to the holder within three Trading Days after the Call Period.
Once the Company has exercised its right to Call by giving written notice
to the holder it shall be deemed irrevocable. Each Trading Day on which the
Call Notice is telecopied to, and received by, the holder shall be deemed a
Conversion Date for the purposes of completing this Call and calculating the
number of shares of Common Stock to be issued upon conversion. The Company
will transmit the certificates representing shares of Common Stock issuable
pursuant to the Call (together with the certificates representing the shares
of Series A Preferred Stock not Called, if any) to the holder via express
courier, by electronic transfer or otherwise within six Business Days after
the Call Notice was served upon the holder (the "Call Date").
The Call Notice shall set forth (i) a calculation referencing the
conversion formula contained herein showing the number of shares of Common
Stock being issued pursuant to this Call, (ii) a calculation referencing all
accrued and unpaid interest which shall be payable by the Company on or before
the Call Date, and (iii) a statement that interest on the Series A Preferred
Stock being Called will cease to accrue on such Call Date. If fewer than all
of the shares of Series A Preferred Stock owned by the holder are then to be
Called, the Call Notice shall specify the amount thereof that is to be Called
and, if practicable, the numbers of the certificates representing such Series
A Preferred Stock.
The portion of this Series A Preferred Stock being Called shall be
canceled and converted into a right to receive the shares of Common Stock, and
all rights of the Series A Preferred Stock, including the right to conversion
shall cease without further action immediately following the completion of the
Call. Immediately following the Call Date, assuming full compliance with the
terms of the Call, the holder shall surrender their original Series A
Preferred Stock being called at the office of the Company, and the Company
shall issue to the holder a new Series A Preferred Stock certificate for the
principal amount that remains outstanding, if any.
12
The number of shares of Common Stock issuable upon the Call of the
Series A Preferred Stock shall be adjusted proportionately to reflect any
adjustments due to the payment of a stock dividend, stock split, combination
of shares or any other similar event.
Any Call pursuant to this Section shall not be deemed to affect or
otherwise reduce the holder's conversion rights set forth in this Certificate
of Designation. In the event the Company fails to comply with the Call
provisions set forth herein in any manner whatsoever, it shall waive its right
to perform a call in the future.
RESOLVED, FURTHER, that the appropriate officers of the Company hereby
are authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, all in
accordance with the requirements of Section 78.1955 of the General Corporation
Law of the State of Nevada.
IN WITNESS WHEREOF, WordCruncher Internet Technologies, Inc., has
caused this Certificate to be signed by its Chief Executive Officer, and
attested to by its Assistant Secretary, this 27th day of January, 1999.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
/s/ M. Daniel Lunt /s/ Kenneth W. Bell
- -------------------------- --------------------------
M. Daniel Lunt, President Kenneth W. Bell, Secretary
13
EXHIBIT G
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
[Date]
Address
Re: Series A Preferred Stock Purchase Agreement dated February 8, 1999
Ladies and Gentlemen:
This opinion is furnished to you pursuant to the Series A Preferred
Stock Purchase Agreement by and between, the entities (the "Investors") listed
on Schedule A, and WordCruncher Internet Technologies, Inc. (the "Company"),
dated February 8, 1999 (the "Purchase Agreement"), which provides for the
issuance of Preferred Stock, and, certain additional shares upon the
occurrence of certain events as set forth thereof (the "Additional Shares",
and the "Reset Shares"), and a warrant to purchase shares of Common Stock of
the Company (the "Warrant", and the shares of Common Stock issued or issuable
pursuant to exercise of the Warrant, the "Warrant Shares"). All terms used
herein have the meanings defined for them in the Purchase Agreement unless
otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Purchase Agreement, the Warrant, the Certificate of
Determination, and the Registration Rights Agreement (the "Registration Rights
Agreement") between the Investors, and the Company, dated February 8, 1999,
and the Escrow Agreement between the Investors, the Placement Agent, the
Company and the Escrow Agent, dated February 8,1999 (the "Escrow Agreement",
and together with the Purchase Agreement and the Registration Rights
Agreement, the "Agreements"). As counsel, we have made such legal and factual
examinations and inquires as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined, among other
things, originals or copies of such corporate records of the Company,
certificates of public officials and such other documents and questions of
law that we consider necessary or advisable for the purpose of rendering this
opinion. In such examination we have assumed the genuineness of all
signatures on original documents, the authenticity and completeness of all
documents submitted to us as originals, the conformity to original documents
of all copies submitted to us as copies thereof, the legal capacity of natural
persons, and the due execution and delivery of all documents (except as to due
execution and delivery by the Company) where due execution and delivery are a
prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" refers to the
current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrant and the transactions contemplated thereby.
For purposes of this opinion, we have assumed that you have all
requisite power and authority, and have taken any and all necessary corporate
action, to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investor in the Agreements and
pursuant thereto are true and correct.
The opinions hereinafter expressed are subject to the following
qualifications:
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has all
requisite power and authority (corporate and other) to carry on its business
and to own, lease and operate its properties and assets as described in the
Company Documents and in the Agreements. To our knowledge, the Company does
not own or control any other business entity. The Company is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the Company owns or leases property, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to
enter into and perform its obligations under the Agreements, the Certificate
of Determination, and the Warrants and to issue the Preferred Stock, the
Additional Shares, the Reset Shares, the Warrants, the Warrant Shares, and the
Underlying Shares. The execution and delivery of the Agreements, and the
execution, issuance and delivery of the Preferred Stock, and the Warrants, by
the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors or
stockholders is required. Each of the Agreements has been duly executed and
delivered, and the Warrants, and Preferred Stock has been duly executed,
issued and delivered, by the Company and each of the Agreements, the
Certificate of Determination, the Preferred Stock, and the Warrants
constitutes valid and binding obligations of the Company enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application.
3. The execution, delivery and performance of the Agreements, the
Certificate of Determination, the Preferred Stock, and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
thereby, including, without limitation, the issuance of the Additional Shares,
the Warrants, the Warrant Shares, the Preferred Stock, the Underlying Shares,
and the Reset Shares, do not and will not (i) result in a violation of the
Company's Articles or By-Laws; (ii) to our knowledge, conflict with, or
constitute a material default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture, instrument or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, except for
such conflicts, defaults, terminations, amendments, accelerations and
cancellations as would not, individually or in the aggregate, have a Material
Adverse Effect; or (iii) result in a violation of any federal or state law,
rule or regulation applicable to the Company or by which any property or asset
of the Company is bound or affected, except for such violations as would not,
individually or in the aggregate, have a Material Adverse Effect. To our
knowledge, the Company is not in violation of any terms of its Articles or
Bylaws.
4. The issuance of the Additional Shares, the Warrants, the Warrant
Shares, the Preferred Stock, the Underlying Shares, and the Reset Shares in
accordance with the Purchase Agreement will be exempt from registration under
the Securities Act of 1933 and will be in compliance with Nevada state
securities laws. When so issued, subject to sufficient reserved authorized
shares of Common Stock, the Additional Shares, the Reset Shares, the Warrants,
the Warrant Shares, the Preferred Stock, and the Underlying Stock, will be
duly and validly issued, fully paid and nonassessable, and free of any liens,
encumbrances and preemptive or similar rights contained in the Company's
Articles of Incorporation (the "Articles") or Bylaws or, to our knowledge, in
any agreement to which the Company is party.
5. To our knowledge, except as disclosed in the Company Documents
and the Agreements, there are no claims, actions, suits, proceedings or
investigations that are pending against the Company or its properties, or
against any officer or director of the Company in his or her capacity as such,
nor has the Company received any written threat of any such claims, actions,
suits, proceedings, or investigations which are required to be and have not
been disclosed in the Company Documents and the Agreements.
6. To our knowledge, there are no outstanding options, warrants,
calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exchangeable for, or giving any
right to subscribe for or acquire any shares of Common Stock or contracts,
commitments, understanding, or arrangements by which the Company is or may
become bound to issue additional shares of Common Stock, or securities or
rights convertible or exchangeable into shares of Common Stock, except as
described in the Company Documents and the Agreements. To our knowledge, the
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
7. The issuance of the Securities will not violate the applicable
listing agreement between the Company and any securities exchange or market on
which the Company's securities are listed. The Company is in full compliance
with the listing and maintenance requirements of the OTC Bulletin Board.
8. The authorized capital stock of the Company consists of
shares of Common Stock, $0.001 par value per share, and shares of
Preferred Stock, par value $___ per share.
This opinion is furnished to the Investors solely for their benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
Exhibit H
INSTRUCTIONS TO TRANSFER AGENT
WordCruncher Internet Technologies, Inc.
_______________, 1999
Standard Register
Dear Sirs:
Reference is made to the Series A Preferred Stock Purchase Agreement and all
Exhibits and Attachments thereto (the "Agreement") dated as of February 8,
1999, between the entities referred to on Schedule A annexed hereto (the
"Investors"), and WordCruncher Internet Technologies, Inc. (the "Company").
Pursuant to the Agreement, and subject to the terms and conditions set forth
in the Agreement, the Investors have agreed to purchase from the Company and
the Company has agreed to sell to the Investors from time to time during the
term of the Agreement shares of Series A Preferred Stock of the Company, $0.01
par value per share (the "Preferred Stock"), and (ii) the Company has agreed
to issue to the Investors, and to the Cardinal Capital Management, Inc.
("Cardinal") warrants to purchase Common Stock (the "Warrant"). As a
condition to the effectiveness of the Agreement, the Company has agreed to
issue to you, as the transfer agent for the Common Stock (the "Transfer
Agent"), these instructions relating to the Preferred Stock, and Warrants to
be issued to the Investors and Cardinal pursuant to the Agreement, and Common
Stock upon conversion of the Preferred Stock, and/or upon exercise of the
Warrants. All terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement.
1. ISSUANCE OF COMMON STOCK WITHOUT THE LEGEND
Pursuant to the Agreement, the Company is required to prepare and file with
the Commission, and maintain the effectiveness of, a registration statement or
registration statements registering the resale of the Common Stock to be
acquired by the Investors and Cardinal (i) under the Agreement and (ii) upon
exercise of the Warrants. The Company will advise the Transfer Agent in
writing of the effectiveness of any such registration statement promptly upon
its being declared effective. The Transfer Agent shall be entitled to rely on
such advice and shall assume that the effectiveness of such registration
statement remains in effect unless the Transfer Agent is otherwise advised in
writing by the Company and shall not be required to independently confirm the
continued effectiveness of such registration statement. In the circumstances
set forth in the following two paragraphs, the Transfer Agent shall deliver to
the Investors and Cardinal certificates representing Common Stock not bearing
the Legend without requiring further advice or instruction or additional
documentation from the Company or its counsel or the Investors or its counsel
or any other party (other than as described in such paragraphs).
At any time after the effective date of the applicable registration statement
(provided that the Company has not informed the Transfer Agent in writing that
such registration statement is not effective) upon any surrender of one or
more certificates which bear the Legend, to the extent accompanied by a notice
requesting the issuance of new certificates free of the Legend to replace
those surrendered, the Transfer Agent shall deliver to the Investors (and/or
Cardinal) the certificates representing the Common Stock not bearing the
Legend, in such names and denominations as the Investors, and/or Cardinal
shall request.
In the event a registration statement is not filed by the Company, or for any
reason the registration statement which is filed by the Company is not
declared effective by the Commission the Investors and/or Cardinal, or its
permitted assignee, or either of their brokers confirms to the Transfer Agent
that (i) the Investors and/or Cardinal has held the shares of Common Stock (or
the Warrants) for at least one year, (ii) counting the shares surrendered as
being sold upon the date the unlegended Certificates would be delivered to the
Investors and/or Cardinal (or the Trading Day immediately following if such
date is not a Trading Day), the Investors and/or Cardinal will not have sold
more than the greater of (a) one percent of the total number of outstanding
shares of Common Stock or (b) the average weekly trading volume of the Common
Stock for the preceding four weeks during the three months ending upon such
delivery date (or the Trading Day immediately following if such date is not a
Trading Day), and (iii) the Investors and/or Cardinal has complied with the
manner of sale and notice requirements of Rule 144 under the Securities Act,
and the Company shall give an opinion to the extent available, authorizing the
removal of the Legend.
Any advice, notice, or instructions to the Transfer Agent required or
permitted to be given hereunder may be transmitted via facsimile to the
Transfer Agent's facsimile number of ( ) ___-____.
2. MECHANICS OF DELIVERY OF CERTIFICATES REPRESENTING COMMON STOCK
In connection with any Closing pursuant to which the Investors acquires Common
Stock under the Agreement, the Transfer Agent shall deliver to the Investors
as defined in the Agreement certificates representing Common Stock (with or
without the Legend, as appropriate) immediately.
3. FEES OF TRANSFER AGENT; INDEMNIFICATION
The Company agrees to pay the Transfer Agent for all fees incurred in
connection with these Irrevocable Instructions. The Company agrees to
indemnify the Transfer Agent and its officers, employees and agents, against
any losses, claims, damages or liabilities, joint or several, to which it or
they become subject based upon the performance by the Transfer Agent of its
duties in accordance with the Irrevocable Instructions.
4. THIRD PARTY BENEFICIARY
The Company and the Transfer Agent acknowledge and agree that the Investors is
an express third party beneficiary of these Irrevocable Instructions and shall
be entitled to rely upon, and enforce, the provisions thereof.
WORDCRUNCHER INTERNET TECHNOLOGIES, INC.
By__________________________
Name: Kenneth W. Bell
Title: Chief Financial Officer
AGREED:
STANDARD REGISTER
By:__________________________
Name:
Title:
EXHIBIT I
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert Series a Preferred Stock
Certificate No. ___ into shares of Common Stock of WORDCRUNCHER INTERNET
TECHNOLOGIES, INC. (the "Company") according to the conditions hereof, as of
the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of Common
Stock issuable to the undersigned upon conversion of the Series A Preferred
Stock shall be made pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), or pursuant to registration of
the Common Stock under the Act;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own 4.99% or more of the then issued and outstanding
shares of Common Stock of the Company.
__________________________________ _________________________________
Date of Conversion Applicable Conversion Price
__________________________________ _________________________________
Number of Common Shares upon Conversion Shares of Preferred Stock Converted
__________________________________ _________________________________
Signature Name
Address: Delivery of Shares to:
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to
Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert Series a Preferred Stock
Certificate No. ___ into shares of Common Stock of WORDCRUNCHER INTERNET
TECHNOLOGIES, INC. (the "Company") according to the conditions hereof, as of
the date written below.
The undersigned represents and warrants that:
(i) that all offers and sales by the undersigned of the shares of Common
Stock issuable to the undersigned upon conversion of the Series A Preferred
Stock shall be made pursuant to an exemption from registration under the
Securities Act of 1933, as amended (the "Act"), or pursuant to registration of
the Common Stock under the Act;
(ii) the undersigned has not engaged in any transaction or series of
transaction that is a part of or a plan or scheme to evade the registration
requirements of the Act; and
(iii) upon conversion pursuant to this Notice of Conversion, the
undersigned will not own 4.99% or more of the then issued and outstanding
shares of Common Stock of the Company.
__________________________________ _________________________________
Date of Conversion Applicable Conversion Price
__________________________________ _________________________________
Number of Common Shares upon Conversion Shares of Preferred Stock Converted
__________________________________ _________________________________
Signature Name
Address: Delivery of Shares to: