<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-13741
ITC LEARNING CORPORATION
------------------------
(FORMERLY KNOWN AS INDUSTRIAL TRAINING CORPORATION)
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 52-1078263
--------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
13515 Dulles Technology Drive, Herndon, Virginia 20171
------------------------------------------------------
(Address of principal executive offices)
(703) 713-3335
-------------------------
Issuer's telephone number
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X; No
- -
As of June 30, 1997, 3,897,034 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes ; No X
- -
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I PAGE
- ------ ----
<S> <C> <C>
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 1997 and 1996 1
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II
- -------
Item 1 Legal Proceedings 9
Item 2 Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
Item 4 Submission of Matters to a Vote of Security Holders 9
Item 5 Other Information 9
Item 6 Exhibits and Reports on Form 8-K 9
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the 3 Months Ended June 30, For the 6 Months Ended June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 4,487,286 $ 7,605,160 $ 9,209,263 $11,320,881
Cost of sales 2,287,877 4,771,966 4,670,826 7,417,404
----------- ----------- ----------- -----------
Gross margin 2,199,409 2,833,194 4,538,437 3,903,477
Selling, general, and
administrative expense 3,427,765 2,409,555 6,533,204 4,339,969
Equity in earnings of affiliates (13,600) (49,275) (39,114) (112,357)
----------- ----------- ----------- -----------
Income (loss) before interest
and income taxes (1,214,756) 472,914 (1,955,653) (324,135)
Interest income, net 44,174 107,665 83,333 242,521
----------- ----------- ----------- -----------
Income (loss)
before income taxes (1,170,582) 580,579 (1,872,320) (81,614)
Income taxes (benefit) (422,000) 232,000 (668,000) (33,000)
----------- ----------- ----------- -----------
Net income (loss) $ (748,582) $ 348,579 $(1,204,320) $ (48,614)
=========== =========== =========== ===========
Net income (loss) per
common share (note 2) $ (0.19) $ (0.10) $ (0.31) $ (0.01)
=========== =========== =========== ===========
Weighted average number
of shares outstanding 3,897,034 3,635,322 3,897,022 3,608,086
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE>
ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,771,928 $ 2,697,566
Accounts receivable, net (note 3) 5,071,605 7,641,066
Due from affiliates 61,118 36,768
Inventories 1,135,433 1,018,383
Prepaid expenses 240,205 190,402
Income tax receivable 496,826 689,104
----------- -----------
Total current assets 9,777,115 12,273,289
Long-term receivable (note 4) 1,028,883 1,589,916
Property and equipment:
Video and computer equipment 3,716,717 3,361,923
Furniture and fixtures 720,289 747,146
Leasehold improvements 98,350 95,422
----------- -----------
4,535,356 4,204,491
Less accumulated depreciation and amortization (3,356,527) (2,963,197)
----------- -----------
Net property and equipment 1,178,829 1,241,294
Capitalized program development costs, net 4,520,547 4,226,525
Intangible assets 3,740,741 3,975,840
Other 527,858 67,461
----------- -----------
$20,773,973 $23,374,325
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Line of credit (note 5) $ -- $ 515,000
Current installments of long-term debt 67,220 130,745
Accounts payable 1,114,453 1,331,079
Due to affiliates 361,595 335,797
Accrued compensation and benefits 987,874 826,764
Deferred revenues 1,279,895 1,458,945
Other accrued expenses 1,316,842 1,619,326
----------- -----------
Total current liabilities 5,127,879 6,217,656
Deferred lease obligations 107,864 113,020
Deferred income taxes -- 353,522
----------- -----------
Total liabilities 5,235,743 6,684,198
Stockholders' equity:
Common stock, $.10 par value, 12,000,000 shares
authorized; 3,897,034 and 3,896,924 issued
and outstanding in 1997 and 1996, respectively 389,703 389,693
Additional paid-in capital 16,068,294 16,067,366
Note receivable from ESOP (92,192) (143,677)
Retained earnings (deficit) (827,575) 376,745
----------- -----------
Total stockholders' equity 15,538,230 16,690,127
----------- -----------
Total liabilities and stockholders' equity $20,773,973 $23,374,325
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ITC LEARNING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For 6 Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,204,320) $ (48,614)
Reconciling items:
Provision for deferred taxes (668,000) (33,000)
Depreciation and amortization 1,530,418 1,958,984
Sales awards of treasury shares 938 --
Increase in allowance for doubtful accounts 103,796 76,816
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,465,665 (335,446)
Decrease (increase) in inventories (117,050) 166,465
Increase in prepaid expenses (49,803) (99,432)
Decrease (increase) in income taxes receivable 38,352 (70,200)
Decrease (increase) in long term receivable 561,033 (1,537,831)
Decrease (increase) in other assets 8,007 (7)
Increase (decrease) in accounts payable (216,626) 561,859
Increase in due to affiliates, net 1,448 206,399
Increase (decrease) in deferred revenues (179,050) 895,637
Increase (decrease) in other accrued expenses (141,374) 362,508
Decrease in income taxes payable -- (105,000)
Decrease in deferred lease obligations (5,156) (8,318)
----------- -----------
Net cash from operating activities 2,128,278 1,990,820
Cash flows from investing activities:
Deferred program development costs (1,196,011) (2,916,316)
Capital expenditures (330,865) (230,518)
----------- -----------
Net cash used in investing activities (1,526,876) (3,146,834)
Cash flows from financing activities:
Repayments under line of credit (515,000) --
Principal payments of long-term debt (63,525) (58,575)
Issuance of common stock -- 90,636
Employee stock ownership plan note collections 51,485 53,500
----------- -----------
Net cash provided by (used in) financing activities (527,040) 85,561
----------- -----------
Net increase (decrease) in cash 74,362 (1,070,453)
Cash and cash equivalents at beginning of period 2,697,566 10,348,762
----------- -----------
Cash and cash equivalents at end of period $ 2,771,928 $ 9,278,309
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
ITC LEARNING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1) SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
---------------------
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries ComSkill Learning Centers, Inc.
("ComSkill"), Activ Training, Ltd ("Activ"), ITC Australasia Pty. Ltd. ("ITCA"),
and Anderson Soft-Teach ("AST"). Significant intercompany accounts and
transactions have been eliminated in consolidation. In the opinion of the
Company, the interim condensed consolidated financial statements include all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of the results for the interim periods. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The interim condensed consolidated financial statements should be read
in conjunction with the Company's December 31, 1996 and 1995 audited financial
statements included with the Company's filing on Form 10-KSB. The interim
operating results are not necessarily indicative of the operating results for
the full fiscal year.
b) Revenues and Cost
-----------------
Revenues include both off-the-shelf and custom courseware sales, courseware
licenses, consulting service revenues and hardware revenues. The Company
recognizes revenues on off-the-shelf product and hardware sales as units are
shipped. The Company permits the customer the right to return the courseware
within 30 days of purchase. In the event that sales returns are material, the
Company adjusts revenue accordingly. Revenues from sales of custom training
programs that are developed and produced under specific contracts with
customers, including contracts with affiliated joint ventures and limited
partnerships, are recognized on the percentage of completion basis as related
costs are incurred during the production period. Gross revenues from sales of
affiliated joint venture and limited partnership copyrighted courseware are
included in the Company's financial statements, as are related production,
selling and distribution costs. Amounts due to co-owners of the affiliated
venture/partnerships related to such courseware sales are reflected as royalties
and included in cost of sales in the financial statements. Revenues from
courseware licenses are recognized upon the delivery of the initial copy of each
product licensed, and related duplication costs are accrued based on estimates.
Revenues from consulting services are recognized as services are performed.
2) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirement for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary and fully diluted earnings per share for the quarters
ended March 31, 1997 and June 30, 1997 is not expected to be material.
5
<PAGE>
3) ACCOUNTS RECEIVABLE
Accounts receivable include the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- -----------
<S> <C> <C>
Trade accounts receivable $4,583,007 $6,738,762
Current portion of long-term receivable, net (Note 3) 845,934 1,012,287
Unbilled contract receivables 1,031 182,025
Less allowance for doubtful accounts (399,944) (296,148)
---------- ----------
Trade accounts receivable, net 5,030,028 7,636,926
Other receivables 41,577 4,140
---------- ----------
$5,071,605 $7,641,066
========== ==========
</TABLE>
4) LONG-TERM RECEIVABLE
During the second quarter of 1996, the Company entered into a contract with the
DeKalb County (GA) Board of Education ("DeKalb") for the sale of a district-wide
multicopy courseware license, hardware and certain future services. The total
contract amount of $5,060,000 is payable in four installments, $1,535,000 upon
contract execution, and the remaining $3,525,000 in three equal annual
installments beginning in June, 1997. The June 1997 installment was received in
accordance with the provisions of the contract and the effect of the payment is
reflected in the financial statements. The long-term portion of the net
receivable has been discounted assuming a 6% interest rate.
Components of long-term receivable include the following:
June 30,
1997
-----------
Receivable from DeKalb County (GA) Board of Education $ 2,350,000
Related dealer fees payable (325,040)
Less amounts classified as current, net of related dealer fees (845,934)
Less amount representing interest (150,143)
-----------
$ 1,028,883
===========
5) NOTE PAYABLE TO BANK
At June 30, 1997, the Company had no amounts outstanding relating to its
$3,000,000 revolving bank line of credit, which bears interest at the bank's
prime lending rate. Borrowings under the line are collateralized by the
Company's accounts receivable and inventory.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
a) Revenues
--------
For the quarter ending June 30, 1997, the Company recorded revenues of
$4,487,000 as compared to $7,605,000 for the same period in 1996. The decrease
of $3,118,000 or 41% is attributable to the second quarter 1996 sale of a
district-wide multicopy courseware license to the DeKalb County (GA) Board of
Education. The 1996 sale to DeKalb County included courseware, hardware and
future services and was valued at $5,060,000, of which $3,838,000 was recorded
during the second quarter. With the exception of the DeKalb sale, revenues
increased over the same period in 1996 by $720,000 or 19%. The increase was
principally due to the acquisition of Anderson Soft-Teach in December 1996 and
the Company's expanded international operations. International revenues for the
second quarter of 1997 were $763,000 as compared with $339,000 for the same
period in 1996, representing an increase of $424,000 or 125%.
For the quarter ending June 30, 1997, sales of the Company's off-the-shelf
multimedia training products were $3,907,000, representing a decrease of
$1,926,000 or 33% from 1996. Again, without the impact of the second quarter
1996 DeKalb sale, the Company realized an increase of $1,492,000 or 62% over
last year. Hardware sales for the second quarter of 1997 were $394,000 as
compared with $1,388,000 in 1996, a decrease of $994,000 or 72%, $420,000 of
which is attributable to DeKalb. Revenues from custom courseware and services
were $262,000 for the second quarter as compared with $164,000 for the second
quarter of 1996, an increase of $98,000 or 60%.
Total revenues for the six months ended June 30, 1997 were $9,209,000 as
compared with $11,321,000 for the same period in 1996. The decrease of
$2,112,000 is again explained by the effect on 1996 results of the DeKalb sale.
Without the impact of the 1996 DeKalb sale, revenues increased over 1996 by
$1,726,000 or 23%. Off-the-shelf courseware revenues for the six month period
were $8,049,000 as compared with $8,404,000 in 1996, a decrease of $355,000 or
4% (an increase of $3,063,000 or 61% without DeKalb).
Revenues from the Company's International division, which are included in the
aforementioned total, amounted to $1,693,000 for the first six months of 1997 as
compared to $895,000 for the same period in 1996, representing an increase of
$798,000 or 89%. The increase was principally due to the acquisition of Acumen
People and Productivity in the third quarter of 1996 and improving performance
at Activ Training, Ltd., ITC's London-based subsidiary.
Hardware revenues for the first six months of 1997 were $624,000 as compared
with $1,837,000 in 1996, a decrease of $1,213,000 or 66%. Revenues from custom
courseware and services were $715,000 for the first six months of 1997 as
compared to $761,000 in 1996, a decrease of $46,000 or 6%.
b) Costs and Expenses
------------------
Gross margin for the second quarter of 1997 was $2,199,000 as compared with
$2,833,000 in 1996, a decrease of $634,000 or 22%. However, gross margin for
the six months ended June 30, 1997 totaled $4,538,000, an increase of $635,000
or 16% over the comparable period in 1996. The lower gross margin for the
second quarter of 1997 is primarily attributable to the favorable impact the
DeKalb sale had on second quarter 1996 operating results. On a year-to-date
basis, the Company's improved gross margins can be attributed to a higher
percentage of courseware sales relative to total sales as well as lower cost of
sales associated with material costs, product amortization and dealer fees.
7
<PAGE>
Operating expenses for the second quarter of 1997 were $3,428,000 as compared
with $2,410,000 in the same period of 1996. The increase of $1,018,000 is
primarily due to the operating costs associated with the Company's 1996
acquisitions and expanded international operation. Actions have been taken to
consolidate the Anderson operation with the Company's core business and are
expected to result in operating cost savings during the second half of 1997 and
beyond. However, during the second quarter of 1997, the Company incurred
approximately $300,000 in operating expenses associated with the consolidation
efforts. Savings from the consolidation efforts during the remainder of 1997
are expected to offset the additional costs incurred during the second quarter.
The overall impact of the cost cutting measures is expected to yield annualized
savings of approximately $1.2 million, beginning in 1998.
c) Net Loss
--------
Operations in the second quarter of 1997 resulted in a loss before taxes of
$1,171,000 as compared with income before taxes of $581,000 in 1996. This loss
is partially offset by an interim tax benefit, resulting in a net loss of
$749,000 or $0.19 per share as compared with net income of $349,000 or $0.10 per
share in the second quarter of 1996. For the six months ended June 30, 1997,
the loss before taxes amounted to $1,872,000 compared to a loss of $82,000 in
1996. On an after-tax basis, the first six months of 1997 resulted in a net
loss of $1,204,000 or $0.31 per share as compared to a net loss of $49,000 or
$0.01 per share in 1996.
d) Cash Flow, Liquidity and Capital Resources
------------------------------------------
Working capital at June 30, 1997 was $4,649,000 compared to $6,056,000 at
December 31, 1996, a decrease of $1,407,000. The decrease is primarily due to
an overall reduction in accounts receivable attributable to the collection of
the second payment on the DeKalb contract and increased focus on collections.
Cash proceeds in turn have been used to fund ongoing product development and to
reduce debt acquired in the Anderson acquisition.
Cash flows from operations were $2,128,000 for the first six months of 1996, as
the effect of non-cash charges totaling $967,000 and reductions in receivables
of $3,027,000 more than offset the net loss of $1,204,000 and increases in other
working capital accounts of $661,000. Cash provided by operations were offset
by investments totaling $1,527,000 for the ongoing development of MS Office '97
products and certain capital expenditures. Cash used in financing activities
includes the repayment of the line of credit assumed in the acquisition of
Anderson.
Management believes that the cash generated from operations combined with the
Company's existing resources and available line of credit are adequate to meet
ITC's working capital needs and other financing requirements for 1997.
8
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its annual meeting of shareholders on May 6, 1997. There
were three agenda items submitted to a vote of security holders, including the
election of two directors to the Company's Board of Directors: (i) Steven L.
Roden was elected to serve on the Board for a term of three years. The number
of votes cast in favor of Mr. Roden's election was 3,558,640, with 49,219 votes
against and 32,571 abstaining; (ii) James H. Walton was elected to serve on the
Board for a term of three years. The number of votes cast in favor of Mr.
Walton's election was 2,969,339, with 636,473 votes against and 34,618
abstaining.
(b) The shareholders approved the amendment to the Articles of Incorporation,
changing the Company's name to ITC Learning Corporation. The number of votes
cast in favor of this proposal was 3,475,162, with 143,355 votes against and
21,913 abstaining.
(c) The shareholders ratified the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending December 31,
1997. There were 3,585,926 votes cast in favor of this item, with 48,312 votes
against and 6,192 abstaining.
No other matters were submitted to the security holders for a vote.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See attached Exhibit Index.
(b) Reports on Form 8-K
None.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ITC LEARNING CORPORATION
(Registrant)
BY /s/ James H. Walton DATE 8/1/97
-------------------------------------------- ------
James H. Walton
Chief Executive Officer
BY /s/ Carl D. Stevens DATE 8/1/97
-------------------------------------------- ------
Carl D. Stevens
President and Chief Operating Officer
BY /s/ Christopher E. Mack DATE 8/1/97
-------------------------------------------- ------
Christopher E. Mack
Vice President of Finance and Administration
and Treasurer
BY /s/ John D. Dobey DATE 8/1/97
-------------------------------------------- ------
John D. Dobey
Controller
10
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Amended Articles of Incorporation of the Company, incorporated by
reference to the Company's Form 10-QSB for the quarter ended June 30,
1996 filed with the Securities and Exchange Commission ("SEC")
(Commission File No. 33-61393).
3.2 Restated By-Laws of the Company, incorporated by reference to the
Company's Form 10-KSB for the fiscal year ended December 31, 1995,
filed March 15,1996 with the SEC (Commission File No. 0-13741).
3.3 Articles of Amendment
4.1 Specimen Certificate for ITC Common Stock
10.6 Employment Agreements with Management
(e) Steven L. Roden
27.1 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 3.3
INDUSTRIAL TRAINING CORPORATION
ARTICLES OF AMENDMENT
Industrial Training Corporation, a Maryland corporation, having its
principal office in Herndon, Fairfax County, Virginia (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article SECOND and inserting in lieu thereof the following:
SECOND: "The name of the Corporation is ITC LEARNING CORPORATION."
SECOND: The board of directors of the Corporation (the "Board of
Directors"), at a meeting duly convened and held on January 29, 1997, adopted
resolutions which set forth the foregoing amendment to the Charter, declaring
that the said amendment of the Charter was advisable and directing that it be
submitted for action thereon at the annual meeting of stockholders of the
Corporation to be held on May 6,1997.
THIRD: Notice setting forth the said amendment and stating that a purpose
of the meeting of the stockholders would be to take action thereon, was given as
required by law, to all stockholders of the Corporation entitled to vote
thereon; and like notice was given to all stockholders of the Corporation not
entitled to vote thereon, whose contract rights as expressly set forth in the
Charter would be altered by the amendment. The amendment of the Charter of the
Corporation as hereinabove set forth was approved by the stockholders of the
Corporation at said meeting by the affirmative vote of two-thirds (2/3) of all
the votes entitled to be cast thereon.
FOURTH: The amendment of the charter of the Corporation as herein before
set forth has been duly advised by the board of directors and approved by the
stockholders of the Corporation.
IN WITNESS WHEREOF: Industrial Training Corporation, has caused these
presents to be signed in its name and on its behalf by its Vice President its
corporate seal to be hereunto affixed by its Secretary on May 9, 1997, and its
Vice President acknowledged that these Articles of Amendment are the act and
deed of Industrial Training Corporation and, under the penalties of perjury,
that the matters and facts set forth herein with respect to authorization and
approval are true in all material respects to the best of this knowledge,
information and belief.
ATTEST: INDUSTRIAL TRAINING CORPORATION
/s/ Anne J. Fletcher By: /s/ Christopher E. Mack
- -------------------- -----------------------
Anne J. Fletcher Christopher E. Mack
Secretary Vice President
<PAGE>
Exhibit 4.1
[LOGO]
NUMBER SHARES
AA SPECIMEN
COMMON STOCK COMMON STOCK
ITC LEARNING CORPORATION
Incorporated under the laws of the State of Maryland
THIS CERTIFIES that CUSIP 45031S 10 6
See reverse
for certain definitions
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF TEN CENTS ($.10) EACH
OF THE COMMON STOCK OF ITC LEARNING CORPORATION transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not valid
until countersigned and registered by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
[SEAL]
Authorized Signature:
/s/Anne J. Fletcher /s/James H. Walton
Secretary Chief Executive Officer
Countersigned and Registered: American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By:____________________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE>
ITC LEARNING CORPORATION
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
-------------------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act
-------------------------
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants
in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions or such preferences and/or rights.
Requests may be directed to the office of the Corporation or to the Transfer
Agent.
For value received, hereby sell, assign and transfer unto
--------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
-------------------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- -------------------------------------------------------------------------------
- ------------------------------------------------------------------------ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
------------------
--------------------------------
Notice: The signature to this assignment must correspond with the name as
written upon the face of the Certificate in every particular.
<PAGE>
Exhibit 10.6
ITC LEARNING CORPORATION
------------------------
SEPARATION AGREEMENT
--------------------
This Separation Agreement (the "Agreement") is made and entered into
effective as of the 13th day of June, 1997, by and between ITC Learning
Corporation (the "Company") and Steven L. Roden ("Roden").
RECITALS
--------
A. The Company is duly organized and validly existing as a corporation in
good standing under the laws of the State of Maryland. The Company is engaged
in the business of developing, marketing, and selling training materials,
primarily in multimedia platforms.
B. Roden is presently in the employ of the Company as President and
Director of the Company, and also serves as Chief Executive Officer and
President of ComSkill Learning Centers, Inc., a wholly-owned subsidiary of the
Company; Director of Anderson Soft-Teach, Incorporated, a wholly-owned
subsidiary of the Company; Managing Director of Activ Training, Ltd., a UK
wholly-owned subsidiary; and Director of ITC Australasia Pty. Ltd., an
Australian wholly-owned subsidiary.
C. The Company has offered to continue to employ Roden for a limited time
subject to certain conditions set forth herein. Roden has indicated his
willingness to accept said offer for limited continued employment under the
stated conditions.
D. The parties hereto believe that it is in their best interests to
provide for the specific terms and conditions of the continued employment and
expected separation.
NOW, THEREFORE, in consideration of the mutual promises and covenants as
hereinafter set forth, and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
A. OBLIGATIONS OF RODEN:
1. Resignations. Immediately upon execution of this Agreement, Roden will
-------------
tender his resignation from the following positions: President and Director of
the Company; Chief Executive Officer and President of ComSkill Learning Centers,
Inc., a wholly-owned subsidiary of the Company; Director of Anderson Soft-Teach,
Incorporated, a wholly-owned subsidiary of the Company; Managing Director of
Activ Training, Ltd., a UK wholly-owned subsidiary; and Director of ITC
Australasia Pty. Ltd., an Australian wholly-owned subsidiary; and any others he
may currently hold with the Company or its affiliates.
2. Return of Property. Immediately upon execution of this Agreement,
-------------------
Roden will vacate his offices located at the Herndon, Virginia, and Los Gatos,
California, offices of the Company and will surrender any and all Company
property in his possession, including any keys, credit cards, equipment,
proprietary information, products, etc.
3. Non-Disparagement. During the term of this Agreement, Roden agrees not
------------------
to make any disparaging remarks about the Company to other employees, customers,
shareholders, investors, affiliates, suppliers, competitors, or anyone else.
1
<PAGE>
4. Full Time and Attention. During the term of this Agreement, and
------------------------
subject to the provisions of Sections A.7 of this Agreement, Roden agrees to
devote his full business time and services and his best efforts to the faithful
performance of the duties which may be reasonably assigned to him. In this
regard, Roden agrees to be responsive to inquiries from the Company and to make
himself available for any duties assigned to him by the Company.
5. Support of Company Position. If contacted by any person about any
----------------------------
aspect of the business of the Company or its affiliates, Roden agrees that he
will immediately determine from the Chief Executive Officer (James H. Walton)
the position of the Company and he will fully support such position as described
by the Chief Executive Officer or have no comment.
6. Continuing Duty of Loyalty and Fiduciary Obligations. Roden
-----------------------------------------------------
acknowledges that his duty of loyalty to the Company and fiduciary duties to the
Company continue as an employee and a Director of the Company.
7. Outside Business Interests, Employee Solicitation, and Company
--------------------------------------------------------------
Property.
- --------
a. Without the written consent of the Board of Directors of the
Company, which consent shall not be unreasonably withheld, Roden agrees that
during the term of this Agreement he will not be affiliated with or employed by
any competitor, supplier, or customer of the Company, as an officer, director,
partner, employee, agent, consultant (or similar capacity) or more than 1%
stockholder.
b. Roden further agrees that during the term of this Agreement he
will not, directly or indirectly, encourage employees of ITC (hereinafter
meaning the Company and/or any of its subsidiary companies or divisions now
existing or hereafter formed) to leave the employ of ITC for the purpose of
seeking or obtaining employment in any other activity with which Roden intends
to become affiliated.
c. Roden further agrees that during a period of two (2) years
following the termination of employment, regardless of the reasons for such
termination, he will not, directly or indirectly, solicit, attempt to hire, or
encourage employees of ITC to leave the employ of ITC.
d. Roden further agrees that during the term of this Agreement and
following the termination of his employment he will not, other than in the
normal and valid course of his employment with the Company, directly or
indirectly, take with him or use any ITC property, such as drawings, reports,
data or proposals, design or manufacturing information, wage and salary
information, records or the like relating or peculiar to ITC's products,
research or development or other activities, nor disclose to any others
information of a privileged nature.
e. Roden further agrees that during the term of this Agreement and
during a period of two (2) years following the termination of his employment, he
will not, directly or indirectly, participate (on his own behalf or on behalf of
any other corporation, venture, or enterprise engaged in commercial activities)
in any proposals which were the subject of outstanding bids or solicitations of
ITC or of bids or solicitations in preparation by ITC during his employment by
the Company.
2
<PAGE>
f. Roden further agrees that the provisions of this Section 6 are of
vital importance to the Company and incorporate crucial Company policies and a
means of safeguarding valuable proprietary rights and interests of ITC.
Accordingly, Roden agrees that the Company shall be entitled to injunctive
relief, in addition to all other remedies permitted by the law, to enforce the
provisions of Section 7.
g. If any court of competent jurisdiction or arbitrator shall
determine this covenant to be unenforceable as to either the term or scope
imposed above, then this covenant nevertheless shall be enforceable by such
court or arbitrator as to such shorter term or lesser scope as may be determined
by the court to be reasonable and enforceable.
B. OBLIGATIONS OF THE COMPANY
1. Employment. The Company agrees to employ Roden in accordance with the
----------
terms and conditions set forth in this Agreement. Roden shall have such duties
as may be reasonably assigned to him from time to time by the Board of Directors
of the Company or the Chief Executive Officer then in office, or their designee.
2. Compensation.
------------
a. In General. For holding himself available to the Company and for
----------
all services rendered by Roden under this Agreement, the Company shall provide
Roden with the various forms of compensation and benefits set forth in this
Section B.2.
b. Basic Compensation. The Company shall, subject to the approval
------------------
of the Board of Directors of the Company, pay Roden a salary at the rate of
$130,000 per year, payable on the 16th and the 1st day of each month during the
term of this Agreement in accordance with the Company's normal payroll practices
for salaried employees.
c. Vehicle. Roden shall continue to receive the use of the Company
-------
vehicle already assigned to him, that is, a 1997 Ford Explorer. Said vehicle
shall be returned to the Los Gatos, California, office of Anderson Soft-Teach,
Inc., upon the termination of this Agreement. Roden shall be responsible for
his own personal liability insurance and the Company shall be responsible for
the insurance on the vehicle during the term of this Agreement. The vehicle was
provided to Roden in new condition. Roden shall return the vehicle in good
condition, understanding that a normal amount of wear and tear is expected. All
operational expenses, including mileage expense above the annual base lease
term, are the responsibility of Roden.
d. Reimbursements of Expenses. The Company agrees to reimburse
--------------------------
Roden for all reasonable expenses (determined in the sole discretion of the
Company) incurred by Roden in the course of the pursuance of any duties which
may be reasonably assigned to him in accordance with the Company's then current
reimbursement policy.
e. Working Facilities. Roden shall not have an office at the
------------------
Company and shall not enter the premises of the Company or its affiliates unless
directed to do so by the Chief Executive Officer or his designee.
Notwithstanding this provision, the Company, at its own cost, shall furnish
Roden with any supplies, equipment, and such other facilities and services
required to perform the duties which may be reasonably assigned to him.
3
<PAGE>
f. Fringe Benefits. Roden will not participate in any fringe
---------------
benefits provided for employees, except Roden may participate in the Company's
health and medical plan; life insurance; and dental plan in accordance with the
Company's then current normal policies and procedures regarding such plans.
Nothing in this agreement shall be construed to entitle Roden to any paid leave,
eligibility to participate in the Company's pension or profit-sharing
agreements, including the 401(k) plan and Employee Stock Ownership Plan
("ESOP"), other employee benefits and the like which the Company may, in its
sole discretion, from time to time grant or make available to other employees.
3. Term. The term of this Agreement shall begin on June 13, 1997, and
----
shall continue thereafter for a period of one (1) year.
4. Termination. This agreement shall terminate on June 12, 1998, without
-----------
the need for further notice or action by either party.
5. Merger or Acquisition. In the event the Company should consolidate
---------------------
with, or merge into another corporation, or transfer all or substantially all of
its assets to another entity, this Agreement shall continue in full force and
effect and be binding upon the Company's successor or transferee.
6. Personnel Policies. To the extent not otherwise set forth herein, the
------------------
terms and conditions of Roden's employment and benefits shall be governed by the
then prevailing operating and personnel policies of the Company. Roden hereby
waives any past, present or future entitlement, if any, to termination pay
offered by the Company to either its contract or non-contract employees.
7. Non-Disparagement. During the term of this Agreement, the Company
-----------------
agrees not to make any disparaging remarks about Roden.
C. REMEDIES
1. Acknowledged Damages. Both parties acknowledge that compliance with
--------------------
this Agreement is necessary to protect the interests of the Company and that a
breach of this Agreement will damage the Company.
2. Disputes and Arbitration. Any dispute arising out of or concerning
------------------------
this Agreement, which is not disposed of by agreement between the two parties,
and regarding which the Company, in its sole discretion, chooses not to pursue a
temporary restraining order, preliminary and permanent injunctive relief, shall
be decided by an Arbitrator, located in the metropolitan Washington, D.C. area,
chosen by the parties. Either party may initiate an arbitration action by a
written notification to the other. The parties agree to choose the Arbitrator
within 15 days thereafter. The Arbitrator will follow the rules for arbitration
of the American Arbitration Association to the extent that said rules are not
inconsistent with the terms and conditions of this Section. The decision of the
Arbitrator shall be final and conclusive in the absence of statutory grounds for
setting it aside. Neither party shall be reimbursed for the costs that he or it
may sustain in connection with an arbitration under this Agreement.
3. Other Damages. Roden agrees that for any period of time during which
-------------
Roden violates this Agreement, the Company shall be entitled to recover the
amount of fees, compensation, or other remuneration earned by Roden as a result
of any breach. In addition to any other remedy available to the Company, in the
event of a breach by Roden of any of
4
<PAGE>
his obligations under this agreement, the Company's obligation to pay Roden
compensation or benefits hereunder shall cease immediately.
4. Survival. The Term of this Agreement and the obligations of Roden
--------
under paragraph A.7 above shall survive regardless of any action taken by the
Company as a result of Roden's breach(es), including the termination of
compensation and benefits to Roden.
D. MISCELLANEOUS
1. Opportunity to Consult With Advisors. Roden acknowledges that he had
------------------------------------
ample opportunity to consult with his own advisors before signing this Agreement
and that he fully understands the terms of this Agreement and accepts them
freely and voluntarily after having considered his decision to do so.
2. Alteration, Amendment, or Termination. No change or modification of
-------------------------------------
this Agreement shall be valid unless the same is in writing and signed by the
parties hereto. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the person against whom it is sought to be
enforced. The failure of any party at any time to insist upon strict
performance of any condition, promise, agreement, or understanding set forth
herein shall not be construed as a waiver or relinquishment of the right to
insist upon strict performance of the same condition, promise, agreement, or
understanding at a future time. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
3. Integration. This Agreement sets forth (and is intended to be an
-----------
integration of) all of the promises, agreements, conditions, understandings,
warranties, and representations, oral or written, express or implied, among them
with respect to the terms of the employment relationship and separation and
there are no promises, agreements, conditions, understandings, warranties, or
representations, oral or written, express or implied, among them with respect to
the terms of the employment relationship and separation other than as set forth
herein.
4. Conflicts of Law. This Agreement shall be subject to and governed by
----------------
the laws of the Commonwealth of Virginia irrespective of the fact that one or
more of the parties is now or may become a resident of a different state.
5. Benefits and Burden. This Agreement shall inure to the benefit of, and
-------------------
shall be binding upon, the parties hereto and their respective successors,
heirs, and personal representatives. This Agreement shall not be assignable.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first above written.
WITNESS/ATTEST: COMPANY:
ITC LEARNING CORPORATION
/s/Christopher E. Mack By: /s/James H. Walton
- ----------------------- --------------------------
Name: JAMES H. WALTON
Title: CEO
Employee:
/s/Christopher E. Mack /s/Steven L. Roden
- ----------------------- ------------------------------
STEVEN L. RODEN
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S 10-QSB AS FOR THE QUARTER ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,771,928
<SECURITIES> 0
<RECEIVABLES> 5,574,432
<ALLOWANCES> (399,944)
<INVENTORY> 1,135,433
<CURRENT-ASSETS> 9,777,115
<PP&E> 4,535,356
<DEPRECIATION> (3,356,527)
<TOTAL-ASSETS> 20,773,973
<CURRENT-LIABILITIES> 5,127,879
<BONDS> 0
0
0
<COMMON> 389,693
<OTHER-SE> 15,148,537
<TOTAL-LIABILITY-AND-EQUITY> 20,773,973
<SALES> 4,487,286
<TOTAL-REVENUES> 4,487,286
<CGS> 2,287,877
<TOTAL-COSTS> 2,287,877
<OTHER-EXPENSES> 3,369,991
<LOSS-PROVISION> 56,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,170,582)
<INCOME-TAX> (422,000)
<INCOME-CONTINUING> (748,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (748,582)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
