<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
SCHEDULE 13D
(RULE 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED
PURSUANT TO RULE 13D-1(a) AND AMENDMENTS THERETO
FILED PURSUANT TO RULE 13D-2(a)
(AMENDMENT NO. ___)*
ITC LEARNING CORPORATION
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(Name of Issuer)
COMMON STOCK, $.10 PAR VALUE
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(Title of Class of Securities)
453015-10-6
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(CUSIP Number)
Jonathan L. Awner
Akerman, Senterfitt & Eidson, P.A.
1 SE 3rd Avenue
Miami, Florida 33131
(305) 374-5600
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 31, 1999
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
NOTE: Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. SEE Rule 13d-7(b) for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, SEE the
Notes).
<PAGE> 2
SCHEDULE 13D
CUSIP No. 453015-10-6
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS
S.S. or I.R.S. IDENTIFICATION NOs. OF ABOVE PERSONS
NEW RIVER CAPITAL PARTNERS, L.P.
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER
1,621,300
NUMBER OF ----------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 0
OWNED ----------------------------------------------
BY EACH 9. SOLE DISPOSITIVE POWER
REPORTING 1,621,300
PERSON WITH ----------------------------------------------
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,621,300
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.1%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 3
SCHEDULE 13D
CUSIP No. 453015-10-6
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS
S.S. or I.R.S. IDENTIFICATION NOs. OF ABOVE PERSONS
B&B MANAGEMENT PARTNERS, L.P.
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER
1,621,300 (See Item 2)
NUMBER OF ----------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 0
OWNED ----------------------------------------------
BY EACH 9. SOLE DISPOSITIVE POWER
REPORTING 1,621,300 (See Item 2)
PERSON WITH ----------------------------------------------
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,621,300 (See Item 2)
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.1%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 4
SCHEDULE 13D
CUSIP No. 453015-10-6
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS
S.S. or I.R.S. IDENTIFICATION NOs. OF ABOVE PERSONS
SRB INVESTMENTS, INC.
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
NEVADA
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER
1,621,300 (See Item 2)
NUMBER OF ----------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 0
OWNED ----------------------------------------------
BY EACH 9. SOLE DISPOSITIVE POWER
REPORTING 1,621,300 (See Item 2)
PERSON WITH ----------------------------------------------
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,621,300 (See Item 2)
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
29.1%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
PN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 5
SCHEDULE 13D
CUSIP No. 453015-10-6
- --------------------------------------------------------------------------------
1. NAME OF REPORTING PERSONS
S.S. or I.R.S. IDENTIFICATION NOs. OF ABOVE PERSONS
STEVEN R. BERRARD
- --------------------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- --------------------------------------------------------------------------------
3. SEC USE ONLY
- --------------------------------------------------------------------------------
4. SOURCE OF FUNDS*
Not Applicable
- --------------------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
7. SOLE VOTING POWER
1,816,300 (See Item 2)
NUMBER OF ----------------------------------------------
SHARES 8. SHARED VOTING POWER
BENEFICIALLY 0
OWNED ----------------------------------------------
BY EACH 9. SOLE DISPOSITIVE POWER
REPORTING 1,816,300 (See Item 2)
PERSON WITH ----------------------------------------------
10. SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,816,300 (See Item 2)
- --------------------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.5%
- --------------------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 6
ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D relates to the shares of common stock,
par value $.10 per share (the "Common Stock"), of ITC Learning Corporation, a
Maryland corporation (the "Issuer"). The principal executive offices of the
Issuer are located at 13515 Dulles Technology Drive, Herndon, Virginia 20171.
ITEM 2. IDENTITY AND BACKGROUND.
(a): This Statement on Schedule 13D is being filed jointly by New River
Capital Partners, L.P. ("New River"), B & B Management Partners, L.P. ("B&B
Management"), SRB Investments, Inc. ("SRB Investments") and Steven R. Berrard
("Mr. Berrard"). New River, B&B Management, SRB Investments and Mr. Berrard are
referred to hereinafter collectively as the "Reporting Persons" and individually
as a "Reporting Person." This statement is being filed (i) by New River as the
direct beneficial owner of 1,621,300 shares of the Common Stock, (ii) by Mr.
Berrard as the direct beneficial owner of 195,000 shares of the Common Stock and
an indirect beneficial owner of the 1,621,300 shares of Common Stock
beneficially owned by New River by virtue of his relationship with New River as
described in Item 2(c) below, and (iii) by the other two Reporting Persons by
virtue of their respective relationships with New River as described in Item
2(c) below. A copy of an agreement among the Reporting Persons with respect to
their joint filing of this statement is attached hereto as Exhibit 1.
(b): The principal business address for Mr. Berrard, New River and B&B
Management is One Financial Plaza, Suite 1100, Fort Lauderdale, Florida 33394.
The principal business address of SRB Investments is 502 East John Street,
Carson City, Nevada 89706.
(c): Mr. Berrard's principal employment is as a principal of New River,
which he co-founded. New River is a private equity fund and has investments in
the Issuer and other companies. Since October 1999, Mr. Berrard also has served
as Chairman of the Board of Gerald Stevens, Inc., a Nasdaq National Market
listed company which is principally engaged in floral and gift retailing
businesses. For approximately three years prior to that, Mr. Berrard was the
Co-Chief Executive Officer of AutoNation, Inc., a New York Stock Exchange listed
company which was principally engaged in automotive retail businesses. Mr.
Berrard is the sole shareholder, director and officer of SRB Investments. SRB
Investments is the sole managing general partner of B&B Management. B&B
Management is principally the sole general partner of New River.
(d): During the past five years, none of the Reporting Persons has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e): During the past five years, none of the Reporting Persons has been a
party to any civil proceeding of a judicial or administrative body of competent
jurisdiction which resulted in a Reporting Person being subject to any judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
(f): Mr. Berrard is a citizen of the United States of America. New River
is a Delaware limited partnership. B&B Management is a Delaware limited
partnership. SRB Investments is a Nevada corporation.
<PAGE> 7
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
New River's source of funds for its investments to date in the Issuer,
totalling $2,200,000, is its working capital, obtained from cash contributions
by its partners. New River has acquired debt securities which are convertible
into shares of Common Stock as described in Items 5(c) and 6 below, and has
acquired warrants to purchase shares of Common Stock. New River expects to
obtain the funds to be used to exercise the warrants, which New River expects
will total $1,195,150 subject to receipt of a certain pending regulatory
approval, but which may total as much as $3,206,500 under certain circumstances,
as described in Items 5(c) and 6 below, from its working capital. Mr. Berrard's
source of funds for his purchases of Common Stock of the Issuer, totalling
$466,534, was his personal funds.
ITEM 4. PURPOSE OF TRANSACTION.
New River entered into the transactions with the Issuer described in
this Statement on Schedule 13D, and Mr. Berrard purchased his shares of the
Common Stock, for investment purposes. The Reporting Persons plan to evaluate
their investment in the Issuer on an on-going basis, and may at any time
determine to increase their investment (by exercising warrants or by purchasing
shares on the Nasdaq National Market), or to decrease their investment by
selling their securities in the Issuer in one or more public or private
transactions. None of the Reporting Persons has any plans or proposals at this
time which relate to or would result in any of the events or transactions
required to be disclosed pursuant to Items 4(a) through 4(j) of Schedule 13D,
except that: (i) New River has the right to designate two members to serve on
the Issuer's Board of Directors so long as New River beneficially owns 20% or
more of the Issuer's outstanding Common Stock on a fully-diluted basis, and one
member to the Issuer's Board of Directors if New River beneficially owns less
than 20% but more than 5% of the Issuer's outstanding Common Stock on a
fully-diluted basis; and (ii) New River may acquire additional securities of the
Issuer pursuant to the conversion or exercise of its debentures and warrants as
described in this Statement on Schedule 13D hereof. Thomas C. Byrne, a partner
of New River, has been appointed to the Issuer's Board of Directors in
connection with New River's investment in the Issuer. In addition, Mr. Berrard
may contribute to New River the 195,000 shares of Common Stock which he
directly beneficially owns.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a): The aggregate number of shares of the Common Stock to which this
statement relates is 1,816,300 shares, representing approximately 32.5% of the
outstanding Common Stock assuming the conversion and exercise of all of New
River's debentures and warrants in full, to the extent exercisable within 60
days of December 31, 1999 without any conditions or contingencies. By virtue of
its rights to convert and exercise certain of its debentures and warrants within
60 days of December 31, 1999 as described in this Statement on Schedule 13D, New
River is the direct beneficial owner of 1,621,300 such shares (the "New River
Common Stock"), representing approximately 29.1% of the outstanding Common Stock
assuming the conversion and exercise of all of its debentures and warrants in
full, to the extent exercisable within 60 days of December 31, 1999 without any
conditions or contingencies, and each of the other three Reporting Persons may
be deemed to be the indirect beneficial owner of such shares by virtue of their
respective relationships with New River described in Item 2(c) above. In
addition, Mr. Berrard is the direct beneficial owner of 195,000 of such shares,
representing approximately 4.9% of the outstanding Common Stock assuming that
New River does not convert or exercise any of its debentures and warrants.
(b): New River has the sole power to vote and the sole power to dispose
of the New River Common Stock. By virtue of the relationships described under
Item 2(c) above, each of the other three Reporting Persons may be deemed to
have sole voting and sole dispositive power with respect to the New River Common
Stock. Mr. Berrard has the sole power to vote and the sole power to dispose of
the 195,000 shares of Common Stock directly beneficially owned by him.
(c): As of November 1, 1999, New River entered into a 5.5% Convertible
Subordinated Secured Debenture due October 31, 2000 (the "5.5% Debenture") with
the Issuer in exchange for loaning the Issuer the principal sum of $1,000,000.
Pursuant to the 5.5% Debenture, New River may convert all or any part of the
principal amount thereof, but not any accrued interest, into shares of Common
Stock, at any time after February 28, 2000 and prior to October 31, 2000, at a
conversion price of $2.00 per share. If the full principal amount of $1,000,000
<PAGE> 8
is converted by New River, the Issuer will issue 500,000 shares of Common Stock
to New River. As part of the same transaction in which the 5.5% Debenture was
entered into as of November 1, 1999, New River obtained from the Issuer a
warrant to purchase 291,500 shares of Common Stock of the Issuer at a purchase
price of $2.00 per share (the "One Year Warrant"), exercisable after February
28, 2000 and expiring October 31, 2000.
As of December 31, 1999, New River entered into a 9.5% Convertible
Subordinated Secured Debenture due January 1, 2001 (the "9.5% Debenture") with
the Issuer in exchange for loaning the Issuer the principal sum of $1,200,000.
Pursuant to the 9.5% Debenture, New River may convert all or any part of the
outstanding principal amount thereof, but not any accrued interest, into shares
of Common Stock, (i) at any time at a price per share equal to the lower of
$2.50 per share or the Issuer's net book value per share as of December 31,
1999, or (ii) at any time after a certain regulatory approval or shareholder
approval is received provided that it is received by May 15, 2000 (as described
in Item 6 below), at a conversion price of $1.75 per share. If the full
principal amount of $1,200,000 is converted by New River prior to the receipt of
the regulatory approval or shareholder approval, then the Issuer will issue at
least 480,000 shares of Common Stock to New River (based on a $2.50 conversion
price per share), and if the full principal amount of $1,200,000 is converted by
New River after the receipt of regulatory approval or shareholder approval, then
the Issuer will issue 685,714 shares of Common Stock to New River (based on a
$1.75 conversion price per share). However, as New River's right to convert the
9.5% Debenture at a conversion price of $1.75 per share is subject to the
receipt of regulatory or shareholder approval by May 15, 2000, which is a
contingency not within the control of New River, only the 480,000 shares of
Common Stock into which that 9.5% Debenture may convert are deemed to be
beneficially owned by New River prior to the receipt of such regulatory or
shareholder approval. As part of the same transaction in which the 9.5%
Debenture was entered into as of December 31, 1999, New River obtained from the
Issuer a warrant to purchase 349,800 shares of Common Stock of the Issuer at a
purchase price equal to the lower of $2.50 per share or the Issuer's net book
value per share as of December 31, 1999 (the "Three Year Warrant"), exercisable
immediately and expiring December 31, 2002, as described further in Item 6
below.
New River's debentures and warrants were obtained in
privately-negotiated transactions with the Issuer.
Mr. Berrard purchased (i) 180,000 shares of Common Stock at a price of
$2.4463 per share on October 25, 1999, (ii) 200 shares of Common Stock at a
price of $1.50 per share on November 30, 1999, (iii) 5,000 shares of Common
Stock at a price of $1.75 per share on December 2, 1999, and (iv) 9,800 shares
of Common Stock at a price of $1.75 per share on December 3, 1999. All of his
purchases were effected on the Nasdaq National Market through a broker-dealer.
(d): New River has the sole right to receive dividends from, or the
proceeds from the sale of, the New River Common Stock. B&B Management has the
sole power to direct New River to sell its assets or distribute its assets to
New River's partners, including all or part of the New River Common Stock. B&B
Management, as the sole general partner of New River, has the sole power to
direct to New River's partners the receipt of dividends from, or the proceeds
from the sale of, the New River Common Stock. SRB Investments is the managing
general partner of B&B Management, and Mr. Berrard is the sole shareholder,
director and officer of SRB Investments. None of the limited partners in New
River, or of the partners in B&B Management except for SRB Investments, has the
power to direct the receipt of dividends from, or the proceeds from the sale of,
the New River Common Stock reported herein or the power to direct New River to
distribute the New River Common Stock (or the dividends or sale proceeds derived
therefrom) to New River's partners. Mr. Berrard has the sole right to receive
dividends from, or the proceeds from the sale of, the 195,000 shares of Common
Stock directly beneficially owned by him.
(e): Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Except as follows, there are no contracts, arrangements or
relationships among the persons named in Item 2 and any person with respect to
any securities of the Issuer:
<PAGE> 9
The contracts between the Reporting Persons and the Issuer which
relate to the Issuer's securities consist of the 5.5% Debenture, the One Year
Warrant, the 9.5% Debenture and the Three Year Warrant, each of which is
convertible or exercisable into shares of Common Stock as described in Item 5(c)
above. Pursuant to the 9.5% Debenture, the Issuer has applied to Nasdaq Stock
Market to grant an exception from the shareholder approval requirements under
Rule 4460(i) of the Marketplace Rules of the Nasdaq Stock Market with respect to
a conversion price of $1.75 per share for the 9.5% Debenture and the Three Year
Warrant. New River may only convert the 9.5% Debenture and may only exercise the
Three Year Warrant at the lower of $2.50 per share or the Issuer's net book
value as of December 31, 1999 until receipt of such regulatory or shareholder
approval of such $1.75 per share conversion and exercise price. If New River
ever converts the principal amount of the 9.5% Debenture into Common Stock then
the interest rate under the 9.5% Debenture will be retroactively reduced to 5.5%
per annum. In addition, pursuant to the Three Year Warrant, in the event the
Issuer fails to receive either the regulatory or shareholder approval of a $1.75
exercise price under the Three Year Warrant prior to May 15, 2000, then the
purchase price per share shall continue to be the lower of $2.50 or the
Company's net book value per share as of December 31, 1999 but the number of
shares of Common Stock for which the Three Year Warrant may be exercised shall
automatically triple to 1,049,400 shares of Common Stock. The number of shares
of Common Stock for which the Three Year Warrant may be exercised also shall
automatically triple to 1,049,400 shares of Common Stock at any time in the
event of a special capital reorganization, a consolidation or merger of the
Issuer or a sale or conveyance of all or substantially all of the Issuer's
assets. Reference is made to the Exhibits attached to this Statement on Schedule
13D, which are hereby incorporated by reference herein for further information
concerning the 5.5% Debenture, the One Year Warrant, the 9.5% Debenture and the
Three Year Warrant.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit 1: Joint Filing Agreement among Steven R. Berrard, New River Capital Partners, L.P., B&B
Management, L.P. and SRB Investments, Inc.
Exhibit 2: 5.5% Convertible Subordinated Secured Debenture in the principal amount of $1,000,000 dated
November 1, 1999.
Exhibit 3: Warrant Certificate to Purchase 291,500 shares of Common Stock at $2.00 per share dated
November 1, 1999.
Exhibit 4: 9.5% Convertible Subordinated Secured Debenture in the principal amount of $1,200,000 dated
December 31, 1999.
Exhibit 5: Warrant Certificate to Purchase 349,800 shares of Common Stock at $1.75 per share dated
December 31, 1999.
</TABLE>
<PAGE> 10
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: January 10, 2000 NEW RIVER CAPITAL PARTNERS, L.P.
By: B&B Management Partners, L.P.,
as its General Partner
By: SRB Investments, Inc.,
as its Managing General Partner
By: /s/ STEVEN R. BERRARD
----------------------------
Steven R. Berrard, President
Dated: January 10, 2000 B&B MANAGEMENT PARTNERS, L.P.
By: SRB Investments, Inc.,
as its Managing General Partner
By: /s/ STEVEN R. BERRARD
---------------------------------
Steven R. Berrard, President
Dated: January 10, 2000 SRB INVESTMENTS, INC.
By: /s/ STEVEN R. BERRARD
--------------------------------------
Steven R. Berrard, President
Dated: January 10, 2000 /s/ STEVEN R. BERRARD
------------------------------------------
Steven R. Berrard
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<S> <C>
1* Joint Filing Agreement among Steven R. Berrard, New River Capital Partners, L.P., B&B
Management, L.P. and SRB Investments, Inc.
2* 5.5% Convertible Subordinated Secured Debenture in the principal amount of $1,000,000 dated
November 1, 1999.
3* Warrant Certificate to Purchase 291,500 shares of Common Stock at $2.00 per share dated
November 1, 1999.
4* 9.5% Convertible Subordinated Secured Debenture in the principal amount of $1,200,000 dated
December 31, 1999.
5* Warrant Certificate to Purchase 349,800 shares of Common Stock at $1.75 per share dated
December 31, 1999.
</TABLE>
- -------------
* Filed herewith.
<PAGE> 1
EXHIBIT 1
JOINT FILING AGREEMENT
The undersigned hereby agree that this Statement on Schedule 13D with
respect to the Common Stock of ITC Learning Corporation of even date herewith
is, and any amendments thereto signed by each of the undersigned shall be, filed
on behalf of each the undersigned pursuant to and in accordance with the
provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934, as
amended.
Dated: January 10, 2000 NEW RIVER CAPITAL PARTNERS, L.P.
By: B&B Management Partners, L.P.,
as its General Partner
By: SRB Investments, Inc.,
as its Managing General Partner
By: /s/ STEVEN R. BERRARD
----------------------------
Steven R. Berrard, President
Dated: January 10, 2000 B&B MANAGEMENT PARTNERS, L.P.
By: SRB Investments, Inc.,
as its Managing General Partner
By: /s/ STEVEN R. BERRARD
----------------------------
Steven R. Berrard, President
Dated: January 10, 2000 SRB INVESTMENTS, INC.
By: /s/ STEVEN R. BERRARD
--------------------------------
Steven R. Berrard, President
Dated: January 10, 2000 /s/ STEVEN R. BERRARD
------------------------------------
Steven R. Berrard
<PAGE> 1
EXHIBIT 2
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL THAT SUCH REGISTRATION STATEMENT IS NOT REQUIRED UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER
APPLICABLE STATE SECURITIES LAWS.
$1,000,000
ITC LEARNING CORPORATION
5.5% CONVERTIBLE SUBORDINATED SECURED DEBENTURE
DUE OCTOBER 31, 2000 (ONE YEAR FROM ISSUANCE)
ITC LEARNING CORPORATION, a Maryland corporation (the "Company"),
promises to pay to New River Capital Partners, L.P. or its assigns (the
"Holder"), the principal sum of One Million Dollars and No/100 ($1,000,000), or
so much thereof as is funded to the Company by the Holder pursuant to the terms
of this debenture (this "Debenture"), on October 31, 2000 (the "Maturity Date"),
together with accrued interest thereon.
Pursuant to this Debenture, the Holder shall fund Two Hundred Fifty
Thousand Dollars ($250,000.00) in cash or other immediately available funds to
the Company on November 2, 1999. Pursuant to this Debenture, the Holder shall
fund Seven Hundred Fifty Thousand Dollars ($750,000.00) in cash or other
immediately available funds to the Company on or before November 8, 1999,
subject to the Holder's discretion not to fund this second installment if the
results of Holder's due diligence investigation of the Company are not
satisfactory to Holder in its sole and absolute discretion, in which event this
Debenture will be for the principal amount of $250,000.00.
Interest on the principal amount of this Debenture shall accrue at
the rate of five and one-half percent (5.5%) per annum from the original date of
issuance of this Debenture. Interest accrued on the outstanding principal
balance of this Debenture shall be payable in cash or other immediately
available funds to the Holder upon the earlier of (i) the Maturity Date, (ii)
upon acceleration of all amounts due and owing hereunder in accordance with the
terms hereinafter set forth, or (iii) the date on which Holder elects to convert
the principal amount of this Debenture into shares in accordance with the terms
hereinafter set forth. Interest will be computed on the basis of a 365-day year.
This Debenture is being issued pursuant to an exemption from
registration under the Securities Act and the rules and regulations promulgated
thereunder.
<PAGE> 2
1. CONVERSION.
(a) The Holder may convert all or any part of the principal
amount of this Debenture, but not any accrued interest, into shares of the
Company's common stock, $.10 par value per share (the "Common Stock"), at any
time after February 28, 2000 and prior to the Maturity Date (the "Conversion
Period"), at a conversion price of $2.00 per share (the "Conversion Price"). The
shares of Common Stock issuable upon conversion of this Debenture are referred
to herein as the "Shares."
(b) The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock as shall be sufficient
for conversion of this Debenture.
(c) The Company shall deliver a certificate or certificates
for the Shares as soon as practicable after surrender of this Debenture for
conversion, but the person or persons to whom such certificates are issuable
shall be considered the holder of record of such shares from the time this
Debenture is surrendered. Except as described herein, this Debenture is not
otherwise convertible into any other shares of the Company's capital stock.
(d) The certificates representing the Common Stock issued upon
conversion of this Debenture shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except (1) pursuant to
an effective registration statement under the Act or (2) upon
the delivery by the holder to the Company of an opinion of
counsel, reasonably satisfactory to the issuer stating that an
exemption from registration under such Act is available."
2. ANTI-DILUTION.
(a) STOCK SPLITS AND COMBINATIONS. If the Company shall
combine all of its outstanding shares of Common Stock into a smaller number of
shares, the number of Shares shall be proportionately decreased and the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased, as of the effective date of such combination, as
follows: (i) the number of Shares purchasable immediately prior to the effective
date of such combination shall be adjusted so that the Holder of this Debenture,
if converted on or after that date, shall be entitled to receive the number and
kind of Shares which the Holder of this Debenture would have owned and been
entitled to receive as a result of the combination had the Debenture been
converted immediately prior to that date, and (ii) the Conversion Price in
effect immediately prior to such adjustment shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of which is the aggregate
number of Shares purchasable upon conversion of this Debenture immediately prior
to such adjustment, and the denominator of which is the aggregate number of
Shares purchasable upon conversion of this Debenture immediately thereafter. If
the Company shall subdivide all of its outstanding shares of Common Stock, the
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<PAGE> 3
number of Shares shall be proportionally increased and the Conversion Price in
effect prior to such subdivision shall be proportionately decreased, as of the
effective date of such subdivision, as follows: (i) the number of Shares
purchasable upon the conversion of this Debenture immediately prior to the
effective date of such subdivision, shall be adjusted so that the Holder of this
Debenture, if converted on or after that date, shall be entitled to receive the
number and kind of Shares which the Holder of this Debenture would have owned
and been entitled to receive as a result of the subdivision had the Debenture
been converted immediately prior to that date, and (ii) the Conversion Price in
effect immediately prior to such adjustment shall be adjusted by multiplying the
Conversion Price by a fraction, the numerator of which is the aggregate number
of Shares purchasable upon conversion of this Debenture immediately prior to
such adjustment, and the denominator of which is the aggregate number of Shares
purchasable upon conversion of this Debenture immediately thereafter.
(b) STOCK DIVIDENDS AND DISTRIBUTIONS. If the Company shall
fix a record date for the holders of its Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock,
then the number of Shares shall be proportionately increased and the Conversion
Price in effect prior to the time of such issuance or the close of business on
such record date shall be proportionately decreased, as of the time of such
issuance, or in the event such record date is fixed, as of the close of business
on such record date, as follows: (i) the number of Shares purchasable
immediately prior to the time of such issuance or the close of business on such
record date shall be adjusted so that the Holder of this Debenture, if converted
after that date, shall be entitled to receive the number and kind of Shares
which the Holder of this Debenture would have owned and been entitled to receive
as a result of the dividend or distribution had the Debenture been converted
immediately prior to that date, and (ii) the Conversion Price in effect
immediately prior to such adjustment shall be adjusted by multiplying such
Conversion Price by a fraction, the numerator of which is the aggregate number
of shares of Common Stock purchasable upon conversion of this Debenture
immediately prior to such adjustment, and the denominator of which is the
aggregate number of shares of Common Stock purchasable upon conversion of this
Debenture immediately thereafter.
(c) OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company shall
fix a record date for the holders of Common Stock entitled to receive a dividend
or other distribution payable in securities of the Company other than shares of
Common Stock, then lawful and adequate provision shall be made so that the
Holder of this Debenture shall be entitled to receive upon conversion of this
Debenture, for the Conversion Price in effect prior thereto, in addition to the
number of Shares immediately theretofore issuable upon conversion of this
Debenture, the kind and number of securities of the Company which the Holder
would have owned and been entitled to receive had the Debenture been converted
immediately prior to that date.
(d) RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common
Stock is changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or otherwise
(other than by a subdivision or combination of shares or stock dividend or a
reorganization, merger, consolidation or sale of assets, provided for elsewhere
in this Section 2), then the Holder of this Debenture shall be entitled to
receive upon conversion of this Debenture, in lieu of the Shares immediately
theretofore issuable upon conversion of this Debenture, for the aggregate
Conversion Price in effect prior thereto, the kind and amount of stock and other
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<PAGE> 4
securities and property receivable upon such recapitalization, reclassification
or other change, by the holders of the number of Shares for which the Debenture
could have been converted immediately prior to such recapitalization,
reclassification or other change.
(e) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If any of the following transactions (each, a "Special Transaction")
shall become effective: (i) a capital reorganization (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 2), (ii) a consolidation or merger
of the Company with and into another entity, or (iii) a sale or conveyance of
all or substantially all of the Company's assets, then as a condition of any
Special Transaction, lawful and adequate provision shall be made so that the
Holder of the Debenture shall thereafter have the right to purchase and receive
upon conversion of this Debenture, in lieu of the Shares immediately theretofore
issuable upon conversion of this Debenture, for the Conversion Price in effect
immediately prior to such conversion, such shares of stock, other securities,
cash or other assets as may be issued or payable in and pursuant to the terms of
such Special Transaction to the holders of shares of Common Stock for which this
Debenture could have been converted immediately prior to such Special
Transaction. In connection with any Special Transaction, appropriate provision
shall be made with respect to the rights and interests of the Holder of this
Debenture to the end that the provisions of this Debenture (including, without
limitation, provisions for adjustment of the Conversion Price and the number of
Shares issuable upon the conversion of this Debenture) shall thereafter be
applicable, as nearly as may be practicable, to any shares of stock, other
securities, cash or other assets thereafter deliverable upon the conversion of
this Debenture. The Company shall not effect any Special Transaction unless
prior to, or simultaneously with the closing thereof, the successor entity (if
other than the Company), if any, resulting from such Special Transaction shall
assume by a written instrument executed and mailed by certified mail or
delivered to the Holder of this Debenture at the address of the Holder appearing
on the books of the Company, the obligation of the Company or such successor
corporation to deliver to the Holder such shares of stock, securities, cash or
other assets, as in accordance with the foregoing provisions, which the Holder
shall have the right to purchase.
(f) OTHER ISSUANCES. In the event that the Company shall at
any time after the date of original issuance of this Debenture issue any shares
of Common Stock, including shares of Common Stock issued or issuable upon the
conversion or exercise of Convertible Securities, without consideration or at a
price per share less than the Conversion Price, then, in each and any such event
(an "Adjustment Event"), the number of Shares purchasable immediately prior
thereto (the "Initial Number") shall be adjusted so that the Holder shall be
entitled, upon conversion of this Debenture, to receive the number of shares of
Common Stock determined by multiplying the Initial Number by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Adjustment Event plus the number of additional shares
of Common Stock issued in such Adjustment Event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Adjustment Event plus the number of shares of Common Stock which the
aggregate issuance price of the total number of shares of Common Stock issued in
such Adjustment Event would purchase at the Conversion Price; provided, however,
that no adjustment shall be made for the issuance of shares of Common Stock in
connection with a Special Transaction, as described in Section 2(e).
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<PAGE> 5
(g) LIQUIDATION. If the Company shall, at any time prior to
the end of the Conversion Period, dissolve, liquidate or wind up its affairs,
the Holder shall have the right, but not the obligation, to convert this
Debenture. Upon such conversion, the Holder shall have the right to receive, in
lieu of the Shares that the Holder otherwise would have been entitled to receive
upon such conversion, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such dissolution, liquidation
or winding up with respect to such Shares had the Holder been the holder of
record of such Shares on the date for determining those entitled to receive any
such distribution. If any such dissolution, liquidation or winding up results in
any cash distribution in excess of the applicable Conversion Price, the Holder
may, at the Holder's option, convert this Debenture without making payment of
the applicable Conversion Price and, in such case, the Company shall, upon
distribution to the Holder, consider the applicable Conversion Price, to have
been paid in full, and in making settlement to the Holder shall deduct an amount
equal to the applicable Conversion Price, from the amount payable to the Holder.
(h) NOTICE. Whenever this Debenture or the number of Shares is
to be adjusted as provided herein, the Company shall forthwith as soon as
practicable cause to be sent to the Holder a notice stating in reasonable detail
the relevant facts and any resulting adjustments and the calculation thereof.
(i) FRACTIONAL INTERESTS. The Company shall not be required to
issue fractions of shares of Common Stock upon the conversion of this Debenture.
If any fraction of a share of Common Stock would be issuable upon the conversion
of this Debenture, the Company shall, upon such issuance, purchase such fraction
for an amount in cash equal to the current value of such fraction, computed on
the basis of the last reported closing price of the Common Stock on the
securities exchange or quotation system on which the shares of Common Stock are
then listed or traded, as the case may be, if any, on the last business day
prior to the date of conversion upon which such a sale shall have been effected,
or, if the Common Stock is not so listed or traded on an exchange or quotation
system, as the Board of Directors of the Company may in good faith determine.
(j) EFFECT OF ALTERNATE SECURITIES. If at any time, as a
result of an adjustment made pursuant to this Section 2, the Holder of this
Debenture shall thereafter become entitled to receive any securities of the
Company other than shares of Common Stock, then the number of such other
securities receivable upon conversion of this Debenture shall be subject to
adjustment from time to time on terms as nearly equivalent as practicable to the
provisions with respect to shares of Common Stock contained in this Section 2.
(k) SUCCESSIVE APPLICATION. The provisions of this Section 2
shall apply from time to time to successive events covered by this Section 2.
3. REDEMPTION. This Debenture is redeemable at the option of the
Holder, on at least ten (10) days prior written notice to the Company, at the
principal amount of this Debenture, plus accrued interest through the date of
redemption, if at any time after the original issuance of this Debenture the
Company (i) accepts a commitment for at least Two Million Dollars ($2,000,000)
of debt or equity financing other than pursuant to any loan agreement in effect
as of the date of original issuance of this Debenture or (ii) enters into one or
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<PAGE> 6
more agreements for the sale of assets that either (A) is for an aggregate
purchase price of at least Two Million Dollars ($2,000,000) or (B) consists of
assets which generate in the aggregate at least 15% of the Company's annual
revenue. The Company shall give the Holder immediate written notice of its
acceptance of any commitment for debt or equity financing or its entering into
any agreement(s) for the sale of its assets. The Company may not prepay the
outstanding principal amount or accrued interest of this Debenture without the
prior written approval of the Holder. Any prepayment approved by Holder shall
first be applied to any accrued interest then owing.
4. SUBORDINATION. Payment of principal, interest and all other
amounts due under this Debenture is subordinated to up to Two Million Dollars
($2,000,000) in principal amount of all Institutional Debt. "Institutional Debt"
is the principal of and premium, if any, interest, costs, expenses and
attorney's fees, and any other payment due pursuant to the terms of instruments
creating or evidencing indebtedness of the Company outstanding as of the date
hereof and all renewals, extensions, modifications and refundings thereof, which
is payable to banks or other traditional long-term institutional lenders such as
insurance companies and pension funds. "Indebtedness," as applied to any entity,
means any indebtedness, contingent or otherwise, in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
entity or only to a portion thereof), as evidenced by bonds, notes, debentures
or similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest thereon,
of and to the extent such indebtedness would appear as a liability upon a
balance sheet of such entity prepared on a consolidated basis in accordance with
generally accepted accounting principles. Without the prior written consent of
the holder of the Institutional Debt, the Holder agrees not to accept payment of
principal, interest or any other amount due under this Debenture until the
Institutional Debt has been paid in full. This limitation shall not prevent
Holder from converting all or a part of the principal amount of this Debenture
pursuant to Section 1 hereof. The Company agrees, and the Holder agrees by
accepting this Debenture, to the subordination described in this Section 4. As
of the date hereof, the Company's only Institutional Debt is with Wachovia Bank,
N.A., ("Wachovia") pursuant to a Loan and Security Agreement and related
documents dated as of August 11, 1999 and amended September 13, 1999 pursuant to
which Wachovia agreed to provide a line of credit to the Company in the
principal amount of $4,000,000, and the Company represents that less than
$2,000,000 in principal amount is outstanding thereunder. Pursuant to that
certain Forbearance Agreement effective as of October 18, 1999 with Wachovia,
the Company is not and will not be in default in any of its agreements with
Wachovia. The Company agrees not to further extend or otherwise modify its
agreements with Wachovia without the prior written consent of the Holder.
5. SECURITY. The outstanding principal and accrued interest, if
any, on this Debenture will be secured to the extent thereof, by all of the
assets of the Company, including the Company's library and technology, in
accordance with the terms of that certain Security Agreement, dated as of even
date herewith between the Company and the Holder. Holder acknowledges that
Wachovia is the beneficiary of a properly perfected first and prior lien and
security interest in all assets of the Company, including without limitation,
the Company's library and technology. Following an Event of Default under the
Debenture, the Holder agrees not to exercise against the Company any right or
remedy available to the Holder (other than conversion under Section 1 hereof)
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<PAGE> 7
until Wachovia has been given ten (10) days prior written notice of the
occurrence of such Event of Default. If Wachovia elects to exercise any right or
remedy available to it, unless Wachovia shall otherwise agree in writing, the
Holder agrees to stand-by and defer action against the Company until Wachovia
has been paid in full or has completed the exercise of all rights and remedies
available to it.
6. DEFAULT. An Event of Default occurs when:
(a) the Company fails to make a payment of principal and
accrued interest under this Debenture, when the same becomes due and payable at
maturity or upon redemption;
(b) the Company, pursuant to the U.S. Bankruptcy Code (i)
commences a voluntary proceeding or (ii) consents to an entry of an order for
relief against it in an involuntary proceeding;
(c) the Company consents to the appointment of a custodian or
similar party of it or for all or substantially all of its property;
(d) the Company makes a general assignment for the benefit of
creditors;
(e) a court of competent jurisdiction enters an order or
decree under any bankruptcy or similar law (i) against the Company in an
involuntary case, (ii) appoints a custodian or similar party of the Company or
for all or substantially all of its property, or (iii) orders the liquidation of
the Company, and the order or decree remains unstayed and in effect for 90 days;
or
(f) the Company defaults with respect to any Institutional
Debt, which default could result in the acceleration of such Institutional Debt.
If an Event of Default occurs then the Holder may declare this
Debenture to be due and payable immediately and the rate of interest shall
increase to the maximum lawful rate.
7. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. Within twenty (20) days following
written demand of the Holder, the Company shall prepare and file with the
Securities and Exchange Commission (the "Commission"), and use its best efforts
to cause to become effective no later than sixty (60) days after the date of
filing, a registration statement on Form S-3 (if such form is then available for
use by the Company, or such other available registration statement form) (the
"Registration Statement") and such other documents, as may be necessary in the
opinion of counsel for both the Company and the Holder, so as to permit a public
offering and sale of the Shares under the Securities Act. All expenses incurred
in connection with the registration of the Shares, including without limitation,
all blue sky registration and filing fees, legal fees, accounting fees, printing
expenses, other expenses and fees of experts used in connection with such
registration and any fees and expenses incidental to any post-effective
amendment to the Registration Statement, shall be borne and paid by the Company.
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<PAGE> 8
The Company shall keep such registration effective for a period of not less than
two (2) years after becoming effective.
(b) PIGGY-BACK REGISTRATION. If, at any time, the Company
shall propose the registration under the Securities Act of an offering of any of
its capital stock to be sold for its own account and/or for the account of other
persons, the Company, on each such occasion, shall as promptly as practicable,
but in no event later than thirty (30) days prior to the proposed filing date of
the Registration Statement, give written notice to the Holder of its intention
to effect such registration (which notice shall state an estimated selling price
for Common Stock in such offering) and the Holder shall be entitled, on each
such occasion, to request to have all or a portion of the Shares included in
such Registration Statement. Upon the written request of the Holder that the
Company include the Shares in such Registration Statement (which request shall
state the number of Shares for which registration is sought and the intended
method of disposition thereof), the Company shall cause such Shares to be so
included in the offering covered by such Registration Statement.
(c) PROSPECTUS; BLUE SKY MATTERS. Whenever the Company is
required pursuant to the provisions of this Section 7 to include the Shares in a
Registration Statement, the Company shall (i) furnish the Holder and any
underwriter with respect to the registration of such Shares with copies of the
prospectus, including the preliminary prospectus, conforming to the Securities
Act (and such other documents as the Holder or any underwriter may reasonably
request) in order to facilitate the sale or distribution of the Shares, (ii) use
its best efforts to register or qualify the Shares under the blue sky laws (to
the extent applicable ) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holder and any underwriter of the
Shares being sold by the Holder shall reasonably request and (iii) take such
other actions as may be reasonably necessary or advisable to enable the Holder
and any underwriters to consummate the sale or distribution in such jurisdiction
or jurisdictions in which the Holder shall have reasonably requested that the
Shares be sold.
(d) OPINION OF COUNSEL; COMFORT LETTERS. In connection with
any registration under this Section 7, the Company shall furnish to the Holder
and to any underwriter a signed counterpart, addressed to the Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of the Registration Statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a "comfort" letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
Registration Statement, in each case covering substantially the same matters
with respect to such Registration Statement (and the prospectus included
therein) and, in the case of such accountant's "comfort" letter with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's "comfort" letters
delivered to underwriters in underwritten public offerings of securities.
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(e) UNDERWRITING AGREEMENT. In the event of an underwritten
public offering, the Company shall enter into an underwriting agreement with the
managing underwriter selected by the Holder. Such underwriting agreement shall
be reasonably satisfactory in form and substance to the Company, the Holder and
such managing underwriter, and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily contained
in agreements of that type used by the managing underwriter.
(f) CUTBACK. In connection with any underwritten public
offering by the Company of its securities as described in Section 7(b), the
Company shall not be required to include in such offering any Shares held by the
Holder unless the Holder agrees to the terms of the underwriting agreement
between the Company and the managing underwriter of such offering, which
agreement may require that the Shares be withheld from the market by the Holder
for a period of up to ninety (90) days after the effective date of the
Registration Statement by which such public offering is being effected.
Furthermore, the Company shall be obligated to include in such offering only the
quantity of the Shares, if any, as will not, in the opinion of the managing
underwriter, jeopardize the success of the offering by the Company. If the
managing underwriter for the offering advises the Company in writing that the
total amount of securities sought to be registered by the Holder and other
shareholders of the Company having similar registration rights as of the date
hereof (collectively, the "Shareholders") exceeds the amount of securities that
can be offered without adversely affecting the offering by the Company, then the
Company may reduce the number of shares to be registered by the Company for the
Shareholders, including the Shares, to a number satisfactory to such managing
underwriter. Any such reduction shall be pro rata, based upon the total number
of shares held by each Shareholder, provided, however, that in such event, the
Holder shall have the right to withdraw its request to participate in the
offering and shall preserve its right to piggy-back registration as provided in
Section 7(b).
(g) COMPANY INDEMNITY. The Company will indemnify and hold
harmless the Holder, all directors, officers, partners, agents and employees of
the Holder, and any person or entity engaged by the Holder to sell the Shares,
and each person, if any, who controls such persons or entities within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act") (collectively, a "Holder Indemnitee"), against any losses,
claims, damages, liabilities, or expenses (including, but not limited to,
reasonable attorneys' fees), or actions, proceedings, or settlements in respect
thereof, whether joint or several, to which a Holder Indemnitee may become
subject under the Securities Act, the 1934 Act, or other federal or state law,
insofar as such losses, claims, damages, liabilities or expenses (including, but
not limited to, reasonable attorneys' fees), or actions, proceedings or
settlements in respect thereof, whether joint or several, arise out of or are
based upon any of the following statements, omissions or violations (a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement covering the Shares, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
or (iii) the employment by the Company of any device, scheme or artifice to
defraud or the engagement by the Company in any act, practice or course of
business which operates or would operate as a fraud or deceit upon the
purchasers of its securities pursuant to such Registration Statement. The
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Company will also reimburse each Holder Indemnitee for any legal or other
expenses reasonably incurred by such Holder Indemnitee in connection with
investigating, defending, and settling any such loss, claim, damage, liability,
or action.
The indemnity agreement contained in this Section 7(g) shall not apply
to amounts paid in settlement of any loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable to any
Holder Indemnitee for any loss, claim, damage, liability or action to the extent
that it arises solely out of or is based solely upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of the Holder or any
agent of the Holder, or controlling person of either.
(h) HOLDER INDEMNITY. The Holder will indemnify and hold
harmless the Company, and all directors, officers, partners, agents and
employees of the Company and all persons who control the Company within the
meaning of the Securities Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the Registration Statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities, or expenses (including, but not limited to reasonable attorneys'
fees), or actions, proceedings, or settlements in respect thereof, whether joint
or several, to which the Company or any such Company Indemnitee may become
subject under the Securities Act, the 1934 Act, or other federal or state law,
insofar as such losses, claims, damages, liabilities, or expenses (including,
but not limited to reasonable attorneys' fees), or actions, proceedings, or
settlements in respect thereof, whether joint or several, arise solely out of or
are based solely upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by or on behalf of the Holder expressly for use in
connection with such registration; and the Holder will reimburse any legal or
other expenses reasonably incurred by a Company Indemnitee in connection with
investigating or defending any such loss, claim, damage, liability, or action.
Notwithstanding the above, the amount of any losses, claims, damages,
liabilities, legal fees and expenses to be paid by the Holder shall not exceed
the amount of the proceeds received by the Holder from the sale of the Shares.
The indemnity agreement contained in this Section 7(h) shall not apply
to amounts paid in settlement of any loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
(i) PROCEDURE FOR INDEMNIFICATION.
(i) Promptly after receipt by an indemnified party under
Sections 7(g) and 7(h) of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying part
so desires, jointly with any other indemnifying party similarly noticed, to
assume and control the defense thereof with counsel mutually satisfactory to the
indemnified party and indemnifying parties, provided that an indemnified party
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shall have the right to retain its own counsel, with the fees and expenses to be
paid by the indemnifying party, if representation of such indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests (as reasonably determined by either
party) between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
7(i), to the extent of such prejudice, but the failure to so deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 7(i).
(ii) The obligations of the Company and the Holders under
Sections 7(g) and 7 (h), respectively, shall survive the completion of any
offering of the Shares made pursuant to a registration under this Section 7.
(iii) The amount paid or payable by a party as a result of
the losses, claims, damages, or liabilities (or actions or proceedings in
respect thereof) referred to in Sections 7(g) and 7(h) shall include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim.
(j) LIMITATIONS OF INDEMNIFICATION. If the indemnification
provided for in Sections 7(g) and 7(h) is unavailable to an indemnified party in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall be required to provide contribution on behalf of the indemnified
party, except to the extent that contribution is not permitted under Section
11(f) of the Securities Act. In determining the amount of contribution to which
the respective parties are entitled, there shall be considered the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission, and any other equitable considerations appropriate under
the circumstances. Notwithstanding the provisions of this paragraph, the Holder
shall not be required to contribute any amount in excess of the net proceeds
received by the Holder from the sale of the Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(k) SPECIFIC PERFORMANCE. The Holder, in addition to being
entitled to exercise all rights provided in this Section 7, including recovery
of damages, will be entitled to specific performance of its rights hereunder.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this Section
7 and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(l) CERTAIN OBLIGATIONS OF THE COMPANY. In connection with the
Company's obligations to effect a registration under the Section 7, the Company
will:
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<PAGE> 12
(i) cooperate and assist in any filings required to be
made with the National Association of Securities Dealers, Inc., and before
filing a Registration Statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to such
counsel's review and comments;
(ii) cause the prospectus relating to such registration
to be supplemented by any required prospectus supplement, and as so
supplemented, to be filed pursuant to Rule 424 under the Securities Act;
(iii) notify the Holder promptly (1) when the prospectus
or any prospectus supplement or post-effective amendment relating to such
registration has been filed, and with respect to the Registration Statement or
any post-effective amendment, when the same has become effective; (2) of any
comment letter or request by the Securities and Exchange Commission (the
"Commission") for any amendments or supplements to the registration statement or
the prospectus or for additional information; (3) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or the initiation of any proceedings for that purpose; (4) if, at any
time prior to the closing contemplated by an underwriting agreement, if any,
entered into in connection with such Registration Statement, that the
representations and warranties of the Company contained in such agreement cease
to be true and correct in any material respect; (5) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction, or the initiation or threatening of
any proceeding for such purpose; and (6) of the happening of any event which
makes any statement made in the Registration Statement, the prospectus or any
document incorporated therein by reference, untrue in any material respect and
which requires the making of any changes in the Registration Statement, the
prospectus or any document incorporated therein by reference in order to make
the statement therein not materially misleading;
(iv) make commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the Registration
Statement;
(v) if required, based on the advice of the Company's
counsel, prepare a supplement or post-effective amendment to the Registration
Statement, the related prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Shares, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading;
(vi) cause all Shares covered by the Registration
Statement to be listed on each securities exchange on which the Common Stock is
then listed if requested by the Holder or any managing underwriters;
(vii) provide and cause to be maintained a transfer agent
and registrar for all Shares covered by such Registration Statement from an
after a date not later than the effective date of such registration statement;
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<PAGE> 13
(viii) use its best efforts to provide a CUSIP number for
the Shares, not later than the effective date of the registration statement;
(ix) make available for inspection, in connection with
the preparation of a Registration Statement pursuant to this Agreement, by the
Holder, and any attorney or accountant retained by the Holder, all financial and
other records and pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such registration; PROVIDED, HOWEVER, that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(x) if so required by the managing underwriter, not sell,
make any short sale of, loan, grant any option for the purpose of, effect any
public sale or distribution of or otherwise dispose of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
securities during the ten (10) days prior to and the ninety (90) days after any
underwritten registration pursuant to this Section 7 has become effective,
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms thereto,
except that the Company may make grants of options under its stock option plans
and may issue securities issuable upon the exercise or conversion of outstanding
convertible securities, stock options and other options, warrants and rights of
the Company; and (xi) otherwise use its best effort to comply with all
applicable rules and regulations of the Commission and make available to its
security holders as soon as reasonably practicable, an earnings statement which
satisfies the provision of Section 11(a) of the Securities Act.
(m) The Company shall not be obligated to register any Shares
pursuant to this Section 7 at any time when the resale provisions of Rule 144
promulgated under the Securities Act are available to the Holder without
limitation as to volume.
8. EXCHANGE PRIVILEGE AND TRANSFERABILITY. Subject to the
provisions of the last paragraph of this Section, the Holder at its option may
surrender this Debenture for exchange at the principal office of the Company
and, without expense (except for any stamp tax or other governmental charge with
respect to any transfer involved therein), receive in exchange therefor notes,
in denominations designated by the Holder and payable to such person or persons
as may be designated by such Holder and for the same aggregate principal amount
as the then unpaid principal balance of this Debenture. Every instrument made
and delivered in exchange for this Debenture shall in all other respects be in
the same form and have the same terms, on a pro rata basis, as this Debenture.
The Holder, by acceptance hereof, agrees that the rights represented by
this Debenture are not transferable, in whole or in part, whether by sale,
transfer, gift, or other hypothecation unless and until (a) a Registration
Statement relating to such sale, transfer, gift or hypothecation shall have
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<PAGE> 14
become effective under the Securities Act or (b) a legal opinion satisfactory to
the Company is furnished with respect to such sale, transfer, gift or other
hypothecation to the effect that registration under the Securities Act is not
required with respect thereto.
9. BOARD OF DIRECTORS; INSPECTION. The Holder shall be entitled
to send a representative (the "Holder Representative") to attend all meetings of
the Board of Directors of the Company, but such Holder Representative shall not
be considered an elected member of the Board of Directors of the Company. The
Company will ensure that meetings of the Board of Directors of the Company are
held at least once each calendar quarter and provide the Holder Representative
with written notice of all Board of Director meetings as such notice is provided
for in the Bylaws of the Company, as well as copies of all materials provided to
the directors. The Company will reimburse the Holder Representative for his
reasonable travel expenses, including the cost of air fare and any necessary
meals and lodging, incurred in connection with attending such meetings or
performing such other business on behalf of the Company as may be approved by
the Company in advance. The Company will notify the Holder in writing five (5)
business days prior to the effectiveness of any action to be taken by written
consent of directors or shareholders, and will provide reasonable opportunity
for consultation with the Holder with regard to the matters covered thereby
during such five-day period prior to the effectiveness of such consents.
The Company will, upon reasonable prior notice to the Company, permit
authorized representatives of the Holder to visit and inspect any of the
properties of the Company, including its books of account, and to discuss its
affairs, finances and accounts with its agents, officers and independent
accountants, all at such reasonable times and as often as may be reasonably
requested, in all cases so as not to interfere with the Company's operations or
personnel.
Upon conversion of this Debenture and for so long as the Holder and its
affiliates hold Convertible Securities, Shares or other capital stock
representing ten percent (10%) of the common equity in the Company on a
fully-diluted basis, the Holder may designate one (1) representative (the
"Holder's Director") to be appointed as a member of the Board of Directors of
the Company. The Holder's Director shall be entitled to reimbursement of all
reasonable travel expenses incurred in connection with his attendance at all
Board meetings and the Holder's Director shall be entitled to receive the same
board fees and other compensation, if any, paid to any outside directors. Upon
the appointment of the Holder's Director, the Holder shall no longer have the
right to have a Holder Representative.
10. USE OF PROCEEDS. The Company shall use the proceeds obtained
from the sale of this Debenture solely for research and development expenses and
expenses incurred in the ordinary course of its business, except that up to Two
Hundred Fifty Thousand Dollars ($250,000) of such proceeds shall be used to
repay debt obligations of the Company to Wachovia under loan agreements to which
the Company is a party on the date of original issuance of this Debenture.
11. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Debenture, together
with any attached schedules, exhibits and other documents delivered pursuant
hereto, constitutes the entire agreement of the parties and supersedes all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof. This Debenture may not be
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<PAGE> 15
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by the Company and the Holder. No failure to exercise, and
no delay in exercising, any right, power or privilege under this Debenture shall
operate as a waiver, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude the exercise of any other right, power or
privilege. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be impled from any course of dealing between the Company
and the Holder. No extension of time for performance of any obligations or other
acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts.
12. REPRESENTATIONS. The Company represents and warrants to Holder
as follows:
(a) The execution and delivery of this Debenture and the
performance by the Company of its obligations hereunder have been duly
authorized by all necessary corporate action on part of the Company in
accordance with its Bylaws and Articles of Incorporation.
(b) This Debenture has been duly executed and delivered by the
Company and constitutes the legal, valid, binding and enforceable obligation of
the Company, enforceable in accordance with its terms.
(c) As of the date hereof, the Company has 12,000,000 shares
of Common Stock authorized and no other shares of any class of capital stock
authorized. As of September 30, 1999, the Company had 3,964,078 shares of Common
Stock issued and outstanding. All of the issued and outstanding shares of Common
Stock of the Company (x) have been duly authorized and validly issued and are
fully paid and non-assessable, (y) were issued in compliance with all applicable
state and federal securities laws, and (z) were not issued in violation of any
preemptive rights or rights of first refusal. No preemptive rights or rights of
first refusal exist with respect to the Common Stock or any capital stock of the
Company and no such rights arise by virtue of or in connection with the
transactions contemplated hereby. There are no outstanding or authorized rights,
options, warrants, convertible securities, subscription rights, conversion
rights, exchange rights or other agreements or commitments of any kind that
could require the Company to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital stock),
other than outstanding option grants for an aggregate of 540,416 shares. There
are no outstanding stock appreciation, phantom stock, profit participation or
other similar rights with respect to the Company or its capital stock. There are
no proxies, voting rights or other agreements or understandings with respect to
the voting or transfer of the capital stock of the Company. The Company is not
obligated to redeem or otherwise acquire any of its outstanding shares of
capital stock.
(d) All of the Shares will, upon issuance, be duly authorized,
validly issued and outstanding, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issuance thereof.
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<PAGE> 16
(e) The Company has obtained all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
hereunder.
(f) There are no state statutes or other "anti-takeover" laws
applicable to the Company, to the issuance of this Debenture by the Company, or
to the issuance of the Shares upon conversion of this Debenture, which would
have, among other things, the effect of nullifying the transactions contemplated
by this Debenture, or affecting the Holder's voting rights or other rights as a
shareholder following such conversion, or, to the extent there are such
applicable state statutes or other "anti-takeover" laws, the Company and its
Board of Directors have taken all steps necessary under such statutes or laws to
render them inapplicable to the Company, the issuance of this Debenture, and the
issuance of the Shares upon conversion of this Debenture.
(g) There is no material litigation pending, or, to the
knowledge of the Company, threatened, against the Company.
13. RIGHT OF REFUSAL. The Holder shall have the right of first
offer and first refusal until April 30, 2000 to purchase any and all assets to
be sold by the Company outside the ordinary course of business, as set forth in
this Section 13. If the Company desires to sell any assets outside the ordinary
course of business, the Company (i) shall first provide the Holder with notice
of the proposed sale and a description of the assets to be sold, (ii) shall
negotiate exclusively with the Holder for a period of not less than five (5)
business days, during which period it will provide the Holder with all
reasonably requested due diligence information, (iii) may after such five day
period negotiate with any other parties to sell the assets provided that the
Company shall not accept any offer from a third party that has a purchase price
that is less than the purchase price set forth in any offer made by the Holder
with respect to those assets, and (iv) shall provide Holder with at least two
business days notice prior to accepting any third party's offer for any assets
so that the Holder may make the purchase on the same price and terms as proposed
by the third party in lieu of such other party. If Holder purchases any assets
from the Company, the Holder may elect to pay the purchase price therefor either
in cash or by an offset against any amounts outstanding under this Debenture.
14. MISCELLANEOUS.
(a) USURY. Nothing herein contained, nor any transaction
related hereto, shall be construed or so operate as to require the Company to
pay interest at a greater rate than is now lawful in such case to contract for,
or to make any payment, or to do any act contrary to law. Should any interest or
other charges paid by the Company, or parties liable for the payment of this
Debenture, in connection with the loan evidenced by this Debenture, or any
document delivered in connection with said loan, result in the computation or
earning of interest in excess of the maximum legal rate of interest which is
legally permitted by law, then any and all such excess of the maximum legal rate
of interest which is legally permitted by law, then any and all such excess
shall be and the same is hereby waived by the Holder hereof, and any and all
such excess shall be automatically credited against and in reduction of the
balance due under this Debenture, and the portion of said excess which exceeds
the balance due under this Debenture shall be paid by the Holder to the Company.
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<PAGE> 17
(b) OWNERSHIP. The Holder shall be deemed to be the owner of
this Debenture for all purposes, and the full payment of interest and principal
under this Debenture to the Holder shall constitute the full and complete
discharge of the Company for such purposes.
(c) SEVERABILITY. The invalidity of any portion of this
Debenture shall not affect the enforceability of the remaining portions of this
Debenture or any part thereof, all of which are inserted herein conditionally on
their being valid in law. In the event that any portion or portions contained
herein shall be invalid, this Debenture shall be construed so as to make such
portion or portions valid or, if such construction is not legally possible, as
if such invalid portion or portions had not been inserted.
(d) BINDING NATURE OF DEBENTURE. Except as otherwise herein
provided, this Debenture shall be binding upon and inure to the benefit of the
parties hereto, their legal representatives, successors and assigns.
(e) NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), or guaranteed overnight
delivery, to the Company at the address at which its principal business office
is located from time to time, and the Holder at One Financial Plaza, Suite 1101,
Fort Lauderdale, FL 33394, or such other address specified by Holder.
(f) ATTORNEYS' FEES. Should it become necessary for any party
to institute legal action to enforce the terms and conditions of this Debenture,
the successful party will be awarded reasonable attorneys' fees, at all trial
and appellate levels, expenses and costs.
(g) HEADINGS. The headings contained in this Debenture are for
convenience of reference only and are not to be given any legal effect and shall
not affect the meaning or interpretation of this Debenture.
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<PAGE> 18
IN WITNESS WHEREOF, the Company has signed and sealed this
Debenture due October 31, 2000 on this 1st day of November, 1999.
ITC LEARNING CORPORATION
By: /s/ Christopher E. Mack
-----------------------------------
Name: Christopher E. Mack
Title: Chief Financial Officer
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<PAGE> 1
EXHIBIT 3
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL THAT SUCH REGISTRATION STATEMENT IS NOT REQUIRED UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER
APPLICABLE STATE SECURITIES LAWS.
WARRANT CERTIFICATE
To Purchase 291,500 Shares of Common Stock of:
ITC LEARNING CORPORATION
THIS IS TO CERTIFY THAT, for value received, New River Capital
Partners, L.P. or its assigns (the "Holder"), is entitled to purchase from ITC
Learning Corporation, a Maryland corporation (the "Company"), Two Hundred
Ninety-One Thousand Five Hundred (291,500) shares of the Company's common stock,
par value $.10 per share (the "Common Stock"), on the terms and conditions
hereinafter set forth.
I. GRANT OF WARRANT
1.1 GRANT AND VESTING. The Company hereby grants to the Holder a warrant
to purchase up to 291,500 shares of Common Stock (this "Warrant"), at a purchase
price of $2.00 per share of Common Stock (the "Exercise Price"). This Warrant
shall vest as to Seventy-Two Thousand Eight Hundred Seventy-Five (72,875) shares
of Common Stock immediately upon the Holder's funding of the principal sum of
$250,000.00 to the Company pursuant to the terms of that certain debenture
payable by the Company to Holder dated as of the date hereof (the "Debenture"),
and shall vest as to Two Hundred Eighteen Thousand Six Hundred Twenty-Five
(218,625) shares immediately upon the Holder's funding of the principal sum of
$750,000.00 to the Company pursuant to the terms of the Debenture. If the Holder
does not fund the second payment of $750,000.00 to the Company pursuant to the
Debenture, then this Warrant shall never vest or be exercisable as to 218,625
shares of Common Stock. The shares of Common Stock which vest in accordance with
the foregoing are referred to as the "Warrant Shares" hereinafter.
1.2 EXERCISE PERIOD. This Warrant shall be exercisable commencing one
hundred twenty (120) days after the date of original issuance of this Warrant
(the "Exercisability Date") and continue to be exercisable for the period (the
"Exercise Period") until 5:00 p.m., Eastern Standard Time, on October 31, 2000.
Notwithstanding the foregoing, prior to the Exercisability Date, this Warrant
shall become exercisable as to all of the Warrant Shares for a period of ten
(10) business days immediately following the later of (i) the date on which the
Company shall issue any shares of Common Stock at a price greater than the
Exercise Price in an aggregate amount equal to or exceeding Two Million Dollars
($2,000,000) or any other shares of capital stock or debt securities convertible
into capital stock in an aggregate amount equal to or exceeding Two Million
Dollars ($2,000,000) to an investor(s) other than Holder or Holder's affiliates
<PAGE> 2
or investors, or (ii) the date on which the Company notifies the Holder of the
issuance thereof. The Company shall give the Holder prompt written notice of any
such issuance. This Warrant shall expire after such ten business day period if
not exercised.
1.3 SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants and
agrees that (a) all of the shares of Common Stock issuable upon the exercise of
this Warrant in accordance with the terms hereof will, upon issuance, be duly
authorized, validly issued and outstanding, fully paid and non-assessable, and
free from all taxes, liens and charges with respect to the issuance thereof, and
(b) the Company will during the Exercise Period have authorized and reserved
sufficient shares of its Common Stock to provide for the exercise of this
Warrant in full.
II. ADJUSTMENTS TO WARRANT
2.1 STOCK SPLITS AND COMBINATIONS. If the Company shall combine all of
its outstanding shares of Common Stock into a smaller number of shares, the
number of Warrant Shares shall be proportionately decreased and the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased, as of the effective date of such combination, as follows: (a) the
number of Warrant Shares purchasable immediately prior to the effective date of
such combination shall be adjusted so that the Holder of this Warrant, if
exercised on or after that date, shall be entitled to receive the number and
kind of Warrant Shares which the Holder of this Warrant would have owned and
been entitled to receive as a result of the combination had the Warrant been
exercised immediately prior to that date, and (b) the Exercise Price in effect
immediately prior to such adjustment shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which is the aggregate number of
shares of Common Stock purchasable upon exercise of this Warrant immediately
prior to such adjustment, and the denominator of which is the aggregate number
of shares of Common Stock purchasable upon exercise of this Warrant immediately
thereafter. If the Company shall subdivide all of its outstanding shares of
Common Stock, the number of Warrant Shares shall be proportionally increased and
the Exercise Price in effect prior to such subdivision shall be proportionately
decreased, as of the effective date of such subdivision, as follows: (a) the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to the effective date of such subdivision, shall be adjusted
so that the Holder of this Warrant, if exercised on or after that date, shall be
entitled to receive the number and kind of Warrant Shares which the Holder of
this Warrant would have owned and been entitled to receive as a result of the
subdivision had the Warrant been exercised immediately prior to that date, and
(b) the Exercise Price in effect immediately prior to such adjustment shall be
adjusted by multiplying the purchase price by a fraction, the numerator of which
is the aggregate number of shares of Common Stock purchasable upon exercise of
this Warrant immediately prior to such adjustment, and the denominator of which
is the aggregate number of shares of Common Stock purchasable upon exercise of
this Warrant immediately thereafter.
2.2 STOCK DIVIDENDS AND DISTRIBUTIONS. If the Company shall fix a record
date for the holders of its Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock, then the number of
Warrant Shares shall be proportionately increased and the Exercise Price in
effect prior to the time of such issuance or the close of business on such
record date shall be proportionately decreased, as of the time of such issuance,
or in the event such record date is fixed, as of the close of business on such
record date, as follows: (a) the number of Warrant Shares immediately prior to
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<PAGE> 3
the time of such issuance or the close of business on such record date shall be
adjusted so that the Holder of this Warrant, if exercised after that date, shall
be entitled to receive the number and kind of Warrant Shares which the Holder of
this Warrant would have owned and been entitled to receive as a result of the
dividend or distribution had the Warrant been exercised immediately prior to
that date, and (b) the Exercise Price in effect immediately prior to such
adjustment shall be adjusted by multiplying such purchase price by a fraction,
the numerator of which is the aggregate number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such adjustment,
and the denominator of which is the aggregate number of shares of Common Stock
purchasable upon exercise of this Warrant immediately thereafter.
2.3 OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company shall fix a record
date for the holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Company other than shares of Common
Stock, then lawful and adequate provision shall be made so that the Holder of
this Warrant shall be entitled to receive upon exercise of this Warrant, for the
Exercise Price in effect prior thereto, in addition to the number of Warrant
Shares immediately theretofore issuable upon exercise of this Warrant, the kind
and number of securities of the Company which the Holder would have owned and
been entitled to receive had the Warrant been exercised immediately prior to
that date.
2.4 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than by
a subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Article
II), then the Holder of this Warrant shall be entitled to receive upon exercise
of this Warrant, in lieu of the Warrant Shares immediately theretofore issuable
upon exercise of this Warrant, for the aggregate Exercise Price in effect prior
thereto, the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change, by the
holders of the number of shares of Common Stock for which the Warrant could have
been exercised immediately prior to such recapitalization, reclassification or
other change.
2.5 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If any
of the following transactions (each, a "Special Transaction") shall become
effective: (a) a capital reorganization (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Article II), (b) a consolidation or merger of the Company with
and into another entity, or (c) a sale or conveyance of all or substantially all
of the Company's assets, then as a condition of any Special Transaction, lawful
and adequate provision shall be made so that the Holder of the Warrant shall
thereafter have the right to purchase and receive upon exercise of this Warrant,
in lieu of the Warrant Shares immediately theretofore issuable upon exercise of
this Warrant, for the Exercise Price in effect immediately prior to such
conversion, such shares of stock, other securities, cash or other assets as may
be issued or payable in and pursuant to the terms of such Special Transaction to
the holders of shares of Common Stock for which this Warrant could have been
exercised immediately prior to such Special Transaction. In connection with any
Special Transaction, appropriate provision shall be made with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions of this Warrant (including, without limitation, provisions for
adjustment of the Exercise Price and the number of Warrant Shares issuable upon
the exercise of this Warrant), shall thereafter be applicable, as nearly as may
3
<PAGE> 4
be practicable, to any shares of stock, other securities, cash or other assets
thereafter deliverable upon the exercise of this Warrant. The Company shall not
effect any Special Transaction unless prior to, or simultaneously with the
closing thereof, the successor entity (if other than the Company), if any,
resulting from such Special Transaction shall assume by a written instrument
executed and mailed by certified mail or delivered to the Holder of this Warrant
at the address of the Holder appearing on the books of the Company, the
obligation of the Company or such successor corporation to deliver to the Holder
such shares of stock, securities, cash or other assets, as in accordance with
the foregoing provisions, which the Holder shall have the right to purchase.
2.6 OTHER ISSUANCES. In the event that the Company shall at any time
after the date of original issuance of this Warrant issue any shares of Common
Stock, including shares of Common Stock issued or issuable upon the conversion
or exercise of Convertible Securities, without consideration or at a price per
share less than the Exercise Price, then, in each and any such event (an
"Adjustment Event"), the number of Warrant Shares purchasable immediately prior
thereto (the "Initial Number") shall be adjusted so that the Holder shall be
entitled, upon exercise of this Warrant, to receive the number of shares of
Common Stock determined by multiplying the Initial Number by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Adjustment Event plus the number of additional shares
of Common Stock issued in such Adjustment Event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Adjustment Event plus the number of shares of Common Stock which the
aggregate issuance price of the total number of shares of Common Stock issued in
such Adjustment Event would purchase at the Exercise Price; provided, however,
that no adjustment shall be made for the issuance of shares of Common Stock in
connection with a Special Transaction, as described in Section 2.5.
2.7 LIQUIDATION. If the Company shall, at any time prior to the end of
the Exercise Period, dissolve, liquidate or wind up its affairs, the Holder
shall have the right, but not the obligation, to exercise this Warrant. Upon
such exercise, the Holder shall have the right to receive, in lieu of the shares
of Common Stock that the Holder otherwise would have been entitled to receive
upon such exercise, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such dissolution, liquidation
or winding up with respect to such shares of Common Stock had the Holder been
the holder of record of such shares of Common Stock receivable upon exercise of
this Warrant on the date for determining those entitled to receive any such
distribution. If any such dissolution, liquidation or winding up results in any
cash distribution in excess of the applicable Exercise Price, the Holder may, at
the Holder's option, exercise this Warrant without making payment of the
applicable Exercise Price and, in such case, the Company shall, upon
distribution to the Holder, consider the applicable Exercise Price, to have been
paid in full, and in making settlement to the Holder shall deduct an amount
equal to the applicable Exercise Price, from the amount payable to the Holder.
2.8 NOTICE. Whenever this Warrant or the number of Warrant Shares is to
be adjusted as provided herein, the Company shall forthwith as soon as
practicable cause to be sent to the Holder a notice stating in reasonable detail
the relevant facts and any resulting adjustments and the calculation thereof.
2.9 FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of shares of Common Stock upon the exercise of this Warrant. If any
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fraction of a share of Common Stock would be issuable upon the exercise of this
Warrant, the Company shall, upon such issuance, purchase such fraction for an
amount in cash equal to the current value of such fraction, computed on the
basis of the last reported closing price of the Common Stock on the securities
exchange or quotation system on which the shares of Common Stock are then listed
or traded, as the case may be, if any, on the last business day prior to the
date of exercise upon which such a sale shall have been effected, or, if the
Common Stock is not so listed or traded on an exchange or quotation system, as
the Board of Directors of the Company may in good faith determine.
2.10 EFFECT OF ALTERNATE SECURITIES. If at any time, as a result of an
adjustment made pursuant to this Article II, the Holder of this Warrant shall
thereafter become entitled to receive any securities of the Company other than
shares of Common Stock, then the number of such other securities receivable upon
exercise of this Warrant shall be subject to adjustment from time to time on
terms as nearly equivalent as practicable to the provisions with respect to
shares of Common Stock contained in this Article II.
2.11 SUCCESSIVE APPLICATION. The provisions of this Article II shall
apply from time to time to successive events covered by this Article II.
III. EXERCISE
3.1 EXERCISE OF WARRANT.
(a) The Holder may exercise this Warrant by (i) surrendering this
Warrant Certificate with the form of exercise notice attached hereto as EXHIBIT
"A" duly executed by the Holder, and (ii) making payment to the Company of the
aggregate Exercise Price for the applicable Warrant Shares in cash, by certified
check, bank check or wire transfer to an account designated by the Company. Upon
any partial exercise of this Warrant, the Company, at its expense, shall
promptly issue to the Holder for its surrendered Warrant Certificate a
replacement Warrant Certificate identical in all respects to this Warrant
Certificate, except that the number of Warrant Shares shall be reduced
accordingly.
(b) Each person in whose name any Warrant Share certificate is issued
upon exercise of this Warrant shall for all purposes been deemed to have become
the holder of record of the Warrant Shares for which this Warrant was exercised
as of the date of exercise.
3.2 ISSUANCE OF WARRANT SHARES. The Warrant Shares purchased shall be
issued to the Holder exercising this Warrant as of the close of business on the
date on which all actions and payments required to be taken or made by the
Holder hereunder shall have been so taken or made. Certificates for the Warrant
Shares so purchased shall be delivered to the Holder as soon as practicable
after this Warrant is so exercised.
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IV. RIGHTS OF THE HOLDER
4.1 NO RIGHTS AS SHAREHOLDER. Except as provided herein, the Holder shall
not, solely by virtue of this Warrant and prior to the issuance of the Warrant
Shares upon due exercise hereof, be entitled to any rights as a shareholder of
the Company.
4.2 CERTAIN COVENANTS. The Company will (a) take all such action as may
be necessary or appropriate in order that the Warrant Shares will, upon issuance
in accordance with the terms hereof and the payment of the Exercise Price
therefor, be duly authorized, validly issued and outstanding, fully paid and
non-assessable and (b) use its reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
V. TRANSFERABILITY
5.1 EXERCISE/DISPOSITION. By accepting this Warrant, the Holder agrees
that this Warrant and any and all Warrant Shares are being acquired for
investment purposes only and not with the view toward the further distribution
thereof. The Holder further acknowledges that this Warrant and the Warrant
Shares have not been registered under the Securities Act, or any state
securities laws, and accordingly, the ability of the Holder to sell, assign
and/or dispose of this Warrant and/or the Warrant Shares, as the case may be,
may be severely limited.
5.2 TRANSFER. Subject to compliance with federal and state securities
laws, the Holder may sell, assign, transfer or otherwise dispose of all or any
portion of this Warrant or the Warrant Shares acquired upon any exercise hereof
at any time and from time to time. Upon the sale, assignment, transfer or other
disposition of all or any portion of this Warrant, the Company shall issue and
deliver one or more new Warrant Certificates in the denominations indicated by
the Holder evidencing this Warrant to the purchaser, assignee, or transferee,
and as to any portion not sold, assigned, transferred or disposed of, to the
Holder.
5.3 LOSS. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
VI. LEGEND ON WARRANT SHARES
6.1 LEGEND. The certificates representing the Warrant Shares shall bear a
legend substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be offered or sold except (1) pursuant to an effective
registration statement under the Act or (2) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to the issuer stating that an exemption from
registration under such Act is available."
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VII. REGISTRATION RIGHTS
7.1 DEMAND REGISTRATION. Within twenty (20) days following written demand
of the Holder, the Company shall prepare and file with the Securities and
Exchange Commission (the "Commission"), and use its best efforts to cause to
become effective no later than sixty (60) days after the date of filing, a
registration statement on Form S-3 (if such form is then available for use by
the Company, or such other available registration statement form) (the
"Registration Statement") and such other documents, as may be necessary in the
opinion of counsel for both the Company and the Holder, so as to permit a public
offering and sale of the Warrant Shares under the Securities Act. All expenses
incurred in connection with the registration of the Shares, including without
limitation, all blue sky registration and filing fees, legal fees, accounting
fees, printing expenses, other expenses and fees of experts used in connection
with such registration and any fees and expenses incidental to any
post-effective amendment to the Registration Statement, shall be borne and paid
by the Company. The Company shall keep such registration effective for a period
of not less than two (2) years after becoming effective.
7.2 PIGGY-BACK REGISTRATION. If, at any time, the Company shall propose
the registration under the Securities Act of an offering of any of its capital
stock to be sold for its own account and/or for the account of other persons,
the Company, on each such occasion, shall as promptly as practicable, but in no
event later than thirty (30) days prior to the proposed filing date of the
Registration Statement, give written notice to the Holder of its intention to
effect such registration (which notice shall state an estimated selling price
for Common Stock in such offering) and the Holder shall be entitled, on each
such occasion, to request to have all or a portion of the Warrant Shares
included in such Registration Statement. Upon the written request of the Holder
that the Company include the Warrant Shares in such Registration Statement
(which request shall state the number of Warrant Shares for which registration
is sought and the intended method of disposition thereof), the Company shall
cause such Warrant Shares to be so included in the offering covered by such
Registration Statement.
7.3 PROSPECTUS; BLUE SKY MATTERS. Whenever the Company is required
pursuant to the provisions of this Article VII, to include the Warrant Shares in
a Registration Statement, the Company shall (a) furnish the Holder and any
underwriter with respect to the registration of such Warrant Shares with copies
of the prospectus, including the preliminary prospectus, conforming to the
Securities Act (and such other documents as the Holder or any underwriter may
reasonably request) in order to facilitate the sale or distribution of the
Warrant Shares, (b) use its best efforts to register or qualify the Warrant
Shares under the blue sky laws (to the extent applicable ) of such jurisdiction
or laws (to the extent applicable) of such jurisdiction or jurisdictions as the
Holder and any underwriter of the Warrant Shares being sold by the Holder shall
reasonably request and (c) take such other actions as may be reasonably
necessary or advisable to enable the Holder and any underwriters to consummate
the sale or distribution in such jurisdiction or jurisdictions in which the
Holder shall have reasonably requested that the Warrant Shares be sold.
7.4 OPINION OF COUNSEL; COMFORT LETTERS. In connection with any
registration under this Article VII, the Company shall furnish to the Holder and
to any underwriter a signed counterpart, addressed to the Holder or underwriter,
of (a) an opinion of counsel to the Company, dated the effective date of the
Registration Statement (and, if such registration includes an underwritten
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public offering, an opinion dated the date of the closing under the underwriting
agreement), and (b) a "comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a "comfort" letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
Registration Statement, in each case covering substantially the same matters
with respect to such Registration Statement (and the prospectus included
therein) and, in the case of such accountant's "comfort" letter with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's "comfort" letters
delivered to underwriters in underwritten public offerings of securities.
7.5 UNDERWRITING AGREEMENT. In the event of an underwritten public
offering, the Company shall enter into an underwriting agreement with the
managing underwriter selected by the Holder. Such underwriting agreement shall
be reasonably satisfactory in form and substance to the Company, the Holder and
such managing underwriter, and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily contained
in agreements of that type used by the managing underwriter.
7.6 CUTBACK. In connection with any underwritten public offering by the
Company of its securities as described in Section 7.2, the Company shall not be
required to include in such offering any Warrant Shares held by the Holder
unless the Holder agrees to the terms of the underwriting agreement between the
Company and the managing underwriter of such offering, which agreement may
require that the Warrant Shares be withheld from the market by the Holder for a
period of up to ninety (90) days after the effective date of the Registration
Statement by which such public offering is being effected. Furthermore, the
Company shall be obligated to include in such offering only the quantity of the
Warrant Shares, if any, as will not, in the opinion of the managing underwriter,
if any, jeopardize the success of the offering by the Company. If the managing
underwriter for the offering advises the Company in writing that the total
amount of securities sought to be registered by the Holder and other
shareholders of the Company having similar registration rights as of the date
hereof (collectively, the "Shareholders") exceeds the amount of securities that
can be offered without adversely affecting the offering by the Company, then the
Company may reduce the number of shares to be registered by the Company for the
Shareholders, including the Warrant Shares, to a number satisfactory to such
managing underwriter. Any such reduction shall be pro rata, based upon the total
number of shares held by each Shareholder, provided, however, that in such
event, the Holder shall have the right to withdraw its request to participate in
the offering and shall preserve its right to piggy-back registration as provided
in Section 7.2.
7.7 COMPANY INDEMNITY. The Company will indemnify and hold harmless the
Holder, all directors, officers, partners, agents and employees of the Holder,
and any person or entity engaged by the Holder to sell the Warrant Shares, and
each person, if any, who controls such persons or entities within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the "1934
Act") (collectively, a "Holder Indemnitee"), against any losses, claims,
damages, liabilities, or expenses (including, but not limited to reasonable
attorneys' fees), or actions, proceedings, or settlements in respect thereof,
whether joint or several, to which a Holder Indemnitee may become subject under
the Securities Act, the 1934 Act, or other federal or state law, insofar as such
losses, claims, damages, liabilities or expenses (including, but not limited to,
reasonable attorneys' fees), or actions, proceedings or settlements in respect
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thereof, arise out of or are based upon any of the following statements,
omissions or violations (a "Violation"): (a) any untrue statement or alleged
untrue statement of a material fact contained in a Registration Statement
covering the Warrant Shares, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto; (b) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; or (c) the employment by
the Company of any device, scheme or artifice to defraud or the engagement by
the Company in any act, practice or course of business which operates or would
operate as a fraud or deceit upon the purchasers of its securities pursuant to
such Registration Statement. The Company will also reimburse each Holder
Indemnitee for any legal or other expenses reasonably incurred by such Holder
Indemnitee in connection with investigating, defending, and settling any such
loss, claim, damage, liability, or action.
The indemnity agreement contained in this Section 7.7 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable to any
Holder Indemnitee for any loss, claim, damage, liability or action to the extent
that it arises solely out of or is based solely upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of the Holder or any
agent of the Holder, or controlling person of either.
7.8 HOLDER INDEMNITY. The Holder will indemnify and hold harmless the
Company, and all directors, officers, partners, agents and employees of the
Company and all persons who control the Company within the meaning of the
Securities Act or the 1934 Act, and each agent or underwriter for the Company or
any other person or entity engaged by the Company to sell the Company's
securities offered in the Registration Statement, or any of their respective
directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities, or expenses (including, but not limited to, reasonable attorneys'
fees), or actions, proceedings, or settlements in respect thereof, whether joint
or several, to which the Company or any such Company Indemnitee may become
subject under the Securities Act, the 1934 Act, or other federal or state law,
insofar as such losses, claims, damages, liabilities or expenses (including, but
not limited to, reasonable attorneys' fees), or actions, proceedings, or
settlements in respect thereof, whether joint or several, arise solely out of or
are based solely upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by or on behalf of the Holder expressly for use in
connection with such registration; and the Holder will reimburse any legal or
other expenses reasonably incurred by a Company Indemnitee in connection with
investigating or defending any such loss, claim, damage, liability, or action.
Notwithstanding the above, the amount of any losses, claims, damages,
liabilities, legal fees and expenses to be paid by the Holder shall not exceed
the amount of the proceeds received by the Holder from the sale of the Warrant
Shares.
The indemnity agreement contained in this Section 7.8 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
7.9 PROCEDURE FOR INDEMNIFICATION. (a) Promptly after receipt by an
indemnified party under Sections 7.7 and 7.8 of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
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a claim in respect thereof is to be made against an indemnifying party, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying part so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the indemnified party and indemnifying parties,
provided that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests (as reasonably determined by either party) between such indemnified
party and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under Section 7.7 or 7.8, to the extent of such prejudice,
but the failure to so deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7.9.
(b) The obligations of the Company and the Holders under Sections 7.7
and 7.8, respectively, shall survive the completion of any offering of the
Warrant Shares made pursuant to a registration under this Article VII.
(c) The amount paid or payable by a party as a result of the losses,
claims, damages, or liabilities (or actions or proceedings in respect thereof)
referred to in Sections 7.7 and 7.8 shall include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
7.10 LIMITATIONS OF INDEMNIFICATION. If the indemnification provided for
in Sections 7.7 and 7.8 is unavailable to an indemnified party in respect of any
losses, claims, damages liabilities or expenses referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall be
required to provide contribution on behalf of the indemnified party, except to
the extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the parties' relative
knowledge and access to information concerning the matter with respect to which
the claim was asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate under the
circumstances. Notwithstanding the provisions of this paragraph, the Holder
shall not be required to contribute any amount in excess of the net proceeds
received by the Holder from the sale of the Warrant Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7.11 SPECIFIC PERFORMANCE. The Holder, in addition to being entitled to
exercise all rights provided in this Article VII, including recovery of damages,
will be entitled to specific performance of its rights hereunder. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Article VII and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
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7.12 CERTAIN OBLIGATIONS OF THE COMPANY. In connection with the Company's
obligations to effect a registration under this Article VII, the Company will:
(a) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc., and before filing a
Registration Statement or prospectus or any amendments or supplements thereto,
the Company will furnish to counsel selected by the Holder copies of all such
documents proposed to be filed, which documents will be subject to such
counsel's review and comments;
(b) cause the prospectus relating to such registration to be
supplemented by any required prospectus supplement, and as so supplemented, to
be filed pursuant to Rule 424 under the Securities Act;
(c) notify the Holder promptly (i) when the prospectus or any
prospectus supplement or post-effective amendment relating to such registration
has been filed, and with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
comment letter or request by the Securities and Exchange Commission (the
"Commission") for any amendments or supplements to the registration statement or
the prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or the initiation of any proceedings for that purpose; (iv) if, at
any time prior to the closing contemplated by an underwriting agreement, if any,
entered into in connection with such Registration Statement, that the
representations and warranties of the Company contained in such agreement cease
to be true and correct in any material respect; (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Warrant Shares for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose; and (vi) of the happening of any
event which makes any statement made in the Registration Statement, the
prospectus or any document incorporated therein by reference, untrue in any
material respect and which requires the making of any changes in the
Registration Statement, the prospectus or any document incorporated therein by
reference in order to make the statement therein not materially misleading;
(d) make commercially reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement;
(e) if required, based on the advice of the Company's counsel,
prepare a supplement or post-effective amendment to the Registration Statement,
the related prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the purchasers
of the Warrant Shares, the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(f) cause all Warrant Shares covered by the Registration Statement to
be listed on each securities exchange on which the Common Stock is then listed
if requested by the Holder or any managing underwriters;
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(g) provide and cause to be maintained a transfer agent and registrar
for all Warrant Shares covered by such Registration Statement from an after a
date not later than the effective date of such registration statement;
(h) use its best efforts to provide a CUSIP number for the Warrant
Shares, not later than the effective date of the registration statement;
(i) make available for inspection, in connection with the preparation
of a Registration Statement pursuant to this Agreement, by the Holder, and any
attorney or accountant retained by the Holder, all financial and other records
and pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, attorney or accountant in connection with
such registration; PROVIDED, HOWEVER, that any records, information or documents
that are designated by the Company in writing as confidential shall be kept
confidential by such persons unless disclosure of such records, information or
documents is required by court or administrative order;
(j) if so required by the managing underwriter, not sell, make any
short sale of, loan, grant any option for the purpose of, effect any public sale
or distribution of or otherwise dispose of its equity securities or securities
convertible into or exchangeable or exercisable for any of such securities
during the ten (10) days prior to and the ninety (90) days after any
underwritten registration pursuant to this Article VII has become effective,
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms thereto,
except that the Company may make grants of options under its stock option plans
and may issue securities issuable upon the exercise or conversion of outstanding
convertible securities, stock options and other options, warrants and rights of
the Company; and
(k) otherwise use its best effort to comply with all applicable rules
and regulations of the Commission and make available to its security holders as
soon as reasonably practicable, an earnings statement which satisfies the
provision of Section 11(a) of the Securities Act.
VIII. MISCELLANEOUS
8.1 REPRESENTATIONS. The Company represents and warrants to the Holder as
follows:
(a) The execution and delivery of this Warrant and the performance by
the Company of its obligations hereunder have been duly authorized by all
necessary corporate action on part of the Company in accordance with its Bylaws
and Articles of Incorporation.
(b) This Warrant has been duly executed and delivered by the Company
and constitutes the legal, valid, binding and enforceable obligation of the
Company, enforceable in accordance with its terms.
(c) As of the date hereof, the Company has 12,000,000 shares of
Common Stock authorized. As of September 30, 1999, the Company has 3,964,078
shares of Common Stock issued and outstanding. All of the issued and outstanding
shares of Common Stock of the Company (x) have been duly authorized and validly
issued and are fully paid and non-assessable, (y) were issued in compliance with
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all applicable state and federal securities laws, and (z) were not issued in
violation of any preemptive rights or rights of first refusal. No preemptive
rights or rights of first refusal exist with respect to the Common Stock or any
capital stock of the Company and no such rights arise by virtue of or in
connection with the transactions contemplated hereby. There are no outstanding
or authorized rights, options, warrants, convertible securities, subscription
rights, conversion rights, exchange rights or other agreements or commitments of
any kind that could require the Company to issue or sell any shares of its
capital stock (or securities convertible into or exchangeable for shares of its
capital stock) other than outstanding option grants for an aggregate of 540,416
shares of Common Stock. There are no outstanding stock appreciation, phantom
stock, profit participation or other similar rights with respect to the Company
or its capital stock. There are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the capital stock of
the Company. The Company is not obligated to redeem or otherwise acquire any of
its outstanding shares of capital stock.
(d) All of the Shares will, upon issuance, be duly authorized,
validly issued and outstanding, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issuance thereof.
(e) The Company has obtained all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations hereunder.
(f) There are no state statutes or other "anti-takeover" laws
applicable to the Company, to the issuance of this Warrant by the Company, or to
the issuance of the Warrant Shares upon exercise of this Warrant which would
have, among other things, the effect of nullifying the transactions contemplated
by this Warrant, or affecting the Holder's voting rights or other rights as a
shareholder following such exercise, or to the extent there are such applicable
state statutes or other "anti-takeover" laws, the Company and its Board of
Directors have taken all steps necessary under such statutes or laws to render
them inapplicable to the Company, the issuance of this Warrant, and the issuance
of the Warrant Shares upon exercise of this Warrant.
(g) There is no material litigation pending, or, to the knowledge of
the Company, threatened, against the Company.
8.2 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), or guaranteed overnight
delivery, to the Company at the address at which its principal business office
is located from time to time, and the Holder at One Financial Plaza, Suite 1101,
Fort Lauderdale, FL 33394, or such other address specified by Holder.
8.3 EXPENSES; TAXES. Any sales tax, stamp duty, deed transfer or other
tax (except only taxes based on the income of the Holder) arising out of the
issuance and sale of this Warrant or the Warrant Shares issuable upon exercise
of this Warrant and consummation of the transactions contemplated by this
Warrant shall be paid by the Company.
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8.4 BINDING NATURE OF WARRANT. Except as otherwise herein provided, this
Warrant shall be binding upon and inure to the benefit of the parties hereto,
their legal representatives, successors and assigns.
8.5 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Warrant together with any
attached schedules, exhibits and other documents delivered pursuant hereto,
constitutes the entire agreement of the parties and supersedes all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof. This Warrant may not be
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by the Company and the Holder. No failure to exercise, and
no delay in exercising, any right, power or privilege under this Warrant shall
operate as a waiver, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude the exercise of any other right, power or
privilege. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be impled from any course of dealing between the Company
and the Holder. No extension of time for performance of any obligations or other
acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts.
8.6 SEVERABILITY. The invalidity of any portion of this Warrant shall not
affect the enforceability of the remaining portions of this Warrant or any part
thereof, all of which are inserted herein conditionally on their being valid in
law. In the event that any portion or portions contained herein shall be
invalid, this Warrant shall be construed so as to make such portion or portions
valid or, if such construction is not legally possible, as if such invalid
portion or portions had not been inserted.
8.7 ATTORNEYS' FEES. Should it become necessary for any party to
institute legal action to enforce the terms and conditions of this Warrant, the
successful party will be awarded reasonable attorneys' fees, at all trial and
appellate levels, expenses and costs.
8.8 HEADINGS. The headings contained in this Warrant are for convenience
of reference only and are not to be given any legal effect and shall not affect
the meaning or interpretation of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered as of the 1st day of November, 1999.
ITC LEARNING CORPORATION
By: /s/ Christopher E. Mack
-----------------------------------
Name: Christopher E. Mack
Title: Chief Financial Officer
ATTEST:
- ---------------------------
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EXHIBIT A
EXERCISE NOTICE
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of the number of shares of Common Stock of ITC
Learning Corporation as is set forth below, and herewith makes payment therefor,
all at the price and on the terms and conditions specified in the attached
Warrant Certificate and requests that certificates for the shares of Common
Stock hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to the person specified below
whose address is set forth below, and, if such shares of Common Stock shall not
include all of the shares of Common Stock now and hereafter issuable as provided
in the attached Warrant Certificate, then ITC Learning Corporation shall, at its
own expense, promptly issue to the undersigned a new Warrant Certificate of like
tenor and date for the balance of the shares of Common Stock issuable
thereunder.
Date: ____________________
Amount of Shares Purchased: ______________
Aggregate Purchase Price: $_____________
Printed Name of Registered Holder: ________________________________
Signature of Registered Holder: ________________________________
NOTICE: The signature on this Exercise Notice must correspond with the
name as written upon the face of the attached Warrant
Certificate in every particular, without alteration or
enlargement or any change whatsoever.
Stock Certificates to be issued and registered in the following name, and
delivered to the following address:
-----------------------------------
(Name)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
<PAGE> 1
Exhibit 4
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL THAT SUCH REGISTRATION STATEMENT IS NOT REQUIRED UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER
APPLICABLE STATE SECURITIES LAWS.
$1,200,000
ITC LEARNING CORPORATION
9.5% CONVERTIBLE SUBORDINATED SECURED DEBENTURE
DUE JANUARY 1, 2001
ITC LEARNING CORPORATION, a Maryland corporation (the "Company"),
promises to pay to New River Capital Partners, L.P. or its assigns (the
"Holder"), the principal sum of One Million Two Hundred Thousand Dollars and
No/100 ($1,200,000), or so much thereof as is funded to the Company by the
Holder pursuant to the terms of this debenture (this "Debenture"), on January 1,
2001 (the "Maturity Date"), together with accrued interest thereon.
Interest on the principal amount of this Debenture shall accrue at the
rate of 9.5 % per annum from the original date principal was advanced in
connection with this Debenture. Interest accrued on the outstanding principal
balance of this Debenture shall be payable in cash or other immediately
available funds to the Holder upon the earlier of (i) the Maturity Date, (ii)
upon acceleration of all amounts due and owing hereunder in accordance with the
terms hereinafter set forth, or (iii) the date on which Holder elects to convert
the principal amount of this Debenture into shares in accordance with the terms
hereinafter set forth. Interest will be computed on the basis of a 365-day year.
This Debenture is being issued pursuant to an exemption from
registration under the Securities Act and the rules and regulations promulgated
thereunder.
1. CONVERSION.
(a) The Holder may convert all or any part of the principal
amount of this Debenture, but not any accrued interest, into shares of the
Company's common stock, $.10 par value per share (the "Common Stock"), at any
time after the date hereof and until this Debenture is paid in full (the
"Conversion Period"), at a conversion price of $1.75 per Share; provided,
however, that unless Nasdaq grants an exception from the shareholder approval
requirements under Rule 4460(i) of the Marketplace Rules of the Nasdaq Stock
Market with respect to a Conversion Price of $1.75 per Share or the Company
obtains shareholder approval of a Conversion Price per Share of $1.75,
<PAGE> 2
then the Conversion Price per Share shall be the lower of $2.50 or the net book
value per share of the Company as of December 31, 1999 (the "Conversion Price").
The shares of Common Stock issuable upon conversion of this Debenture are
referred to herein as the "Shares." The Company shall use its best efforts, as
soon as possible, to obtain such Nasdaq exception with respect to this Debenture
and a like exception for a Warrant to acquire 349,800 shares of Common Stock
issued on the date hereof to Holder, and if such exception is not received on or
prior to January 15, 2000, to obtain such shareholder approval with respect to
this Debenture and such Warrant. Such best efforts shall include calling a
special meeting of the Company's shareholders for the purpose of obtaining such
approval; and the Company's Board of Directors shall recommend such approval to
the Company's shareholders; and this sentence shall survive repayment hereof.
Immediately upon conversion, and in consideration thereof, the interest rate
under this Debenture shall be retroactively reduced to 5.5% per annum for the
period beginning on the date hereof and ending on the date of conversion.
(b) The Company shall at all times reserve for issuance such
number of authorized and unissued shares of Common Stock as shall be sufficient
for conversion of this Debenture.
(c) The Company shall deliver a certificate or certificates
for the Shares as soon as practicable after surrender of this Debenture for
conversion, but the person or persons to whom such certificates are issuable
shall be considered the holder of record of such shares from the time this
Debenture is surrendered. Except as described herein, this Debenture is not
otherwise convertible into any other shares of the Company's capital stock.
(d) The certificates representing the Common Stock issued upon
conversion of this Debenture shall bear a legend substantially similar to the
following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except (1) pursuant to
an effective registration statement under the Act or (2) upon
the delivery by the holder to the Company of an opinion of
counsel, reasonably satisfactory to the issuer stating that an
exemption from registration under such Act is available."
2. ANTI-DILUTION.
(a) STOCK SPLITS AND COMBINATIONS. If the Company shall
combine all of its outstanding shares of Common Stock into a smaller number of
shares, the number of Shares shall be proportionately decreased and the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased, as of the effective date of such combination, as
follows: (i) the number of Shares purchasable immediately prior to the effective
date of such combination shall be adjusted so that the Holder of this Debenture,
if converted on or after that date, shall be entitled to receive the number and
kind of Shares which the Holder of this Debenture would have owned and been
entitled to receive as a result of the combination had the Debenture been
converted immediately prior to that date, and (ii) the Conversion Price in
effect immediately prior
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<PAGE> 3
to such adjustment shall be adjusted by multiplying such Conversion Price by a
fraction, the numerator of which is the aggregate number of Shares purchasable
upon conversion of this Debenture immediately prior to such adjustment, and the
denominator of which is the aggregate number of Shares purchasable upon
conversion of this Debenture immediately thereafter. If the Company shall
subdivide all of its outstanding shares of Common Stock, the number of Shares
shall be proportionally increased and the Conversion Price in effect prior to
such subdivision shall be proportionately decreased, as of the effective date of
such subdivision, as follows: (i) the number of Shares purchasable upon the
conversion of this Debenture immediately prior to the effective date of such
subdivision, shall be adjusted so that the Holder of this Debenture, if
converted on or after that date, shall be entitled to receive the number and
kind of Shares which the Holder of this Debenture would have owned and been
entitled to receive as a result of the subdivision had the Debenture been
converted immediately prior to that date, and (ii) the Conversion Price in
effect immediately prior to such adjustment shall be adjusted by multiplying the
Conversion Price by a fraction, the numerator of which is the aggregate number
of Shares purchasable upon conversion of this Debenture immediately prior to
such adjustment, and the denominator of which is the aggregate number of Shares
purchasable upon conversion of this Debenture immediately thereafter.
(b) STOCK DIVIDENDS AND DISTRIBUTIONS. If the Company shall
fix a record date for the holders of its Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock,
then the number of Shares shall be proportionately increased and the Conversion
Price in effect prior to the time of such issuance or the close of business on
such record date shall be proportionately decreased, as of the time of such
issuance, or in the event such record date is fixed, as of the close of business
on such record date, as follows: (i) the number of Shares purchasable
immediately prior to the time of such issuance or the close of business on such
record date shall be adjusted so that the Holder of this Debenture, if converted
after that date, shall be entitled to receive the number and kind of Shares
which the Holder of this Debenture would have owned and been entitled to receive
as a result of the dividend or distribution had the Debenture been converted
immediately prior to that date, and (ii) the Conversion Price in effect
immediately prior to such adjustment shall be adjusted by multiplying such
Conversion Price by a fraction, the numerator of which is the aggregate number
of shares of Common Stock purchasable upon conversion of this Debenture
immediately prior to such adjustment, and the denominator of which is the
aggregate number of shares of Common Stock purchasable upon conversion of this
Debenture immediately thereafter.
(c) OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company shall
fix a record date for the holders of Common Stock entitled to receive a dividend
or other distribution payable in securities of the Company other than shares of
Common Stock, then lawful and adequate provision shall be made so that the
Holder of this Debenture shall be entitled to receive upon conversion of this
Debenture, for the Conversion Price in effect prior thereto, in addition to the
number of Shares immediately theretofore issuable upon conversion of this
Debenture, the kind and number of securities of the Company which the Holder
would have owned and been entitled to receive had the Debenture been converted
immediately prior to that date.
(d) RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common
Stock is changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization,
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<PAGE> 4
reclassification or otherwise (other than by a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets, provided for elsewhere in this Section 2), then the Holder of this
Debenture shall be entitled to receive upon conversion of this Debenture, in
lieu of the Shares immediately theretofore issuable upon conversion of this
Debenture, for the aggregate Conversion Price in effect prior thereto, the kind
and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change, by the holders of the number
of Shares for which the Debenture could have been converted immediately prior to
such recapitalization, reclassification or other change.
(e) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If any of the following transactions (each, a "Special Transaction")
shall become effective: (i) a capital reorganization (other than a
recapitalization, subdivision, combination, reclassification or exchange of
shares provided for elsewhere in this Section 2), (ii) a consolidation or merger
of the Company with and into another entity, or (iii) a sale or conveyance of
all or substantially all of the Company's assets, then as a condition of any
Special Transaction, lawful and adequate provision shall be made so that the
Holder of the Debenture shall thereafter have the right to purchase and receive
upon conversion of this Debenture, in lieu of the Shares immediately theretofore
issuable upon conversion of this Debenture, for the Conversion Price in effect
immediately prior to such conversion, such shares of stock, other securities,
cash or other assets as may be issued or payable in and pursuant to the terms of
such Special Transaction to the holders of shares of Common Stock for which this
Debenture could have been converted immediately prior to such Special
Transaction. In connection with any Special Transaction, appropriate provision
shall be made with respect to the rights and interests of the Holder of this
Debenture to the end that the provisions of this Debenture (including, without
limitation, provisions for adjustment of the Conversion Price and the number of
Shares issuable upon the conversion of this Debenture) shall thereafter be
applicable, as nearly as may be practicable, to any shares of stock, other
securities, cash or other assets thereafter deliverable upon the conversion of
this Debenture. The Company shall not effect any Special Transaction unless
prior to, or simultaneously with the closing thereof, the successor entity (if
other than the Company), if any, resulting from such Special Transaction shall
assume by a written instrument executed and mailed by certified mail or
delivered to the Holder of this Debenture at the address of the Holder appearing
on the books of the Company, the obligation of the Company or such successor
corporation to deliver to the Holder such shares of stock, securities, cash or
other assets, as in accordance with the foregoing provisions, which the Holder
shall have the right to purchase.
(f) OTHER ISSUANCES. In the event that the Company shall at
any time after the date of original issuance of this Debenture issue any shares
of Common Stock, including shares of Common Stock issued or issuable upon the
conversion or exercise of convertible securities, without consideration or at a
price per share less than the Conversion Price ("Issuance Price"), then, in each
and any such event (an "Adjustment Event"), the number of Shares purchasable
immediately prior thereto (the "Initial Number") shall be adjusted so that the
Holder shall be entitled, upon conversion of this Debenture, to receive the
number of shares of Common Stock determined by multiplying the Initial Number by
a fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Adjustment Event plus
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<PAGE> 5
the number of additional shares of Common Stock issued in such Adjustment Event
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Adjustment Event plus the number of shares
of Common Stock which the aggregate issuance price of the total number of shares
of Common Stock issued in such Adjustment Event would purchase at the Conversion
Price (prior to any adjustment to the Conversion Price to reflect the Issuance
Price); provided, however, that no adjustment shall be made for the issuance of
shares of Common Stock in connection with a Special Transaction, as described in
Section 2(e). The Conversion Price shall be adjusted to the Issuance Price.
If, as a result of the operation of this Section 2(f), the cumulative
number of Shares of Common Stock issued or issuable upon conversion of this
Debenture would equal or exceed a number (the "Threshold Number") equal to 20%
of the outstanding shares of Common Stock as of the date of conversion and if
the Company receives a written opinion of its outside counsel that the issuance
of such shares in excess of the Threshold Number would violate the rules of the
Nasdaq or any other exchange or market on which the Common Stock is then quoted
or traded, then until and unless the Company obtains the approval of its common
shareholders for the issuance of any such shares of Common Stock in excess of
the Threshold Number or an exemption from such exchange or market, the Holder
shall only be entitled to receive a number of Shares equal to the Threshold
Number, all at the Conversion Price, and the balance of this Debenture shall not
be convertible at that time; provided, however, that the Conversion Price shall
be adjusted as provided in this Section 2(f). If, as a result of the operation
of the preceding sentence, the conversion rights of the Holder are limited by
operation thereof because appropriate shareholder approval has not been
obtained, the Company agrees for the benefit of the Holder to use its best
efforts, as promptly as reasonably practicable to seek (i) the requisite
approval of its common shareholders and will recommend to its shareholders that
they vote in favor of a resolution providing for such approval, for the amount
of shares of Common Stock that would be issued or issuable upon conversion in
full of all Shares and (ii) such Nasdaq or other exchange or market exemption.
Notwithstanding anything to the contrary set forth above, the Holder shall be
entitled to exercise its rights in full (after giving effect to any and all
anti-dilution adjustments resulting from operation of this Article II) in
connection with any Special Transaction.
(g) LIQUIDATION. If the Company shall, at any time prior to
the end of the Conversion Period, dissolve, liquidate or wind up its affairs,
the Holder shall have the right, but not the obligation, to convert this
Debenture. Upon such conversion, the Holder shall have the right to receive, in
lieu of the Shares that the Holder otherwise would have been entitled to receive
upon such conversion, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such dissolution, liquidation
or winding up with respect to such Shares had the Holder been the holder of
record of such Shares on the date for determining those entitled to receive any
such distribution. If any such dissolution, liquidation or winding up results in
any cash distribution in excess of the applicable Conversion Price, the Holder
may, at the Holder's option, convert this Debenture without making payment of
the applicable Conversion Price and, in such case, the Company shall, upon
distribution to the Holder, consider the applicable Conversion Price, to have
been paid in full, and in making settlement to the Holder shall deduct an amount
equal to the applicable Conversion Price, from the amount payable to the Holder.
(h) NOTICE. Whenever this Debenture or the number of Shares is
to be adjusted as provided herein, the Company shall forthwith as soon as
practicable cause to be sent to the Holder
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<PAGE> 6
a notice stating in reasonable detail the relevant facts and any resulting
adjustments and the calculation thereof.
(i) FRACTIONAL INTERESTS. The Company shall not be required to
issue fractions of shares of Common Stock upon the conversion of this Debenture.
If any fraction of a share of Common Stock would be issuable upon the conversion
of this Debenture, the Company shall, upon such issuance, purchase such fraction
for an amount in cash equal to the current value of such fraction, computed on
the basis of the last reported closing price of the Common Stock on the
securities exchange or quotation system on which the shares of Common Stock are
then listed or traded, as the case may be, if any, on the last business day
prior to the date of conversion upon which such a sale shall have been effected,
or, if the Common Stock is not so listed or traded on an exchange or quotation
system, as the Board of Directors of the Company may in good faith determine.
(j) EFFECT OF ALTERNATE SECURITIES. If at any time, as a
result of an adjustment made pursuant to this Section 2, the Holder of this
Debenture shall thereafter become entitled to receive any securities of the
Company other than shares of Common Stock, then the number of such other
securities receivable upon conversion of this Debenture shall be subject to
adjustment from time to time on terms as nearly equivalent as practicable to the
provisions with respect to shares of Common Stock contained in this Section 2.
(k) SUCCESSIVE APPLICATION. The provisions of this Section 2
shall apply from time to time to successive events covered by this Section 2.
3. REDEMPTION. This Debenture is redeemable at the option of the
Holder, on at least ten (10) days prior written notice to the Company, at the
principal amount of this Debenture, plus accrued interest through the date of
redemption, if at any time after the original issuance of this Debenture the
Company (i) accepts a commitment for at least Two Million Dollars ($2,000,000)
of debt or equity financing other than pursuant to any loan agreement in effect
as of the date of original issuance of this Debenture or (ii) enters into one or
more agreements for the sale of assets that either (A) is for an aggregate
purchase price of at least Two Million Dollars ($2,000,000) or (B) consists of
assets which generate in the aggregate at least 15% of the Company's annual
revenue. The Company shall give the Holder immediate written notice of its
acceptance of any commitment for debt or equity financing or its entering into
any agreement(s) for the sale of its assets. The Company may not prepay the
outstanding principal amount or accrued interest of this Debenture without the
prior written approval of the Holder. Any prepayment approved by Holder shall
first be applied to any accrued interest then owing.
4. SUBORDINATION. Payment of principal, interest and all other amounts
due under this Debenture is subordinated to up to Two Million Dollars
($2,000,000) in principal amount of all Institutional Debt. "Institutional Debt"
is the principal of and premium, if any, interest, costs, expenses and
attorney's fees, and any other payment due pursuant to the terms of instruments
creating or evidencing indebtedness of the Company outstanding as of the date
hereof and all renewals, extensions, modifications and refundings thereof, which
is payable to banks or other traditional long-term institutional lenders such as
insurance companies and pension funds.
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<PAGE> 7
"Indebtedness," as applied to any entity, means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such entity or only to a portion
thereof), as evidenced by bonds, notes, debentures or similar instruments or
letters of credit, or representing the balance deferred and unpaid of the
purchase price of any property or interest thereon, of and to the extent such
indebtedness would appear as a liability upon a balance sheet of such entity
prepared on a consolidated basis in accordance with generally accepted
accounting principles. Without the prior written consent of the holder of the
Institutional Debt, the Holder agrees not to accept payment of principal,
interest or any other amount due under this Debenture until the Institutional
Debt has been paid in full. This limitation shall not prevent Holder from
converting all or a part of the principal amount of this Debenture pursuant to
Section 1 hereof. The Company agrees, and the Holder agrees by accepting this
Debenture, to the subordination described in this Section 4. As of the date
hereof, the Company's only Institutional Debt is with Wachovia Bank, N.A.,
("Wachovia") pursuant to a Loan and Security Agreement and related documents
dated as of August 11, 1999 and amended September 13, 1999 pursuant to which
Wachovia agreed to provide a line of credit to the Company in the principal
amount of $4,000,000, and the Company represents that less than $700,000 in
principal amount is outstanding thereunder. Pursuant to that certain Forbearance
Agreement effective as of October 18, 1999 with Wachovia, the Company is not and
will not be in default in any of its agreements with Wachovia. The Company
agrees not to further extend or otherwise modify its agreements with Wachovia
without the prior written consent of the Holder.
5. SECURITY. The outstanding principal and accrued interest, if any, on
this Debenture will be secured to the extent thereof, by all of the assets of
the Company, including the Company's library and technology, in accordance with
the terms of that certain Security Agreement, dated as of November 1, 1999
between the Company and the Holder. Holder acknowledges that Wachovia is the
beneficiary of a properly perfected first and prior lien and security interest
in all assets of the Company, including without limitation, the Company's
library and technology. Following an Event of Default under the Debenture, the
Holder agrees not to exercise against the Company any right or remedy available
to the Holder (other than conversion under Section 1 hereof) until Wachovia has
been given ten (10) days prior written notice of the occurrence of such Event of
Default. If Wachovia elects to exercise any right or remedy available to it,
unless Wachovia shall otherwise agree in writing, the Holder agrees to stand-by
and defer action against the Company until Wachovia has been paid in full or has
completed the exercise of all rights and remedies available to it.
6. DEFAULT. An Event of Default occurs when:
(a) the Company fails to make a payment of principal and
accrued interest under this Debenture or any other indebtedness for borrowed
money to Holder, when the same becomes due and payable at maturity or upon
redemption;
(b) the Company, pursuant to the U.S. Bankruptcy Code (i)
commences a voluntary proceeding or (ii) consents to an entry of an order for
relief against it in an involuntary proceeding;
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<PAGE> 8
(c) the Company consents to the appointment of a custodian or
similar party of it or for all or substantially all of its property;
(d) the Company makes a general assignment for the benefit of
creditors;
(e) a court of competent jurisdiction enters an order or
decree under any bankruptcy or similar law (i) against the Company in an
involuntary case, (ii) appoints a custodian or similar party of the Company or
for all or substantially all of its property, or (iii) orders the liquidation of
the Company, and the order or decree remains unstayed and in effect for 90 days;
(f) the Company defaults with respect to any Institutional
Debt, which default could result in the acceleration of such Institutional Debt;
or
(g) the Company fails to obtain, on or prior to January 15,
2000 (i) an exception from the shareholder approval requirements under Rule
4460(i) of the Marketplace Rules of the Nasdaq Stock Market with respect to the
Conversion Price being $1.75 per Share or (ii) shareholder approval of the
Conversion Price of $1.75 per Share.
If an Event of Default occurs then the Holder may declare this
Debenture to be due and payable immediately and the rate of interest shall
increase to the maximum lawful rate.
7. REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. Within twenty (20) days following
written demand of the Holder, the Company shall prepare and file with the
Securities and Exchange Commission (the "Commission"), and use its best efforts
to cause to become effective no later than sixty (60) days after the date of
filing, a registration statement on Form S-3 (if such form is then available for
use by the Company, or such other available registration statement form) (the
"Registration Statement") and such other documents, as may be necessary in the
opinion of counsel for both the Company and the Holder, so as to permit a public
offering and sale of the Shares under the Securities Act. All expenses incurred
in connection with the registration of the Shares, including without limitation,
all blue sky registration and filing fees, legal fees, accounting fees, printing
expenses, other expenses and fees of experts used in connection with such
registration and any fees and expenses incidental to any post-effective
amendment to the Registration Statement, shall be borne and paid by the Company.
The Company shall keep such registration effective for a period of not less than
two (2) years after becoming effective.
(b) PIGGY-BACK REGISTRATION. If, at any time, the Company
shall propose the registration under the Securities Act of an offering of any of
its capital stock to be sold for its own account and/or for the account of other
persons, the Company, on each such occasion, shall as promptly as practicable,
but in no event later than thirty (30) days prior to the proposed filing date of
the Registration Statement, give written notice to the Holder of its intention
to effect such registration (which notice shall state an estimated selling price
for Common Stock in such offering) and the Holder shall be entitled, on each
such occasion, to request to have all or a portion of the Shares included in
such Registration Statement. Upon the written request of the Holder that the
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<PAGE> 9
Company include the Shares in such Registration Statement (which request shall
state the number of Shares for which registration is sought and the intended
method of disposition thereof), the Company shall cause such Shares to be so
included in the offering covered by such Registration Statement.
(c) PROSPECTUS; BLUE SKY MATTERS. Whenever the Company is
required pursuant to the provisions of this Section 7 to include the Shares in a
Registration Statement, the Company shall (i) furnish the Holder and any
underwriter with respect to the registration of such Shares with copies of the
prospectus, including the preliminary prospectus, conforming to the Securities
Act (and such other documents as the Holder or any underwriter may reasonably
request) in order to facilitate the sale or distribution of the Shares, (ii) use
its best efforts to register or qualify the Shares under the blue sky laws (to
the extent applicable ) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holder and any underwriter of the
Shares being sold by the Holder shall reasonably request and (iii) take such
other actions as may be reasonably necessary or advisable to enable the Holder
and any underwriters to consummate the sale or distribution in such jurisdiction
or jurisdictions in which the Holder shall have reasonably requested that the
Shares be sold.
(d) OPINION OF COUNSEL; COMFORT LETTERS. In connection with
any registration under this Section 7, the Company shall furnish to the Holder
and to any underwriter a signed counterpart, addressed to the Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of the Registration Statement (and, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "comfort" letter dated the effective date of
such registration statement (and, if such registration includes an underwritten
public offering, a "comfort" letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
Registration Statement, in each case covering substantially the same matters
with respect to such Registration Statement (and the prospectus included
therein) and, in the case of such accountant's "comfort" letter with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's "comfort" letters
delivered to underwriters in underwritten public offerings of securities.
(e) UNDERWRITING AGREEMENT. In the event of an underwritten
public offering, the Company shall enter into an underwriting agreement with the
managing underwriter selected by the Holder. Such underwriting agreement shall
be reasonably satisfactory in form and substance to the Company, the Holder and
such managing underwriter, and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily contained
in agreements of that type used by the managing underwriter.
(f) CUTBACK. In connection with any underwritten public
offering by the Company of its securities as described in Section 7(b), the
Company shall not be required to include in such offering any Shares held by the
Holder unless the Holder agrees to the terms of the underwriting agreement
between the Company and the managing underwriter of such offering, which
agreement may require that the Shares be withheld from the market by the Holder
for a period
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of up to ninety (90) days after the effective date of the Registration Statement
by which such public offering is being effected. Furthermore, the Company shall
be obligated to include in such offering only the quantity of the Shares, if
any, as will not, in the opinion of the managing underwriter, jeopardize the
success of the offering by the Company. If the managing underwriter for the
offering advises the Company in writing that the total amount of securities
sought to be registered by the Holder and other shareholders of the Company
having similar registration rights as of the date hereof (collectively, the
"Shareholders") exceeds the amount of securities that can be offered without
adversely affecting the offering by the Company, then the Company may reduce the
number of shares to be registered by the Company for the Shareholders, including
the Shares, to a number satisfactory to such managing underwriter. Any such
reduction shall be pro rata, based upon the total number of shares held by each
Shareholder, provided, however, that in such event, the Holder shall have the
right to withdraw its request to participate in the offering and shall preserve
its right to piggy-back registration as provided in Section 7(b).
(g) COMPANY INDEMNITY. The Company will indemnify and hold
harmless the Holder, all directors, officers, partners, agents and employees of
the Holder, and any person or entity engaged by the Holder to sell the Shares,
and each person, if any, who controls such persons or entities within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act") (collectively, a "Holder Indemnitee"), against any losses,
claims, damages, liabilities, or expenses (including, but not limited to,
reasonable attorneys' fees), or actions, proceedings, or settlements in respect
thereof, whether joint or several, to which a Holder Indemnitee may become
subject under the Securities Act, the 1934 Act, or other federal or state law,
insofar as such losses, claims, damages, liabilities or expenses (including, but
not limited to, reasonable attorneys' fees), or actions, proceedings or
settlements in respect thereof, whether joint or several, arise out of or are
based upon any of the following statements, omissions or violations (a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in a Registration Statement covering the Shares, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
or (iii) the employment by the Company of any device, scheme or artifice to
defraud or the engagement by the Company in any act, practice or course of
business which operates or would operate as a fraud or deceit upon the
purchasers of its securities pursuant to such Registration Statement. The
Company will also reimburse each Holder Indemnitee for any legal or other
expenses reasonably incurred by such Holder Indemnitee in connection with
investigating, defending, and settling any such loss, claim, damage, liability,
or action.
The indemnity agreement contained in this Section 7(g) shall not apply
to amounts paid in settlement of any loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable to any
Holder Indemnitee for any loss, claim, damage, liability or action to the extent
that it arises solely out of or is based solely upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of the Holder or any
agent of the Holder, or controlling person of either.
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(h) HOLDER INDEMNITY. The Holder will indemnify and hold
harmless the Company, and all directors, officers, partners, agents and
employees of the Company and all persons who control the Company within the
meaning of the Securities Act or the 1934 Act, and each agent or underwriter for
the Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the Registration Statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities, or expenses (including, but not limited to reasonable attorneys'
fees), or actions, proceedings, or settlements in respect thereof, whether joint
or several, to which the Company or any such Company Indemnitee may become
subject under the Securities Act, the 1934 Act, or other federal or state law,
insofar as such losses, claims, damages, liabilities, or expenses (including,
but not limited to reasonable attorneys' fees), or actions, proceedings, or
settlements in respect thereof, whether joint or several, arise solely out of or
are based solely upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by or on behalf of the Holder expressly for use in
connection with such registration; and the Holder will reimburse any legal or
other expenses reasonably incurred by a Company Indemnitee in connection with
investigating or defending any such loss, claim, damage, liability, or action.
Notwithstanding the above, the amount of any losses, claims, damages,
liabilities, legal fees and expenses to be paid by the Holder shall not exceed
the amount of the proceeds received by the Holder from the sale of the Shares.
The indemnity agreement contained in this Section 7(h) shall not apply
to amounts paid in settlement of any loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
(i) PROCEDURE FOR INDEMNIFICATION.
(i) Promptly after receipt by an indemnified party
under Sections 7(g) and 7(h) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying part so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the indemnified party and indemnifying parties,
provided that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests (as reasonably determined by either party) between such indemnified
party and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 7(i), to the extent of such prejudice,
but the failure to so deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7(i).
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<PAGE> 12
(ii) The obligations of the Company and the Holders
under Sections 7(g) and 7 (h), respectively, shall survive the completion of any
offering of the Shares made pursuant to a registration under this Section 7.
(iii) The amount paid or payable by a party as a
result of the losses, claims, damages, or liabilities (or actions or proceedings
in respect thereof) referred to in Sections 7(g) and 7(h) shall include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
(j) LIMITATIONS OF INDEMNIFICATION. If the indemnification
provided for in Sections 7(g) and 7(h) is unavailable to an indemnified party in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall be required to provide contribution on behalf of the indemnified
party, except to the extent that contribution is not permitted under Section
11(f) of the Securities Act. In determining the amount of contribution to which
the respective parties are entitled, there shall be considered the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission, and any other equitable considerations appropriate under
the circumstances. Notwithstanding the provisions of this paragraph, the Holder
shall not be required to contribute any amount in excess of the net proceeds
received by the Holder from the sale of the Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(k) SPECIFIC PERFORMANCE. The Holder, in addition to being
entitled to exercise all rights provided in this Section 7, including recovery
of damages, will be entitled to specific performance of its rights hereunder.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this Section
7 and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(l) CERTAIN OBLIGATIONS OF THE COMPANY. In connection with the
Company's obligations to effect a registration under the Section 7, the Company
will:
(i) cooperate and assist in any filings required to
be made with the National Association of Securities Dealers, Inc., and before
filing a Registration Statement or prospectus or any amendments or supplements
thereto, the Company will furnish to counsel selected by Holder copies of all
such documents proposed to be filed, which documents will be subject to such
counsel's review and comments;
(ii) cause the prospectus relating to such
registration to be supplemented by any required prospectus supplement, and as so
supplemented, to be filed pursuant to Rule 424 under the Securities Act;
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<PAGE> 13
(iii) notify the Holder promptly (1) when the
prospectus or any prospectus supplement or post-effective amendment relating to
such registration has been filed, and with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (2) of any
comment letter or request by the Securities and Exchange Commission (the
"Commission") for any amendments or supplements to the registration statement or
the prospectus or for additional information; (3) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or the initiation of any proceedings for that purpose; (4) if, at any
time prior to the closing contemplated by an underwriting agreement, if any,
entered into in connection with such Registration Statement, that the
representations and warranties of the Company contained in such agreement cease
to be true and correct in any material respect; (5) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Shares for sale in any jurisdiction, or the initiation or threatening of
any proceeding for such purpose; and (6) of the happening of any event which
makes any statement made in the Registration Statement, the prospectus or any
document incorporated therein by reference, untrue in any material respect and
which requires the making of any changes in the Registration Statement, the
prospectus or any document incorporated therein by reference in order to make
the statement therein not materially misleading;
(iv) make commercially reasonable efforts to obtain
the withdrawal of any order suspending the effectiveness of the Registration
Statement;
(v) if required, based on the advice of the Company's
counsel, prepare a supplement or post-effective amendment to the Registration
Statement, the related prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Shares, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading;
(vi) cause all Shares covered by the Registration
Statement to be listed on each securities exchange on which the Common Stock is
then listed if requested by the Holder or any managing underwriters;
(vii) provide and cause to be maintained a transfer
agent and registrar for all Shares covered by such Registration Statement from
an after a date not later than the effective date of such registration
statement;
(viii) use its best efforts to provide a CUSIP number
for the Shares, not later than the effective date of the registration statement;
(ix) make available for inspection, in connection
with the preparation of a Registration Statement pursuant to this Agreement, by
the Holder, and any attorney or accountant retained by the Holder, all financial
and other records and pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, attorney or
accountant in connection with such registration; PROVIDED, HOWEVER, that any
records, information or documents
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<PAGE> 14
that are designated by the Company in writing as confidential shall be kept
confidential by such persons unless disclosure of such records, information or
documents is required by court or administrative order;
(x) if so required by the managing underwriter, not
sell, make any short sale of, loan, grant any option for the purpose of, effect
any public sale or distribution of or otherwise dispose of its equity securities
or securities convertible into or exchangeable or exercisable for any of such
securities during the ten (10) days prior to and the ninety (90) days after any
underwritten registration pursuant to this Section 7 has become effective,
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms thereto,
except that the Company may make grants of options under its stock option plans
and may issue securities issuable upon the exercise or conversion of outstanding
convertible securities, stock options and other options, warrants and rights of
the Company; and
(xi) otherwise use its best effort to comply with all
applicable rules and regulations of the Commission and make available to its
security holders as soon as reasonably practicable, an earnings statement which
satisfies the provision of Section 11(a) of the Securities Act.
(m) The Company shall not be obligated to register any Shares
pursuant to this Section 7 at any time when the resale provisions of Rule 144
promulgated under the Securities Act are available to the Holder without
limitation as to volume.
8. EXCHANGE PRIVILEGE AND TRANSFERABILITY. Subject to the provisions of
the last paragraph of this Section, the Holder at its option may surrender this
Debenture for exchange at the principal office of the Company and, without
expense (except for any stamp tax or other governmental charge with respect to
any transfer involved therein), receive in exchange therefor notes, in
denominations designated by the Holder and payable to such person or persons as
may be designated by such Holder and for the same aggregate principal amount as
the then unpaid principal balance of this Debenture. Every instrument made and
delivered in exchange for this Debenture shall in all other respects be in the
same form and have the same terms, on a pro rata basis, as this Debenture.
The Holder, by acceptance hereof, agrees that the rights represented by
this Debenture are not transferable, in whole or in part, whether by sale,
transfer, gift, or other hypothecation unless and until (a) a Registration
Statement relating to such sale, transfer, gift or hypothecation shall have
become effective under the Securities Act or (b) a legal opinion satisfactory to
the Company is furnished with respect to such sale, transfer, gift or other
hypothecation to the effect that registration under the Securities Act is not
required with respect thereto.
9. BOARD OF DIRECTORS; INSPECTION. The Holder shall be entitled to send
a representative (the "Holder Representative") to attend all meetings of the
Board of Directors of the Company, but such Holder Representative shall not be
considered an elected member of the Board of Directors of the Company. The
Company will ensure that meetings of the Board of Directors of the Company are
held at least once each calendar quarter and provide the Holder Representative
with
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<PAGE> 15
written notice of all Board of Director meetings as such notice is provided
for in the Bylaws of the Company, as well as copies of all materials provided to
the directors. The Company will reimburse the Holder Representative for his
reasonable travel expenses, including the cost of air fare and any necessary
meals and lodging, incurred in connection with attending such meetings or
performing such other business on behalf of the Company as may be approved by
the Company in advance. The Company will notify the Holder in writing five (5)
business days prior to the effectiveness of any action to be taken by written
consent of directors or shareholders, and will provide reasonable opportunity
for consultation with the Holder with regard to the matters covered thereby
during such five-day period prior to the effectiveness of such consents.
The Company will, upon reasonable prior notice to the Company, permit
authorized representatives of the Holder to visit and inspect any of the
properties of the Company, including its books of account, and to discuss its
affairs, finances and accounts with its agents, officers and independent
accountants, all at such reasonable times and as often as may be reasonably
requested, in all cases so as not to interfere with the Company's operations or
personnel.
At any time for so long as the Holder and its affiliates hold
convertible securities, Shares or other capital stock representing at least
twenty percent (20%) of the common equity in the Company on a fully-diluted
basis, the Holder may designate two (2) representatives and at any time for so
long as the Holder and its affiliates hold convertible securities, Shares or
other capital stock representing at least five percent (5%) of the common equity
in the Company on a fully-diluted basis, the Holder may designate one (1)
representative(the "Holder's Directors") to be appointed as members of the Board
of Directors of the Company. The Holder's Directors shall be entitled to
reimbursement of all reasonable travel expenses incurred in connection with
attendance at all Board meetings and the Holder's Directors shall be entitled to
receive the same board fees and other compensation, if any, paid to any outside
directors. Upon the appointment of the Holder's Directors, the Holder shall no
longer have the right to have a Holder Representative.
10. USE OF PROCEEDS. The Company shall use the proceeds obtained from
the sale of this Debenture solely for working capital purposes and the repayment
of secured debt to Wachovia.
11. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Debenture, together with
any attached schedules, exhibits and other documents delivered pursuant hereto,
constitutes the entire agreement of the parties and supersedes all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof. This Debenture may not be
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by the Company and the Holder. No failure to exercise, and
no delay in exercising, any right, power or privilege under this Debenture shall
operate as a waiver, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude the exercise of any other right, power or
privilege. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be impled from any course of dealing between the Company
and the Holder. No extension of time for performance of any obligations or other
acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts.
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<PAGE> 16
12. REPRESENTATIONS. The Company represents and warrants to
Holder as follows:
(a) The execution and delivery of this Debenture and the
performance by the Company of its obligations hereunder have been duly
authorized by all necessary corporate action on part of the Company in
accordance with its Bylaws and Articles of Incorporation and the Rules of the
Nasdaq Stock Market.
(b) This Debenture has been duly executed and delivered by the
Company and constitutes the legal, valid, binding and enforceable obligation of
the Company, enforceable in accordance with its terms.
(c) As of the date hereof, the Company has 12,000,000 shares
of Common Stock authorized and no other shares of any class of capital stock
authorized. As of December 31, 1999, the Company had 3,964,078 shares of Common
Stock issued and outstanding. All of the issued and outstanding shares of Common
Stock of the Company (x) have been duly authorized and validly issued and are
fully paid and non-assessable, (y) were issued in compliance with all applicable
state and federal securities laws, and (z) were not issued in violation of any
preemptive rights or rights of first refusal. No preemptive rights or rights of
first refusal exist with respect to the Common Stock or any capital stock of the
Company and no such rights arise by virtue of or in connection with the
transactions contemplated hereby. There are no outstanding or authorized rights,
options, warrants, convertible securities, subscription rights, conversion
rights, exchange rights or other agreements or commitments of any kind that
could require the Company to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital stock),
other than securities held by Holder and outstanding option grants for an
aggregate of 540,416 shares. There are no outstanding stock appreciation,
phantom stock, profit participation or other similar rights with respect to the
Company or its capital stock. There are no proxies, voting rights or other
agreements or understandings with respect to the voting or transfer of the
capital stock of the Company. The Company is not obligated to redeem or
otherwise acquire any of its outstanding shares of capital stock.
(d) All of the Shares will, upon issuance, be duly authorized,
validly issued and outstanding, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issuance thereof.
(e) The Company has obtained all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction
thereof as may be necessary to enable the Company to perform its obligations
hereunder, except the above-referenced Nasdaq exception.
(f) There are no state statutes or other "anti-takeover" laws
applicable to the Company, to the issuance of this Debenture by the Company, or
to the issuance of the Shares upon conversion of this Debenture, which would
have, among other things, the effect of nullifying the transactions contemplated
by this Debenture, or affecting the Holder's voting rights or other rights as a
shareholder following such conversion, or, to the extent there are such
applicable state statutes or other "anti-takeover" laws, the Company and its
Board of Directors have taken all steps necessary
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<PAGE> 17
under such statutes or laws to render them inapplicable to the Company, the
issuance of this Debenture, and the issuance of the Shares upon conversion of
this Debenture.
(g) There is no material litigation pending, or, to the
knowledge of the Company, threatened, against the Company.
13. RIGHT OF REFUSAL. The Holder shall have the right of first offer
and first refusal until June 30, 2000 to purchase any and all assets to be sold
by the Company outside the ordinary course of business, as set forth in this
Section 13. If the Company desires to sell any assets outside the ordinary
course of business, the Company (i) shall first provide the Holder with notice
of the proposed sale and a description of the assets to be sold, (ii) shall
negotiate exclusively with the Holder for a period of not less than five (5)
business days, during which period it will provide the Holder with all
reasonably requested due diligence information, (iii) may after such five day
period shall not accept any offer from a third party that has a purchase price
that is less than the purchase price set forth in any offer made by the Holder
with respect to those assets, and (iv) shall provide Holder with at least two
business days notice prior to accepting any third party's offer for any assets
so that the Holder may make the purchase on the same price and terms as proposed
by the third party in lieu of such other party. If Holder purchases any assets
from the Company, the Holder may elect to pay the purchase price therefor either
in cash or by an offset against any amounts outstanding under this Debenture.
14. MISCELLANEOUS.
(a) USURY. Nothing herein contained, nor any transaction
related hereto, shall be construed or so operate as to require the Company to
pay interest at a greater rate than is now lawful in such case to contract for,
or to make any payment, or to do any act contrary to law. Should any interest or
other charges paid by the Company, or parties liable for the payment of this
Debenture, in connection with the loan evidenced by this Debenture, or any
document delivered in connection with said loan, result in the computation or
earning of interest in excess of the maximum legal rate of interest which is
legally permitted by law, then any and all such excess of the maximum legal rate
of interest which is legally permitted by law, then any and all such excess
shall be and the same is hereby waived by the Holder hereof, and any and all
such excess shall be automatically credited against and in reduction of the
balance due under this Debenture, and the portion of said excess which exceeds
the balance due under this Debenture shall be paid by the Holder to the Company.
(b) OWNERSHIP. The Holder shall be deemed to be the owner of
this Debenture for all purposes, and the full payment of interest and principal
under this Debenture to the Holder shall constitute the full and complete
discharge of the Company for such purposes.
(c) SEVERABILITY. The invalidity of any portion of this
Debenture shall not affect the enforceability of the remaining portions of this
Debenture or any part thereof, all of which are inserted herein conditionally on
their being valid in law. In the event that any portion or portions contained
herein shall be invalid, this Debenture shall be construed so as to make such
portion or
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<PAGE> 18
negotiate with any other parties to sell the assets provided that the Company
portions valid or, if such construction is not legally possible, as
if such invalid portion or portions had not been inserted.
(d) BINDING NATURE OF DEBENTURE. Except as otherwise herein
provided, this Debenture shall be binding upon and inure to the benefit of the
parties hereto, their legal representatives, successors and assigns.
(e) NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), or guaranteed overnight
delivery, to the Company at the address at which its principal business office
is located from time to time, and the Holder at One Financial Plaza, Suite 1101,
Fort Lauderdale, FL 33394, or such other address specified by Holder.
(f) ATTORNEYS' FEES. Should it become necessary for any party
to institute legal action to enforce the terms and conditions of this Debenture,
the successful party will be awarded reasonable attorneys' fees, at all trial
and appellate levels, expenses and costs.
(g) HEADINGS. The headings contained in this Debenture are for
convenience of reference only and are not to be given any legal effect and shall
not affect the meaning or interpretation of this Debenture.
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<PAGE> 19
IN WITNESS WHEREOF, the Company has signed and sealed this
Debenture on this 31st day of December, 1999.
ITC LEARNING CORPORATION
By: /s/ Christopher E. Mack
-----------------------------------
Name: Christopher E. Mack
Title: Chief Financial Officer
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<PAGE> 1
EXHIBIT 5
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL THAT SUCH REGISTRATION STATEMENT IS NOT REQUIRED UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER
APPLICABLE STATE SECURITIES LAWS.
WARRANT CERTIFICATE
To Purchase 349,800 Shares of Common Stock of:
ITC LEARNING CORPORATION
THIS IS TO CERTIFY THAT, for value received, New River Capital Partners,
L.P. or its assigns (the "Holder"), is entitled to purchase from ITC Learning
Corporation, a Maryland corporation (the "Company"), 349,800 shares of the
Company's common stock, par value $.10 per share (the "Common Stock"), on the
terms and conditions hereinafter set forth.
1.1 GRANT AND VESTING. The Company hereby grants to the Holder a
warrant (this "Warrant") to purchase up to 349,800 shares of Common Stock, at a
purchase price of $1.75 per share of Common Stock; provided, however, that
unless Nasdaq grants an exception ("Nasdaq Exception") from the shareholder
approval requirements under Rule 4460(i) of the Marketplace Rules of the Nasdaq
Stock Market with respect to a purchase price of $1.75 per share or the Company
obtains shareholder approval ("Shareholder Approval") of a purchase price per
share of $1.75, then the purchase price per share shall be the lower of $2.50
and the net book value per share of the Company as of December 31, 1999 (the
"Exercise Price"). This Warrant shall vest as to all 349,800 shares of Common
Stock on the Exercisability Date (as defined below). The shares of Common Stock
which vest in accordance with the foregoing are hereinafter referred to as the
"Warrant Shares".
1.2 EXERCISE PERIOD. This Warrant shall be exercisable commencing on the
date of original issuance of this Warrant (the "Exercisability Date") and
continue to be exercisable for the period (the "Exercise Period") until 5:00
p.m., Eastern Standard Time, on December 31, 2002.
1.3 SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants and
agrees that (a) all of the shares of Common Stock issuable upon the exercise of
this Warrant in accordance with the terms hereof will, upon issuance, be duly
authorized, validly issued and outstanding, fully paid and non-assessable, and
free from all taxes, liens and charges with respect to the issuance thereof, and
(b) the Company will during the Exercise Period have authorized and reserved
sufficient shares of its Common Stock to provide for the exercise of this
Warrant in full.
<PAGE> 2
II. ADJUSTMENTS TO WARRANT
2.1 STOCK SPLITS AND COMBINATIONS. If the Company shall combine all of
its outstanding shares of Common Stock into a smaller number of shares, the
number of Warrant Shares shall be proportionately decreased and the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased, as of the effective date of such combination, as follows: (a) the
number of Warrant Shares purchasable immediately prior to the effective date of
such combination shall be adjusted so that the Holder of this Warrant, if
exercised on or after that date, shall be entitled to receive the number and
kind of Warrant Shares which the Holder of this Warrant would have owned and
been entitled to receive as a result of the combination had the Warrant been
exercised immediately prior to that date, and (b) the Exercise Price in effect
immediately prior to such adjustment shall be adjusted by multiplying such
Exercise Price by a fraction, the numerator of which is the aggregate number of
shares of Common Stock purchasable upon exercise of this Warrant immediately
prior to such adjustment, and the denominator of which is the aggregate number
of shares of Common Stock purchasable upon exercise of this Warrant immediately
thereafter. If the Company shall subdivide all of its outstanding shares of
Common Stock, the number of Warrant Shares shall be proportionally increased and
the Exercise Price in effect prior to such subdivision shall be proportionately
decreased, as of the effective date of such subdivision, as follows: (a) the
number of Warrant Shares purchasable upon the exercise of this Warrant
immediately prior to the effective date of such subdivision, shall be adjusted
so that the Holder of this Warrant, if exercised on or after that date, shall be
entitled to receive the number and kind of Warrant Shares which the Holder of
this Warrant would have owned and been entitled to receive as a result of the
subdivision had the Warrant been exercised immediately prior to that date, and
(b) the Exercise Price in effect immediately prior to such adjustment shall be
adjusted by multiplying the purchase price by a fraction, the numerator of which
is the aggregate number of shares of Common Stock purchasable upon exercise of
this Warrant immediately prior to such adjustment, and the denominator of which
is the aggregate number of shares of Common Stock purchasable upon exercise of
this Warrant immediately thereafter.
2.2 STOCK DIVIDENDS AND DISTRIBUTIONS. If the Company shall fix a record
date for the holders of its Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock, then the number of
Warrant Shares shall be proportionately increased and the Exercise Price in
effect prior to the time of such issuance or the close of business on such
record date shall be proportionately decreased, as of the time of such issuance,
or in the event such record date is fixed, as of the close of business on such
record date, as follows: (a) the number of Warrant Shares immediately prior to
the time of such issuance or the close of business on such record date shall be
adjusted so that the Holder of this Warrant, if exercised after that date, shall
be entitled to receive the number and kind of Warrant Shares which the Holder of
this Warrant would have owned and been entitled to receive as a result of the
dividend or distribution had the Warrant been exercised immediately prior to
that date, and (b) the Exercise Price in effect immediately prior to such
adjustment shall be adjusted by multiplying such purchase price by a fraction,
the numerator of which is the aggregate number of shares of Common Stock
purchasable upon exercise of this Warrant immediately prior to such adjustment,
and the denominator of which is the aggregate number of shares of Common Stock
purchasable upon exercise of this Warrant immediately thereafter.
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2.3 OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company shall fix a record
date for the holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Company other than shares of Common
Stock, then lawful and adequate provision shall be made so that the Holder of
this Warrant shall be entitled to receive upon exercise of this Warrant, for the
Exercise Price in effect prior thereto, in addition to the number of Warrant
Shares immediately theretofore issuable upon exercise of this Warrant, the kind
and number of securities of the Company which the Holder would have owned and
been entitled to receive had the Warrant been exercised immediately prior to
that date.
2.4 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than by
a subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Article
II), then the Holder of this Warrant shall be entitled to receive upon exercise
of this Warrant, in lieu of the Warrant Shares immediately theretofore issuable
upon exercise of this Warrant, for the aggregate Exercise Price in effect prior
thereto, the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change, by the
holders of the number of shares of Common Stock for which the Warrant could have
been exercised immediately prior to such recapitalization, reclassification or
other change.
2.5 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If any
of the following transactions (each, a "Special Transaction") shall become
effective: (a) a capital reorganization (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Article II), (b) a consolidation or merger of the Company with
and into another entity, or (c) a sale or conveyance of all or substantially all
of the Company's assets, then as a condition of any Special Transaction, lawful
and adequate provision shall be made so that the Holder of the Warrant shall
thereafter have the right to purchase and receive upon exercise of this Warrant,
in lieu of the Warrant Shares immediately theretofore issuable upon exercise of
this Warrant, for the Exercise Price in effect immediately prior to such
conversion, such shares of stock, other securities, cash or other assets as may
be issued or payable in and pursuant to the terms of such Special Transaction to
the holders of shares of Common Stock for which this Warrant could have been
exercised immediately prior to such Special Transaction. In connection with any
Special Transaction, appropriate provision shall be made with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions of this Warrant (including, without limitation, provisions for
adjustment of the Exercise Price and the number of Warrant Shares issuable upon
the exercise of this Warrant), shall thereafter be applicable, as nearly as may
be practicable, to any shares of stock, other securities, cash or other assets
thereafter deliverable upon the exercise of this Warrant. The Company shall not
effect any Special Transaction unless prior to, or simultaneously with the
closing thereof, the successor entity (if other than the Company), if any,
resulting from such Special Transaction shall assume by a written instrument
executed and mailed by certified mail or delivered to the Holder of this Warrant
at the address of the Holder appearing on the books of the Company, the
obligation of the Company or such successor corporation to deliver to the Holder
such shares of stock, securities, cash or other assets, as in accordance with
the foregoing provisions, which the Holder shall have the right to purchase.
2.6 OTHER ISSUANCES. In the event that the Company shall at any time
after the date of original issuance of this Warrant issue any shares of Common
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Stock, including shares of Common Stock issued or issuable upon the conversion
or exercise of convertible securities, without consideration or at a price per
share less than the Exercise Price ("Issuance Price"), then, in each and any
such event (an "Adjustment Event"), the number of Warrant Shares purchasable
immediately prior thereto (the "Initial Number") shall be adjusted so that the
Holder shall be entitled, upon exercise of this Warrant, to receive the number
of shares of Common Stock determined by multiplying the Initial Number by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Adjustment Event plus the number of
additional shares of Common Stock issued in such Adjustment Event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such Adjustment Event plus the number of shares of Common
Stock which the aggregate issuance price of the total number of shares of Common
Stock issued in such Adjustment Event would purchase at the Exercise Price
(prior to any adjustment to the Exercise Price to reflect the Issuance Price);
provided, however, that no adjustment shall be made for the issuance of shares
of Common Stock in connection with a Special Transaction, as described in
Section 2.5. The Exercise Price shall be adjusted to the Issuance Price.
If, as a result of the operation of this Section 2.6, the cumulative
number of shares of Common Stock issued or issuable upon exercise of this
Warrant would equal or exceed a number (the "Threshold Number") equal to 20% of
the outstanding shares of Common Stock as of the date of exercise and if the
Company receives a written opinion of its outside counsel that the issuance of
such shares in excess of the Threshold Number would violate the rules of the
Nasdaq or any other exchange or market on which the Common Stock is then quoted
or traded, then until and unless the Company obtains the approval of its common
shareholders for the issuance of any such shares of Common Stock in excess of
the Threshold Number or an exemption from such exchange or market, the Holder
shall only be entitled to receive a number of Warrant Shares equal to the
Threshold Number; provided, however, that the Exercise Price shall be adjusted
as provided in this Section 2.6. If, as a result of the operation of the
preceding sentence, the exercise rights of the Holder are limited by operation
thereof because appropriate shareholder approval has not been obtained, the
Company agrees for the benefit of the Holder to use its best efforts, as
promptly as reasonably practicable, to seek (i) the requisite approval of its
common shareholders and will recommend to its shareholders that they vote in
favor of a resolution providing for such approval, for the amount of shares of
Common Stock that would be issued or issuable upon conversion in full of all
Warrant Shares and (ii) such Nasdaq or other exchange or market exemption.
Notwithstanding anything to the contrary set forth above, the Holder shall be
entitled to exercise its rights in full (after giving effect to any and all
anti-dilution adjustments resulting from operation of this Article II) in
connection with any Special Transaction.
2.7 LIQUIDATION. If the Company shall, at any time prior to the end of
the Exercise Period, dissolve, liquidate or wind up its affairs, the Holder
shall have the right, but not the obligation, to exercise this Warrant. Upon
such exercise, the Holder shall have the right to receive, in lieu of the shares
of Common Stock that the Holder otherwise would have been entitled to receive
upon such exercise, the same kind and amount of assets as would have been
issued, distributed or paid to the Holder upon any such dissolution, liquidation
or winding up with respect to such shares of Common Stock had the Holder been
the holder of record of such shares of Common Stock receivable upon exercise of
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this Warrant on the date for determining those entitled to receive any such
distribution. If any such dissolution, liquidation or winding up results in any
cash distribution in excess of the applicable Exercise Price, the Holder may, at
the Holder's option, exercise this Warrant without making payment of the
applicable Exercise Price and, in such case, the Company shall, upon
distribution to the Holder, consider the applicable Exercise Price, to have been
paid in full, and in making settlement to the Holder shall deduct an amount
equal to the applicable Exercise Price, from the amount payable to the Holder.
2.8 NOTICE. Whenever this Warrant or the number of Warrant Shares is to
be adjusted as provided herein, the Company shall forthwith as soon as
practicable cause to be sent to the Holder a notice stating in reasonable detail
the relevant facts and any resulting adjustments and the calculation thereof.
2.9 FRACTIONAL INTERESTS. The Company shall not be required to issue
fractions of shares of Common Stock upon the exercise of this Warrant. If any
fraction of a share of Common Stock would be issuable upon the exercise of this
Warrant, the Company shall, upon such issuance, purchase such fraction for an
amount in cash equal to the current value of such fraction, computed on the
basis of the last reported closing price of the Common Stock on the securities
exchange or quotation system on which the shares of Common Stock are then listed
or traded, as the case may be, if any, on the last business day prior to the
date of exercise upon which such a sale shall have been effected, or, if the
Common Stock is not so listed or traded on an exchange or quotation system, as
the Board of Directors of the Company may in good faith determine.
2.10 EFFECT OF ALTERNATE SECURITIES. If at any time, as a result of an
adjustment made pursuant to this Article II, the Holder of this Warrant shall
thereafter become entitled to receive any securities of the Company other than
shares of Common Stock, then the number of such other securities receivable upon
exercise of this Warrant shall be subject to adjustment from time to time on
terms as nearly equivalent as practicable to the provisions with respect to
shares of Common Stock contained in this Article II.
2.11 SUCCESSIVE APPLICATION. The provisions of this Article II shall
apply from time to time to successive events covered by this Article II.
2.12 FAILURE TO OBTAIN SHAREHOLDER APPROVAL OR NASDAQ EXCEPTION.
Notwithstanding anything to the contrary set forth herein, in the event that the
Company fails to obtain Shareholder Approval or the Nasdaq Exception prior to
May 15, 2000 or in the event that a Special Transaction (or record date with
respect thereto) shall occur prior to the receipt of such Shareholder Approval
or Nasdaq Exception, then the number of Shares into which this warrant is
convertible shall automatically triple.
III. EXERCISE
3.1 EXERCISE OF WARRANT.
(a) The Holder may exercise this Warrant by (i) surrendering this
Warrant Certificate with the form of exercise notice attached hereto as EXHIBIT
"A" duly executed by the Holder, and (ii) making payment to the Company of the
aggregate Exercise Price for the applicable Warrant Shares. The exercise price
may be paid (i) in cash, (ii) through a "cashless exercise" procedure, by the
surrender of the right to purchase shares of Common Stock under this Warrant or
(iii) by a combination of (i) and (ii). In the event of a "cashless exercise",
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the surrender of the right to acquire a share of Common Stock under this Warrant
shall be valued at the amount by which the closing price per share of Common
Stock on the Nasdaq (or other principal market or exchange on which the Common
Stock trades) on the trading day immediately prior to exercise exceeds the
Exercise Price. Upon any partial exercise of this Warrant, the Company, at its
expense, shall promptly issue to the Holder for its surrendered Warrant
Certificate a replacement Warrant Certificate identical in all respects to this
Warrant Certificate, except that the number of Warrant Shares shall be reduced
accordingly.
(b) Each person in whose name any Warrant Share certificate is issued
upon exercise of this Warrant shall for all purposes been deemed to have become
the holder of record of the Warrant Shares for which this Warrant was exercised
as of the date of exercise.
3.2 ISSUANCE OF WARRANT SHARES. The Warrant Shares purchased shall be
issued to the Holder exercising this Warrant as of the close of business on the
date on which all actions and payments required to be taken or made by the
Holder hereunder shall have been so taken or made. Certificates for the Warrant
Shares so purchased shall be delivered to the Holder as soon as practicable
after this Warrant is so exercised.
IV. RIGHTS OF THE HOLDER
4.1 NO RIGHTS AS SHAREHOLDER. Except as provided herein, the Holder shall
not, solely by virtue of this Warrant and prior to the issuance of the Warrant
Shares upon due exercise hereof, be entitled to any rights as a shareholder of
the Company.
4.2 CERTAIN COVENANTS. The Company will (a) take all such action as may
be necessary or appropriate in order that the Warrant Shares will, upon issuance
in accordance with the terms hereof and the payment of the Exercise Price
therefor, be duly authorized, validly issued and outstanding, fully paid and
non-assessable and (b) use its reasonable efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant.
V. TRANSFERABILITY
5.1 EXERCISE/DISPOSITION. By accepting this Warrant, the Holder agrees
that this Warrant and any and all Warrant Shares are being acquired for
investment purposes only and not with the view toward the further distribution
thereof. The Holder further acknowledges that this Warrant and the Warrant
Shares have not been registered under the Securities Act, or any state
securities laws, and accordingly, the ability of the Holder to sell, assign
and/or dispose of this Warrant and/or the Warrant Shares, as the case may be,
may be severely limited.
5.2 TRANSFER. Subject to compliance with federal and state securities
laws, the Holder may sell, assign, transfer or otherwise dispose of all or any
portion of this Warrant or the Warrant Shares acquired upon any exercise hereof
at any time and from time to time. Upon the sale, assignment, transfer or other
disposition of all or any portion of this Warrant, the Company shall issue and
deliver one or more new Warrant Certificates in the denominations indicated by
the Holder evidencing this Warrant to the purchaser, assignee, or transferee,
and as to any portion not sold, assigned, transferred or disposed of, to the
Holder.
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5.3 LOSS. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
VI. LEGEND ON WARRANT SHARES
6.1 LEGEND. The certificates representing the Warrant Shares shall bear a
legend substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act"),
and may not be offered or sold except (1) pursuant to an effective
registration statement under the Act or (2) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to the issuer stating that an exemption from
registration under such Act is available."
VII. REGISTRATION RIGHTS
7.1 DEMAND REGISTRATION. Within twenty (20) days following written demand
of the Holder, the Company shall prepare and file with the Securities and
Exchange Commission (the "Commission"), and use its best efforts to cause to
become effective no later than sixty (60) days after the date of filing, a
Registration Statement on Form S-3 (if such form is then available for use by
the Company, or such other available registration statement form) (the
"Registration Statement") and such other documents, as may be necessary in the
opinion of counsel for both the Company and the Holder, so as to permit a public
offering and sale of the Warrant Shares under the Securities Act. All expenses
incurred in connection with the registration of the Shares, including without
limitation, all blue sky registration and filing fees, legal fees, accounting
fees, printing expenses, other expenses and fees of experts used in connection
with such registration and any fees and expenses incidental to any
post-effective amendment to the Registration Statement, shall be borne and paid
by the Company. The Company shall keep such registration effective for a period
of not less than two (2) years after becoming effective.
7.2 Piggy-back Registration. If, at any time, the Company shall propose
the registration under the Securities Act of an offering of any of its capital
stock to be sold for its own account and/or for the account of other persons,
the Company, on each such occasion, shall as promptly as practicable, but in no
event later than thirty (30) days prior to the proposed filing date of the
Registration Statement, give written notice to the Holder of its intention to
effect such registration (which notice shall state an estimated selling price
for Common Stock in such offering) and the Holder shall be entitled, on each
such occasion, to request to have all or a portion of the Warrant Shares
included in such Registration Statement. Upon the written request of the Holder
that the Company include the Warrant Shares in such Registration Statement
(which request shall state the number of Warrant Shares for which registration
is sought and the intended method of disposition thereof), the Company shall
cause such Warrant Shares to be so included in the offering covered by such
Registration Statement.
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7.3 PROSPECTUS; BLUE SKY MATTERS. Whenever the Company is required
pursuant to the provisions of this Article VII, to include the Warrant Shares in
a Registration Statement, the Company shall (a) furnish the Holder and any
underwriter with respect to the registration of such Warrant Shares with copies
of the prospectus, including the preliminary prospectus, conforming to the
Securities Act (and such other documents as the Holder or any underwriter may
reasonably request) in order to facilitate the sale or distribution of the
Warrant Shares, (b) use its best efforts to register or qualify the Warrant
Shares under the blue sky laws (to the extent applicable ) of such jurisdiction
or laws (to the extent applicable) of such jurisdiction or jurisdictions as the
Holder and any underwriter of the Warrant Shares being sold by the Holder shall
reasonably request and (c) take such other actions as may be reasonably
necessary or advisable to enable the Holder and any underwriters to consummate
the sale or distribution in such jurisdiction or jurisdictions in which the
Holder shall have reasonably requested that the Warrant Shares be sold.
7.4 OPINION OF COUNSEL; COMFORT LETTERS. In connection with any
registration under this Article VII, the Company shall furnish to the Holder and
to any underwriter a signed counterpart, addressed to the Holder or underwriter,
of (a) an opinion of counsel to the Company, dated the effective date of the
Registration Statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (b) a "comfort" letter dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, a "comfort" letter dated the date of the closing under the
underwriting agreement) signed by the independent public accountants who have
issued a report on the Company's financial statements included in such
Registration Statement, in each case covering substantially the same matters
with respect to such Registration Statement (and the prospectus included
therein) and, in the case of such accountant's "comfort" letter with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountant's "comfort" letters
delivered to underwriters in underwritten public offerings of securities.
7.5 UNDERWRITING AGREEMENT. In the event of an underwritten public
offering, the Company shall enter into an underwriting agreement with the
managing underwriter selected by the Holder. Such underwriting agreement shall
be reasonably satisfactory in form and substance to the Company, the Holder and
such managing underwriter, and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily contained
in agreements of that type used by the managing underwriter.
7.6 CUTBACK. In connection with any underwritten public offering by the
Company of its securities as described in Section 7.2, the Company shall not be
required to include in such offering any Warrant Shares held by the Holder
unless the Holder agrees to the terms of the underwriting agreement between the
Company and the managing underwriter of such offering, which agreement may
require that the Warrant Shares be withheld from the market by the Holder for a
period of up to ninety (90) days after the effective date of the Registration
Statement by which such public offering is being effected. Furthermore, the
Company shall be obligated to include in such offering only the quantity of the
Warrant Shares, if any, as will not, in the opinion of the managing underwriter,
if any, jeopardize the success of the offering by the Company. If the managing
underwriter for the offering advises the Company in writing that the total
amount of securities sought to be registered by the Holder and other
shareholders of the Company having similar registration rights as of the date
hereof (collectively, the "Shareholders") exceeds the amount of securities that
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<PAGE> 9
can be offered without adversely affecting the offering by the Company, then the
Company may reduce the number of shares to be registered by the Company for the
Shareholders, including the Warrant Shares, to a number satisfactory to such
managing underwriter. Any such reduction shall be pro rata, based upon the total
number of shares held by each Shareholder, provided, however, that in such
event, the Holder shall have the right to withdraw its request to participate in
the offering and shall preserve its right to piggy-back registration as provided
in Section 7.2.
7.7 COMPANY INDEMNITY. The Company will indemnify and hold harmless the
Holder, all directors, officers, partners, agents and employees of the Holder,
and any person or entity engaged by the Holder to sell the Warrant Shares, and
each person, if any, who controls such persons or entities within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (collectively, a "Holder Indemnitee"), against any losses,
claims, damages, liabilities, or expenses (including, but not limited to
reasonable attorneys' fees), or actions, proceedings, or settlements in respect
thereof, whether joint or several, to which a Holder Indemnitee may become
subject under the Securities Act, the Exchange Act, or other federal or state
law, insofar as such losses, claims, damages, liabilities or expenses
(including, but not limited to, reasonable attorneys' fees), or actions,
proceedings or settlements in respect thereof, arise out of or are based upon
any of the following statements, omissions or violations (a "Violation"): (a)
any untrue statement or alleged untrue statement of a material fact contained in
a Registration Statement covering the Warrant Shares, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto; (b) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
or (c) the employment by the Company of any device, scheme or artifice to
defraud or the engagement by the Company in any act, practice or course of
business which operates or would operate as a fraud or deceit upon the
purchasers of its securities pursuant to such Registration Statement. The
Company will also reimburse each Holder Indemnitee for any legal or other
expenses reasonably incurred by such Holder Indemnitee in connection with
investigating, defending, and settling any such loss, claim, damage, liability,
or action.
The indemnity agreement contained in this Section 7.7 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable to any
Holder Indemnitee for any loss, claim, damage, liability or action to the extent
that it arises solely out of or is based solely upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by or on behalf of the Holder or any
agent of the Holder, or controlling person of either.
7.8 HOLDER INDEMNITY. The Holder will indemnify and hold harmless the
Company, and all directors, officers, partners, agents and employees of the
Company and all persons who control the Company within the meaning of the
Securities Act or the Exchange Act, and each agent or underwriter for the
Company or any other person or entity engaged by the Company to sell the
Company's securities offered in the Registration Statement, or any of their
respective directors, officers, partners, agents, employees or control persons
(collectively, a "Company Indemnitee"), against any losses, claims, damages,
liabilities, or expenses (including, but not limited to, reasonable attorneys'
fees), or actions, proceedings, or settlements in respect thereof, whether joint
or several, to which the Company or any such Company Indemnitee may become
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subject under the Securities Act, the Exchange Act, or other federal or state
law, insofar as such losses, claims, damages, liabilities or expenses
(including, but not limited to, reasonable attorneys' fees), or actions,
proceedings, or settlements in respect thereof, whether joint or several, arise
solely out of or are based solely upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by or on behalf of the Holder
expressly for use in connection with such registration; and the Holder will
reimburse any legal or other expenses reasonably incurred by a Company
Indemnitee in connection with investigating or defending any such loss, claim,
damage, liability, or action. Notwithstanding the above, the amount of any
losses, claims, damages, liabilities, legal fees and expenses to be paid by the
Holder shall not exceed the amount of the proceeds received by the Holder from
the sale of the Warrant Shares.
The indemnity agreement contained in this Section 7.8 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
7.9 PROCEDURE FOR INDEMNIFICATION. (a) Promptly after receipt by an
indemnified party under Sections 7.7 and 7.8 of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, deliver
to the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying part so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the indemnified party and indemnifying parties,
provided that an indemnified party shall have the right to retain its own
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests (as reasonably determined by either party) between such indemnified
party and any other party represented by such counsel in such proceeding. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under Section 7.7 or 7.8, to the extent of such prejudice,
but the failure to so deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7.9.
(b) The obligations of the Company and the Holders under Sections 7.7
and 7.8, respectively, shall survive the completion of any offering of the
Warrant Shares made pursuant to a registration under this Article VII.
(c) The amount paid or payable by a party as a result of the losses,
claims, damages, or liabilities (or actions or proceedings in respect thereof)
referred to in Sections 7.7 and 7.8 shall include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim.
7.10 LIMITATIONS OF INDEMNIFICATION. If the indemnification provided
for in Sections 7.7 and 7.8 is unavailable to an indemnified party in respect of
any losses, claims, damages liabilities or expenses referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
be required to provide contribution on behalf of the indemnified party, except
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to the extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the parties' relative
knowledge and access to information concerning the matter with respect to which
the claim was asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate under the
circumstances. Notwithstanding the provisions of this paragraph, the Holder
shall not be required to contribute any amount in excess of the net proceeds
received by the Holder from the sale of the Warrant Shares. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7.11 SPECIFIC PERFORMANCE. The Holder, in addition to being entitled to
exercise all rights provided in this Article VII, including recovery of damages,
will be entitled to specific performance of its rights hereunder. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Article VII and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
7.12 CERTAIN OBLIGATIONS OF THE COMPANY. In connection with the Company's
obligations to effect a registration under this Article VII, the Company will:
(a) cooperate and assist in any filings required to be made with the
National Association of Securities Dealers, Inc., and before filing a
Registration Statement or prospectus or any amendments or supplements thereto,
the Company will furnish to counsel selected by the Holder copies of all such
documents proposed to be filed, which documents will be subject to such
counsel's review and comments;
(b) cause the prospectus relating to such registration to be
supplemented by any required prospectus supplement, and as so supplemented, to
be filed pursuant to Rule 424 under the Securities Act;
(c) notify the Holder promptly (i) when the prospectus or any
prospectus supplement or post-effective amendment relating to such registration
has been filed, and with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
comment letter or request by the Securities and Exchange Commission (the
"Commission") for any amendments or supplements to the registration statement or
the prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or the initiation of any proceedings for that purpose; (iv) if, at
any time prior to the closing contemplated by an underwriting agreement, if any,
entered into in connection with such Registration Statement, that the
representations and warranties of the Company contained in such agreement cease
to be true and correct in any material respect; (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Warrant Shares for sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose; and (vi) of the happening of any
event which makes any statement made in the Registration Statement, the
prospectus or any document incorporated therein by reference, untrue in any
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<PAGE> 12
material respect and which requires the making of any changes in the
Registration Statement, the prospectus or any document incorporated therein by
reference in order to make the statement therein not materially misleading;
(d) make commercially reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement;
(e) if required, based on the advice of the Company's counsel,
prepare a supplement or post-effective amendment to the Registration Statement,
the related prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the purchasers
of the Warrant Shares, the prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(f) cause all Warrant Shares covered by the Registration Statement to
be listed on each securities exchange on which the Common Stock is then listed
if requested by the Holder or any managing underwriters;
(g) provide and cause to be maintained a transfer agent and registrar
for all Warrant Shares covered by such Registration Statement from an after a
date not later than the effective date of such registration statement; (h) use
its best efforts to provide a CUSIP number for the Warrant Shares, not later
than the effective date of the registration statement;
(i) make available for inspection, in connection with the preparation
of a Registration Statement pursuant to this Agreement, by the Holder, and any
attorney or accountant retained by the Holder, all financial and other records
and pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, attorney or accountant in connection with
such registration; PROVIDED, HOWEVER, that any records, information or documents
that are designated by the Company in writing as confidential shall be kept
confidential by such persons unless disclosure of such records, information or
documents is required by court or administrative order;
(j) if so required by the managing underwriter, not sell, make any
short sale of, loan, grant any option for the purpose of, effect any public sale
or distribution of or otherwise dispose of its equity securities or securities
convertible into or exchangeable or exercisable for any of such securities
during the ten (10) days prior to and the ninety (90) days after any
underwritten registration pursuant to this Article VII has become effective,
except as part of such underwritten registration and except pursuant to
registrations on Form S-4 or S-8 or any successor or similar forms thereto,
except that the Company may make grants of options under its stock option plans
and may issue securities issuable upon the exercise or conversion of outstanding
convertible securities, stock options and other options, warrants and rights of
the Company; and
(k) otherwise use its best effort to comply with all applicable rules
and regulations of the Commission and make available to its security holders as
soon as reasonably practicable, an earnings statement which satisfies the
provision of Section 11(a) of the Securities Act.
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VIII. MISCELLANEOUS
8.1 REPRESENTATIONS. The Company represents and warrants to the Holder as
follows:
(a) The execution and delivery of this Warrant and the performance by
the Company of its obligations hereunder have been duly authorized by all
necessary corporate action on part of the Company in accordance with its Bylaws
and Articles of Incorporation and the Rules of the Nasdaq Stock Market (the
"Nasdaq Rules").
(b) This Warrant has been duly executed and delivered by the Company
and constitutes the legal, valid, binding and enforceable obligation of the
Company, enforceable in accordance with its terms.
(c) As of the date hereof, the Company has 12,000,000 shares of
Common Stock authorized. As of December 31, 1999, the Company has 3,964,078
shares of Common Stock issued and outstanding. All of the issued and outstanding
shares of Common Stock of the Company (x) have been duly authorized and validly
issued and are fully paid and non-assessable, (y) were issued in compliance with
all applicable state and federal securities laws, and (z) were not issued in
violation of any preemptive rights or rights of first refusal. No preemptive
rights or rights of first refusal exist with respect to the Common Stock or any
capital stock of the Company and no such rights arise by virtue of or in
connection with the transactions contemplated hereby. There are no outstanding
or authorized rights, options, warrants, convertible securities, subscription
rights, conversion rights, exchange rights or other agreements or commitments of
any kind that could require the Company to issue or sell any shares of its
capital stock (or securities convertible into or exchangeable for shares of its
capital stock) other than securities held by Holder and outstanding option
grants for an aggregate of 540,416 shares of Common Stock. There are no
outstanding stock appreciation, phantom stock, profit participation or other
similar rights with respect to the Company or its capital stock. There are no
proxies, voting rights or other agreements or understandings with respect to the
voting or transfer of the capital stock of the Company. The Company is not
obligated to redeem or otherwise acquire any of its outstanding shares of
capital stock.
(d) All of the Shares will, upon issuance, be duly authorized,
validly issued and outstanding, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issuance thereof.
(e) The Company has obtained all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations hereunder, except the
above-referenced Nasdaq exception.
(f) There are no state statutes or other "anti-takeover" laws
applicable to the Company, to the issuance of this Warrant by the Company, or to
the issuance of the Warrant Shares upon exercise of this Warrant which would
have, among other things, the effect of nullifying the transactions contemplated
by this Warrant, or affecting the Holder's voting rights or other rights as a
shareholder following such exercise, or to the extent there are such applicable
state statutes or other "anti-takeover" laws, the Company and its Board of
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<PAGE> 14
Directors have taken all steps necessary under such statutes or laws to render
them inapplicable to the Company, the issuance of this Warrant, and the issuance
of the Warrant Shares upon exercise of this Warrant.
(g) There is no material litigation pending, or, to the knowledge of
the Company, threatened, against the Company.
8.2 NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), or guaranteed overnight
delivery, to the Company at the address at which its principal business office
is located from time to time, and the Holder at One Financial Plaza, Suite 1101,
Fort Lauderdale, FL 33394, or such other address specified by Holder.
8.3 EXPENSES; TAXES. Any sales tax, stamp duty, deed transfer or other
tax (except only taxes based on the income of the Holder) arising out of the
issuance and sale of this Warrant or the Warrant Shares issuable upon exercise
of this Warrant and consummation of the transactions contemplated by this
Warrant shall be paid by the Company.
8.4 BINDING NATURE OF WARRANT. Except as otherwise herein provided, this
Warrant shall be binding upon and inure to the benefit of the parties hereto,
their legal representatives, successors and assigns.
8.5 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Warrant together with any
attached schedules, exhibits and other documents delivered pursuant hereto,
constitutes the entire agreement of the parties and supersedes all prior
agreements and undertakings, both written and oral, between the parties, or any
of them, with respect to the subject matter hereof. This Warrant may not be
modified, amended, supplemented, canceled or discharged, except by written
instrument executed by the Company and the Holder. No failure to exercise, and
no delay in exercising, any right, power or privilege under this Warrant shall
operate as a waiver, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude the exercise of any other right, power or
privilege. No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be impled from any course of dealing between the Company
and the Holder. No extension of time for performance of any obligations or other
acts hereunder or under any other agreement shall be deemed to be an extension
of the time for performance of any other obligations or any other acts.
8.6 SEVERABILITY. The invalidity of any portion of this Warrant shall not
affect the enforceability of the remaining portions of this Warrant or any part
thereof, all of which are inserted herein conditionally on their being valid in
law. In the event that any portion or portions contained herein shall be
invalid, this Warrant shall be construed so as to make such portion or portions
valid or, if such construction is not legally possible, as if such invalid
portion or portions had not been inserted.
8.7 ATTORNEYS' FEES. Should it become necessary for any party to
institute legal action to enforce the terms and conditions of this Warrant, the
successful party will be awarded reasonable attorneys' fees, at all trial and
appellate levels, expenses and costs.
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<PAGE> 15
8.8 HEADINGS. The headings contained in this Warrant are for convenience
of reference only and are not to be given any legal effect and shall not affect
the meaning or interpretation of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered as of the 31st day of December 1999.
ITC LEARNING CORPORATION
By: /s/ Christopher E. Mack
-----------------------------------
Name: Christopher E. Mack
Title: Chief Financial Officer
ATTEST:
- --------------------------------
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<PAGE> 16
EXHIBIT A
EXERCISE NOTICE
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of the number of shares of Common Stock of ITC
Learning Corporation as is set forth below, and herewith makes payment therefor,
all at the price and on the terms and conditions specified in the attached
Warrant Certificate and requests that certificates for the shares of Common
Stock hereby purchased (and any securities or other property issuable upon such
exercise) be issued in the name of and delivered to the person specified below
whose address is set forth below, and, if such shares of Common Stock shall not
include all of the shares of Common Stock now and hereafter issuable as provided
in the attached Warrant Certificate, then ITC Learning Corporation shall, at its
own expense, promptly issue to the undersigned a new Warrant Certificate of like
tenor and date for the balance of the shares of Common Stock issuable
thereunder.
Date: ____________________
Amount of Shares Purchased: ______________
Aggregate Purchase Price: $_____________
Printed Name of Registered Holder: ________________________________
Signature of Registered Holder: ________________________________
NOTICE: The signature on this Exercise Notice must correspond with the
name as written upon the face of the attached Warrant
Certificate in every particular, without alteration or
enlargement or any change whatsoever.
Stock Certificates to be issued and registered in the following name, and
delivered to the following address:
-----------------------------------
(Name)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
