Exhibit 4.1
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS (COLLECTIVELY, THE "LAWS"). THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF EITHER (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE LAWS, OR (II) AN OPINION OF COUNSEL PROVIDED TO THE ISSUER IN FORM,
SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER THE LAWS DUE TO AN AVAILABLE EXCEPTION TO OR
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE LAWS.
SALES ONLINE DIRECT, INC.
CONVERTIBLE PROMISSORY NOTE
US$1,000,000 November 7, 2001
SALES ONLINE DIRECT, INC., a Delaware corporation (the "Corporation"), for
value received, hereby promises to pay to Leslie Rotman (the "Creditor"), and
her successors and assigns, the principal sum of One Million Dollars and No/100
($1,000,000.00) (the "Principal Sum"), plus interest thereon as hereinafter
provided. The Principal Sum and all accrued and unpaid interest shall be payable
two years from the date hereof pursuant to the terms set forth below.
This Note is issued under and pursuant to the terms and provisions of the
Agreement and Plan of Merger, dated October 23, 2001, between the Corporation
and the Creditor (as the same may be amended, supplemented or otherwise modified
from time to time, the "Agreement and Plan of Merger"). This Note is secured by
an "all assets" Security Agreement of even date herewith (the "Security
Agreement") and the holder hereof is entitled to all of the rights and benefits
provided for thereby or referred to therein. All capitalized terms used herein
without definition shall have the meanings ascribed in the Agreement and Plan of
Merger.
The Principal Sum shall bear interest, commencing on and as of the date of
such Advance to and including the date such Advance is repaid in full, at a rate
of six percent (6%) per annum. Interest shall be due and payable in arrears on
the last Business Day of each March, June, September, and December commencing on
March 31, 2002 and continuing until all amounts owing under the Note has been
paid. Principal and interest payable to the holder of this Note shall be paid in
shares of Common Stock of the Corporation, as set forth in the Agreement and
Plan of Merger, or, if no such shares of Common Stock are available for
issuance, in cash.
If any principal or interest is not paid in full on the due date thereof
(taking into account any applicable grace periods) (whether by maturity,
prepayment or acceleration), and upon and during the continuance of any Event of
Default (as defined in the Agreement and Plan of Merger), the outstanding
principal balance of this Note shall bear interest thereafter at a rate equal to
eighteen percent (18%) per annum until such payment is paid in full or such
Event of Default is cured or waived in accordance with the terms of the
Agreement and Plan of Merger.
To the extent permitted by law, the Corporation hereby waives diligence,
presentment, demand, protest and notice of every kind whatsoever. The failure of
the holder hereof to exercise any of its rights hereunder in any particular
instance shall not constitute a waiver of the same or of any other right in that
or any subsequent instance.
This Note shall be binding upon the Corporation, its successors, and
permitted assigns, and shall inure to the benefit of the Creditor, its
successors and assigns.
This Note is a contract made under and governed by, and shall be construed
and enforced in accordance with, the laws of the Commonwealth of Massachusetts,
without regard to conflict of laws principles.
Conversion Rights and Procedures
In addition to the rights set forth above, the holder of this Note shall
have the conversion rights set forth below:
1. Conversion Right. At the Creditor's election, exercisable at any time
and from time to time, all or a portion of the principal outstanding under this
Note shall be converted, without the payment of any additional consideration,
into the number of fully-paid and nonassessable shares of Common Stock as
provided in Section 2 below.
2. Conversion Calculation.
The number of shares issuable upon conversion of all or a portion of the
principal outstanding under this Note at any time shall be determined by
dividing the amount of principal to be converted by the Conversion Price, where
the Conversion Price equals eighty percent (80%) (the "Conversion Percentage")
of the average of the five (5) Closing Bid Prices for the Common Stock for the
five (5) consecutive trading days immediately preceding the Conversion Date (as
herein defined), as reported on the National Association of Securities Dealers
OTC Bulletin Board Market (or on such other national securities exchange or
market as the Common Stock may trade at such time); notwithstanding anything in
this paragraph to the contrary, if the registration statement covering the
resale of the shares of Common Stock issuable upon conversion of this Note has
not been declared effective within 240 days after the date of issuance of this
Note (the "Due Date"), then, upon written notice by the Creditor to the Company,
the Conversion Percentage shall decrease by two percent (2%) for each month
after such notice (that is, each thirty (30) day period after the notice after
the Due Date, beginning on the 30th day of the month in which the notice was
first provided) or partial month in which the said registration statement has
not been declared, or does not remain, effective to a Minimum Conversion
Percentage of seventy percent (70%); if such registration statement has not been
declared and does not remain effective on the date which is one (1) year after
the date of issuance of this Note, then, upon written notice by Creditor to the
Company, the Conversion Percentage shall be seventy percent (70%). For purposes
hereof, the term "Closing Bid Price" shall mean for any security as of any date,
the last closing bid price for such security on the OTC Bulletin Board Market as
reported by Bloomberg, L.P., or, if the OTC Bulletin Board Market is not the
principal trading market for such security, the last closing bid price of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, L.P., or, if no last
closing bid or trade price is reported for such security by Bloomberg, L.P., the
closing bid price shall be determined by reference to the closing bid price as
reported on the principal trading market, and if not so reported shall be
determined from the average of the bid prices of any market makers for such
security as reported in the "pink sheets" published by the National Quotation
Bureau, Inc. If the closing bid price cannot be calculated for such security on
such date on any of the foregoing bases, the closing bid price of such security
on such date shall be the fair market value as mutually agreed by the Company
and the holder of this Note.
If the Common Stock issuable upon the conversion of this Note shall be
changed into the same or different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, stock split, stock
dividend, or similar event, then and in each such event, the holder of this Note
shall have the right thereafter to convert all or any portion of the principal
amount outstanding under this Note into the kind and amount of shares of stock
and other securities and property receivable upon such capital reorganization,
reclassification or other change which such holder would have received had this
Note been converted immediately prior to such capital reorganization,
reclassification or other change.
3. Conversion Procedure.
The holder of this Note may exercise its right to convert all or any
portion of the principal amount outstanding under this Note by telecopying an
executed and completed notice to the Corporation and delivering the original
notice in the form annexed hereto as Exhibit A ("Notice of Conversion") by
express courier. Each business date on which a Notice of Conversion is
telecopied to and received by the Corporation in accordance with the provisions
hereof shall be deemed a "Conversion Date." The Corporation will transmit, or
instruct its transfer agent to transmit the certificates representing shares of
Common Stock issuable upon conversion of this Note to the holder thereof via
express courier, by electronic transfer or otherwise, within three (3) business
days after the Corporation has received the facsimile Notice of Conversion. In
addition to any other remedies which may be available to the
holders of this Note, except as otherwise stated in the Agreement and Plan of
Merger, in the event that the Corporation fails to deliver, or has failed to
contact its transfer agent within two (2) business days to deliver, such shares
of Common Stock within such three business-day period, the holder will be
entitled to revoke the relevant Notice of Conversion by delivering a notice to
such effect to the Company whereupon the Company and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Notice of Conversion.
No fractional shares of Common Stock shall be issued upon conversion of
this Note. In lieu of any fractional share to which the holder would be entitled
but for this paragraph, the number of shares of Common Stock to be received
shall be rounded to the nearest whole share.
4. Issuance of Common Stock. The issuance of certificates for shares of
Common Stock upon conversion of this Note will be made without charge to the
holder for any issuance tax or other governmental charge in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of Common Stock. Upon the conversion of this Note, the
Corporation will take all such actions as are necessary in order to insure that
the shares of Common Stock issuable with respect to such conversion will be
validly issued, fully paid and nonassessable, free of preemptive rights and free
from all taxes, liens, charges and security interests with respect to the
issuance thereof. Upon receipt of the certificates evidencing shares of Common
Stock issued upon a conversion of principal outstanding under this Note, the
holder of this Note shall make provide documentation indicating the date of the
conversion and the amount of principal so converted. In the event that the
holder elects to convert all of the principal outstanding under this Note, the
holder shall surrender this Note to the Corporation upon receipt of the
certificates representing the shares of Common Stock issued upon such
conversion.
5. Reorganization. If at any time or from time to time there shall be a
stock split, reverse stock split, stock dividend, or other capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for above), or a merger or
consolidation of the Company with or into another corporation, or the sale of
all or substantially all of the Company's properties, stock and/or assets to any
other person or entity (any of which events is herein referred to as a
"Reorganization"), then as a part of such Reorganization, provision shall be
made so that the holder of this Note shall thereafter be entitled to receive
upon conversion of this Note, the number of shares of stock or other securities
or property of the Company, or of the successor corporation resulting from such
Reorganization, to which such holder would have been entitled if such holder had
converted this Note immediately prior to such Reorganization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holder of this Note after the
Reorganization, to the end that the provisions of this Section 5 (including
adjustment of the number of shares issuable upon conversion of this Note) shall
be applicable after that event in as nearly equivalent a manner as may be
practicable. Upon the occurrence of each adjustment or readjustment of the
Conversion Price, the Company, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to the holder of this Note a certificate executed by the president and
chief financial officer (or in the absence of a person designated as the chief
financial officer, by the treasurer) setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment are based. The Company shall, upon written request at any time of
the holder of this Note, furnish or cause to be furnished to such holder a
certificate setting forth (A) the Conversion Price at the time in effect, and
(B) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of this Note.
6. Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Note, such number of its
shares of Common Stock as shall from time to time be sufficient or as may be
available to effect the conversion of the maximum principal amount of this Note,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the then outstanding
principal amount of this Note, the Company shall use its best efforts to take
such corporate action as may be necessary to have a sufficient number of
authorized but unissued shares of Common Stock available to effect the
conversion.
7. Restriction on Conversion. Notwithstanding anything to the contrary set
forth herein, in no event shall the holder of this Note be entitled to convert
all or any portion of the principal outstanding under this Note in excess of
such portion of the principal of this Note that, upon giving effect to such
conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such converting
holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such conversion. For purposes of the foregoing proviso,
the aggregate 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 Note with respect to which the determination of such
proviso is being made. Except as set forth in the preceding sentence, for
purposes of this Section, beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. The
limitations imposed by this Section on conversion of this Note shall no longer
apply, and the holder of this Note, upon notice to the Corporation, may convert
all or any portion of the principal outstanding under this Note, irrespective of
the resulting beneficial ownership of the Corporation's Common Stock, should any
Event of Default, as defined in Paragraph 8, occur.
8. Events of Default. The following shall constitute an Event of Default
under this Note: (a) any default under either the Agreement and Plan of Merger
or the Security Agreement; (b) The Corporation shall either: (i) become
insolvent; or (ii) admit in writing its inability to pay its debts generally or
as they become due; (iii) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (iv) apply for, or consent to the
appointment of, a trustee, liquidator, or receiver for its or for a substantial
part of its property or business; or (c) A trustee, liquidator or receiver shall
be appointed for the Corporation or for a substantial part of its property or
business without the Corporation's consent and such appointment is not
discharged within sixty (60) days after such appointment; or (d) Any
governmental agency or any court of competent jurisdiction at the instance of
any governmental agency shall assume custody or control of the whole or any
substantial portion of the properties or assets of the Corporation; or (e) Any
money judgment, writ or note of attachment, or similar process in excess of Five
Hundred Thousand United States Dollars (US$500,000.00) in the aggregate shall be
entered or filed against the Corporation or any of its properties or assets and
shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen
(15) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or (f) Bankruptcy, reorganization, insolvency or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Corporation and, if instituted against the Corporation, shall not be dismissed
within sixty (60) days after such institution or the Corporation shall by any
action or answer approve of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a petition filed in,
any such proceeding.
9. Notices. Any notices desired, required or permitted to be given
hereunder shall be delivered in accordance with the notice provision in the
Agreement and Plan of Merger.
Executed as a sealed instrument.
SALES ONLINE DIRECT, INC.
By: /s/ Gregory Rotman
---------------------------------
Name: Gregory Rotman
Title: President