EX-4.2
ONVERTIBLE DEBENTURE
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF
ANY STATE, AND IS BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
LAWS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR SUCH OTHER LAWS.
6 3/4% CONVERTIBLE DEBENTURE
Company: World Am, Inc.
Company Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Closing Date: January 23, 2006
Maturity Date: January 23, 2009
Principal Amount: $1,000,000
First Payment Due Date: March 15, 2006
World Am, Inc., a Nevada corporation, and any successor or
resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the assets or otherwise (the
"Company"), for value received, hereby promises to pay to the Holder
(as such term is hereinafter defined), or such other Person (as such
term is hereinafter defined) upon order of the Holder, on the
Maturity Date, the Principal Amount (as such term is hereinafter
defined), as such sum may be adjusted pursuant to Article 3, and to
pay interest thereon from the Closing Date, monthly in arrears, on
the 15th day of each month (each an "Interest Payment Due Date" and
collectively, the "Interest Payment Due Dates"), commencing on the
First Payment Due Date, at the rate of six and three-quarter percent
(6 3/4 %) per annum (the "Debenture Interest Rate"), until the
Principal Amount of this Debenture has been paid in full. All
interest payable on the Principal Amount of this Debenture shall be
calculated on the basis of a 360-day year for the actual number of
days elapsed. Payment of interest on this Debenture shall be in cash
or, at the option of the Holder, in shares of Common Stock of the
Company valued at the then applicable Conversion Price (as defined
herein). This Debenture may not be prepaid without the written
consent of the Holder.
ARTICLE 1
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Article
whenever used in this Debenture have the following respective
meanings:
(i) "Affiliate" has the meaning ascribed to such term in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
(ii) "Bankruptcy Code" means the United States Bankruptcy
Code of 1986, as amended (11 U.S.C. 101 et. seq.).
(iii) "Business Day" means a day other than Saturday,
Sunday or any day on which banks located in the State of California
are authorized or obligated to close.
(iv) "Capital Shares" means the Common Stock and any other
shares of any other class or series of capital stock, whether now or
hereafter authorized and however designated, which have the right to
participate in the distribution of earnings and assets (upon
dissolution, liquidation or winding-up) of the Company.
(v) "Common Shares" or "Common Stock" means shares of the
Company's Common Stock.
(vi) "Common Stock Issued at Conversion", when used with
reference to the securities deliverable upon conversion of this
Debenture, means all Common Shares now or hereafter Outstanding and
securities of any other class or series into which this Debenture
hereafter shall have been changed or substituted, whether now or
hereafter created and however designated.
(vii) "Conversion" or "conversion" means the repayment
by the Company of the Principal Amount of this Debenture (and, to the
extent the Holder elects as permitted by Section 3.1, accrued and
unpaid interest thereon) by the delivery of Common Stock on the terms
provided in Section 3.2, and "convert," "converted," "convertible"
and like words shall have a corresponding meaning.
(viii) "Conversion Date" means any day on which all or
any portion of the Principal Amount of this Debenture is converted in
accordance with the provisions hereof.
(ix) "Conversion Notice" means a written notice of
conversion substantially in the form annexed hereto as Exhibit A.
(x) "Conversion Price" on any date of determination means
the applicable price for the conversion of this Debenture into Common
Shares on such day as set forth in Section 3.1(a).
(xi) "Current Market Price" on any date of determination
means the closing price of a Common Share on such day as reported on
the NASDAQ OTCBB Exchange; provided that, if such security is not
listed or admitted to trading on the NASDAQ OTCBB, as reported on the
principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities
exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by
Bloomberg LP or a similar generally accepted reporting service, as
the case may be.
(xi) "Deadline" means the date that is the 90th day from
the Closing Date, provided, however, the Deadline shall be extended
by such time as is necessary for the Company to respond to comments
by the SEC, so long as the Company files the appropriate registration
statement within 30 days of the Closing Date and thereafter responds
to all SEC comments within 20 business days of receipt thereof.
(xii) "Debenture" or "Debentures" means this
Convertible Debenture of the Company or such other convertible
debenture(s) exchanged therefor as provided in Section 2.1.
(xiii) "Discount Multiplier" has the meaning set forth
in Section 3.1(a)."Event of Default" has the meaning set forth in Section 6.1.
(xiv) "Holder" means Golden Gate Investors, Inc., any
successor thereto, or any Person to whom this Debenture is
subsequently transferred in accordance with the provisions hereof.
(xv) "Interest Payment Due Date" has the meaning set forth
in the opening paragraph of this Debenture.
(xvi) "Market Disruption Event" means any event that
results in a material suspension or limitation of trading of the
Common Shares.
(xx) "Market Price" per Common Share means the lowest price
of the Common Shares during any Trading Day as reported on the NASDAQ
OTCBB; provided that, if such security is not listed or admitted to
trading on the NASDAQ OTCBB, as reported on the principal national
security exchange or quotation system on which such security is
quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or
quotation system, the lowest price of the Common Shares during any
Trading Day on the over-the-counter market as reported by Bloomberg
LP or a similar generally accepted reporting service, as the case may be.
(xx) "Maximum Rate" has the meaning set forth in Section 6.4.
(xxi) "Outstanding" when used with reference to Common
Shares or Capital Shares (collectively, "Shares") means, on any date
of determination, all issued and outstanding Shares, and includes all
such Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in such Shares;
provided, however, that any such Shares directly or indirectly owned
or held by or for the account of the Company or any Subsidiary of the
Company shall not be deemed "Outstanding" for purposes hereof.
(xxii) "Person" means an individual, a corporation, a
partnership, an association, a limited liability company, an
unincorporated business organization, a trust or other entity or
organization, and any government or political subdivision or any
agency or instrumentality thereof.
(xxiii) "Principal Amount" means, for any date of
calculation, the principal sum set forth in the first paragraph of
this Debenture (but only such principal amount as to which the Holder
has (a) actually advanced pursuant to the Securities Purchase
Agreement, and (b) not theretofore furnished a Conversion Notice in
compliance with Section 3.2).
(xxiv) "Registration Rights Agreement" means that
certain Registration Rights Agreement of even date herewith by and
between the Company and Holder, as the same may be amended from time
to time.
(xxv) "SEC" means the United States Securities and
Exchange Commission.
(xxvi) "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations of the SEC
thereunder, all as in effect at the time.
(xxvii) "Securities Purchase Agreement" means that
certain Securities Purchase Agreement of even date herewith by and
among the Company and Holder, as the same may be amended from time to
time.
(xxviii) "Subsidiary" means any entity of which securities
or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing
similar functions are owned directly or indirectly by the Company.
(xxix) "Trading Day" means any day on which (i)
purchases and sales of securities on the principal national security
exchange or quotation system on which the Common Shares are traded
are reported thereon, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, as
reported by Bloomberg LP or a similar generally accepted reporting
service, as the case may be, (ii) at least one bid for the trading of
Common Shares is reported and (iii) no Market Disruption Event occurs.
(xxx) "Volume Weighted Average Price" per Common
Share means the volume weighted average price of the Common Shares
during any Trading Day as reported on the NASDAQ OTCBB; provided
that, if such security is not listed or admitted to trading on the
NASDAQ OTCBB, as reported on the principal national security exchange
or quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the
volume weighted average price of the Common Shares during any Trading
Day on the over-the-counter market as reported by Bloomberg LP or a
similar generally accepted reporting service, as the case may be.
All references to "cash" or "$" herein means currency of
the United States of America.
ARTICLE 2
EXCHANGES, TRANSFER AND REPAYMENT
Section 2.1 Registration of Transfer of Debentures. This
Debenture, when presented for registration of transfer, shall (if so
required by the Company) be duly endorsed, or be accompanied by a
written instrument of transfer in form reasonably satisfactory to the
Company duly executed, by the Holder duly authorized in writing.
Section 2.2 Loss, Theft, Destruction of Debenture. Upon
receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Debenture and, in the case of any
such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Company, or, in the case of
any such mutilation, upon surrender and cancellation of this
Debenture, the Company shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated Debenture, a new Debenture of
like tenor and unpaid Principal ▇▇▇▇▇▇ dated as of the date hereof
(which shall accrue interest from the most recent Interest Payment
Due Date on which an interest payment was made in full). This
Debenture shall be held and owned upon the express condition that the
provisions of this Section 2.2 are exclusive with respect to the
replacement of a mutilated, destroyed, lost or stolen Debenture and
shall preclude any and all other rights and remedies notwithstanding
any law or statute existing or hereafter enacted to the contrary with
respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
Section 2.3 Who Deemed Absolute Owner. The Company may deem
the Person in whose name this Debenture shall be registered upon the
registry books of the Company to be, and may treat it as, the
absolute owner of this Debenture (whether or not this Debenture shall
be overdue) for the purpose of receiving payment of or on account of
the Principal Amount of this Debenture, for the conversion of this
Debenture and for all other purposes, and the Company shall not be
affected by any notice to the contrary. All such payments and such
conversions shall be valid and effectual to satisfy and discharge the
liability upon this Debenture to the extent of the sum or sums so
paid or the conversion or conversions so made.
Section 2.4 Repayment at Maturity. At the Maturity Date, the
Company shall repay the outstanding Principal Amount of this
Debenture in whole in cash, together with all accrued and unpaid
interest thereon, in cash, to the Maturity Date.
ARTICLE 3
CONVERSION OF DEBENTURE
Section 3.1 Conversion; Conversion Price; Valuation Event.
(a) At the option of the Holder, this Debenture may be
converted, either in whole or in part, up to the full Principal
Amount hereof into Common Shares (calculated as to each such
conversion to the nearest 1/100th of a share), at any time and from
time to time on any Business Day, subject to compliance with Section
3.2. The number of Common Shares into which this Debenture may be
converted is equal to the dollar amount of the Debenture being
converted multiplied by eleven, minus the product of the Conversion
Price multiplied by ten times the dollar amount of the Debenture
being converted, and the entire foregoing result shall be divided by
the Conversion Price. In addition, the Company shall pay to the
Holder on the Conversion Date, in cash, any accrued and unpaid
interest on the Debenture being converted not included at the option
of the Holder in clause (i) of the immediately preceding sentence.
The "Conversion Price" shall be equal to the lesser of (i) $0.20, or
(ii) 80% of the average of the 3 lowest Volume Weighted Average
Prices during the 20 Trading Days prior to Holder's election to
convert, or (iii) 80% of the Volume Weighted Average Price on the
Trading Day prior to Holder's election to convert (the percentage
figure being a "Discount Multiplier"); provided, that in the event
the Registration Statement has not been declared effective by the SEC
by the Deadline then the applicable Discount Multiplier shall
decrease by three percentage points for each month or partial month
occurring after the Deadline that the Registration Statement is not
effective or, if the Registration Statement has theretofore been
declared effective but is not thereafter effective, then the
applicable Discount Multiplier shall decrease by three percentage
points for each week or partial week occurring after the Deadline
that the Registration Statement is not effective. In addition, if the
Registration Statement has theretofore been declared effective but is
not thereafter effective, Holder, at its option, shall be entitled to
the Conversion Price on the date that the Registration Statement is
no longer effective, for a period beginning on the date that the
Registration Statement is declared effective and continuing for the
number of days that a Registration Statement was not effective.
Beginning in the first full calendar month after the
Registration Statement is declared effective, Holder shall convert at
least 5% of the face value of the Debenture per calendar month into
Common Shares of the Company, provided that the Common Shares are
available, registered and freely tradable. If Holder converts more
than 5% of the face value of the Debenture in any calendar month, the
excess over 5% shall be credited against the next month's minimum
conversion amount. In the event Holder does not convert at least 5%
of the Debenture in any particular calendar month, the Company's
remedy shall be that Holder shall not be entitled to collect interest
on the Debenture for that month if the Company gives Holder written
notice, at least 5 business days prior to the end of the month, of
▇▇▇▇▇▇'s failure to convert the minimum required amount for that
month. In the event Holder does not convert at least 5% of the
Debenture for two consecutive calendar months, in addition to the
penalty set forth in the previous sentence, the Company may repay, at
par, an amount of the Debenture equal to two times the differential
between 5% of the face value of the Debenture and the amount actually
converted by ▇▇▇▇▇▇.
If the Holder elects to convert a portion of the Debenture and,
on the day that the election is made, the Volume Weighted Average
Price is below $0.01, the Company shall have the right to prepay that
portion of the Debenture that Holder elected to convert, plus any
accrued and unpaid interest, at 125% of such amount. In the event
that the Company elects to prepay that portion of the Debenture,
Holder shall have the right to withdraw its Conversion Notice. If, at
anytime during the month, the Volume Weighted Average Price is below
$0.01, Holder shall not be obligated to convert any portion of the
Debenture during that month.
(b) Notwithstanding the provisions of Section 3.1(a), in the
event the Company's Registration Statement has not been declared
effective by the Deadline or, if the Registration Statement has
theretofore been declared effective but is not thereafter effective,
the following will also apply in addition to any damages incurred by
the Holder as a result thereof:
(i) The Holder may demand repayment of one hundred and
twenty-five percent (125%) of the Principal Amount of the Debenture,
together with all accrued and unpaid interest thereon, in cash, at
any time prior to the Company's Registration Statement being declared
effective by the SEC or during the period that the Company's
Registration Statement is not effective, such repayment to be made
within three (3) business days of such demand. In the event that the
Debenture is so accelerated, in addition to the repayment of one
hundred and twenty-five percent (125%) of the Principal Amount
together with accrued interest as aforesaid, the Company shall
immediately issue and pay, as the case may be, to the Holder 50,000
Shares of Common Stock and $15,000 for each thirty (30) day period,
or portion thereof, during which the Principal Amount, including
interest thereon, remains unpaid, with the monthly payment amount to
increase to $20,000 for each thirty (30) day period, or portion
thereof, after the first ninety (90) day period;
(ii) If the Holder does not elect to accelerate the
Debenture, the Company shall immediately issue or pay, as the case
may be, to Holder 50,000 Shares of Common Stock and $15,000 for each
thirty (30) day period, or portion thereof, that the Registration
Statement is not effective, with the monthly payment amount to
increase to $20,000 for each thirty (30) day period, or portion
thereof, after the first ninety (90) day period.
(iii) If the SEC indicates that the Company's
Registration Statement will be declared effective upon request by the
Company, and the Company does not, within 3 business days of the SEC
indication, request that the Registration Statement become effective,
the amounts set forth in subsections (ii) and (iii) above shall double.
Section 3.2 Exercise of Conversion Privilege.
(a) Conversion of this Debenture may be exercised on any
Business Day by the Holder by telecopying an executed and completed
Conversion Notice to the Company. Each date on which a Conversion
Notice is telecopied to the Company in accordance with the provisions
of this Section 3.2 shall constitute a Conversion Date. The Company
shall convert this Debenture and issue the Common Stock Issued at
Conversion in the manner provided below in this Section 3.2, and all
voting and other rights associated with the beneficial ownership of
the Common Stock Issued at Conversion shall vest with the Holder,
effective as of the Conversion Date at the time specified in the
Conversion Notice. The Conversion Notice also shall state the name
or names (with addresses) of the persons who are to become the
holders of the Common Stock Issued at Conversion in connection with
such conversion. As promptly as practicable after the receipt of the
Conversion Notice as aforesaid, but in any event not more than two
(2) Business Days after the Company's receipt of such Conversion
Notice, the Company shall (i) issue the Common Stock Issued at
Conversion in accordance with the provisions of this Article 3 and
(ii) cause to be mailed for delivery by overnight courier, or if a
Registration Statement covering the Common Stock has been declared
effective by the SEC cause to be electronically transferred, to
Holder (x) a certificate or certificate(s) representing the number of
Common Shares to which the Holder is entitled by virtue of such
conversion, (y) cash, as provided in Section 3.3, in respect of any
fraction of a Common Share deliverable upon such conversion and (z)
cash or shares of Common Stock, as applicable, representing the
amount of accrued and unpaid interest on this Debenture as of the
Conversion Date. Such conversion shall be deemed to have been
effected at the time at which the Conversion Notice indicates, and at
such time the rights of the Holder of this Debenture, as such (except
if and to the extent that any Principal Amount thereof remains
unconverted), shall cease and the Person and Persons in whose name or
names the Common Stock Issued at Conversion shall be issuable shall
be deemed to have become the holder or holders of record of the
Common Shares represented thereby, and all voting and other rights
associated with the beneficial ownership of such Common Shares shall
at such time vest with such Person or Persons. The Conversion Notice
shall constitute a contract between the Holder and the Company,
whereby the Holder shall be deemed to subscribe for the number of
Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and
for any cash adjustment to which it is entitled pursuant to Section
3.4), to surrender this Debenture and to release the Company from all
liability thereon (except if and to the extent that any Principal
Amount thereof remains unconverted). No cash payment aggregating
less than $1.00 shall be required to be given unless specifically
requested by the Holder.
(b) If, at any time after the date of this Debenture, (i) the
Company challenges, disputes or denies the right of the Holder hereof
to effect the conversion of this Debenture into Common Shares or
otherwise dishonors or rejects any Conversion Notice delivered in
accordance with this Section 3.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit
or legal proceeding or otherwise asserts any claim before any court
or public or governmental authority which seeks to challenge, deny,
enjoin, limit, modify, delay or dispute the right of the Holder
hereof to effect the conversion of this Debenture into Common Shares,
then the Holder shall have the right, but not the obligation, by
written notice to the Company, to require the Company to promptly
redeem this Debenture for cash at one hundred and twenty-five (125%)
of the Principal Amount thereof, together with all accrued and unpaid
interest thereon to the date of redemption. Under any of the
circumstances set forth above, the Company shall be responsible for
the payment of all costs and expenses of the Holder, including
reasonable legal fees and expenses, as and when incurred in defending
itself in any such action or pursuing its rights hereunder (in
addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under the
Bankruptcy Code. In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. 362 in
respect of the Holder's conversion privilege. The Company hereby
waives to the fullest extent permitted any rights to relief it may
have under 11 U.S.C. 362 in respect of the conversion of this
Debenture. The Company agrees, without cost or expense to the
Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. 362.
Section 3.3 Fractional Shares. No fractional Common Shares
or scrip representing fractional Common Shares shall be delivered
upon conversion of this Debenture. Instead of any fractional Common
Shares which otherwise would be delivered upon conversion of this
Debenture, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction multiplied by the
Current Market Price on the Conversion Date. No cash payment of less
than $1.00 shall be required to be given unless specifically
requested by the Holder.
Section 3.4 Adjustments. The Conversion Price and the number
of shares deliverable upon conversion of this Debenture are subject
to adjustment from time to time as follows:
(a) Reclassification, Etc. In case the Company shall
reorganize its capital, reclassify its capital stock, consolidate or
merge with or into another Person (where the Company is not the
survivor or where there is a change in or distribution with respect
to the Common Stock of the Company), sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or
business to another Person, or effectuate a transaction or series of
related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of (each, a "Fundamental
Corporate Change") and, pursuant to the terms of such Fundamental
Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants
or other subscription or purchase rights) in addition to or in lieu
of common stock of the successor or acquiring corporation ("Other
Property") are to be received by or distributed to the holders of
Common Stock of the Company, then the Holder of this Debenture shall
have the right thereafter, at its sole option, to (x) require the
Company to prepay this Debenture for cash at one hundred and twenty-
five percent (125%) of the Principal Amount thereof, together with
all accrued and unpaid interest thereon to the date of prepayment,
(y) receive the number of shares of common stock of the successor or
acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property as is receivable upon or as a result
of such Fundamental Corporate Change by a holder of the number of
shares of Common Stock into which the outstanding portion of this
Debenture may be converted at the Conversion Price applicable
immediately prior to such Fundamental Corporate Change or (z) require
the Company, or such successor, resulting or purchasing corporation,
as the case may be, to, without benefit of any additional
consideration therefor, execute and deliver to the Holder a debenture
with substantial identical rights, privileges, powers, restrictions
and other terms as this Debenture in an amount equal to the amount
outstanding under this Debenture immediately prior to such
Fundamental Corporate Change. For purposes hereof, "common stock of
the successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is
not subject to prepayment and shall also include any evidences of
indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening
of a specified event and any warrants or other rights to subscribe
for or purchase any such stock. The foregoing provisions shall
similarly apply to successive Fundamental Corporate Changes.
Section 3.5 Certain Conversion Limits. For a period of one
year after the Closing Date, if and to the extent that, on any date,
the holding by the Holder of this Debenture would result in the
Holder's being deemed the beneficial owner of more than 9.99% of the
then Outstanding shares of Common Stock, then the Holder shall not
have the right, and the Company shall not have the obligation, to
convert any portion of this Debenture as shall cause such Holder to
be deemed the beneficial owner of more than 9.99% of the then
Outstanding shares of Common Stock. If any court of competent
jurisdiction shall determine that the foregoing limitation is
ineffective to prevent a Holder from being deemed the beneficial
owner of more than 9.99% of the then Outstanding shares of Common
Stock, then the Company shall prepay such portion of this Debenture
as shall cause such Holder not to be deemed the beneficial owner of
more than 9.99% of the then Outstanding shares of Common Stock. Upon
such determination by a court of competent jurisdiction, the Holder
shall have no interest in or rights under such portion of the
Debenture. Any and all interest paid on or prior to the date of such
determination shall be deemed interest paid on the remaining portion
of this Debenture held by the Holder. Such prepayment shall be for
cash at a prepayment price of one hundred and twenty-five percent
(125%) of the Principal Amount thereof, together with all accrued and
unpaid interest thereon to the date of prepayment.
Section 3.6 Surrender of Debentures. Upon any redemption of
this Debenture pursuant to Sections 3.2, 3.5 or 6.2, or upon maturity
pursuant to Section 2.4, the Holder shall either deliver this
Debenture by hand to the Company at its principal executive offices
or surrender the same to the Company at such address by nationally
recognized overnight courier. Payment of the redemption price or the
amount due on maturity specified in Section 2.4, shall be made by the
Company to the Holder against receipt of this Debenture (as provided
in this Section 3.5) by wire transfer of immediately available funds
to such account(s) as the Holder shall specify by written notice to
the Company. If payment of such redemption price is not made in full
by the redemption date, or the amount due on maturity is not paid in
full by the Maturity Date, the Holder shall again have the right to
convert this Debenture as provided in Article 3 hereof or to declare
an Event of Default.
ARTICLE 4
STATUS; RESTRICTIONS ON TRANSFER
Section 4.1 Status of Debenture. This Debenture constitutes
a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms subject, as to enforceability, to general
principles of equity and to principles of bankruptcy, insolvency,
reorganization and other similar laws of general applicability
relating to or affecting creditors' rights and remedies generally.
Section 4.2 Restrictions on Transfer. This Debenture, and
any Common Shares deliverable upon the conversion hereof, have not
been registered under the Securities Act. The Holder by accepting
this Debenture agrees that this Debenture and the shares of Common
Stock to be acquired as interest on and upon conversion of this
Debenture may not be assigned or otherwise transferred unless and
until (i) the Company has received the opinion of counsel for the
Holder that this Debenture or such shares may be sold pursuant to an
exemption from registration under the Securities Act or (ii) a
registration statement relating to this Debenture or such shares has
been filed by the Company and declared effective by the SEC.
Each certificate for shares of Common Stock deliverable
hereunder shall bear a legend as follows unless and until such
securities have been sold pursuant to an effective registration
statement under the Securities Act:
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended (the "Securities Act"). The
securities may not be offered for sale, sold or
otherwise transferred except (i) pursuant to an
effective registration statement under the
Securities Act or (ii) pursuant to an exemption
from registration under the Securities Act in
respect of which the issuer of this certificate
has received an opinion of counsel satisfactory
to the issuer of this certificate to such effect.
Copies of the agreement covering both the
purchase of the securities and restrictions on
their transfer may be obtained at no cost by
written request made by the holder of record of
this certificate to the Secretary of the issuer
of this certificate at the principal executive
offices of the issuer of this certificate."
ARTICLE 5
COVENANTS
Section 5.1 Conversion. The Company shall cause the transfer
agent, not later than two (2) Business Days after the Company's
receipt of a Conversion Notice, to issue and deliver to the Holder
the requisite shares of Common Stock Issued at Conversion. Such
delivery shall be by electronic transfer if a Registration Statement
covering the Common Stock has been declared effective by the SEC.
Section 5.2 Notice of Default. If any one or more events
occur which constitute or which, with notice, lapse of time, or both,
would constitute an Event of Default, the Company shall forthwith
give notice to the Holder, specifying the nature and status of the
Event of Default or such other event(s), as the case may be.
Section 5.3 Payment of Obligations. So long as this
Debenture shall be outstanding, the Company shall pay, extend, or
discharge at or before maturity, all its respective material
obligations and liabilities, including, without limitation, tax
liabilities, except where the same may be contested in good faith by
appropriate proceedings.
Section 5.4 Compliance with Laws. So long as this Debenture
shall be outstanding, the Company shall comply with all applicable
laws, ordinances, rules, regulations and requirements of governmental
authorities, except for such noncompliance which would not have a
material adverse effect on the business, properties, prospects,
condition (financial or otherwise) or results of operations of the
Company and the Subsidiaries.
Section 5.5 Inspection of Property, Books and Records. So
long as this Debenture shall be outstanding, the Company shall keep
proper books of record and account in which full, true and correct
entries shall be made of all material dealings and transactions in
relation to its business and activities and shall permit
representatives of the Holder at the Holder's expense to visit and
inspect any of its respective properties, to examine and make
abstracts from any of its respective books and records, not
reasonably deemed confidential by the Company, and to discuss its
respective affairs, finances and accounts with its respective
officers and independent public accountants, all at such reasonable
times and as often as may reasonably be desired.
Section 5.6 Right of First Refusal on Other Financing. In
the event that the Company obtains a commitment for any other
financing (either debt, equity, or a combination thereof) which is to
close during the term of this Debenture, Holder shall be entitled to
a right of first refusal to enable it to, at Holder's option, either:
(i) match the terms of the other financing, or (ii) add additional
principal to this Debenture, in the amount of such other financing,
on the same terms and conditions as this Debenture. The Company shall
deliver to Holder, at least 10 days prior to the proposed closing
date of such transaction, written notice describing the proposed
transaction, including the terms and conditions thereof, and
providing Holder an option during the 10 day period following
delivery of such notice to either provide the financing being offered
in such transaction on the same terms as contemplated by such
transaction, or to add additional principal to this Debenture, in the
amount of such other financing, on the same terms and conditions as
this Debenture.
ARTICLE 6
EVENTS OF DEFAULT; REMEDIES
Section 6.1 Events of Default. "Event of Default" wherever
used herein means any one of the following events:
(i) the Company shall default in the payment of principal
of or interest on this Debenture as and when the same shall be due
and payable and, in the case of an interest payment default, such
default shall continue for five (5) Business Days after the date such
interest payment was due, or the Company shall fail to perform or
observe any other covenant, agreement, term, provision, undertaking
or commitment under this Debenture, the Warrants (as defined in the
Securities Purchase Agreement), the Securities Purchase Agreement or
the Registration Rights Agreement and such default shall continue for
a period of thirty (30) days after the delivery to the Company of
written notice that the Company is in default hereunder or thereunder;
(ii) any of the representations or warranties made by the
Company herein, in the Securities Purchase Agreement, the
Registration Rights Agreement or in any certificate or financial or
other written statements heretofore or hereafter furnished by or on
behalf of the Company in connection with the execution and delivery
of this Debenture, the Warrants, the Securities Purchase Agreement or
the Registration Rights Agreement shall be false or misleading in a
material respect on the Closing Date;
(iii) under the laws of any jurisdiction not otherwise
covered by clauses (iv) and (v) below, the Company or any Subsidiary
(A) becomes insolvent or generally not able to pay its debts as they
become due, (B) admits in writing its inability to pay its debts
generally or makes a general assignment for the benefit of creditors,
(C) institutes or has instituted against it any proceeding seeking
(x) to adjudicate it a bankrupt or insolvent, (y) liquidation,
winding-up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors including
any plan of compromise or arrangement or other corporate proceeding
involving or affecting its creditors or (z) the entry of an order for
relief or the appointment of a receiver, trustee or other similar
person for it or for any substantial part of its properties and
assets, and in the case of any such official proceeding instituted
against it (but not instituted by it), either the proceeding remains
undismissed or unstayed for a period of sixty (60) calendar days, or
any of the actions sought in such proceeding (including the entry of
an order for relief against it or the appointment of a receiver,
trustee, custodian or other similar official for it or for any
substantial part of its properties and assets) occurs or (D) takes
any corporate action to authorize any of the above actions;
(iv) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Subsidiary
a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or
in respect of the Company under the Bankruptcy Code or any other
applicable Federal or state law, or appointing a receiver,
liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or of any substantial part of its property,
or ordering the winding-up or liquidation of its affairs, and any
such decree or order continues and is unstayed and in effect for a
period of sixty (60) calendar days;
(v) the institution by the Company or any Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent
by it to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under the Bankruptcy Code or any
other applicable federal or state law, or the consent by it to the
filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee or sequestrator (or other similar
official) of the Company or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or
the admission by it in writing of its inability to pay its debts
generally as and when they become due, or the taking of corporate
action by the Company in furtherance of any such action;
a final judgment or final judgments for the payment of money shall
have been entered by any court or courts of competent jurisdiction
against the Company and remains undischarged for a period (during
which execution shall be effectively stayed) of thirty (30) days,
provided that the aggregate amount of all such judgments at any time
outstanding (to the extent not paid or to be paid, as evidenced by a
written communication to that effect from the applicable insurer, by
insurance) exceeds One Hundred Thousand Dollars ($100,000);
(vi) it becomes unlawful for the Company to perform or
comply with its obligations under this Debenture, the Conversion
Warrant, the Securities Purchase Agreement or the Registration Rights
Agreement in any respect;
(vii) the Common Shares shall be delisted from the
NASDAQ OTCBB (the "Trading Market" or, to the extent the Company
becomes eligible to list its Common Stock on any other national
security exchange or quotation system, upon official notice of
listing on any such exchange or system, as the case may be, it shall
be the "Trading Market") or suspended from trading on the Trading
Market, and shall not be reinstated, relisted or such suspension
lifted, as the case may be, within five (5) days or;
(viii) the Company shall default (giving effect to any
applicable grace period) in the payment of principal or interest as
and when the same shall become due and payable, under any
indebtedness, individually or in the aggregate, of more than One
Hundred Thousand Dollars ($100,000);
Section 6.2 Acceleration of Maturity; Rescission and
Annulment. If an Event of Default occurs and is continuing, then and
in every such case the Holder may, by a notice in writing to the
Company, rescind any outstanding Conversion Notice and declare that
all amounts owing or otherwise outstanding under this Debenture are
immediately due and payable and upon any such declaration this
Debenture shall become immediately due and payable in cash at a price
of one hundred and twenty-five percent (125%) of the Principal Amount
thereof, together with all accrued and unpaid interest thereon to the
date of payment; provided, however, in the case of any Event of
Default described in clauses (iii), (iv), (v) or (vii) of Section
6.1, such amount automatically shall become immediately due and
payable without the necessity of any notice or declaration as aforesaid.
Section 6.3 Late Payment Penalty. If any portion of the
principal of or interest on this Debenture shall not be paid within
ten (10) days of when it is due, the Discount Multiplier under this
Debenture shall decrease by one percentage point (1%) for all
conversions of this Debenture thereafter.
Section 6.4 Maximum Interest Rate. Notwithstanding anything
herein to the contrary, if at any time the applicable interest rate
as provided for herein shall exceed the maximum lawful rate which may
be contracted for, charged, taken or received by the Holder in
accordance with any applicable law (the "Maximum Rate"), the rate of
interest applicable to this Debenture shall be limited to the Maximum
Rate. To the greatest extent permitted under applicable law, the
Company hereby waives and agrees not to allege or claim that any
provisions of this Note could give rise to or result in any actual or
potential violation of any applicable usury laws.
Section 6.5 Remedies Not Waived. No course of dealing
between the Company and the Holder or any delay in exercising any
rights hereunder shall operate as a waiver by the Holder.
Section 6.6 Remedies. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the
Holder, by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Debenture
will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Debenture, that the
Holder shall be entitled to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any
breach of this Debenture and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.
Section 6.7 Payment of Certain Amounts. Whenever pursuant
to this Debenture the Company is required to pay an amount in excess
of the Principal Amount plus accrued and unpaid interest, the Company
and the Holder agree that the actual damages to the Holder from the
receipt of cash payment on this Debenture may be difficult to
determine and the amount to be so paid by the Company represents
stipulated damages and not a penalty and is intended to compensate
the Holder in part for loss of the opportunity to convert this
Debenture and to earn a return from the sale of shares of Common
Stock acquired upon conversion of this Debenture at a price in excess
of that price paid for such shares pursuant to this Debenture. The
Company and the Holder hereby agree that such amount of stipulated
damages is not disproportionate to the possible loss to the Holder
from the receipt of a cash payment without the opportunity to convert
this Debenture into shares of Common Stock.
ARTICLE 7
MISCELLANEOUS
Section 7.1 Notice of Certain Events. In the case of the
occurrence of any event described in Section 3.4 of this Debenture,
the Company shall cause to be mailed to the Holder of this Debenture
at its last address as it appears in the Company's security registry,
at least twenty (20) days prior to the applicable record, effective
or expiration date hereinafter specified (or, if such twenty (20)
days' notice is not possible, at the earliest possible date prior to
any such record, effective or expiration date), a notice thereof,
including, if applicable, a statement of (y) the date on which a
record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record
is not to be taken, the date as of which the holders of record of
Common Stock to be entitled to such dividend, distribution, issuance
or granting of rights, options or warrants are to be determined or
(z) the date on which such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that
holders of record of Common Stock will be entitled to exchange their
shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution,
liquidation or winding-up.
Section 7.2 Register. The Company shall keep at its
principal office a register in which the Company shall provide for
the registration of this Debenture. Upon any transfer of this
Debenture in accordance with Articles 2 and 4 hereof, the Company
shall register such transfer on the Debenture register.
Section 7.3 Withholding. To the extent required by
applicable law, the Company may withhold amounts for or on account of
any taxes imposed or levied by or on behalf of any taxing authority
in the United States having jurisdiction over the Company from any
payments made pursuant to this Debenture.
Section 7.4 Transmittal of Notices. Except as may be
otherwise provided herein, any notice or other communication or
delivery required or permitted hereunder shall be in writing and
shall be delivered personally, or sent by telecopier machine or by a
nationally recognized overnight courier service, and shall be deemed
given when so delivered personally, or by telecopier machine or
overnight courier service as follows:
(1) If to the Company, to:
World Am, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(2) If to the Holder, to:
Golden Gate Investors, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Each of the Holder or the Company may change the foregoing address by
notice given pursuant to this Section 7.4.
Section 7.5 Attorneys' Fees. Should any party hereto employ
an attorney for the purpose of enforcing or construing this
Debenture, or any judgment based on this Debenture, in any legal
proceeding whatsoever, including insolvency, bankruptcy, arbitration,
declaratory relief or other litigation, the prevailing party shall be
entitled to receive from the other party or parties thereto
reimbursement for all reasonable attorneys' fees and all reasonable
costs, including but not limited to service of process, filing fees,
court and court reporter costs, investigative costs, expert witness
fees, and the cost of any bonds, whether taxable or not, and that
such reimbursement shall be included in any judgment or final order
issued in that proceeding. The "prevailing party" means the party
determined by the court to most nearly prevail and not necessarily
the one in whose favor a judgment is rendered.
Section 7.6 Governing Law. This Debenture shall be governed
by, and construed in accordance with, the laws of the State of
California (without giving effect to conflicts of laws principles).
With respect to any suit, action or proceedings relating to this
Debenture, the Company irrevocably submits to the exclusive
jurisdiction of the courts of the State of California sitting in San
Diego and the United States District Court located in the City of San
Diego and hereby waives, to the fullest extent permitted by
applicable law, any claim that any such suit, action or proceeding
has been brought in an inconvenient forum. Subject to applicable
law, the Company agrees that final judgment against it in any legal
action or proceeding arising out of or relating to this Debenture
shall be conclusive and may be enforced in any other jurisdiction
within or outside the United States by suit on the judgment, a
certified copy of which judgment shall be conclusive evidence thereof
and the amount of its indebtedness, or by such other means provided
by law.
Section 7.7 Waiver of Jury Trial. To the fullest extent
permitted by law, each of the parties hereto hereby knowingly,
voluntarily and intentionally waives its respective rights to a jury
trial of any claim or cause of action based upon or arising out of
this Debenture or any other document or any dealings between them
relating to the subject matter of this Debenture and other documents.
Each party hereto (i) certifies that neither of their respective
representatives, agents or attorneys has represented, expressly or
otherwise, that such party would not, in the event of litigation,
seek to enforce the foregoing waivers and (ii) acknowledges that it
has been induced to enter into this Debenture by, among other things,
the mutual waivers and certifications herein.
Section 7.8 Headings. The headings of the Articles and
Sections of this Debenture are inserted for convenience only and do
not constitute a part of this Debenture.
Section 7.9 Payment Dates. Whenever any payment hereunder
shall be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day.
Section 7.10 Binding Effect. Each Holder by accepting this
▇▇▇▇▇▇▇▇▇ agrees to be bound by and comply with the terms and
provisions of this Debenture.
Section 7.11 No Stockholder Rights. Except as otherwise
provided herein, this Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to
the extent converted into shares of Common Stock in accordance with
the terms hereof.
Section 7.12 Facsimile Execution. Facsimile execution shall
be deemed originals.
IN WITNESS WHEREOF, the Company has caused this Debenture to be
signed by its duly authorized officer on the date of this Debenture.
World Am, Inc.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Executive Officer
EXHIBIT A
DEBENTURE CONVERSION NOTICE
TO: World Am, Inc.
The undersigned owner of this Convertible Debenture due January
6, 2009 (the "Debenture") issued by World Am, Inc. (the "Company")
hereby irrevocably exercises its option to convert $__________
Principal Amount of the Debenture into shares of Common Stock in
accordance with the terms of the Debenture. The undersigned hereby
instructs the Company to convert the portion of the Debenture
specified above into shares of Common Stock Issued at Conversion in
accordance with the provisions of Article 3 of the Debenture. The
undersigned directs that the Common Stock and certificates therefor
deliverable upon conversion, the Debenture reissued in the Principal
Amount not being surrendered for conversion hereby, [the check or
shares of Common Stock in payment of the accrued and unpaid interest
thereon to the date of this Notice,] together with any check in
payment for fractional Common Stock, be registered in the name of
and/or delivered to the undersigned unless a different name has been
indicated below. All capitalized terms used and not defined herein
have the respective meanings assigned to them in the Debenture. The
conversion pursuant hereto shall be deemed to have been effected at
the date and time specified below, and at such time the rights of the
undersigned as a Holder of the Principal Amount of the Debenture set
forth above shall cease and the Person or Persons in whose name or
names the Common Stock Issued at Conversion shall be registered shall
be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights
associated with the beneficial ownership of such Common Shares shall
at such time vest with such Person or Persons.
Date and time: __________________
______________________________
By: ___________________________
Title: _________________________
Fill in for registration of Debenture:
Please print name and address
(including ZIP code number):