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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MARCH 10, 2000
LEARN2.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-24936 75-2480669
(State or other jurisdiction (Commission File Number) (IRS Employee
incorporation) Identification Number)
1311 MAMARONECK AVENUE, 10605
SUITE 210, (Zip Code)
WHITE PLAINS, NEW YORK
(Address of principal executive offices)
Registrant's telephone number, including area code: (914) 682-4300
NOT APPLICABLE
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
On March 10, 2000, the Registrant entered into a Securities Purchase
Agreement with RGC International Investors, LDC ("RGC"). The Securities
Purchase Agreement provides for the issuance of a $10 million 6% Convertible
Debenture (the "Convertible Debenture") to RGC due March 10, 2003,
convertible into the Registrant's Common Stock at a price of $6.00 per share.
In addition, the Registrant issued RGC a warrant (the "Warrants") to purchase
from the Registrant a total of 337,268 shares of the Registrant's Common
Stock at an initial exercise price of $7.41 per share. The Registrant's
Common Stock underlying the Convertible Debenture and the Warrants have
certain registration rights. The foregoing summary description of the
transaction is qualified in its entirety by reference to the documents filed
as exhibits hereto. On March 15, 2000, the Registrant issued the press
release attached hereto as Exhibit 99.6 and incorporated by reference herein.
In March 2000, the Chairman of the Board of Directors' received a
letter from Jason Roberts announcing his resignation as a director and employee
of the Registrant.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
10.53 6% Convertible Debenture issued to RGC International Investors, LDC.
10.54 Warrant issued to RGC International Investors, LDC.
10.55 Securities Purchase Agreement, dated as of March 10, 2000, by and among
Learn2.com, Inc. and RGC International Investors, LDC.
10.56 Registration Rights Agreement, dated as of March 10, 2000, by and among
Learn2.com, Inc. and RGC International Investors, LDC.
99.6 Press Release dated March 15, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Learn2.com, Inc.
/s/ Marc E. Landy
By:
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Name: Marc E. Landy
Title: Vice President, Chief Financial
Officer and Secretary
Dated: March 15, 2000
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INDEX TO EXHIBITS
Number Description
- ------ -----------
10.53 6% Convertible Debenture issued to RGC International Investors, LDC.
10.54 Warrant issued to RGC International Investors, LDC.
10.55 Securities Purchase Agreement, dated as of March 10, 2000, by and among
Learn2.com, Inc. and RGC International Investors, LDC.
10.56 Registration Rights Agreement, dated as of March 10, 2000, by and among
Learn2.com, Inc. and RGC International Investors, LDC.
99.6 Press Release dated March 15, 2000.
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN
FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO COUNSEL
TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
CONVERTIBLE DEBENTURE
March 10, 2000 $10,000,000
FOR VALUE RECEIVED, LEARN2.COM, INC., a Delaware corporation
(hereinafter called the "BORROWER"), hereby promises to pay to the order of RGC
INTERNATIONAL INVESTORS, LDC or registered assigns (the "HOLDER") the sum of Ten
Million Dollars ($10,000,000), on March 10, 2003 (the "MATURITY DATE"), and to
pay interest on the unpaid principal balance hereof at the rate of six percent
(6%) per annum from March 10, 2000 (the "ISSUE DATE") until the same becomes due
and payable, whether at maturity or upon acceleration or otherwise. Any amount
of principal or interest on this Debenture which is not paid when due shall bear
interest at the rate of fifteen percent (15%) per annum from the due date
thereof until the same is paid ("DEFAULT INTEREST"). Interest shall commence
accruing on the Issue Date, shall be computed on the basis of a 365-day year and
the actual number of days elapsed and shall be payable at the time of optional
conversion of the principal to which such interest relates in accordance with
Article I below or, to the extent not converted, at maturity or upon
acceleration in accordance with the terms hereof. All payments due hereunder (to
the extent not converted into Common Stock, par value $0.01 per share, of the
Borrower (the "COMMON STOCK") in accordance with the terms hereof) shall be made
in lawful money of the United States of America or, at the option of the
Borrower, in whole or in part, in shares of Common Stock valued at ninety-five
percent (95%) of the average of the volume weighted average prices of the Common
Stock for each Trading Day during the ten (10) consecutive Trading Day (as
defined below) period ending on the Maturity Date; PROVIDED, HOWEVER, that in no
event shall the Borrower be entitled to issue to the Holder shares of Common
Stock to the extent, but only to the extent, that such issuance would, when
aggregated with all other shares of Common Stock held by the Holder and its
affiliates on the Maturity Date,
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result in beneficial ownership by the Holder and its affiliates of more than
9.9% of the outstanding shares of Common Stock of the Borrower, with beneficial
ownership being determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and Regulations 13D-G
thereunder; and, PROVIDED, FURTHER, that in no event shall the Borrower be
entitled to issue to the Holder shares of Common Stock in payment of this
Debenture on the Maturity Date unless (i) all of the shares of Common Stock to
be so issued are then (x) authorized and reserved for issuance, (y) registered
for re-sale under the Securities Act of 1933, as amended (the "1933 ACT"), by
the Holder of this Debenture (or may otherwise be resold publicly without
restriction) and (z) eligible to be traded on the Nasdaq National Market (the
"NNM"), the Nasdaq SmallCap Market (the "NASDAQ SMALLCAP"), the New York Stock
Exchange ("NYSE") or the American Stock Exchange ("AMEX") and (ii) there is not
then a continuing Event of Default (as hereinafter defined) or Trading Market
Redemption Event (as hereinafter defined) and such issuance would not result in
the occurrence of a Trading Market Redemption Event. All payments shall be made
at such address as the Holder shall hereafter give to the Borrower by written
notice made in accordance with the provisions of this Debenture. Whenever any
amount expressed to be due by the terms of this Debenture is due on any day
which is not a business day, the same shall instead be due on the next
succeeding day which is a business day. Except as otherwise expressly provided
herein, this Debenture may not be prepaid by the Borrower. As used in this
Debenture, the term "business day" shall mean any day other than a Saturday,
Sunday or a day on which commercial banks in the City of New York, New York are
authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated March 10,
2000, pursuant to which this Debenture was originally issued (the "PURCHASE
AGREEMENT"). For purposes hereof, the term "Debentures" shall be deemed to refer
to this Debenture, all other convertible debentures issued pursuant to the
Purchase Agreement and all convertible debentures issued in replacement hereof
or thereof or otherwise with respect hereto or thereto.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 CONVERSION RIGHT.
(a) CONVERSION AMOUNT. Subject to the limitations on
conversion contained herein, the Holder shall have the right from time to time,
and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the
date of payment of the Default Amount (as defined in Article III) pursuant to
Article III or Section 1.6 hereof and (iii) the date of payment of the Optional
Redemption Amount (as defined in Article IV) pursuant to Article IV, to convert
all or any part of the outstanding and unpaid principal amount of this Debenture
into fully paid and non-assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other securities of
the Borrower into which such Common Stock shall hereafter be changed or
reclassified, at the Conversion Price (as defined in Section 1.2 below)
determined as provided herein (a "CONVERSION"); PROVIDED, HOWEVER, that in no
event shall the Holder be entitled to convert
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any portion of this Debenture in excess of that portion of this Debenture upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debentures, the unexercised Warrants or the
unexercised or unconverted portion of any other security of the Borrower subject
to a limitation on conversion or exercise analogous to the limitations contained
herein) and (2) the number of shares of Common Stock issuable upon the
conversion of the portion of this Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately preceding
sentence and for purposes of the first proviso of the lead-in to this Debenture,
(i) beneficial ownership shall be determined in accordance with Section 13(d) of
the Exchange Act and Regulations 13D-G thereunder, except as otherwise provided
in clause (1) of such proviso to the immediately preceding sentence and (ii)
neither of such provisos may be amended without the consent of the Holder, the
Borrower and a majority of the stockholders of the Borrower. The number of
shares of Common Stock to be issued upon each conversion of this Debenture shall
be determined by dividing the Conversion Amount (as defined below) by the
applicable Conversion Price. The term "CONVERSION AMOUNT" means, with respect to
any conversion of this Debenture, the sum of (1) the principal amount of this
Debenture to be converted in such conversion, PLUS (2) all accrued and unpaid
interest thereon for the period beginning on the Issue Date and ending on the
Conversion Date (as defined in Section 1.4 hereof), PLUS (3) Default Interest,
if any, on the amounts referred to in the immediately preceding clauses (1)
and/or (2), PLUS (4) at the Holder's option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(e) hereof or pursuant to Section 2(c) of that
certain Registration Rights Agreement, dated as of March 10, 2000, executed in
connection with the initial issuance of this Debenture and the other Debentures
issued on the Issue Date (the "REGISTRATION RIGHTS AGREEMENT").
1.2 CONVERSION PRICE.
(a) Subject to the provisions of Section 1.5 below, the
"CONVERSION PRICE" shall be $6.00 (the "INITIAL CONVERSION PRICE") (subject to
equitable adjustments for stock splits, stock dividends or rights offerings by
the Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events).
(b) In the event that the average of the volume weighted
average prices of the Common Stock for each Trading Day (as defined below)
during the ten (10) consecutive Trading Day period ending on the one-year
anniversary of the Issue Date (the "FIRST ADJUSTED CONVERSION PRICE") is less
than the Initial Conversion Price, then the Conversion Price shall, beginning on
the Trading Day next following the one-year anniversary of the Issue Date and at
all times thereafter, equal the First Adjusted Conversion Price unless the
Borrower elects, by written notice delivered to the Holder in accordance with
the provisions of Article IV hereof, to redeem this Debenture pursuant to
Article IV hereof, PROVIDED, HOWEVER, that (x) if the Registration Statement (as
defined in the Registration Rights Agreement) required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement has not been declared
effective by the SEC prior to the tenth (10th)
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Trading Day immediately preceding the one-year anniversary of the Issue Date or
(y) such Registration Statement after its initial effectiveness lapses in effect
or sales of all of the Registrable Securities (as defined in the Registration
Rights Agreement) otherwise cannot be made thereunder, whether by reason of the
Borrower's failure or inability to amend or supplement the prospectus (the
"PROSPECTUS") included therein in accordance with the Registration Rights
Agreement or otherwise, after such Registration Statement becomes effective
(including, without limitation, during an Allowed Delay (as defined in Section
3(f) of the Registration Statement)), then the First Adjusted Conversion Price
shall equal the lowest average of the volume weighted average prices of the
Common Stock for each Trading Day during any ten (10) consecutive Trading Day
period beginning on the tenth (10th) Trading Day immediately preceding the
one-year anniversary of the Issue Date and ending on the tenth (10th) Trading
Day following (i) in the case of an event described in clause (x) of this
proviso, the date on which the Registration Statement is declared effective, or
(ii) in the case of an event described in clause (y) of this proviso, the date
on which the Holder is first notified that sales of all of the Registrable
Securities may again be made under the Prospectus. The Conversion Price (whether
by reference to the Initial Conversion Price or the First Adjusted Conversion
Price) shall be subject to adjustment pursuant to the provisions of Section 1.5.
The "VOLUME WEIGHTED AVERAGE PRICE" for any security as of any date means the
volume weighted average sale price on the NNM as reported by Bloomberg Financial
Markets or an equivalent, reliable reporting service mutually acceptable to and
hereafter designated by holders of a majority in interest of the Debentures and
the Borrower ("BLOOMBERG") or, if the NNM is not the principal trading market
for such security, the volume weighted average sale price of such security on
the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
volume weighted average sale price of such security in the over-the-counter
market on the electronic bulletin board for such security, as reported by
Bloomberg, or, if no volume weighted average sale price of such security is
available in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no volume weighted average sale
price is reported for such security, then the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the volume weighted average price cannot be
calculated for such security on such date in the manner provided above, the
volume weighted average price shall be the fair market value as mutually
determined by the Borrower and the holders of a majority in interest of the
Debentures being converted for which the calculation of the volume weighted
average price is required in order to determine the Conversion Price of such
Debentures. "TRADING DAY" shall mean any day on which the Common Sock is traded
for any period on the NNM, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
(c) In the event that the average of the volume weighted
average prices of the Common Stock for each Trading Day during the ten (10)
consecutive Trading Day period ending on the two-year anniversary of the Issue
Date (the "SECOND ADJUSTED CONVERSION PRICE") is less than the Conversion Price
then in effect, then the Conversion Price shall, beginning on the Trading Day
next following the two-year anniversary of the Issue Date and at all times
thereafter, equal the Second Adjusted Conversion Price unless the Borrower
elects, by written notice delivered
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to the Holder in accordance with the provisions of Article IV hereof, to redeem
this Debenture pursuant to Article IV hereof, PROVIDED, FURTHER, HOWEVER, that
(x) if the Registration Statement (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement has not been declared effective by the SEC prior to the tenth
(10th) Trading Day immediately preceding the two-year anniversary of the Issue
Date or (y) such Registration Statement after its initial effectiveness lapses
in effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder, whether by
reason of the Borrower's failure or inability to amend or supplement the
Prospectus included therein in accordance with the Registration Rights Agreement
or otherwise, after such Registration Statement becomes effective (including,
without limitation, during an Allowed Delay (as defined in Section 3(f) of the
Registration Statement)), then the Second Adjusted Conversion Price shall equal
the lowest average of the volume weighted average prices of the Common Stock for
each Trading Day during any ten (10) consecutive Trading Day period beginning on
the tenth (10th) Trading Day immediately preceding the two-year anniversary of
the Issue Date and ending on the tenth (10th) Trading Day following (i) in the
case of an event described in clause (x) of this proviso, the date on which the
Registration Statement is declared effective, or (ii) in the case of an event
described in clause (y) of this proviso, the date on which the Holder is first
notified that sales of all of the Registrable Securities may again be made under
the Prospectus. The Conversion Price shall thereafter be subject to adjustment
pursuant to the provisions of Section 1.5.
(d) Notwithstanding anything to the contrary contained in
this Debenture, the Conversion Price shall not be subject to an initial
adjustment pursuant to Section 1.5(b) above or to a subsequent adjustment
pursuant to Section 1.5(c) above if, prior to the one-year anniversary of the
Issue Date or prior to the two-year anniversary of the Issue Date, as
applicable, the average of the volume weighted average prices of the Common
Stock for each Trading Day during any twenty (20) consecutive Trading Day period
is greater than 150% of the Initial Conversion Price, so long as for at all
times during such twenty (20) Trading Day period, (i) all of the shares of
Common Stock issuable upon conversion of the Debentures are then (x) authorized
and reserved for issuance, (y) registered for resale under the 1933 Act by the
Holders of the Debentures and sales of such shares may be made thereunder (or
such shares may otherwise be resold publicly without restriction) and (z)
eligible to be traded on the NNM, the Nasdaq SmallCap, the NYSE or the AMEX, and
(ii) no Event of Default or Trading Market Redemption Event shall have occurred
and be continuing.
1.3 RESERVATION OF SHARES. The Borrower covenants that during the
period the conversion right exists, the Borrower will reserve from its
authorized and unissued Common Stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of Common Stock upon the full
conversion of this Debenture and the other Debentures issued pursuant to the
Purchase Agreement. As of the date of issuance of this Debenture, 3,333,334
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of this Debenture and the other Debentures issued
pursuant to the Purchase Agreement (the "RESERVED AMOUNT"). The Reserved Amount
shall be increased from time to time in accordance with the Borrower's
obligations pursuant to Section 4(h) of the Purchase Agreement. The Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-
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assessable. In addition, if the Borrower shall issue any securities or make any
change to its capital structure which would change the number of shares of
Common Stock into which the Debentures shall be convertible at the then
applicable Conversion Price, the Borrower shall at the same time make proper
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Debentures. The Borrower (i) acknowledges that it
has irrevocably instructed its transfer agent to issue certificates for the
Common Stock issuable upon conversion of this Debenture and (ii) agrees that its
issuance of this Debenture shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, and the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "CONVERSION DEFAULT"), subject to Section
5.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and which exceeds
the amount which is then convertible into available shares of Common Stock (the
"EXCESS AMOUNT") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof
until (and at the Holder's option at any time after) the date additional shares
of Common Stock are authorized and duly reserved for issuance by the Borrower to
permit such conversion. The Borrower shall pay to the Holder payments
("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount of (x)
the SUM OF (1) the then outstanding principal amount of this Debenture, PLUS (2)
all accrued and unpaid interest thereon through the Authorization Date (as
defined below), PLUS (3) Default Interest, if any, on the amounts referred to in
clauses (1) and/or (2), MULTIPLIED BY (y) .24, MULTIPLIED BY (z) (N/365), where
N = the number of days from the day the Holder submits a Notice of Conversion
giving rise to a Conversion Default (the "CONVERSION DEFAULT DATE") to the date
(the "AUTHORIZATION DATE") that the Borrower authorizes a sufficient number of
shares of Common Stock to effect conversion of the full outstanding principal
balance of this Debenture. The Borrower shall use its best efforts to authorize
a sufficient number of shares of Common Stock as soon as practicable following
the earlier of (i) such time that the Holder notifies the Borrower or that the
Borrower otherwise becomes aware that there are or likely will be insufficient
authorized and unissued shares to allow full conversion thereof and (ii) a
Conversion Default. The Borrower shall send notice to the Holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of the Holder's accrued Conversion Default Payments. The accrued
Conversion Default Payments for each calendar month shall be paid in cash on or
before the fifth (5th) day of the month following the month in which they have
accrued, PROVIDED that if such amounts have not been paid in cash on or before
such date, at the option of the Holder (by written notice to the Borrower), such
payments shall be added to the principal amount of this Debenture, in which
event interest shall accrue thereon in accordance with the terms of this
Debenture and such additional principal amount shall be convertible into Common
Stock in accordance with the terms of this Debenture. Nothing herein shall limit
the Holder's right to pursue actual damages (to the extent in excess of the
Conversion Default Payments) for the Borrower's failure to maintain a sufficient
number of authorized shares of Common Stock, and each Holder shall have the
right to
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pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
1.4 METHOD OF CONVERSION.
(a) MECHANICS OF CONVERSION. Subject to Section 1.1 and
the other provisions of this Debenture, this Debenture may be converted by the
Holder in whole or in part at any time and from time to time after the Issue
Date, by (A) submitting to the Borrower a duly executed notice of conversion in
the form attached hereto as Exhibit A ("NOTICE OF CONVERSION") by facsimile
dispatched prior to Midnight, New York City time (the "CONVERSION NOTICE
DEADLINE") on the date specified therein on the Conversion Date (as defined
below) (or by other means resulting in, or reasonably expected to result in,
written notice to the Borrower on the date specified therein as the Conversion
Date) to the office of the Borrower; which notice shall specify the principal
amount of this Debenture to be converted, the applicable Conversion Price, and
the number of shares of Common Stock issuable upon such conversion; and (B)
subject to Section 1.4(b), surrendering this Debenture at the principal office
of the Borrower.
(b) SURRENDER OF DEBENTURE UPON CONVERSION.
Notwithstanding anything to the contrary set forth herein, upon conversion of
this Debenture in accordance with the terms hereof, the Holder shall not be
required to physically surrender this Debenture to the Borrower unless the
entire unpaid principal amount of this Debenture is so converted. The Holder and
the Borrower shall maintain records showing the principal amount so converted
and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Borrower, so as not to require physical
surrender of this Debenture upon each such conversion. In the event of any
dispute or discrepancy, such records of the Borrower shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of this Debenture is converted as aforesaid, the Holder may not
transfer this Debenture unless the Holder first physically surrenders this
Debenture to the Borrower, whereupon the Borrower will forthwith issue and
deliver upon the order of the Holder a new Debenture of like tenor, registered
as the Holder (upon payment by the Holder of any applicable transfer taxes) may
request, representing in the aggregate the remaining unpaid principal amount of
this Debenture. The Holder and any assignee, by acceptance of this Debenture,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Debenture, the unpaid and unconverted
principal amount of this Debenture represented by this Debenture may be less
than the amount stated on the face hereof
(c) PAYMENT OF TAXES. The Borrower shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of shares of Common Stock or other securities or property on
conversion of this Debenture in a name other than that of the Holder (or in
street name), and the Borrower shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such shares
are to be held for the Holder's account) requesting the issuance thereof shall
have paid to the Borrower the amount of any such tax or shall have established
to the satisfaction of the Borrower that such tax has been paid.
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(d) LOST OR STOLEN DEBENTURES. Upon receipt by the
Borrower of evidence of the loss, theft, destruction or mutilation of this
Debenture, and (in the case of loss, theft or destruction) of indemnity
reasonably satisfactory to the Borrower, and upon surrender and cancellation of
this Debenture, if mutilated, the Borrower shall execute and deliver a new
Debenture of like tenor and date.
(e) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon
submission of a notice of Conversion, the Borrower shall, within three business
days after the Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or
cause its Transfer Agent so to issue and deliver) in accordance with the terms
hereof and the Purchase Agreement (including, without limitation, in accordance
with the requirements of Section 2(g) of the Purchase Agreement) to or upon the
order of the Holder that number of shares of Common Stock for the portion of
this Debenture converted as shall be determined in accordance herewith. In
addition to any other remedies available to the Holder, including actual damages
and/or equitable relief, the Borrower shall pay to the Holder $2,000 per day in
cash for each day beyond a two-day grace period following the Delivery Period
that the Borrower failed to deliver Common Stock (a "DELIVERY DEFAULT") issuable
upon conversion of this Debenture pursuant to the Notice of Conversion until
such time as the Borrower has delivered all such Common Stock (the "DELIVERY
DEFAULT PAYMENTS"); PROVIDED, HOWEVER, in the event of a failure by the Borrower
to deliver shares upon conversion as a result of a Conversion Default, the
Holder shall not be entitled to receive Delivery Default Payments but shall be
entitled to receive Conversion Default Payments in accordance with Section 1.3.
Such Delivery Default Payments shall be paid to the Holder on or before the
fifth (5th) day of the month following the month in which they have accrued,
PROVIDED that if such amounts have not been paid in cash on or before such date,
at the option of the Holder (by written notice to the Borrower), such payments
shall be added to the principal amount of this Debenture, in which event
interest shall accrue thereon in accordance with the terms of this Debenture and
such additional principal amount shall be convertible into Common Stock in
accordance with the terms of this Debenture.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Borrower's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of the Holder and its compliance
with the provisions contained in Section 1.1 and in this Section 1.4, the
Borrower shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of the Holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(f) OBLIGATION OF BORROWER TO DELIVER COMMON STOCK.
Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be
deemed to be the holder of record of the Common Stock issuable upon such
conversion, the outstanding principal amount and the amount of accrued and
unpaid interest on this Debenture shall be reduced to reflect such conversion,
and, unless the Borrower defaults on its obligations hereunder, all rights with
respect to the portion of this Debenture being so converted shall forthwith
terminate except the right to receive the
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Common Stock or other securities, cash or other assets, as herein provided, on
such conversion. If the Holder shall have given a Notice of Conversion as
provided herein, the Borrower's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional, irrespective of the
absence of any action by the Holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Borrower to the holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder of any obligation to the Borrower, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion.
(g) NO FRACTIONAL SHARES. If any conversion of this
Debenture would result in a fractional share of Common Stock or the right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion of
this Debenture shall be the next higher number of shares.
(h) CONVERSION DATE. The "CONVERSION DATE" shall be the
date specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in, or
reasonably expected to result in, written notice) to the Borrower or its
Transfer Agent before Midnight, New York City time, on the date so specified,
otherwise the Conversion Date shall be the first business day after the date so
specified (provided that the Notice of Conversion is actually received by the
Borrower or its Transfer Agent on such business day). The person or persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such securities as
of the Conversion Date and all rights with respect to this Debenture (or portion
thereof surrendered shall forthwith terminate except the rights set forth in
Sections 1.4(f) and Section 1.7 hereof.
1.5 EFFECT OF CERTAIN EVENTS.
(a) EFFECT OF MERGER, CONSOLIDATION, ETC. At the option
of the Holder, the sale, conveyance or disposition of all or substantially all
of the assets of the Borrower, the effectuation by the Borrower of a transaction
or series of related transactions in which more than 50% of the voting power of
the Borrower is disposed of, or the consolidation, merger or other business
combination of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either: (i) be deemed to be
an Event of Default (as defined in Article III) pursuant to which the Borrower
shall be required to pay to the Holder upon the consummation of and as a
condition to such transaction an amount equal to the Default Amount (as defined
in Article III) or (ii) be treated pursuant to Section 1.5(b) hereof; PROVIDED,
HOWEVER, that in the event of a merger, consolidation or other business
combination of the Borrower with or into any other Person when the Borrower is
not the survivor but where the survivor is an entity whose common stock is
traded on the NNM, the AMEX or the NYSE, such transaction shall be treated
pursuant to Section 1.5(b) hereof . "PERSON" shall mean any individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.
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(b) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at
any time when this Debenture is issued and outstanding and prior to conversion
of all of the Debentures, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower (each, a "CHANGE OF CONTROL
TRANSACTION"), then the Holder of this Debenture shall thereafter have the right
to receive upon conversion of this Debenture, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the Holder would have been entitled to receive in such transaction
had this Debenture been converted in full immediately prior to such transaction
(without regard to any limitations on conversion set forth herein), and in any
such case appropriate provisions shall be made with respect to the rights and
interests of the Holder of this Debenture to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Debenture)
shall thereafter be applicable, as nearly as may be practicable in relation to
any securities or assets thereafter deliverable upon the conversion hereof. The
Borrower shall not effect any transaction described in this Section 1.5(b)
unless (a) it first gives, to the extent practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) business days prior
written notice) of the record date of the special meeting of shareholders to
approve, or if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled
to convert this Debenture) and (b) the resulting successor or acquiring entity
(if not the Borrower) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the holders of Common
Stock are entitled to receive as a result of such Change of Control Transaction,
assumes by written instrument the obligations of this Debenture, including this
Section 1.5(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) ADJUSTMENT DUE TO DISTRIBUTION. If the Borrower shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of capital stock of
a subsidiary (i.e., a spin-off)) (a "DISTRIBUTION"), then the Holder of this
Debenture shall be entitled, upon any conversion of this Debenture after the
date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the Holder
with respect to the shares of Common Stock issuable upon such conversion had
such Holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.
(d) PURCHASE RIGHTS. If, at any time when any Debentures
are issued and outstanding, the Borrower issues any convertible securities or
rights to purchase stock, warrants, securities or other property (the "PURCHASE
RIGHTS") pro rata to the record holders of any class of
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Common Stock, then the Holder of this Debenture will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such Holder could have acquired if such Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this Debenture
(without regard to any limitations on conversion contained herein) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(e) ANTIDILUTION PROVISIONS. The Conversion Price shall
be subject to adjustment from time to time as provided in this Section 1.5(e).
(i) ADJUSTMENT OF CONVERSION PRICE. If, and
whenever on or after the date of issuance of this Debenture, the Borrower issues
or sells, or in accordance with Section 1.5(c)(ii) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of such issuance (or deemed
issuance) of such shares of Common Stock (a "DILUTIVE ISSUANCE"), then
immediately upon the Dilutive Issuance, the Conversion Price will be reduced to
a price determined by multiplying the Conversion Price in effect immediately
prior to the Dilutive Issuance by a fraction, (i) the numerator of which is an
amount equal to the sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of
the aggregate consideration, calculated as set forth in Section 1.5(e)(ii)
hereof, received by the Borrower upon such Dilutive Issuance divided by the
Market Price in effect immediately prior to the Dilutive Issuance, and (ii) the
denominator of which is the total number of shares of Common Stock Deemed
Outstanding (as defined below) immediately after the Dilutive Issuance.
(ii) EFFECT ON CONVERSION PRICE OF CERTAIN
EVENTS. For purposes of determining the adjusted Conversion Price under Section
1.5(e)(i) hereof, the following will be applicable:
A. ISSUANCE OF RIGHTS OR OPTIONS. If the
Borrower in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "OPTIONS") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Borrower for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Borrower as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable
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to the Borrower upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Conversion Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
B. ISSUANCE OF CONVERTIBLE SECURITIES. If the
Borrower in any manner issues or sells any Convertible Securities, whether or
not immediately convertible (other than where the same are issuable upon the
exercise of Options), and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Borrower for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Borrower as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
C. CHANGE IN OPTION PRICE OR CONVERSION RATE.
If there is a change at any time in (i) the amount of additional consideration
payable to the Borrower upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Borrower upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such change will be
readjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
D. TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Conversion Price then in effect will be readjusted to the
Conversion Price which would have been in effect at the time of such expiration
or termination had
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such Option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination (other than in respect of the actual
number of shares of Common Stock issued upon exercise or conversion thereof),
never been issued.
E. CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Debenture
will be the amount received by the Borrower therefor, before deduction of
reasonable commissions, underwriting discounts or allowances or other reasonable
expenses paid or incurred by the Borrower in connection with such issuance,
grant or sale. In case any Common Stock, Options or Convertible Securities are
issued or sold for a consideration part or all of which shall be other than
cash, the amount of the consideration other than cash received by the Borrower
will be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Borrower will be the Market Price (as defined below) thereof as of the date
of receipt. In case any Common Stock, Options or Convertible Securities are
issued in connection with any acquisition, merger or consolidation in which the
Borrower is the surviving corporation, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving corporation as is attributable to such Common Stock, Options
or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities will be determined in good faith by
the Board of Directors of the Borrower.
F. EXCEPTIONS TO ADJUSTMENT OF CONVERSION
PRICE. No adjustment to the Conversion Price will be made: (i) upon the exercise
of any warrants, options or convertible securities granted, issued and
outstanding on the date of issuance of this Debenture; (ii) upon the grant or
exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Borrower now existing or to be
implemented in the future, so long as the issuance of such stock or options is
approved by a majority of the independent members of the Board of Directors of
the Borrower or a majority of the members of a committee of independent
directors established for such purpose; (iii) upon the conversion of the
Debentures; (iv) upon the issuance, within 180 days of the Closing Date (as
defined in the Purchase Agreement), in a single transaction to a Strategic
Investor (as defined below) of (A) up to $10 million of Common Stock (or
securities convertible into Common Stock) for a price per share of Common Stock
(or, in the case of convertible securities, having a conversion price per share
of Common Stock) of not less than 80% of the Market Price in effect on the date
of issuance of such Common Stock (or security convertible into Common Stock) and
(B) options or warrants to purchase up to 19.99% of the outstanding Common Stock
of the Borrower at an exercise price per share of Common Stock of not less than
80% of the Market Price in effect on the date of issuance of such options or
warrants; or (v) upon the issuance, simultaneous with the closing of the
transactions referred to in clause (iv) above, to an executive officer of the
Strategic Investor of options to purchase up to one million shares of Common
Stock at an exercise price per share of Common Stock of not less than $4.00 in
connection with such individual's agreement to serve on the Board of Directors
of the Borrower following the closing of the transactions described in clause
(iv) above; PROVIDED, HOWEVER, that in the case of the events described in
clauses (iv) and (v) hereof, if the Market Price of the Common Stock in effect
on the thirtieth (30th) calendar day following the public announcement of the
material
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terms of such transactions is less than the Market Price of the Common Stock in
effect on the Trading Day immediately preceding the public announcement of the
material terms of such transactions, then the Conversion Price shall be subject
to adjustment effective on the later of (x) the thirtieth (30th) calendar day
following the public announcement of the material terms of such transactions and
(y) the date of consummation of such transactions, in accordance with the
provisions of Section 1.5(e)(i) hereof on the same basis as if the transactions
set forth in clauses (iv) and (v) hereof were not excepted hereby; and PROVIDED,
FURTHER, HOWEVER, that the transactions set forth in clauses (iv) and (v) hereof
will not be excepted from the provisions of Section 1.5(e)(i) hereof pursuant
hereto if the public announcement of the material terms of such transactions
precedes the consummation of such transactions by more than seventy-five (75)
calendar days. "STRATEGIC INVESTOR" shall mean a corporation (or a wholly-owned
subsidiary thereof) whose capital stock is listed for trading on one of the
NYSE, AMEX or NNM, has a market capitalization at the time of its investment in
the Borrower of not less than $1 billion and whose principal business is
advertising and marketing services (including Internet applications relating
thereto).
(iii) SUBDIVISION OR COMBINATION OF COMMON STOCK.
If the Borrower at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced. If
the Borrower at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iv) CERTAIN DEFINITIONS.
A. "MARKET PRICE," for any security as of any
date, (i) means the average of the last reported sale prices for such security
on the NNM for the five (5) Trading Days immediately preceding such date as
reported by Bloomberg, L.P. ("BLOOMBERG"), or (ii) if the NNM is not the
principal trading market for such security, the average of the last reported
sale prices on the principal trading market for such security during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Borrower or (b) at the option of a majority-in-interest of the
holders of the outstanding Debentures, by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the issuing corporation.
B. "COMMON STOCK," for purposes of this Section
1.5(e), includes the Common Stock, par value $0.01 per share, and any additional
class of stock of the Borrower having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant to
this Debenture shall include only shares of Common Stock, no par value per
share, in respect of which this Debenture is exercisable, or shares resulting
from any
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subdivision or combination of such Common Stock, or any reorganization,
reclassification, consolidation or merger involving the Borrower.
C. "COMMON STOCK DEEMED OUTSTANDING" shall mean
the number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Borrower), plus (x) pursuant to
Section 1.5(e)(ii)(A) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Section 1.5(e)(ii)(B) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(f) NOTICE OF ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price as a result of the events
described in this Section 1.5, the Borrower, at its expense, shall promptly
compute such adjustment or readjustment and prepare and furnish to the Holder of
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of the Debenture.
1.6 TRADING MARKET LIMITATIONS. Unless (i) permitted by the
applicable rules and regulations of the principal securities market on which the
Common Stock is then listed or traded or (ii) the Borrower has obtained approval
of the issuance of Common Stock upon conversion of the Debentures in accordance
with applicable law and the rules and regulations of any stock exchange,
interdealer quotation system or other self-regulatory organization with
jurisdiction over the Borrower or any of its securities (the "STOCKHOLDER
APPROVAL"), in no event shall the total number of shares of Common Stock issued
upon conversion of this Debenture and the other Debentures issued pursuant to
the Purchase Agreement (including any shares of capital stock or rights to
acquire shares of capital stock issued by the Borrower which are aggregated or
integrated with the Common Stock issued or issuable upon conversion of the
Debentures for purposes of any such rule or regulation) exceed the maximum
number of shares of Common Stock that the Borrower can issue pursuant to any
rule of the principal United States securities market on which the Common Stock
is then traded (including Rule 4460(i) of Nasdaq) (the "MAXIMUM SHARE AMOUNT"),
which, as of the Issue Date shall be 10,485,478 shares (19.99% of the total
shares outstanding on the Issue Date), subject to adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the Issue Date. With
respect to each Holder of Debentures, the Maximum Share Amount shall refer to
such Holder's PRO RATA share thereof determined in accordance with Section 5.8
below. In the event that the sum of (i) the aggregate number of shares of Common
Stock issued upon conversion of this Debenture and the other Debentures issued
pursuant to the Purchase Agreement PLUS (ii) the aggregate number of shares of
Common Stock that remain issuable upon conversion of this Debenture and the
other Debentures issued pursuant to the Purchase Agreement, represents at least
one hundred percent (100%) of the Maximum Share Amount (the "TRIGGERING EVENT"),
the Borrower will use its best
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efforts to seek and obtain Stockholder Approval (or obtain such other relief as
will allow conversions hereunder in excess of the Maximum Share Amount) as soon
as practicable following the Triggering Event. If any Debentures cease to be
convertible as a result of the limitations described in this Section 1.6 (a
"TRADING MARKET REDEMPTION EVENT"), and the Borrower has not prior to, or within
thirty (30) days of the date that such Trading Market Redemption Event arises,
(i) obtained the Stockholder Approval or (ii) eliminated any prohibition under
application law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Borrower or any of its securities on the Borrower's ability to issue shares
of Common Stock in excess of the Maximum Share Amount then the Borrower shall be
obligated to redeem immediately all of the then outstanding Debentures, in
accordance with this Section 1.6. An irrevocable redemption notice (the "TRADING
MARKET REDEMPTION NOTICE") shall be delivered promptly to the Holders of
Debentures at their registered address appearing on the records of the Borrower
and shall state (i) that the Maximum Share Amount has been issued upon
conversion of the Debentures, (ii) that the Borrower is obligated to redeem all
of the outstanding Debentures, and (iii) the date of redemption, which shall be
a date within five (5) business days of the earlier of (a) the date of the
Trading Market Redemption Notice or (b) the date on which the Holders of the
Debentures notify the Borrower of the occurrence of a Trading Market Redemption
Event. On the date of redemption, the Borrower shall make payment of the Default
Amount (as defined in Article III) in cash.
1.7 STATUS AS SHAREHOLDER. Upon submission of a Notice of
Conversion by a Holder, (i) the shares covered thereby (other than the shares,
if any, which cannot be issued because their issuance would exceed such Holder's
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the Holder's rights as a
Holder of such converted portion of this Debenture shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such Holder because of a failure by the Borrower to comply with the terms of
this Debenture. Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Deadline with respect to a conversion of any
portion of this Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Debenture with
respect to such unconverted portions of this Debenture and the Borrower shall,
as soon as practicable, return such unconverted Debenture to the Holder or, if
the Debenture has not been surrendered, adjust its records to reflect that such
portion of this Debenture has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without limitation, the right
to receive Conversion Default Payments pursuant to Section 1.3 to the extent
required thereby for such Conversion Default and any subsequent Conversion
Default) for the Borrower's failure to convert this Debenture.
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ARTICLE II. CERTAIN COVENANTS
2.1 DISTRIBUTIONS ON CAPITAL STOCK. So long as the Borrower shall
have any obligation under this Debenture, the Borrower shall not, without the
Holder's written consent, (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common Stock solely
in the form of additional shares of Common Stock or (b) directly or indirectly
or through any subsidiary make any other payment or distribution in respect of
its capital stock; PROVIDED, HOWEVER, that the Borrower shall not be prohibited
from distributing or issuing shares (or rights to acquire shares) of the
subsidiary listed on Schedule 2.1 hereto so long as any such distribution or
issuance would otherwise be subject to the provisions of Sections 1.5(c) and (d)
hereof.
2.2 RESTRICTION ON STOCK REPURCHASES. So long as the Borrower
shall have any obligation under this Debenture, the Borrower shall not, without
the Holder's written consent, redeem, repurchase or otherwise acquire (whether
for cash or in exchange for property or other securities or otherwise) in any
one transaction or series of related transactions any shares of capital stock of
the Borrower or any warrants, rights or options to purchase or acquire any such
shares, except for any such repurchases made by the Borrower in connection with
the termination of employment of any of its employees, PROVIDED that such
repurchases are (i) made at no greater than the Market Price of such shares of
capital stock and (ii) approved by a majority of the Borrower's disinterested
directors.
2.3 BORROWINGS. So long as the Borrower shall have any obligation
under this Debenture, the Borrower shall not, without the Holder's written
consent, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Borrower has informed the Holder in writing prior to the date hereof,
(b) indebtedness to trade creditors incurred in the ordinary course of business,
(c) borrowings, the proceeds of which shall be used to repay this Debenture, (d)
asset-based borrowings involving accounts receivable or inventory financing or
leaseholds or (e) pledges by the Borrower of the capital stock of the subsidiary
listed on Schedule 2.1 hereto as collateral in connection with a BONA FIDE
lending arrangement, the proceeds of which are used by the Borrower to finance
the operations of such subsidiary.
2.4 ADVANCES AND LOANS. So long as the Borrower shall have any
obligation under this Debenture, the Borrower shall not, without the Holder's
written consent, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Borrower, except loans,
credits or advances (a) in existence or committed on the date hereof and which
the Borrower has informed the Holder in writing prior to the date hereof, (b)
made in the ordinary course of business, as determined by a majority of the
Borrower's disinterested directors or (c) relating to (i) the recruitment or
retention of employees or (ii) transactions with joint venture partners or
subsidiaries,
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provided that such loans, credits or advances referred to in (i) and (ii) are
approved by a majority of the Borrower's disinterested directors.
2.5 CONTINGENT LIABILITIES. So long as the Borrower shall have any
obligation under this Debenture, the Corporation shall not without the Holder's
written consent, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed the Holder in writing prior to the date
hereof, (b) made in the ordinary course of business, as determined by a majority
of the Borrower's disinterested directors or (c) relating to (i) the recruitment
or retention of employees or (ii) transactions with joint venture partners or
subsidiaries, provided that such assumptions, guarantees, endorsements and
contingencies referred to in (i) and (ii) are approved by a majority of the
Borrower's disinterested directors.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to
pay the principal hereof or interest thereon when due on this Debenture, whether
at maturity, upon mandatory prepayment pursuant to Section 1.6, upon
acceleration or otherwise;
3.2 CONVERSION AND THE SHARES. The Borrower (a) fails to issue
shares of Common Stock to the Holder (or announces or states in writing that it
will not honor its obligation to do so) upon exercise by the Holder of the
conversion rights of the Holder in accordance with the terms of this Debenture
(for a period of at least sixty (60) days, if such failure is solely as a result
of the circumstances governed by Section 1.3 and the Borrower is using its best
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), (b) fails to transfer or cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the Holder upon conversion of this Debenture as and when
required by this Debenture or the Registration Rights Agreement, or (c) fails to
remove any restrictive legend (or to withdraw any stop transfer instructions in
respect thereof) on any certificate for any shares of Common Stock issued to the
Holder upon conversion of this Debenture as and when required by this Debenture,
the Purchase Agreement or the Registration Rights Agreement (or makes any
announcement or written statement that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement or written statement not to honor its obligations
shall not be rescinded in writing) for ten (10) days after the Borrower shall
have been notified thereof in writing by the Holder;
3.3 FAILURE TO EFFECT REGISTRATION. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission prior to July 31, 2000
of the Registration Statement(s) (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the
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<PAGE>
Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within 60 days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) cannot otherwise be made thereunder (whether by
reason of the Borrower's failure to amend or supplement the prospectus included
therein in accordance with the Registration Rights Agreement, the Borrower's
failure to file and obtain effectiveness with the SEC of an additional
Registration Statement required pursuant to Section 3(b) of the Registration
Rights Agreement or otherwise) for more than twenty (20) consecutive days or
sixty (60) days in any twelve month period after such Registration Statement
becomes effective;
3.4 BREACH OF COVENANTS. The Borrower breaches any material
covenant or other material term or condition contained in Article II hereof or
in Sections 1.3, 1.5 or 1.6 of this Debenture, or Sections 4(c), 4(d), 4(e),
4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for a
period of ten (10) business days after written notice thereof to the Borrower
from the Holder;
3.5 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation
or warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto (including, without limitation,
pursuant to the Purchase Agreement and the Registration Rights Agreement), shall
be false or misleading in any material respect when made and the breach of which
has a material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;
3.6 RECEIVER OR TRUSTEE. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;
3.7 JUDGMENTS. Any money judgment, writ or similar process shall
be entered or filed by a court against the Borrower or any subsidiary of the
Borrower or any of its property or other assets for more than $1,000,000, and
shall remain unvacated, unbonded or unstayed for a period of twenty (20) days
unless otherwise consented to by the Holder, which consent will not be
unreasonably withheld;
3.8 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any "significant subsidiary" (as defined in Rule 1-02(w) of
Regulation S-X promulgated under the 1933 Act) of the Borrower;
3.9 DELISTING OF COMMON STOCK. The Borrower shall fail to maintain
the listing of the Common Stock on at least one of the NNM, the Nasdaq SmallCap,
the NYSE, or the AMEX; or
\
19
<PAGE>
3.10 DEFAULT UNDER OTHER DEBENTURES. An Event of Default has
occurred and is continuing under any of the other Debentures issued pursuant to
the Purchase Agreement.
then, upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at the option
of the Holders of a majority of the aggregate principal amount of the
outstanding Debentures issued pursuant to the Purchase Agreement exercisable
through the delivery of written notice to the Borrower by such Holders (the
"DEFAULT NOTICE"), and upon the occurrence of an Event of Default specified in
Section 3.6 or 3.8, the Debentures shall become immediately due and payable and
the Borrower shall pay to the Holder, in full satisfaction of its obligations
hereunder, an amount equal to the greater of (i) 115% TIMES the SUM of (w) the
then outstanding principal amount of this Debenture, PLUS (x) all accrued and
unpaid interest thereon for the period beginning on the Issue Date and ending on
the date of payment of the Default Amount (the "MANDATORY PREPAYMENT DATE"),
plus (y) Default Interest, if any, on the amounts referred to in clauses (w)
and/or (x), PLUS (z) any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(e) hereof or pursuant to Section 2(b) of the Registration Rights Agreement
(the then outstanding principal amount of this Debenture to the date of payment
PLUS the amounts referred to in clauses (x), (y) and (z) shall collectively be
known as the "DEFAULT SUM"), or (ii) the "parity value" of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common
Stock issuable upon conversion of such Default Sum in accordance with Article I
(without giving any effect to any limitation on conversion of the Debenture
contained herein,) MULTIPLIED BY (b) the highest Closing Price (as defined
below) for the Common Stock during the period beginning on the date of first
occurrence of the Event of Default and ending one day prior to the Mandatory
Prepayment Date (the greater of such amounts being referred to herein as the
"DEFAULT AMOUNT"). The Default Amount, together with all other amounts payable
hereunder, shall immediately become due and payable, all without demand,
presentment or notice, all of which hereby are expressly waived, together with
all costs, including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or in equity. "CLOSING PRICE," as of any date, means
the last sale price of the Common Stock on the NNM as reported by Bloomberg or,
if the NNM is not the principal trading market for such security, the last sale
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last sale price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last sale price of such security is available
in the over-the-counter market on the electronic bulletin board for such
security or in any of the foregoing manners, the average of the bid prices of
any market makers for such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Price cannot be calculated for
such security on such date in the manner provided above, the Closing Price shall
be the fair market value as mutually determined by the Borrower and the Holder.
If the Borrower fails to pay the Default Amount within five (5)
business days of written notice that such amount is due and payable, then the
Holder shall have the right at any time, so long as the Borrower remains in
default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in
lieu of the
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<PAGE>
Default Amount, the number of shares of Common Stock of the Borrower equal to
the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. OPTIONAL REDEMPTION
So long as for at all times during the period beginning thirty (30)
Trading Days prior to the date of the Optional Redemption Notice (as defined
below) and ending on the Optional Redemption Date (as defined below) (i) all of
the shares of Common Stock issuable upon conversion of the Debentures are then
(x) authorized and reserved for issuance, (y) registered for resale under the
1933 Act by the Holders of the Debentures and sales of such shares may be made
thereunder (or such shares may otherwise be resold publicly without restriction)
and (z) eligible to be traded on the NNM, the Nasdaq SmallCap, the NYSE or the
AMEX and (ii) no Event of Default or Trading Market Redemption Event shall have
occurred and be continuing, then the Borrower shall have the right on or prior
to 5:00 p.m., New York City time, on each of the one-year anniversary of the
Issue Date and the two-year anniversary of the Issue Date, to deliver written
notice to the holders of the Debentures (which notice may only be sent to the
holders of the Debentures (A) if, on the one-year anniversary of the Issue Date,
the First Adjusted Conversion Price is less than the Initial Conversion Price or
if, on the two-year anniversary of the Issue Date, the Second Adjusted
Conversion Price is less than the Conversion Price then in effect and (B) if, in
each such case, the Conversion Price would otherwise be adjusted pursuant to
Section 1.2(b) or (c) hereof, as applicable) of its intention to redeem all of
the outstanding Debentures in accordance with this Article IV. Any notice (the
"OPTIONAL REDEMPTION NOTICE") of redemption hereunder (an "OPTIONAL REDEMPTION")
shall be delivered to the holders of the Debentures at their registered
addresses appearing on the books and records of the Borrower and shall state (1)
that the Borrower is exercising its right to redeem all of the outstanding
Debentures issued and (2) the date of redemption (the "OPTIONAL REDEMPTION
DATE"), which date shall be twenty (20) Trading Days after the date of delivery
of the Optional Redemption Notice. On the Optional Redemption Date, the Borrower
shall make payment of the Optional Redemption Amount (as defined below) to or
upon the order of the holders as specified by the holders in writing to the
Borrower at least one (1) business day prior to the Optional Redemption Date. If
the Borrower exercises its right to redeem the Debentures, the Borrower shall
make payment to the holders of an amount in cash (the "OPTIONAL REDEMPTION
AMOUNT") equal to (a) the then outstanding principal amount of the Debentures,
PLUS (b) all accrued and unpaid interest thereon for the period beginning on the
Issue Date and ending on the Optional Redemption Date, PLUS (c) Default
Interest, if any, on the amounts referred to in clauses (a) and/or (b), PLUS (d)
all Conversion Default Payments, Delivery Default Payments and any other amounts
owed to such holder pursuant to Section 2(c) of the Registration Rights
Agreement. Notwithstanding notice of an Optional Redemption, the holders shall
at all times prior to the Optional Redemption Date maintain the right to convert
all or any portion of the Debentures at the Conversion Price in effect prior to
the delivery of such Optional Redemption Notice (as the same may be adjusted
pursuant to Section 1.5) in accordance with Article I and any portion of the
Debentures so converted after receipt of an Optional Redemption Notice and prior
to the Optional Redemption Date set forth in such notice and payment of the
aggregate Optional Redemption Amount shall be deducted from the Debentures which
are otherwise subject to redemption pursuant to such notice. If the Borrower
21
<PAGE>
delivers an Optional Redemption Notice and fails to pay the Optional Redemption
Amount due to the holders of the Debentures within two (2) business days
following the Optional Redemption Date, the Borrower shall forever forfeit its
right to redeem the Debentures pursuant to this Article IV.
ARTICLE V. MISCELLANEOUS
5.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
5.2 NOTICES. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be 1311
Mamaroneck Avenue, White Plains, New York 10605, facsimile number (914)
682-4440. Both the Holder and the Borrower may change the address for service by
service of written notice to the other as herein provided.
5.3 AMENDMENTS. Except as otherwise expressly provided herein,
this Debenture and any provision hereof may only be amended by an instrument in
writing signed by the Borrower and the Holder. The term "Debenture" and all
reference thereto, as used throughout this instrument, shall mean this
instrument (and the other Debentures issued pursuant to the Purchase Agreement)
as originally executed, or if later amended or supplemented, then as so amended
or supplemented.
5.4 ASSIGNABILITY. This Debenture shall be binding upon the
Borrower and its successors and assigns, and shall inure to be the benefit of
the Holder and its successors and assigns.
5.5 COST OF COLLECTION. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
5.6 GOVERNING LAW. This Debenture shall be governed by the
internal laws of the State of Delaware, without regard to the principles of
conflict of laws.
5.7 CERTAIN AMOUNTS. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
intended to compensate the
22
<PAGE>
Holder in part for loss of the opportunity to convert this Debenture and to earn
a return from the sale of shares of Common Stock acquired upon conversion of
this Debenture at a price in excess of the price paid for such shares pursuant
to this Debenture. The Borrower and the Holder hereby agree that such amount of
stipulated damages is not plainly disproportionate to the possible loss to the
Holder from the receipt of a cash payment without the opportunity to convert
this Debenture into shares of Common Stock.
5.8 ALLOCATIONS OF MAXIMUM SHARE AMOUNT AND RESERVED AMOUNT. The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among the
holders of Debentures based on the principal amount of such Debentures issued to
each Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be allocated pro rata among the holders of Debentures based on the principal
amount of such Debentures held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder shall sell or
otherwise transfer any of such Holder's Debentures, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any
Debentures shall be allocated to the remaining Holders of Debentures, pro rata
based on the principal amount of such Debentures then held by such Holders.
5.9 DAMAGES SHARES. The shares of Common Stock that may be
issuable to the Holder pursuant to Sections 1.3 and 1.4(e) hereof and pursuant
to Section 2(c) of the Registration Rights Agreement ("DAMAGES SHARES") shall be
treated as Common Stock issuable upon conversion of this Debenture for all
purposes hereof and shall be subject to all of the limitations and afforded all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("DAMAGES AMOUNTS")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
5.10 DENOMINATIONS. At the request of the Holder, upon surrender of
this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations as the Holder shall request.
5.11 PURCHASE AGREEMENT. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.
5.12 NOTICE OF CORPORATE EVENTS. Except as otherwise provided in
this Debenture, the Holder of this Debenture shall have no rights as a Holder of
Common Stock unless and only to the extent that it converts this Debenture into
Common Stock. The Borrower shall provide the Holder with prior notification of
any meeting of the Borrower's shareholders (and copies of proxy materials and
other information sent to shareholders). In the event of any taking by the
Borrower of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise
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<PAGE>
acquire (including by way of merger, consolidation, reclassification or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Borrower or any proposed
liquidation, dissolution or winding up of the Borrower, the Borrower shall mail
a notice to the Holder, at least twenty (20) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
The Borrower shall make a public announcement of any event requiring
notification to the Holder hereunder substantially simultaneously with the
notification to the Holder in accordance with the terms of this Section 5.12.
5.13 REMEDIES. The Borrower acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby. Accordingly, the
Borrower acknowledges that the remedy at law for a breach of its obligations
under this Debenture will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Debenture, that the
Holder shall be entitled, in addition to all other available remedies at law or
in equity, to an injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and provisions
thereof, without the necessity of showing economic loss and without any bond or
other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in
its name by its duly authorized officer this day of March 10, 2000.
LEARN2.COM, INC.
By:
-------------------------------------
Stephen P. Gott
President and Chief Executive Officer
25
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debentures)
The undersigned hereby irrevocably elects to convert $__________
principal amount of the Debenture (defined below) into shares of common stock,
par value $0.01 per share ("Common Stock"), of Learn2.com, Inc., a Delaware
corporation (the "BORROWER") according to the conditions of the convertible
debentures of the Borrower dated as of March 10, 2000 (the "DEBENTURES"), as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:______________________________
Account Number:________________________________________
/_/ In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Borrower issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are
based on the Holder's calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an
attachment hereto:
Name:__________________________________________________
Address:_______________________________________________
_______________________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Debentures shall be made pursuant to registration of the securities under the
Securities Act of 1933, as amended (the "ACT"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:_______________________________
Applicable Conversion Price:______________________
Number of Shares of Common
Stock to be Issued Pursuant to (i)
Conversion of the Debentures:_____________________
A-1
<PAGE>
(ii) Conversion of Conversion Default Payments, Delivery Default
Payments and/or payments pursuant to Section 2(c) of the
Registration Rights Agreement: _________________________________
Signature:_______________________________________________________
Name:____________________________________________________________
Address:_________________________________________________________
Subject to Section 1.4(b) of the Debenture(s), the Borrower is
not required to issue shares of Common Stock until the original Debenture(s) (or
evidence of loss, theft or destruction thereof) to be converted are received by
the Borrower or its Transfer Agent. The Borrower shall issue and deliver shares
of Common Stock to an overnight courier not later than two business days
following receipt of the original Debenture(s) to be converted, and shall make
payments pursuant to the Debentures for the number of business days such
issuance and delivery is late.
A-2
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Page 1 of
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF MARCH 10, 2000, NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR,
AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO COUNSEL TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH
ACT.
Right to
Purchase
337,268
Shares of
Common
Stock, par
value $0.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors,
LDC or its registered assigns, is entitled to purchase from Learn2.com, Inc., a
Delaware corporation (the "Company"), at any time or from time to time during
the period specified in Paragraph 2 hereof, Three Hundred Thirty-Seven Thousand,
Two Hundred Sixty-Eight (337,268) fully paid and nonassessable shares of the
Company's Common Stock, par value $0.01 per share (the "Common Stock"), at an
exercise price of $7.41 per share (the "Exercise Price"). The term "Warrant
Shares," as used herein, refers to the shares of Common Stock purchasable
hereunder. The Warrant Shares and the Exercise Price are subject to adjustment
as provided in Paragraph 4 hereof. The term Warrants means this Warrant and the
other warrants issued pursuant to that certain Securities Purchase Agreement,
dated March 10, 2000, by and among the Company and the Buyers listed on the
execution page thereof (the "Securities Purchase Agreement").
1
<PAGE>
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant, together
with a completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any trading day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) trading days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the Holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, (i) beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) hereof, and (ii) the limitation contained in the immediately preceding
sentence may not be amended without the written consent of the holder hereof,
the Company and a majority of the stockholders of the Company.
2
<PAGE>
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement (the "Issue
Date") and before 5:00 p.m., New York City time on the fifth anniversary of the
Issue Date (the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby
covenants and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will,
upon issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges with
respect to the issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period,
the Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the
listing of the shares of Common Stock issuable upon exercise of the Warrant upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
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4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
UPON ISSUANCE OF COMMON STOCK. Except as otherwise provided in Paragraphs 4(c)
and 4(e) hereof, if and whenever on or after the Issue Date of this Warrant, the
Company issues or sells, or in accordance with Paragraph 4(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of issuance (or deemed
issuance) of such Common Stock (a "Dilutive Issuance"), then immediately upon
the Dilutive Issuance, the Exercise Price will be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock or
other securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible
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Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date of
issuance of such Convertible Securities, then the maximum total number of shares
of Common Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE.
If there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price in effect at the time of such change will be
readjusted to the Exercise Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
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(v) CALCULATION OF CONSIDERATION RECEIVED. If
any Common Stock, Options or Convertible Securities are issued, granted or sold
for cash, the consideration received therefor for purposes of this Warrant will
be the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE.
No adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so
long as the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants; (iv) upon the issuance, within
180 days of the Closing Date (as defined in the Securities Purchase Agreement),
in a single transaction to a Strategic Investor (as defined below) of (A) up to
$10 million of Common Stock (or securities convertible into Common Stock) for a
price per share of Common Stock (or, in the case of convertible securities,
having a conversion price per share of Common Stock) of not less than 80% of the
Market Price in effect on the date of issuance of such Common Stock (or security
convertible into Common Stock) and (B) options or warrants to purchase up to
19.99% of the outstanding Common Stock of the Company at an exercise price per
share of Common Stock of not less than 80% of the Market Price in effect on the
date of issuance of such options or warrants; or (v) upon the issuance,
simultaneous with the closing of the transactions referred to in clause (iv)
above, to an executive officer of the Strategic Investor of options to purchase
up to one million shares of Common Stock at an exercise price per share of
Common Stock of not less than $4.00 in connection with such individual's
agreement to serve on the Board of Directors of the Company following the
closing of the transactions described in clause (iv) above; PROVIDED, HOWEVER,
that in the case of the events described in clauses (iv) and (v) hereof, if the
Market Price of the Common Stock in effect on the thirtieth (30th) calendar day
following the public announcement of the material terms of such transactions is
less than the Market Price of the Common Stock in effect on the Trading Day
immediately preceding the public announcement of the material terms of such
transactions, then the Conversion Price shall be subject to adjustment effective
on the later of (x) the thirtieth (30th) calendar day following the public
announcement of the material terms of such
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transactions and (y) the date of consummation of such transactions, in
accordance with the provisions of Section 4(a) hereof on the same basis as if
the transactions set forth in clauses (iv) and (v) hereof were not excepted
hereby; and PROVIDED, FURTHER, HOWEVER, that the transactions set forth in
clauses (iv) and (v) hereof will not be excepted from the provisions of Section
4(a) hereof pursuant hereto if the public announcement of the material terms of
such transactions precedes the consummation of such transactions by more than
seventy-five (75) calendar days. "Strategic Investor" shall mean a corporation
(or a wholly-owned subsidiary thereof) whose capital stock is listed for trading
on one of the New York Stock Exchange, the American Stock Exchange or the NNM
(as defined in Section 4(l)(ii)), has a market capitalization at the time of its
investment in the Company of not less than $1 billion and whose principal
business is advertising and marketing services (including Internet applications
relating thereto).
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Paragraph 4, the number
of shares of Common Stock issuable upon exercise of this Warrant shall be
adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this Warrant
in lieu of the shares of Common Stock immediately theretofore acquirable upon
the exercise of this Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor or acquiring entity (if other than the Company) and, if
an entity different from the successor or acquiring entity,
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the entity whose capital stock or assets the holders of the Common Stock of the
Company are entitled to receive as a result of such consolidation, merger or
sale or conveyance assumes by written instrument the obligations under this
Paragraph 4 and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders entitled
to such distribution, but prior to the date of distribution, the holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any
event which requires any adjustment of the Exercise Price, then, and in each
such case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment and
the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such calculation
shall be certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment
of the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon
the Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
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(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) CERTAIN EVENTS. If any event occurs of the type
contemplated by the adjustment provisions of this Paragraph 4 but not expressly
provided for by such provisions, the Company will give notice of such event as
provided in Paragraph 4(g) hereof, and the Company's Board of Directors will
make an appropriate adjustment in the Exercise Price and the number of shares of
Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean
the number of shares of Common Stock actually outstanding (not including shares
of Common Stock held in the treasury of the Company), plus (x) pursuant to
Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means
the average of the last reported sale prices for the shares of Common Stock on
the Nasdaq National Market (the "NNM") for the five (5) trading days immediately
preceding such date as reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter
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designated by the holder of this Warrant and the Company ("Bloomberg"), or (ii)
if the NNM is not the principal trading market for the shares of Common Stock,
the average of the last reported sale prices on the principal trading market for
the Common Stock during the same period as reported by Bloomberg, or (iii) if
market value cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or (b) at the option of a
majority-in-interest of the holders of the outstanding Warrants, by an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this
Paragraph 4, includes the Common Stock, par value $0.01 per share, and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided that the shares purchasable pursuant to
this Warrant shall include only shares of Common Stock, par value $0.01 per
share, in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Paragraph 4(e) hereof, the stock or other securities or
property provided for in such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares
upon the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any certificate in a name other than the holder of this Warrant.
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to the
provisions of Section 2(f) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in
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Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of March 10, 2000, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement").
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS.
This Warrant is exchangeable, upon the surrender hereof by the holder hereof at
the office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender
of this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose name
this Warrant has been issued, as well as the name and address of each transferee
and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the
time of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking
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and holding the same, represents to the Company that such holder is acquiring
this Warrant for investment and not with a view to the distribution thereof.
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. NOTICES. All notices, requests, and other communications
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 1311 Mamaroneck Avenue,
White Plains, New York 10605, Attention: President and Chief Executive Officer,
or at such other address as shall have been furnished to the holder of this
Warrant by notice from the Company. Any such notice, request, or other
communication may be sent by facsimile, but shall in such case be subsequently
confirmed by a writing personally delivered or sent by certified or registered
mail or by recognized overnight mail courier as provided above. All notices,
requests, and other communications shall be deemed to have been given either at
the time of the receipt thereof by the person entitled to receive such notice at
the address of such person for purposes of this Paragraph 9, or, if mailed by
registered or certified mail or with a recognized overnight mail courier upon
deposit with the United States Post Office or such overnight mail courier, if
postage is prepaid and the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS
MADE AND TO BE PERFORMED IN THE STATE OF DELAWARE (WITHOUT REGARD TO PRINCIPLES
OF CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF
THE UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN DELAWARE WITH
RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT
OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT
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A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT
OR IN ANY OTHER LAWFUL MANNER.
11. MISCELLANEOUS.
(a) AMENDMENTS. Except as otherwise provided herein, this
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Company and the holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the holder shall surrender this Warrant for that number of shares of
Common Stock determined by multiplying the number of Warrant Shares to which it
would otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
LEARN2.COM, INC.
By:
-----------------------------
Stephen P. Gott
President and Chief Executive Officer
Dated as of March 10, 2000
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FORM OF EXERCISE AGREEMENT
Dated: ________ __, 200_
To: Learn2.com, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
-----------------------------------
Signature:
-----------------------------------
Address:
-----------------------------------
-----------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
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<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
NAME OF ASSIGNEE ADDRESS NO OF SHARES
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ________ __, 200_
In the presence of:
- -------------------------
Name:
-----------------------------------------
Signature:
-----------------------------------
Title of Signing Officer or Agent (if any):
- ----------------------------------
Address:
----------------------------------
----------------------------------
Note: The above signature should correspond
exactly with the name on the face of the
within Warrant.
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<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of March 10,
2000, by and among Learn2.com, Inc., a Delaware corporation, with headquarters
located at 1311 Mamaroneck Avenue, White Plains, New York 10605 ("COMPANY"), and
each of the purchasers set forth on the signature pages hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement (i) convertible
debentures of the Company, in the form attached hereto as EXHIBIT "A", in the
aggregate principal amount of Ten Million Dollars ($10,000,000) (together with
any debenture(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"DEBENTURES"), convertible into shares of common stock, $0.01 par value per
share, of the Company (the "COMMON STOCK"), upon the terms and subject to the
limitations and conditions set forth in such Debentures and (ii) warrants, in
the form attached hereto as EXHIBIT "B", to purchase Three Hundred Thirty-Seven
Thousand, Two Hundred Sixty-Eight (337,268) shares of Common Stock (the
"WARRANTS");
C. Each Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, such principal amount of Debentures and number of
Warrants as is set forth immediately below its name on the signature pages
hereto;
D. Contemporaneous with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
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1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
(a) PURCHASE OF DEBENTURES AND WARRANTS. On the Closing
Date (as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such principal amount of
Debentures and number of Warrants as is set forth immediately below such Buyer's
name on the signature pages hereto.
(b) FORM OF PAYMENT. On the Closing Date (as defined
below), (i) each Buyer shall pay the purchase price for the Debentures and the
Warrants to be issued and sold to it at the Closing (as defined below) (the
"PURCHASE PRICE") by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions, against
delivery of duly executed Debentures in the principal amount equal to the
Purchase Price and the number of Warrants as is set forth immediately below such
Buyer's name on the signature pages hereto, and (ii) the Company shall deliver
such Debentures and Warrants duly executed on behalf of the Company, to such
Buyer, against delivery of such Purchase Price.
(c) CLOSING DATE. Subject to the satisfaction (or waiver)
of the conditions thereto set forth in Section 6 and Section 7 below, the date
and time of the issuance and sale of the Debentures and the Warrants pursuant to
this Agreement (the "CLOSING DATE") shall be 12:00 noon Eastern Standard Time on
March 10, 2000 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "CLOSING") shall occur on the
Closing Date at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735
Market Street, 51st Floor, Philadelphia, PA 19103-7599 or at such other location
as may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally
(and not jointly) represents and warrants to the Company solely as to such Buyer
that:
(a) INVESTMENT PURPOSE. As of the date hereof, the Buyer
is purchasing the Debentures and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures (including, without
limitation, such additional shares of Common Stock as are issuable as a result
of the events described in Sections 1.3 and 1.4(e) of the Debentures and Section
2(c) of the Registration Rights Agreement) (such shares of Common Stock being
collectively referred to herein as the "CONVERSION SHARES") and the Warrants and
the shares of Common Stock issuable upon exercise thereof (the "WARRANT SHARES"
and, collectively with the Debentures, Warrants and Conversion Shares, the
"SECURITIES") for its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the 1933 Act; PROVIDED, HOWEVER, that by making the
representations herein, the Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
2
<PAGE>
(b) ACCREDITED INVESTOR STATUS. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D (an
"ACCREDITED INVESTOR").
(c) RELIANCE ON EXEMPTIONS. The Buyer understands that
the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and the Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
(d) INFORMATION. The Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
(e) GOVERNMENTAL REVIEW. The Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities.
(f) TRANSFER OR RE-SALE. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the sale or re-sale of
the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
reasonably satisfactory to counsel to the Company) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration, (c) the Securities are sold or transferred to
an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor, or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than
3
<PAGE>
pursuant to the Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a BONA FIDE margin account or other lending
arrangement.
(g) LEGENDS. The Buyer understands that the Debentures
and the Warrants and, until such time as the Conversion Shares and Warrant
Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, the Conversion Shares and Warrant Shares, may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or applicable
state securities laws. The securities may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form, substance
and scope reasonably satisfactory to counsel to the Company, that
registration is not required under said Act or unless sold pursuant to
Rule 144 under said Act."
Upon the request of any holder and the surrender of certificates, the legend set
forth above shall be removed and the Company shall issue a certificate without
such legend to the holder of any Security upon which it is stamped, if, unless
otherwise required by applicable state securities laws, (a) such Security is
registered for sale under an effective registration statement filed under the
1933 Act or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, or (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope reasonably satisfactory to counsel to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act and such sale or transfer is
effected or (c) such holder provides the Company with reasonable assurances that
such Security can be sold pursuant to Rule 144. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable prospectus delivery
requirements, if any.
(h) AUTHORIZATION; ENFORCEMENT. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, legal, valid and
binding agreements of the Buyer enforceable in accordance with their terms.
(i) RESIDENCY. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
4
<PAGE>
(j) SALES OF COMMON STOCK. The Buyer has not sold any
shares of Common Stock of the Company during the ten (10) trading day period
immediately preceding the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
(a) ORGANIZATION AND QUALIFICATION. The Company and each
of its Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. SCHEDULE 3(A) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii)
on the transactions contemplated hereby or by the agreements or instruments to
be entered into in connection herewith or (iv) the authority or the ability of
the Company to perform its obligation under this Agreement, the Registration
Rights Agreement, the Debentures or the Warrants. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the Warrants
and to consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Debentures and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion of otherwise pursuant
to the Debentures and the Warrant Shares issuable upon exercise of or otherwise
pursuant to the Warrants) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its stockholders is required, (iii) this Agreement has been duly
executed and delivered by the Company, and (iv) this Agreement constitutes, and
upon execution and delivery by the Company of the Registration Rights Agreement,
the Debentures and the Warrants, each of such agreements and instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
5
<PAGE>
(c) CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 100,000,000 shares of Common Stock,
of which 52,453,621 shares are issued and outstanding, 10,107,805 shares are
reserved for issuance pursuant to the Company's stock option plans, 2,718,871
shares are reserved for issuance pursuant to securities (other than the
Debentures and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 4,007,869 shares (2x currently
required) are reserved for issuance upon conversion of the Debentures and
exercise of the Warrants (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); and (ii) 100,000 shares of preferred
stock, 15,000 shares of which are designated as Series B Convertible Preferred
Stock, none of which are issued and outstanding, and 35,000 shares of which are
designated as Series D Preferred Stock, none of which are issued and
outstanding. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and nonassessable.
No shares of capital stock of the Company are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company.
Except as disclosed in SCHEDULE 3(C), as of the effective date of this
Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Debentures, the Warrants,
the Conversion Shares or Warrant Shares. The Company has furnished to the Buyer
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's
By-laws, as in effect on the date hereof (the "BY-LAWS"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. In the event that
the date of execution of this Agreement is not the Closing Date, the Company
shall provide the Buyer with a written update of this representation signed by
the Company's President and Chief Executive or Chief Financial Officer on behalf
of the Company as of the Closing Date.
(d) ISSUANCE OF SHARES. The Conversion Shares and Warrant
Shares are duly authorized and reserved for issuance and, upon issuance upon
conversion of the Debentures and upon exercise of the Warrants in accordance
with their respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and encumbrances and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
(e) ACKNOWLEDGMENT OF DILUTION. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the
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<PAGE>
Conversion Shares upon conversion of or otherwise pursuant to the Debentures or
upon issuance of the Warrant Shares upon exercise of or otherwise pursuant to
the Warrants. The Company's directors and executive officers have studied and
fully understand the nature of the Securities being sold hereunder. The Company
further acknowledges that its obligation to issue Conversion Shares upon
conversion of or otherwise pursuant to the Debentures and to issue Warrant
Shares upon exercise of or otherwise pursuant to the Warrants in accordance with
this Agreement, the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company. Taking the foregoing into
account, the Company's Board of Directors has determined, in its good faith
business judgment, that the issuance of the Securities hereunder and under the
Debentures and the Warrants and the consummation of the transactions
contemplated hereby and thereby are in the best interest of the Company and its
stockholders.
(f) NO CONFLICTS. The execution, delivery and performance
of this Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares) will not
(i) conflict with or result in a violation of any provision of the Certificate
of Incorporation or By-laws or (ii) violate or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except, in the case of
clauses (i), (ii) and (iii) above, for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity the violation of
which would have a Material Adverse Effect. Except as disclosed in SCHEDULE 3(F)
and as specifically contemplated by this Agreement and as required under the
1933 Act and any applicable state securities laws, the Company is not required
to obtain any consent, authorization
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<PAGE>
or order of, or make any filing or registration with, any court, governmental
agency, regulatory agency, self regulatory organization or stock market or any
third party in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Registration Rights Agreement, the
Debentures or the Warrants in accordance with the terms hereof or thereof or to
issue and sell the Debentures and Warrants in accordance with the terms hereof
and to issue the Conversion Shares upon conversion of or otherwise pursuant to
the Debentures and the Warrant Shares upon exercise of or otherwise pursuant to
the Warrants. Except as disclosed in SCHEDULE 3(F), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Nasdaq National Market (the "NNM") and does not reasonably
anticipate that the Common Stock will be delisted by the NNM in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(g) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December
31, 1996, the Company has timely filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents (other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC DOCUMENTS"). The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. The documents
listed as exhibits to the Company's Registration Statement on Form S-4/A filed
with the Securities and Exchange Commission on July 19, 1999 are the only
material contracts to which the Company is a party. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the 1934 Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. None of the statements made in any such SEC
Documents is, or has been, required to be amended or updated under applicable
law (except for such statements as have been amended or updated in subsequent
filings prior to the date hereof). As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
8
<PAGE>
included in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 1998 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
(h) ABSENCE OF CERTAIN CHANGES. Except for losses
incurred in the ordinary course of business that have been publicly disclosed
prior to the date hereof or as set forth on SCHEDULE 3(H) hereof, since December
31, 1998, there has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties, operations,
financial condition, results of operations or prospects of the Company or any of
its Subsidiaries. For purposes of this Section 3(h), the terms "material adverse
change" and "material adverse development" shall exclude continuing losses that
are consistent with the Company's historical losses.
(i) ABSENCE OF LITIGATION. Except as disclosed in
SCHEDULE 3(I)(A), there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened against or affecting the Company or any
of its Subsidiaries, or their officers or directors in their capacity as such,
that would have a Material Adverse Effect. SCHEDULE 3(I)(B) contains a complete
list and summary description of any pending or, to the knowledge of the Company
or any of its Subsidiaries, threatened proceeding against or affecting the
Company or any of its Subsidiaries, without regard to whether it, if adversely
decided, would have a Material Adverse Effect. The Company and its Subsidiaries
are unaware of any facts or circumstances which might give rise to any of the
foregoing.
(j) PATENTS, COPYRIGHTS, ETC; YEAR 2000 COMPLIANCE.
(i) The Company and each of its Subsidiaries
owns or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
("INTELLECTUAL PROPERTY") necessary to enable it to conduct its business as now
operated (and, except as set forth in SCHEDULE 3(J) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future),
except for such licenses or rights the failure of which to own or possess would
not, individually or in the aggregate, have a Material Adverse Effect; there is
no claim or action by any person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in SCHEDULE 3(J)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future), except for actions or claims which, if adversely
decided, would not have a Material Adverse Effect; to the best of the Company's
knowledge, the Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual Property or other
rights held
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by any person, and the Company is unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company and each of its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and
computer hardware, and other similar or related items of automated, computerized
or software systems that are used or relied on by the Company in the conduct of
its business or that were, or currently are being, sold or licensed by the
Company to customers (collectively, "INFORMATION TECHNOLOGY"), are Year 2000
Compliant, except for such software, hardware and other systems, the failure of
which to be Year 2000 Compliant, would not have a Material Adverse Effect. For
purposes of this Agreement, the term "YEAR 2000 COMPLIANT" means, with respect
to the Company's Information Technology, that the Information Technology is
designed to be used prior to, during and after the calendar Year 2000 A.D., and
the Information Technology used during each such time period will accurately
receive, provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the 20th and 21st
centuries, including the years 1999 and 2000, and leap-year calculations, and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the Buyer
true and correct copies of all analyses, reports, studies and similar written
information, whether prepared by the Company or another party, relating to
whether the Information Technology is Year 2000 Compliant.
(k) NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is reasonably likely in
the future to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is reasonably likely to have a Material Adverse
Effect.
(l) TAX STATUS. Except as set forth on SCHEDULE 3(L), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on
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SCHEDULE 3(L), none of the Company's tax returns is presently being audited by
any taxing authority.
(m) CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE
3(M) and except for arm's length transactions pursuant to which the Company or
any of its Subsidiaries makes payments in the ordinary course of business upon
terms no less favorable than the Company or any of its Subsidiaries could obtain
from third parties and other than the grant of stock options disclosed on
SCHEDULE 3(C), none of the officers, directors, or employees of the Company is
presently a party to any transaction with the Company or any of its Subsidiaries
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(n) DISCLOSURE. All information relating to or concerning
the Company or any of its Subsidiaries set forth in this Agreement and provided
to the Buyers pursuant to Section 2(d) hereof and otherwise in connection with
the transactions contemplated hereby is true and correct in all material
respects and the Company has not omitted to state any material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which has not been publicly announced or disclosed but
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company (assuming for this purpose that the Company's
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).
(o) ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF
SECURITIES. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and that any statement made by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities and has not been relied
upon by the Company, its officers or directors in any way. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
(p) NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or
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sales of any security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act of the issuance
of the Securities to the Buyers. The issuance of the Securities to the Buyers
will not be integrated with any other issuance of the Company's securities
(past, current or future) for purposes of any stockholder approval provisions
applicable to the Company or its securities.
(q) NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions, finder's
fees or similar payments relating to this Agreement or the transactions
contemplated hereby, except for dealings with Swartz Investments, LLC, whose
commissions and fees will be paid for by the Company.
(r) PERMITS; COMPLIANCE. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "COMPANY
PERMITS"), except where the failure to so possess any such Company Permits would
not have a Material Adverse Effect, and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. To the best of the Company's knowledge, neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December 31,
1998, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
(s) ENVIRONMENTAL MATTERS.
(i) Except as set forth in SCHEDULE 3(S), there
are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"HAZARDOUS MATERIALS") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of
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Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(ii) Other than those that are or were stored,
used or disposed of in compliance with applicable law, no Hazardous Materials
are contained on or about any real property currently owned, leased or used by
the Company or any of its Subsidiaries, and no Hazardous Materials were released
on or about any real property previously owned, leased or used by the Company or
any of its Subsidiaries during the period the property was owned, leased or used
by the Company or any of its Subsidiaries, except in the normal course of the
Company's or any of its Subsidiaries' business.
(iii) Except as set forth in SCHEDULE 3(S), there
are no underground storage tanks on or under any real property owned, leased or
used by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
(t) TITLE TO PROPERTY. The Company and its Subsidiaries
have good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in SCHEDULE 3(T) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
(u) INSURANCE. The Company and each of its Subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
(v) INTERNAL ACCOUNTING CONTROLS. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient,
in the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
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(w) FOREIGN CORRUPT PRACTICES. Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment to any foreign or domestic government
official or employee.
(x) SOLVENCY. The Company (both before and after giving
effect to the transactions contemplated by this Agreement) is solvent (I.E., its
assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
(y) NO INVESTMENT COMPANY. The Company is not, and upon
the issuance and sale of the Securities as contemplated by this Agreement will
not be an "investment company" required to be registered under the Investment
Company Act of 1940 (an "INVESTMENT COMPANY"). The Company is not controlled by
an Investment Company.
4. COVENANTS.
(a) BEST EFFORTS. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
(b) FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the Company shall
reasonably determine is necessary to qualify the Securities for sale to the
Buyers at the Closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to the Closing Date.
(c) REPORTING STATUS; ELIGIBILITY TO USE FORM S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an
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issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would permit such termination. The Company
currently meets, and will take all necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3.
(d) USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Debentures and the Warrants in the manner set forth in
SCHEDULE 4(D) attached hereto and made a part hereof and shall not use such
proceeds in a manner inconsistent with the provisions of Article II of the
Debentures.
(e) ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST REFUSAL.
Subject to the exceptions described below, the Company will not, without the
prior written consent of a majority-in-interest of the Buyers, negotiate or
contract with any party to obtain additional equity financing (including debt
financing with an equity component) during the period (the "LOCK-UP PERIOD")
beginning on the Closing Date and ending one hundred eighty (180) days from the
date the Registration Statement (as defined in the Registration Rights
Agreement) is declared effective (plus any days in which sales cannot be made
thereunder). In addition, subject to the exceptions described below, the Company
will not conduct any equity financing (including debt with an equity component)
("FUTURE OFFERINGS") during the period beginning on the Closing Date and ending
one hundred eighty (180) days after the end of the Lock-up Period unless it
shall have first delivered to each Buyer, at least fifteen (15) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof and
proposed definitive documentation to be entered into in connection therewith,
and providing each Buyer an option during the ten (10) day period following
delivery of such notice to purchase its pro rata share (based on the ratio that
the aggregate principal amount of Debentures purchased by it hereunder bears to
the aggregate principal amount of Debentures purchased hereunder) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "CAPITAL
RAISING LIMITATIONS"). In the event the terms and conditions of a proposed
Future Offering are amended in any respect after delivery of the notice to the
Buyers concerning the proposed Future Offering, the Company shall deliver a new
notice to each Buyer describing the amended terms and conditions of the proposed
Future Offering and each Buyer thereafter shall have an option during the ten
(10) day period following delivery of such new notice to purchase its pro rata
share of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 1933
Act), (ii) issuances of securities as consideration for a merger, consolidation
or purchase of assets, or in connection with any strategic partnership or joint
venture (the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product or license
by the Company, or (iii) private placements of securities which do not contain
any "make whole" or price protective provisions or convertible securities where
the issuance price of the Common
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Stock is not subject to reset, adjustment or similar provisions following the
date of issuance. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any Company stock option or restricted stock plan approved by
the stockholders of the Company.
(f) EXPENSES. The Company shall pay to Rose Glen Capital
Management, L.P. ("ROSE GLEN") at the Closing a non-accountable expense
allowance equal to One Hundred Fifty Thousand Dollars ($150,000), in addition to
the Ten Thousand Dollars ($10,000) which was advanced previously, for all
expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, attorneys'
and consultants' fees and expenses and travel expenses.
(g) FINANCIAL INFORMATION. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within one (1) day after release, copies
of all press releases issued by the Company or any of its Subsidiaries; and
(iii) contemporaneously with the making available or giving to the stockholders
of the Company, copies of any notices or other information the Company makes
available or gives to such stockholders.
(h) RESERVATION OF SHARES. The Company shall at all times
have authorized, and reserved for the purpose of issuance, a sufficient number
of shares of Common Stock to provide for the full conversion or exercise of the
outstanding Debentures and Warrants and issuance of the Conversion Shares and
Warrant Shares in connection therewith (based on the Conversion Price (as
defined in the Debentures) in effect from time to time and the Exercise Price of
the Warrants in effect from time to time). The Company shall not reduce the
number of shares of Common Stock reserved for issuance upon conversion of or
otherwise pursuant to the Debentures and exercise of or otherwise pursuant to
the Warrants without the consent of each Buyer. The Company shall use its best
efforts at all times to maintain the number of shares of Common Stock so
reserved for issuance at no less than two (2) times the number that is then
actually issuable upon full conversion of the Debentures (based on the
Conversion Price (as defined in the Debentures) in effect from time to time) and
full exercise of the Warrants (based on the Exercise Price of the Warrants in
effect from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
issued and issuable upon conversion of or otherwise pursuant to the Debentures
(based on the Conversion Price (as defined in the Debentures) in effect from
time to time) and Warrant Shares issued or issuable upon exercise of or
otherwise pursuant to the Warrants (based on the Exercise Price of the Warrants
in effect from time to time), the Company will promptly take all corporate
action necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of stockholders to
authorize
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additional shares to meet the Company's obligations under this Section 4(h), in
the case of an insufficient number of authorized shares, and using its best
efforts to obtain stockholder approval of an increase in such authorized number
of shares.
(i) LISTING. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and, so
long as any Buyer owns any of the Securities, shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Conversion
Shares from time to time issuable upon conversion of or otherwise pursuant to
the Debentures and all Warrant Shares from time to time issuable upon exercise
of or otherwise pursuant to the Warrants. The Company will obtain and, so long
as any Buyer owns any of the Securities, maintain the listing and trading of its
Common Stock on the NNM, the Nasdaq SmallCap Market (the "NASDAQ SMALLCAP"), the
New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to each Buyer copies of any notices it receives from the NNM and any
other exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
(j) CORPORATE EXISTENCE. So long as a Buyer beneficially
owns any Debentures or Warrants, the Company shall maintain its corporate
existence and shall not merge, consolidate or sell all or substantially all of
the Company's assets, except in the event of a merger or consolidation or sale
of all or substantially all of the Company's assets, where the (i) the successor
or acquiring entity and, if an entity different from the successor or acquiring
entity, the entity whose securities into which the Debentures shall become
convertible pursuant to Section 1.5(b) of the Debentures, in such transaction
assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith (including the Debentures and
the Warrants) and (ii) the entity whose securities into which the Debentures
shall become convertible pursuant to Section 1.5(b) of the Debentures is a
publicly traded corporation whose Common Stock is listed for trading on the NNM,
Nasdaq SmallCap, NYSE or AMEX.
(k) NO INTEGRATION. The Company shall not make any offers
or sales of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be integrated with
any other offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its securities.
(l) TRADING LIMITATIONS. Each Buyer agrees that it will
conduct any sales of Common Stock in compliance with all relevant securities
laws and regulations and will not create any daily low trading prices in the
Common Stock. In addition, until one (1) year following the Closing Date, each
Buyer agrees that its sales of Common Stock in any calendar month will not
exceed 5% of the total trading volume of the Company's Common Stock for the
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previous calendar month; PROVIDED, HOWEVER, that the foregoing trading
limitations shall not prevent any Buyer from selling up to 5% of trading volume
in any Trading Day (as defined in the Debentures) and; PROVIDED, FURTHER,
HOWEVER, that the foregoing trading limitations shall not apply (x) to block
sales of at least 20,000 shares of Common Stock to a single purchaser at a price
greater than the Conversion Price (as defined in the Debentures) or (y) in the
event that the Company's Common Stock is not listed for trading on one of the
NNM, Nasdaq SmallCap, NYSE or AMEX. Each Buyer further agrees that it will not
sell any shares of Common Stock below the Conversion Price (as defined in the
Debentures) during the ten (10) Trading Days (as defined in the Debentures)
ending one (1) year from the Closing Date or during the ten (10) Trading Days
ending two (2) years from the Closing Date.
(m) STOCK OWNERSHIP AT MATURITY DATE. Each Buyer agrees
that it will not beneficially own any shares of Common Stock of the Company on
the Maturity Date (as defined in the Debentures) other than shares of Common
Stock issued or issuable upon conversion of the Debentures and upon exercise of
the Warrants.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered
in the name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Debentures or exercise of the Warrants in
accordance with the terms thereof (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of securities as of a particular date that can then be immediately sold, all
such certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares and Warrant Shares, prior to registration of the Conversion
Shares and Warrant Shares under the 1933 Act or the date on which the Conversion
Shares and Warrant Shares may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold), will be given by the Company to its transfer agent and
that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon re-sale of
the Securities. If a Buyer provides the Company with (i) an opinion of counsel
in form, substance and scope customary for opinions in comparable transactions,
to the effect that a public sale or transfer of such Securities may be made
without registration under the 1933 Act and such sale or transfer is effected or
(ii) the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates,
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free from any restrictive legend, in such name and in such denominations as
specified by such Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation
of the Company hereunder to issue and sell the Debentures and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
(a) The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
(b) The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
(c) The representations and warranties of the applicable
Buyer shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such date), and
the applicable Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
(a) The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyer.
(b) The Company shall have delivered to such Buyer duly
executed Debentures (in such denominations as the Buyer shall request) and
Warrants in accordance with Section 1(b) above.
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(c) The Irrevocable Transfer Agent Instructions, in form
and substance satisfactory to a majority-in-interest of the Buyers, shall have
been delivered to and acknowledged in writing by the Company's Transfer Agent.
(d) The representations and warranties of the Company
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at such time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the President and Chief
Executive Officer of the Company, dated as of the Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Certificate of Incorporation, By-laws and Board of Directors' resolutions
relating to the transactions contemplated hereby.
(e) No litigation, statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(f) Trading in the Common Stock on the NNM shall not have
been suspended by the SEC or the NNM and, within two (2) business days of the
Closing, the Company will make application to the NNM to have the Conversion
Shares and the Warrant Shares authorized for quotation.
(g) The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
(h) The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
8. GOVERNING LAW; MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions
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contemplated hereby or thereby and irrevocably agree that all claims in respect
of such suit or proceeding may be determined in such courts. Both parties
irrevocably waive the defense of an inconvenient forum to the maintenance of
such suit or proceeding. Both parties further agree that service of process upon
a party mailed by first class mail shall be deemed in every respect effective
service of process upon the party in any such suit or proceeding. Nothing herein
shall affect either party's right to serve process in any other manner permitted
by law. Both parties agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
(b) COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement
may be executed in one or more counterparts, all of which shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
(c) HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
(f) NOTICES. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
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If to the Company:
Learn2.com, Inc.
1311 Mamaroneck Avenue
White Plains, New York 10605
Attention: President and Chief Executive Officer
Facsimile: (914) 682-4440
With copy to:
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
Attention: Gerald Adler, Esq.
Facsimile: (212) 891-9598
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
With copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103-7599
Attention: Gerald J. Guarcini, Esq.
Facsimile: (215) 864-8999
Each party shall provide notice to the other party of any change in address.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company; PROVIDED, HOWEVER, that
prior to any assignment of its rights hereunder to a person (other than an
affiliate) that purchases any Debentures or Warrants from such Buyer in a
private transaction such Buyer shall provide the Company with written notice of
its intention to sell some or all of the Debentures or Warrants, which notice
shall disclose the proposed purchase price for such Debentures or Warrants, and
the Company shall have the option, during the ten (10) business day period
following such notice, to purchase all, but not less than all, of such
Debentures and/or Warrants at the proposed purchase price, after which period
the Buyer shall be free to sell the Debentures and/or Warrants to a third party
at such proposed purchase price.
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<PAGE>
(h) THIRD PARTY BENEFICIARIES. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) SURVIVAL. The representations and warranties of the
Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
shall survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees to
indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
(j) PUBLICITY. The Company and each of the Buyers shall
have the right to review a reasonable period of time before issuance of any
press releases, filings with the SEC, NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; PROVIDED, HOWEVER, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
(k) FURTHER ASSURANCES. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
(m) REMEDIES. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to each Buyer, by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Agreement will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this
Agreement, that each Buyer shall be entitled, in addition to all other available
remedies in law or in equity, to an injunction or injunctions to prevent or cure
any breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions of this Agreement, without the necessity of showing
economic loss and without any bond or other security being required.
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<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
LEARN2.COM, INC.
By:
-------------------------------------
Stephen P. Gott
President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
-------------------------------------
Gerald F. Stahlecker
Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Principal Amount of Debentures: $10,000,000
Number of Warrants: 337,268
Aggregate Purchase Price: $10,000,000
24
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 10,
2000, by and among Learn2.com, Inc., a Delaware corporation, with its
headquarters located at 1311 Mamaroneck Avenue, White Plains, New York 10605
(the "Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the parties hereto of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors (i)
convertible debentures (the "Debentures") that are convertible into shares of
the Company's common stock, par value $0.01 per share (the "Common Stock"), upon
the terms and subject to the limitations and conditions set forth in such
Debentures and (ii) warrants (the "Warrants") to acquire 337,268 shares of
Common Stock, upon the terms and conditions and subject to the limitations and
conditions set forth in the Warrants dated March 10, 2000; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, In consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), and the declaration or
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<PAGE>
ordering of effectiveness of such Registration Statement by the United States
Securities and Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means (a) the
Conversion Shares issued or issuable upon conversion of or otherwise pursuant to
the Debentures (including, without limitation, any shares issued or issuable
pursuant to Sections 1.3 and 1.4(e) of the Debentures and Section 2(c) herein)
(b) the Warrant Shares issued or issuable upon exercise of or otherwise pursuant
to the Warrants and (c) any shares of capital stock issued or issuable as a
dividend on or in exchange for or otherwise with respect to any of the
foregoing.
(iv) "REGISTRATION STATEMENT(S)" means a
registration statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare,
and, on or prior to the date (the "FILING DATE") which is thirty (30) days after
the date of the Closing under the Securities Purchase Agreement (the "CLOSING
DATE"), file with the SEC a Registration Statement on Form S-3 (or, if Form S-3
is not then available, on such form of Registration Statement as is then
available to effect a registration of the Registrable Securities, subject to the
consent of the Initial Investors, which consent will not be unreasonably
withheld) covering the resale of the Registrable Securities, which Registration
Statement, to the extent allowable under the 1933 Act and the rules and
regulations promulgated thereunder (including Rule 416), shall state that such
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
pursuant to the Debentures and exercise of or otherwise pursuant to the Warrants
to prevent dilution resulting from stock splits, stock dividends or similar
transactions. The number of shares of Common Stock initially included in such
Registration Statement shall be no less than one and one-half (1.5) times the
aggregate number of Conversion Shares that are then issuable upon conversion of
or otherwise pursuant to the Debentures (based on the Conversion Price (as
defined in the Debentures) then in effect) and the aggregate number of Warrant
Shares that are then issuable upon exercise of or otherwise pursuant to the
Warrants, without regard to any limitation on the Investor's ability to convert
the Debentures or exercise the Warrants. The Company acknowledges that the
number of shares initially included in the Registration Statement represents a
good faith estimate of the maximum number of shares issuable upon conversion of
or otherwise pursuant to the Debentures and exercise of or otherwise pursuant to
the Warrants. The Registration Statement (and each amendment or supplement
thereto, and each request for acceleration of effectiveness thereof) shall be
provided to (and subject to the approval of) the Initial Investors and their
counsel prior to its filing or other submission.
2
<PAGE>
b. [INTENTIONALLY OMITTED]
c. PAYMENTS BY THE COMPANY. The Company shall use its
best efforts to obtain effectiveness of the Registration Statement as soon as
practicable, but in any event not later than May 31, 2000 (the "REGISTRATION
DEADLINE"). If (i) the Registration Statement covering the Registrable
Securities required to be filed by the Company pursuant to Section 2(a) hereof
is not declared effective by the SEC by the Registration Deadline, or (ii) after
the Registration Statement has been declared effective by the SEC, sales of all
of the Registrable Securities cannot be made pursuant to the Registration
Statement, or (iii) the Common Stock is not listed or included for quotation on
the Nasdaq National Market ("NASDAQ"), the Nasdaq SmallCap Market ("NASDAQ
SMALLCAP"), the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "AMEX") after being so listed or included for quotation, then the
Company will make payments to the Investors in such amounts and at such times as
shall be determined pursuant to this Section 2(c) as partial relief for the
damages to the Investors by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). The Company shall pay to
each holder of the Debentures or Registerable Securities an amount equal to the
then outstanding principal amount of the Debentures (and, in the case of holders
of Registrable Securities, the principal amount of Debentures from which such
Registrable Securities were converted or the aggregate exercise price paid for
such Registrable Securities upon exercise of the Warrants) ("OUTSTANDING
PRINCIPAL AMOUNT") multiplied by the Applicable Percentage (as defined below)
times the sum of: (i) the number of months (prorated for partial months) after
the Registration Deadline and prior to the date the Registration Statement is
declared effective by the SEC; PROVIDED, HOWEVER, that there shall be excluded
from such period any delays which are solely attributable to changes required by
the Investors in the Registration Statement with respect to information relating
to the Investors, including, without limitation, changes to the plan of
distribution, or to the failure of the Investors to conduct their review of the
Registration Statement pursuant to Section 3(h) below in a reasonably prompt
manner; (ii) the number of months (prorated for partial months) during the
Registration Period (as defined below) that sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement (including Section 3(b) hereof or otherwise), but
excluding any days during an Allowed Delay (as defined in Section 3(f)); and
(iii) the number of months (prorated for partial months) that the Common Stock
is not listed or included for quotation on the Nasdaq, Nasdaq SmallCap, NYSE or
AMEX or that trading thereon is halted after the Registration Statement has been
declared effective. The term "APPLICABLE PERCENTAGE" means 1.5 hundredths
(.015). (For example, if the Registration Statement becomes effective one (1)
month after the Registration Deadline, the Company would pay $15,000 for each
$1,000,000 of Outstanding Principal Amount. If thereafter, sales of all of the
Registrable Securities could not be made pursuant to the Registration Statement
for an additional period of one (1) month, the Company would pay an additional
$15,000 for each $1,000,000 Outstanding Principal Amount. Such amounts shall be
paid in cash within five (5) days after the end of each period that gives rise
to such obligation, PROVIDED that, if any such
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<PAGE>
period extends for more than thirty (30) days, interim payments shall be made
for each such thirty (30) day period, PROVIDED, FURTHER, that, if such amounts
are not paid within the period specified, at each Investor's option, such
amounts may be added to the Conversion Amount (as defined in the Debentures) of
the Debentures and thereafter be convertible into Common Stock at the
"CONVERSION PRICE" (as defined in the Debentures) in accordance with the terms
of the Debentures. Any shares of Common Stock issued upon conversion of such
amounts shall be Registrable Securities. Nothing herein shall limit an
Investor's right to pursue damages for the failure to timely obtain
effectiveness of the Registration Statement by the Registration Deadline or to
thereafter maintain the effectiveness of the Registration Statement as required
pursuant to this Agreement or to maintain the listing of the Common Stock;
PROVIDED, HOWEVER, that, except as set forth in Section 11(k) hereof, each
Investor's right to pursue actual damages for the failure of the Company to
obtain effectiveness of the Registration Statement by the Registration Deadline
during the initial sixty (60) days following the Registration Deadline shall be
limited to the amounts set forth in this Section 2(c).
d. PIGGY-BACK REGISTRATIONS. Subject to the last
sentence of this Section 2(d), if at any time prior to the expiration of the
Registration Period (as hereinafter defined) the Company shall determine to file
with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the effective date of such notice, such Investor shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit. Any
exclusion of Registrable Securities shall be made pro rata among the Investors
seeking to include Registrable Securities in proportion to the number of
Registrable Securities sought to be included by such Investors; PROVIDED,
HOWEVER, that the Company shall not exclude any Registrable Securities unless
the Company has first excluded all outstanding securities, the holders of which
are not entitled by contract to inclusion of such securities in such
Registration Statement or are not entitled to pro rata inclusion with the
Registrable Securities; and PROVIDED, FURTHER, HOWEVER, that, after giving
effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
contractual right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any
4
<PAGE>
registration required under Section 2(a) hereof. If an offering in connection
with which an Investor is entitled to registration under this Section 2(d) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. Notwithstanding anything to the contrary
set forth herein, the registration rights of the Investors pursuant to this
Section 2(d) shall only be available in the event the Company fails to timely
file, obtain effectiveness or maintain effectiveness of any Registration
Statement to be filed pursuant to Section 2(a) in accordance with the terms of
this Agreement.
e. ELIGIBILITY FOR FORM S-3. The Company represents and
warrants that it meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
so as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable
Securities, the Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the
SEC as soon as practicable after the Closing Date (but no later than the Filing
Date), a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing (but in no event later than the
Registration Deadline), and keep the Registration Statement effective pursuant
to Rule 415 at all times until such date as is the earlier of (i) the date on
which all of the Registrable Securities have been sold and (ii) the date on
which the Registrable Securities (in the opinion of counsel to the Initial
Investors) may be immediately sold to the public without registration or
restriction (including without limitation as to volume by each holder thereof)
under the 1933 Act (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statements and the prospectus used in connection with the
Registration Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by the Registration Statements
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<PAGE>
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event that on any
Trading Day (as defined in the Debentures) (the "REGISTRATION TRIGGER DATE") the
number of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities issued or
issuable upon conversion of or otherwise pursuant to the Debentures (based on
the Conversion Price (as defined in the Debentures) then in effect) and exercise
of or otherwise pursuant to the Warrants, in each case without giving effect to
any limitations on the Investors' ability to convert the Debentures or exercise
the Warrants, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefore, if applicable),
or both, so as to cover one hundred fifty percent (150%) of all of the
Registrable Securities so issued or issuable (without giving effect to any
limitations on conversion contained in the Debentures or exercise contained in
the Warrants) as of the Registration Trigger Date, in each case, as soon as
practicable, but in any event within twenty (20) business days after the
necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof, but in any event within sixty (60) days of the Registration
Trigger Date. The provisions of Section 2(c) above shall be applicable with
respect to the Company's obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in a Registration Statement and its legal
counsel (i) promptly after the same is prepared and publicly distributed, filed
with the SEC, or received by the Company, one copy of each Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus
and each amendment or supplement thereto, and, in the case of the Registration
Statement referred to in Section 2(a), each letter written by or on behalf of
the Company to the SEC or the staff of the SEC, and each item of correspondence
from the SEC or the staff of the SEC, in each case relating to such Registration
Statement (other than any portion of any thereof which contains information for
which the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable,
but no later than three (3) business days (the "ACCELERATION REQUEST DEADLINE"),
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by the Registration
Statements under such other securities or
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"blue sky" laws of such jurisdictions in the United States as the Investors who
hold a majority in interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
PROVIDED, HOWEVER, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
e. [INTENTIONALLY OMITTED]
f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor of the happening of any
event, of which the Company has knowledge, as a result of which the prospectus
included in any Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
use its best efforts promptly to prepare a supplement or amendment to any
Registration Statement to correct such untrue statement or omission, and deliver
such number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request; provided that, for not more than twenty (20)
consecutive days (or a total of not more than sixty (60) days in any twelve (12)
month period), the Company may delay the disclosure of material non-public
information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "ALLOWED
DELAY"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of any
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
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h. The Company shall permit a single firm of counsel
designated by the Initial Investors to review such Registration Statement and
all amendments and supplements thereto (as well as all requests for acceleration
or effectiveness thereof) a reasonable period of time prior to their filing with
the SEC (not less than three (3) business days but not more then five (5)
business days) and not file any document in a form to which such counsel
reasonably objects and will not request acceleration of such Registration
Statement without prior notice to such counsel. The sections of such
Registration Statement covering information with respect to the Investors, the
Investor's beneficial ownership of securities of the Company or the Investors
intended method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Investors.
i. The Company shall make generally available to its
security holders as soon as practicable, but not later than ninety (90) days
after the close of the period covered thereby, an earnings statement (in form
complying with the provisions of Rule 158 under the 1933 Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor participating in an
underwritten offering pursuant to Section 2(d), the Company shall furnish, on
the date that Registrable Securities are delivered to an underwriter for sale in
connection with any Registration Statement pursuant to Section 2(d), (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by
(i) any Investor, (ii) one firm of attorneys and one firm of accountants or
other agents retained by the Initial Investors and (iii) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors
(collectively, the "INSPECTORS") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
"RECORDS"), as shall be reasonably deemed necessary by each Inspector to enable
each Inspector to exercise its due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request for purposes of such due diligence; PROVIDED,
HOWEVER, that each Inspector shall hold in confidence and shall not make any
disclosure (except to an Investor) of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall
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<PAGE>
not be required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable
Securities covered by the Registration Statement to be listed on each national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) to the
extent the securities of the same class or series are not then listed on a
national securities exchange, secure the designation and quotation, of all the
Registrable Securities covered by the Registration Statement on Nasdaq or, if
not eligible for Nasdaq on the Nasdaq SmallCap and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. ("NASD") as
such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and
registrar, which may be a single entity, for the Registrable Securities not
later than the effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
9
<PAGE>
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as EXHIBIT 1 and an opinion of such counsel in the form
attached hereto as EXHIBIT 2.
p. At the request of the holders of a
majority-in-interest of the Registrable Securities, the Company shall prepare
and file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and any prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall not, and shall not agree to, allow
the holders of any securities of the Company to include any of their securities
in any Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the holders
of a majority-in-interest of the Registrable Securities. In addition, the
Company shall not offer any securities for its own account or the account of
others in any Registration Statement under Section 2(a) hereof or any amendment
or supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities.
r. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
s. The Company shall comply with all applicable laws
related to a Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the 1933 Act and the 1934 Act and the
rules and regulations promulgated by the SEC).
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be reasonably required to effect the
registration of
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<PAGE>
such Registrable Securities and shall execute such documents in connection with
such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statements.
c. In the event of an underwritten offering pursuant to
Section 2(d) in which any Registrable Securities are to be included, each
Investor agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(f) or 3(g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3,
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<PAGE>
including, without limitation, all registration, listing and qualification fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of one counsel selected by
the Initial Investors pursuant to Sections 2(b) and 3(h) hereof shall be borne
by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors in connection with an
underwritten offering pursuant to Section 2(d) hereof, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"INDEMNIFIED PERSON"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "VIOLATIONS"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of
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<PAGE>
any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in
which an Investor is participating, each such Investor agrees severally and not
jointly to indemnify, hold harmless and defend, to the same extent and in the
same manner set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, 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 to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any
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governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, 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 party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; PROVIDED,
HOWEVER, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for the Indemnified Persons or the Indemnified Parties, as applicable, and such
legal counsel shall be selected by Investors holding a majority-in-interest of
the Registrable Securities included in the Registration Statement to which the
Claim relates (with the approval of a majority-in-interest of the Initial
Investors), if the Investors are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The indemnification
required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as such expense,
loss, damage or liability is incurred and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
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8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those
terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being understood
that nothing herein shall limit the Company's obligations under Section 4(c) of
the Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
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10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
b. Any notices required or permitted to be given under
the terms hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States mail, or upon
receipt, if delivered personally or by courier (including a recognized overnight
delivery service) or by facsimile, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Learn2.com, Inc.
1311 Mamaroneck Avenue
White Plains, New York 10605
Attention: President and Chief Executive Officer
Facsimile: (914) 682-4440
With copy to:
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
Attention: Gerald Adler, Esq.
Facsimile: (212) 891-9598
If to an Investor: to the address set forth immediately below
such Investor's name on the signature pages to the Securities Purchase
Agreement.
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With copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103-7599
Attention: Gerald J. Guarcini, Esquire
Facsimile: (215) 864-8999
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). Both parties irrevocably consent to the jurisdiction of the
United States federal courts and the state courts located in Delaware with
respect to any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Nothing herein shall
affect either party's right to serve process in any other manner permitted by
law. Both parties agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same
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agreement. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and
other determinations to be made by the Investors pursuant to this Agreement
shall be made by Investors holding a majority of the Registrable Securities,
determined as if the all of the Debentures then outstanding have been converted
into for Registrable Securities.
k. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to each Investor by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for breach of its obligations
hereunder will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions hereunder, that each Investor
shall be entitled, in addition to all other available remedies in law or in
equity, to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, without the necessity of showing economic loss and without
any bond or other security being required.
l. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
m. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
n. The initial number of Registrable Securities included
in any Registration Statement and each increase to the number of Registrable
Securities included therein shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included in a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the
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number of shares of Registrable Securities then held by such Investors. For the
avoidance of doubt, the number of Registrable Securities held by an Investor
shall be determined as if all the Debentures and Warrants then outstanding and
held by an Investor were converted into or exercised for Registrable Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
LEARN2.COM, INC.
By:
-----------------------------------------
Stephen P. Gott
President and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
-----------------------------------------
Gerald F. Stahlecker
Director
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[GRAPHIC OMITTED]
FOR: Learn2.com
CONTACTS: Learn2.com
Joan P. Ball
914 872-2024
Morgen-Walke Associates
Corey Cutler/Katherine Mittelbusher
212-850-5600
FOR IMMEDIATE RELEASE
LEARN2.COM SECURES $10 MILLION IN FINANCING
FUNDING USED FOR BRAND-BUILDING AND NEW PRODUCT LAUNCH SCHEDULED FOR
MARCH 22, 2000.
White Plains, NY, March 15, 2000 - Learn2.com (Nasdaq: LTWO), a leading provider
of e-learning solutions, announced today that it completed a $10 million
financing with an institutional investment fund that invests in publicly-traded
companies with promising growth potential and superior management. The financing
was made through a three-year, 6% debenture that is convertible to common stock
at a price of $6.00 per share.
"Learn2.com has maintained a leadership position in the e-learning
marketplace, despite modest spending on marketing," stated company President
and Chief Executive Officer Stephen P. Gott. "Our corporate focus has been on
developing products and services that meet and exceed the needs and
expectations of the e-learning marketplace. Now, with our foundation strong
and several innovative, exciting new products set to launch on March 22,
2000, we are ready to turn our attention to expanding the Learn2.com brand."
Mr. Gott continued, "The funds from this financing will give us the market
flexibility to assure that we maintain and grow our status as an industry
leader. We are committed to capturing increased mind share and market share
by promoting our products and services while leveraging growing interest in
e-learning among corporate and individual users."
About Learn2.com
Learn2.com is a leader in the creation and distribution of online advanced
learning and training products. The Learn2.com suite of products includes
more than 1,200 off-the-shelf training titles, providing an engaging learning
experience to consumer and corporate customers by allowing interactive
multimedia and animated courseware to be accessed instantly on the Web. These
courses are also delivered on CD-ROM and video. Learn2.com is also an
e-learning community that provides tips and step-by-step instructions on a
broad spectrum of skills, activities and tasks, as well as immediately
accessible multimedia tutorials. Corporations have access to the same high
quality tutorials through Learn2University, which includes additional
features such as reporting
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and administration. For more information, call 800 214-8000. Learn2.com is
located at www.learn2.com and Learn2University is located at
www.learn2university.com.
Forward-Looking Statements
This news release contains forward-looking statements, which involve risks and
uncertainties. Accordingly, no assurance can be given that the actual events and
results will not be materially different than the anticipated results described
in the forward-looking statement. There are a number of important factors that
could cause actual results to differ materially from those expressed in any
forward-looking statements made by the Company. These factors include the
Company's success in its business and operations; the activities of new or
existing competitors, the ability to attract and retain employees and strategic
partners, the ability to leverage intangible assets, the ability to complete new
projects at planned costs and on planned schedules and adoption of the Internet
as a medium of commerce, communications and learning. Investors are also
directed to consider other risks and uncertainties discussed in documents filed
by the company with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements, which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
