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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0001
------------------------
FORM 10-KSB/A
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-13741
ITC LEARNING CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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MARYLAND 52-1078263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13515 DULLES TECHNOLOGY DRIVE 20171
HERNDON, VIRGINIA 20171 (Zip Code)
(Address of principal executive
offices)
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(703) 713-3335
Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act:
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NONE NONE
(Title of each Class) (Name of each exchange
on which registered)
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.10 PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. [X] Yes [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 1999 were $16,675,565.
Aggregate market value of voting stock held by non-affiliates and outstanding at
February 29, 2000 was $11,733,670. Amount was computed using the average bid and
ask price as of February 29, 2000, which was $2.96. As of February 29, 2000,
3,964,078 shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
Company's Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders.
Transitional Small Business Disclosure Format (check
one): [ ] Yes [X] No
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ITC LEARNING CORPORATION
FORM 10-KSB/A
INDEX
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PAGE
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Explanatory Note ............................................ 2
Part III - Item 13 Exhibits and Reports on Form 8-K............ 3
Signature Page ............................................... 5
Exhibit 4.2
Exhibit 4.3
Exhibit 4.4
Exhibit 4.5
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1
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EXPLANATORY NOTE
The section captioned "Exhibit Index" of Item 13 to Part III of the Form 10-KSB
of ITC Learning Corporation, filed with the SEC on March 30, 2000, is hereby
amended and restated in its entirety by the information set forth in this Form
10-KSB/A, inclusive of Exhibits 4.2, 4.3, 4.4 and 4.5 inadvertently omitted from
the original filing.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-KSB:
A. Financial Statements for the years ending December 31, 1999, and 1998:
See Part II, Item 7
B. Exhibits
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EXHIBIT
NO. DESCRIPTION
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2.1 Assignment of Rights Under Offer from ITC Learning
Corporation to ITC Canada Limited dated September 1, 1998,
incorporated by reference to the Company's Form 8-K filed
October 13, 1998 with the Securities and Exchange Commission
("SEC") (Commission File No. 0-13741)
2.2 Receiver's Bill of Sale from Grant Thornton Limited to ITC
Canada Limited dated September 16, 1998, incorporated by
reference to the Company's Form 8-K filed October 13, 1998
with the SEC (Commission File No. 0-13741)
2.3 Assignment of Lease from Grant Thornton Limited to ITC
Canada Limited dated September 16, 1998, incorporated by
reference to the Company's Form 8-K filed October 13, 1998
with the SEC (Commission File No. 0-13741)
2.4 Assignments of Courseware from Grant Thornton Limited to ITC
Canada Limited dated September 16, 1998, incorporated by
reference to the Company's Form 8-K filed October 13, 1998
with the SEC (Commission File No. 0-13741)
2.5 Assignments of Intellectual Property Rights from Grant
Thornton Limited to ITC Canada Limited dated September 16,
1998, incorporated by reference to the Company's Form 8-K
filed October 13, 1998 with the SEC (Commission File No
0-13741)
2.6 Assignment of Trademarks from Grant Thornton Limited to ITC
Canada Limited dated September 23, 1998, incorporated by
reference to the Company's Form 8-K filed October 13, 1998
with the SEC (Commission File No. 0-13741)
2.7 Principal Agreement between ITC Canada Limited and Nova
Scotia Business Development Corporation dated September 16,
1998, incorporated by reference to the Company's Form 8-K
filed October 13, 1998 with the SEC (Commission File No
0-13741)
2.8 Promissory Note in the Amount of Cdn. $2,000,000 Executed by
ITC Canada Limited dated September 16, 1998, incorporated by
reference to the Company's Form 8-K filed October 13, 1998
with the SEC (Commission File No. 0-13741)
2.9 Demand Debenture between ITC Canada Limited and Nova Scotia
Business Development Corporation dated September 18, 1998,
incorporated by reference to the Company's Form 8-K filed
October 13, 1998 with the SEC (Commission File No 0-13741)
2.10 Debenture Pledge Agreement in the Amount of Cdn. $3,600,000
between ITC Canada Limited and Nova Scotia Business
Development Corporation dated September 18, 1998,
incorporated by reference to the Company's Form 8-K filed
October 13, 1998 with the SEC (Commission File No. 0-13741)
2.11 General Security Agreement between ITC Canada Limited and
Nova Scotia Business Development Corporation dated September
18, 1998, incorporated by reference to the Company's Form
8-K filed October 13, 1998 with the SEC (Commission File No
0-13741)
2.12 Guarantee of Obligation by ITC Learning Corporation dated
September 22, 1998, incorporated by reference to the
Company's Form 8-K filed October 13, 1998 with the SEC
(Commission File No. 0-13741)
2.13 Agreement between ITC Learning Corporation and Nova Scotia
Business Development Corporation dated September 22, 1998,
incorporated by reference to the Company's Form 8-K filed
October 13, 1998 with the SEC (Commission File No. 0-13741)
2.14 Royalty Agreement among ITC Canada Limited, ITC Learning
Corporation and Grant Thornton Limited dated September 18,
1998, incorporated by reference to the Company's Form 8-K
filed October 13, 1998 with the SEC (Commission File No
0-13741)
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3
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EXHIBIT
NO. DESCRIPTION
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2.15 Inter-Lender Agreement among ITC Canada Limited, Nova Scotia
Business Development Corporation and Wachovia Bank, N.A.
dated September 23, 1998, incorporated by reference to the
Company's Form 8-K filed October 13, 1998 with the SEC
(Commission File No. 0-13741)
3.1 Amended Articles of Incorporation of the Company,
incorporated by reference to the Company's Form 10-QSB for
the quarter ended June 30, 1996 filed with the Securities
and Exchange Commission (Commission File No. 0-13741)
3.2 Amended By-Laws of the Company, incorporated by reference to
the Company's Form 10-KSB for the fiscal year ended December
31, 1997, filed March 13, 1998 with the SEC (Commission File
No. 0-13741)
4.1 Specimen Certificate for ITC Common Stock, incorporated by
reference to the Company's 10-QSB for the quarter ended
March 31, 1998, filed May 1, 1998 with the SEC (Commission
File No. 0-13741)
4.2 5.5% $1,000,000 convertible subordinated secured debenture
issued to New River Capital Partners, L.P. dated November 1,
1999. (filed herewith)
4.3 Warrant agreement to purchase 291,500 shares of common stock
of ITC Learning Corporation by New River Capital Partners,
L.P. dated November 1, 1999. (filed herewith)
4.4 9.5% $1,200,000 convertible subordinated secured debenture
issued to New River Capital Partners, L.P. dated December
30, 1999. (filed herewith)
4.5 Warrant agreement to purchase 349,800 shares of common stock
of ITC Learning Corporation by New River Capital Partners,
L.P. dated December 30, 1999. (filed herewith)
10.1 Stock Purchase Agreement dated November 20, 1997 by and
between ITC Learning Corporation and Anderson Holdings,
Inc., incorporated by reference to the Company's 8-K filed
December 8, 1997 with the SEC (Commission File No. 0-13741)
10.2 1992 Director Incentive Stock Option Plan, as amended,
incorporated by reference to the Company's 10-KSB for the
year ended December 31, 1996 filed March 14, 1997 with the
SEC (Commission File No. 0-13741)
10.3 1992 Key Employee Incentive Stock Option Plan, as amended,
incorporated by reference to the Company's 10-KSB for the
year ended December 31, 1996 filed March 14, 1997 with the
SEC (Commission File No. 0-13741)
10.4 Amended and restated ITC Learning Corporation Employee Stock Ownership
Plan and Trust Agreement dated December 2, 1997, incorporated by
reference to the Company's 10-KSB for the year ended December 31, 1999
filed March 30, 2000 with the SEC (Commission File No. 0-13741)
10.5 1998 Incentive Stock Plan dated May 8, 1998, incorporated by
reference to the Company's Registration Statement on Form
S-8 filed May 8, 1998 with the SEC (Commission File No 0-
13741)
10.6 Form of stock option agreement dated May 8, 1998,
incorporated by reference to the Company's Registration
Statement on Form S-8 filed May 8, 1998 with the SEC
(Commission File No. 0-13741)
10.7 Employment Agreements with Management
(a) Christopher E. Mack, incorporated by reference to the
Company's 10-KSB for the year ended December 31, 1996 filed
March 14, 1997 with the SEC (Commission File No. 0-13741)
(b) Michael Morrison, incorporated by reference to the
Company's 10-QSB for the quarter ended June 30, 1998 filed
August 13, 1998 with the SEC (Commission File No. 0-13741)
10.8 Lease dated October 21, 1993 for commercial office space in
Herndon, VA, as amended, incorporated by reference to the
Company's Form 10-KSB for the fiscal year ended December 31,
1995 filed March 15, 1996 with the SEC (Commission File No
0-13741)
10.9 Lease dated November 30, 1995 for commercial office space in
Atlanta, GA, incorporated by reference to the Company's Form
10-KSB for the fiscal year ended December 31, 1995 filed
March 15, 1996 with the SEC (Commission File No. 0-13741)
21.1 Subsidiaries of the Registrant, incorporated by reference to the
Company's 10-KSB for the year ended December 31, 1999 filed March 30,
2000 with the SEC (Commission file No. 0-13741)
23.1 Consent of Ernst & Young LLP, independent auditors incorporated by
reference to the Company's 10-KSB for the year ended December 31, 1999
filed March 30, 2000 with the SEC (Commission File No. 0-13741)
27.1 Financial Data Schedule, incorporated by reference to the Company's
10-KSB for the year ended December 31, 1999 filed March 30, 2000 with
the SEC (Commission File No. 0-13741)
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4
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to report
to be signed on its behalf by the undersigned, thereunto duly authorized.
ITC LEARNING CORPORATION
(Registrant)
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SIGNATURE TITLE DATE
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/s/ CHRISTOPHER E. MACK President, Treasurer, Chief April 26, 2000
- ------------------------------------------------ Financial Officer, and Director
Christopher E. Mack
/s/ MATTHEW C. SYSAK Vice President of Finance & April 26, 2000
- ------------------------------------------------ Administration, and Secretary
Matthew C. Sysak
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5
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EXHIBIT 4.2
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.
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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
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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, reclassification or
otherwise (other than by a subdivision or combination of shares or stock
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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, 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
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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).
(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.
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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. "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.
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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)
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
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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 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
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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 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
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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.
(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.
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(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).
(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.
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(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;
(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
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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 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.
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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 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 stockholders, 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
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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 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
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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.
(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.
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<PAGE> 17
(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 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.
17
<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: President
18
<PAGE> 19
ITC LEARNING CORPORATION
AMENDMENT TO
5.5% CONVERTIBLE SUBORDINATED SECURED DEBENTURE
DUE OCTOBER 31, 2000
FOR VALUE RECEIVED, and in accordance with Section 11 of that certain
debenture dated November 1, 1999 (the "Debenture") made by ITC Learning
Corporation, a Maryland corporation (the "Company") and payable to New River
Capital Partners L.P. (the "Holder"), the Company hereby amends the Debenture
as follows:
1. The first paragraph of the preamble of the Debenture is
amended to change the "Maturity Date" from October 31, 2000 to April 2, 2001,
and to read in its entirety as follows:
"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
April 2, 2001 (the "Maturity Date"), together with accrued interest
thereon."
2. Except as expressly set forth above, the Debenture shall
remain in full force and effect.
The Company and Holder acknowledge and agree that the outstanding
principal balance, plus all accrued but unpaid interest, under the Debenture as
of the date hereof is $1,013,411.
IN WITNESS WHEREOF, this Amendment to the Debenture was executed and
delivered as of March 27, 2000.
ITC LEARNING CORPORATION,
a Maryland corporation
By: /s/ CHRISTOPHER E. MACK
--------------------------------
Name: Christopher E. Mack
------------------------------
Title: President
-----------------------------
NEW RIVER CAPITAL PARTNERS, L.P.
By: /s/ THOMAS C. BYRNE
--------------------------------
Name: Thomas C. Byrne
------------------------------
Title: President
-----------------------------
19
<PAGE> 1
EXHIBIT 4.3
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
I.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.
I.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
<PAGE> 2
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 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.
I.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
II.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.
II.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
<PAGE> 3
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.
II.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.
II.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.
II.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
3
<PAGE> 4
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.
II.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.
II.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.
4
<PAGE> 5
II.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.
II.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.
II.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.
II.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
III.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.
III.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.
5
<PAGE> 6
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
IV.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.
IV.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
6
<PAGE> 7
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.
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
<PAGE> 8
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 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,
8
<PAGE> 9
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, 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.
9
<PAGE> 10
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 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.
10
<PAGE> 11
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
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
11
<PAGE> 12
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.
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.
12
<PAGE> 13
(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 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
13
<PAGE> 14
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.
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: President
--------------------------
14
<PAGE> 15
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> 16
AMENDMENT TO
WARRANT CERTIFICATE
To Purchase 291,500 Shares of Common Stock of:
ITC LEARNING CORPORATION
FOR VALUE RECEIVED, and in accordance with Section 8.5 of that certain
warrant to purchase common stock, par value $.10 per share (the "Common Stock")
of ITC Learning Corporation, a Maryland corporation (the "Company") dated
November 1, 1999 (the "Warrant") which entitles New River Capital Partners L.P.
(the "Holder") to purchase 291,500 shares of the Common Stock in accordance
with the terms and conditions set forth therein and herein, the Company hereby
amends the Warrant as follows:
1. SECTION 1.2 of the Warrant is amended to extend the "Exercise
Period" from October 31, 2000 to April 2, 2001, and to read in its entirety as
follows:
"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
April 2, 2001. 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 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."
2. Except as expressly set forth above, the Warrant shall remain
in full force and effect.
[Signatures on following page]
<PAGE> 17
IN WITNESS WHEREOF, this Amendment to the Warrant was executed and
delivered as of March 27, 2000.
ITC LEARNING CORPORATION,
a Maryland corporation
By: /s/ CHRISTOPHER E. MACK
---------------------------------
Name: Christopher E. Mack
-------------------------------
Title: President
------------------------------
NEW RIVER CAPITAL PARTNERS, L.P.
By: /s/ THOMAS C. BYRNE
---------------------------------
Name: Thomas C. Byrne
-------------------------------
Title: President
------------------------------
<PAGE> 1
EXHIBIT 4.4
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.
<PAGE> 2
(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, 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.
<PAGE> 3
(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 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.
3
<PAGE> 4
(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 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.
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(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 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.
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(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
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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. "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.
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<PAGE> 8
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;
(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
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<PAGE> 9
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 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
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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 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
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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.
(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.
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(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).
(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
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<PAGE> 13
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;
(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
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<PAGE> 14
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 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.
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<PAGE> 15
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 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 stockholders, 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
15
<PAGE> 16
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.
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
16
<PAGE> 17
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 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 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.
17
<PAGE> 18
(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 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.
18
<PAGE> 19
IN WITNESS WHEREOF, the Company has signed and sealed this
Debenture on this 30 day of December, 1999.
ITC LEARNING CORPORATION
By: /s/ CHRISTOPHER E. MACK
-----------------------------
Name: Christopher E. Mack
Title: President
19
<PAGE> 20
ITC LEARNING CORPORATION
AMENDMENT TO
9.5% CONVERTIBLE SUBORDINATED SECURED DEBENTURE
DUE JANUARY 1, 2001
FOR VALUE RECEIVED, and in accordance with Section 11 of that certain
debenture dated December 30, 1999 (the "Debenture") made by ITC Learning
Corporation, a Maryland corporation (the "Company") and payable to New River
Capital Partners L.P. (the "Holder"), the Company hereby amends the Debenture
as follows:
1. The first paragraph of the preamble of the Debenture is
amended to change the "Maturity Date" from January 1, 2001 to April 2, 2001,
and to read in its entirety as follows:
"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 April 2, 2001 (the "Maturity Date"), together
with accrued interest thereon."
2. Except as expressly set forth above, the Debenture shall
remain in full force and effect.
The Company and Holder acknowledge and agree that the outstanding
principal balance, plus all accrued but unpaid interest, under the Debenture as
of the date hereof is $1,227,797.
IN WITNESS WHEREOF, this Amendment to the Debenture was executed and
delivered as of March 27, 2000.
ITC LEARNING CORPORATION,
a Maryland corporation
By: /s/ CHRISTOPHER E. MACK
------------------------------
Name: Christopher E. Mack
----------------------------
Title: President
---------------------------
NEW RIVER CAPITAL PARTNERS, L.P.
By: /s/ THOMAS C. BYRNE
------------------------------
Name: Thomas C. Byrne
----------------------------
Title: President
---------------------------
20
<PAGE> 1
EXHIBIT 4.5
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.
I. GRANT OF WARRANT
I.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".
I.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.
I.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
<PAGE> 2
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
II.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.
II.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
<PAGE> 3
number of shares of Common Stock purchasable upon exercise of this Warrant
immediately thereafter.
II.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.
II.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.
II.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
- 3 -
<PAGE> 4
stock, securities, cash or other assets, as in accordance with the foregoing
provisions, which the Holder shall have the right to purchase.
II.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 ("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.
II.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
- 4 -
<PAGE> 5
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.
II.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.
II.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.
II.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.
II.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
III.1 EXERCISE OF WARRANT.
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(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",
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.
III.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
IV.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.
IV.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.
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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."
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
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(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
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
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<PAGE> 9
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
"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.
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<PAGE> 10
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
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.
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<PAGE> 11
(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.
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
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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;
(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
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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 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.
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(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.
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
- 14 -
<PAGE> 15
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 30 day of December 1999.
ITC LEARNING CORPORATION
By: /s/ CHRISTOPHER E. MACK
---------------------------
Name: Christopher E. Mack
-------------------------
Title: President
------------------------
ATTEST:
- 15 -
<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)
<PAGE> 17
AMENDMENT TO
WARRANT CERTIFICATE
To Purchase 349,800 Shares of Common Stock of:
ITC LEARNING CORPORATION
FOR VALUE RECEIVED, and in accordance with Section 8.5 of that certain
warrant to purchase common stock, par value $.10 per share (the "Common Stock")
of ITC Learning Corporation, a Maryland corporation (the "Company") dated
December 31, 1999 (the "Warrant") which entitles New River Capital Partners L.P.
(the "Holder") to purchase 349,800 shares of the Common Stock in accordance with
the terms and conditions set forth therein and herein, the Company hereby amends
the Warrant as follows:
1. SECTION 1.2 of the Warrant is amended to extend the "Exercise Period"
from December 31, 2002 to April 1, 2002, and to read in its entirety as follows:
"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 April 1, 2002."
2. Except as expressly set forth above, the Warrant shall remain in full
force and effect.
IN WITNESS WHEREOF, this Amendment to the Warrant was executed and delivered
as of March 27, 2000.
ITC LEARNING CORPORATION,
a Maryland corporation
By: /s/ CHRISTOPHER E. MACK
-----------------------------
Name: Christopher E. Mack
---------------------------
Title: President
--------------------------
NEW RIVER CAPITAL PARTNERS, L.P.
By: /s/ THOMAS C. BYRNE
-----------------------------
Name: Thomas C. Byrne
---------------------------
Title: President
--------------------------
