Exhibit 10.2
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
Original Issue Date: March 31, 2006
Original Conversion Price (subject to adjustment herein): $0.25
$_______________
15% SENIOR SECURED CONVERTIBLE DEBENTURE
DUE MARCH 31, 2010
THIS 15% SENIOR SECURED CONVERTIBLE DEBENTURE is one of a series of duly
authorized and issued 15% Senior Secured Convertible Debentures of Trinity
Learning Corporation, a Utah corporation, having a principal place of business
at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ (the "Company"),
-------
designated as its 15% Senior Secured Convertible Debenture, due March 31, 2010
(the "Debentures").
----------
FOR VALUE RECEIVED, the Company promises to pay to ________________________
or its registered assigns (the "Holder"), or shall have paid pursuant to the
------
terms hereunder, the principal sum of $_______________ by March 31, 2010, or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder (the "Maturity Date"), and to pay interest to the Holder on
-------------
the aggregate unconverted and then outstanding principal amount of this
Debenture in accordance with the provisions hereof. This Debenture is subject
to the following additional provisions:
Section 1. Definitions. For the purposes hereof, in addition to the
---------- -----------
terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise
defined herein have the meanings given to such terms in the Purchase Agreement,
and (b) the following terms shall have the following meanings:
"Alternate Consideration" shall have the meaning set forth in Section 5(d).
-----------------------
"Base Conversion Price" shall have the meaning set forth in Section 5(b).
-----------------------
"Business Day" means any day except Saturday, Sunday and any day which shall be
-------------
a federal legal holiday in the United States or a day on which banking
institutions in the State of New York are authorized or required by law or other
government action to close.
"Buy-In" shall have the meaning set forth in Section 4(d)(v).
------
"Change of Control Transaction" means the occurrence after the date hereof of
--------------------------------
any of (i) an acquisition after the date hereof by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, or (ii) the Company merges into or
consolidates with any other Person, or any Person merges into or consolidates
with the Company and, after giving effect to such transaction, the stockholders
of the Company immediately prior to such transaction own less than 66% of the
aggregate voting power of the Company or the successor entity of such
transaction, or (iii) the Company sells or transfers its assets, as an entirety
or substantially as an entirety, to another Person and the stockholders of the
Company immediately prior to such transaction own less than 66% of the aggregate
voting power of the acquiring entity immediately after the transaction, (iv) a
replacement at one time or within a three year period of more than one-half of
the members of the Company's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on the
date hereof (or by those individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors who are members on the date
hereof), or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i) through (iv).
"Common Stock" means the common stock, no par value per share, of the Company
-------------
and stock of any other class of securities into which such securities may
hereafter have been reclassified or changed into.
"Conversion Date" shall have the meaning set forth in Section 4(a).
----------------
"Conversion Price" shall have the meaning set forth in Section 4(b).
-----------------
"Conversion Shares" means the shares of Common Stock issuable upon conversion of
-----------------
this Debenture or as payment of interest in accordance with the terms.
"Debenture Register" shall have the meaning set forth in Section 2(c).
-------------------
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
------------------
"Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b).
--------------------------
"Effectiveness Period" shall have the meaning given to such term in the
---------------------
Registration Rights Agreement.
"Equity Conditions" shall mean, during the period in question, (i) the Company
------------------
shall have duly honored all conversions and redemptions scheduled to occur or
occurring by virtue of one or more Notice of Conversions of the Holder, if any,
(ii) all liquidated damages and other amounts owing to the Holder in respect of
this Debenture shall have been paid,(iii) there is an effective Registration
Statement pursuant to which the Holder is permitted to utilize the prospectus
thereunder to resell all of the shares issuable pursuant to the Transaction
Documents (and the Company believes, in good faith, that such effectiveness will
continue uninterrupted for the foreseeable future), (iv) the Common Stock is
trading on the Trading Market and all of the shares issuable pursuant to the
Transaction Documents are listed for trading on a Trading Market (and the
Company believes, in good faith, that trading of the Common Stock on a Trading
Market will continue uninterrupted for the foreseeable future), (v) there is a
sufficient number of authorized but unissued and otherwise unreserved shares of
Common Stock for the issuance of all of the shares issuable pursuant to the
Transaction Documents, (vi) there is then existing no Event of Default or event
which, with the passage of time or the giving of notice, would constitute an
Event of Default, (vii) the issuance of the shares in question (or, in the case
of a redemption, the shares issuable upon conversion in full of the redemption
amount) to the Holder would not violate the limitations set forth in Section
4(c)(i) and Section 4(c)(ii) and (viii) no public announcement of a pending or
proposed Fundamental Transaction, Change of Control Transaction or acquisition
transaction has occurred that has not been consummated.
"Event of Default" shall have the meaning set forth in Section 8.
------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and the
-------------
rules and regulations promulgated thereunder.
"Fundamental Transaction" shall have the meaning set forth in Section 5(d).
------------------------
"Interest Conversion Rate" means the lesser of (a) the Conversion Price and (b)
-------------------------
the 90% of the lesser of (i) the average of the 20 VWAPs immediately prior to
the applicable Interest Payment Date or (ii) the average of the 20 VWAPs
immediately prior to the date the applicable interest payment shares are issued
and delivered if after the Interest Payment Date.
"Interest Conversion Shares" shall have the meaning set forth in Section 2(a).
----------------------------
"Interest Notice Period" shall have the meaning set forth in Section 2(a).
------------------------
"Interest Payment Date" shall have the meaning set forth in Section 2(a).
-----------------------
"Interest Share Amount" shall have the meaning set forth in Section 2(a).
-----------------------
"Late Fees" shall have the meaning set forth in Section 2(d).
----------
"Mandatory Default Amount" shall equal the sum of (i) the greater of: (A) 130%
-------------------------
of the principal amount of this Debenture to be prepaid, plus all accrued and
unpaid interest thereon, or (B) the principal amount of this Debenture to be
prepaid, plus all other accrued and unpaid interest hereon, divided by the
Conversion Price on (x) the date the Mandatory Default Amount is demanded or
otherwise due or (y) the date the Mandatory Default Amount is paid in full,
whichever is less, multiplied by the VWAP on (x) the date the Mandatory Default
Amount is demanded or otherwise due or (y) the date the Mandatory Default Amount
is paid in full, whichever is greater, and (ii) all other amounts, costs,
expenses and liquidated damages due in respect of this Debenture.
"Monthly Conversion Period" shall have the meaning set forth in Section 6(a)
---------------------------
hereof.
"Monthly Conversion Price" shall have the meaning set forth in Section 6(a)
--------------------------
hereof.
"Monthly Redemption" shall mean the redemption of this Debenture pursuant to
-------------------
Section 6(a) hereof.
"Monthly Redemption Amount" shall mean, as to a Monthly Redemption, $[1/24].
---------------------------
"Monthly Redemption Date" means the 1st of each month, commencing immediately
-------------------------
after the two year anniversary of the Original Issue date and ending upon the
full redemption of this Debenture.
"Monthly Redemption Notice" shall have the meaning set forth in Section
---------------------------
[6(a) hereof.
"Monthly Redemption Period" shall have the meaning set forth in Section [6(a)
---------------------------
hereof.
"Monthly Redemption Share Amount" shall have the meaning set forth in Section
----------------------------------
6(a) hereof.
"New York Courts" shall have the meaning set forth in Section 9(d).
-----------------
"Notice of Conversion" shall have the meaning set forth in Section 4(a).
----------------------
"Original Issue Date" shall mean the date of the first issuance of the
---------------------
Debentures regardless of the number of transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence such Debenture.
"Permitted Indebtedness" shall mean (a) the Indebtedness existing on the
-----------------------
Original Issue Date and set forth on Schedule 3.1(aa) attached to the Purchase
Agreement and (b) lease obligations and purchase money Indebtedness of up to
$__________, in the aggregate, incurred in connection with the acquisition of
capital assets and lease obligations with respect to newly acquired or leased
assets.
"Permitted Lien" shall mean the individual and collective reference to the
---------------
following: (a) Liens for taxes, assessments and other governmental charges or
levies not yet due or Liens for taxes, assessments and other governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves (in the good faith judgment of the management of the
Company) have been established in accordance with GAAP, (b) Liens imposed by law
which were incurred in the ordinary course of business, such as carriers',
warehousemen's and mechanics' Liens, statutory landlords' Liens, and other
similar Liens arising in the ordinary course of business, and (x) which do not
individually or in the aggregate materially detract from the value of such
property or assets or materially impair the use thereof in the operation of the
business of the Company and its consolidated Subsidiaries or (y) which are being
contested in good faith by appropriate proceedings, which proceedings have the
effect of preventing the forfeiture or sale of the property or asset subject to
such Lien and (c) Liens incurred in connection with Permitted Indebtedness under
clause (b) thereunder provided that such Liens are not secured by assets of the
Company or its Subsidiaries other than the assets so acquired or leased.
"Person" means a corporation, an association, a partnership, organization, a
------
business, an individual, a government or political subdivision thereof or a
governmental agency.
"Pre-Redemption Conversion Shares" shall have the meaning set forth in Section
----------------------------------
6(a) hereof.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of March
-------------------
31, 2006, to which the Company and the original Holder are parties, as amended,
modified or supplemented from time to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights Agreement, dated
-------------------------------
as of the date of the Purchase Agreement, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Statement" means a registration statement meeting the requirements
----------------------
set forth in the Registration Rights Agreement, covering among other things the
resale of the Conversion Shares and naming the Holder as a "selling stockholder"
thereunder.
"Securities Act" means the Securities Act of 1933, as amended, and the rules and
--------------
regulations promulgated thereunder.
"Shareholder Approval" shall have the meaning given to such term in the Purchase
--------------------
Agreement.
"Subsidiary" shall have the meaning given to such term in the Purchase
----------
Agreement.
"Threshold Period" shall have the meaning given to such term in Section 6(d).
-----------------
"Trading Day" means a day on which the Common Stock is traded on a Trading
------------
Market.
"Trading Market" means the following markets or exchanges on which the Common
---------------
Stock is listed or quoted for trading on the date in question: the Nasdaq
SmallCap Market, the American Stock Exchange, the New York Stock Exchange or the
Nasdaq National Market.
"Transaction Documents" shall have the meaning set forth in the Purchase
----------------------
Agreement.
"VWAP" means, for any date, the price determined by the first of the following
----
clauses that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg Financial L.P.
(based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(b) if the Common Stock is not then listed or quoted on a Trading Market and if
prices for the Common Stock are then quoted on the OTC Bulletin Board, the
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
are then reported in the "Pink Sheets" published by the Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported; or (d) in
all other cases, the fair market value of a share of Common Stock as determined
by an independent appraiser selected in good faith by the Holder and reasonably
acceptable to the Company.
Section 2. Interest.
---------- --------
a) Payment of Interest in Cash or Kind. The Company shall pay interest to
--------------------------------------
the Holder on the aggregate unconverted and then outstanding principal amount of
this Debenture at the rate of 15% per annum, payable semi annually on
January 1 and July 1, beginning on the Original Issue Date, on each Monthly
Redemption Date (as to that principal amount then being redeemed), on each
Conversion Date (as to that principal amount then being converted), and on the
Maturity Date (except that, if any such date is not a Business Day, then such
payment shall be due on the next succeeding Business Day) (each such date, an
"Interest Payment Date"), in cash or shares of Common Stock at the Interest
----------------------
Conversion Rate, or a combination thereof (the amount to be paid in shares, the
"Interest Share Amount"); provided, however, (i) payment in shares of Common
----------------------- -------- -------
Stock may only occur if during the 20 Trading Days immediately prior to the
applicable Interest Payment Date (the "Interest Notice Period") and through and
including the date such shares of Common Stock are issued to the Holder all of
the Equity Conditions, unless waived by the Holder in writing, have been met and
the Company shall have given the Holder notice in accordance with the notice
requirements set forth below and (ii) as to such Interest Payment Date, prior to
the such Interest Notice Period (but not more 5 Trading Days prior to the
commencement of the Interest Notice Period), the Company shall have delivered to
the Holder's account with The Depository Trust Company a number of shares of
Common Stock to be applied against such Interest Share Amount equal to the
quotient of (x) the applicable Interest Share Amount divided by (y) the then
Conversion Price (the "Interest Conversion Shares").
----------------------------
b) Company's Election to Pay Interest in Kind. Subject to the terms and
----------------------------------------------
conditions herein, the decision whether to pay interest hereunder in shares of
Common Stock or cash shall be at the discretion of the Company. Prior to the
commencement of an Interest Notice Period, the Company shall provide the Holder
with written notice of its election to pay interest hereunder on the applicable
Interest Payment Date either in cash, shares of Common Stock or a combination
thereof (the Company may indicate in such notice that the election contained in
such notice shall continue for later periods until revised) and the Interest
Share Amount as to the applicable Interest Payment Date. During any Interest
Notice Period, the Company's election (whether specific to an Interest Payment
Date or continuous) shall be irrevocable as to such Interest Payment Date.
Subject to the aforementioned conditions, failure to timely provide such written
notice shall be deemed an election by the Company to pay the interest on
such Interest Payment Date in cash. At any time the Company delivers a notice
to the Holder of its election to pay the interest in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election. The aggregate number of shares of Common Stock otherwise issuable to
the Holder on an Interest Payment Date shall be reduced by the number of
Interest Conversion Shares previously issued to the Holder in connection with
such Interest Payment Date.
c) Interest Calculations. Interest shall be calculated on the basis of a
----------------------
360-day year and shall accrue daily commencing on the Original Issue Date until
payment in full of the principal sum, together with all accrued and unpaid
interest and other amounts which may become due hereunder, has been made.
Payment of interest in shares of Common Stock (other than the Interest
Conversion Shares issued prior to an Interest Notice Period) shall otherwise
occur pursuant to Section 4(d)(ii) and only for purposes of the payment of
interest in shares, the Interest Payment Date shall be deemed the Conversion
Date. Interest shall cease to accrue with respect to any principal amount
converted, provided that the Company in fact delivers the Conversion Shares
within the time period required by Section 4(d)(ii). Interest hereunder will be
paid to the Person in whose name this Debenture is registered on the
records of the Company regarding registration and transfers of this Debenture
(the "Debenture Register"). Except as otherwise provided herein, if at any time
------------------
the Company pays interest partially in cash and partially in shares of Common
Stock to the holders of the Debentures, then such payment shall be distributed
ratably among the holders of the Debentures based on their (or their
predecessor's initial purchases of Debentures pursuant to the Purchase
Agreement.
d) Late Fee. All overdue accrued and unpaid interest to be paid hereunder
---------
shall entail a late fee at the rate of 18% per annum (or such lower maximum
amount of interest permitted to be charged under applicable law) ("Late Fees")
---------
which will accrue daily, from the date such interest is due hereunder through
and including the date of payment. Notwithstanding anything to the contrary
contained herein, if on any Interest Payment Date the Company has elected to pay
interest in Common Stock and is not able to pay accrued interest in the
form of Common Stock because it does not then satisfy the conditions for payment
in the form of Common Stock set forth above, then, at the option of the Holder,
the Company, in lieu of delivering either shares of Common Stock pursuant to
this Section 2 or paying the regularly scheduled cash interest payment, shall
deliver, within three Trading Days of each applicable Interest Payment Date, an
amount in cash equal to the product of the number of shares of Common Stock
otherwise deliverable to the Holder in connection with the payment of interest
due on such Interest Payment Date and the highest VWAP during the period
commencing on the Interest Payment Date and ending on the Trading Day prior to
the date such payment is made. If any Interest Conversion Shares are issued to
the Holder in connection with an Interest Payment Date and are not applied
against an Interest Share Amount, then the Holder shall promptly return such
excess shares to the Company.
e) Prepayment. Except as otherwise set forth in this Debenture, the Company
----------
may not prepay any portion of the principal amount of this Debenture
without the prior written consent of the Holder.
Section 3. Registration of Transfers and Exchanges.
----------- -------------------------------------------
a) Different Denominations. This Debenture is exchangeable for an equal
------------------------
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same. No service charge will be
made for such registration of transfer or exchange.
b) Investment Representations. This Debenture has been issued subject to
---------------------------
certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance with
the Purchase Agreement and applicable federal and state securities laws and
regulations.
c) Reliance on Debenture Register. Prior to due presentment to the Company
--------------------------------
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 4. Conversion.
----------- ----------
a) Voluntary Conversion. At any time after the Original Issue Date until
---------------------
this Debenture is no longer outstanding, this Debenture shall be convertible
into shares of Common Stock at the option of the Holder, in whole or in part at
any time and from time to time (subject to the limitations on conversion set
forth in Section 4(c) hereof). The Holder shall effect conversions by
delivering to the Company the form of Notice of Conversion attached hereto as
Annex A (a "Notice of Conversion"), specifying therein the principal amount of
--------------------
this Debenture to be converted and the date on which such conversion is to be
effected (a "Conversion Date"). If no Conversion Date is specified in a Notice
---------------
of Conversion, the Conversion Date shall be the date that such Notice of
Conversion is provided hereunder. To effect conversions hereunder, the Holder
shall not be required to physically surrender this Debenture to the Company
unless the entire principal amount of this Debenture plus all accrued and unpaid
interest thereon has been so converted. Conversions hereunder shall have
the effect of lowering the outstanding principal amount of this Debenture in an
amount equal to the applicable conversion. The Holder and the Company shall
maintain records showing the principal amount converted and the date of such
conversions. The Company shall deliver any objection to any Notice of
Conversion within 1 Business Day of receipt of such notice. In the event of any
dispute or discrepancy, the records of the Holder shall be controlling and
determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of a portion of this
Debenture, the unpaid and unconverted principal amount of this Debenture may be
less than the amount stated on the face hereof.
b) Conversion Price. The conversion price in effect on any Conversion Date
-----------------
shall be equal to $0.25 (subject to adjustment herein)(the "Conversion Price").
----------------
c) Conversion Limitations.
-----------------------
i. Omitted.
--------
ii. Holder's Restriction on Conversion. The Company shall not effect any
-------------------------------------
conversion of this Debenture, and the Holder shall not have the right to convert
any portion of this Debenture, pursuant to Section 4(a) or otherwise, to
the extent that after giving effect to such conversion, the Holder (together
with the Holder's Affiliates), as set forth on the applicable Notice of
Conversion, would beneficially own in excess of 4.99% of the number of shares of
the Common Stock outstanding immediately after giving effect to such conversion.
For purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Debenture with respect
to which the determination of such sentence is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (A) conversion of
the remaining, nonconverted portion of this Debenture beneficially owned by the
Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or nonconverted portion of any other securities of the Company
(including, without limitation, any other Debentures or the Warrants) subject to
a limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its Affiliates. Except as set
forth in the preceding sentence, for purposes of this Section 4(c)(ii),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. To the
extent that the limitation contained in this section applies, the determination
of whether this Debenture is convertible (in relation to other securities owned
by the Holder) and of which a portion of this Debenture is convertible shall be
in the sole discretion of such Holder. To ensure compliance with this
restriction, the Holder will be deemed to represent to the Company each time it
delivers a Notice of Conversion that such Notice of Conversion has not violated
the restrictions set forth in this paragraph and the Company shall have no
obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 4(c)(ii),
in determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-Q or Form 10-K, as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the Company
or the Company's Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this
Debenture, by the Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The provisions of
this Section 4(c) may be waived by the Holder, at the election of the Holder,
upon not less than 61 days' prior notice to the Company, and the provisions of
this Section 4(c) shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver). The provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this Section 4(c) to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended 4.99% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.99% limitation. The limitations contained in this
paragraph shall apply to a successor holder of this Debenture. The holders of
Common Stock of the Company shall be third party beneficiaries of this Section
4(c) and the Company may not waive this Section 4(c) without the consent of
holders of a majority of its Common Stock.
d) Mechanics of Conversion
-------------------------
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The
-------------------------------------------------------------------
number of shares of Common Stock issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Debenture to be converted by (y) the Conversion Price.
ii. Delivery of Certificate Upon Conversion. Not later than three Trading
------------------------------------------
Days after any Conversion Date, the Company will deliver or cause to be
delivered to the Holder (A) a certificate or certificates representing the
Conversion Shares which shall be free of restrictive legends and trading
restrictions (other than those required by the Purchase Agreement) representing
the number of shares of Common Stock being acquired upon the conversion of this
Debenture (including, if the Company has given continuous notice pursuant to
Section 2(b) for payment of interest in shares of Common Stock at least 20
Trading Days prior to the date on which the Conversion Notice is delivered to
the Company, shares of Common Stock representing the payment of accrued interest
otherwise determined pursuant to Section 2 (a) but assuming that the
Interest Payment Period is the 20 Trading Days period immediately prior to the
date on which the Conversion Notice is delivered to the Company and excluding
for such issuance the condition that the Company deliver Interest Conversion
Shares as to such interest payment) and (B) a bank check in the amount of
accrued and unpaid interest (if the Company is required to pay accrued interest
in cash). The Company shall, if available and if allowed under applicable
securities laws, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions.
iii. Failure to Deliver Certificates. If in the case of any Notice of
----------------------------------
Conversion such certificate or certificates are not delivered to or as directed
by the applicable Holder by the third Trading Day after a Conversion Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the principal amount of this Debenture tendered for
conversion.
iv. Obligation Absolute; Partial Liquidated Damages. If the Company fails
-------------------------------------------------
for any reason to deliver to the Holder such certificate or certificates
pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date,
the Company shall pay to such Holder, in cash, as liquidated damages and
not as a penalty, for each $1000 of principal amount being converted, $10 per
Trading Day (increasing to $20 per Trading Day after 5 Trading Days after such
damages begin to accrue) for each Trading Day after such third Trading Day until
such certificates are delivered. The Company's obligations to issue and deliver
the Conversion Shares upon conversion of this Debenture in accordance with the
terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such Conversion Shares; provided,
however, such delivery shall not operate as a waiver by the Company of any such
action the Company may have against the Holder. In the event the Holder of this
Debenture shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or any one associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless, an injunction from
a court, on notice, restraining and or enjoining conversion of all or part of
this Debenture shall have been sought and obtained and the Company posts a
surety bond for the benefit of the Holder in the amount of 150% of the principal
amount of this Debenture outstanding, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Holder to the
extent it obtains judgment. In the absence of an injunction precluding the
same, the Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion. Nothing herein shall limit a ▇▇▇▇▇▇'s right to
pursue actual damages or declare an Event of Default pursuant to Section 8
herein for the Company's failure to deliver Conversion Shares within the period
specified herein and such Holder shall have the right to pursue all remedies
available to it at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.
v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon
-------------------------------------------------------------------------
Conversion.
--------
In addition to any other rights available to the Holder, if the Company
fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(d)(ii) by the third Trading Day after the
Conversion Date, and if after such third Trading Day the Holder is required by
its brokerage firm to purchase (in an open market transaction or otherwise)
Common Stock to deliver in satisfaction of a sale by such Holder of the
Conversion Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall (A) pay in cash to the Holder (in
------
addition to any remedies available to or elected by the Holder) the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the Common Stock so purchased exceeds (y) the product of (1) the
aggregate number of shares of Common Stock that such Holder anticipated
receiving from the conversion at issue multiplied by (2) the actual sale price
of the Common Stock at the time of the sale (including brokerage commissions, if
any) giving rise to such purchase obligation and (B) at the option of the
Holder, either reissue (if surrendered) this Debenture in a principal amount
equal to the principal amount of the attempted conversion or deliver to the
Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its delivery requirements under Section 4(d)(ii).
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted conversion of this
Debenture with respect to which the actual sale price of the Conversion Shares
at the time of the sale (including brokerage commissions, if any) giving rise to
such purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.
vi. Reservation of Shares Issuable Upon Conversion. The Company covenants
-------------------------------------------------
that it will at all times reserve and keep available out of its authorized and
unissued shares of Common Stock solely for the purpose of issuance upon
conversion of this Debenture and payment of interest on this Debenture, each as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (and the other holders of the
Debentures), not less than such number of shares of the Common Stock as shall
(subject to the terms and conditions set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 5)
upon the conversion of the outstanding principal amount of this Debenture and
payment of interest hereunder. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Registration
Statement is then effective under the Securities Act, registered for public sale
in accordance with such Registration Statement.
vii. Fractional Shares. Upon a conversion hereunder the Company shall not be
-----------------
required to issue stock certificates representing fractions of shares of
the Common Stock, but may if otherwise permitted, make a cash payment in respect
of any final fraction of a share based on the VWAP at such time. If the Company
elects not, or is unable, to make such a cash payment, the Holder shall be
entitled to receive, in lieu of the final fraction of a share, one whole share
of Common Stock.
viii. Transfer Taxes. The issuance of certificates for shares of the Common
--------------
Stock on conversion of this Debenture shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Debenture so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
Section 5. Certain Adjustments.
---------- --------------------
a) Stock Dividends and Stock Splits. If the Company, at any time while this
--------------------------------
Debenture is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of Common Stock (which, for
avoidance of doubt, shall not include any shares of Common Stock issued by the
Company pursuant to this Debenture, including as interest thereon), (B)
subdivides outstanding shares of Common Stock into a larger number of shares,
(C) combines (including by way of reverse stock split) outstanding shares of
Common Stock into a smaller number of shares, or (D) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then
the Conversion Price shall be multiplied by a fraction of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
b) Subsequent Equity Sales. If the Company or any Subsidiary thereof, as
-------------------------
applicable, at any time while this Debenture is outstanding, shall offer, sell,
grant any option to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue (or announce any offer, sale, grant
or any option to purchase or other disposition) any Common Stock or Common
Stock Equivalents entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the then Conversion Price (such lower price,
the "Base Conversion Price" and such issuances collectively, a "Dilutive
----------------------- --------
Issuance"), as adjusted hereunder (if the holder of the Common Stock or Common
---------
Stock Equivalents so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise, or due to warrants, options or rights per share which is
issued in connection with such issuance, be entitled to receive shares of Common
Stock at an effective price per share which is less than the Conversion Price,
such issuance shall be deemed to have occurred for less than the Conversion
Price on such date of the Dilutive Issuance), then the Conversion Price shall be
reduced to equal the Base Conversion Price. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued.
Notwithstanding the foregoing, no adjustment will be made under this Section
5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in
writing, no later than the Business Day following the issuance of any Common
Stock or Common Stock Equivalents subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms (such notice the "Dilutive Issuance
-----------------
Notice"). For purposes of clarification, whether or not the Company provides a
------
Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of
any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
entitled to receive a number of Conversion Shares based upon the Base Conversion
Price regardless of whether the Holder accurately refers to the Base Conversion
Price in the Notice of Conversion.
c) Pro Rata Distributions. If the Company, at any time while this Debenture
-----------------------
is outstanding, shall distribute to all holders of Common Stock (and not to the
holders of the Debenture) evidences of its indebtedness or assets (including
cash and cash dividends) or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price shall be adjusted by
multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of the Common Stock as determined by the Board of
Directors in good faith. In either case the adjustments shall be described in a
statement provided to the Holder of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.
d) Fundamental Transaction. If, at any time while this Debenture is
------------------------
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which holders of Common Stock are permitted to tender
or exchange their shares for other securities, cash or property, or (D) the
Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (in any such case, a
"Fundamental Transaction"), then upon any subsequent conversion of this
------------------------
Debenture, the Holder shall have the right to receive, for each Conversion Share
that would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction, the same kind and amount of
securities, cash or property as it would have been entitled to receive upon the
occurrence of such Fundamental Transaction if it had been, immediately prior to
such Fundamental Transaction, the holder of one share of Common Stock (the
"Alternate Consideration"). For purposes of any such conversion, the
------------------------
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this Debenture
following such Fundamental Transaction. To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall issue to the Holder a new debenture
consistent with the foregoing provisions and evidencing the Holder's right to
convert such debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions
of this paragraph (d) and insuring that this Debenture (or any such replacement
security) will be similarly adjusted upon any subsequent transaction analogous
to a Fundamental Transaction.
e) Calculations. All calculations under this Section 5 shall be made to the
------------
nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.
f) Notice to the Holder.
-----------------------
i. Adjustment to Conversion Price. Whenever the Conversion Price is
---------------------------------
adjusted pursuant to any of this Section 5, the Company shall promptly mail to
each Holder a notice setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment. If
the Company issues a variable rate security, despite the prohibition thereon in
the Purchase Agreement, the Company shall be deemed to have issued Common Stock
or Common Stock Equivalents at the lowest possible conversion or exercise price
at which such securities may be converted or exercised in the case of a Variable
Rate Transaction (as defined in the Purchase Agreement).
ii. Notice to Allow Conversion by ▇▇▇▇▇▇. If (A) the Company shall declare
-------------------------------------
a dividend (or any other distribution) on the Common Stock; (B) the Company
shall declare a special nonrecurring cash dividend on or a redemption of the
Common Stock; (C) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Debenture, and shall cause to be mailed to the Holder at its last addresses as
it shall appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, that the
--------
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day period commencing the date of such notice to the effective date of the
event triggering such notice.
Section 6. Redemption.
---------- ----------
a) Monthly Redemption. On each Monthly Redemption Date, the Company shall
-------------------
redeem the Monthly Redemption Amount plus accrued but unpaid interest, the sum
of all liquidated damages and any other amounts then owing to such Holder in
respect of this Debenture (the "Monthly Redemption"). The Monthly Redemption
------------------
Amount due on each Monthly Redemption Date shall be paid in cash; provided,
however, as to any Monthly Redemption and upon 20 Trading Days' prior written
irrevocable notice (the "Monthly Redemption Notice" and the 20 Trading Day
---------------------------
period immediately following the Monthly Redemption Notice, the "Monthly
-------
Redemption Period"), in lieu of a cash redemption payment the Company may elect
------------------
to pay all or part of a Monthly Redemption Amount in Conversion Shares (such
dollar amount to be paid on a Monthly Redemption Date in Conversion Shares, the
"Monthly Redemption Share Amount") based on a conversion price equal to the
----------------------------------
lesser of (i) the then Conversion Price and (ii) 80% of the average of the 20
VWAPs immediately prior to the applicable Monthly Redemption Date (subject to
adjustment for any stock dividend, stock split, stock combination or other
similar event affecting the Common Stock during such 20 Trading Day period) (the
ice calculated during the 20 Trading Day period immediately prior to the
Monthly Redemption Date, the "Monthly Conversion Price" and such period, the
------------------------
"Monthly Conversion Period"); provided, further, that the Company may not pay
--------------------------- -------- -------
the Monthly Redemption Amount in Conversion Shares unless, (y) from the date the
Holder receives the duly delivered Monthly Redemption Notice through and until
the date such Monthly Redemption is paid in full, the Equity Conditions, unless
waived in writing by the Holder, have been satisfied and (z) as to such Monthly
Redemption, prior to such Monthly Redemption Period (but not more than 5 Trading
Days prior to the commencement of the Monthly Redemption Period), the Company
shall have delivered to the Holder's account with The Depository Trust Company a
number of shares of Common Stock to be applied against such Monthly Redemption
Share Amount equal to the quotient of (x) the applicable Monthly Redemption
Share Amount divided by (y) the then Conversion Price (the "Pre-Redemption
--------------
Conversion Shares"). The Holder may convert, pursuant to Section 4(a), any
------------------
principal amount of this Debenture subject to a Monthly Redemption at any time
prior to the date that the Monthly Redemption Amount and all amounts owing
thereon are due and paid in full. Unless otherwise indicated by the Holder in
the applicable Notice of Conversion, any principal amount of this Debenture
converted during the applicable Monthly Redemption Period until the date the
Monthly Redemption Amount is paid in full shall be first applied to the
principal amount subject to the Monthly Redemption Amount payable in cash and
then to the Monthly Redemption Share Amount. Any principal amount of this
Debenture converted during the applicable Monthly Redemption Period in excess of
the Monthly Redemption Amount shall be applied against the last principal amount
of this Debenture scheduled to be redeemed hereunder, in reverse time order from
the Maturity Date; provided, however, if any such conversion is applied to such
Monthly Redemption Amount, the Pre-Redemption Conversion Shares, if any were
issued in connection with such Monthly Redemption or were not already applied to
such conversions, shall be first applied against such conversion. The Company
covenants and agrees that it will honor all Notice of Conversions tendered up
until such amounts are paid in full. The Company's determination to pay a
Monthly Redemption in cash, shares of Common Stock or a combination thereof
shall be applied ratably to all of the holders of the Debentures based on their
(or their predecessor's) initial purchases of Debentures pursuant to the
Purchase Agreement. At any time the Company delivers a notice to the Holder of
its election to pay the Monthly Redemption Amount in shares of Common Stock, the
Company shall file a prospectus supplement pursuant to Rule 424 disclosing such
election.
b) Redemption Procedure. The payment of cash pursuant to an Optional
---------------------
Redemption shall be made on the Optional Redemption Date. If any portion of the
cash payment for an Optional Redemption shall not be paid by the Company by
the respective due date, interest shall accrue thereon at the rate of 18% per
annum (or the maximum rate permitted by applicable law, whichever is less) until
the payment of the Optional Redemption Amount, plus all amounts owing thereon is
paid in full. Alternatively, if any portion of the Optional Redemption Amount
remains unpaid after such date, the Holders subject to such redemption may
elect, by written notice to the Company given at any time thereafter, to
invalidate ab initio such redemption, notwithstanding anything herein contained
-- ------
to the contrary, and, with respect the failure to honor the Optional Redemption
as applicable, the Company shall have no further right to exercise such Optional
Redemption. Notwithstanding anything to the contrary in this Section 6, the
Company's determination to redeem in cash or its elections under Section 6(b)
shall be applied among the Holders of Debentures ratably. The Holder may elect
to convert the outstanding principal amount of the Debenture pursuant to Section
4 prior to actual payment in cash for any redemption under this Section 6 by fax
delivery of a Notice of Conversion to the Company.
Section 7. Negative Covenants. So long as any portion of this Debenture
--------- ------------------
is outstanding, the Company will not and will not permit any of its Subsidiaries
to directly or indirectly:
a) other than Permitted Indebtedness, except with the prior written consent
of the Agent (as defined in the Security Agreement), enter into, create, incur,
assume, guarantee or suffer to exist any indebtedness for borrowed money of any
kind, including but not limited to, a guarantee, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;
b) other than Permitted Liens, enter into, create, incur, assume or suffer
to exist any liens of any kind, on or with respect to any of its property or
assets now owned or hereafter acquired or any interest therein or any income or
profits therefrom;
c) amend its certificate of incorporation, bylaws or other charter documents
so as to materially and adversely affect any rights of the Holder;
d) repay, repurchase or offer to repay, repurchase or otherwise acquire more
than a de minimis number of shares of its Common Stock or Common Stock
-----------
Equivalents other than as to the Conversion Shares to the extent permitted or
required under the Transaction Documents or as otherwise permitted by the
Transaction Documents;
e) enter into any agreement with respect to any of the foregoing; or
f) pay cash dividends or distributions on any equity securities of the
Company.
Section 8. Events of Default.
---------- -------------------
a) "Event of Default", wherever used herein, means any one of the following
-----------------
events (whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or
governmental body):
i. any default in the payment of (A) the principal amount of any Debenture,
or (B) interest (including Late Fees) on, or liquidated damages in respect of,
any Debenture, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise) which
default, solely in the case of an interest payment or other default under clause
(B) above, is not cured, within 3 Trading Days;
ii. the Company shall fail to observe or perform any other covenant or
agreement contained in this Debenture or any other Debenture (other than a
breach by the Company of its obligations to deliver shares of Common Stock to
the Holder upon conversion which breach is addressed in clause (xi) below) which
failure is not cured, if possible to cure, within the earlier to occur of
(A) 5 Trading Days after notice of such default sent by the Holder or by any
other Holder and (B)10 Trading Days after the Company shall become or should
have become aware of such failure;
iii. a default or event of default (subject to any grace or cure period
provided for in the applicable agreement, document or instrument) shall occur
under (A) any of the Transaction Documents, or (B) any other material agreement,
lease, document or instrument to which the Company or any Subsidiary is
bound;
iv. any representation or warranty made herein, in any other Transaction
Documents, in any written statement pursuant hereto or thereto, or in any other
report, financial statement or certificate made or delivered to the Holder or
any other holder of Debentures shall be untrue or incorrect in any material
respect as of the date when made or deemed made;
v. (i) the Company or any of its Subsidiaries shall commence a case, as
debtor, a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any Subsidiary
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect relating to
the Company or any Subsidiary thereof or (ii) there is commenced a case against
the Company or any Subsidiary thereof, under any applicable bankruptcy or
insolvency laws, as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days; or (iii) the Company or any
Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent
or bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of 60 days; or
(v) the Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; or (vi) the Company shall fail to pay, or shall state that
it is unable to pay, or shall be unable to pay, its debts generally as they
become due; or (vii) the Company or any Subsidiary thereof shall call a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (viii) the Company or any Subsidiary thereof
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or (ix) any corporate or other
action is taken by the Company or any Subsidiary thereof for the purpose of
effecting any of the foregoing;
vi. the Company or any Subsidiary shall default in any of its obligations
under any mortgage, credit agreement or other facility, indenture agreement,
factoring agreement or other instrument under which there may be issued, or by
which there may be secured or evidenced any indebtedness for borrowed money or
money due under any long term leasing or factoring arrangement of the Company in
an amount exceeding $1,000,000, whether such indebtedness now exists or
shall hereafter be created and such default shall result in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;
vii. the Common Stock shall not be eligible for quotation on or quoted for
trading on a Trading Market and shall not again be eligible for and quoted or
listed for trading thereon within five Trading Days;
viii. the Company shall be a party to any Change of Control Transaction or
Fundamental Transaction, shall agree to sell or dispose of all or in excess of
33% of its assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction) or shall redeem or repurchase more
than a de minimis number of its outstanding shares of Common Stock or other
equity securities of the Company (other than redemptions of Conversion Shares
and repurchases of shares of Common Stock or other equity securities of
departing officers and directors of the Company; provided such repurchases shall
not exceed $2,500,000, in the aggregate, for all officers and directors
during the term of this Debenture);
ix. a Registration Statement shall not have been declared effective by the
Commission on or prior to the 145th calendar day after the Closing Date;
x. if, during the Effectiveness Period (as defined in the Registration
Rights Agreement), the effectiveness of the Registration Statement lapses for
any reason or the Holder shall not be permitted to resell Registrable Securities
(as defined in the Registration Rights Agreement) under the Registration
Statement, in either case, for more than 20 consecutive Trading Days or 30
non-consecutive Trading Days during any 12 month period; provided, however, that
-------- -------
in the event that the Company is negotiating a merger, consolidation,
acquisition or sale of all or substantially all of its assets or a similar
transaction and in the written opinion of counsel to the Company, the
Registration Statement, would be required to be amended to include information
concerning such transactions or the parties thereto that is not available or may
not be publicly disclosed at the time, the Company shall be permitted an
additional 10 consecutive Trading Days during any 12 month period relating to
such an event;
xi. the Company shall fail for any reason to deliver certificates to a
Holder prior to the third Trading Day after a Conversion Date pursuant to and in
accordance with Section 4(d) or the Company shall provide notice to the
Holder, including by way of public announcement, at any time, of its intention
not to comply with requests for conversions of any Debentures in accordance with
the terms hereof;
xii. any Person shall breach the agreements delivered to the initial Holders
pursuant to Section 2.2(a)(iv) of the Purchase Agreement and the Company
does not obtain Shareholder Approval as required in the Purchase Agreement.
b) Remedies Upon Event of Default. If any Event of Default occurs, the full
-------------------------------
principal amount of this Debenture, together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, at the
Holder's election, immediately due and payable in cash. The aggregate amount
payable upon an Event of Default shall be equal to the Mandatory Default Amount.
Commencing 5 days after the occurrence of any Event of Default that results
in the eventual acceleration of this Debenture, the interest rate on this
Debenture shall accrue at the rate of 18% per annum, or such lower maximum
amount of interest permitted to be charged under applicable law. Upon the
payment in full of the Mandatory Default Amount on this entire Debenture the
Holder shall promptly surrender this Debenture to or as directed by the Company.
The Holder need not provide and the Company hereby waives any presentment,
demand, protest or other notice of any kind, and the Holder may immediately and
without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law.
Such declaration may be rescinded and annulled by ▇▇▇▇▇▇ at any time prior to
payment hereunder and the Holder shall have all rights as a Debenture holder
until such time, if any, as the full payment under this Section shall have been
received by it. No such rescission or annulment shall affect any subsequent
Event of Default or impair any right consequent thereon.
Section 9. Miscellaneous.
---------- -------------
(a) Notices. Any and all notices or other communications or deliveries to be
-------
provided by the Holder hereunder, including, without limitation, any Notice
of Conversion, shall be in writing and delivered personally, by facsimile, sent
by a nationally recognized overnight courier service, addressed to the Company,
at the address set forth above, facsimile number (▇▇▇) ▇▇▇-▇▇▇▇, ATTN:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇,Chief Executive Officer or such other address or facsimile number
as the Company may specify for such purposes by notice to the Holder delivered
in accordance with this Section. Any and all notices or other communications or
deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service addressed to each Holder at the facsimile telephone number or
address of such ▇▇▇▇▇▇ appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:30 p.m. (New
York City time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 5:30 p.m. (New York City time) on any date
and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service, or (iv) upon actual receipt by the party to whom such
notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of
-------------------
this Debenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct debt obligation
of the Company. This Debenture ranks pari passu with all other Debentures now
---- -----
or hereafter issued under the terms set forth herein.
c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost,
---------------------------
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed Debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
d) Governing Law. All questions concerning the construction, validity,
--------------
enforcement and interpretation of this Debenture shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all legal proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced in
the state and federal courts sitting in the City of New York, Borough of
Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits
---------------
to the exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Debenture
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of
or relating to this Debenture or the transactions contemplated hereby. If either
party shall commence an action or proceeding to enforce any provisions of this
Debenture, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
e) Waiver. Any waiver by the Company or the Holder of a breach of any
------
provision of this Debenture shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Debenture. The failure of the Company or the Holder to insist upon
strict adherence to any term of this Debenture on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Debenture.
Any waiver must be in writing.
f) Severability. If any provision of this Debenture is invalid, illegal or
------------
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Company covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Company (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impeded the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no such law has
been enacted.
g) Next Business Day. Whenever any payment or other obligation hereunder
-------------------
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do not
--------
constitute a part of this Debenture and shall not be deemed to limit or
affect any of the provisions hereof.
i) Assumption. Any successor to the Company or surviving entity in a
----------
Fundamental Transaction shall (i) assume in writing all of the obligations of
the Company under this Debenture and the other Transaction Documents pursuant to
written agreements in form and substance satisfactory to the Holder (such
approval not to be unreasonably withheld or delayed) prior to such Fundamental
Transaction and (ii) to issue to the Holder a new debenture of such successor
entity evidenced by a written instrument substantially similar in form and
substance to this Debenture, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Debentures held by the Holder and having similar ranking to this
Debenture, and satisfactory to the Holder (any such approval not to be
unreasonably withheld or delayed). The provisions of this Section 9(i) shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations of this Debenture.
*********************
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
TRINITY LEARNING CORPORATION
By: /s/▇▇▇ ▇▇▇▇▇
------------
Name: ▇▇▇ ▇▇▇▇▇
Title: Chief Financial Officer
ANNEX A
NOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 15% Senior
Secured Convertible Debenture of Trinity Learning Corporation, a Utah
corporation (the "Company"), due on March 31, 2010, into shares of common stock,
-------
no par value per share (the "Common Stock"), of the Company according to the
------------
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the holder for any conversion, except for
such transfer taxes, if any.
By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts determined in accordance with Section 13(d) of the Exchange Act,
specified under Section 4 of this Debenture.
The undersigned agrees to comply with the prospectus delivery requirements
under the applicable securities laws in connection with any transfer of the
aforesaid shares of Common Stock.
Conversion calculations:
Date to Effect Conversion:
Principal Amount of Debenture to be Converted:
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
Number of shares of Common Stock to be issued:
Signature:
Name:
Address:
SCHEDULE 1
CONVERSION SCHEDULE
The 15% Senior Secured Convertible Debentures due on March 31, 2010, in the
aggregate principal amount of $____________ issued by Trinity Learning
Corporation. This Conversion Schedule reflects conversions made under Section 4
of the above referenced Debenture.
Dated:
Aggregate Principal Amount
Date of Conversion Amount of Conversion Remaining Subsequent to Company Attest
(or for first entry, Original Issue Date) Conversion (or original Principal Amount)
|---------------------------------------- -------------------- ----------------------------------------- ---------------|
| | | | |
|________________________________________ | ____________________ | _________________________________________ | _______________|