Exhibit 4.2
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
Up to $1,000,000 November 7, 2001
SALES ONLINE DIRECT, INC., a Delaware corporation (the "Corporation"), for
value received, hereby promises to pay to AUGUSTINE FUND, L.P., an Illinois
limited partnership (the "Lender"), its successors and assigns, the lesser of
(i) the principal sum of One Million Dollars and No/100 ($1,000,000.00) or (ii)
the aggregate principal sum of all advances made by the Lender to the
Corporation hereunder from time to time, as reflected on the Grid attached
hereto (each an "Advance" and collectively, the "Principal Sum"), plus interest
thereon as hereinafter provided. Subject to certain mandatory prepayment
requirements, the Principal Sum and all accrued and unpaid interest shall be
payable in full on November 7, 2003.
This Note is issued under and pursuant to the terms and provisions of the
Loan Agreement, of even date herewith, between the Corporation and the Lender
(as the same may be amended, supplemented or otherwise modified from time to
time, the "Loan Agreement"), and this Note 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 Loan Agreement.
The principal sum of each Advance 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 eight percent (8%) per annum. Interest shall be due and
payable in arrears on the last Business Day of each September, December, March
and June commencing on March 31, 2002 and continuing until all amounts owing
under the Note has been paid. The interest payable to the holder of this Note
for any given period shall be paid, at the such holder's election, either in
cash or in shares of Common Stock of the Corporation, as set forth in the Loan
Agreement.
The Lender shall record on the Grid attached to this Note the date and
amount of each Advance, as well as each payment of principal (or the conversion
of principal as provided for herein) and such other information as it may deem
necessary, which notations shall constitute prima facie evidence of the accuracy
of the information recorded. Failure of the Lender to make any such notation or
any error therein shall not limit or otherwise affect the obligations of the
Corporation hereunder and the records of the Lender shall at all times be
determinative of the unpaid balance of this Note (whether or not the Lender has
made such notation on this Note).
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 Loan Agreement), 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 Loan Agreement.
All payments on or in respect of this Note, including principal and
interest thereon, shall be made in such coin and currency of the United States
of America as at the time of payment is legal tender for the payment of public
and private debts by wire transfer pursuant to written wire transfer
instructions given to the Corporation by the holder hereof from time to time,
or, at the option of the holder hereof, in such manner and at such other place
in the United States of America as the holder hereof shall have designated to
the Corporation in writing pursuant to the provisions of the Loan Agreement.
Under certain circumstances, as specified in the Loan Agreement, the
principal of this Note may be declared due and payable in the manner and with
the effect provided in the Loan Agreement. This Note is subject to optional
prepayment by the Corporation pursuant to the terms and conditions set forth in
the Loan Agreement.
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 Lender, 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 State of Illinois, 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 Lender'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 73% (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 240 days after the date of issuance of this Note (the "Due
Date"), then upon written notice by the Lender to the Corporation, the
Conversion Percentage shall decrease by two percent (2%) for each month (that
is, each thirty (30) day period after the Due Date, beginning on the 30th day
after the Due Date) or partial month in which the said registration statement
has not been declared, or does not remain, effective; 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 Lender to the Corporation, the Conversion Percentage shall be fifty
percent (50%). 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 Loan Agreement, 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 a notation on the Grid attached hereto 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 of the following events occur: (a)
The Corporation shall either: (i) become insolvent; (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 (b) 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 (c) 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 (d) 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 (e) 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 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.
8. Notices. Any notices desired, required or permitted to be given
hereunder shall be delivered in accordance with the notice provision in the Loan
Agreement.
SALES ONLINE DIRECT, INC.
By: /s/ Gregory Rotman
--------------------------------
Name: Gregory Rotman
Title: President
Grid
to that certain
Convertible Promissory Note
of Sales Online Direct, Inc.
payable to
Augustine Fund, L.P.
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Amount of
Date of Advance, Payment or Principal Repaid
Conversion Amount of Advance or Converted Cumulative Balance
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