-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IlCa5evxEzUsJ/11tLrJtAoP3WQMHAXjc+SbolQdupwx2G3I9xwDdf807wgbFT4p DCN/7b7R6gJq9M8ZSs/5Lw== 0001019687-04-000440.txt : 20040308 0001019687-04-000440.hdr.sgml : 20040308 20040308075101 ACCESSION NUMBER: 0001019687-04-000440 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20040308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILINC COMMUNICATIONS INC CENTRAL INDEX KEY: 0001042291 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 760545043 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-113380 FILM NUMBER: 04653541 BUSINESS ADDRESS: STREET 1: 2999 NORTH 44TH STREET STREET 2: SUITE 650 CITY: PHOENIX STATE: AZ ZIP: 85018 BUSINESS PHONE: 6029521200 MAIL ADDRESS: STREET 1: 2999 N 44TH STREET STREET 2: SUITE 650 CITY: PHOENIX STATE: AZ ZIP: 85018 FORMER COMPANY: FORMER CONFORMED NAME: EDT LEARNING INC DATE OF NAME CHANGE: 20010814 FORMER COMPANY: FORMER CONFORMED NAME: E-DENTIST COM INC DATE OF NAME CHANGE: 20001114 FORMER COMPANY: FORMER CONFORMED NAME: PENTEGRA DENTAL GROUP INC DATE OF NAME CHANGE: 19970822 S-3 1 ilinc_s3-030504.txt As filed with the Securities and Exchange Commission on March 5, 2004. Registration No. _______ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 iLINC COMMUNICATIONS, INC. -------------------------- (Exact name of registrant as specified in its charter) DELAWARE -------- (State or other jurisdiction of incorporation or organization) 76-0545043 ---------- (I.R.S. employer identification number) 2999 NORTH 44TH STREET, SUITE 650 PHOENIX, ARIZONA 85018 (602) 952-1200 -------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) JAMES M. POWERS, JR. iLINC COMMUNICATIONS, INC. 2999 NORTH 44TH STREET, SUITE 650 PHOENIX, ARIZONA 85018 (602) 952-1200 -------------- (Name, address, including zip code and telephone number, including area code, of agent for service) COPIES OF COMMUNICATION TO: JAMES S. RYAN, III, ESQ. JACKSON WALKER L.L.P. 901 MAIN STREET, SUITE 6000 DALLAS, TEXAS 75202 (214) 953-6000 Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box...[ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box..................................[X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.................................[ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering........................................................[ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box...............................................[ ] CALCULATION OF REGISTRATION FEE
================================== ===================== ======================== ========================== ====================== Proposed Maximum Proposed Maximum Amount of Title of Each Class of Amount to be Offering Price Aggregate Offering Registration Securities To Be Registered Registered Per Share (2) Price (2) Fee - ---------------------------------- --------------------- ------------------------ -------------------------- ---------------------- Common Stock, $0.001 par value 25,137,553 Shares $0.94 $23,629,299 $2,993.83 per share (1) ================================== ===================== ======================== ========================== ======================
(1) Includes common stock currently outstanding or common stock issuable upon conversion of preferred stock and convertible notes or upon exercise of warrants that were acquired in one or more of the following transactions: (i) a merger transaction in November of 1998 involving Liberty Dental Alliance, Inc.; (ii) an asset purchase transaction in August of 2000 with Dexpo.com, Inc.; (iii) a merger transaction in January of 2002 with ThoughtWare Technologies, Inc.; (iv) a merger transaction in September of 2001 with Learning-Edge, Inc.; (v) a stock purchase transaction in June of 2002 with certain stockholders of the Quisic Corporation; (vi) warrants issued to certain organizations who are vendors or consultants; (vii) the private placement in March of 2002 of our convertible subordinated notes and associated warrants; (viii) the private placement in June of 2003 of our convertible preferred stock and associated warrants; (ix) the private placement in February 2004 of our convertible subordinated notes; (x) Debt Conversion Agreement with Quisic shareholders in December 2003; (xi) as part of the formation of the company and as part of a dental practice acquisition; and, (xii) an Asset Purchase Transaction in November of 1998 of Series A Convertible Notes with certain affiliated dental practices. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 of the Securities Act of 1933, as amended. Calculated pursuant to Rule 457(c) based on the average high and low sales price of the common stock on the American Stock Exchange on March 2, 2004. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION, DATED MARCH 5, 2004 iLINC COMMUNICATIONS, INC. 25,137,553 SHARES OF COMMON STOCK This is an offering of shares of common stock of iLinc Communications, Inc. All of the shares being offered are being sold by the selling stockholders. We will not receive any proceeds from the sale of shares by the selling stockholders. However, upon any exercise of the warrants by payment of cash, we will receive the exercise price of the warrants. Our common stock is quoted on the American Stock Exchange under the symbol "ILC." On March 4, 2004, the last reported sales price of our common stock on the American Stock Exchange was $0.92 per share. INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is March ___, 2004. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES. TABLE OF CONTENTS Prospectus Summary.............................................................1 Company Information............................................................1 The Offering...................................................................2 Risk Factors...................................................................2 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS..............................6 USE OF PROCEEDS................................................................7 SELLING STOCKHOLDERS...........................................................7 PLAN OF DISTRIBUTION..........................................................12 Legal Matters.................................................................12 Experts.......................................................................12 Incorporation Of Certain Documents By Reference...............................13 Where You Can Find More Information...........................................13 PART II - Information Not Required In Prospectus............................II-1 Exhibit List................................................................II-6 (i) PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS INCLUDING "RISK FACTORS" BEFORE MAKING AN INVESTMENT DECISION. UNLESS THE CONTEXT REQUIRES OTHERWISE IN THIS PROSPECTUS, REFERENCES IN THIS PROSPECTUS TO "iLINC," "WE," "US," "OUR," OR THE "COMPANY" REFER TO iLINC COMMUNICATIONS, INC. COMPANY INFORMATION Headquartered in Phoenix, Arizona, iLinc Communications, Inc. is a provider of Web conferencing and Web collaboration software and services as well as other eLearning products and services. We changed our name from EDT Learning, Inc. to "iLinc Communications, Inc." to reflect not only the breadth of our Web conferencing products and services but also to reflect the integration of audio conferencing, video conferencing, and voice-over-IP technologies. The name change was approved at a special meeting of stockholders on February 5, 2004. The Company's formation in March of 1998, as a dental practice management company included the simultaneous rollup of affiliated dental practices and an initial public offering. The Company's initial goals were to provide training and practice enhancement services to its affiliated dental practices remotely located in 31 states. In the summer of 2001, the Company shifted its business focus away from the dental practice management industry and toward the e-Learning sector. As of December 31, 2003, all of the dental practice management contacts had expired and the Company has totally transitioned out of that legacy dental management industry. Our common stock is quoted on the American Stock Exchange under the symbol "ILC." Our principal executive offices are located at 2999 N. 44th Street, Suite 650, Phoenix, Arizona 85018. Our main telephone number is 602-952-1200. OUR BUSINESS WEB CONFERENCING AND AUDIO CONFERENCING We are a provider of Web conferencing, virtual classroom, Web collaboration, and other eLearning software and services. We provide Web collaboration and Web conferencing software that includes one of the most comprehensive set of features and functionality in the Web conferencing industry. Our recent name change is reflective of our focus in terms of research, development, sales and marketing on our award-winning suite of Web conferencing and Web collaboration software known as the iLinc(TM) Suite. The iLinc suite includes: LEARNLINC(TM) - permits live instructor-led training and education over the Internet to remote students; MEETINGLINC(TM) - facilitates communication among meeting participants through online meetings using the Internet, audio conferencing, voice-over-IP technology and video conferencing technology; CONFERENCELINC(TM) - allows presenters to deliver their message to a large audience in a one-to-many format replicating conferencing events using the Internet; and SUPPORTLINC(TM) - gives customer service organizations the ability to provide remote, hands-on support for products, systems, or software applications to end users. Our iLinc Web collaboration software suite is available in both an ASP (we host) and license purchase model (the customer hosts). Since its beginnings in 1994, LearnLinc and MeetingLinc have been installed and operational in corporate, government, and educational organizations in the United States and Internationally. LearnLinc(TM), the flagship of EDT Learning's four-product iLinc suite, won first place at the Synchronous e-Learning Shootout held at Online Learning's Conference in the fall of 2002, winning by a vote of training professionals over such other notable companies as WebEx, PlaceWare, and Centra. OUR OTHER E-LEARNING PRODUCTS While we have focused on our iLinc suite of products, we also continue to provide various e-Learning solutions to corporate, government, and education clients alike. Those products include our online collaboration and development software products that include TestLinc(TM), and i-Canvas(TM). We also offer a library of online courses focused upon the training of executives on essential business topics. Our off-the-shelf online library of content includes an online mini-MBA program co-developed with the Tuck School of Business at Dartmouth College. Customers subscribe for a period of time per course, with the license providing for access over typically one year from date the students first access of the course. 1 For the development of custom online content we offer an award winning content development software, called i-Canvas(TM) which is sold on an individual user perpetual license basis. We continue to provide to our customers award winning custom content services through the Interactive Alchemy subcontractor relationship. Custom content services are bid on a project-by-project basis and revenue is recognized on the percentage-of-completed contract method. THE OFFERING Common stock offered 25,137,553 shares of our common stock are being offered by this prospectus. All of the shares offered by this prospectus are being sold by the selling stockholders. Use of proceeds We will not receive any proceeds from the sale of shares of common stock in this offering. However, upon any exercise for cash of the warrants described herein, we will receive the exercise price of the warrants. The American Stock Exchange symbol "ILC" The selling stockholders identified in this prospectus, or their pledges, donees, transferees or other successors-in-interest, may offer the shares or interests therein from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. RISK FACTORS You should carefully consider the risks factors described below before making an investment decision concerning the Company. If any of the following risks actually occur, our business, financial condition, results of operations and market price of our common stock could be materially and adversely affected. WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS. We have a limited operating history in the e-Learning business and particularly as a provider of Web conferencing and Web collaboration software. While the organizations that we have acquired have been engaged in the their respective business for over five years, we only recently acquired those assets and have undertaken to integrate their assets into our operations at varying levels. You should not rely on our historical results as an indication of our future performance. Over the past 18 months we have made significant changes to our product mix and service mix, our growth strategies, our sales and marketing plans, and other operational matters, including a significant reduction in our employee base. As a result, it may be difficult to evaluate an investment in our company. Given our recent investment in technology, we cannot be certain that our business model and future operating performance will yield the results that we intend. In addition, the competitive and rapidly changing nature of the e-Learning and Web conferencing markets makes it difficult for us to predict future results. Our business strategy may be unsuccessful and we may be unable to address the risks we face. WE FACE RISKS INHERENT IN EARLY-STAGE COMPANIES IN INTERNET-RELATED BUSINESSES AND MAY BE UNSUCCESSFUL IN ADDRESSING THESE RISKS. We face risks frequently encountered by early-stage companies in new and rapidly evolving markets such as e-Learning and Web conferencing. We may fail to adequately address these risks and, as a consequence, our business may suffer. To address these risks among others, we must successfully introduce and attract new customers to our products and services; successfully implement our sales and marketing strategy to generate sufficient sales and revenues to achieve or sustain operations; foster existing relationships with our existing customers to provide for continued or recurring business and cash flow; and, successfully address and establish new products and technologies as new markets develop. As an early-stage company, we may not be able to sufficiently access, address and overcome risks inherent in our business strategy. 2 OUR QUARTERLY OPERATING RESULTS ARE UNCERTAIN AND MAY FLUCTUATE SIGNIFICANTLY. Our operating results have varied significantly from quarter to quarter and are likely to continue to fluctuate as a result of a variety of factors, many of which we cannot control. Factors that may adversely affect our quarterly operating results include: the size and timing of product orders; the mix of revenue from custom services and software products; the market acceptance of our products and services; our ability to develop and market new products in a timely manner and the market acceptance of these new products; the timing of revenues and expenses relating to our product sales; and, the timing of revenue recognition. Expense levels are based, in part, on expectations as to future revenue and to a large extent are fixed in the short term. To the extent we are unable to predict future revenue accurately, we may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. WE HAVE SIGNIFICANT OPERATING LOSSES, HAVE LIMITED FINANCIAL RESOURCES, AND MAY NOT BECOME PROFITABLE. We have incurred substantial operating losses and have limited financial resources at our disposal. We have substantial current and long-term obligations that we will not be able to satisfy without additional debt and/or equity capital and ultimately generating profits and cash flows from our e-Learning and Web conferencing operations. If we are unable to achieve profitability in the near future, we will face increasing demands for capital and liquidity. We may not be successful in raising additional debt or equity capital and may not become profitable in the short term or not at all. As a result, we may not have sufficient financial resources to satisfy our obligations as they come due in the short term. OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN. Our consolidated financial statements have been prepared on a basis which assumes that we will continue as a going concern and which contemplates the realization of our assets and the satisfaction of our liabilities and commitments in the normal course of business. We have a significant working capital deficiency, and have historically suffered substantial recurring losses and negative cash flows from operations. These matters, among others, and the limited operating history as an e-Learning and Web collaboration company, caused our independent accountants to express their substantial doubt as to our ability to continue as a going concern. Our plans with regard to these matters include continued development, marketing and licensing of our Web Conferencing and e-Learning products and services through both internal growth and acquisition. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient revenues from our products and services to provide adequate cash flows to sustain operations. Our continuation is dependent on our ability to raise additional equity or debt capital, to increase its e-Learning revenues, to generate positive cash flows from operations and to achieve profitability. The consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might result from the outcome of this uncertainty. LISTING QUALIFICATIONS MAY NOT BE MET. In September of 2003, the Company was notified by the American Stock Exchange that the Company may not have been in compliance with certain of the American Stock Exchange's continued listing standards. Specifically, the American Stock Exchange questioned whether the Company was then in compliance with the requirement that a company maintain stockholder's equity of at least $4 million and/or not have losses from continuing operations and/or net losses in three of its four most recent fiscal years. As of September 30, 2003 and December 31, 2003, the Company was in compliance with this listing standard since it had stockholder's equity of at least $4.0 million ($4.1 million as of December 31, 2003). If in the future, the Company fails to maintain a sufficient level of stockholder's equity in compliance with those and other listing standards of the American Stock Exchange then the Company would be required to submit a plan to the American Stock Exchange describing how it intended to re-gain compliance with the requirements within the American Stock Exchange's required time frame, which is generally eighteen months. The Company's ability to continue to meet the American Stock Exchange's continued listing requirements cannot be assured and if it could not satisfy the American Stock Exchange that it complies with the listing requirements then the American Stock Exchange could de-list the Company's common stock. DILUTION TO EXISTING STOCKHOLDERS IS LIKELY TO OCCUR UPON ISSUANCE OF SHARES WE HAVE RESERVED FOR FUTURE ISSUANCE. 3 On December 31, 2003, 19,073,059 shares of our common stock were issued, of which 1,432,412 were held in treasury, and 22,459,769 additional shares of our common stock were reserved for issuance. The issuance of these additional shares will reduce the percentage ownership of existing stockholders in the Company. The following shares were reserved for issuance as of December 31, 2003: o Issued and outstanding stock options to purchase common shares totaling approximately 1,982,105; o Issued and outstanding warrants to purchase common shares totaling approximately 7,647,664; o Issued and outstanding warrant to purchase $577,500 of convertible redeemable subordinated notes with detachable warrants for 577,500 common shares, all of which are exercisable for or convertible into an aggregate 1,155,000 common shares; o Issued and outstanding warrant to purchase 15,000 shares of convertible preferred stock with detachable warrants for 75,500 common shares, all of which are exercisable for or convertible into an aggregate 575,000 common shares; o A restricted stock grant to receive shares totaling approximately 450,000; and o Shares issuable upon the conversion of convertible redeemable subordinated notes and preferred stock totaling a potential aggregate of 10,650,000 common shares. The existence of these reserved shares coupled with other factors, such as the relatively small public float, could adversely affect prevailing market prices for our common stock and our ability to raise capital through an offering of equity securities. THE LOSS OF THE SERVICES OF OUR SENIOR EXECUTIVES AND KEY PERSONNEL WOULD LIKELY CAUSE OUR BUSINESS TO SUFFER. Our success depends to a significant degree on the performance of our senior management team. The loss of any of these individuals could harm our business. We do not maintain key person life insurance for any officers or key employees other than on the life of James M. Powers, Jr., our Chairman, President and CEO, with that policy providing a death benefit to the Company of $1.0 million. Our success also depends on the ability to attract, integrate, motivate and retain additional highly skilled technical, sales and marketing, and professional services personnel. To the extent we are unable to attract and retain a sufficient number of additional skilled personnel, our business will suffer. OUR INTELLECTUAL PROPERTY MAY BECOME SUBJECT TO LEGAL CHALLENGES, UNAUTHORIZED USE OR INFRINGEMENT, ANY OF WHICH COULD DIMINISH THE VALUE OF OUR PRODUCTS AND SERVICES. Our success depends in large part on our proprietary technology. If we fail to successfully enforce our intellectual property rights, the value of these rights, and consequently the value of our products and services to our customers, could diminish substantially. It may be possible for third parties to copy or otherwise obtain and use our intellectual property or trade secrets without our authorization, and it may also be possible for third parties to independently develop substantially equivalent intellectual property. Currently, we do not have patent protection in place related to our products and services. Litigation may be necessary in the future to enforce our intellectual property rights, to protect trade secrets or to determine the validity and scope of the proprietary rights of others. From time to time we have received, and may in the future receive, notice of claims of infringement of other parties' proprietary rights. Such claims could result in costly litigation and could divert management and technical resources. These types of claims could also delay product shipment or require us to develop non-infringing technology or enter into royalty or licensing agreements, which agreements, if required, may not be available on reasonable terms, or at all. A DETERIORATION OF GENERAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS. Our revenues are subject to fluctuation as a result of general economic conditions. Our customers may reduce their expenditures for education and training during economic downturns. Therefore, a continued economic downturn could adversely affect the Company's business. 4 WE OFFER OUR WEB COLLABORATION PRODUCTS ON AN ASP BASIS SO IF WE DO NOT INCREASE THE CAPACITY OF OUR INFRASTRUCTURE IN EXCESS OF CUSTOMER DEMAND, CUSTOMERS MAY EXPERIENCE SERVICE PROBLEMS. We expect the demand on our ASP business to increase significantly. Accordingly, we must increase our capacity to keep pace with that growth in demand. To accommodate increased customer usage requires a significant increase in the capacity of our infrastructure and may cause us to invest significant resources or capital. If we fail to increase our capacity in a timely and efficient manner, customers may experience service problems that could cause us to lose customers and decrease our revenue. COMPETITION IN THE WEB CONFERENCING SERVICES MARKET IS INTENSE AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY, PARTICULARLY AS A RESULT OF RECENT ANNOUNCEMENTS FROM LARGE SOFTWARE COMPANIES. The market for Web conferencing services is relatively new, rapidly evolving and intensely competitive. Competition in our market will continue to intensify and may force us to reduce our prices, or cause us to experience reduced sales and margins, loss of market share and reduced acceptance of our services. Many of our competitors have larger and more established customer bases, longer operating histories, greater name recognition, broader service offerings, more employees and significantly greater financial, technical, marketing, public relations and distribution resources than we do. We expect that we will face new competition as others enter our market to develop web conferencing services. These current and future competitors may also offer or develop products or services that perform better than ours. In addition, acquisitions or strategic partnerships involving our current and potential competitors could harm us in a number of ways. FUTURE REGULATIONS COULD BE ENACTED THAT EITHER DIRECTLY RESTRICT OUR BUSINESS OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET-BASED BUSINESS AND SERVICES. As commercial use of the Internet increases, federal, state and foreign agencies could enact laws or adopt regulations covering issues such as user privacy, content and taxation of products and services. If enacted, such laws or regulations could limit the market for our products and services. Although they might not apply to our business directly, we expect that laws or rules regulating personal and consumer information could indirectly affect our business. It is possible that such legislation or regulation could expose companies involved in providing Internet-based services to liability, which could limit the growth of Web use generally and thereby reduce demand for our products and services. Such legislation or regulation could dampen the growth in Web usage and decrease its acceptance as a medium of communications and commerce. WE DEPEND LARGELY ON ONE-TIME SALES TO GROW REVENUES. A high percentage of our revenue is attributable to one-time purchases by our customers rather than long term recurring ASP type contracts. As a result, our inability to continue to obtain new agreements and sales may result in lower than expected revenue, and therefore, harm our ability to achieve or sustain operations or profitability on a consistent basis, which could also cause our stock price to decline. Further, because we face competition from larger better-capitalized companies, we could face increased downward pricing pressure that could cause a decrease in our gross margins. OUR OPERATING RESULTS MAY SUFFER IF WE FAIL TO DEVELOP AND FOSTER OUR VALUE ADDED RESELLER OR DISTRIBUTION RELATIONSHIPS. We have an existing channel and distribution network that provides growing revenues and contributes to our high margin software sales. These distribution partners are not obligated to distribute our services at any particular minimum level. As a result, we cannot accurately predict the amount of revenue we will derive from our distribution partners in the future. The inability of our distribution partners to sell our products to their customers and increase their distribution of our products could result in significant reductions in our revenue, and therefore, harm our ability to achieve or sustain profitability on a consistent basis. 5 SALES IN FOREIGN JURISDICTIONS BY US AND OUR INTERNATIONAL DISTRIBUTOR NETWORK MAY CAUSE COSTS THAT ARE NOT ANTICIPATED. We continue to expand internationally through our value added reseller network and OEM partners. We have limited experience in international operations and may not be able to compete effectively in international markets. We face certain risks inherent in conducting business internationally, such as: o our inability to establish and maintain effective distribution channels and partners; o the varying technology standards from country to country; o our inability to effectively protect our intellectual property rights or the code to our software; o our inexperience with inconsistent regulations and unexpected changes in regulatory requirements in foreign jurisdictions; o language and cultural differences; o fluctuations in currency exchange rates; o our inability to effectively collect accounts receivable; or o our inability to manage sales and other taxes imposed by foreign jurisdictions. THE GROWTH OF OUR BUSINESS SUBSTANTIALLY DEPENDS ON OUR ABILITY TO SUCCESSFULLY DEVELOP AND INTRODUCE NEW SERVICES AND FEATURES IN A TIMELY MANNER. We acquired our Web collaboration, Web conferencing and virtual classroom software in November of 2002. With our focus upon that product suite our growth depends on our ability to continue to develop new features, products and services around the iLinc suite and line of products. We may not successfully identify, develop and market new products and features in a timely and cost-effective manner. If we fail to develop and maintain market acceptance of our existing and new products to offset our continuing development costs, then our net losses will increase and we may not be able to achieve or sustain profitability on a consistent basis. IF WE FAIL TO OFFER COMPETITIVE PRICING, WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS. Because the Web conferencing market is relatively new and still evolving, the prices for these services are subject to rapid and frequent changes. In many cases, businesses provide their services at significantly reduced rates, for free or on a trial basis in order to win customers. Due to competitive factors and the rapidly changing marketplace, we may be required to significantly reduce our pricing structure, which would negatively affect our revenue, margins and our ability to achieve or sustain profitability on a consistent basis. We have an existing channel and distribution network that provides growing revenues and contributes to our high margin software sales. These distribution partners are not obligated to distribute our services at any particular minimum level. As a result, we cannot accurately predict the amount of revenue we will derive from our distribution partners in the future. Our inability of our distribution partners to sell our products to their customers and increase their distribution of our products could result in significant reductions in our revenue, and therefore, harm our ability to achieve or sustain profitability on a consistent basis. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made in this prospectus constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from any future results described within the forward-looking statements. Factors that could contribute to such differences include, the rate of acceptance of our products and services by customers, and changes in the e-Learning and Web conferencing and collaboration market in general, use of the Internet, the acceptance of new products, our need for working capital, the result of pending litigation, the competition we face from larger and more well capitalized competitors and other matters more fully disclosed in this prospectus, the Company's annual report on Form 10-K and other reports filed with the Securities and Exchange Commission. The forward-looking information provided herein represents the Company's estimates as of the date of this prospectus, and subsequent events and developments may cause the Company's estimates to change. The Company specifically disclaims any obligation to update the forward-looking information in the future. Therefore, this forward-looking information should not be relied upon as representing the Company's estimates of its future financial performance as of any date subsequent to the date of this prospectus. 6 USE OF PROCEEDS All of the common stock offered under this prospectus is being sold by the selling stockholders. We will not receive any of the proceeds from the sale of the common stock. Certain of the shares covered by this prospectus are, prior to their resale pursuant to this prospectus, issuable upon exercise of warrants. Upon any exercise of warrants by payment of cash, we will receive the exercise price of those exercised warrants. Currently we have outstanding warrants that were issued: o to certain organizations who were vendors or consultants; o to investors in our private placement in March of 2002 of our convertible subordinated notes; and o to investors in our private placement in June of 2003 of our convertible preferred stock. We have therefore outstanding warrants that would provide cash in the amount of $20,938,909 to us if all of the warrants were exercised at the various prices as reflected in the following table: ----------------------------- ------------------- -------------------------- NUMBER OF SHARES OF COMMON EXERCISE PRICE PROCEEDS PROVIDED TO STOCK UNDERLYING WARRANTS PER SHARE COMPANY UPON EXERCISE ----------------------------- ------------------- -------------------------- 250,000 $0.40 $100,000 ----------------------------- ------------------- -------------------------- 543,182 $0.42 $228,136 ----------------------------- ------------------- -------------------------- 132,972 $0.44 $58,508 ----------------------------- ------------------- -------------------------- 996,510 $1.50 $1,494,765 ----------------------------- ------------------- -------------------------- 6,352,500 $3.00 $19,057,500 ----------------------------- ------------------- -------------------------- TOTAL: $20,938,909 ----------------------------- ------------------- -------------------------- To the extent we receive cash upon any exercise of the warrants, we expect to use that cash for general corporate purposes. SELLING STOCKHOLDERS The shares of common stock being sold by the selling stockholders consist of: o 1,572,222 shares of our common stock issued upon conversion in September 2003 of series A subordinated notes which were issued as part of the consideration due certain affiliated dental practices in November of 1998; o 253,219 shares of our common stock issued as part of the formation of the company (161,205) and as part of a dental practice acquisition (92,014); o 337,739 shares of our common stock issued under the terms of a merger transaction in November of 1998 involving Liberty Dental Alliance, Inc.; o 292,532 shares of our common stock originally issued under the terms of an acquisition agreement relating to our acquisition of certain assets of Dexpo, Inc. in October of 2000; o 1,816,222 shares of our common stock originally issued under the terms of an acquisition agreement relating to our acquisition of certain assets of Learning-Edge, Inc. in October of 2001; o 40,336 shares of our common stock originally issued under the terms of an acquisition agreement relating to our acquisition of certain assets of ThoughtWare Technologies, Inc. in January of 2002; 7 o 5,625,000 shares of our common stock originally issuable upon conversion of convertible notes issued in a private placement offering in March of 2002; o 5,775,000 shares of our common stock issuable upon exercise of warrants issued in a private placement offering in March 2002; o 1,155,000 shares of our common stock issuable upon exercise of warrants to purchase $577,500 of convertible redeemable subordinated notes with detachable warrants for 577,500 common shares issued to the placement agent in a private placement offering in March 2002; o 2,000,000 shares of our common stock issued pursuant to a stock purchase transaction with certain shareholders of Quisic Corporation in June of 2002; o 333,333 shares of our common stock issued upon the conversion of $300,000 collected by us but ultimately due to certain Quisic shareholders in December of 2003; o 3,000,000 shares of our common stock issuable upon conversion of convertible preferred stock issued in a private placement offering in September of 2003; o 750,000 shares of our common stock issuable upon the exercise of warrants issued in a private placement offering in September of 2003; o 375,000 shares of our common stock issuable upon exercise of warrants to purchase 15,000 shares of convertible preferred stock with detachable warrants for 75,000 common shares issued to the placement agent in a private placement offering in September of 2003; o 1,097,664 shares of our common stock issuable upon the exercise of a warrant issued to an advisor of the Company in November of 2003 and other vendors; and o 714,286 shares of common stock issuable upon conversion of convertible notes issued in a private placement offering in February of 2004. SELLING STOCKHOLDER TABLE - BENEFICIAL OWNERSHIP AND SHARES OFFERED FOR SALE As of March 4, 2004, we had 17,665,647 shares of our common stock issued and outstanding. Assuming the full conversion of the preferred stock and convertible notes referenced herein into shares of our common stock and the complete exercise of the warrants referenced herein, we would have 36,157,597 shares of common stock outstanding. The following table sets forth the name and relationship with us, if any, of certain of the selling stockholders and (1) the number of shares of common stock beneficially owned by the selling stockholders as of March 1, 2004, (2) the maximum number of shares of common stock which may be offered for the account of the selling stockholders under this prospectus and (3) the amount and percentage of common stock that would be owned by the selling stockholders after completion of the offering, assuming a sale of all of the common stock which may be offered hereunder. The information set forth below is based upon written documentation submitted to us by the selling stockholders. Except as otherwise noted below, the selling stockholders have not, within the past three years, had any position, office or other material relationship with us. 8
PERCENTAGE SHARES SHARES BENEFICIALLY BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED OWNED AFTER SHAREHOLDER NAME BEFORE OFFERING (1) OFFERED AFTER OFFERING OFFERING (2) - ---------------- ------------------- ------- -------- ------------ Ethan Abrams 27,329 15,000 12,329 * Stephen D. Adams 7,045 6,329 716 * Jackson Capital Partners 37,790 37,790 0 * Grant M. Anderson and Terry L. Anderson, JTWROS 64,100 62,500 1,600 * Melva Ayers 7,500 7,500 0 * Stewart Bader 125,000 125,000 0 * Sherrill M. Baird 125,000 125,000 0 * Brent R. Baker 155,000 125,000 30,000 * Rebecca Barton 5,638 5,065 573 * Jack A. Belz 100,000 100,000 0 * Florence Berens Trust DTD. 04131998 62,500 62,500 0 * Leeds Equity Partners, III, L.P. 1,166,666 1,166,666 0 * James F. Bishop 3,097 2,782 315 * Delaware Charter Guarantee & Trust Co. TTEE FBO Isaac Blake, IRA LTJ - 890684 65,000 62,500 2,500 * Barry W. Blank Trust 2,000,000 2,000,000 0 * Violet M. Blank Trust 130,000 100,000 30,000 * Kathleen J. Blank 120,000 100,000 20,000 * Barry W. Blank 707,900 502,500 205,400 * Richard C. Boothby 15,084 15,084 0 * Stuart & Sheri Burnett 5,000 5,000 0 * Harold B. Carter 5,025 5,025 0 * Michael L. Christianson 100,000 100,000 0 * PBC 1996 Trust 187,500 187,500 0 * Renaissance Capital Group, Inc., The Frost National Bank FBO, Renaissance Capital Growth & Income Fund, II, Inc. Trust No. W00740000 1,048,266 1,000,000 48,266 * Renaissance Capital Group, Inc., HSBC Global Custody Nominee (U.K.) Limited Designation No. 856414 2,174,999 1,875,000 299,999 * Renaissance Capital Group, Inc., The Frost National Bank FBO, Renaissance US Growth & Income Trust PLC, Trust No. W00740100 1,725,001 1,625,000 100,001 * Joseph M. Cohen 20,105 20,105 0 * Kristen Colla-Gantz 5,000 5,000 0 * Kelsey A. Collins UGMA CA 105,000 50,000 55,000 * James H. S. Cooper 14,077 12,645 1,432 * Ralph G. Cranmer 463,700 450,000 13,700 * Christopher Daly 9,452 5,000 4,452 * Daniel J. Dubrovich 200,000 200,000 0 * James L. Dunn, Jr. (3) 177,567 45,025 132,542 * John M. Easterday 50,000 50,000 0 * Mountainview Canadian Opportunistic Growth Fund, LP 142,857 142,857 0 * BMC Eastern Alliance Insurance Co., SPC 10,054 10,054 0 * Fred C. Edwards 6,329 6,329 0 * Harvey S. Eisen 11,264 10,118 1,146 * Steven J. Eisen 14,077 12,645 1,432 * The Alpine Group, Inc. 800,000 800,000 0 * MicroCapital Fund, LP 800,000 800,000 0 * MicroCapital Fund, LTD 700,000 700,000 0 * Michael C. Fair 509,259 509,259 0 * Carl M. Farmis 62,500 62,500 0 * Richard M. Fels and Carla Fels JTWROS 62,500 62,500 0 * Richard B. Fishbane 2,011 2,011 0 * Barry A. Friedman 50,000 50,000 0 * Michael A. Giaquinto 15,082 15,082 0 * Steve Golba 31,587 25,566 6,021 * Charles A. Goldberg 50,000 50,000 0 * Tobias M. Goodman 2,006 2,006 0 * Investor Growth Capital Limited 816,667 816,667 0 * Investor Group, L.P. 350,000 350,000 0 * Joseph M. Greenberg 5,025 5,025 0 * 9 PERCENTAGE SHARES SHARES BENEFICIALLY BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED OWNED AFTER SHAREHOLDER NAME BEFORE OFFERING (1) OFFERED AFTER OFFERING OFFERING (2) - ---------------- ------------------- ------- -------- ------------ Edgar E. & Kay S. Greve 100,000 100,000 0 * Delaware Charter Guarantee & Trust Co. TTEE FBO Joseph J. Grillo, IRA LTJ - 890714 62,500 62,500 0 * William C. Grunow 150,000 100,000 50,000 * Tom Hansen 2,546 2,546 0 * Robert L. Harner, III 93,309 82,455 10,854 * Robert C. Hauser, Jr. 10,055 10,055 0 * Lyle Hoyt 5,023 4,023 1,000 * Edgar J.Huffman 109,400 50,000 59,400 * Stuart & Sheri Isler 5,025 5,025 0 * Morris L. & Garlyn Jacoby 100,000 100,000 0 * John Rowland Jordan and Billie Sager Jordan 235,000 200,000 35,000 * Katherine Judson 11,021 5,000 6,021 * William A. Kelly, Jr. 27,838 27,265 573 * William A. Kelly, Sr. 14,077 12,645 1,432 * Larry G. & Judy Kirk 125,000 125,000 0 * Ronald O. & Barbara Krisell 187,500 187,500 0 * Ponski-Wil, LLC 15,070 15,070 0 * David Levy 20,106 20,106 0 * David A.Little 124,807 50,000 74,807 * William H. Lomicka 40,211 40,211 0 * Carol Lomicka 10,061 10,061 0 * Benjamin D. Lorello 40,211 40,211 0 * Delaware Charter C/F James A. May IRA, LTJ - 890552 90,000 50,000 40,000 * Marc B. Mazur 10,054 10,054 0 * John E. McConnaughy 900,000 900,000 0 * Barry P. McIntosh, Jr. 33,805 30,367 3,438 * Delaware Charter as Trustee FBO Richard Michaelson AC #LTJ 890528 100,000 100,000 0 * Kenneth W.Moore 120,000 100,000 20,000 * F. Andrew Moran 14,077 12,645 1,432 * J. Walter Newman IV 2,012 2,012 0 * K. Shan Padda 5,025 5,025 0 * Agger Fund, LP 20,000 20,000 0 * Agger Institutional Fund, LP 122,857 122,857 0 * Donald C. Pierson, III 190,583 173,791 16,792 * Donald & Patricia Pierson, Jr. 60,407 60,407 0 * Tracy Platt 10,546 5,000 5,546 * Davis S. Porch 7,045 6,329 716 * James M. Powers, Sr. 474,785 474,785 0 * Delaware Charter Guarantee & Trust Co. TTEE FBO Laura G. Powers, IRA LTJ - 890536 50,150 50,000 150 * James M. Powers, Jr. (4) 859,536 368,463 491,073 1.1% R. Reichler and Associates Pension Plan and Trust 62,500 62,500 0 * Daniel T. Robinson, Jr. (5) 55,386 4,215 51,171 * PelDawn, LLC 50,000 50,000 0 * James L. Rothenberg 100,000 100,000 0 * Camille S. Rubinstein 25,000 25,000 0 * Joseph L. Sanders 62,500 62,500 0 * Gary Sasser 13,122 12,645 477 * Delaware Charter Guarantee & Trust Co. TTEE FBO Nolan Schabacker, IRA LTJ - 890676 75,000 62,500 12,500 * Stanley L. Schloz as Trustee of the Schloz Family 1998 Trust 35,714 35,714 0 * C. Thomas Selby 14,077 12,645 1,432 * Robert Settembre 75,000 50,000 25,000 * Delaware Charter Guarantee & Trust Co. TTEE FBO Tracey Shaw, IRA LTJ - 890641 65,000 62,500 2,500 * Clarex Limited 300,000 300,000 0 * Everett A. Sheslow 62,500 62,500 0 * George M. Siegel (6) 166,680 116,180 50,500 * Anthony Silverman, as Trustee of the Anthony Silverman Trust, dated January 5, 2004 192,857 192,857 0 * Katsinam Partners, LP 200,000 200,000 0 * William H. Snyder 14,077 12,645 1,432 * Murphy & Durieu 1,027,500 1,027,500 0 * 10 PERCENTAGE SHARES SHARES BENEFICIALLY BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED OWNED AFTER SHAREHOLDER NAME BEFORE OFFERING (1) OFFERED AFTER OFFERING OFFERING (2) - ---------------- ------------------- ------- -------- ------------ Scott D. Steele 6,032 6,032 0 * Patrick J. Stoner 22,653 22,653 0 * Danny T. Stowe 662,744 644,444 18,300 * Frances Swan 227 227 0 * Michael Tabor 14,077 12,645 1,432 * Bruce Tomason 20,106 20,106 0 * Robert J. Tomasulo and Josephine T. Tomasulo, J.T.W.R.O.S. 100,000 100,000 0 * Lee A. Tyo 7,953 7,953 0 * Christopher Varley 5,000 5,000 0 * Salvatore J. Vitiello 5,029 5,029 0 * Robert W. Wahl 97,500 62,500 35,000 * THW Group, LP 20,092 20,092 0 * Ginger Lee Walton 566 566 0 * Bank One, Arizona, NA 847,664 847,664 0 * M.H. Capital Partners, L.P. 75,000 75,000 0 * Turner P. Williams 5,638 5,065 573 * Loren R. Williams 5,028 5,028 0 * Jimmie D. Williams 100,000 100,000 0 * Portsmouth Square, Inc. 200,000 200,000 0 * John V. Winfield 200,000 200,000 0 * Sante Fe Financial Corporation 200,000 200,000 0 * The InterGroup Corporation 200,000 200,000 0 * Ronald Zuckerman 13,591 13,591 0 * Philip I. Zuckerman 227 227 0 * Preston A. Zuckerman (7) 1,525,369 1,501,286 24,083 * - -------------------------------------------------------------------------------------------------------------- TOTALS: 27,147,611 25,137,553 2,010,058 ==============================================================================================================
*Denotes less than 1% of the outstanding shares of common stock. 1. Each person named below has the sole investment and voting power with respect to all shares of common stock shown as beneficially owned by the person, except as otherwise indicated below. Under applicable SEC rules, a person is deemed the "beneficial owner" of a security with regard to which the person directly or indirectly, has or shares (a) the voting power, which includes the power to vote or direct the voting of the security, or (b) the investment power, which includes the power to dispose, or direct the disposition, of the security, in each case irrespective of the person's economic interest in the security. Under these SEC rules, a person is deemed to beneficially own securities which the person has the right to acquire within 60 days through the exercise of any option or warrant or through the conversion of another security. 2. In determining the percent of voting stock owned by a person after this offering (a) the numerator is the number of shares of common stock beneficially owned by the person, including shares the beneficial ownership of which may be acquired within 60 days upon the exercise of options or warrants or conversion of convertible securities, and (b) the denominator is the total of (i) the 36,157,597 shares of common stock that would be outstanding after the offering assuming the full conversion of the preferred stock and convertible notes referenced herein into shares of our common stock and the complete exercise of the warrants referenced herein and (ii) any shares of common stock which the person has the right to acquire within 60 days upon the exercise of options or warrants or conversion of convertible securities. Neither the numerator nor the denominator includes shares which may be issued upon the exercise of any other options or warrants or the conversion of any other convertible securities. 3. Mr. Dunn serves as the Company's Sr. Vice President, General Counsel and Interim Chief Financial Officer. 4. Mr. Powers serves as the Company's Chairman of the Board, President and Chief Executive Officer. 5. Mr. Robinson serves as a Director of the Company. 6. Mr. Siegel serves as a Director of the Company. 7. Mr. Zuckerman serves as the Company's Sr. Vice President and a Director of the Company. 11 PLAN OF DISTRIBUTION The shares of our common stock offered by this prospectus may be sold by the selling stockholders or their transferees from time to time in: (i) transactions in the over-the-counter market, the American Stock Exchange, or on one or more exchanges; (ii) negotiated transactions; (iii) underwritten offerings; or (iv) a combination of these methods of sale. The selling stockholders may sell the shares of our common stock at: (i) fixed prices which may be changed; (ii) market prices prevailing at the time of sale; (iii) prices related to prevailing market prices; or (iv) negotiated prices. DIRECT SALES, AGENTS, DEALERS AND UNDERWRITERS The selling stockholders or their transferees may effect transactions by selling the shares of common stock either directly to purchasers; or to or through agents, dealers or underwriters designated from time to time. Agents, dealers or underwriters may receive compensation in the form of underwriting discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom they act as agent or to whom they sell as principals, or both. The selling stockholders and any agents, dealers or underwriters that act in connection with the sale of shares might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any discount or commission received by them and any profit on the resale of shares as principal might be deemed to be underwriting discounts or commissions under the Securities Act. SUPPLEMENTS To the extent required, we will set forth in a supplement to this prospectus filed with the SEC the number of shares to be sold, the purchase price and public offering price, any new selling stockholders, the name or names of any agent, dealer or underwriter, and any applicable commissions or discounts with respect to a particular offering. STATE SECURITIES LAW Under the securities laws of some states, the selling stockholders may only sell the shares in those states through registered or licensed brokers or dealers. In addition, in some states the selling stockholders may not sell the shares unless they have been registered or qualified for sale in that state or an exemption from registration or qualification is available and is satisfied. EXPENSES AND INDEMNIFICATION We will not receive any of the proceeds from the sale of the shares of common stock sold by the selling stockholders and we will bear all expenses related to the registration of this offering. However, we will not pay for any underwriting commissions, fees or discounts, if any. We will indemnify some of the selling stockholders against some civil liabilities, including some liabilities which may arise under the Securities Act. LEGAL MATTERS The validity of the issuance of the shares of common stock offered by this prospectus will be passed upon for us by Jackson Walker L.L.P. EXPERTS BDO Seidman, LLP, independent auditors, have audited our consolidated financial statements as of and for the year ended March 31, 2003, which is incorporated by reference in this registration statement filed in connection with this offering. Our consolidated financial statements as of and for the year ended March 31, 2003 are incorporated by reference in reliance upon the report (which contains an explanatory paragraph relating to the Company's ability to continue as a going concern, as described in Note 2 to the consolidated financial statements) of BDO Seidman, LLP, given on their authority as experts in accounting and auditing. The consolidated financial statements as of March 31, 2002 and for each of the two years in the period ended March 31, 2002 incorporated in this Prospectus by reference to the Annual Report on Form 10-K for the year ended March 31, 2002 have been so incorporated in reliance on the report (which contains an explanatory paragraph relating to the Company's ability to continue as a going concern as described in Note 2 to the consolidated financial statements) of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 12 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows us to "incorporate by reference" some of the documents that we file with it into this prospectus, which means incorporated documents are considered part of this prospectus. Therefore, we can disclose important information to you by referring you to those documents, and that information that we file with the SEC will automatically updates and supersedes this incorporated information. The following documents, which have been filed with the Commission by the Company, are incorporated herein by reference and made a part hereof: o our Annual Report on Form 10-K for the year ended March 31, 2003, filed with the SEC on June 30, 2003; o our Current Report on Form 8-K, filed with the SEC on July 1, 2003; o our Current Report on Form 8-K, filed with the SEC on August 13, 2003; o our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003, filed with the SEC on August 14, 2003; o our Current Report on Form 8-K, filed with the SEC on September 18, 2003; o our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003, filed with the SEC on November 6, 2003; o our Current Report on Form 8-K, filed with the SEC on November 6, 2003; o our Current Report on Form 8-K, filed with the SEC on November 7, 2003; o our Current Report on Form 8-K, filed with the SEC on February 5, 2004; o our Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2003, filed with the SEC on February 17, 2004; and o the description of our common stock contained in our Registration Statement on Form S-1 filed with the SEC on October 10, 1997. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this prospectus and prior to the termination of the offering of the Common Stock to be made hereunder shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus. The Company will provide, without charge, to each person to whom a copy of this prospectus is delivered, upon the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into the information that this prospectus incorporates). Written or telephone requests for such documents should be directed to: James L. Dunn, Jr., Senior Vice President & General Counsel, 2999 N. 44th Street, Suite 650, Phoenix, AZ 85018, Telephone: (602) 952-1200, Email: jdunn@ilinc.com. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document that we file at the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings are also available to the public at the Company's Web site at http://www.ilinc.com and the SEC's Web site at http://www.sec.gov. 13 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses to be paid by the Company in connection with the offering described in this registration statement. All amounts are estimates, except the SEC registration fee. SEC Registration Fee $ 2,993.83 Printing Costs $ 5,000.00 Legal Fees and Expenses $ 5,000.00 Accounting Fees and Expenses $15,000.00 ---------- TOTAL $27,993.83 ========== ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. DELAWARE GENERAL CORPORATION LAW Section 145(a) of the General Corporation Law of the State of Delaware (the "DGCL") provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 145(b) of the DGCL states that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 145(c) of the DGCL provides that to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. II-1 Section 145(d) of the DGCL states that any indemnification under subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b). Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, even though less than a quorum or (2) if there are no such directors or if such directors so direct, by independent legal counsel in a written opinion, or (3) by the stockholders. Section 145(e) of the DGCL provides that expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in Section 145. Such expenses (including attorneys' fees) incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 145(f) of the DGCL states that the indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 145(g) of the DGCL provides that a corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Section 145. Section 145(j) of the DGCL states that the indemnification and advancement of expenses provided by, or granted pursuant to, Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the heirs, executors and administrators of such a person. RESTATED CERTIFICATE OF INCORPORATION The Restated Certificate of Incorporation of the Company provides that a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided for in Section 174 of the DGCL. If the DGCL is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Company, in addition to the limitation on personal liability described above, shall be limited to the fullest extent permitted by the amended DGCL. Further, any repeal or modification of such provision of the Restated Certificate of Incorporation by the stockholders of the Company shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Company existing at the time of such repeal or modification. BYLAWS The Bylaws of the Company provide that the Company will indemnify any director or officer of the Company to the full extent permitted by applicable law, and may, if and to the extent authorized by the Board of Directors, so indemnify such other persons whom it has the power to indemnify against any liability, reasonable expense or other matter whatsoever. II-2 INSURANCE The Company maintains liability insurance for the benefit of its directors and officers. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or controlling persons of the Company pursuant to the foregoing provisions, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, as amended, and is therefore unenforceable. ITEM 16. EXHIBITS. See the Exhibit Index found on Page II-6 hereof. ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume in securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Company pursuant to Section 13 or Section 15(d) of the Exchange Act of 1934, as amended (the "Exchange Act"), that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. POWER OF ATTORNEY Each person whose signature appears below authorizes James L. Dunn, Jr., to execute in the name of each such person who is then an officer or director of the Company and to file any amendments to this registration statement necessary or advisable to enable the Company (the registrant) to comply with the Securities Act of 1933, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in respect thereof, in connection with the registration of the securities which are the subject of this registration statement, which amendments may make such changes in the registration statement as such attorney may deem appropriate. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on the dates indicated. ILINC COMMUNICATIONS, INC. Dated: March 4, 2004 By: /s/ JAMES M. POWERS, JR. ------------------------------------------ James M. Powers, Jr. Chairman of the Board, President and Chief Executive Officer
NAME CAPACITY DATE - -------------------------------------------------------------------------------------------- /s/ JAMES M. POWERS, JR. Chairman of the Board, President March 4, 2004 - ----------------------------- and Chief Executive Officer James M. Powers, Jr. /s/ JAMES L. DUNN, JR. Sr. Vice President March 4, 2004 - ----------------------------- and Chief Financial Officer James L. Dunn, Jr. /s/ JAMES H. COLLINS Director March 4, 2004 - ----------------------------- James H. Collins /s/ KENT PETZOLD Director March 4, 2004 - ----------------------------- Kent Petzold /s/ DANIEL T. ROBINSON, JR. Director March 4, 2004 - ----------------------------- Daniel T. Robinson, Jr. /s/ GEORGE M. SIEGEL Director March 4, 2004 - ----------------------------- George M. Siegel /s/ PRESTON A. ZUCKERMAN Director March 4, 2004 - ----------------------------- Preston A. Zuckerman
II-5 EXHIBIT LIST EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 4.1(1) Restated Certificate of Incorporation of Pentegra Dental Group, Inc. 4.2(1) Bylaws of Pentegra Dental Group, Inc. 4.3(7) Certificate of Amendment of Restated Certificate of Incorporation of Pentegra Dental Group, Inc. 4.4(7) Amendment of Bylaws of Pentegra Dental Group, Inc. 4.5(8) Certificate of Amendment of Restated Certificate of Incorporation of e-dentist.com, Inc. 4.6(14) Certificate of Designations of Series A Preferred Stock +4.7 Certificate of Amendment of Restated Certificate of Incorporation of EDT Learning, Inc. 4.8(1) Form of certificate evidencing ownership of Common Stock of Pentegra Dental Group, Inc. 4.9(1) Form of Registration Rights Agreement for Owners of Founding Affiliated Practices 4.10(1) Registration Rights Agreement dated September 30, 1997 between Pentegra Dental Group, Inc. and the stockholders named therein 4.11(2) Form of Stockholders' Agreement for Owners of Affiliated Practices 4.12(3) Form of Indenture from Pentegra Dental Group, Inc. to U.S. Trust Company of Texas, N.A., as Trustee relating to the Convertible Debt Securities 4.13(7) Form of certificate evidencing ownership of Common Stock of e-dentist.com, Inc. 4.14(8) Form of Convertible Redeemable Subordinated Note (2002 Private Placement Offering) 4.15(8) Form of Redeemable Warrant (2002 Private Placement Offering) 4.16(14) Form of Redeemable Warrant (2003 Private Placement Offering) 4.17(4) Credit Agreement dated June 1, 1998 between Bank One, Texas, N.A. and Pentegra Dental Group, Inc. 4.18(5) Modification to Credit Agreement between Pentegra Dental Group, Inc. and Bank One, Texas, N.A. dated September 9, 1998 4.19(5) Agreement and Plan of Merger among Pentegra Dental Group, Inc., Liberty Dental Alliance, Inc., Liberty Acquisition Corporation, James M. Powers, Jr., Sylvia H. McAlister and William Kelly dated as of November 13, 1998 4.20(2) First Amendment to Credit Agreement by and among Pentegra Dental Group, Inc. and Bank One, Texas, N.A. dated as of February 9, 1999 4.21(2) First Amendment to the Agreement and Plan of Merger by and among Pentegra Dental Group, Inc., Liberty Dental Alliance, Inc., Liberty Acquisition Corporation, James M. Powers, Jr., Sylvia H. McAlister and William Kelly dated as of January 29, 1999 4.22(6) Third Amendment to Credit Agreement 4.23(7) Asset Purchase Agreement by and among e-dentist.com, Inc. and Dexpo.com, Inc. 4.24(7) Fourth Amendment of Credit Agreement II-6 4.25(9) Plan of Reorganization and Agreement of Merger dated October 1, 2001 by and among EDT Learning, Inc., Edge Acquisition Subsidiary, Inc. and the Stockholders of Learning-Edge, Inc. 4.26(10) Plan of Reorganization and Agreement of Merger dated January 29, 2002 by and among EDT Learning, Inc., TW Acquisition Subsidiary, Inc., ThoughtWare Technologies, Inc. and the Series B Preferred Stockholder of ThoughtWare Technologies, Inc. 4.27(11) Asset Purchase Agreement dated June 14, 2002 by and among EDT Learning, Inc., and Quisic Corporation. Common Stock Purchase Agreement by and between EDT Learning, Inc., Investor Growth Capital Limited, A Guernsey Corporation and Investor Group, L.P., A Guernsey Limited Partnership and Leeds Equity Partners III, L.P. 4.28(12) Asset Purchase Agreement dated November 4, 2002 by and among EDT Learning, Inc., and Mentergy, Inc. and its wholly-owned subsidiaries, LearnLinc Corp and Gilat-Allen Communications, Inc. +4.29 Debt Conversion Agreement relating to Quisic Settlement +4.30 Form of Convertible Subordinated Note (2004 Private Placement) +5.1 Opinion of Jackson Walker L.L.P. 16.1(13) Letter re Change in Certifying Accountant +23.1 Consent of independent auditors, BDO Seidman, LLP, dated March 2, 2004 to the incorporation by reference of their report dated June 6, 2003 in the Company's annual report on Form 10-K for the year ended March 31, 2003. +23.2 Consent of independent auditors, PricewaterhouseCoopers, LLP dated March 3, 2004 to the incorporation by reference of their report dated July 11, 2002 in the Company's annual report on Form 10-K for the year ended March 31, 2003. - ---------------- (1) Previously filed as an exhibit to iLinc's Registration Statement on Form S-1 (No. 333-37633), and incorporated herein by reference. (2) Previously filed as an exhibit to iLinc's Registration Statement on Form S-4 (No. 333-78335), and incorporated herein by reference. (3) Previously filed as an exhibit to iLinc's Registration Statement on Form S-4 (No. 333-64665), and incorporated herein by reference. (4) Previously filed as an exhibit to iLinc's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998. (5) Previously filed as an exhibit to iLinc's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998. (6) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K for the year ended March 31, 2000. (7) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K for the year ended March 31, 2001. (8) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K for the year ended March 31, 2002. (9) Previously filed as an exhibit to iLinc's Form 8-K filed October 16, 2001. (10) Previously filed as an exhibit to iLinc's Form 8-K filed January 30, 2002 (11) Previously filed as an exhibit to iLinc's Form 8-K filed July 2, 2002. (12) Previously filed as an exhibit to iLinc's Form 8-K filed December 20, 2002. (13) Previously filed as an exhibit to iLinc's Form 8-K filed April 7, 2003. (14) Previously filed as an exhibit to iLinc's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2003. + Furnished herewith as an Exhibit II-7 EX-4.7 3 ilinc_s3ex4-7.txt EXHIBIT 4.7 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF EDT LEARNING, INC. EDT Learning, Inc. (the "Corporation"), a corporation organized under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), hereby adopts this Certificate of Amendment (this "Certificate of Amendment"), which amends its Restated Certificate of Incorporation (the "Restated Certificate of Incorporation"), as described below, and does hereby further certify that: FIRST: The name of the Corporation is EDT Learning, Inc. SECOND: The Board of Directors of the Corporation duly adopted a resolution proposing and declaring advisable the amendments to the Restated Certificate of Incorporation as described herein, and the holders of at least a majority of the outstanding stock of the Corporation duly adopted and approved this Certificate of Amendment by vote at the Company's special meeting, and written notice has been given, all in accordance with the provisions of Sections 242 and 228 of the DGCL. THIRD: The Article "FIRST" of the Corporation's Restated Certificate of Incorporation is amended to read in its entirety as follows: "FIRST. THE NAME OF THE CORPORATION IS ILINC COMMUNICATIONS, INC." FOURTH: The Article "FOURTH" of the Corporation's Restated Certificate of Incorporation is amended to read in its entirety as follows: "FOURTH. THE AGGREGATE NUMBER OF SHARES OF CAPITAL STOCK THAT THE CORPORATION WILL HAVE AUTHORITY TO ISSUE IS ONE HUNDRED TEN MILLION (110,000,000), ONE HUNDRED MILLION (100,000,000) OF WHICH WILL BE SHARES OF COMMON STOCK, HAVING A PAR VALUE OF $0.001 AND TEN MILLION (10,000,000) OF WHICH WILL BE SHARES OF PREFERRED STOCK, HAVING A PAR VALUE OF $0.001 PER SHARE. PREFERRED STOCK MAY BE ISSUED IN ONE OR MORE SERIES AS MAY BE DETERMINED FROM TIME TO TIME BY THE BOARD OF DIRECTORS. ALL SHARES OF ANY ONE SERIES OF PREFERRED STOCK WILL BE IDENTICAL EXCEPT AS TO THE DATES OF ISSUE AND THE DATES FROM WHICH DIVIDENDS ON SHARES OF THE SERIES ISSUED ON DIFFERENT DATES WILL CUMULATE, IF CUMULATIVE. AUTHORITY IS HEREBY EXPRESSLY GRANTED TO THE BOARD OF DIRECTORS TO AUTHORIZE THE ISSUANCE OF ONE OR MORE SERIES OF PREFERRED STOCK, AND TO FIX BY RESOLUTION OR RESOLUTIONS PROVIDING FOR THE ISSUE OF EACH SUCH SERIES THE VOTING POWERS, DESIGNATIONS, PREFERENCES, AND RELATIVE, PARTICIPATING, OPTIONAL, REDEMPTION, CONVERSION, EXCHANGE OR OTHER SPECIAL RIGHTS, QUALIFICATIONS, LIMITATIONS OR RESTRICTION OF SUCH SERIES, AND THE NUMBER OF SHARES IN EACH SERIES, TO THE FULL EXTENT NOW OR HEREAFTER PERMITTED BY LAW." FIFTH: This Certificate of Amendment shall be effective when filed with the Secretary of State for the State of Delaware. IN WITNESS WHEREOF, EDT Learning, Inc. has caused this Certificate of Amendment of the Restated Certificate of Incorporation to be executed by James M. Powers, Jr. its President and Chief Executive Officer, on February 5, 2004. EDT Learning, Inc. By: /s/ James M. Powers, Jr. ------------------------------------- James M. Powers, Jr., President and Chief Executive Officer EX-5.1 4 ilinc_s3ex5-1.txt EXHIBIT 5.1 March 5, 2004 iLinc Communications, Inc. 2999 N. 44th Street Suite 650 Phoenix, AZ 85018 Re: Registration Statement on Form S-3 ---------------------------------- Ladies and Gentlemen: This opinion is furnished to you in connection with a Registration Statement on Form S-3 (the "Registration Statement") to be filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of an aggregate of 25,137,553 shares (the "Shares") of Common Stock, $0.001 par value per share (the "Common Stock"), of iLinc Communications, Inc., a Delaware corporation (the "Company"). The Shares include 6,645,603 shares of Common Stock currently issued and outstanding (the "Outstanding Shares"), 10,216,786 shares of Common Stock issuable upon conversion of convertible notes ("Convertible Notes") or convertible preferred stock ("Convertible Preferred Stock") issued by the Company (collectively, the "Conversion Shares") and 8,275,164 shares of Common Stock issuable upon exercise of warrants (the "Warrants") issued by the Company (collectively, the "Warrant Shares"). All of the Shares are being registered on behalf of the holders of the Outstanding Shares, the Convertible Notes, the Convertible Preferred Stock and the Warrants (collectively, the "Selling Stockholders"). We are acting as special counsel for the Company in connection with the registration for resale of the Shares. We have examined signed copies of the Registration Statement to be filed with the Commission. We have also examined and relied upon minutes of meetings of the stockholders and the Board of Directors of the Company as provided to us by the Company, the Certificate of Incorporation and By-Laws of the Company, each as restated and/or amended to date, and such other documents as we have deemed necessary for purposes of rendering the opinions hereinafter set forth. In our examination of the foregoing documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, the authenticity of the originals of such latter documents and the legal competence of all signatories to such documents. Our opinion below, insofar as it relates to the Shares being validly issued, fully paid and non-assessable, is based solely on a certificate of the Chief Financial Officer of the Company confirming the Company's receipt of the consideration called for by the applicable resolutions authorizing the issuance of such Outstanding Shares, Convertible Notes, Convertible Preferred Stock and Warrants, assumes that the Conversion Shares will be issued in accordance with the terms of the Convertible Notes or Convertible Preferred Stock, as the case may be, and assumes receipt by the Company of the exercise price for Warrant Shares issued upon due and proper exercise of the Warrants in accordance with the terms of the Warrants. iLinc Communications, inc. March 5, 2004 page 2 We assume that the appropriate action will be taken, prior to the offer and sale of the Shares by the Selling Stockholders, to register and qualify the Shares for sale under all applicable state securities or "blue sky" laws. We express no opinion herein as to the laws of any state or jurisdiction other than the state laws of the State of Texas, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. Based upon and subject to the foregoing, we are of the opinion that (i) the Outstanding Shares are validly issued, fully paid and non-assessable; (ii) the Conversion Shares, when issued upon conversion of the Convertible Notes or Convertible Preferred Stock, as the case may be, in accordance with their respective terms, will be validly issued, fully paid and non-assessable; and (iii) the Warrant Shares, when issued upon due and proper exercise of the Warrants in accordance with their respective terms, will be validly issued, fully paid and non-assessable. It is understood that this opinion is to be used only in connection with the offer and sale of the Shares while the Registration Statement is in effect. Please note that we are opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. This opinion speaks only as of the date hereof and is based upon currently existing statutes, rules, regulations and judicial decisions, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our name therein and in the related prospectus under the caption "Legal Matters." In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission. Very truly yours, /s/ JACKSON WALKER L.L.P. EX-4.29 5 ilinc_s3ex4-29.txt EXHIBIT 4.29 DEBT CONVERSION AGREEMENT This agreement is by and between EDT Learning, Inc., a Delaware corporation, (the "Company"), Leed Equity Partners III, L.P. ("Leeds") and two Investor entities (together with Leeds, the "Quisic Successors") to be effective on December 31, 2003 (the "Effective Date"). The Quisic Successors have agreed to convert the $300,000 due from EDT Learning, Inc. into shares of the Company's common stock. The conversion price will be equal to $0.90 per share. Upon execution, the Company will issue and deliver to the Quisic Successors a certificate or certificates, for 333,333 shares of the Company's restricted and unregistered common stock. The Company will make standard issuer representations similar to those made to the Quisic Successors previously and will register such shares with the SEC within 90 days of the Effective Date. Agreed and Accepted on behalf of the Quisic Successors: /s/ Robert A. Bernstein - ------------------------------ Robert A. Bernstein 12/31/03 - -------- Date EDT Learning, Inc. /s/ James M. Powers, Jr. - ------------------------------ James M. Powers, Jr. President Date: December 31, 2003 SUPPLEMENT TO DEBT CONVERSION AGREEMENT This Supplement to the Debt Conversion Agreement (this "Supplement") is made to be effective as of the 31st day of December, 2003, (the "Effective Date") by and between EDT Learning, Inc., a Delaware corporation ("EDT"), Leeds Equity Partners III, L.P., a Delaware limited partnership ("Leeds"), Investor Growth Capital Limited, a Guernsey corporation ("IGCLTD") and Investor Group, L.P., a Guernsey limited partnership ("IGCLP") (IGCLTD AND IGCLP collectively referred to herein as "IGC"), with IGC and Leeds collectively referred to herein as "Quisic Investors." R E C I T A L S WHEREAS, EDT entered into agreements with the Quisic Investors (with these agreements herein after collectively referred to as the "2002 Agreements") on or about June 14, 2002 whereby the Quisic Investors acquired shares of EDT common stock. All capitalized terms not defined herein have the meaning given to them in those respective Agreements. WHEREAS, Pursuant to the 2002 Agreements, EDT is obligated to pay the Quisic Investors an amount of cash that is collected from the Public Broadcasting Systems ("PBS") Contract. WHEREAS, As of the Effective Date, EDT has collected from PBS $300,000 (the "Payment"). WHEREAS, The Quisic Investors on or before December 31, 2003 entered into a debt conversion agreement of which a copy is attached as Exhibit A (the "Debt Conversion Agreement") that was to be final and effective on December 31, 2003 in which the Quisic Investors agreed to convert the Payment due from the Company into shares of the Company's common stock (the "Shares"). WHEREAS, The parties wish to provide for further representations and covenants between the parties to supplement the terms of the Debt Conversion Agreement. NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: 1. CONVERSION ACKNOWLEDGEMENT. The parties hereby confirm and ratify their agreement to convert the Payment into Shares on the terms specified in the Debt Conversion Agreement and therefore, EDT will instruct its transfer agent to deliver to Quisic Investors stock certificates representing an aggregate of 333,333 Shares immediately upon execution of this Supplement, and shall immediately thereafter cause each Quisic Investor to receive a stock certificate representing the number of Shares opposite its name on Exhibit B to this Supplement. Each certificate representing Shares issued pursuant to the terms of this Supplement shall bear the following legend: 2 "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 2. REPRESENTATIONS AND WARRANTIES OF QUISIC INVESTORS. Each Quisic Investor hereby severally, but not jointly, represents and warrants (with respect to itself only) to EDT as follows: 2.1 REQUISITE POWER AND AUTHORITY. Quisic Investor has all necessary power and authority under all applicable provisions of law to execute, deliver and perform its obligations under this Supplement and to carry out its provisions. This Supplement will be the valid and binding obligation of Quisic Investor, enforceable against Quisic Investor in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights, and (b) general principles of equity that restrict the availability of equitable remedies. 2.2 INVESTMENT REPRESENTATIONS. Quisic Investor understands that the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"). Quisic Investor also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon Quisic Investor's representations contained in this Supplement. Quisic Investor hereby represents and warrants as follows: (a) QUISIC INVESTOR BEARS ECONOMIC RISK. Quisic Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to EDT so that it is capable of evaluating the merits and risks of its investment in EDT and has the capacity to protect its own interests. Quisic Investor must bear the economic risk of this investment indefinitely unless the Shares are registered pursuant to the Securities Act, or an exemption from registration is available. (b) ACQUISITION FOR OWN ACCOUNT. Quisic Investor is acquiring the Shares for Quisic Investor's own account for investment only, and not with a view towards their distribution in violation of state or federal securities laws. (c) ACCREDITED INVESTOR. Quisic Investor represents that it is an accredited investor within the meaning of Regulation D under the Securities Act. (d) RULE 144. Quisic Investor acknowledges and agrees that the Shares will be offered as restricted securities, unless they are subsequently registered under the Securities Act or sale pursuant to an exemption from such registration is available. Quisic Investor has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act as in effect from time to time ("Rule 144"), which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things: the availability of certain current public information about EDT, the resale occurring following the required holding period under Rule 144 and the number of shares being sold during any three-month period not exceeding specified limitations. 3 3. REPRESENTATIONS AND WARRANTIES OF EDT. EDT represents and warrants to Quisic Investors the following: 3.1 CORPORATE EXISTENCE: GOOD STANDING. EDT is a corporation duly organized and existing and in good standing under the laws of the State of Delaware. 3.2 POWER AND AUTHORITY. EDT has corporate power to execute, deliver and perform this Supplement and all agreements and other documents executed and delivered by it pursuant to this Supplement or to be executed and delivered and taken all actions required by law, its Certificate of Incorporation, its Bylaws or otherwise, to authorize the execution, delivery and performance of this Supplement and such related documents. EDT has the legal capacity to enter into and perform this Supplement and the other agreements to be executed and delivered by it in connection herewith. This Supplement and all agreements and documents executed and delivered in connection herewith have been or will be duly executed and delivered by EDT, and constitute or will constitute the legal, valid, and binding obligations of EDT enforceable against EDT in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally or the availability of equitable remedies. The execution and delivery of this Supplement and the agreements related hereto executed and delivered pursuant to this Supplement or to be executed and delivered on the Effective Date do not and the consummation of the transactions contemplated hereby will not, violate any provision of the Certificate of Incorporation or Bylaws of EDT or any provisions of, or result in the acceleration of, any obligation under any mortgage, lien, lease, agreement instrument, order, arbitration award, judgment or decree to which EDT is a party or by which it is bound, or violate any restrictions of any kind to which EDT is subject. 3.3 EDT SHARES. All of the Shares issued to Quisic Investor will be, when so issued, (i) duly authorized, validly issued, fully paid and nonassessable and (ii) free of preemptive rights created by statute, EDT's Certificate of Incorporation or Bylaws or any agreement to which EDT is a party or by which EDT is bound. All other issued and outstanding shares of common stock of EDT are duly authorized, fully paid and non-assessable and were issued in accordance with the registration or qualification provisions of the Securities Act, and of any relevant state securities laws or pursuant to valid exemptions therefrom. 3.4 FINANCIAL STATEMENTS. EDT's audited financial statements for the fiscal year ended March 31, 2003 and the unaudited financial statements for the interim period ending December 31, 2003 (the "EDT Financials Date"), reflecting the results of the operations and financial condition of EDT at such dates have been prepared in accordance with generally accepted accounting principles, consistently applied (the "Financial Statements") and are on file with the SEC. The Financial Statements: (i) fairly and accurately present the financial position of EDT as of the dates indicated and present the results of EDT's operations for the periods then ended; and (ii) are in accordance with the books and records of EDT, as the case may be, which have been properly maintained and are complete and correct in all material respects. 4 3.5 SEC DOCUMENTS AND REPORTS. EDT has filed all required documents with the Securities and Exchange Commission (the "SEC") (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act or the Securities Exchange Act of 1934, as amended, as the case may be, and, at the respective times they were filed, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4. QUISIC INVESTORS' REGISTRATION RIGHTS. 4.1 EDT will file with the SEC within fifteen (15) days from execution of this Supplement, a registration statement (the "Registration Statement") registering the sale under the Securities Act of the Shares issued to Quisic Investors pursuant to the terms of this Supplement, and will use its reasonable best efforts to have the Registration Statement declared effective, and cause said registration statement to remain effective until the earliest of (i) two (2) years after the date it is declared effective, (ii) the date all the Shares registered thereby have been sold, or, (iii) in the reasonable opinion of EDT's counsel, which opinion shall qualify as a satisfactory opinion of counsel pursuant to the legend condition hereof, the Shares may be sold publicly without registration. Each Quisic Investor will, in a timely fashion, provide EDT and its counsel with such information and execute such documents as EDT's counsel may reasonably require to prepare and to process the Registration Statement. 4.2 EDT will bear all expenses (except underwriting discounts and commission, if any, and the legal fees and expenses, if any, of counsel to Quisic Investors) necessary and incidental to the performance of its obligations under this Section. 4.3 Anything to the contrary notwithstanding, EDT shall not be required to register any Shares issued to any Quisic Investor pursuant to the terms of this Supplement or provide notices under this Supplement to any Quisic Investor if such Shares are either (i) covered by a then currently effective registration statement or (ii) in the reasonable opinion of EDT's counsel, may be sold pursuant to the exemption from registration provided by Section (k) of Rule 144. 5. MISCELLANEOUS. 5.1 SUCCESSORS AND ASSIGNS. This Supplement shall not be assignable, by operation of law or otherwise, without the prior written consent of all parties. Subject to the foregoing, this Supplement shall inure to the benefit of, be enforceable by and be binding upon the parties, their successors and permitted assigns. 5.2 ENTIRE AGREEMENT. This Supplement, the Debt Conversion Agreement, and the Exhibits hereto contain and constitute the entire agreement among the parties hereto relating to the subject mater hereof. Neither this Supplement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an agreement in writing signed by the party against whom or which the enforcement of such change, waiver, discharge or termination is sought. 5 5.3 GOVERNING LAW; SEVERABILITY. This Supplement shall be governed by and construed in accordance with the laws of the State of Arizona without giving effect to the principles of conflicts of law thereof, provided, however, that the laws of the respective jurisdictions of incorporation of each of the parties shall govern the relative rights, obligations, powers, duties and other internal affairs of such party and its board of directors. 5.4 COUNTERPARTS. This Supplement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 5.5 NO THIRD PARTY BENEFICIARIES. Nothing contained in this Supplement (express or implied) is intended or shall be construed to confer upon or give to any person, corporation or other entity, other than the parties hereto and their permitted successors or assigns, any rights or remedies under or by reason of this Supplement. FURTHER ASSURANCES. Each party hereby agrees to perform any further acts and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Supplement. IN WITNESS WHEREOF, the parties have executed this Supplement to be effective as of the first day and year written above. EDT LEARNING, INC. INVESTOR GROWTH CAPITAL LIMITED By: /s/ David Jeffreys Name: David Jeffreys Title: `A' Director By: /s/ James M. Powers, Jr. By: /s/ Marc Hollander Name: James M. Powers, Jr. Name: Marc Hollander Title: President Title: B-Director INVESTOR GROUP, L.P. LEEDS EQUITY PARTNERS III, L.P. By: Leeds Equity Associates, L.P. Its: General Partner By: /s/ David Jeffreys By: Leeds Equity Management, L.L.C. Name: David Jeffreys Its: General Partner Title: 'A' Director By: /s/ Marc Hollander By: /s/ Robert Bernstein Name: Marc Hollander Name: Robert Bernstein Title: B-Director Title: Member 6 EXHIBIT B Quisic Investor Address Shares - ------------------------- -------------------------------- ------------- Investor Growth Capital National Westminster House 116,667 Limited LeTruchot St. Peter Port Guernsey Channel Islands GY1 4PW c/o Henry E. Gooss Investor Growth Capital, Inc 12 East 49th St, 27th Fl New York, N. Y. 10017-1028 - ------------------------- -------------------------------- ------------- Investor Group, L.P. National Westminster House 50,000 LeTruchot St. Peter Port Guernsey Channel Islands GY1 4PW c/o Henry E. Gooss Investor Growth Capital, Inc. 12 East 49th St. 27th Fl New York, NY 10017-1028 - ------------------------- -------------------------------- ------------- Leeds Equity Partners 660 Madison Avenue 166,666 III, L.P. 15th Floor New York, NY 10021 - ------------------------- -------------------------------- ------------- EX-4.30 6 ilinc_s3ex4-30.txt EXHIBIT 4.30 CONVERTIBLE PROMISSORY NOTE THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE 1933 ACT") AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT COVERING SUCH SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES, REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT. THE TRANSFER OF THIS NOTE (AND THE SHARES OF COMMON STOCK THAT MAY BE ACQUIRABLE UPON CONVERSION) IS SUBJECT TO RESTRICTIONS AS PROVIDED HEREIN. AN INVESTMENT IN THIS NOTE (AND THE COMMON STOCK THAT MAY BE ACQUIRED UPON CONVERSION) IS HIGHLY SPECULATIVE. ILINC COMMUNICATIONS, INC. A DELAWARE CORPORATION CONVERTIBLE PROMISSORY NOTE ------------------------------------------ ------------------------------------ Note Number: NPA - ________ Place of Issue: Phoenix, Arizona Principal Balance: $_______________ Date of Issue: February 12, 2004 ------------------------------------------ ------------------------------------ FOR VALUE RECEIVED, iLinc Communications, Inc., a Delaware corporation (the "Company"), hereby promises to pay to ______________________________________________ or registered assigns (hereinafter referred to as the "Holder"), the original principal sum of _________________________ and 00/100 dollars ($__________________). This Convertible Promissory Note (the "Note") is being issued as one of a series of Notes of like tenor that are being issued by the Company pursuant to a certain Note Purchase Agreement between the Company, the payee of this Note and certain other Lenders, dated February 12, 2004 ("Purchase Agreement") (with the capitalized but undefined terms herein having the meaning given them in the Purchase Agreement) and with the aggregate principal amount of all notes totaling $500,000 (collectively, the "Notes"). Until converted pursuant to Section 4 hereof, interest on the unpaid principal sum of and any accrued but unpaid interest under this Note shall be paid at the rate of 8% per annum for a period of one year from the date hereof and thereafter at the rate of 12% per annum until paid in full. If, however, a registration statement under the Securities Act of 1933 with respect to all of the Registrable Securities (as defined in the Purchase Agreement) has not become effective by July 31, 2004 ("Registration Date"), the rate of interest under this Note shall be adjusted retroactive effective to the date of this Note to the rate of 15% per annum ("Adjusted Rate"). In such event, the difference between the interest paid or accrued at the Registration Date and interest accrued under the Adjusted Rate for the period between the date of this Note and the Registration Date shall be immediately due and payable and, if not paid immediately, shall be added to the principal amount of this Note and shall bear interest at the Adjusted Rate. Payments of interest shall be made quarterly in arrears and shall be paid on the first day of each calendar quarter; provided that a registration statement not become effective before the Registration Date, then during any period in which interest accrues at the Adjusted Rate payments of interest shall be made on a monthly basis, on the first day of each calendar month. Page 1 of 9 1. PAYMENTS. Accrued interest shall be due and payable at the end of each calendar quarter following the Issue Date. Unless earlier converted pursuant to Section 4 hereof, the principal of and any accrued but unpaid interest under this Note shall be due and payable two (2) years after the Issue Date (the "Maturity Date"). Payment shall be made in lawful money of the United States of America at the address of the Holder shown in the above-mentioned Note Purchase Agreement, or at such other place as the Holder may designate in writing or, if earlier, an Event of Default (as defined below). Prepayment of principal and accrued interest may be made upon thirty (30) days' prior written notice to the Holder. Except as otherwise set forth in Section 4, the Company shall have the right to prepay all principal and accrued but unpaid interest of this Note prior to the Maturity Date without penalty or premium, provided however that upon receipt of written notice of the Company's intent to prepay this Note, Holder shall have thirty (30) days to exercise its right to convert this Note into Common Stock, as provided in Section 4 (the "Prepayment Notice Period"). The Company and Holder agree that should the Company breach Section 5.7 of the Purchase Agreement, (after notice by Lenders of breach thereof and the failure to cure such breach within five (5) business days of the receipt of such notice as provided therein), and only in that event, and unless already converted, Holder shall be repaid out of the Peacock Offering Proceeds, but if the Peacock Offering is not consummated, then the Maturity Date of this Note shall be April 15, 2005, at which time the then outstanding principal and accrued but unpaid interest shall be then due and payable. 2. DEFAULT. If any of the following events (hereafter called "Events of Default") shall occur: (a) the Company shall default in the payment of any principal or accrued interest due under this Note on the date the same shall become due and payable, whether at maturity or by acceleration or otherwise; or (b) upon any breach by the Company of any material representation, warranty or covenant in this Note or the Note Purchase Agreement; provided that, in the event of such material breach, shall not have been cured by the Company within 30 days after receipt by the Company of written notice to the Company of such breach; or (c) the Company shall make a general assignment for the benefit of creditors; or (d) the Company shall file a voluntary petition in bankruptcy, or shall be insolvent or adjudicated bankrupt, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy act or other applicable federal, state or other statute, law or regulation, or shall file any answer admitting the material allegation of a petition filed against the Company in such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Company of all or any substantial part of the properties of the Company, or the Company shall commence the winding up or the dissolution or liquidation of the Company; or (e) within sixty (60) days after the commencement of an action against the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or (f) the Company (i) repurchases any shares of its common stock or preferred stock, other than shares issued to officers, directors, employees and consultants of the Company pursuant to agreements obligating the Company to repurchase such shares upon termination of employment with or service to the Company, (ii) pays a cash dividend or makes any other property distribution (other than a dividend in the form of equity in the Company) to its equity holders, or (iii) repays any of the Notes other than a repayment concurrently made on all Notes on a pro rata basis. Should an Event of Default occur and failure to cure if provided, then, and in each and every such case, the Holder of the Note may, by written notice to the Company, declare all amounts under this Note and all other Notes to be forthwith due and payable without presentation, protest or further demand or notice of any kind, all of which are hereby expressly waived. Page 2 of 9 3. SUBORDINATION. The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all the Company's Senior Indebtedness, as hereinafter defined. (a) SENIOR INDEBTEDNESS. As used in this Note, the term "Senior Indebtedness" shall mean the principal of and unpaid accrued interest on: (i) all indebtedness (whether or not secured) of the Company to banks, insurance companies or other financial institutions regularly engaged in the business of lending money, which is for money borrowed by the Company, (ii) amounts due to software and equipment lessors pursuant to lease agreements whereunder the Company is the lessee, and (iii) any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor. (b) DEFAULT ON SENIOR INDEBTEDNESS. If there should occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation or any other marshaling of the assets and liabilities of the Company, or if this Note shall be declared due and payable upon the occurrence of a default with respect to any Senior Indebtedness, then (i) no amount shall be paid by the Company in respect of the principal of or interest on this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with the Company by or on behalf of the Holder of this Note that shall assert any right to receive any payments in respect of the principal of and interest on this Note, except subject to the payment in full of the principal of and interest on all of the Senior Indebtedness then outstanding. If there occurs an event of default that has been declared in writing with respect to any Senior Indebtedness as defined in the instrument governing such Senior Indebtedness or in the instrument under which any Senior Indebtedness is outstanding, permitting the holder of such Senior Indebtedness to accelerate the maturity there of, then, unless and until such default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall be made in respect of the principal of or interest on this Note. (c) EFFECT OF SUBORDINATION. Subject to the rights, if any, of the holders of Senior Indebtedness under this Section 3 to receive cash, securities or other properties otherwise payable or deliverable to the Holder of this Note, nothing contained in this Section 3 shall impair, as between the Company and the Holder, the obligation of the Company, subject to the terms and conditions hereof, to pay to the Holder the principal hereof as and when the same become due and payable, or shall prevent the Holder of this Note, upon default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law. (d) SUBROGATION. Subject to the payment in full off all Senior Indebtedness and until this Note shall be paid in full, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness (to the extent of payments or distributions previously made to such holders of Senior Indebtedness pursuant to the provisions of Section 3(b) above) to receive payments or distributions of assets of the Company applicable to the Senior Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to or on account of this Note; and for the purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which the Holder would be entitled except for the provisions of this Section 4 shall, as between the Company and its creditors, other than the holders of Senior Indebtedness and the Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. Page 3 of 9 (e) UNDERTAKING. By its acceptance of this Note, the Holder agrees to execute and deliver such documents as may be reasonably requested from time to time by the Company or the holder of any Senior Indebtedness in order to implement the foregoing provisions of this Section 3. 4. CONVERSION. (a) GRANT OF RIGHT. Subject to the terms of Section 4(d) hereof, any Holder of this Note has the right, at the Holder's option, at any time prior to the Maturity Date or earlier payment in full of the entire principal balance of and accrued interest under this Note, including without limitation, during the thirty (30) day Prepayment Notice Period to convert, in accordance with the provisions of this Section 4, (i) the outstanding principal amount of this Note, in whole but not in part, and (ii) at the Holder's option, the accrued interest under the Note which has been unpaid for thirty (30) or more days beyond its due date as of the date of such conversion into fully paid and non-assessable shares of the Common Stock, $0.001 par value, of the Company. The number of shares into which this Note may be converted ("Shares") shall be determined by dividing the then outstanding principal amount of the Note and/or accrued unpaid interest under the Note by the conversion price in effect at the time of such conversion. The initial conversion price ("Conversion Price") shall be $0.70 per Share. (b) NOTICE OF CONVERSION. Before the Holder shall be entitled to convert this Note into Shares, he shall surrender this Note at the office of the Company and shall give written notice by mail, postage prepaid, to the Company at its principal corporate office, of the election to convert the same, if the Holder is electing to convert pursuant to Section 4(a), and shall state therein on the Notice of Conversion annexed to this Note the entire principal amount of the Note to be converted and the accrued and unpaid interest on such principal amount that is also to be converted. (c) SATISFACTION WITH REQUIREMENTS OF SECURITIES ACT OF 1933. Notwithstanding anything to the contrary contained herein, each and every conversion of this Note, is contingent upon the Company's satisfaction that the issuance of Common Stock upon the conversion is exempt from the requirements of the Securities Act of 1933, as amended, and all applicable state securities laws. The Holder agrees to execute any and all documents deemed necessary by the Company to effect a conversion of this Note. (d) MECHANICS AND EFFECT OF CONVERSION. No fractional Shares shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional Shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder, when it is due, the amount of outstanding principal that is not so converted and shall pay all accrued but unpaid interest thereof not converted. Upon the conversion of this Note pursuant to Section 4(a) above, the Holder shall surrender this Note, duly endorsed, at the principal office of the Company. At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to such Holder at such principal office a certificate or certificates evidencing the number of Shares of Common Stock to which the Holder shall be entitled upon such conversion (bearing such legends as are required by the Purchase Agreement and applicable state and federal securities laws in the opinion of counsel to the Company), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note, including a check payable to the Holder for any cash amounts payable for unpaid and accrued interest and for fractional shares as described above. In the event of any conversion of this Note pursuant to Section 4(a) above, such conversion shall be deemed to have been made immediately prior to the closing of the issuance of such Common Stock and on and after such date the Holder of this Note is entitled to receive the shares of such Common Stock issuable upon such conversion and shall be treated for all purposes as the record holder of such shares. Upon conversion of this Note, then the Note shall be irrevocably extinguished and the Company shall be forever released from all its obligations and liabilities under this Note, except that the Company shall be obligated to pay the Holder within ten (10) days after the date of such conversion any cash amounts resulting from fractional shares as described above, and any unpaid and accrued interest to and including the date of such conversion, and no more. Page 4 of 9 5. CONVERSION PRICE ADJUSTMENTS. (a) STOCK SPLITS AND COMBINATIONS. If the Company shall at any time subdivide or combine its outstanding shares of Common Stock, this Note shall, after that subdivision or combination, evidence the right to convert into the number of shares of Common Stock that would have been issuable as a result of that change with respect to the Shares of Common Stock which were issuable upon conversion of this Note immediately before that subdivision or combination. If the Company shall at any time subdivide the outstanding shares of Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and, if the Company shall at any time combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before that combination shall be proportionately increased. Any adjustment under this section shall become effective at the close of business on the date the subdivision or combination becomes effective. (b) RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock issuable upon conversion of this Note shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the holder of this Note, shall, on its conversion be entitled to receive in lieu of the Common Stock which the Holder would have become entitled to receive but for such change, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been received by the holder on conversion of this Note immediately before that change. (c) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALE OF ASSETS. If at any time there shall be a capital reorganization of the Company's Common Stock (other than a combination, reclassification, exchange, or subdivision of shares provided for elsewhere above) or merger or consolidation of the Company with or into another corporation with the Company not being the survivor of the merger, or the sale of substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, lawful provision shall be made so that the holder of this Note shall thereafter be entitled to receive upon conversion of this Note, the number of shares of Common Stock or other securities or property of the Company, or of the successor corporation resulting from such merger or consolidation, to which a holder of the Common Stock deliverable upon conversion of this Note would have been entitled in such capital reorganization, merger, or consolidation or sale if this Note had been converted immediately before that capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of the holder of this Note after the reorganization, merger, consolidation, or sale to the end that the provisions of this Note (including adjustment of the Conversion Price then in effect and number of Shares purchasable upon conversion of this Note) shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon conversion of this Note. The Company shall, within thirty (30) days after making such adjustment, give written notice (by first class mail, postage prepaid) to the registered holder of this Note at the address of that holder shown on the Company's books. That notice shall set forth, in reasonable detail, the event requiring the adjustment and the method by which the adjustment was calculated and specify the Conversion Price then in effect after the adjustment and the increased or decreased number of Shares purchasable upon conversion of this Note. When appropriate, such notice may be given in advance and include as a part thereof the notice required under other provisions of this Note. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation, or the sale of all or substantially all of the assets to another corporation, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Holder a supplemental agreement providing that the Holder of each Note then outstanding shall have the right thereafter and until the expiration of the period of convertibility to convert such Note into the kind and amount of stock, securities or assets receivable upon such reorganization, reclassification, consolidation, merger or sale by a holder of the number of shares of Common Stock into which such Note might have been converted immediately prior to such reorganization, reclassification, consolidation, merger or sale, subject to adjustment which shall be as nearly equivalent as may be practicable to the adjustments provided for in this section. Page 5 of 9 (d) ISSUANCE OF STOCK BELOW CONVERSION PRICE. If the Company shall at any time before the earlier of (x) the expiration of six (6) months after the Issue Date of this Note or (y) the date upon which a registration statement that covers the Shares that are available upon conversion become effective, issue common stock to an investor with a purchase price per share that is less than the Conversion Price ("Additional Stock") then in effect under this Note, then the Conversion Price will be reduced concurrently with such issue to an amount equal to the price per share paid upon such issuance. For the purposes of this Agreement, "Additional Stock" shall include shares of Common Stock issued directly and also the maximum number of shares of Common Stock issuable upon the due exercise of options for the purchase of Common Stock or the conversion of securities convertible into Common Stock, in which case the purchase price shall be the exercise or conversion price, as the case may be. Notwithstanding the foregoing, if anytime before the expiration of one (1) year from the Issue Date, any options to purchase equity or any common stock or any debentures, notes or other evidence of indebtedness issued by the Company is sold to investors in the Peacock Offering (as defined in the Purchase Agreement) then the common stock or other equity associated with the Peacock Offering shall not be considered for purposes of Additional Stock, and accordingly the Holder hereof acknowledges that it is the intention of the Company to engage in a debt offering as a part of the Peacock Offering that may include the sale of common stock or the issuance of options at a price below the Conversion Price without the issuance of Additional Stock. 6. DIVIDENDS. In the event that the Company shall make any distribution of its assets upon or with respect to its Common Stock, as a liquidating or partial liquidating dividend, or other than as a dividend payable out of earnings or any surplus legally available for dividends under the laws of the state of incorporation of the Company, each Holder of any Note then outstanding shall, upon the exercise of his right to convert after the record date for such distribution or, in the absence of a record date, after the date of such distribution, receive, in addition to the shares subscribed for, the amount of such assets (or, at the option of the Company, a sum equal to the value thereof at the time of distribution as determined by the Board of Directors in good faith which would have been distributed to such Holder if he had exercised his right to convert this Note) or the Common Stock issuable upon the conversion of this Note immediately prior to the record date for such distribution or, in the absence of a record date, immediately prior to the date of such distribution. 7. LIMITATIONS ON DISPOSITION. Holder agrees not to make any disposition of all or any portion of this Note or any of the Common Stock issuable upon the due conversion hereof (other than the valid conversion thereof in accordance with its terms) unless and until: (a) there is then in effect a registration statement under the Securities Act of 1933 covering such proposed disposition, and such disposition is made in accordance with such registration statement; or (b) (i) Holder has notified the Company of the proposed disposition and has furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, Holder has furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act of 1933 or registration or qualification under any applicable state securities law. Notwithstanding the foregoing, no investment representation letter or opinion of counsel shall be required for any transfer of Securities (i) in compliance with Rule 144 or Rule 144A of the Securities Act of 1933 or (ii) by gift, will or intestate succession by Holder to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing; provided that, in each of the foregoing cases, the transferee agrees in writing to be subject to the terms of this Note. In addition, if the holder of any Securities delivers to the Company an unqualified opinion of counsel that no subsequent transfer of such Securities shall require registration under the Securities Act of 1933, the Company shall, upon such contemplated transfer, promptly deliver new documents/certificates for such Securities that do not bear the legend set forth in Section 8 hereof. Page 6 of 9 8. LEGENDS. It is understood that the certificates evidencing the Common Stock may bear one or more of the following legends: (a) The following legend under the Securities Act of 1933: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED", or (b) Any legend required by state securities laws. The Company agrees to remove promptly, upon the request of the holder of Securities issued upon conversion of this Note, the legend set forth in Section 8(a) hereof from the documents/certificates for such Securities upon full compliance with this Note, Rule 144 under the Securities Act of 1933 and any other applicable provisions of the Securities Act of 1933 or the regulations promulgated thereunder. 9. ASSIGNMENT. This Note applies to, inures to the benefit of and binds the successors and assigns of the parties hereto. Any transfer of this Note will be effected only by surrender of this Note to the Company and reissuance of a new note to transferee. The Holder and any subsequent holder(s) of this Note receive this Note subject to the foregoing items and conditions, and agree to comply with the foregoing terms and conditions for the benefit of the Company and any other holders. 10. NOTICES. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given (i) when received, if personally delivered, faxed, sent by nationally recognized courier or U.S. Mail return-receipt requested, or (ii) on the third business day after deposit in the U.S. Mail, if sent by first-class mail, in any such case to the address of the recipient set forth in the above-mentioned Purchase Agreement and, if to the Company, Attention: Chief Executive Officer. Any party hereto may by notice so given change its address for future notice hereunder. 11. NO STOCKHOLDER RIGHTS. Nothing contained in this Note shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company; and no dividends shall be payable or accrued in respect of this Note or the capital stock obtainable hereunder until, and only to the extent that, this Note shall have been converted. 12. NOTE REGISTER. This Note is transferable only upon the books of the Company, which it shall cause to be maintained for such purpose. The Company may treat the registered holder of this Note as he, she or it appears on the Company's books at any time as the Holder for all purposes. 13. LOSS OF NOTE. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and of indemnity reasonably satisfactory to the Company if this Note is lost, stolen or destroyed, and upon surrender and cancellation of this Note if this Note is mutilated, the Company shall execute and deliver to the Holder a new Note of like date, tenor and denomination. Page 7 of 9 14. AMENDMENT, WAIVER. The terms of this Note may be amended or waived only upon the written agreement of the Company and the Holder. 15. HEADING: REFERENCES. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except where otherwise indicated, all references herein to Sections refer to Sections hereof. 16. SEVERABILITY. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note and the balance of this Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 17. MISCELLANEOUS. This Note shall be governed by and construed in accordance with the laws of the State of Arizona. If an action is brought for collection under this Note, the Company will pay all costs of collection actually incurred by the Holder, including, but not limited to, the reasonable attorneys' fees. 18. MAXIMUM INTEREST. Regardless of any provision contained herein, the Company shall never be required to pay and the holder hereof shall never be entitled to receive, collect or apply as interest hereon, any amount in excess of the highest lawful interest rate permitted under applicable law, and in the event the holder hereof receives, collects or applies, as interest, any such excess, such amounts which would be excessive interest shall be deemed a partial prepayment of principal and treated hereunder as such for all purposes; and, if the principal hereof is paid in full, any remaining excess shall be refunded to the Company. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the highest lawful interest rate, the Company and the holder hereof shall, to the maximum extent permitted under applicable law (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b) exclude prepayments and the effects thereof, and (c) pro rate, allocate and spread the total amount of interest throughout the entire contemplated term hereof; provided that if the indebtedness evidenced hereby is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence thereof exceeds the highest lawful interest rate, the holder hereof shall either apply as principal reduction or refund to the Company the amount of such excess, and in such event, the holder hereof shall not be subject to any penalties provided by any laws for contracting for, charging or receiving interest in excess of the highest lawful interest rate. Page 8 of 9 IN WITNESS WHEREOF, the undersigned have caused this Note to be executed by the undersigned as of the date first set forth above. ILINC COMMUNICATIONS, INC., a Delaware corporation By /s/ James M. Powers, Jr. ------------------------------ James M. Powers, Jr. President ATTEST: /s/ James L. Dunn, Jr. ------------------------- James L. Dunn, Jr. Corporate Secretary Page 9 of 9 -----END PRIVACY-ENHANCED MESSAGE-----