SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
EDT Learning, Inc.
--------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
--------------------------------------------------------------------------------
(Title of Class of Securities)
26841E 10 7
--------------------------------------------------------------------------------
(CUSIP Number)
Russell Cleveland
8080 N. Central Expressway
Suite 210, LB-50
Dallas, TX 75206
214-891-8294
--------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 29, 2002
--------------------------------------------------------------------------------
(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [_].
(Page 1 of 9 Pages)
CUSIP No. 26841E 10 13D Page 2 of 9 Pages
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Renaissance Capital Growth & Income Fund III, Inc. 75-2533518
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
1,031,600
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY None
-----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
1,031,600
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,031,600
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[-]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.83%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IV
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 26841E 10 13D Page 3 of 9 Pages
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Renaissance US Growth and Income Trust PLC None - Foreign
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United Kingdom
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
1,000,000
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY None
-----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
1,000,000
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,000,000
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[-]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.62%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IV
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No. 26841E 10 13D Page 4 of 9 Pages
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
BFS US Special Opportunities Trust PLC None - Foreign
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [_]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United Kingdom
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
1,200,000
SHARES _________________________________________________________________
8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY None
-----------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
1,200,000
PERSON _________________________________________________________________
10 SHARED DISPOSITIVE POWER
WITH
None
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,200,000
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[-]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.95%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IV
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
CUSIP No.2684E 10 7 13D Page 5 of 9 Pages
--------------------------------------------------------------------------------
Item 1. Security and Issuer.
This statement relates to the Common Stock ("Common Shares") of EDT
Learning, Inc. (the "Company" or "EDT Learning"). The principal executive
offices of the Company are located at 2999 North 44th Street, Suite 650,
Phoenix, Arizona 85018.
--------------------------------------------------------------------------------
Item 2. Identity and Background.
(a) This Statement is filed by Renaissance Capital Growth & Income Fund
III, Inc. ("Renaissance III"), Renaissance US Growth & Income Trust PLC
("Renaissance PLC"); and BFS US Special Opportunities Trust PLC ("BFS US")
(collectively the "Reporting Persons").
Renaissance Capital Group, Inc., a Dallas, Texas, firm that is registered
as an Investment Adviser under the Investment Adviser Act of 1940, is the
Investment Adviser for Renaissance III, the Investment Manager for Renaissance
PLC, and the Investment Adviser for BFS US.
Certain information concerning the directors and executive officers of the
Reporting Persons is set forth on Attachment 1 attached hereto and incorporated
herein by reference.
(b) Renaissance III is a business development company regulated under the
Investment Company Act of 1940, as amended, and organized under the laws of the
State of Texas, with its principal business and principal office at 8080 N.
Central Expressway, Suite 210, LB-59, Dallas, Texas 75206-1857.
Renaissance PLC is an investment trust organized under the laws of England
and Wales. Its address in the United States is c/o Renaissance Capital Group,
Inc., Investment Manager, 8080 N. Central Expressway, Suite 210, LB-59, Dallas,
Texas 75206-1857.
BFS US is an investment trust organized under the laws of England and
Wales. Its address in the United States is c/o Renaissance Capital Group, Inc.,
Investment Adviser, 8080 N. Central Expressway, Suite 210, LB-59, Dallas, Texas
75206-1857.
The business addresses of the directors and executive officers of the
Reporting Persons are set forth on Attachment 1 to this Statement and
incorporated herein by reference.
(c) Renaissance III and Renaissance PLC are engaged in the business of
investing principally in emerging or undervalued U.S. public companies. BFS US
was organized to carry on the business of an investment trust company and to
undertake all kinds of trust and agency business, including but not limited to
investing in emerging or undervalued U.S. public companies.
(d) Neither any of the Reporting Persons nor, to the best knowledge of such
persons, any person named in Attachment 1 to this Statement, has been convicted
in a criminal proceeding in the past five years (excluding traffic violations or
similar misdemeanors).
CUSIP No. 22 527P 10 2 13D Page 6 of 9 Pages
(e) Neither any of the Reporting Persons nor, to the best knowledge of such
persons, any person named in Attachment 1 to this Statement, was during the last
five years a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction as a result of which such person was or is subject to a
judgment, decree, or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
(f) All persons named on Attachment 1 to this Statement are citizens of the
United States or the United Kingdom. All of the directors and executive officers
of Renaissance III are citizens of the United States. All of the directors of
Renaissance PLC and BFS US are citizens of the United Kingdom, except for
Russell Cleveland and C. A. Rundell, Jr., who are citizens of the United States.
--------------------------------------------------------------------------------
Item 3. Source and Amount of Funds or Other Consideration.
The total amount of funds required by Renaissance III to acquire the
securities reported in Item 5(a) was $516,590. The source of such funds was
capital of Renaissance III.
The total amount of funds required by Renaissance PLC to acquire the
securities reported in Item 5(a) was $500,000. The source of such funds was
capital of Renaissance PLC.
The total amount of funds required by BFS US to acquire the securities
reported in Item 5(a) was $707,000. The source of such funds was capital of BFS
US.
--------------------------------------------------------------------------------
Item 4. Purpose of Transaction.
The Reporting Persons each acquired beneficial ownership of the Common
Stock reported in Item 5(a) both in the ordinary course of business for
investment purposes.
None of the Reporting Persons has any present plans or proposals which
relate to or would result in any transaction, change, or event specified in
clauses (a) through (j) of Item 4 of the Schedule 13D.
--------------------------------------------------------------------------------
Item 5. Interest in Securities of the Issuer.
(a) Under SEC rules and as of the date of this filing, Renaissance III
beneficially owns 1,031,600 Common Shares, Renaissance PLC beneficially owns
1,000,000 Common Shares, and BFS US beneficially owns 1,200,000 Common Shares.
The Reporting Persons beneficially own 3,231,600 Common Shares computed on a
fully converted basis.
Based upon information filed with the Securities and Exchange Commission,
the Common Shares beneficially owned by Renaissance III, Renaissance PLC, BFS US
and together represent approximately 6.83%, 6.62%, 7.95% and 18.90%,
respectively, of the outstanding Common Stock of the Company. The foregoing
percentages are calculated based on the 14,101,855 shares of the Company's
Common Stock outstanding as of February 11, 2002, as reported in the Company's
most recently filed Form 10-Q for the quarter ended December 31, 2001.
Renaissance III, Renaissance PLC, and BFS US disclaim that they are members
of a group for purposes of Regulation 13D.
CUSIP No. 22 527P 10 2 13D Page 7 of 9 Pages
The Common Shares beneficially owned by Renaissance III are comprised of
31,600 shares of Common Stock purchased on November 1, 2001, in the open market
at a cost of $0.525 per share, 500,000 shares of Common Stock issuable upon the
conversion of a 12% Convertible Subordinated Note dated March 29, 2002, and
500,000 shares of Common Stock issuable upon the exercise of warrants. The
Convertible Subordinated Note and the Warrant are described in Item 6.
Renaissance PLC is deemed the beneficial owner of Common Shares comprised
of 500,000 shares of Common Stock issuable upon the conversion of a 12%
Convertible Subordinated Note dated March 29, 2002, and 500,000 shares of Common
Stock issuable upon the exercise of warrants. These securities are described in
Item 6.
BFS US is deemed the beneficial owner of Common Shares comprised of 500,000
shares of Common Stock issuable upon the conversion of a 12% Convertible
Subordinated Note dated March 29, 2002, and 500,000 shares of Common Stock
issuable upon the exercise of warrants. These securities are described in Item
6. In addition, on March 28, 2002, BFS US purchased 200,000 shares of Common
Stock in the open market at a cost of $1.035 per share.
(b) Number of shares as to which Renaissance III has:
(i) Sole power to vote or to direct the vote
1,031,600
(ii) Shared power to vote or to direct the vote
None
(iii) Sole power to dispose or to direct the disposition of
1,061,600
(iv) Shared power to dispose or to direct the disposition of
None
Number of shares as to which Renaissance PLC has:
(i) Sole power to vote or to direct the vote
1,000,000
(ii) Shared power to vote or to direct the vote
None
(iii) Sole power to dispose or to direct the disposition of
1,000,000
(iv) Shared power to dispose or to direct the disposition of
None
Number of shares as to which BFS US has:
(i) Sole power to vote or to direct the vote
1,200,000
(ii) Shared power to vote or to direct the vote
None
(iii) Sole power to dispose or to direct the disposition of
1,200,000
(iv) Shared power to dispose or to direct the disposition of
None
(c) Except as otherwise provided in this filing, none of the Reporting
Persons or their affiliates have effected any transactions in the Common Stock
of Creative Host during the past 60 days.
(d) No person other than the Reporting Persons has the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, the Common Shares beneficially owned by the Reporting Persons.
(e) Not applicable.
CUSIP No. 22 527P 10 2 13D Page 8 of 9 Pages
--------------------------------------------------------------------------------
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
On March 29, 2002, Renaissance III purchased a $500,000, ten-year, 12%
Convertible Redeemable Subordinated Note ("the Renaissance III Note"). Interest
on the Renaissance Note shall be due and payable at the end of each calendar
quarter following the date of the Renaissance Note. The principal, together with
all accrued but unpaid interest, shall mature and be due and payable on March
29, 2012. Renaissance III may elect to convert the Renaissance Note at any time
subsequent to 60 (sixty) days after the date of the Renaissance Note and prior
to maturity. The principal portion of the Renaissance Note will convert into
duly authorized, validly issued, fully paid, and nonassessable shares of Common
Stock at a price of $1.00 or at any subsequently adjusted conversion price. In
connection with such conversion, no fractions of shares of Common Stock shall be
issued, but the Company shall pay a cash adjustment in lieu of such fractional
share. Upon conversion, Renaissance III shall be entitled to receive by cash
payment only any interest that was accrued but unpaid prior to such conversion.
Also on March 29, 2002, and as part of the same private placement,
Renaissance III purchased a warrant to purchase 500,000 shares of Common Stock
("the Renaissance III Warrant"). The Renaissance III Warrant may be exercised at
any time after the date of issue up to and including the third anniversary of
the date of the Renaissance Warrant at an exercise price of $3.00 per share.
On March 29, 2002, Renaissance US purchased a $500,000, ten-year, 12%
Convertible Redeemable Subordinated Note ("the Renaissance US Note"). Interest
on the Renaissance US Note shall be due and payable at the end of each calendar
quarter following the date of the Renaissance US Note. The principal, together
with all accrued but unpaid interest, shall mature and be due and payable on
March 29, 2012. Renaissance US may elect to convert the Renaissance US Note at
any time subsequent to 60 (sixty) days after the date of the Renaissance US Note
and prior to maturity. The principal portion of the Renaissance US Note will
convert into duly authorized, validly issued, fully paid, and nonassessable
shares of Common Stock at a price of $1.00 or at any subsequently adjusted
conversion price. In connection with such conversion, no fractions of shares of
Common Stock shall be issued, but the Company shall pay a cash adjustment in
lieu of such fractional share. Upon conversion, Renaissance US shall be entitled
to receive by cash payment only any interest that was accrued but unpaid prior
to such conversion.
Also on March 29, 2002, and as part of the same private placement,
Renaissance US purchased a warrant to purchase 500,000 shares of Common Stock
("the Renaissance US Warrant"). The Renaissance US Warrant may be exercised at
any time after the date of issue up to and including the third anniversary of
the date of the Renaissance US Warrant at an exercise price of $3.00 per share.
On March 29, 2002, BFS US purchased a $500,000, ten-year, 12% Convertible
Redeemable Subordinated Note ("the BFS US Note"). Interest on the BFS US Note
shall be due and payable at the end of each calendar quarter following the date
of the Renaissance Note. The principal, together with all accrued but unpaid
interest, shall mature and be due and payable on March 29, 2012. BFS US may
elect to convert the Renaissance Note at any time subsequent to 60 (sixty) days
after the date of the Renaissance Note and prior to maturity. The principal
portion of the BFS US Note will convert into duly authorized, validly issued,
fully paid, and nonassessable shares of Common Stock at a price of $1.00 or at
any subsequently adjusted conversion price. In connection with such conversion,
no fractions of shares of Common Stock shall be issued, but the Company shall
pay a cash adjustment in lieu of such fractional share. Upon conversion, BFS US
shall be entitled to receive by cash payment only any interest that was accrued
but unpaid prior to such conversion.
Also on March 29, 2002, and as part of the same private placement, BFS US
purchased a warrant to purchase 500,000 shares of Common Stock ("the BFS US
Warrant"). The BFS US Warrant may be exercised at any time after the date of
issue up to and including the third anniversary of the date of the Renaissance
Warrant at an exercise price of $3.00 per share.
CUSIP No.2684E 10 7 13D Page 9 of 9 Pages
--------------------------------------------------------------------------------
Item 7. Material to be Filed as Exhibits.
Exhibit 1 Joint Filing Agreement Pursuant to Rule 13d-1(k)
Exhibit 2 Renaissance III Note
Exhibit 3 Renaissance III Warrant
Exhibit 4 Renaissance PLC Note
Exhibit 5 Renaissance PLC Warrant
Exhibit 6 BFS US Note
Exhibit 7 BFS US Warrant
--------------------------------------------------------------------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
April 22, 2002
(Date)
Renaissance Capital Growth & Income Fund III, Inc.
/S/ Russell Cleveland
(Signature)
Russell Cleveland
President and Chief Executive Officer
(Name/Title)
Renaissance US Growth and Income Trust PLC
/S/ Russell Cleveland
(Signature)
Russell Cleveland
Director
BFS US Special Opportunities Trust PLC
/S/ Russell Cleveland
(Signature)
Russell Cleveland
Director
Attention. Intentional misstatements or omissions of fact constitute federal
criminal violations (see 18 U.S.C. 1001).
ATTACHMENT 1
The name. business address. and principal occupation of the directors and
executive officers of Renaissance III are as follows:
DIRECTORS
Principal
Name Business Address Occupation
Edward O. Boshell, Jr. c/o Renaissance Capital Group, Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Russell Cleveland c/o Renaissance Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Peter Collins c/o Renaissance Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Ernest C. Hill c/o Renaissance Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Charles C. Pierce, Jr. c/o Renaissance Capital Group, Inc. Director
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
OFFICERS
Russell Cleveland c/o Renaissance Capital Group, Inc. President and
8080 North Central Expressway Chief Executive
Suite 210, LB-59 Officer
Dallas, TX 75206-1857
John A. Schmit c/o Renaissance Capital Group, Inc. Vice President
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Robert C. Pearson c/o Renaissance Capital Group, Inc. Vice President
8080 North Central Expressway
Suite 210, LB-59
Dallas, TX 75206-1857
Barbara A. Butschek c/o Renaissance Capital Group, Inc. Secretary and
8080 North Central Expressway Treasurer
Suite 210, LB-59
Dallas, TX 75206-1857
Page 1
The name, business address, and principal occupation of the directors and
executive officers of Renaissance PLC are as follows:
DIRECTORS
Principal
Name Business Address Occupation
Michael B. Cannan c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Russell Cleveland c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Ernest J. Fenton c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Lord Mark Fitzalan Howard OBE c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
C. A. Rundell, Jr. c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
William W. Vanderfelt c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
OFFICERS
None
Page 2
The name. business address. and principal occupation of the directors and
executive officers of BFS US are as follows:
DIRECTORS
Principal
Name Business Address Occupation
Lord Lang of Monkton c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Russell Cleveland c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Ernest John Fenton c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
Anthony Arthur Reid c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
William Weeks Vanderfelt c/o Sinclair Henderson Limited Director
23 Cathedral Yard
Exeter EX11HB
OFFICERS
None
Page 3
EXHIBIT 1
JOINT FILING AGREEMENT PURSUANT TO RULE 13d-1(k)
The undersigned acknowledge and agree that the foregoing statement on
Schedule 13D is filed on behalf of each of the undersigned and that all of each
of the undersigned without the necessity of filing additional joint filing
agreements. The undersigned acknowledge that each shall be responsible for the
timely filing of such amendments, and for the completeness and accuracy of the
information concerning it contained therein, but shall not be responsible for
the completeness and accuracy of the information concerning the others, except
to the extent it knows or has reason to believe that such information is
inaccurate. This Joint Filing Agreement may be executed in any number of
counterparts and all of such counterparts taken together shall constitute one
and the same instrument.
RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC.
By: _________________________________________
Name: Russell Cleveland
Title: President and Chief Executive Officer
RENAISSANCE US GROWTH & INCOME TRUST PLC
By: _________________________________________
Name: Russell Cleveland
Title: Director
BFS US SPECIAL OPPORTUNITIES TRUST PLC
By: __________________________________
Name: Russell Cleveland
Title: Director
EXHIBIT 2
THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF COMMON STOCK OF
MAKER ACQUIRABLE UPON CONVERSION) HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES ACT. THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF
COMMON STOCK OF MAKER ACQUIRABLE UPON CONVERSION) MUST BE HELD INDEFINITELY AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
MAKER RECEIVES AN OPINION OF COUNSEL, OR OTHER EVIDENCE, REASONABLY ACCEPTABLE
TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACTS.
THE TRANSFER OF THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF
COMMON STOCK OF MAKER ACQUIRABLE UPON CONVERSION) IS SUBJECT TO RESTRICTIONS AS
PROVIDED IN THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE.
CONVERTIBLE REDEEMABLE SUBORDINATED NOTE
$500,000 March 29, 2002
FOR VALUE RECEIVED, the undersigned, EDT Learning, Inc., a Delaware
corporation ("Maker"), hereby promises to pay to the order of the Frost National
Bank FBO, Renaissance Capital Growth & Income Fund III, Inc., Trust No.
W00740000 ("Payee"), at Frost National Bank, Attn: Henri Domingues T-8, 100 W.
Houston St., San Antonio, TX 78205, or such other place as Payee may from time
to time direct Maker in writing, the principal sum of Five Hundred Thousand and
00/100 Dollars ($500,000), together with interest thereon which shall accrue at
the rate of twelve percent (12.0%) per annum. Accrued interest shall be due and
payable at the end of each calendar quarter following the date of this
Convertible Redeemable Subordinated Note (the "Convertible Note") until the
principal hereof is paid in full or converted into shares of the common stock of
Maker, par value $0.001 per share ("Common Stock"), as herein provided. The
principal, together with all accrued but unpaid interest hereon, shall mature
and be due and payable on March 31, 2012. Except as otherwise set forth in
Section 8, Maker shall have no right to prepay this Convertible Note prior to
the date that this Convertible Note matures as set forth above. All payments on
this Convertible Note shall be due and payable in lawful currency of the United
States of America.
This Convertible Note is one of several Convertible Redeemable Subordinated
Notes dated of even date herewith and issued by Maker (collectively, the
"Convertible Notes") as part of an offering of 60 (subject to increase to 110)
units (the "Units") that was conducted by Maker and Murphy & Durieu, the
placement agent for the offering, on a best efforts basis. Each Unit consists of
one (1) Convertible Note and one (1) Warrant exercisable for 50,000 shares of
Common Stock (collectively, the "Warrants").
1
1. Conversion. Payee or the then current holder of this Convertible Note
may elect to convert this Convertible Note (in whole but not in part) at any
time following the date that is sixty (60) days following the date of this Note
and prior to maturity. The principal portion of this Convertible Note will
convert into duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (the "Underlying Shares"). The conversion price for such
conversion shall be a price per share equal to $1.00, or, in case an adjustment
in the conversion price has taken place pursuant to the provisions hereof, at
the then applicable conversion price as so adjusted (such price as in effect
from time to time being referred to herein as the "Conversion Price"). Upon
conversion, Payee (or the then current holder of this Convertible Note) shall be
obligated to deliver to Maker (i) this Convertible Note for cancellation and
(ii) written notice of the intent of Payee (or the then current holder of this
Convertible Note) to convert this Note. Within fifteen (15) days after the
giving of such notice, Maker shall issue the appropriate number of Underlying
Shares in accordance with the Conversion Price and deliver to Payee a
certificate or certificates therefor, registered in its name, representing such
Underlying Shares against delivery to Maker of this Convertible Note marked
"paid in full." Payee shall represent in writing to Maker prior to the receipt
of the Underlying Shares that such Underlying Shares will be acquired by it for
investment only and not for resale or with a view to the distribution thereof,
and shall agree that any certificates representing the Underlying Shares may
bear a legend, conspicuously noting such restriction, as Maker shall deem
reasonably necessary or desirable to enable it to comply with any applicable
federal or state laws or regulations.
Upon conversion of this Convertible Note, the holder hereof shall not be
entitled to receive any unaccumulated or unaccrued interest, provided that such
holder shall be entitled to receive (by cash payment only) any interest on such
portion that accrued prior to such conversion and remained unpaid. In connection
with the conversion of this Convertible Note, no fractions of shares of Common
Stock shall be issued, but Maker shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fraction of a share multiplied by
the Conversion Price.
2. Antidilution Adjustments. The Conversion Price in effect an any time
shall be subject to adjustment as follows:
(a) In case Maker shall pay or make a dividend or other distribution
on any class of capital stock of Maker in shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator of which shall be the sum
of such number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination.
2
(b) In case Maker shall issue rights or warrants to all holders of its
shares of Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the Fair Value (as defined below) per
share of the Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, the Conversion
Price in effect at the opening of business on the day following the date
fixed for such determination shall be reduced to the amount determined by
multiplying such Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination, plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase if purchased at Fair Value, and the denominator of
which shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination, plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination.
(c) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be
combined into smaller number of shares, the Conversion Price in effect at
the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
upon the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case Maker shall, by dividend or otherwise, distribute to all
holders of shares of Common Stock evidences of indebtedness or assets
(including securities, but excluding any rights or warrants referred to
above, any dividend or distribution paid in cash out of the earned surplus
of Maker and any dividend or distribution referred to above), the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction, the
numerator of which shall be the Fair Value per share of the Common Stock on
the date fixed for such determination less the Fair Value of the portion of
the assets or evidences of indebtedness so distributed allocable to one
share of Common Stock and the denominator of which shall be such Fair Value
per share of the Common Stock on the date fixed for such determination,
such adjustment to become effective immediately prior to the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
(e) In case the Common Stock shall be changed into the same or a
different number of shares of any class or classes of stock, whether by
capital reorganization, reclassification, or otherwise (other than a
3
subdivision or combination of shares or a stock dividend described above,
or a consolidation, merger or sale of assets described below), then and in
each such event the Payee (or the then current holder of this Convertible
Note) shall have the right thereafter to convert this Convertible Note into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which this Convertible
Note might have been converted immediately prior to such reorganization,
reclassification or change.
(f) No adjustment in the Conversion Price shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (f)) would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which, by reason of this
paragraph (f), are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 2 shall be made to the nearest dollar.
(g) Whenever the Conversion Price is adjusted as provided in this
Convertible Note and upon the request of Payee (or the then current holder
of this Convertible Note), Maker shall prepare an Officer's Certificate
setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based and the computation
thereof, and such certificate shall promptly be forwarded to the Payee (or
the then current holder of this Convertible Note).
(h) Maker shall at all times reserve and keep available, free from
preemptive rights, out of its authorized shares of Common Stock, for the
purpose of effecting the conversion of the Convertible Notes, the full
number of shares of Common Stock then issuable upon the conversion of all
outstanding Convertible Notes and shall take all action necessary so that
shares of Common Stock so issued will be validly issued, fully paid and
nonassessable.
(i) Maker will pay any and all stamp or similar taxes that may be
payable in respect of the issuance or delivery of shares of Common Stock on
conversion of this Convertible Note. Maker shall not, however, be required
to pay any tax that may be payable in respect of any transfer involved in
the issuance and delivery of shares of Common Stock in a name other than
that of the Payee, and no such issuance or delivery shall be made unless
and until the person requesting such issuance has paid to Maker the amount
of any such tax, or has established to the satisfaction of Maker that such
tax has been paid.
(j) Maker agrees that in case of any consolidation of Maker with, or
merger of Maker into, any other corporation, or in case of any merger of
another corporation into Maker (other than a merger which does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of Maker), or in case of any sale or
transfer of all or substantially all of the assets of Maker, Maker shall
require the corporation formed by such consolidation or resulting from
4
such merger or which acquires such assets, as the case may be, to execute
and deliver to the Payee (or the then current holder of this Convertible
Note) an agreement providing that the Payee (or the then current holder of
this Convertible Note) shall have the right thereafter to convert this
Convertible Note into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of Maker into which this
Convertible Note might have been converted immediately prior to such
consolidation, merger, sale or transfer. Such agreement shall provide for
adjustments which, for events subsequent to the effective date of such
consolidation, merger, sale or transfer, shall be as nearly equivalent as
may be practicable to the adjustments provided for herein. The above
provisions of this Convertible Note shall similarly apply to successive
consolidations, mergers, sales or transfers.
(k) "Fair Value" of the Common Stock shall be determined from time to
time in good faith by the Board of Directors of Maker; provided, however,
that if the Common Stock is then traded on the American Stock Exchange (or,
if no longer traded on the American Stock Exchange, another national
exchange or the NASDAQ Stock Market), then the Fair Value of the Common
Stock shall be deemed to be equal to the average quoted closing price of
the Common Stock over the five trading days prior to the date of
determination. Any valuation made pursuant hereto will be binding upon
Maker and all holders of Convertible Notes and their successors and
assigns.
(l) Except as otherwise explicitly set forth in this Section 2, there
shall be no antidilution or other adjustments to the Conversion Price.
3. Events of Default and Remedies. At the option of Payee (or the then
current holder of this Convertible Note), the entire amount of the unpaid
balance of this Convertible Note, shall immediately become due and payable upon
the occurrence of one or more of the following events of default ("Events of
Default"):
(a) Failure of Maker to make any payment on this Convertible Note as
and when the same becomes due and payable in accordance with the terms
hereof, and such failure continues for a period of thirty (30) days after
the receipt by Maker of written notice from Payee (or the then current
holder of this Convertible Note) of the occurrence of such failure; or
(b) Maker shall (i) voluntarily seek, consent to or acquiesce in the
benefit or benefits of any Debtor Relief Law (as hereinafter defined) or
(ii) become party to (or be made the subject of) any proceeding provided by
any Debtor Relief Law, other than as a creditor or claimant, that could
suspend or otherwise adversely affect the rights of Payee (or the then
current holder of this Convertible Note) granted hereunder (unless in the
event such proceeding is involuntary, the petition instituting the same is
dismissed within 120 days of the filing of same). As used herein, the term
"Debtor Relief Law" means the Bankruptcy Code of the United States of
5
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization or
similar debtor relief laws from time to time in effect affecting the rights
of creditors generally.
In the event any one or more of the Events of Default specified above shall
have occurred, the holder of this Convertible Note may proceed to protect and
enforce its rights either by suit in equity or by action at law, or by other
appropriate proceedings, whether for the specific performance of any covenant or
agreement contained in this Convertible Note or in aid of the exercise of any
power or right granted by this Convertible Note, or to enforce any other legal
or equitable right of the holder of this Convertible Note.
4. Successors and Assigns. All of the covenants, stipulations, promises and
agreements in this Convertible Note made by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior written consent of Payee (or the then current
holder of this Convertible Note), assign any of its rights, powers, duties or
obligations under this Convertible Note.
5. Maximum Interest. Regardless of any provision contained herein, Maker
shall never be required to pay and the holder hereof shall never be entitled to
receive, collect or apply as interest hereon, any amount in excess of the
highest lawful interest rate permitted under applicable law, and in the event
the holder hereof receives, collects or applies, as interest, any such excess,
such amounts which would be excessive interest shall be deemed a partial
prepayment of principal and treated hereunder as such for all purposes; and, if
the principal hereof is paid in full, any remaining excess shall be refunded to
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the highest lawful interest rate, Maker and the
holder hereof shall, to the maximum extent permitted under applicable law (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude prepayments and the effects thereof, and (c) pro rate,
allocate and spread the total amount of interest throughout the entire
contemplated term hereof; provided that if the indebtedness evidenced hereby is
paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the highest lawful interest rate, the holder hereof shall either apply
as principal reduction or refund to Maker the amount of such excess, and in such
event, the holder hereof shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
highest lawful interest rate.
6. Restrictions on Transferability. By taking this Convertible Note, Payee
acknowledges that (a) this Convertible Note (and the shares of Common Stock of
Maker acquirable upon conversion) has been acquired for investment and has not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities act and (b) this Convertible Note (and the shares
of Common Stock of Maker acquirable upon conversion) must be held indefinitely
unless (i) subsequent disposition thereof is registered under the Securities Act
and all applicable state securities laws or (ii) an exemption from such
registration is available and Maker receives an opinion of counsel, or other
6
evidence, reasonably satisfactory to Maker stating that such disposition is made
in compliance with an exemption from such registration, and prospectus delivery
requirements.
7. Subordination. To the extent and in the manner hereinafter set forth in
this Section 7, the indebtedness represented by this Convertible Note and any
renewals or extensions thereof shall at all times be wholly subordinate and
junior in right of payment to the prior payment in full of any and all Senior
Indebtedness.
(a) Senior Indebtedness. "Senior Indebtedness" means the principal of,
premium, if any, and unpaid interest (including without limitation any
interest accruing from and after the date of any filing made in respect of
Maker or any of its Subsidiaries pursuant to Chapter 11 of Title 11 of the
U.S. Code, whether or not a claim for such interest would be recognized or
allowed in such proceeding) on the following, whether outstanding at the
date hereof or thereafter incurred or created: (i) Indebtedness of Maker
for money borrowed (including purchase-money obligations), evidenced by
notes or other written obligations, (ii) Indebtedness of Maker evidenced by
notes, debentures, bonds or other securities issued under the provisions of
an indenture or similar instrument, (iii) obligations of Maker as lessee
under capital leases and under leases of property made as part of any sale
and leaseback transactions, (iv) any Hedging Transactions, (v) Indebtedness
of others of any of the kinds described in the preceding clauses (i)
through (iv) assumed or guaranteed by Maker and (vi) renewals, extensions
and refundings of, and Indebtedness and obligations of a successor person
issued in exchange for or in replacement of, Indebtedness or obligations of
the kinds described in the preceding clauses (i) through (v); provided,
however, that the following shall not constitute Senior Indebtedness: (A)
any Indebtedness or obligation as to which, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such Indebtedness or obligation is subordinate in
right of payment to all other Indebtedness of Maker not expressly
subordinated to such Indebtedness or obligation; (B) any Indebtedness or
obligation which by its terms refers explicitly to the Convertible Notes
and states that such Indebtedness or obligation shall not be senior in
right of payment thereto; (C) any Indebtedness or obligation of Maker in
respect of the Convertible Notes; (D) Indebtedness or other obligations of
Maker to any stockholder, director, officer or employee of Maker or any of
its Subsidiaries; and (E) Indebtedness guaranteed by Maker on behalf of any
stockholder, director, officer or employee of Maker or any of its
Subsidiaries.
(b) Payment Over of Proceeds Upon Dissolution, Etc. In the event of
any liquidation of Maker or of any execution, sale, receivership,
insolvency, bankruptcy, readjustment, reorganization, marshaling of assets
and liabilities, assignment for the benefit of creditors or other similar
proceeding relative to Maker or its property (a "Creditors' Proceeding"),
all principal and interest owing on all Senior Indebtedness shall first be
paid in full before any payment is made upon the indebtedness evidenced by
the Convertible Notes, and in any such event any payment or distribution of
any kind or character, whether in cash, property or securities (other than
in securities or other evidences of indebtedness, the payment of which
7
is subordinated to the payment of all Senior Indebtedness that may at the
time be outstanding) that shall be made upon or in respect of the
Convertible Notes shall be paid over to the holders of such Senior
Indebtedness, for application in payment thereof in accordance with the
priorities then existing among such holders unless and until such Senior
Indebtedness shall have been paid or satisfied in full.
(c) No Payment When Senior Indebtedness in Default
(i) Upon the failure to pay (beyond any applicable cure or
grace periods) any installment of principal, premium, interest,
fees or any other amounts owing on any Senior Indebtedness when
the same becomes due and payable, including without limitation a
declaration that such principal amount of Senior Indebtedness has
been declared to be due and payable prior to its maturity (a
"Payment Default"), no payment of principal, premium (if any),
interest or other amounts owing shall be made on the Convertible
Notes or on account of the purchase or other acquisition of
Convertible Notes unless and until (i) such default shall have
been cured or expressly waived or shall have ceased to exist or
(ii) adequate provision has been made for the payment of such
Senior Indebtedness in a manner satisfactory to the holders of at
least 25% of the then outstanding amount of such Senior
Indebtedness.
(ii) Upon the occurrence of any default with respect to
Senior Indebtedness (other than a Payment Default), which default
would permit the holders of such Senior Indebtedness to cause
such Senior Indebtedness to become due prior to its stated
maturity (a "Nonpayment Default"), upon written notice thereof
given to Maker and the holder of this Convertible Note by any
holders of any Senior Indebtedness ("Payment Notice"), then,
unless and until such Nonpayment Default shall have been cured or
waived or shall cease to exist, no payment (other than in capital
stock or evidences of Indebtedness, the payment of which is
subordinated to the payment of all Senior Indebtedness, to the
same extent as the Convertible Notes, that may at the time be
outstanding) shall be made by Maker in respect of the Convertible
Notes or to acquire any of the Convertible Notes; provided,
however, that this paragraph (ii) shall not prevent the making of
any payment (x) which is made 180 days or more after the Payment
Notice shall have been given or (y) if earlier, after the date on
which such Senior Indebtedness shall have been paid in full in
cash or in any other manner acceptable to holders of such Senior
Indebtedness or the date on which application of this paragraph
(ii) has been cured or waived in writing by the holders of such
Senior Indebtedness (or their representatives) in accordance with
the terms of the document pursuant to which it was issued. Maker
shall promptly deliver such Payment Notice to the holders of the
Convertible Notes. Notwithstanding the foregoing, (A) not more
than one Payment Notice shall be given within a period of 365
consecutive days, and (B) no Nonpayment Default which existed or
was continuing on the date of any Payment Notice (whether or
not such event of default is on the same issue or Senior
8
Indebtedness) may be made the basis for the giving of a
subsequent Payment Notice.
(d) Payment Permitted if No Default. Except as provided in subsections
(b) and (c) of this Section 7, nothing contained in this Convertible Note
shall prevent Maker from making payments at any time of principal of (and
premium, if any) or interest on the Convertible Notes.
(e) No Waiver of Subordination Provisions. No right of any holder of
any Senior Indebtedness to enforce subordination as herein provided shall
at any time or in any way be affected or impaired by any failure to act on
the part of Maker or the holders of Senior Indebtedness, or by any
noncompliance by Maker with any of the terms, provisions and covenants of
this Convertible Note, regardless of any knowledge thereof that any such
holder of Senior Indebtedness may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the holders of the Convertible Notes,
without incurring responsibility to the holders of the Convertible Notes
and without impairing or releasing the subordination provided in this
Section 7 or the obligation hereunder of the holders of the Convertible
Notes to the holders of Senior Indebtedness, do any one or more of the
following:
(i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any person liable in any manner for the collection
of Senior Indebtedness; and
(iv) exercise or refrain from exercising any rights against Maker
and any other person.
(f) Notice. Maker shall give prompt written notice to holders of the
Convertible Notes of any fact known to Maker that would prohibit the making of
any payment in respect of the Convertible Notes pursuant to this Section 7.
(g) Reliance on Judicial Order or Certificate of Liquidating Agent. Upon
any payment or distribution of assets of Maker referred to in this Section 7,
the holders of the Convertible Notes shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such liquidation
9
or Creditors' Proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the
benefit of creditors, agent or other person making such payment or
distribution, delivered to the holders of Convertible Notes, for the
purpose of ascertaining the persons entitled to participate in such payment
or distribution, the holders of the Senior Indebtedness and other
Indebtedness of Maker, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto
or to this Section 7.
(h) Certain Conversions Deemed Payment. For the purposes of this
Section 7 only, (i) the issuance and delivery of junior securities upon
conversion of Convertible Notes shall not be deemed to constitute a payment
or distribution on account of the principal of or premium or interest on
Convertible Notes or on account of the purchase or other acquisition of
Convertible Notes, and (ii) the payment, issuance or delivery of cash,
property or securities (other than junior securities) upon conversion of a
Convertible Note shall be deemed to constitute payment on account of the
principal of such Convertible Note. For the purposes of this subsection
7(h), the term "junior securities" means (A) shares of any stock of any
class of Maker and (B) securities of Maker that are subordinated in right
of payment to all Senior Indebtedness that may be outstanding at the time
of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Convertible Notes are so subordinated
as provided in this Section 7. Nothing contained in this Section 7 or
elsewhere in this Convertible Note is intended to or shall impair, as among
Maker, its creditors other than holders of Senior Indebtedness and the
holders of the Convertible Notes, the right, which is absolute and
unconditional, of the holder of any Convertible Notes to convert such
Convertible Note in accordance with Section 1.
(i) Holders of Convertible Notes to be Subrogated to Rights of
Holders of Senior Indebtedness. Subject to the payment in full in
cash, or in any other manner acceptable to holders of Senior
Indebtedness (in their sole discretion), of all Senior Indebtedness,
the holders of Convertible Notes shall be subrogated to the rights of
the holders of Senior Indebtedness to receive payments or
distributions of assets of Maker applicable to the Senior Indebtedness
until all amounts owing on the Convertible Notes shall be paid in full
in cash, and for the purpose of such subrogation no such payments or
distributions to the holders of Senior Indebtedness by or on behalf of
Maker, or by or on behalf of the holders of the Convertible Notes by
virtue of this Section 7, which otherwise would have been made to the
holders of the Convertible Notes shall, as between Maker, its
creditors other than the holders of Senior Indebtedness and the
holders of the Convertible Notes, be deemed to be payment by Maker to
or on account of the Senior Indebtedness, it being understood that the
provisions of this Section 7 are, and are intended, solely for the
purpose of defining the relative rights of the holders of the
Convertible Notes, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
10
As used in this Section 7:
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America from time to time and applied consistently
throughout the relevant periods.
"Hedging Transaction" shall mean, with respect to any Person, (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements of such Person, (ii) currency swap agreements and currency cap
agreements of such Person and (iii) other written agreements or arrangements
principally designed to protect such Person against fluctuations in interest
rates or currency values or the price of any commodity used in the business of
such Person.
"Indebtedness" means (without duplication), when used with reference to any
Person:
(i) any obligation, contingent or otherwise, (A) in respect of
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), or (B)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or (C) representing the balance deferred and unpaid of the purchase
price of any property, if and to the extent (but only to the extent) any of
the foregoing indebtedness would appear as a liability upon a balance sheet
of such Person and its Subsidiaries prepared on a consolidated basis in
accordance with GAAP, and
(ii) shall also include, regardless of whether such items would appear
upon a balance sheet, (A) the principal component of any Capitalized Lease
Obligations of such Person, (B) obligations secured by a Lien to which any
property or asset, including leasehold interests and any other tangible or
intangible property rights, owned by such Person is subject, whether or not
the obligations secured thereby shall have been assumed by such Person
(provided, however, that, if the obligations have not been assumed by such
Person such obligations shall be deemed to be in an amount equal to the
lesser of (1) the fair market value (as determined in good faith by the
Board of Directors of Maker and as evidenced by a board resolution) of the
property or properties to which the Lien relates or (2) the amount of the
Indebtedness secured by such Lien) by such Person or shall otherwise be
such Person's legal liability, (C) reimbursement obligations and all other
liabilities (contingent or otherwise) of such Person in respect of letters
of credit and letter of credit guarantees, (D) any obligation of such
Person in respect of Hedging Transactions, and (E) guarantees by such
Person of items which would be included within this definition, to the
extent of such guarantees.
"Lien" shall mean any mortgage, pledge, lien, encumbrance or security
interest of any kind (including, without limitation, any conditional sale or
other title retention agreement), any lease in the nature thereof, any option or
other agreement to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction, but shall not include any restriction on transfer imposed under
federal or state securities laws.
11
"Person" or "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"Subsidiary" shall mean, with respect to any Person: (i) a corporation in
which such Person or one or more Subsidiaries of such Person own in the
aggregate voting securities representing in excess of 50% of the total number of
votes that could be cast in the election of directors of such corporation by the
holders of all then outstanding voting securities of such corporation and (ii)
any other Person (other than a corporation) of which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person directly or indirectly, has (X) at least a majority ownership interest or
(Y) the power to elect or direct the election of at least a majority of the
directors or other governing body.
8. Redemption. This Convertible Note may be redeemed in whole, but not in
part, at the election of Maker for the principal amount of this Convertible Note
plus accrued but unpaid interest at any time after such time as the closing
price of the Common Stock (as quoted on the American Stock Exchange, the NASDAQ
Stock Market, or such other national exchange, if any, on which the Common Stock
is then quoted) has equaled or exceeded an amount equal to the product of (i)
three, multiplied by (ii) the amount of the Conversion Price then in effect, for
a period of twenty (20) consecutive trading days. Maker shall provide Payee with
written notice (the "Redemption Notice") at least thirty (30) days prior to the
date this Convertible Note shall be redeemed (such date of redemption, the
"Redemption Date") of its intent to redeem this Convertible Note. The Redemption
Notice shall specify the Redemption Date, the principal amount of this
Convertible Note and the amount of accrued but unpaid interest that will be
outstanding as of the Redemption Date. Nothing contained herein shall be
construed to prevent Payee from converting this Convertible Note subsequent to
Payee's receipt of the Redemption Notice but prior to the Redemption Date. Upon
redemption, Payee (or the then current holder of this Convertible Note) shall be
obligated to deliver this Convertible Note to Maker for cancellation and Maker
shall be obligated to deliver to Payee (or the then current holder of this
Convertible Note) a cashier's check in an amount equal to the principal amount
of this Convertible Note plus accrued but unpaid interest.
9. Payee's Registration Rights.
(a) Upon receipt of notice (the "Registration Request Notice") requesting
registration under the Securities Act of Underlying Shares from the holders of
Notes and Warrants representing more than fifty percent (50%) of the aggregate
Underlying Shares, on only one occasion, at any time commencing on the date
hereof and terminating two years thereafter, Maker will offer to Payee the
opportunity to include its Underlying Shares in such registration. Maker will
use its reasonable best efforts to file with the Securities and Exchange
Commission (the "Commission") as promptly as practicable, a registration
statement (the "Demand Registration Statement"), and will use its reasonable
best efforts to have the Demand Registration Statement declared effective and
remain effective until the earliest of (i) two years after the date it is
declared effective, (ii) the date all the Underlying Shares registered thereby
have been sold, or, (iii) in the reasonable opinion of the Maker's counsel, the
12
Underlying Shares may be sold publicly without registration. Maker will also use
its reasonable best efforts to qualify the Underlying Shares under the
securities laws of the state where Payee resides provided Maker is not required
to execute a general consent to service or to qualify to do business in such
state. This offer to Payee shall be made within twenty (20) days after Maker
receives the Registration Request Notice. If Payee elects to include its
Underlying Shares in the Demand Registration Statement, it will, in a timely
fashion, provide Maker and its counsel with such information and execute such
documents as Maker's counsel may reasonably require to prepare and process the
Demand Registration Statement, it shall have no further rights to registration
of its Underlying Shares under this Section 9(a). In the event that Maker has
filed a registration statement with the Commission relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Payee agrees that
Maker can thereafter delay the filing of the Demand Registration Statement for a
period not to exceed ninety (90) days. Anything to the contrary notwithstanding,
in no event shall Maker be required to file a Demand Registration Statement with
the Commission prior to one hundred and eighty (180) days after the date hereof.
As used in this Section 9 only, "Underlying Shares" shall be deemed include
shares of Common Stock issuable both (i) upon conversion of the Notes and (ii)
upon exercise of the Warrants.
(b) If at any time after the date hereof, Maker proposes to file a
registration statement under the Securities Act with respect to any of its
securities (except one relating to stock option or employee benefit plans or a
merger, acquisition or similar transaction), Maker shall give written notice of
its intention to effect such filing to Payee at least thirty (30) days prior to
filing such registration statement (the "Piggyback Registration Statement"). If
the Payee's Underlying Shares have not been previously registered and Payee
desires to include its Underlying Shares in the Piggyback Registration
Statement, it shall notify Maker in writing within fifteen (15) days after
receipt of such notice from Maker, in which event Maker shall include Payee's
Underlying Shares in the Piggyback Registration Statement. If Payee elects to
include its Underlying Shares in the Piggyback Registration Statement as set
forth herein, it shall, in a timely manner, provide Maker and its counsel with
such information and execute such documents as its counsel may reasonably
require to prepare and process the Piggyback Registration Statement. Anything to
the contrary notwithstanding, in the event that the offering for which the
Piggyback Registration Statement has been filed is to be effected through or
with the assistance of an underwriter, Payee will consent to restrict the sale
of its Underlying Shares or reduce the number of its Underlying Shares (on a pro
rata basis with shares of Common Stock issued to any other stockholders of Maker
prior to or after the date hereof, and that, as of the time of determination,
have presently exercisable registration rights and are requested by such
stockholders to be included in such Piggyback Registration Statement) that may
be included in such Piggyback Registration Statement in accordance with the
requirements of such underwriter.
(c) Maker will provide Payee with a copy of the Demand Registration
Statement or the Piggyback Registration Statement, as the case may be, and any
amendments thereto, and copies of the final prospectus included therein in such
quantities as may reasonably be required to permit Payee to sell its Underlying
13
Shares after the Demand Registration Statement or the Piggyback Registration
Statement is declared effective by the Commission.
(d) Maker will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of counsel to
Payee) necessary and incidental to the performance of its obligations under this
Section.
(e) Maker and Payee, if Payee's Underlying Shares are included in a Demand
Registration Statement or Piggyback Registration Statement pursuant to this
Section, shall provide customary and appropriate cross indemnities to each other
covering the information supplied by the indemnifying party for inclusion in the
Demand Registration Statement or Piggyback Registration Statement.
(f) Anything to the contrary notwithstanding, Maker shall not be required
to register any Underlying Shares or provide notices under this Section 9 to a
Payee whose Underlying Shares are either (i) are covered by a then currently
effective registration statement or (ii) in the reasonable opinion of Maker's
counsel, may be sold pursuant to the exemption from registration provided by
Section (k) of Rule 144 promulgated under the Act.
10. Representations and Warranties of Maker. Maker represents and warrants
that, as of the date of this Convertible Note, it: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power to carry on its business as now
conducted and to own its properties and assets it now owns; (ii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in the jurisdictions in which ownership of property or the conduct of its
business requires such qualification except jurisdictions in which the failure
to qualify to do business will have no material adverse effect on its business
or financial condition; (iii) has full power and authority to execute and
deliver this Convertible Note, and that the execution and delivery of this
Convertible Note will not result in the breach of or default under, with or
without the giving of notice and/or the passage of time, any other agreement,
arrangement or indenture to which it is a party or by which it may be bound, or
the violation of any law, statute, rule, decree, judgment or regulation binding
upon it; and (iv) has taken and will take all acts required, including but not
limited to authorizing the signatory hereof on its behalf to execute this
Convertible Note, so that upon the execution and delivery of this Convertible
Note, it shall constitute the valid and legally binding obligation of Maker
enforceable in accordance with the terms thereof.
11. Limitation of Liability. A director, officer, employee or stockholder,
as such, of Maker shall not have any liability for any obligations of Maker
under this Convertible Note or for any claim based on, in respect or by reason
of such obligations or their creation. Payee, by accepting this Convertible
Note, waives and releases all such liability. The waiver and release are part of
their consideration for the issuance of this Convertible Note.
14
12. Governing Law; Venue. This Convertible Note shall be governed by and
construed in accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Delaware.
13. Notice. Any notices required or permitted to be given under the terms
of this Convertible Note shall be sent by certified or registered mail (with
return receipt requested) or delivered personally or by courier (including a
nationally recognized overnight delivery service) or by facsimile transmission.
Any notice so given shall be deemed effective three days after being deposited
in the U.S. Mail, or upon receipt if delivered personally or by courier or
facsimile transmission, in each case addressed to a party at the following
address or such other address as each such party furnishes to the other in
accordance with this Section 13:
If to the Company: EDT Learning, Inc.
2999 North 44th Street
Suite 650
Phoenix, AZ 85018
Telephone: (602) 952-1200
Facsimile: (602) 952-0544
Attention: President
If to the Payee: Frost National Bank,
Attn: Henri Domingues T-8.
100 W. Houston St.
San Antonio, TX 78205
Or
Frost National Bank
Attn: Henri Domingues T-8
P.O. Box 2950
San Antonio, TX 78299-2950
Copies to: Renaissance Capital Group, Inc.
Attn: Lynne Marie True
8080 N. Central Expressway
Suite 210 LB-59
Dallas, TX 75026
Telephone: (214) 891-8294
14. Severability. In case any one or more of the provisions contained in
this Convertible Note shall for any reason be held to be invalid, illegal and
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
15
15. Loss, Theft, Destruction, or Mutilation. Upon receipt by Maker of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of this Convertible Note (and upon surrender of this Convertible Note if
mutilated), and upon reimbursement of Maker's reasonable incidental expenses and
in the case of loss, theft or destruction, indemnity and/or security as Maker
shall, at its option, request, Maker shall make and deliver or caused to be made
and delivered to Payee a new Convertible Note of like date and tenor in lieu of
this Convertible Note.
16. Modification of convertible Note or Waiver of Terms Thereof Relating to
Payee. No modification or waiver of any of the provisions of this Convertible
Note shall be effective unless in writing and signed by Payee and then only to
the extent set forth in such writing, or shall any such modification or waiver
be applicable except in the specific instance for which it is given. This
Convertible Note may not be discharged orally but only in writing duly executed
by Payee.
EXECUTED as of the date set forth above.
MAKER:
EDT LEARNING, INC.
By: ___________/S/_____________
James M. Powers, Jr., its President
and Chief Executive Officer
The Frost National Bank FBO, Renaissance Capital Growth & Income Fund III, Inc.,
Trust No. W00740000
$500,000
16
EXHIBIT 3
RESTRICTION ON TRANSFER
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE
TRANSFERRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT CANNOT BE SOLD OR TRANSFERRED, WITHOUT (I) THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
APPLICABLE STATE SECURITIES LAWS OR (II) SUCH REGISTRATION.
WARRANT
(Redeemable)
To Subscribe for and Purchase Common Stock of
EDT Learning, Inc.
THIS CERTIFIES THAT, for value received, The Frost National Bank FBO,
Renaissance Capital Growth & Income Fund III, Inc., Trust No. W00740000, or its
registered assigns (the "Holder"), is entitled to subscribe for and purchase
from EDT Learning, Inc., a Delaware corporation (the "Company"), at the exercise
price of Three Dollars ($3.00) per share (the "Exercise Price") at any time from
and after the date hereof to and including the third anniversary of the date of
this Warrant (this "Warrant"), 50,000 shares of the Company's common stock, par
value $0.001 per share ("Common Stock"). The Exercise Price shall be subject to
adjustment as provided in Section 5 hereof.
This Warrant is one of several Warrants dated of even date herewith and
issued by the Company (collectively, the "Warrants") as part of an offering of
60 (subject to increase to 110) units (the "Units") that was conducted by the
Company and Murphy & Durieu, the placement agent for the offering, on a best
efforts basis. Each Unit consists of one (1) Warrant exercisable for 50,000
shares of Common Stock and one (1) Convertible Redeemable Subordinated Note
(collectively, the "Notes").
This Warrant is subject to the following provisions, terms and conditions:
1. (a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part, by written notice of exercise delivered to
the Company and by the surrender of this Warrant (properly endorsed if required)
at the principal office of the Company at 2999 North 44th Street, Suite 650,
Phoenix, Arizona 85018 (or such other location as the Company may designate by
notice in writing to the Holder hereof) and upon payment to it by certified
check of the Exercise Price for the shares of Common Stock to be issued upon
exercise (the "Warrant Shares"). The Company shall not be required to issue
1
fractions of shares of Common Stock upon exercise of this Warrant. If any
fraction of a share would, but for this Section, be issuable upon any exercise
of this Warrant, and if the Company shall have elected not to issue such
fraction of a share, in lieu of such fractional share the Company shall pay to
the Holder, in cash, an amount equal to such fraction of the fair market value
per share of outstanding Common Stock of the Company on the Business Day
immediately prior to the date of such exercise (the fair market value for such
purpose shall be the closing price of the Common Stock on the principal stock
exchange on which the Common Stock is then traded or the principal quotation
system in which bid and ask prices for the Common Stock are then maintained).
The Company agrees that the shares so purchased shall be and are deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment tendered for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
(bearing an appropriate legend to indicate that the shares have not been
registered under securities laws) shall be delivered to the Holder hereof within
a reasonable time, not exceeding 10 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant reflecting the shares, if any, as to which this Warrant shall not
then have been exercised shall also be delivered to the Holder hereof within
such time.
(b) This Warrant may be redeemed in whole, but not in part, at the election
of the Company for the price of $0.001 per share of Common Stock for which this
Warrant is exercisable at any time after such time as the closing price of the
Common Stock (as quoted on the American Stock Exchange, the NASDAQ Stock Market,
or such other national exchange, if any, on which the Common Stock is then
quoted) has equaled or exceeded $5.50 per share for a period of twenty (20)
consecutive trading days. The Company shall provide Holder with written notice
(the "Redemption Notice") at least thirty (30) days prior to the date this
Warrant shall be redeemed (such date of redemption, the "Redemption Date") of
its intent to redeem this Warrant. The Redemption Notice shall specify the
Redemption Date. Nothing contained herein shall be construed to prevent Holder
from exercising this Warrant subsequent to Holder's receipt of the Redemption
Notice but prior to the Redemption Date. Upon redemption, Holder (or the then
current holder of this Warrant) shall be obligated to deliver this Warrant to
the Company for cancellation and the Company shall be obligated to deliver to
Holder (or the then current holder of this Warrant) a check in an amount equal
to the product of (i) $0.001 multiplied by (ii) the number of shares of Common
Stock for which this Warrant is then exercisable.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions of this Agreement and the
restrictive legend under the heading "Restriction on Transfer."
3. The Holder acknowledges that this Warrant as well as the Warrant Shares
for which this Warrant may be exercised, have not been and, except as otherwise
provided herein, will not be registered under the Securities Act of 1933, as
amended (the "Act"), or qualified under applicable state securities laws and
that the transferability thereof is restricted by the registration provisions of
the Act as well as such state laws. The Holder represents that it is acquiring
the Warrant and will acquire the Warrant Shares for its own account, for
2
investment purposes only and not with a view to resale or other distribution
thereof, nor with the intention of selling, transferring or otherwise disposing
of all or any part of such securities for any particular event or circumstance,
except selling, transferring or disposing of them upon full compliance with all
applicable provisions of the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Rules and Regulations promulgated by the
Securities and Exchange Commission (the "Commission") thereunder, and any
applicable state securities laws. The Holder further understands and agrees that
(i) neither the Warrant nor the Warrant Shares may be sold unless they are
subsequently registered under the Act and qualified under any applicable state
securities laws or, in the opinion of the Company's counsel, an exemption from
such registration and qualification is available; (ii) any routine sales of the
Company's securities made in reliance upon Rule 144 promulgated by the
Commission under the Act, can be effected only in the amounts set forth in and
pursuant to the other terms and conditions, including applicable holding
periods, of that Rule; and (iii) except as otherwise set forth herein, the
Company is under no obligation to register the Warrant or the Warrant Shares on
their behalf or to assist it in complying with any exemption from registration
under the Act. The Holder agrees that each certificate representing any Warrant
Shares for which this Warrant may be exercised will bear on its face a legend in
substantially the following form:
These securities have not been registered under the Securities Act of
1933 or qualified under any state securities laws. They may not be
sold, hypothecated or otherwise transferred in the absence of an
effective registration statement under that Act or qualification under
applicable state securities laws without an opinion acceptable to
counsel to the Company that such registration and qualification are
not required.
4. The Company covenants and agrees that:
(a) all shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized and issued,
fully paid and nonassessable and free from all preemptive rights of any
stockholder, and from all taxes, liens and charges with respect to the issue
thereof (other than transfer taxes);
(b) during the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized, and reserved
for the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant; and
(c) during the period within which the rights represented by this Warrant
may be exercised, the Company further will use reasonable best efforts to
maintain the eligibility of the Common Stock for listing on the American Stock
Exchange and quotation on the domestic over-the- counter market and use
reasonable best efforts to keep the Common Stock so listed and quoted.
5. (a) If the Company shall, after the date of issuance of this Warrant,
subdivide its outstanding shares of Common Stock into a greater number of shares
3
or consolidate its outstanding shares of Common Stock into a smaller number of
shares (any such event being called a "Common Stock Reorganization"), then the
Exercise Price shall be adjusted, effective at such time, to a number determined
by multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
before such Common Stock Reorganization and the denominator of which shall be
the number of shares outstanding after giving effect to such Common Stock
Reorganization.
(b) If the Company shall after the date of issuance of this Warrant issue
or distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness, any other securities of the Company or any property
or assets other than cash, and if such issuance or distribution does not
constitute a Common Stock Reorganization (any such nonexcluded event being
herein called a "Non-Cash Dividend"), the Exercise Price shall be adjusted (but
not increased), effective immediately after the record date at which the holders
of shares of Common Stock are determined for purposes of such Non-Cash Dividend,
to a number determined by multiplying the Exercise Price immediately before such
Non-Cash Dividend by a fraction, the numerator of which shall be the last sales
price per share of outstanding Common Stock of the Company on such record date
less the then fair market value, as determined in good faith by the Board of
Directors of the Company, of the evidences of indebtedness, securities, cash, or
property or other assets issued or distributed in such Non-Cash Dividend with
respect to one share of Common Stock and the denominator of which shall be the
last sales price per share of outstanding Common Stock on such record date.
(c) If after the date of issuance of this Warrant there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a Common
Stock Reorganization or a change in par value) in, outstanding shares of Common
Stock, or any sale or conveyance of the property of the Company as an entirety
or substantially as an entirety (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Holder shall have the right to purchase, upon exercise of
this Warrant and in lieu of the shares of Common Stock immediately theretofore
purchasable hereunder, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive after such Capital Reorganization if this Warrant
had been exercised immediately prior to such Capital Reorganization, assuming
such holder (i) is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or conveyance was made, as the case may be ("constituent person") and (ii)
failed to exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such Capital Reorganization
(provided that if the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization is not the same for each share of
Common Stock held immediately prior to such consolidation, merger, sale or
conveyance by other than a constituent person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this paragraph the kind and
amount of shares of stock and other securities or other property (including
cash) receivable upon such Capital Reorganization shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
4
As a condition to effecting any Capital Reorganization, the Company or the
successor or surviving corporation, as the case may be, shall execute and
deliver to the Holder an agreement as to the Holder's rights in accordance with
this Section 5(c), providing for subsequent adjustments as nearly equivalent as
may be practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5(c) shall similarly apply to successive Capital
Reorganizations.
(d) If after the date of the issuance of this Warrant the Company shall
issue by reclassification of its shares of Common Stock other securities of the
Company, then the number of shares of Common Stock purchasable upon exercise of
the Warrant immediately prior to such issuance shall be adjusted so that the
Holder upon exercise hereof shall be entitled to receive the kind and number of
shares of Common Stock or other securities of the Company which it would have
owned or have been entitled to receive after such issuance, had this Warrant
been exercised immediately prior to such issuance or any record date with
respect thereto. An adjustment made pursuant to this Section 5(d) shall become
effective upon the date of the issuance retroactive to the record date with
respect thereto, if any. Such adjustment shall be made successively whenever
such an issuance is made.
(e) (i) Any adjustments pursuant to this Section 5 shall be made
successively whenever an event referred to herein shall occur.
(ii) If the Company shall set a record date to determine the holders
of shares of Common Stock for purposes of a Common Stock Reorganization,
Non-Cash Dividend or Capital Reorganization, and shall legally abandon such
action prior to effecting such action, then no adjustment shall be made
pursuant to this Section 5 in respect of such action.
(iii) No adjustment in the Exercise Price shall be made hereunder
unless such adjustment decreases such price by one percent or more, 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 serve to adjust such price by one
percent or more.
(iv) No adjustment in the Exercise Price shall be made hereunder if
such adjustment would reduce the exercise price to an amount below par
value of the Common Stock, which par value shall initially be $0.001 per
share of Common Stock.
(f) As a condition precedent to the taking of any action which would
require an adjustment pursuant to this Section 5, the Company shall take any
action which may be necessary, including obtaining regulatory approvals or
exemptions, in order that the Company may thereafter validly and legally issue
as fully paid and nonassessable all shares of Common Stock which the Holder is
entitled to receive upon exercise thereof.
(g) Promptly after an adjustment or readjustment pursuant to this Section 5
becomes determinable, the Company shall give notice to the Holder of any action
5
which requires an adjustment or readjustment pursuant to this Section 5,
describing such event in reasonable detail and specifying the record date or
effective date, if determinable, the required adjustment and the computation
thereof, if applicable. If the Holder fails to object to any such notice within
30 days of receipt of the Company's notice, the adjustment will be deemed
accepted by the Holder.
6. Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company (the original Holder's indemnity being satisfactory
indemnity in the event of loss, theft or destruction of any Warrant owned by
such Holder), or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock as provided for in such lost, stolen, destroyed or mutilated Warrant.
7. The Holder shall not, as holder of this Warrant, be entitled to vote or
to receive dividends or be deemed the holder of Common Stock that may at any
time be issuable upon exercise of this Warrant for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the Holder, as
holder of this Warrant, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (including without limitation, a Capital Reorganization), or to
receive notice of meetings, or to receive dividends or subscription rights,
until the Holder shall have exercised this Warrant and been issued shares of
Common Stock in accordance with the provisions hereof.
8. The Holder of this Warrant, by acceptance hereof, agrees to give written
notice to the Company before transferring this Warrant or transferring any
Common Stock issuable or issued upon the exercise hereof of such Holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Warrant or such Holder's intention as to the disposition to be made of
shares of Common Stock issuable or issued upon the exercise hereof. Such Holder
shall also provide the Company with an opinion of counsel reasonably
satisfactory to the Company to the effect that the proposed transfer of this
Warrant or disposition of shares received upon exercise hereof may be effected
without registration or qualification (under any Federal or State law) and
without causing the loss of the applicable securities law registration
exemption(s) relied upon by the Company when it issued this Warrant. Upon
receipt of such written notice and opinion by the Company, such Holder shall be
entitled to transfer this Warrant, or to exercise this Warrant in accordance
with its terms and dispose of the shares received upon such exercise or to
dispose of shares of Common Stock received upon the previous exercise of this
Warrant, all in accordance with the terms of the notice delivered by such Holder
to the Company, provided that an appropriate legend respecting the aforesaid
restrictions on transfer and disposition shall be endorsed on this Warrant or
the certificates for such shares.
9. Subject to the provisions of Section 8 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Holder hereof, at the principal office of the Company by the Holder hereof in
6
person or by its duly authorized attorney, upon surrender of this Warrant
properly endorsed and this Warrant is exchangeable, upon the surrender hereof by
the Holder hereof at the office of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the rights to subscribe for and purchase such number of
shares as shall be designated by said Holder hereof at the time of such
surrender. Each taker and Holder of this Warrant, by taking or holding the same,
consents and agrees that the bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered Holder hereof as the owner for
all purposes.
10. (a) Upon receipt of notice (the "Registration Request Notice")
requesting registration under the Securities Act of Underlying Shares (defined
below) from the holders of Notes and Warrants representing more than fifty
percent (50%) of the aggregate Underlying Shares, on only one occasion, at any
time commencing on the date hereof and terminating two years thereafter, the
Company will offer to Holder the opportunity to include its Underlying Shares in
such registration. The Company will use its reasonable best efforts to file with
the Commission as promptly as practicable, a registration statement (the "Demand
Registration Statement"), and will use its reasonable best efforts to have the
Demand Registration Statement declared effective and remain effective until the
earliest of (i) two years after the date it is declared effective, (ii) the date
all the Underlying Shares registered thereby have been sold, or, (iii) in the
reasonable opinion of the Company's counsel, the Underlying Shares may be sold
publicly without registration. The Company will also use its reasonable best
efforts to qualify the Underlying Shares under the securities laws of the state
where Holder resides provided the Company is not required to execute a general
consent to service or to qualify to do business in such state. This offer to
Holder shall be made within twenty (20) days after the Company receives the
Registration Request Notice. If Holder elects to include its Underlying Shares
in the Demand Registration Statement, it will, in a timely fashion, provide the
Company and its counsel with such information and execute such documents as the
Company's counsel may reasonably require to prepare and process the Demand
Registration Statement, it shall have no further rights to registration of its
Underlying Shares under this Section 9(a). In the event that the Company has
filed a registration statement with the Commission relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Holder agrees that
the Company can thereafter delay the filing of the Demand Registration Statement
for a period not to exceed ninety (90) days. Anything to the contrary
notwithstanding, in no event shall the Company be required to file a Demand
Registration Statement with the Commission prior to one hundred and eighty (180)
days after the date hereof. As used in this Section 10, "Underlying Shares"
means (i) shares of Common Stock issuable upon conversion of the Notes and (ii)
the Warrant Shares.
(b) If at any time after the date hereof, the Company proposes to file a
registration statement under the Act with respect to any of its securities
(except one relating to employee benefit plans or a merger, acquisition or
similar transaction), it shall give written notice of its intention to effect
such filing to the Holder at least 30 days prior to filing such registration
7
statement (the "Piggyback Registration Statement"). If the Underlying Shares
have not been previously registered and the Holder desires to include its
Underlying Shares in the Piggyback Registration Statement, it shall notify the
Company in writing within 15 days after receipt of such notice from the Company,
in which event the Company shall include the Holder's Underlying Shares in the
Piggyback Registration Statement. If the Holder elects to include its Underlying
Shares in the Piggyback Registration Statement as set forth herein, it shall, in
a timely fashion, provide the Company and its counsel with such information and
execute such documents as its counsel may reasonably require to prepare and
process the Piggyback Registration Statement.
(c) The Company will provide the Holder with a copy of the Demand
Registration Statement or Piggyback Registration Statement, as the case may be,
and any amendments thereto, and copies of the final prospectus included therein
in such quantities as may reasonably be required to permit the Holder to sell
its Underlying Shares after the Demand Registration Statement or Piggyback
Registration Statement is declared effective by the Commission.
(d) The Company will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of counsel to the
Holder) necessary and incidental to the performance of its obligations under
this Section 10.
(e) The Company and the Holder, if the Holder's Underlying Shares are
included in a Demand Registration Statement or Piggyback Registration Statement
pursuant to this Section 10, shall provide customary and appropriate cross
indemnities to each other covering the information supplied by the indemnifying
party for inclusion in such Demand Registration Statement or Piggyback
Registration Statement.
(f) Anything to the contrary notwithstanding, the Holder agrees that as a
condition for the Company registering the Underlying Shares, in the event that
the Piggyback Registration Statement in which the Underlying Shares are included
relates to an offering to be effected through or with the assistance of an
underwriter, the Holder will consent to restrict the sale of the Underlying
Shares or reduce (on a pro rata basis with shares of Common Stock issued to any
other stockholders of the Company prior to or after the date hereof, and that,
as of the time of determination, have presently exercisable registration rights
and are requested by such stockholders to be included in such Piggyback
Registration Statement) the number of Underlying Shares that may be included in
such registration in accordance with the requirements of such underwriter.
(g) Anything to the contrary notwithstanding, the Company shall not be
required to register any Underlying Shares or provide notices under this Section
10 to a Holder whose Underlying Shares are either (i) are covered by a then
currently effective registration statement or (ii) in the reasonable opinion of
the Company's counsel, may be sold pursuant to the exemption from registration
provided by Section (k) of Rule 144 promulgated under the Act.
8
11. Any notices required or permitted to be given under the terms of this
Warrant shall be sent by certified or registered mail (with return receipt
requested) or delivered personally or by courier (including a nationally
recognized overnight delivery service) or by facsimile transmission. Any notice
so given shall be deemed effective three days after being deposited in the U.S.
Mail, or upon receipt if delivered personally or by courier or facsimile
transmission, in each case addressed to a party at the following address or such
other address as each such party furnishes to the other in accordance with this
Section 11:
If to the Company: EDT Learning, Inc.
2999 North 44th Street
Suite 650
Phoenix, AZ 85018
Telephone: (602) 952-1200
Facsimile: (602) 952-0544
Attention: President
If to the Holder: Frost National Bank,
Attn: Henri Domingues T-8
100 W. Houston St.
San Antonio, TX 78205
Or
Frost National Bank
Attn: Henri Domingues T-8
P.O. Box 2950
San Antonio, TX 78299-2950
Copies to: Renaissance Capital Group, Inc.
Lynne Marie True
8080 N. Central Expressway
Suite 210, LB-59
Dallas, TX 75206
Telephone: (214) 891-8294
12. (a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Holder are cumulative and not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
9
(b) Any such amendment, modification or waiver effected pursuant to this
Section 12 shall be binding upon the Holder of the Warrant and Common Stock
issuable upon exercise, upon each future holder thereof and upon the Company. In
the event of any such amendment, modification or waiver the Company shall give
prompt notice thereof to the Holder and, if appropriate, notation thereof shall
be made on any Warrant thereafter surrendered for registration of transfer or
exchange. No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
13. All representations, warranties and covenants made by the Company
herein or in any certificate or other instrument delivered by or on behalf of it
in connection with the Warrant shall be considered to have been relied upon by
the Holder and shall survive the issuance and delivery of the Warrant,
regardless of any investigation made by the Holder, and shall continue in full
force and effect so long as any Warrant is outstanding. All statements in any
such certificate or other instrument shall constitute representations and
warranties hereunder.
14. All covenants, stipulations, promises and agreements contained in this
Warrant by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
15. In case any one or more of the provisions contained in this Warrant
shall be invalid, illegal or unenforceable in any respect, the validity,
legality or enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
16. This Warrant shall be governed by and construed in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Delaware.
[Intentionally left blank.]
10
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and this Warrant to be dated as of March 29, 2002.
EDT LEARNING, INC.
By _______/S/____________________
James M. Powers, Jr.
President and Chief Executive Officer
The Frost National Bank FBO, Renaissance Capital Growth & Income Fund III, Inc.,
Trust No. W00740000 - 500,000
11
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________ all of the rights of the undersigned under this
Warrant, with respect to the number of shares set forth below, and appoints
___________________________ to transfer this Warrant on the books of EDT
Learning, Inc. with the full power of substitution in the premises.
Name of Assignee Address Number of Shares
Dated: ______________________________
In the presence of:
------------------------------------- ------------------------------------
(Signature must conform in all respects to the name
of the holder as specified on the face of this
Warrant without alteration, enlargement or any change
whatsoever, and the signature must be guaranteed in
the usual manner.)
12
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such
Holder Desires to Exercise this Warrant in Whole
or in Part:
To: EDT Learning, Inc. (the "Company")
The undersigned __________________________________________________________
Please insert Social Security or other
identifying number of Subscriber: _______________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ____________ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the Company in
the amount of $____________, such payment being made as provided on the face of
this Warrant.
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below.
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name: _________________________________________
Address: _____________________________________
Deliver to: __________________________________
Address: ______________________________________
Dated: _______________________ Signature _________________________________
Note: The signature on this Subscription Form must
correspond with the name as written upon the face of
this Warrant in every particular, without alteration
or enlargement or any change whatever.
13
EXHIBIT 4
THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF COMMON STOCK OF
MAKER ACQUIRABLE UPON CONVERSION) HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES ACT. THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF
COMMON STOCK OF MAKER ACQUIRABLE UPON CONVERSION) MUST BE HELD INDEFINITELY AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
MAKER RECEIVES AN OPINION OF COUNSEL, OR OTHER EVIDENCE, REASONABLY ACCEPTABLE
TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACTS.
THE TRANSFER OF THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF
COMMON STOCK OF MAKER ACQUIRABLE UPON CONVERSION) IS SUBJECT TO RESTRICTIONS AS
PROVIDED IN THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE.
CONVERTIBLE REDEEMABLE SUBORDINATED NOTE
$500,000 March 29, 2002
FOR VALUE RECEIVED, the undersigned, EDT Learning, Inc., a Delaware
corporation ("Maker"), hereby promises to pay to the order of the Frost National
Bank FBO, Renaissance US Growth & Income Trust PLC, Trust No. W00740100
("Payee"), at Frost National Bank, Attn: Henri Domingues T-8, 100 W. Houston
St., San Antonio, TX 78205, or such other place as Payee may from time to time
direct Maker in writing, the principal sum of Five Hundred Thousand and 00/100
Dollars ($500,000), together with interest thereon which shall accrue at the
rate of twelve percent (12.0%) per annum. Accrued interest shall be due and
payable at the end of each calendar quarter following the date of this
Convertible Redeemable Subordinated Note (the "Convertible Note") until the
principal hereof is paid in full or converted into shares of the common stock of
Maker, par value $0.001 per share ("Common Stock"), as herein provided. The
principal, together with all accrued but unpaid interest hereon, shall mature
and be due and payable on March 31, 2012. Except as otherwise set forth in
Section 8, Maker shall have no right to prepay this Convertible Note prior to
the date that this Convertible Note matures as set forth above. All payments on
this Convertible Note shall be due and payable in lawful currency of the United
States of America.
This Convertible Note is one of several Convertible Redeemable Subordinated
Notes dated of even date herewith and issued by Maker (collectively, the
"Convertible Notes") as part of an offering of 60 (subject to increase to 110)
units (the "Units") that was conducted by Maker and Murphy & Durieu, the
placement agent for the offering, on a best efforts basis. Each Unit consists of
one (1) Convertible Note and one (1) Warrant exercisable for 50,000 shares of
Common Stock (collectively, the "Warrants").
1
1. Conversion. Payee or the then current holder of this Convertible Note
may elect to convert this Convertible Note (in whole but not in part) at any
time following the date that is sixty (60) days following the date of this Note
and prior to maturity. The principal portion of this Convertible Note will
convert into duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (the "Underlying Shares"). The conversion price for such
conversion shall be a price per share equal to $1.00, or, in case an adjustment
in the conversion price has taken place pursuant to the provisions hereof, at
the then applicable conversion price as so adjusted (such price as in effect
from time to time being referred to herein as the "Conversion Price"). Upon
conversion, Payee (or the then current holder of this Convertible Note) shall be
obligated to deliver to Maker (i) this Convertible Note for cancellation and
(ii) written notice of the intent of Payee (or the then current holder of this
Convertible Note) to convert this Note. Within fifteen (15) days after the
giving of such notice, Maker shall issue the appropriate number of Underlying
Shares in accordance with the Conversion Price and deliver to Payee a
certificate or certificates therefor, registered in its name, representing such
Underlying Shares against delivery to Maker of this Convertible Note marked
"paid in full." Payee shall represent in writing to Maker prior to the receipt
of the Underlying Shares that such Underlying Shares will be acquired by it for
investment only and not for resale or with a view to the distribution thereof,
and shall agree that any certificates representing the Underlying Shares may
bear a legend, conspicuously noting such restriction, as Maker shall deem
reasonably necessary or desirable to enable it to comply with any applicable
federal or state laws or regulations.
Upon conversion of this Convertible Note, the holder hereof shall not be
entitled to receive any unaccumulated or unaccrued interest, provided that such
holder shall be entitled to receive (by cash payment only) any interest on such
portion that accrued prior to such conversion and remained unpaid. In connection
with the conversion of this Convertible Note, no fractions of shares of Common
Stock shall be issued, but Maker shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fraction of a share multiplied by
the Conversion Price.
2. Antidilution Adjustments. The Conversion Price in effect an any time
shall be subject to adjustment as follows:
(a) In case Maker shall pay or make a dividend or other distribution
on any class of capital stock of Maker in shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator of which shall be the sum
of such number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination.
2
(b) In case Maker shall issue rights or warrants to all holders of its
shares of Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the Fair Value (as defined below) per
share of the Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, the Conversion
Price in effect at the opening of business on the day following the date
fixed for such determination shall be reduced to the amount determined by
multiplying such Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination, plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase if purchased at Fair Value, and the denominator of
which shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination, plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination.
(c) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be
combined into smaller number of shares, the Conversion Price in effect at
the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
upon the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case Maker shall, by dividend or otherwise, distribute to all
holders of shares of Common Stock evidences of indebtedness or assets
(including securities, but excluding any rights or warrants referred to
above, any dividend or distribution paid in cash out of the earned surplus
of Maker and any dividend or distribution referred to above), the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction, the
numerator of which shall be the Fair Value per share of the Common Stock on
the date fixed for such determination less the Fair Value of the portion of
the assets or evidences of indebtedness so distributed allocable to one
share of Common Stock and the denominator of which shall be such Fair Value
per share of the Common Stock on the date fixed for such determination,
such adjustment to become effective immediately prior to the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
(e) In case the Common Stock shall be changed into the same or a
different number of shares of any class or classes of stock, whether by
3
capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or a stock dividend described above,
or a consolidation, merger or sale of assets described below), then and in
each such event the Payee (or the then current holder of this Convertible
Note) shall have the right thereafter to convert this Convertible Note into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which this Convertible
Note might have been converted immediately prior to such reorganization,
reclassification or change.
(f) No adjustment in the Conversion Price shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (f)) would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which, by reason of this
paragraph (f), are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 2 shall be made to the nearest dollar.
(g) Whenever the Conversion Price is adjusted as provided in this
Convertible Note and upon the request of Payee (or the then current holder
of this Convertible Note), Maker shall prepare an Officer's Certificate
setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based and the computation
thereof, and such certificate shall promptly be forwarded to the Payee (or
the then current holder of this Convertible Note).
(h) Maker shall at all times reserve and keep available, free from
preemptive rights, out of its authorized shares of Common Stock, for the
purpose of effecting the conversion of the Convertible Notes, the full
number of shares of Common Stock then issuable upon the conversion of all
outstanding Convertible Notes and shall take all action necessary so that
shares of Common Stock so issued will be validly issued, fully paid and
nonassessable.
(i) Maker will pay any and all stamp or similar taxes that may be
payable in respect of the issuance or delivery of shares of Common Stock on
conversion of this Convertible Note. Maker shall not, however, be required
to pay any tax that may be payable in respect of any transfer involved in
the issuance and delivery of shares of Common Stock in a name other than
that of the Payee, and no such issuance or delivery shall be made unless
and until the person requesting such issuance has paid to Maker the amount
of any such tax, or has established to the satisfaction of Maker that such
tax has been paid.
(j) Maker agrees that in case of any consolidation of Maker with, or
merger of Maker into, any other corporation, or in case of any merger of
another corporation into Maker (other than a merger which does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of Maker), or in case of any sale or
transfer of all or substantially all of the assets of Maker, Maker shall
4
require the corporation formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, to execute and
deliver to the Payee (or the then current holder of this Convertible Note)
an agreement providing that the Payee (or the then current holder of this
Convertible Note) shall have the right thereafter to convert this
Convertible Note into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of Maker into which this
Convertible Note might have been converted immediately prior to such
consolidation, merger, sale or transfer. Such agreement shall provide for
adjustments which, for events subsequent to the effective date of such
consolidation, merger, sale or transfer, shall be as nearly equivalent as
may be practicable to the adjustments provided for herein. The above
provisions of this Convertible Note shall similarly apply to successive
consolidations, mergers, sales or transfers.
(k) "Fair Value" of the Common Stock shall be determined from time to
time in good faith by the Board of Directors of Maker; provided, however,
that if the Common Stock is then traded on the American Stock Exchange (or,
if no longer traded on the American Stock Exchange, another national
exchange or the NASDAQ Stock Market), then the Fair Value of the Common
Stock shall be deemed to be equal to the average quoted closing price of
the Common Stock over the five trading days prior to the date of
determination. Any valuation made pursuant hereto will be binding upon
Maker and all holders of Convertible Notes and their successors and
assigns.
(l) Except as otherwise explicitly set forth in this Section 2, there
shall be no antidilution or other adjustments to the Conversion Price.
3. Events of Default and Remedies. At the option of Payee (or the then
current holder of this Convertible Note), the entire amount of the unpaid
balance of this Convertible Note, shall immediately become due and payable upon
the occurrence of one or more of the following events of default ("Events of
Default"):
(a) Failure of Maker to make any payment on this Convertible Note as
and when the same becomes due and payable in accordance with the terms
hereof, and such failure continues for a period of thirty (30) days after
the receipt by Maker of written notice from Payee (or the then current
holder of this Convertible Note) of the occurrence of such failure; or
(b) Maker shall (i) voluntarily seek, consent to or acquiesce in the
benefit or benefits of any Debtor Relief Law (as hereinafter defined) or
(ii) become party to (or be made the subject of) any proceeding provided by
any Debtor Relief Law, other than as a creditor or claimant, that could
suspend or otherwise adversely affect the rights of Payee (or the then
current holder of this Convertible Note) granted hereunder (unless in the
event such proceeding is involuntary, the petition instituting the same is
dismissed within 120 days of the filing of same). As used herein, the term
5
"Debtor Relief Law" means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization or
similar debtor relief laws from time to time in effect affecting the rights
of creditors generally.
In the event any one or more of the Events of Default specified above shall
have occurred, the holder of this Convertible Note may proceed to protect and
enforce its rights either by suit in equity or by action at law, or by other
appropriate proceedings, whether for the specific performance of any covenant or
agreement contained in this Convertible Note or in aid of the exercise of any
power or right granted by this Convertible Note, or to enforce any other legal
or equitable right of the holder of this Convertible Note.
4. Successors and Assigns. All of the covenants, stipulations, promises and
agreements in this Convertible Note made by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior written consent of Payee (or the then current
holder of this Convertible Note), assign any of its rights, powers, duties or
obligations under this Convertible Note.
5. Maximum Interest. Regardless of any provision contained herein, Maker
shall never be required to pay and the holder hereof shall never be entitled to
receive, collect or apply as interest hereon, any amount in excess of the
highest lawful interest rate permitted under applicable law, and in the event
the holder hereof receives, collects or applies, as interest, any such excess,
such amounts which would be excessive interest shall be deemed a partial
prepayment of principal and treated hereunder as such for all purposes; and, if
the principal hereof is paid in full, any remaining excess shall be refunded to
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the highest lawful interest rate, Maker and the
holder hereof shall, to the maximum extent permitted under applicable law (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude prepayments and the effects thereof, and (c) pro rate,
allocate and spread the total amount of interest throughout the entire
contemplated term hereof; provided that if the indebtedness evidenced hereby is
paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the highest lawful interest rate, the holder hereof shall either apply
as principal reduction or refund to Maker the amount of such excess, and in such
event, the holder hereof shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
highest lawful interest rate.
6. Restrictions on Transferability. By taking this Convertible Note, Payee
acknowledges that (a) this Convertible Note (and the shares of Common Stock of
Maker acquirable upon conversion) has been acquired for investment and has not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities act and (b) this Convertible Note (and the shares
of Common Stock of Maker acquirable upon conversion) must be held indefinitely
unless (i) subsequent disposition thereof is registered under the Securities Act
and all applicable state securities laws or (ii) an exemption from such
registration is available and Maker receives an opinion of counsel, or other
6
evidence, reasonably satisfactory to Maker stating that such disposition is made
in compliance with an exemption from such registration, and prospectus delivery
requirements.
7. Subordination. To the extent and in the manner hereinafter set forth in
this Section 7, the indebtedness represented by this Convertible Note and any
renewals or extensions thereof shall at all times be wholly subordinate and
junior in right of payment to the prior payment in full of any and all Senior
Indebtedness.
(a) Senior Indebtedness. "Senior Indebtedness" means the principal of,
premium, if any, and unpaid interest (including without limitation any
interest accruing from and after the date of any filing made in respect of
Maker or any of its Subsidiaries pursuant to Chapter 11 of Title 11 of the
U.S. Code, whether or not a claim for such interest would be recognized or
allowed in such proceeding) on the following, whether outstanding at the
date hereof or thereafter incurred or created: (i) Indebtedness of Maker
for money borrowed (including purchase-money obligations), evidenced by
notes or other written obligations, (ii) Indebtedness of Maker evidenced by
notes, debentures, bonds or other securities issued under the provisions of
an indenture or similar instrument, (iii) obligations of Maker as lessee
under capital leases and under leases of property made as part of any sale
and leaseback transactions, (iv) any Hedging Transactions, (v) Indebtedness
of others of any of the kinds described in the preceding clauses (i)
through (iv) assumed or guaranteed by Maker and (vi) renewals, extensions
and refundings of, and Indebtedness and obligations of a successor person
issued in exchange for or in replacement of, Indebtedness or obligations of
the kinds described in the preceding clauses (i) through (v); provided,
however, that the following shall not constitute Senior Indebtedness: (A)
any Indebtedness or obligation as to which, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such Indebtedness or obligation is subordinate in
right of payment to all other Indebtedness of Maker not expressly
subordinated to such Indebtedness or obligation; (B) any Indebtedness or
obligation which by its terms refers explicitly to the Convertible Notes
and states that such Indebtedness or obligation shall not be senior in
right of payment thereto; (C) any Indebtedness or obligation of Maker in
respect of the Convertible Notes; (D) Indebtedness or other obligations of
Maker to any stockholder, director, officer or employee of Maker or any of
its Subsidiaries; and (E) Indebtedness guaranteed by Maker on behalf of any
stockholder, director, officer or employee of Maker or any of its
Subsidiaries.
(b) Payment Over of Proceeds Upon Dissolution, Etc. In the event of
any liquidation of Maker or of any execution, sale, receivership,
insolvency, bankruptcy, readjustment, reorganization, marshaling of assets
and liabilities, assignment for the benefit of creditors or other similar
proceeding relative to Maker or its property (a "Creditors' Proceeding"),
all principal and interest owing on all Senior Indebtedness shall first be
paid in full before any payment is made upon the indebtedness evidenced by
the Convertible Notes, and in any such event any payment or distribution of
any kind or character, whether in cash, property or securities (other than
in securities or other evidences of indebtedness, the payment of which is
7
subordinated to the payment of all Senior Indebtedness that may at the time
be outstanding) that shall be made upon or in respect of the Convertible
Notes shall be paid over to the holders of such Senior Indebtedness, for
application in payment thereof in accordance with the priorities then
existing among such holders unless and until such Senior Indebtedness shall
have been paid or satisfied in full.
(c) No Payment When Senior Indebtedness in Default
(i) Upon the failure to pay (beyond any applicable cure or grace
periods) any installment of principal, premium, interest, fees or any
other amounts owing on any Senior Indebtedness when the same becomes
due and payable, including without limitation a declaration that such
principal amount of Senior Indebtedness has been declared to be due
and payable prior to its maturity (a "Payment Default"), no payment of
principal, premium (if any), interest or other amounts owing shall be
made on the Convertible Notes or on account of the purchase or other
acquisition of Convertible Notes unless and until (i) such default
shall have been cured or expressly waived or shall have ceased to
exist or (ii) adequate provision has been made for the payment of such
Senior Indebtedness in a manner satisfactory to the holders of at
least 25% of the then outstanding amount of such Senior Indebtedness.
(ii) Upon the occurrence of any default with respect to Senior
Indebtedness (other than a Payment Default), which default would
permit the holders of such Senior Indebtedness to cause such Senior
Indebtedness to become due prior to its stated maturity (a "Nonpayment
Default"), upon written notice thereof given to Maker and the holder
of this Convertible Note by any holders of any Senior Indebtedness
("Payment Notice"), then, unless and until such Nonpayment Default
shall have been cured or waived or shall cease to exist, no payment
(other than in capital stock or evidences of Indebtedness, the payment
of which is subordinated to the payment of all Senior Indebtedness, to
the same extent as the Convertible Notes, that may at the time be
outstanding) shall be made by Maker in respect of the Convertible
Notes or to acquire any of the Convertible Notes; provided, however,
that this paragraph (ii) shall not prevent the making of any payment
(x) which is made 180 days or more after the Payment Notice shall have
been given or (y) if earlier, after the date on which such Senior
Indebtedness shall have been paid in full in cash or in any other
manner acceptable to holders of such Senior Indebtedness or the date
on which application of this paragraph (ii) has been cured or waived
in writing by the holders of such Senior Indebtedness (or their
representatives) in accordance with the terms of the document pursuant
to which it was issued. Maker shall promptly deliver such Payment
Notice to the holders of the Convertible Notes. Notwithstanding the
foregoing, (A) not more than one Payment Notice shall be given within
a period of 365 consecutive days, and (B) no Nonpayment Default which
existed or was continuing on the date of any Payment Notice (whether
8
or not such event of default is on the same issue or Senior
Indebtedness) may be made the basis for the giving of a subsequent
Payment Notice.
(d) Payment Permitted if No Default. Except as provided in subsections
(b) and (c) of this Section 7, nothing contained in this Convertible Note
shall prevent Maker from making payments at any time of principal of (and
premium, if any) or interest on the Convertible Notes.
(e) No Waiver of Subordination Provisions. No right of any holder of
any Senior Indebtedness to enforce subordination as herein provided shall
at any time or in any way be affected or impaired by any failure to act on
the part of Maker or the holders of Senior Indebtedness, or by any
noncompliance by Maker with any of the terms, provisions and covenants of
this Convertible Note, regardless of any knowledge thereof that any such
holder of Senior Indebtedness may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the holders of the Convertible Notes,
without incurring responsibility to the holders of the Convertible Notes
and without impairing or releasing the subordination provided in this
Section 7 or the obligation hereunder of the holders of the Convertible
Notes to the holders of Senior Indebtedness, do any one or more of the
following:
(i) change the manner, place or terms of payment or extend the
time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any person liable in any manner for the collection
of Senior Indebtedness; and
(iv) exercise or refrain from exercising any rights against Maker
and any other person.
(f) Notice. Maker shall give prompt written notice to holders of the
Convertible Notes of any fact known to Maker that would prohibit the making
of any payment in respect of the Convertible Notes pursuant to this Section
7.
(g) Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of Maker referred to in this
Section 7, the holders of the Convertible Notes shall be entitled to rely
9
upon any order or decree entered by any court of competent jurisdiction in
which such liquidation or Creditors' Proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other person
making such payment or distribution, delivered to the holders of
Convertible Notes, for the purpose of ascertaining the persons entitled to
participate in such payment or distribution, the holders of the Senior
Indebtedness and other Indebtedness of Maker, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Section 7.
(h) Certain Conversions Deemed Payment. For the purposes of this
Section 7 only, (i) the issuance and delivery of junior securities upon
conversion of Convertible Notes shall not be deemed to constitute a payment
or distribution on account of the principal of or premium or interest on
Convertible Notes or on account of the purchase or other acquisition of
Convertible Notes, and (ii) the payment, issuance or delivery of cash,
property or securities (other than junior securities) upon conversion of a
Convertible Note shall be deemed to constitute payment on account of the
principal of such Convertible Note. For the purposes of this subsection
7(h), the term "junior securities" means (A) shares of any stock of any
class of Maker and (B) securities of Maker that are subordinated in right
of payment to all Senior Indebtedness that may be outstanding at the time
of issuance or delivery of such securities to substantially the same extent
as, or to a greater extent than, the Convertible Notes are so subordinated
as provided in this Section 7. Nothing contained in this Section 7 or
elsewhere in this Convertible Note is intended to or shall impair, as among
Maker, its creditors other than holders of Senior Indebtedness and the
holders of the Convertible Notes, the right, which is absolute and
unconditional, of the holder of any Convertible Notes to convert such
Convertible Note in accordance with Section 1.
(i) Holders of Convertible Notes to be Subrogated to Rights of Holders
of Senior Indebtedness. Subject to the payment in full in cash, or in any
other manner acceptable to holders of Senior Indebtedness (in their sole
discretion), of all Senior Indebtedness, the holders of Convertible Notes
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of Maker applicable to the
Senior Indebtedness until all amounts owing on the Convertible Notes shall
be paid in full in cash, and for the purpose of such subrogation no such
payments or distributions to the holders of Senior Indebtedness by or on
behalf of Maker, or by or on behalf of the holders of the Convertible Notes
by virtue of this Section 7, which otherwise would have been made to the
holders of the Convertible Notes shall, as between Maker, its creditors
other than the holders of Senior Indebtedness and the holders of the
Convertible Notes, be deemed to be payment by Maker to or on account of the
Senior Indebtedness, it being understood that the provisions of this
Section 7 are, and are intended, solely for the purpose of defining the
relative rights of the holders of the Convertible Notes, on the one hand,
and the holders of Senior Indebtedness, on the other hand.
10
As used in this Section 7:
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America from time to time and applied consistently
throughout the relevant periods.
"Hedging Transaction" shall mean, with respect to any Person, (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements of such Person, (ii) currency swap agreements and currency cap
agreements of such Person and (iii) other written agreements or arrangements
principally designed to protect such Person against fluctuations in interest
rates or currency values or the price of any commodity used in the business of
such Person.
"Indebtedness" means (without duplication), when used with reference to any
Person:
(i) any obligation, contingent or otherwise, (A) in respect of
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), or (B)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or (C) representing the balance deferred and unpaid of the purchase
price of any property, if and to the extent (but only to the extent) any of
the foregoing indebtedness would appear as a liability upon a balance sheet
of such Person and its Subsidiaries prepared on a consolidated basis in
accordance with GAAP, and
(ii) shall also include, regardless of whether such items would appear
upon a balance sheet, (A) the principal component of any Capitalized Lease
Obligations of such Person, (B) obligations secured by a Lien to which any
property or asset, including leasehold interests and any other tangible or
intangible property rights, owned by such Person is subject, whether or not
the obligations secured thereby shall have been assumed by such Person
(provided, however, that, if the obligations have not been assumed by such
Person such obligations shall be deemed to be in an amount equal to the
lesser of (1) the fair market value (as determined in good faith by the
Board of Directors of Maker and as evidenced by a board resolution) of the
property or properties to which the Lien relates or (2) the amount of the
Indebtedness secured by such Lien) by such Person or shall otherwise be
such Person's legal liability, (C) reimbursement obligations and all other
liabilities (contingent or otherwise) of such Person in respect of letters
of credit and letter of credit guarantees, (D) any obligation of such
Person in respect of Hedging Transactions, and (E) guarantees by such
Person of items which would be included within this definition, to the
extent of such guarantees.
"Lien" shall mean any mortgage, pledge, lien, encumbrance or security
interest of any kind (including, without limitation, any conditional sale or
other title retention agreement), any lease in the nature thereof, any option or
other agreement to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction, but shall not include any restriction on transfer imposed under
federal or state securities laws.
11
"Person" or "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"Subsidiary" shall mean, with respect to any Person: (i) a corporation in
which such Person or one or more Subsidiaries of such Person own in the
aggregate voting securities representing in excess of 50% of the total number of
votes that could be cast in the election of directors of such corporation by the
holders of all then outstanding voting securities of such corporation and (ii)
any other Person (other than a corporation) of which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person directly or indirectly, has (X) at least a majority ownership interest or
(Y) the power to elect or direct the election of at least a majority of the
directors or other governing body.
8. Redemption. This Convertible Note may be redeemed in whole, but not in
part, at the election of Maker for the principal amount of this Convertible Note
plus accrued but unpaid interest at any time after such time as the closing
price of the Common Stock (as quoted on the American Stock Exchange, the NASDAQ
Stock Market, or such other national exchange, if any, on which the Common Stock
is then quoted) has equaled or exceeded an amount equal to the product of (i)
three, multiplied by (ii) the amount of the Conversion Price then in effect, for
a period of twenty (20) consecutive trading days. Maker shall provide Payee with
written notice (the "Redemption Notice") at least thirty (30) days prior to the
date this Convertible Note shall be redeemed (such date of redemption, the
"Redemption Date") of its intent to redeem this Convertible Note. The Redemption
Notice shall specify the Redemption Date, the principal amount of this
Convertible Note and the amount of accrued but unpaid interest that will be
outstanding as of the Redemption Date. Nothing contained herein shall be
construed to prevent Payee from converting this Convertible Note subsequent to
Payee's receipt of the Redemption Notice but prior to the Redemption Date. Upon
redemption, Payee (or the then current holder of this Convertible Note) shall be
obligated to deliver this Convertible Note to Maker for cancellation and Maker
shall be obligated to deliver to Payee (or the then current holder of this
Convertible Note) a cashier's check in an amount equal to the principal amount
of this Convertible Note plus accrued but unpaid interest.
9. Payee's Registration Rights.
(a) Upon receipt of notice (the "Registration Request Notice") requesting
registration under the Securities Act of Underlying Shares from the holders of
Notes and Warrants representing more than fifty percent (50%) of the aggregate
Underlying Shares, on only one occasion, at any time commencing on the date
hereof and terminating two years thereafter, Maker will offer to Payee the
opportunity to include its Underlying Shares in such registration. Maker will
use its reasonable best efforts to file with the Securities and Exchange
Commission (the "Commission") as promptly as practicable, a registration
statement (the "Demand Registration Statement"), and will use its reasonable
best efforts to have the Demand Registration Statement declared effective and
remain effective until the earliest of (i) two years after the date it is
declared effective, (ii) the date all the Underlying Shares registered thereby
have been sold, or, (iii) in the reasonable opinion of the Maker's counsel, the
12
Underlying Shares may be sold publicly without registration. Maker will also use
its reasonable best efforts to qualify the Underlying Shares under the
securities laws of the state where Payee resides provided Maker is not required
to execute a general consent to service or to qualify to do business in such
state. This offer to Payee shall be made within twenty (20) days after Maker
receives the Registration Request Notice. If Payee elects to include its
Underlying Shares in the Demand Registration Statement, it will, in a timely
fashion, provide Maker and its counsel with such information and execute such
documents as Maker's counsel may reasonably require to prepare and process the
Demand Registration Statement, it shall have no further rights to registration
of its Underlying Shares under this Section 9(a). In the event that Maker has
filed a registration statement with the Commission relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Payee agrees that
Maker can thereafter delay the filing of the Demand Registration Statement for a
period not to exceed ninety (90) days. Anything to the contrary notwithstanding,
in no event shall Maker be required to file a Demand Registration Statement with
the Commission prior to one hundred and eighty (180) days after the date hereof.
As used in this Section 9 only, "Underlying Shares" shall be deemed include
shares of Common Stock issuable both (i) upon conversion of the Notes and (ii)
upon exercise of the Warrants.
(b) If at any time after the date hereof, Maker proposes to file a
registration statement under the Securities Act with respect to any of its
securities (except one relating to stock option or employee benefit plans or a
merger, acquisition or similar transaction), Maker shall give written notice of
its intention to effect such filing to Payee at least thirty (30) days prior to
filing such registration statement (the "Piggyback Registration Statement"). If
the Payee's Underlying Shares have not been previously registered and Payee
desires to include its Underlying Shares in the Piggyback Registration
Statement, it shall notify Maker in writing within fifteen (15) days after
receipt of such notice from Maker, in which event Maker shall include Payee's
Underlying Shares in the Piggyback Registration Statement. If Payee elects to
include its Underlying Shares in the Piggyback Registration Statement as set
forth herein, it shall, in a timely manner, provide Maker and its counsel with
such information and execute such documents as its counsel may reasonably
require to prepare and process the Piggyback Registration Statement. Anything to
the contrary notwithstanding, in the event that the offering for which the
Piggyback Registration Statement has been filed is to be effected through or
with the assistance of an underwriter, Payee will consent to restrict the sale
of its Underlying Shares or reduce the number of its Underlying Shares (on a pro
rata basis with shares of Common Stock issued to any other stockholders of Maker
prior to or after the date hereof, and that, as of the time of determination,
have presently exercisable registration rights and are requested by such
stockholders to be included in such Piggyback Registration Statement) that may
be included in such Piggyback Registration Statement in accordance with the
requirements of such underwriter.
(c) Maker will provide Payee with a copy of the Demand Registration
Statement or the Piggyback Registration Statement, as the case may be, and any
amendments thereto, and copies of the final prospectus included therein in such
13
quantities as may reasonably be required to permit Payee to sell its Underlying
Shares after the Demand Registration Statement or the Piggyback Registration
Statement is declared effective by the Commission.
(d) Maker will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of counsel to
Payee) necessary and incidental to the performance of its obligations under this
Section.
(e) Maker and Payee, if Payee's Underlying Shares are included in a Demand
Registration Statement or Piggyback Registration Statement pursuant to this
Section, shall provide customary and appropriate cross indemnities to each other
covering the information supplied by the indemnifying party for inclusion in the
Demand Registration Statement or Piggyback Registration Statement.
(f) Anything to the contrary notwithstanding, Maker shall not be required
to register any Underlying Shares or provide notices under this Section 9 to a
Payee whose Underlying Shares are either (i) are covered by a then currently
effective registration statement or (ii) in the reasonable opinion of Maker's
counsel, may be sold pursuant to the exemption from registration provided by
Section (k) of Rule 144 promulgated under the Act.
10. Representations and Warranties of Maker. Maker represents and warrants
that, as of the date of this Convertible Note, it: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power to carry on its business as now
conducted and to own its properties and assets it now owns; (ii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in the jurisdictions in which ownership of property or the conduct of its
business requires such qualification except jurisdictions in which the failure
to qualify to do business will have no material adverse effect on its business
or financial condition; (iii) has full power and authority to execute and
deliver this Convertible Note, and that the execution and delivery of this
Convertible Note will not result in the breach of or default under, with or
without the giving of notice and/or the passage of time, any other agreement,
arrangement or indenture to which it is a party or by which it may be bound, or
the violation of any law, statute, rule, decree, judgment or regulation binding
upon it; and (iv) has taken and will take all acts required, including but not
limited to authorizing the signatory hereof on its behalf to execute this
Convertible Note, so that upon the execution and delivery of this Convertible
Note, it shall constitute the valid and legally binding obligation of Maker
enforceable in accordance with the terms thereof.
11. Limitation of Liability. A director, officer, employee or stockholder,
as such, of Maker shall not have any liability for any obligations of Maker
under this Convertible Note or for any claim based on, in respect or by reason
of such obligations or their creation. Payee, by accepting this Convertible
Note, waives and releases all such liability. The waiver and release are part of
their consideration for the issuance of this Convertible Note.
14
12. Governing Law; Venue. This Convertible Note shall be governed by and
construed in accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Delaware.
13. Notice. Any notices required or permitted to be given under the terms
of this Convertible Note shall be sent by certified or registered mail (with
return receipt requested) or delivered personally or by courier (including a
nationally recognized overnight delivery service) or by facsimile transmission.
Any notice so given shall be deemed effective three days after being deposited
in the U.S. Mail, or upon receipt if delivered personally or by courier or
facsimile transmission, in each case addressed to a party at the following
address or such other address as each such party furnishes to the other in
accordance with this Section 13:
If to the Company: EDT Learning, Inc.
2999 North 44th Street
Suite 650
Phoenix, AZ 85018
Telephone: (602) 952-1200
Facsimile: (602) 952-0544
Attention: President
If to the Payee: Frost National Bank,
Attn: Henri Domingues T-8.
100 W. Houston St.
San Antonio, TX 78205
Or
Frost National Bank
Attn: Henri Domingues T-8
P.O. Box 2950
San Antonio, TX 78299-2950
Copies to: Renaissance Capital Group, Inc.
Attn: Lynne Marie True
8080 N. Central Expressway
Suite 210 LB-59
Dallas, TX 75026
Telephone: (214) 891-8294
15
Sinclair Henderson Limited
Attn: Liz Batson
23 Cathedral Yard
Exeter
EX11HB
14. Severability. In case any one or more of the provisions contained in
this Convertible Note shall for any reason be held to be invalid, illegal and
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
15. Loss, Theft, Destruction, or Mutilation. Upon receipt by Maker of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of this Convertible Note (and upon surrender of this Convertible Note if
mutilated), and upon reimbursement of Maker's reasonable incidental expenses and
in the case of loss, theft or destruction, indemnity and/or security as Maker
shall, at its option, request, Maker shall make and deliver or caused to be made
and delivered to Payee a new Convertible Note of like date and tenor in lieu of
this Convertible Note.
16. Modification of convertible Note or Waiver of Terms Thereof Relating to
Payee. No modification or waiver of any of the provisions of this Convertible
Note shall be effective unless in writing and signed by Payee and then only to
the extent set forth in such writing, or shall any such modification or waiver
be applicable except in the specific instance for which it is given. This
Convertible Note may not be discharged orally but only in writing duly executed
by Payee.
EXECUTED as of the date set forth above.
MAKER:
EDT LEARNING, INC.
By: ___________/S/_____________
James M. Powers, Jr., its President
and Chief Executive Officer
The Frost National Bank FBO, Renaissance US Growth & Income Trust PLC, Trust No.
W00740100
$500,000
16
EXHIBIT 5
RESTRICTION ON TRANSFER
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE
TRANSFERRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT CANNOT BE SOLD OR TRANSFERRED, WITHOUT (I) THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
APPLICABLE STATE SECURITIES LAWS OR (II) SUCH REGISTRATION.
WARRANT
(Redeemable)
To Subscribe for and Purchase Common Stock of
EDT Learning, Inc.
THIS CERTIFIES THAT, for value received, The Frost National Bank FBO,
Renaissance US Growth & Income Trust PLC, Trust No. W00740100, or its registered
assigns (the "Holder"), is entitled to subscribe for and purchase from EDT
Learning, Inc., a Delaware corporation (the "Company"), at the exercise price of
Three Dollars ($3.00) per share (the "Exercise Price") at any time from and
after the date hereof to and including the third anniversary of the date of this
Warrant (this "Warrant"), 50,000 shares of the Company's common stock, par value
$0.001 per share ("Common Stock"). The Exercise Price shall be subject to
adjustment as provided in Section 5 hereof.
This Warrant is one of several Warrants dated of even date herewith and
issued by the Company (collectively, the "Warrants") as part of an offering of
60 (subject to increase to 110) units (the "Units") that was conducted by the
Company and Murphy & Durieu, the placement agent for the offering, on a best
efforts basis. Each Unit consists of one (1) Warrant exercisable for 50,000
shares of Common Stock and one (1) Convertible Redeemable Subordinated Note
(collectively, the "Notes").
This Warrant is subject to the following provisions, terms and conditions:
1. (a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part, by written notice of exercise delivered to
the Company and by the surrender of this Warrant (properly endorsed if required)
at the principal office of the Company at 2999 North 44th Street, Suite 650,
Phoenix, Arizona 85018 (or such other location as the Company may designate by
notice in writing to the Holder hereof) and upon payment to it by certified
check of the Exercise Price for the shares of Common Stock to be issued upon
exercise (the "Warrant Shares"). The Company shall not be required to issue
1
fractions of shares of Common Stock upon exercise of this Warrant. If any
fraction of a share would, but for this Section, be issuable upon any exercise
of this Warrant, and if the Company shall have elected not to issue such
fraction of a share, in lieu of such fractional share the Company shall pay to
the Holder, in cash, an amount equal to such fraction of the fair market value
per share of outstanding Common Stock of the Company on the Business Day
immediately prior to the date of such exercise (the fair market value for such
purpose shall be the closing price of the Common Stock on the principal stock
exchange on which the Common Stock is then traded or the principal quotation
system in which bid and ask prices for the Common Stock are then maintained).
The Company agrees that the shares so purchased shall be and are deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment tendered for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
(bearing an appropriate legend to indicate that the shares have not been
registered under securities laws) shall be delivered to the Holder hereof within
a reasonable time, not exceeding 10 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant reflecting the shares, if any, as to which this Warrant shall not
then have been exercised shall also be delivered to the Holder hereof within
such time.
(b) This Warrant may be redeemed in whole, but not in part, at the election
of the Company for the price of $0.001 per share of Common Stock for which this
Warrant is exercisable at any time after such time as the closing price of the
Common Stock (as quoted on the American Stock Exchange, the NASDAQ Stock Market,
or such other national exchange, if any, on which the Common Stock is then
quoted) has equaled or exceeded $5.50 per share for a period of twenty (20)
consecutive trading days. The Company shall provide Holder with written notice
(the "Redemption Notice") at least thirty (30) days prior to the date this
Warrant shall be redeemed (such date of redemption, the "Redemption Date") of
its intent to redeem this Warrant. The Redemption Notice shall specify the
Redemption Date. Nothing contained herein shall be construed to prevent Holder
from exercising this Warrant subsequent to Holder's receipt of the Redemption
Notice but prior to the Redemption Date. Upon redemption, Holder (or the then
current holder of this Warrant) shall be obligated to deliver this Warrant to
the Company for cancellation and the Company shall be obligated to deliver to
Holder (or the then current holder of this Warrant) a check in an amount equal
to the product of (i) $0.001 multiplied by (ii) the number of shares of Common
Stock for which this Warrant is then exercisable.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions of this Agreement and the
restrictive legend under the heading "Restriction on Transfer."
3. The Holder acknowledges that this Warrant as well as the Warrant Shares
for which this Warrant may be exercised, have not been and, except as otherwise
provided herein, will not be registered under the Securities Act of 1933, as
amended (the "Act"), or qualified under applicable state securities laws and
that the transferability thereof is restricted by the registration provisions of
the Act as well as such state laws. The Holder represents that it is acquiring
the Warrant and will acquire the Warrant Shares for its own account, for
2
investment purposes only and not with a view to resale or other distribution
thereof, nor with the intention of selling, transferring or otherwise disposing
of all or any part of such securities for any particular event or circumstance,
except selling, transferring or disposing of them upon full compliance with all
applicable provisions of the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Rules and Regulations promulgated by the
Securities and Exchange Commission (the "Commission") thereunder, and any
applicable state securities laws. The Holder further understands and agrees that
(i) neither the Warrant nor the Warrant Shares may be sold unless they are
subsequently registered under the Act and qualified under any applicable state
securities laws or, in the opinion of the Company's counsel, an exemption from
such registration and qualification is available; (ii) any routine sales of the
Company's securities made in reliance upon Rule 144 promulgated by the
Commission under the Act, can be effected only in the amounts set forth in and
pursuant to the other terms and conditions, including applicable holding
periods, of that Rule; and (iii) except as otherwise set forth herein, the
Company is under no obligation to register the Warrant or the Warrant Shares on
their behalf or to assist it in complying with any exemption from registration
under the Act. The Holder agrees that each certificate representing any Warrant
Shares for which this Warrant may be exercised will bear on its face a legend in
substantially the following form:
These securities have not been registered under the
Securities Act of 1933 or qualified under any state
securities laws. They may not be sold, hypothecated or
otherwise transferred in the absence of an effective
registration statement under that Act or qualification under
applicable state securities laws without an opinion
acceptable to counsel to the Company that such registration
and qualification are not required.
4. The Company covenants and agrees that:
(a) all shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized and issued,
fully paid and nonassessable and free from all preemptive rights of any
stockholder, and from all taxes, liens and charges with respect to the issue
thereof (other than transfer taxes);
(b) during the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized, and reserved
for the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant; and
(c) during the period within which the rights represented by this Warrant
may be exercised, the Company further will use reasonable best efforts to
maintain the eligibility of the Common Stock for listing on the American Stock
Exchange and quotation on the domestic over-the- counter market and use
reasonable best efforts to keep the Common Stock so listed and quoted.
5. (a) If the Company shall, after the date of issuance of this Warrant,
subdivide its outstanding shares of Common Stock into a greater number of shares
3
or consolidate its outstanding shares of Common Stock into a smaller number of
shares (any such event being called a "Common Stock Reorganization"), then the
Exercise Price shall be adjusted, effective at such time, to a number determined
by multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
before such Common Stock Reorganization and the denominator of which shall be
the number of shares outstanding after giving effect to such Common Stock
Reorganization.
(b) If the Company shall after the date of issuance of this Warrant issue
or distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness, any other securities of the Company or any property
or assets other than cash, and if such issuance or distribution does not
constitute a Common Stock Reorganization (any such nonexcluded event being
herein called a "Non-Cash Dividend"), the Exercise Price shall be adjusted (but
not increased), effective immediately after the record date at which the holders
of shares of Common Stock are determined for purposes of such Non-Cash Dividend,
to a number determined by multiplying the Exercise Price immediately before such
Non-Cash Dividend by a fraction, the numerator of which shall be the last sales
price per share of outstanding Common Stock of the Company on such record date
less the then fair market value, as determined in good faith by the Board of
Directors of the Company, of the evidences of indebtedness, securities, cash, or
property or other assets issued or distributed in such Non-Cash Dividend with
respect to one share of Common Stock and the denominator of which shall be the
last sales price per share of outstanding Common Stock on such record date.
(c) If after the date of issuance of this Warrant there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a Common
Stock Reorganization or a change in par value) in, outstanding shares of Common
Stock, or any sale or conveyance of the property of the Company as an entirety
or substantially as an entirety (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Holder shall have the right to purchase, upon exercise of
this Warrant and in lieu of the shares of Common Stock immediately theretofore
purchasable hereunder, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive after such Capital Reorganization if this Warrant
had been exercised immediately prior to such Capital Reorganization, assuming
such holder (i) is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or conveyance was made, as the case may be ("constituent person") and (ii)
failed to exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such Capital Reorganization
(provided that if the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization is not the same for each share of
Common Stock held immediately prior to such consolidation, merger, sale or
conveyance by other than a constituent person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this paragraph the kind and
amount of shares of stock and other securities or other property (including
cash) receivable upon such Capital Reorganization shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
4
As a condition to effecting any Capital Reorganization, the Company or the
successor or surviving corporation, as the case may be, shall execute and
deliver to the Holder an agreement as to the Holder's rights in accordance with
this Section 5(c), providing for subsequent adjustments as nearly equivalent as
may be practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5(c) shall similarly apply to successive Capital
Reorganizations.
(d) If after the date of the issuance of this Warrant the Company shall
issue by reclassification of its shares of Common Stock other securities of the
Company, then the number of shares of Common Stock purchasable upon exercise of
the Warrant immediately prior to such issuance shall be adjusted so that the
Holder upon exercise hereof shall be entitled to receive the kind and number of
shares of Common Stock or other securities of the Company which it would have
owned or have been entitled to receive after such issuance, had this Warrant
been exercised immediately prior to such issuance or any record date with
respect thereto. An adjustment made pursuant to this Section 5(d) shall become
effective upon the date of the issuance retroactive to the record date with
respect thereto, if any. Such adjustment shall be made successively whenever
such an issuance is made.
(e) (i) Any adjustments pursuant to this Section 5 shall be made
successively whenever an event referred to herein shall occur.
(ii) If the Company shall set a record date to determine the holders
of shares of Common Stock for purposes of a Common Stock Reorganization,
Non-Cash Dividend or Capital Reorganization, and shall legally abandon such
action prior to effecting such action, then no adjustment shall be made
pursuant to this Section 5 in respect of such action.
(iii) No adjustment in the Exercise Price shall be made hereunder
unless such adjustment decreases such price by one percent or more, 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 serve to adjust such price by one
percent or more.
(iv) No adjustment in the Exercise Price shall be made hereunder if
such adjustment would reduce the exercise price to an amount below par
value of the Common Stock, which par value shall initially be $0.001 per
share of Common Stock.
(f) As a condition precedent to the taking of any action which would
require an adjustment pursuant to this Section 5, the Company shall take any
action which may be necessary, including obtaining regulatory approvals or
exemptions, in order that the Company may thereafter validly and legally issue
as fully paid and nonassessable all shares of Common Stock which the Holder is
entitled to receive upon exercise thereof.
(g) Promptly after an adjustment or readjustment pursuant to this Section 5
becomes determinable, the Company shall give notice to the Holder of any action
5
which requires an adjustment or readjustment pursuant to this Section 5,
describing such event in reasonable detail and specifying the record date or
effective date, if determinable, the required adjustment and the computation
thereof, if applicable. If the Holder fails to object to any such notice within
30 days of receipt of the Company's notice, the adjustment will be deemed
accepted by the Holder.
6. Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company (the original Holder's indemnity being satisfactory
indemnity in the event of loss, theft or destruction of any Warrant owned by
such Holder), or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock as provided for in such lost, stolen, destroyed or mutilated Warrant.
7. The Holder shall not, as holder of this Warrant, be entitled to vote or
to receive dividends or be deemed the holder of Common Stock that may at any
time be issuable upon exercise of this Warrant for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the Holder, as
holder of this Warrant, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (including without limitation, a Capital Reorganization), or to
receive notice of meetings, or to receive dividends or subscription rights,
until the Holder shall have exercised this Warrant and been issued shares of
Common Stock in accordance with the provisions hereof.
8. The Holder of this Warrant, by acceptance hereof, agrees to give written
notice to the Company before transferring this Warrant or transferring any
Common Stock issuable or issued upon the exercise hereof of such Holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Warrant or such Holder's intention as to the disposition to be made of
shares of Common Stock issuable or issued upon the exercise hereof. Such Holder
shall also provide the Company with an opinion of counsel reasonably
satisfactory to the Company to the effect that the proposed transfer of this
Warrant or disposition of shares received upon exercise hereof may be effected
without registration or qualification (under any Federal or State law) and
without causing the loss of the applicable securities law registration
exemption(s) relied upon by the Company when it issued this Warrant. Upon
receipt of such written notice and opinion by the Company, such Holder shall be
entitled to transfer this Warrant, or to exercise this Warrant in accordance
with its terms and dispose of the shares received upon such exercise or to
dispose of shares of Common Stock received upon the previous exercise of this
Warrant, all in accordance with the terms of the notice delivered by such Holder
to the Company, provided that an appropriate legend respecting the aforesaid
restrictions on transfer and disposition shall be endorsed on this Warrant or
the certificates for such shares.
9. Subject to the provisions of Section 8 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Holder hereof, at the principal office of the Company by the Holder hereof in
6
person or by its duly authorized attorney, upon surrender of this Warrant
properly endorsed and this Warrant is exchangeable, upon the surrender hereof by
the Holder hereof at the office of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the rights to subscribe for and purchase such number of
shares as shall be designated by said Holder hereof at the time of such
surrender. Each taker and Holder of this Warrant, by taking or holding the same,
consents and agrees that the bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered Holder hereof as the owner for
all purposes.
10. (a) Upon receipt of notice (the "Registration Request Notice")
requesting registration under the Securities Act of Underlying Shares (defined
below) from the holders of Notes and Warrants representing more than fifty
percent (50%) of the aggregate Underlying Shares, on only one occasion, at any
time commencing on the date hereof and terminating two years thereafter, the
Company will offer to Holder the opportunity to include its Underlying Shares in
such registration. The Company will use its reasonable best efforts to file with
the Commission as promptly as practicable, a registration statement (the "Demand
Registration Statement"), and will use its reasonable best efforts to have the
Demand Registration Statement declared effective and remain effective until the
earliest of (i) two years after the date it is declared effective, (ii) the date
all the Underlying Shares registered thereby have been sold, or, (iii) in the
reasonable opinion of the Company's counsel, the Underlying Shares may be sold
publicly without registration. The Company will also use its reasonable best
efforts to qualify the Underlying Shares under the securities laws of the state
where Holder resides provided the Company is not required to execute a general
consent to service or to qualify to do business in such state. This offer to
Holder shall be made within twenty (20) days after the Company receives the
Registration Request Notice. If Holder elects to include its Underlying Shares
in the Demand Registration Statement, it will, in a timely fashion, provide the
Company and its counsel with such information and execute such documents as the
Company's counsel may reasonably require to prepare and process the Demand
Registration Statement, it shall have no further rights to registration of its
Underlying Shares under this Section 9(a). In the event that the Company has
filed a registration statement with the Commission relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Holder agrees that
the Company can thereafter delay the filing of the Demand Registration Statement
for a period not to exceed ninety (90) days. Anything to the contrary
notwithstanding, in no event shall the Company be required to file a Demand
Registration Statement with the Commission prior to one hundred and eighty (180)
days after the date hereof. As used in this Section 10, "Underlying Shares"
means (i) shares of Common Stock issuable upon conversion of the Notes and (ii)
the Warrant Shares.
(b) If at any time after the date hereof, the Company proposes to file a
registration statement under the Act with respect to any of its securities
7
(except one relating to employee benefit plans or a merger, acquisition or
similar transaction), it shall give written notice of its intention to effect
such filing to the Holder at least 30 days prior to filing such registration
statement (the "Piggyback Registration Statement"). If the Underlying Shares
have not been previously registered and the Holder desires to include its
Underlying Shares in the Piggyback Registration Statement, it shall notify the
Company in writing within 15 days after receipt of such notice from the Company,
in which event the Company shall include the Holder's Underlying Shares in the
Piggyback Registration Statement. If the Holder elects to include its Underlying
Shares in the Piggyback Registration Statement as set forth herein, it shall, in
a timely fashion, provide the Company and its counsel with such information and
execute such documents as its counsel may reasonably require to prepare and
process the Piggyback Registration Statement.
(c) The Company will provide the Holder with a copy of the Demand
Registration Statement or Piggyback Registration Statement, as the case may be,
and any amendments thereto, and copies of the final prospectus included therein
in such quantities as may reasonably be required to permit the Holder to sell
its Underlying Shares after the Demand Registration Statement or Piggyback
Registration Statement is declared effective by the Commission.
(d) The Company will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of counsel to the
Holder) necessary and incidental to the performance of its obligations under
this Section 10.
(e) The Company and the Holder, if the Holder's Underlying Shares are
included in a Demand Registration Statement or Piggyback Registration Statement
pursuant to this Section 10, shall provide customary and appropriate cross
indemnities to each other covering the information supplied by the indemnifying
party for inclusion in such Demand Registration Statement or Piggyback
Registration Statement.
(f) Anything to the contrary notwithstanding, the Holder agrees that as a
condition for the Company registering the Underlying Shares, in the event that
the Piggyback Registration Statement in which the Underlying Shares are included
relates to an offering to be effected through or with the assistance of an
underwriter, the Holder will consent to restrict the sale of the Underlying
Shares or reduce (on a pro rata basis with shares of Common Stock issued to any
other stockholders of the Company prior to or after the date hereof, and that,
as of the time of determination, have presently exercisable registration rights
and are requested by such stockholders to be included in such Piggyback
Registration Statement) the number of Underlying Shares that may be included in
such registration in accordance with the requirements of such underwriter.
(g) Anything to the contrary notwithstanding, the Company shall not be
required to register any Underlying Shares or provide notices under this Section
10 to a Holder whose Underlying Shares are either (i) are covered by a then
currently effective registration statement or (ii) in the reasonable opinion of
the Company's counsel, may be sold pursuant to the exemption from registration
provided by Section (k) of Rule 144 promulgated under the Act.
8
11. Any notices required or permitted to be given under the terms of this
Warrant shall be sent by certified or registered mail (with return receipt
requested) or delivered personally or by courier (including a nationally
recognized overnight delivery service) or by facsimile transmission. Any notice
so given shall be deemed effective three days after being deposited in the U.S.
Mail, or upon receipt if delivered personally or by courier or facsimile
transmission, in each case addressed to a party at the following address or such
other address as each such party furnishes to the other in accordance with this
Section 11:
If to the Company: EDT Learning, Inc.
2999 North 44th Street
Suite 650
Phoenix, AZ 85018
Telephone: (602) 952-1200
Facsimile: (602) 952-0544
Attention: President
If to the Holder: Frost National Bank,
Attn: Henri Domingues T-8
100 W. Houston St.
San Antonio, TX 78205
Or
Frost National Bank
Attn: Henri Domingues T-8
P.O. Box 2950
San Antonio, TX 78299-2950
Copies to: Renaissance Capital Group, Inc.
Lynne Marie True
8080 N. Central Expressway
Suite 210, LB-59
Dallas, TX 75206
Telephone: (214) 891-8294
Sinclair Henderson, Ltd.
Attn: Liz Batson
23 Cathedral Yard
Exeter EX11HB
12. (a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
9
the Holder are cumulative and not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
(b) Any such amendment, modification or waiver effected pursuant to this
Section 12 shall be binding upon the Holder of the Warrant and Common Stock
issuable upon exercise, upon each future holder thereof and upon the Company. In
the event of any such amendment, modification or waiver the Company shall give
prompt notice thereof to the Holder and, if appropriate, notation thereof shall
be made on any Warrant thereafter surrendered for registration of transfer or
exchange. No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
13. All representations, warranties and covenants made by the Company
herein or in any certificate or other instrument delivered by or on behalf of it
in connection with the Warrant shall be considered to have been relied upon by
the Holder and shall survive the issuance and delivery of the Warrant,
regardless of any investigation made by the Holder, and shall continue in full
force and effect so long as any Warrant is outstanding. All statements in any
such certificate or other instrument shall constitute representations and
warranties hereunder.
14. All covenants, stipulations, promises and agreements contained in this
Warrant by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
15. In case any one or more of the provisions contained in this Warrant
shall be invalid, illegal or unenforceable in any respect, the validity,
legality or enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
16. This Warrant shall be governed by and construed in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Delaware.
[Intentionally left blank.]
10
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and this Warrant to be dated as of March 29, 2002.
EDT LEARNING, INC.
By _______/S/____________________
James M. Powers, Jr.
President and Chief Executive Officer
The Frost National Bank FBO, Renaissance US Growth & Income Trust PLC, Trust No.
W00740100 - 500,000
11
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________ all of the rights of the undersigned under this
Warrant, with respect to the number of shares set forth below, and appoints
___________________________ to transfer this Warrant on the books of EDT
Learning, Inc. with the full power of substitution in the premises.
Name of Assignee Address Number of Shares
Dated: ______________________________
In the presence of:
------------------------------------- ------------------------------------
(Signature must conform in all respects to the name
of the holder as specified on the face of this
Warrant without alteration, enlargement or any change
whatsoever, and the signature must be guaranteed in
the usual manner.)
12
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such
Holder Desires to Exercise this Warrant in Whole
or in Part:
To: EDT Learning, Inc. (the "Company")
The undersigned __________________________________________________________
Please insert Social Security or other
identifying number of Subscriber: ________________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ____________ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the Company in
the amount of $____________, such payment being made as provided on the face of
this Warrant.
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below.
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name: _________________________________________
Address: _____________________________________
Deliver to: __________________________________
Address: ______________________________________
Dated: _______________________ Signature _________________________________
Note: The signature on this Subscription Form must
correspond with the name as written upon the face of
this Warrant in every particular, without alteration
or enlargement or any change whatever.
13
EXHIBIT 6
THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF COMMON STOCK OF
MAKER ACQUIRABLE UPON CONVERSION) HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES ACT. THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF
COMMON STOCK OF MAKER ACQUIRABLE UPON CONVERSION) MUST BE HELD INDEFINITELY AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
MAKER RECEIVES AN OPINION OF COUNSEL, OR OTHER EVIDENCE, REASONABLY ACCEPTABLE
TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACTS.
THE TRANSFER OF THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE (AND THE SHARES OF
COMMON STOCK OF MAKER ACQUIRABLE UPON CONVERSION) IS SUBJECT TO RESTRICTIONS AS
PROVIDED IN THIS CONVERTIBLE REDEEMABLE SUBORDINATED NOTE.
CONVERTIBLE REDEEMABLE SUBORDINATED NOTE
$500,000 March 29, 2002
FOR VALUE RECEIVED, the undersigned, EDT Learning, Inc., a Delaware
corporation ("Maker"), hereby promises to pay to the order of the HSBC Global
Custody Nominee (U.K.) Limited, Designation No. 896414 ("Payee"), at HSBC Global
Custody Nominee (U.K.) Limited, Designation No. 896414, Marine House, Pepys
Street London, England EC3N 4DA, or such other place as Payee may from time to
time direct Maker in writing, the principal sum of Five Hundred Thousand and
00/100 Dollars ($500,000), together with interest thereon which shall accrue at
the rate of twelve percent (12.0%) per annum. Accrued interest shall be due and
payable at the end of each calendar quarter following the date of this
Convertible Redeemable Subordinated Note (the "Convertible Note") until the
principal hereof is paid in full or converted into shares of the common stock of
Maker, par value $0.001 per share ("Common Stock"), as herein provided. The
principal, together with all accrued but unpaid interest hereon, shall mature
and be due and payable on March 31, 2012. Except as otherwise set forth in
Section 8, Maker shall have no right to prepay this Convertible Note prior to
the date that this Convertible Note matures as set forth above. All payments on
this Convertible Note shall be due and payable in lawful currency of the United
States of America.
This Convertible Note is one of several Convertible Redeemable Subordinated
Notes dated of even date herewith and issued by Maker (collectively, the
"Convertible Notes") as part of an offering of 60 (subject to increase to 110)
units (the "Units") that was conducted by Maker and Murphy & Durieu, the
placement agent for the offering, on a best efforts basis. Each Unit consists of
one (1) Convertible Note and one (1) Warrant exercisable for 50,000 shares of
Common Stock (collectively, the "Warrants").
1
1. Conversion. Payee or the then current holder of this Convertible Note
may elect to convert this Convertible Note (in whole but not in part) at any
time following the date that is sixty (60) days following the date of this Note
and prior to maturity. The principal portion of this Convertible Note will
convert into duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock (the "Underlying Shares"). The conversion price for such
conversion shall be a price per share equal to $1.00, or, in case an adjustment
in the conversion price has taken place pursuant to the provisions hereof, at
the then applicable conversion price as so adjusted (such price as in effect
from time to time being referred to herein as the "Conversion Price"). Upon
conversion, Payee (or the then current holder of this Convertible Note) shall be
obligated to deliver to Maker (i) this Convertible Note for cancellation and
(ii) written notice of the intent of Payee (or the then current holder of this
Convertible Note) to convert this Note. Within fifteen (15) days after the
giving of such notice, Maker shall issue the appropriate number of Underlying
Shares in accordance with the Conversion Price and deliver to Payee a
certificate or certificates therefor, registered in its name, representing such
Underlying Shares against delivery to Maker of this Convertible Note marked
"paid in full." Payee shall represent in writing to Maker prior to the receipt
of the Underlying Shares that such Underlying Shares will be acquired by it for
investment only and not for resale or with a view to the distribution thereof,
and shall agree that any certificates representing the Underlying Shares may
bear a legend, conspicuously noting such restriction, as Maker shall deem
reasonably necessary or desirable to enable it to comply with any applicable
federal or state laws or regulations.
Upon conversion of this Convertible Note, the holder hereof shall not be
entitled to receive any unaccumulated or unaccrued interest, provided that such
holder shall be entitled to receive (by cash payment only) any interest on such
portion that accrued prior to such conversion and remained unpaid. In connection
with the conversion of this Convertible Note, no fractions of shares of Common
Stock shall be issued, but Maker shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fraction of a share multiplied by
the Conversion Price.
2. Antidilution Adjustments. The Conversion Price in effect an any time
shall be subject to adjustment as follows:
(a) In case Maker shall pay or make a dividend or other distribution
on any class of capital stock of Maker in shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following
the date fixed for the determination of stockholders entitled to receive
such dividend or other distribution shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding at the close of business on the date
fixed for such determination and the denominator of which shall be the sum
of such number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination.
2
(b) In case Maker shall issue rights or warrants to all holders of its
shares of Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the Fair Value (as defined below) per
share of the Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, the Conversion
Price in effect at the opening of business on the day following the date
fixed for such determination shall be reduced to the amount determined by
multiplying such Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination, plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of Common Stock so offered for subscription or
purchase would purchase if purchased at Fair Value, and the denominator of
which shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination, plus the number
of shares of Common Stock so offered for subscription or purchase, such
reduction to become effective immediately after the opening of business on
the day following the date fixed for such determination.
(c) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares, the Conversion Price in effect at the
opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be
combined into smaller number of shares, the Conversion Price in effect at
the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately increased, such
reduction or increase, as the case may be, to become effective immediately
upon the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case Maker shall, by dividend or otherwise, distribute to all
holders of shares of Common Stock evidences of indebtedness or assets
(including securities, but excluding any rights or warrants referred to
above, any dividend or distribution paid in cash out of the earned surplus
of Maker and any dividend or distribution referred to above), the
Conversion Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution by a fraction, the
numerator of which shall be the Fair Value per share of the Common Stock on
the date fixed for such determination less the Fair Value of the portion of
the assets or evidences of indebtedness so distributed allocable to one
share of Common Stock and the denominator of which shall be such Fair Value
per share of the Common Stock on the date fixed for such determination,
such adjustment to become effective immediately prior to the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
(e) In case the Common Stock shall be changed into the same or a
different number of shares of any class or classes of stock, whether by
3
capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or a stock dividend described above,
or a consolidation, merger or sale of assets described below), then and in
each such event the Payee (or the then current holder of this Convertible
Note) shall have the right thereafter to convert this Convertible Note into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which this Convertible
Note might have been converted immediately prior to such reorganization,
reclassification or change.
(f) No adjustment in the Conversion Price shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (f)) would require an increase or decrease of at least 1% in such
price; provided, however, that any adjustments which, by reason of this
paragraph (f), are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 2 shall be made to the nearest dollar.
(g) Whenever the Conversion Price is adjusted as provided in this
Convertible Note and upon the request of Payee (or the then current holder
of this Convertible Note), Maker shall prepare an Officer's Certificate
setting forth the adjusted Conversion Price and showing in reasonable
detail the facts upon which such adjustment is based and the computation
thereof, and such certificate shall promptly be forwarded to the Payee (or
the then current holder of this Convertible Note).
(h) Maker shall at all times reserve and keep available, free from
preemptive rights, out of its authorized shares of Common Stock, for the
purpose of effecting the conversion of the Convertible Notes, the full
number of shares of Common Stock then issuable upon the conversion of all
outstanding Convertible Notes and shall take all action necessary so that
shares of Common Stock so issued will be validly issued, fully paid and
nonassessable.
(i) Maker will pay any and all stamp or similar taxes that may be
payable in respect of the issuance or delivery of shares of Common Stock on
conversion of this Convertible Note. Maker shall not, however, be required
to pay any tax that may be payable in respect of any transfer involved in
the issuance and delivery of shares of Common Stock in a name other than
that of the Payee, and no such issuance or delivery shall be made unless
and until the person requesting such issuance has paid to Maker the amount
of any such tax, or has established to the satisfaction of Maker that such
tax has been paid.
(j) Maker agrees that in case of any consolidation of Maker with, or
merger of Maker into, any other corporation, or in case of any merger of
another corporation into Maker (other than a merger which does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of Maker), or in case of any sale or
transfer of all or substantially all of the assets of Maker, Maker shall
4
require the corporation formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, to execute and
deliver to the Payee (or the then current holder of this Convertible Note)
an agreement providing that the Payee (or the then current holder of this
Convertible Note) shall have the right thereafter to convert this
Convertible Note into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Common Stock of Maker into which this
Convertible Note might have been converted immediately prior to such
consolidation, merger, sale or transfer. Such agreement shall provide for
adjustments which, for events subsequent to the effective date of such
consolidation, merger, sale or transfer, shall be as nearly equivalent as
may be practicable to the adjustments provided for herein. The above
provisions of this Convertible Note shall similarly apply to successive
consolidations, mergers, sales or transfers.
(k) "Fair Value" of the Common Stock shall be determined from time to
time in good faith by the Board of Directors of Maker; provided, however,
that if the Common Stock is then traded on the American Stock Exchange (or,
if no longer traded on the American Stock Exchange, another national
exchange or the NASDAQ Stock Market), then the Fair Value of the Common
Stock shall be deemed to be equal to the average quoted closing price of
the Common Stock over the five trading days prior to the date of
determination. Any valuation made pursuant hereto will be binding upon
Maker and all holders of Convertible Notes and their successors and
assigns.
(l) Except as otherwise explicitly set forth in this Section 2, there
shall be no antidilution or other adjustments to the Conversion Price.
3. Events of Default and Remedies. At the option of Payee (or the then
current holder of this Convertible Note), the entire amount of the unpaid
balance of this Convertible Note, shall immediately become due and payable upon
the occurrence of one or more of the following events of default ("Events of
Default"):
(a) Failure of Maker to make any payment on this Convertible Note as
and when the same becomes due and payable in accordance with the terms
hereof, and such failure continues for a period of thirty (30) days after
the receipt by Maker of written notice from Payee (or the then current
holder of this Convertible Note) of the occurrence of such failure; or
(b) Maker shall (i) voluntarily seek, consent to or acquiesce in the
benefit or benefits of any Debtor Relief Law (as hereinafter defined) or
(ii) become party to (or be made the subject of) any proceeding provided by
any Debtor Relief Law, other than as a creditor or claimant, that could
suspend or otherwise adversely affect the rights of Payee (or the then
current holder of this Convertible Note) granted hereunder (unless in the
event such proceeding is involuntary, the petition instituting the same is
dismissed within 120 days of the filing of same). As used herein, the term
5
"Debtor Relief Law" means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization or
similar debtor relief laws from time to time in effect affecting the rights
of creditors generally.
In the event any one or more of the Events of Default specified above shall
have occurred, the holder of this Convertible Note may proceed to protect and
enforce its rights either by suit in equity or by action at law, or by other
appropriate proceedings, whether for the specific performance of any covenant or
agreement contained in this Convertible Note or in aid of the exercise of any
power or right granted by this Convertible Note, or to enforce any other legal
or equitable right of the holder of this Convertible Note.
4. Successors and Assigns. All of the covenants, stipulations, promises and
agreements in this Convertible Note made by or on behalf of Maker shall bind its
successors and assigns, whether so expressed or not; provided, however, that
Maker may not, without the prior written consent of Payee (or the then current
holder of this Convertible Note), assign any of its rights, powers, duties or
obligations under this Convertible Note.
5. Maximum Interest. Regardless of any provision contained herein, Maker
shall never be required to pay and the holder hereof shall never be entitled to
receive, collect or apply as interest hereon, any amount in excess of the
highest lawful interest rate permitted under applicable law, and in the event
the holder hereof receives, collects or applies, as interest, any such excess,
such amounts which would be excessive interest shall be deemed a partial
prepayment of principal and treated hereunder as such for all purposes; and, if
the principal hereof is paid in full, any remaining excess shall be refunded to
Maker. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the highest lawful interest rate, Maker and the
holder hereof shall, to the maximum extent permitted under applicable law (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude prepayments and the effects thereof, and (c) pro rate,
allocate and spread the total amount of interest throughout the entire
contemplated term hereof; provided that if the indebtedness evidenced hereby is
paid and performed in full prior to the end of the full contemplated term
hereof, and if the interest received for the actual period of existence thereof
exceeds the highest lawful interest rate, the holder hereof shall either apply
as principal reduction or refund to Maker the amount of such excess, and in such
event, the holder hereof shall not be subject to any penalties provided by any
laws for contracting for, charging or receiving interest in excess of the
highest lawful interest rate.
6. Restrictions on Transferability. By taking this Convertible Note, Payee
acknowledges that (a) this Convertible Note (and the shares of Common Stock of
Maker acquirable upon conversion) has been acquired for investment and has not
been registered under the Securities Act of 1933, as amended (the "Securities
Act") or any state securities act and (b) this Convertible Note (and the shares
of Common Stock of Maker acquirable upon conversion) must be held indefinitely
unless (i) subsequent disposition thereof is registered under the Securities Act
and all applicable state securities laws or (ii) an exemption from such
6
registration is available and Maker receives an opinion of counsel, or other
evidence, reasonably satisfactory to Maker stating that such disposition is made
in compliance with an exemption from such registration, and prospectus delivery
requirements.
7. Subordination. To the extent and in the manner hereinafter set forth in
this Section 7, the indebtedness represented by this Convertible Note and any
renewals or extensions thereof shall at all times be wholly subordinate and
junior in right of payment to the prior payment in full of any and all Senior
Indebtedness.
(a) Senior Indebtedness. "Senior Indebtedness" means the principal of,
premium, if any, and unpaid interest (including without limitation any
interest accruing from and after the date of any filing made in respect of
Maker or any of its Subsidiaries pursuant to Chapter 11 of Title 11 of the
U.S. Code, whether or not a claim for such interest would be recognized or
allowed in such proceeding) on the following, whether outstanding at the
date hereof or thereafter incurred or created: (i) Indebtedness of Maker
for money borrowed (including purchase-money obligations), evidenced by
notes or other written obligations, (ii) Indebtedness of Maker evidenced by
notes, debentures, bonds or other securities issued under the provisions of
an indenture or similar instrument, (iii) obligations of Maker as lessee
under capital leases and under leases of property made as part of any sale
and leaseback transactions, (iv) any Hedging Transactions, (v) Indebtedness
of others of any of the kinds described in the preceding clauses (i)
through (iv) assumed or guaranteed by Maker and (vi) renewals, extensions
and refundings of, and Indebtedness and obligations of a successor person
issued in exchange for or in replacement of, Indebtedness or obligations of
the kinds described in the preceding clauses (i) through (v); provided,
however, that the following shall not constitute Senior Indebtedness: (A)
any Indebtedness or obligation as to which, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such Indebtedness or obligation is subordinate in
right of payment to all other Indebtedness of Maker not expressly
subordinated to such Indebtedness or obligation; (B) any Indebtedness or
obligation which by its terms refers explicitly to the Convertible Notes
and states that such Indebtedness or obligation shall not be senior in
right of payment thereto; (C) any Indebtedness or obligation of Maker in
respect of the Convertible Notes; (D) Indebtedness or other obligations of
Maker to any stockholder, director, officer or employee of Maker or any of
its Subsidiaries; and (E) Indebtedness guaranteed by Maker on behalf of any
stockholder, director, officer or employee of Maker or any of its
Subsidiaries.
(b) Payment Over of Proceeds Upon Dissolution, Etc. In the event of
any liquidation of Maker or of any execution, sale, receivership,
insolvency, bankruptcy, readjustment, reorganization, marshaling of assets
and liabilities, assignment for the benefit of creditors or other similar
proceeding relative to Maker or its property (a "Creditors' Proceeding"),
all principal and interest owing on all Senior Indebtedness shall first be
paid in full before any payment is made upon the indebtedness evidenced by
the Convertible Notes, and in any such event any payment or distribution of
any kind or character, whether in cash, property or securities (other than
7
in securities or other evidences of indebtedness, the payment of which is
subordinated to the payment of all Senior Indebtedness that may at the time
be outstanding) that shall be made upon or in respect of the Convertible
Notes shall be paid over to the holders of such Senior Indebtedness, for
application in payment thereof in accordance with the priorities then
existing among such holders unless and until such Senior Indebtedness shall
have been paid or satisfied in full.
(c) No Payment When Senior Indebtedness in Default
(i) Upon the failure to pay (beyond any applicable cure or grace
periods) any installment of principal, premium, interest, fees or any
other amounts owing on any Senior Indebtedness when the same becomes
due and payable, including without limitation a declaration that such
principal amount of Senior Indebtedness has been declared to be due
and payable prior to its maturity (a "Payment Default"), no payment of
principal, premium (if any), interest or other amounts owing shall be
made on the Convertible Notes or on account of the purchase or other
acquisition of Convertible Notes unless and until (i) such default
shall have been cured or expressly waived or shall have ceased to
exist or (ii) adequate provision has been made for the payment of such
Senior Indebtedness in a manner satisfactory to the holders of at
least 25% of the then outstanding amount of such Senior Indebtedness.
(ii) Upon the occurrence of any default with respect to Senior
Indebtedness (other than a Payment Default), which default would
permit the holders of such Senior Indebtedness to cause such Senior
Indebtedness to become due prior to its stated maturity (a "Nonpayment
Default"), upon written notice thereof given to Maker and the holder
of this Convertible Note by any holders of any Senior Indebtedness
("Payment Notice"), then, unless and until such Nonpayment Default
shall have been cured or waived or shall cease to exist, no payment
(other than in capital stock or evidences of Indebtedness, the payment
of which is subordinated to the payment of all Senior Indebtedness, to
the same extent as the Convertible Notes, that may at the time be
outstanding) shall be made by Maker in respect of the Convertible
Notes or to acquire any of the Convertible Notes; provided, however,
that this paragraph (ii) shall not prevent the making of any payment
(x) which is made 180 days or more after the Payment Notice shall have
been given or (y) if earlier, after the date on which such Senior
Indebtedness shall have been paid in full in cash or in any other
manner acceptable to holders of such Senior Indebtedness or the date
on which application of this paragraph (ii) has been cured or waived
in writing by the holders of such Senior Indebtedness (or their
representatives) in accordance with the terms of the document pursuant
to which it was issued. Maker shall promptly deliver such Payment
Notice to the holders of the Convertible Notes. Notwithstanding the
foregoing, (A) not more than one Payment Notice shall be given within
a period of 365 consecutive days, and (B) no Nonpayment Default which
existed or was continuing on the date of any Payment Notice (whether
8
or not such event of default is on the same issue or Senior
Indebtedness) may be made the basis for the giving of a subsequent
Payment Notice.
(d) Payment Permitted if No Default. Except as provided in subsections (b)
and (c) of this Section 7, nothing contained in this Convertible Note shall
prevent Maker from making payments at any time of principal of (and premium, if
any) or interest on the Convertible Notes.
(e) No Waiver of Subordination Provisions. No right of any holder of any
Senior Indebtedness to enforce subordination as herein provided shall at any
time or in any way be affected or impaired by any failure to act on the part of
Maker or the holders of Senior Indebtedness, or by any noncompliance by Maker
with any of the terms, provisions and covenants of this Convertible Note,
regardless of any knowledge thereof that any such holder of Senior Indebtedness
may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the holders of the Convertible Notes, without
incurring responsibility to the holders of the Convertible Notes and without
impairing or releasing the subordination provided in this Section 7 or the
obligation hereunder of the holders of the Convertible Notes to the holders of
Senior Indebtedness, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the time of
payment of, or renew or alter, Senior Indebtedness, or otherwise amend or
supplement in any manner Senior Indebtedness or any instrument evidencing
the same or any agreement under which Senior Indebtedness is outstanding;
(ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness;
(iii) release any person liable in any manner for the collection of
Senior Indebtedness; and
(iv) exercise or refrain from exercising any rights against Maker and
any other person.
(f) Notice. Maker shall give prompt written notice to holders of the
Convertible Notes of any fact known to Maker that would prohibit the making of
any payment in respect of the Convertible Notes pursuant to this Section 7.
(g) Reliance on Judicial Order or Certificate of Liquidating Agent. Upon
any payment or distribution of assets of Maker referred to in this Section 7,
the holders of the Convertible Notes shall be entitled to rely upon any order or
9
decree entered by any court of competent jurisdiction in which such liquidation
or Creditors' Proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the holders of Convertible Notes, for the purpose of ascertaining
the persons entitled to participate in such payment or distribution, the holders
of the Senior Indebtedness and other Indebtedness of Maker, the amount thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Section 7.
(h) Certain Conversions Deemed Payment. For the purposes of this Section 7
only, (i) the issuance and delivery of junior securities upon conversion of
Convertible Notes shall not be deemed to constitute a payment or distribution on
account of the principal of or premium or interest on Convertible Notes or on
account of the purchase or other acquisition of Convertible Notes, and (ii) the
payment, issuance or delivery of cash, property or securities (other than junior
securities) upon conversion of a Convertible Note shall be deemed to constitute
payment on account of the principal of such Convertible Note. For the purposes
of this subsection 7(h), the term "junior securities" means (A) shares of any
stock of any class of Maker and (B) securities of Maker that are subordinated in
right of payment to all Senior Indebtedness that may be outstanding at the time
of issuance or delivery of such securities to substantially the same extent as,
or to a greater extent than, the Convertible Notes are so subordinated as
provided in this Section 7. Nothing contained in this Section 7 or elsewhere in
this Convertible Note is intended to or shall impair, as among Maker, its
creditors other than holders of Senior Indebtedness and the holders of the
Convertible Notes, the right, which is absolute and unconditional, of the holder
of any Convertible Notes to convert such Convertible Note in accordance with
Section 1.
(i) Holders of Convertible Notes to be Subrogated to Rights of Holders of
Senior Indebtedness. Subject to the payment in full in cash, or in any other
manner acceptable to holders of Senior Indebtedness (in their sole discretion),
of all Senior Indebtedness, the holders of Convertible Notes shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of Maker applicable to the Senior Indebtedness until all
amounts owing on the Convertible Notes shall be paid in full in cash, and for
the purpose of such subrogation no such payments or distributions to the holders
of Senior Indebtedness by or on behalf of Maker, or by or on behalf of the
holders of the Convertible Notes by virtue of this Section 7, which otherwise
would have been made to the holders of the Convertible Notes shall, as between
Maker, its creditors other than the holders of Senior Indebtedness and the
holders of the Convertible Notes, be deemed to be payment by Maker to or on
account of the Senior Indebtedness, it being understood that the provisions of
this Section 7 are, and are intended, solely for the purpose of defining the
relative rights of the holders of the Convertible Notes, on the one hand, and
the holders of Senior Indebtedness, on the other hand.
10
As used in this Section 7:
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America from time to time and applied consistently
throughout the relevant periods.
"Hedging Transaction" shall mean, with respect to any Person, (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements of such Person, (ii) currency swap agreements and currency cap
agreements of such Person and (iii) other written agreements or arrangements
principally designed to protect such Person against fluctuations in interest
rates or currency values or the price of any commodity used in the business of
such Person.
"Indebtedness" means (without duplication), when used with reference to any
Person:
(i) any obligation, contingent or otherwise, (A) in respect of
borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), or (B)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit or (C) representing the balance deferred and unpaid of the purchase
price of any property, if and to the extent (but only to the extent) any of
the foregoing indebtedness would appear as a liability upon a balance sheet
of such Person and its Subsidiaries prepared on a consolidated basis in
accordance with GAAP, and
(ii) shall also include, regardless of whether such items would appear
upon a balance sheet, (A) the principal component of any Capitalized Lease
Obligations of such Person, (B) obligations secured by a Lien to which any
property or asset, including leasehold interests and any other tangible or
intangible property rights, owned by such Person is subject, whether or not
the obligations secured thereby shall have been assumed by such Person
(provided, however, that, if the obligations have not been assumed by such
Person such obligations shall be deemed to be in an amount equal to the
lesser of (1) the fair market value (as determined in good faith by the
Board of Directors of Maker and as evidenced by a board resolution) of the
property or properties to which the Lien relates or (2) the amount of the
Indebtedness secured by such Lien) by such Person or shall otherwise be
such Person's legal liability, (C) reimbursement obligations and all other
liabilities (contingent or otherwise) of such Person in respect of letters
of credit and letter of credit guarantees, (D) any obligation of such
Person in respect of Hedging Transactions, and (E) guarantees by such
Person of items which would be included within this definition, to the
extent of such guarantees.
"Lien" shall mean any mortgage, pledge, lien, encumbrance or security
interest of any kind (including, without limitation, any conditional sale or
other title retention agreement), any lease in the nature thereof, any option or
other agreement to sell and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction, but shall not include any restriction on transfer imposed under
federal or state securities laws.
11
"Person" or "person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof.
"Subsidiary" shall mean, with respect to any Person: (i) a corporation in
which such Person or one or more Subsidiaries of such Person own in the
aggregate voting securities representing in excess of 50% of the total number of
votes that could be cast in the election of directors of such corporation by the
holders of all then outstanding voting securities of such corporation and (ii)
any other Person (other than a corporation) of which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person directly or indirectly, has (X) at least a majority ownership interest or
(Y) the power to elect or direct the election of at least a majority of the
directors or other governing body.
8. Redemption. This Convertible Note may be redeemed in whole, but not in
part, at the election of Maker for the principal amount of this Convertible Note
plus accrued but unpaid interest at any time after such time as the closing
price of the Common Stock (as quoted on the American Stock Exchange, the NASDAQ
Stock Market, or such other national exchange, if any, on which the Common Stock
is then quoted) has equaled or exceeded an amount equal to the product of (i)
three, multiplied by (ii) the amount of the Conversion Price then in effect, for
a period of twenty (20) consecutive trading days. Maker shall provide Payee with
written notice (the "Redemption Notice") at least thirty (30) days prior to the
date this Convertible Note shall be redeemed (such date of redemption, the
"Redemption Date") of its intent to redeem this Convertible Note. The Redemption
Notice shall specify the Redemption Date, the principal amount of this
Convertible Note and the amount of accrued but unpaid interest that will be
outstanding as of the Redemption Date. Nothing contained herein shall be
construed to prevent Payee from converting this Convertible Note subsequent to
Payee's receipt of the Redemption Notice but prior to the Redemption Date. Upon
redemption, Payee (or the then current holder of this Convertible Note) shall be
obligated to deliver this Convertible Note to Maker for cancellation and Maker
shall be obligated to deliver to Payee (or the then current holder of this
Convertible Note) a cashier's check in an amount equal to the principal amount
of this Convertible Note plus accrued but unpaid interest.
9. Payee's Registration Rights.
(a) Upon receipt of notice (the "Registration Request Notice") requesting
registration under the Securities Act of Underlying Shares from the holders of
Notes and Warrants representing more than fifty percent (50%) of the aggregate
Underlying Shares, on only one occasion, at any time commencing on the date
hereof and terminating two years thereafter, Maker will offer to Payee the
opportunity to include its Underlying Shares in such registration. Maker will
use its reasonable best efforts to file with the Securities and Exchange
Commission (the "Commission") as promptly as practicable, a registration
statement (the "Demand Registration Statement"), and will use its reasonable
best efforts to have the Demand Registration Statement declared effective and
remain effective until the earliest of (i) two years after the date it is
declared effective, (ii) the date all the Underlying Shares registered thereby
12
have been sold, or, (iii) in the reasonable opinion of the Maker's counsel, the
Underlying Shares may be sold publicly without registration. Maker will also use
its reasonable best efforts to qualify the Underlying Shares under the
securities laws of the state where Payee resides provided Maker is not required
to execute a general consent to service or to qualify to do business in such
state. This offer to Payee shall be made within twenty (20) days after Maker
receives the Registration Request Notice. If Payee elects to include its
Underlying Shares in the Demand Registration Statement, it will, in a timely
fashion, provide Maker and its counsel with such information and execute such
documents as Maker's counsel may reasonably require to prepare and process the
Demand Registration Statement, it shall have no further rights to registration
of its Underlying Shares under this Section 9(a). In the event that Maker has
filed a registration statement with the Commission relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Payee agrees that
Maker can thereafter delay the filing of the Demand Registration Statement for a
period not to exceed ninety (90) days. Anything to the contrary notwithstanding,
in no event shall Maker be required to file a Demand Registration Statement with
the Commission prior to one hundred and eighty (180) days after the date hereof.
As used in this Section 9 only, "Underlying Shares" shall be deemed include
shares of Common Stock issuable both (i) upon conversion of the Notes and (ii)
upon exercise of the Warrants.
(b) If at any time after the date hereof, Maker proposes to file a
registration statement under the Securities Act with respect to any of its
securities (except one relating to stock option or employee benefit plans or a
merger, acquisition or similar transaction), Maker shall give written notice of
its intention to effect such filing to Payee at least thirty (30) days prior to
filing such registration statement (the "Piggyback Registration Statement"). If
the Payee's Underlying Shares have not been previously registered and Payee
desires to include its Underlying Shares in the Piggyback Registration
Statement, it shall notify Maker in writing within fifteen (15) days after
receipt of such notice from Maker, in which event Maker shall include Payee's
Underlying Shares in the Piggyback Registration Statement. If Payee elects to
include its Underlying Shares in the Piggyback Registration Statement as set
forth herein, it shall, in a timely manner, provide Maker and its counsel with
such information and execute such documents as its counsel may reasonably
require to prepare and process the Piggyback Registration Statement. Anything to
the contrary notwithstanding, in the event that the offering for which the
Piggyback Registration Statement has been filed is to be effected through or
with the assistance of an underwriter, Payee will consent to restrict the sale
of its Underlying Shares or reduce the number of its Underlying Shares (on a pro
rata basis with shares of Common Stock issued to any other stockholders of Maker
prior to or after the date hereof, and that, as of the time of determination,
have presently exercisable registration rights and are requested by such
stockholders to be included in such Piggyback Registration Statement) that may
be included in such Piggyback Registration Statement in accordance with the
requirements of such underwriter.
(c) Maker will provide Payee with a copy of the Demand Registration
Statement or the Piggyback Registration Statement, as the case may be, and any
amendments thereto, and copies of the final prospectus included therein in such
13
quantities as may reasonably be required to permit Payee to sell its Underlying
Shares after the Demand Registration Statement or the Piggyback Registration
Statement is declared effective by the Commission.
(d) Maker will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of counsel to
Payee) necessary and incidental to the performance of its obligations under this
Section.
(e) Maker and Payee, if Payee's Underlying Shares are included in a Demand
Registration Statement or Piggyback Registration Statement pursuant to this
Section, shall provide customary and appropriate cross indemnities to each other
covering the information supplied by the indemnifying party for inclusion in the
Demand Registration Statement or Piggyback Registration Statement.
(f) Anything to the contrary notwithstanding, Maker shall not be required
to register any Underlying Shares or provide notices under this Section 9 to a
Payee whose Underlying Shares are either (i) are covered by a then currently
effective registration statement or (ii) in the reasonable opinion of Maker's
counsel, may be sold pursuant to the exemption from registration provided by
Section (k) of Rule 144 promulgated under the Act.
10. Representations and Warranties of Maker. Maker represents and warrants
that, as of the date of this Convertible Note, it: (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power to carry on its business as now
conducted and to own its properties and assets it now owns; (ii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in the jurisdictions in which ownership of property or the conduct of its
business requires such qualification except jurisdictions in which the failure
to qualify to do business will have no material adverse effect on its business
or financial condition; (iii) has full power and authority to execute and
deliver this Convertible Note, and that the execution and delivery of this
Convertible Note will not result in the breach of or default under, with or
without the giving of notice and/or the passage of time, any other agreement,
arrangement or indenture to which it is a party or by which it may be bound, or
the violation of any law, statute, rule, decree, judgment or regulation binding
upon it; and (iv) has taken and will take all acts required, including but not
limited to authorizing the signatory hereof on its behalf to execute this
Convertible Note, so that upon the execution and delivery of this Convertible
Note, it shall constitute the valid and legally binding obligation of Maker
enforceable in accordance with the terms thereof.
11. Limitation of Liability. A director, officer, employee or stockholder,
as such, of Maker shall not have any liability for any obligations of Maker
under this Convertible Note or for any claim based on, in respect or by reason
of such obligations or their creation. Payee, by accepting this Convertible
Note, waives and releases all such liability. The waiver and release are part of
their consideration for the issuance of this Convertible Note.
14
12. Governing Law; Venue. This Convertible Note shall be governed by and
construed in accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Delaware.
13. Notice. Any notices required or permitted to be given under the terms
of this Convertible Note shall be sent by certified or registered mail (with
return receipt requested) or delivered personally or by courier (including a
nationally recognized overnight delivery service) or by facsimile transmission.
Any notice so given shall be deemed effective three days after being deposited
in the U.S. Mail, or upon receipt if delivered personally or by courier or
facsimile transmission, in each case addressed to a party at the following
address or such other address as each such party furnishes to the other in
accordance with this Section 13:
If to the Company: EDT Learning, Inc.
2999 North 44th Street
Suite 650
Phoenix, AZ 85018
Telephone: (602) 952-1200
Facsimile: (602) 952-0544
Attention: President
If to the Payee: HSBC Global Custody Nominee (U.K.) Limited
Designation No. 896414
Marine House
Pepys Street
London EC3N 4DA
Copies to: Renaissance Capital Group, Inc.
Attn: Lynne Marie True
8080 N. Central Expressway
Suite 210 LB-59
Dallas, TX 75026
Telephone: (214) 891-8294
Sinclair Henderson Limited
Attn: Liz Batson
23 Cathedral Yard
Exeter
EX11HB
14. Severability. In case any one or more of the provisions contained in
this Convertible Note shall for any reason be held to be invalid, illegal and
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof.
15
15. Loss, Theft, Destruction, or Mutilation. Upon receipt by Maker of
evidence reasonably satisfactory to it of loss, theft, destruction or mutilation
of this Convertible Note (and upon surrender of this Convertible Note if
mutilated), and upon reimbursement of Maker's reasonable incidental expenses and
in the case of loss, theft or destruction, indemnity and/or security as Maker
shall, at its option, request, Maker shall make and deliver or caused to be made
and delivered to Payee a new Convertible Note of like date and tenor in lieu of
this Convertible Note.
16. Modification of convertible Note or Waiver of Terms Thereof Relating to
Payee. No modification or waiver of any of the provisions of this Convertible
Note shall be effective unless in writing and signed by Payee and then only to
the extent set forth in such writing, or shall any such modification or waiver
be applicable except in the specific instance for which it is given. This
Convertible Note may not be discharged orally but only in writing duly executed
by Payee.
EXECUTED as of the date set forth above.
MAKER:
EDT LEARNING, INC.
By: ___________/S/_____________
James M. Powers, Jr., its President
and Chief Executive Officer
HSBC Global Custody Nominee (U.K.) Limited, Designation No. 896414
$500,000
16
EXHIBIT 7
RESTRICTION ON TRANSFER
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE
TRANSFERRED, AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT CANNOT BE SOLD OR TRANSFERRED, WITHOUT (I) THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE LAWFULLY MADE
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ALL
APPLICABLE STATE SECURITIES LAWS OR (II) SUCH REGISTRATION.
WARRANT
(Redeemable)
To Subscribe for and Purchase Common Stock of
EDT Learning, Inc.
THIS CERTIFIES THAT, for value received, HSBC Global Custody Nominee (U.K.)
Limited, Designation No. 896414, or its registered assigns (the "Holder"), is
entitled to subscribe for and purchase from EDT Learning, Inc., a Delaware
corporation (the "Company"), at the exercise price of Three Dollars ($3.00) per
share (the "Exercise Price") at any time from and after the date hereof to and
including the third anniversary of the date of this Warrant (this "Warrant"),
50,000 shares of the Company's common stock, par value $0.001 per share ("Common
Stock"). The Exercise Price shall be subject to adjustment as provided in
Section 5 hereof.
This Warrant is one of several Warrants dated of even date herewith and
issued by the Company (collectively, the "Warrants") as part of an offering of
60 (subject to increase to 110) units (the "Units") that was conducted by the
Company and Murphy & Durieu, the placement agent for the offering, on a best
efforts basis. Each Unit consists of one (1) Warrant exercisable for 50,000
shares of Common Stock and one (1) Convertible Redeemable Subordinated Note
(collectively, the "Notes").
This Warrant is subject to the following provisions, terms and conditions:
1. (a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part, by written notice of exercise delivered to
the Company and by the surrender of this Warrant (properly endorsed if required)
at the principal office of the Company at 2999 North 44th Street, Suite 650,
Phoenix, Arizona 85018 (or such other location as the Company may designate by
notice in writing to the Holder hereof) and upon payment to it by certified
check of the Exercise Price for the shares of Common Stock to be issued upon
exercise (the "Warrant Shares"). The Company shall not be required to issue
fractions of shares of Common Stock upon exercise of this Warrant. If any
fraction of a share would, but for this Section, be issuable upon any exercise
1
of this Warrant, and if the Company shall have elected not to issue such
fraction of a share, in lieu of such fractional share the Company shall pay to
the Holder, in cash, an amount equal to such fraction of the fair market value
per share of outstanding Common Stock of the Company on the Business Day
immediately prior to the date of such exercise (the fair market value for such
purpose shall be the closing price of the Common Stock on the principal stock
exchange on which the Common Stock is then traded or the principal quotation
system in which bid and ask prices for the Common Stock are then maintained).
The Company agrees that the shares so purchased shall be and are deemed to be
issued to the Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment tendered for such shares as aforesaid. Subject to the provisions of the
next succeeding paragraph, certificates for the shares of stock so purchased
(bearing an appropriate legend to indicate that the shares have not been
registered under securities laws) shall be delivered to the Holder hereof within
a reasonable time, not exceeding 10 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant reflecting the shares, if any, as to which this Warrant shall not
then have been exercised shall also be delivered to the Holder hereof within
such time.
(b) This Warrant may be redeemed in whole, but not in part, at the election
of the Company for the price of $0.001 per share of Common Stock for which this
Warrant is exercisable at any time after such time as the closing price of the
Common Stock (as quoted on the American Stock Exchange, the NASDAQ Stock Market,
or such other national exchange, if any, on which the Common Stock is then
quoted) has equaled or exceeded $5.50 per share for a period of twenty (20)
consecutive trading days. The Company shall provide Holder with written notice
(the "Redemption Notice") at least thirty (30) days prior to the date this
Warrant shall be redeemed (such date of redemption, the "Redemption Date") of
its intent to redeem this Warrant. The Redemption Notice shall specify the
Redemption Date. Nothing contained herein shall be construed to prevent Holder
from exercising this Warrant subsequent to Holder's receipt of the Redemption
Notice but prior to the Redemption Date. Upon redemption, Holder (or the then
current holder of this Warrant) shall be obligated to deliver this Warrant to
the Company for cancellation and the Company shall be obligated to deliver to
Holder (or the then current holder of this Warrant) a check in an amount equal
to the product of (i) $0.001 multiplied by (ii) the number of shares of Common
Stock for which this Warrant is then exercisable.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions of this Agreement and the
restrictive legend under the heading "Restriction on Transfer."
3. The Holder acknowledges that this Warrant as well as the Warrant Shares
for which this Warrant may be exercised, have not been and, except as otherwise
provided herein, will not be registered under the Securities Act of 1933, as
amended (the "Act"), or qualified under applicable state securities laws and
that the transferability thereof is restricted by the registration provisions of
the Act as well as such state laws. The Holder represents that it is acquiring
the Warrant and will acquire the Warrant Shares for its own account, for
investment purposes only and not with a view to resale or other distribution
2
thereof, nor with the intention of selling, transferring or otherwise disposing
of all or any part of such securities for any particular event or circumstance,
except selling, transferring or disposing of them upon full compliance with all
applicable provisions of the Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Rules and Regulations promulgated by the
Securities and Exchange Commission (the "Commission") thereunder, and any
applicable state securities laws. The Holder further understands and agrees that
(i) neither the Warrant nor the Warrant Shares may be sold unless they are
subsequently registered under the Act and qualified under any applicable state
securities laws or, in the opinion of the Company's counsel, an exemption from
such registration and qualification is available; (ii) any routine sales of the
Company's securities made in reliance upon Rule 144 promulgated by the
Commission under the Act, can be effected only in the amounts set forth in and
pursuant to the other terms and conditions, including applicable holding
periods, of that Rule; and (iii) except as otherwise set forth herein, the
Company is under no obligation to register the Warrant or the Warrant Shares on
their behalf or to assist it in complying with any exemption from registration
under the Act. The Holder agrees that each certificate representing any Warrant
Shares for which this Warrant may be exercised will bear on its face a legend in
substantially the following form:
These securities have not been registered under the
Securities Act of 1933 or qualified under any state
securities laws. They may not be sold, hypothecated or
otherwise transferred in the absence of an effective
registration statement under that Act or qualification under
applicable state securities laws without an opinion
acceptable to counsel to the Company that such registration
and qualification are not required.
4. The Company covenants and agrees that:
(a) all shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be duly authorized and issued,
fully paid and nonassessable and free from all preemptive rights of any
stockholder, and from all taxes, liens and charges with respect to the issue
thereof (other than transfer taxes);
(b) during the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized, and reserved
for the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock to
provide for the exercise of the rights represented by this Warrant; and
(c) during the period within which the rights represented by this Warrant
may be exercised, the Company further will use reasonable best efforts to
maintain the eligibility of the Common Stock for listing on the American Stock
Exchange and quotation on the domestic over-the- counter market and use
reasonable best efforts to keep the Common Stock so listed and quoted.
5. (a) If the Company shall, after the date of issuance of this Warrant,
subdivide its outstanding shares of Common Stock into a greater number of shares
or consolidate its outstanding shares of Common Stock into a smaller number of
3
shares (any such event being called a "Common Stock Reorganization"), then the
Exercise Price shall be adjusted, effective at such time, to a number determined
by multiplying the Exercise Price then in effect by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
before such Common Stock Reorganization and the denominator of which shall be
the number of shares outstanding after giving effect to such Common Stock
Reorganization.
(b) If the Company shall after the date of issuance of this Warrant issue
or distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness, any other securities of the Company or any property
or assets other than cash, and if such issuance or distribution does not
constitute a Common Stock Reorganization (any such nonexcluded event being
herein called a "Non-Cash Dividend"), the Exercise Price shall be adjusted (but
not increased), effective immediately after the record date at which the holders
of shares of Common Stock are determined for purposes of such Non-Cash Dividend,
to a number determined by multiplying the Exercise Price immediately before such
Non-Cash Dividend by a fraction, the numerator of which shall be the last sales
price per share of outstanding Common Stock of the Company on such record date
less the then fair market value, as determined in good faith by the Board of
Directors of the Company, of the evidences of indebtedness, securities, cash, or
property or other assets issued or distributed in such Non-Cash Dividend with
respect to one share of Common Stock and the denominator of which shall be the
last sales price per share of outstanding Common Stock on such record date.
(c) If after the date of issuance of this Warrant there shall be any
consolidation or merger to which the Company is a party, other than a
consolidation or a merger in which the Company is a continuing corporation and
which does not result in any reclassification of, or change (other than a Common
Stock Reorganization or a change in par value) in, outstanding shares of Common
Stock, or any sale or conveyance of the property of the Company as an entirety
or substantially as an entirety (any such event being called a "Capital
Reorganization"), then, effective upon the effective date of such Capital
Reorganization, the Holder shall have the right to purchase, upon exercise of
this Warrant and in lieu of the shares of Common Stock immediately theretofore
purchasable hereunder, the kind and amount of shares of stock and other
securities and property (including cash) which the Holder would have owned or
have been entitled to receive after such Capital Reorganization if this Warrant
had been exercised immediately prior to such Capital Reorganization, assuming
such holder (i) is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or conveyance was made, as the case may be ("constituent person") and (ii)
failed to exercise his rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such Capital Reorganization
(provided that if the kind or amount of securities, cash or other property
receivable upon such Capital Reorganization is not the same for each share of
Common Stock held immediately prior to such consolidation, merger, sale or
conveyance by other than a constituent person or an affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this paragraph the kind and
amount of shares of stock and other securities or other property (including
cash) receivable upon such Capital Reorganization shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
As a condition to effecting any Capital Reorganization, the Company or the
4
successor or surviving corporation, as the case may be, shall execute and
deliver to the Holder an agreement as to the Holder's rights in accordance with
this Section 5(c), providing for subsequent adjustments as nearly equivalent as
may be practicable to the adjustments provided for in this Section 5. The
provisions of this Section 5(c) shall similarly apply to successive Capital
Reorganizations.
(d) If after the date of the issuance of this Warrant the Company shall
issue by reclassification of its shares of Common Stock other securities of the
Company, then the number of shares of Common Stock purchasable upon exercise of
the Warrant immediately prior to such issuance shall be adjusted so that the
Holder upon exercise hereof shall be entitled to receive the kind and number of
shares of Common Stock or other securities of the Company which it would have
owned or have been entitled to receive after such issuance, had this Warrant
been exercised immediately prior to such issuance or any record date with
respect thereto. An adjustment made pursuant to this Section 5(d) shall become
effective upon the date of the issuance retroactive to the record date with
respect thereto, if any. Such adjustment shall be made successively whenever
such an issuance is made.
(e) (i) Any adjustments pursuant to this Section 5 shall be made
successively whenever an event referred to herein shall occur.
(ii) If the Company shall set a record date to determine the holders
of shares of Common Stock for purposes of a Common Stock Reorganization,
Non-Cash Dividend or Capital Reorganization, and shall legally abandon such
action prior to effecting such action, then no adjustment shall be made
pursuant to this Section 5 in respect of such action.
(iii) No adjustment in the Exercise Price shall be made hereunder
unless such adjustment decreases such price by one percent or more, 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 serve to adjust such price by one
percent or more.
(iv) No adjustment in the Exercise Price shall be made hereunder if
such adjustment would reduce the exercise price to an amount below par
value of the Common Stock, which par value shall initially be $0.001 per
share of Common Stock.
(f) As a condition precedent to the taking of any action which would
require an adjustment pursuant to this Section 5, the Company shall take any
action which may be necessary, including obtaining regulatory approvals or
exemptions, in order that the Company may thereafter validly and legally issue
as fully paid and nonassessable all shares of Common Stock which the Holder is
entitled to receive upon exercise thereof.
(g) Promptly after an adjustment or readjustment pursuant to this Section 5
becomes determinable, the Company shall give notice to the Holder of any action
which requires an adjustment or readjustment pursuant to this Section 5,
5
describing such event in reasonable detail and specifying the record date or
effective date, if determinable, the required adjustment and the computation
thereof, if applicable. If the Holder fails to object to any such notice within
30 days of receipt of the Company's notice, the adjustment will be deemed
accepted by the Holder.
6. Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Company (the original Holder's indemnity being satisfactory
indemnity in the event of loss, theft or destruction of any Warrant owned by
such Holder), or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Company will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of shares of Common
Stock as provided for in such lost, stolen, destroyed or mutilated Warrant.
7. The Holder shall not, as holder of this Warrant, be entitled to vote or
to receive dividends or be deemed the holder of Common Stock that may at any
time be issuable upon exercise of this Warrant for any purpose whatsoever, nor
shall anything contained herein be construed to confer upon the Holder, as
holder of this Warrant, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (including without limitation, a Capital Reorganization), or to
receive notice of meetings, or to receive dividends or subscription rights,
until the Holder shall have exercised this Warrant and been issued shares of
Common Stock in accordance with the provisions hereof.
8. The Holder of this Warrant, by acceptance hereof, agrees to give written
notice to the Company before transferring this Warrant or transferring any
Common Stock issuable or issued upon the exercise hereof of such Holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Warrant or such Holder's intention as to the disposition to be made of
shares of Common Stock issuable or issued upon the exercise hereof. Such Holder
shall also provide the Company with an opinion of counsel reasonably
satisfactory to the Company to the effect that the proposed transfer of this
Warrant or disposition of shares received upon exercise hereof may be effected
without registration or qualification (under any Federal or State law) and
without causing the loss of the applicable securities law registration
exemption(s) relied upon by the Company when it issued this Warrant. Upon
receipt of such written notice and opinion by the Company, such Holder shall be
entitled to transfer this Warrant, or to exercise this Warrant in accordance
with its terms and dispose of the shares received upon such exercise or to
dispose of shares of Common Stock received upon the previous exercise of this
Warrant, all in accordance with the terms of the notice delivered by such Holder
to the Company, provided that an appropriate legend respecting the aforesaid
restrictions on transfer and disposition shall be endorsed on this Warrant or
the certificates for such shares.
9. Subject to the provisions of Section 8 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Holder hereof, at the principal office of the Company by the Holder hereof in
person or by its duly authorized attorney, upon surrender of this Warrant
properly endorsed and this Warrant is exchangeable, upon the surrender hereof by
6
the Holder hereof at the office of the Company, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the rights to subscribe for and purchase such number of
shares as shall be designated by said Holder hereof at the time of such
surrender. Each taker and Holder of this Warrant, by taking or holding the same,
consents and agrees that the bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered Holder hereof as the owner for
all purposes.
10. (a) Upon receipt of notice (the "Registration Request Notice")
requesting registration under the Securities Act of Underlying Shares (defined
below) from the holders of Notes and Warrants representing more than fifty
percent (50%) of the aggregate Underlying Shares, on only one occasion, at any
time commencing on the date hereof and terminating two years thereafter, the
Company will offer to Holder the opportunity to include its Underlying Shares in
such registration. The Company will use its reasonable best efforts to file with
the Commission as promptly as practicable, a registration statement (the "Demand
Registration Statement"), and will use its reasonable best efforts to have the
Demand Registration Statement declared effective and remain effective until the
earliest of (i) two years after the date it is declared effective, (ii) the date
all the Underlying Shares registered thereby have been sold, or, (iii) in the
reasonable opinion of the Company's counsel, the Underlying Shares may be sold
publicly without registration. The Company will also use its reasonable best
efforts to qualify the Underlying Shares under the securities laws of the state
where Holder resides provided the Company is not required to execute a general
consent to service or to qualify to do business in such state. This offer to
Holder shall be made within twenty (20) days after the Company receives the
Registration Request Notice. If Holder elects to include its Underlying Shares
in the Demand Registration Statement, it will, in a timely fashion, provide the
Company and its counsel with such information and execute such documents as the
Company's counsel may reasonably require to prepare and process the Demand
Registration Statement, it shall have no further rights to registration of its
Underlying Shares under this Section 9(a). In the event that the Company has
filed a registration statement with the Commission relating to its securities
within ninety (90) days prior to its receipt of the Registration Request Notice,
which registration statement has not been declared effective, Holder agrees that
the Company can thereafter delay the filing of the Demand Registration Statement
for a period not to exceed ninety (90) days. Anything to the contrary
notwithstanding, in no event shall the Company be required to file a Demand
Registration Statement with the Commission prior to one hundred and eighty (180)
days after the date hereof. As used in this Section 10, "Underlying Shares"
means (i) shares of Common Stock issuable upon conversion of the Notes and (ii)
the Warrant Shares.
(b) If at any time after the date hereof, the Company proposes to file a
registration statement under the Act with respect to any of its securities
(except one relating to employee benefit plans or a merger, acquisition or
similar transaction), it shall give written notice of its intention to effect
7
such filing to the Holder at least 30 days prior to filing such registration
statement (the "Piggyback Registration Statement"). If the Underlying Shares
have not been previously registered and the Holder desires to include its
Underlying Shares in the Piggyback Registration Statement, it shall notify the
Company in writing within 15 days after receipt of such notice from the Company,
in which event the Company shall include the Holder's Underlying Shares in the
Piggyback Registration Statement. If the Holder elects to include its Underlying
Shares in the Piggyback Registration Statement as set forth herein, it shall, in
a timely fashion, provide the Company and its counsel with such information and
execute such documents as its counsel may reasonably require to prepare and
process the Piggyback Registration Statement.
(c) The Company will provide the Holder with a copy of the Demand
Registration Statement or Piggyback Registration Statement, as the case may be,
and any amendments thereto, and copies of the final prospectus included therein
in such quantities as may reasonably be required to permit the Holder to sell
its Underlying Shares after the Demand Registration Statement or Piggyback
Registration Statement is declared effective by the Commission.
(d) The Company will bear all expenses (except underwriting discounts and
commission, if any, and the legal fees and expenses, if any, of counsel to the
Holder) necessary and incidental to the performance of its obligations under
this Section 10.
(e) The Company and the Holder, if the Holder's Underlying Shares are
included in a Demand Registration Statement or Piggyback Registration Statement
pursuant to this Section 10, shall provide customary and appropriate cross
indemnities to each other covering the information supplied by the indemnifying
party for inclusion in such Demand Registration Statement or Piggyback
Registration Statement.
(f) Anything to the contrary notwithstanding, the Holder agrees that as a
condition for the Company registering the Underlying Shares, in the event that
the Piggyback Registration Statement in which the Underlying Shares are included
relates to an offering to be effected through or with the assistance of an
underwriter, the Holder will consent to restrict the sale of the Underlying
Shares or reduce (on a pro rata basis with shares of Common Stock issued to any
other stockholders of the Company prior to or after the date hereof, and that,
as of the time of determination, have presently exercisable registration rights
and are requested by such stockholders to be included in such Piggyback
Registration Statement) the number of Underlying Shares that may be included in
such registration in accordance with the requirements of such underwriter.
(g) Anything to the contrary notwithstanding, the Company shall not be
required to register any Underlying Shares or provide notices under this Section
10 to a Holder whose Underlying Shares are either (i) are covered by a then
currently effective registration statement or (ii) in the reasonable opinion of
the Company's counsel, may be sold pursuant to the exemption from registration
provided by Section (k) of Rule 144 promulgated under the Act.
8
11. Any notices required or permitted to be given under the terms of this
Warrant shall be sent by certified or registered mail (with return receipt
requested) or delivered personally or by courier (including a nationally
recognized overnight delivery service) or by facsimile transmission. Any notice
so given shall be deemed effective three days after being deposited in the U.S.
Mail, or upon receipt if delivered personally or by courier or facsimile
transmission, in each case addressed to a party at the following address or such
other address as each such party furnishes to the other in accordance with this
Section 11:
If to the Company: EDT Learning, Inc.
2999 North 44th Street
Suite 650
Phoenix, AZ 85018
Telephone: (602) 952-1200
Facsimile: (602) 952-0544
Attention: President
If to the Holder: HSBC Global Custody Nominee (U.K.) Limited
Designation No. 896414
Mariner House
Pepys Street
London EC3N 4DA
Copies to: Renaissance Capital Group, Inc.
Lynne Marie True
8080 N. Central Expressway
Suite 210, LB-59
Dallas, TX 75206
Telephone: (214) 891-8294
Sinclair Henderson, Ltd.
Attn: Liz Batson
23 Cathedral Yard
Exeter EX11HB
12. (a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
the Holder are cumulative and not exclusive of any rights or remedies which it
would otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Holder.
(b) Any such amendment, modification or waiver effected pursuant to this
Section 12 shall be binding upon the Holder of the Warrant and Common Stock
9
issuable upon exercise, upon each future holder thereof and upon the Company. In
the event of any such amendment, modification or waiver the Company shall give
prompt notice thereof to the Holder and, if appropriate, notation thereof shall
be made on any Warrant thereafter surrendered for registration of transfer or
exchange. No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
13. All representations, warranties and covenants made by the Company
herein or in any certificate or other instrument delivered by or on behalf of it
in connection with the Warrant shall be considered to have been relied upon by
the Holder and shall survive the issuance and delivery of the Warrant,
regardless of any investigation made by the Holder, and shall continue in full
force and effect so long as any Warrant is outstanding. All statements in any
such certificate or other instrument shall constitute representations and
warranties hereunder.
14. All covenants, stipulations, promises and agreements contained in this
Warrant by or on behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
15. In case any one or more of the provisions contained in this Warrant
shall be invalid, illegal or unenforceable in any respect, the validity,
legality or enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby. The parties shall
endeavor in good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
16. This Warrant shall be governed by and construed in accordance with the
substantive laws (but not the rules governing conflicts of laws) of the State of
Delaware.
[Intentionally left blank.]
10
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and this Warrant to be dated as of March 29, 2002.
EDT LEARNING, INC.
By _______/S/____________________
James M. Powers, Jr.
President and Chief Executive Officer
HSBC Global Custody Nominee (U.K.) Limited, Designation No. 896414 - 500,000
11
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________ all of the rights of the undersigned under this
Warrant, with respect to the number of shares set forth below, and appoints
___________________________ to transfer this Warrant on the books of EDT
Learning, Inc. with the full power of substitution in the premises.
Name of Assignee Address Number of Shares
Dated: ______________________________
In the presence of:
------------------------------------- ------------------------------------
(Signature must conform in all respects to the name
of the holder as specified on the face of this
Warrant without alteration, enlargement or any change
whatsoever, and the signature must be guaranteed in
the usual manner.)
12
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such
Holder Desires to Exercise this Warrant in Whole
or in Part:
To: EDT Learning, Inc. (the "Company")
The undersigned __________________________________________________________
Please insert Social Security or other
identifying number of Subscriber: ________________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ____________ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the Company in
the amount of $____________, such payment being made as provided on the face of
this Warrant.
Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below.
The undersigned requests that certificates for such shares of Common Stock
be issued as follows:
Name: _________________________________________
Address: _____________________________________
Deliver to: __________________________________
Address: ______________________________________
Dated: _______________________ Signature _________________________________
Note: The signature on this Subscription Form must
correspond with the name as written upon the face of
this Warrant in every particular, without alteration
or enlargement or any change whatever.
13