EXHIBIT 4.2
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CONVERTIBLE NOTE
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THIS NOTE WAS ORIGINALLY ISSUED ON SEPTEMBER 14, 1998. THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE TRANSFER OF THIS
NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT DATED AS OF AUGUST 5, 1998 AND AS AMENDED ON SEPTEMBER 14, 1998 TO
WHICH THE ORIGINAL HOLDER OF THIS NOTE IS A PARTY. THE ISSUER OF THIS NOTE WILL
FURNISH A COPY OF THESE PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON
WRITTEN REQUEST.
GENESIS DIRECT, INC.
Convertible Promissory Note
New York, New York
September 14, 1998
Genesis Direct, Inc., a Delaware corporation (the "Company"), for value
received, promises to pay, subject to the terms and conditions of this Note, to
the order of ▇▇▇▇▇ ▇▇▇▇▇▇ Gifts, Inc., a Delaware corporation (the "holder"),
the principal sum of TWELVE MILLION, SEVEN HUNDRED FIFTY THOUSAND AND NO/100ths
DOLLARS ($12,750,000.00) with interest on the outstanding unpaid principal
amount hereof to accrue from the date hereof to the date which is the earlier of
(i) the Conversion Date (as defined below) and (ii) March 14, 2001, at the
annual rate equal to one-half of a percentage point (1/2%) above the interest
rate or rates, as the case may be, publicly announced by Citibank, N.A., New
York, New York, as its prime rate then in effect. Interest shall be payable in
cash on and not later than the earliest of (i) thirty (30) days following the
date this Note is converted into stock pursuant to Section 3 hereof, (ii) 30
days following the Conversion Date and (iii) March 14, 2001. All interest
payment calculations required hereunder shall be computed on the basis of the
actual number of days elapsed over a year comprised of 365 days.
This Note is issued by the Company pursuant to the Asset Purchase
Agreement, dated as of August 5, 1998, among Genesis Direct Forty-Three, LLC
("Buyer"), the holder and ▇▇▇ Target Media, Inc., as amended by Amendment No. 1,
dated as of September 14, 1998 (as amended, the "Asset Purchase Agreement"),
pursuant to which the Buyer is acquiring substantially all of the assets of the
holder. All capitalized terms used and not otherwise defined herein shall have
the meanings assigned to them in the Asset Purchase Agreement.
1. Reduction of Principal Amount.
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1.1. If the Closing Date Net Tangible Assets (as determined pursuant to
Section 2(f) of the Asset Purchase Agreement) is less than Seven Million and
Four
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Hundred Thousand Dollars ($7,400,000), then the principal amount of this Note
shall be reduced by an amount (the "NTA Shortfall Amount") equal to one dollar
for each one dollar that such Closing Date Net Tangible Assets are less than
$7,400,000.
1.2. In such case, the holder shall, no later than ten (10) Business Days
after delivery of the Post-Closing Determination, deliver and surrender to the
Company this Note, and the Company shall simultaneously reissue to the holder a
new Note of like tenor with the principal amount thereof reduced as provided in
Section 1.1 hereof.
2. Payments.
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2.1. Unless converted (as provided in Section 3 hereof), principal (as
appropriately adjusted to reflect any reductions in the principal amount of this
Note) shall be due and payable, plus accrued interest thereon, on March 14,
2001.
2.2. Payments of principal and accrued interest of this Note shall be made
to the holder at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other
place or places within the United States as may be specified by the holder of
this Note in a written notice to the Company at least 10 Business Days before a
given payment date.
2.3. Unless converted (as provided Section 3 hereof), payments of
principal and accrued interest of this Note shall be made in lawful money of the
United States of America by wire transfer of immediately funds in the proper
amount to such holder so as to be received by such holder on the due date of
such payment.
2.4. If any payment on this Note becomes due and payable on a Saturday,
Sunday or other day on which commercial banks in New York City are authorized or
required by law to close, the maturity thereof shall be extended to the next
succeeding Business Day, and no interest on the principal amount shall be
payable during such extension.
2.5 In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowable by applicable law, and in the
event any such payment is inadvertently paid by the Company or inadvertently
received by the holder, then such excess shall be credited as a payment of
principal. It is the express intent hereof that the Company not pay, and the
holder not receive, directly or indirectly in any manner whatsoever, interest in
excess of that which may be legally paid by the Company under applicable law.
2.6 The Company may not prepay any amount owing hereunder in whole or in
part.
3. Conversion Right.
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3.1. Subject to the provisions of this Section 3, the holder of this Note
shall have the right (the "Conversion Right") at the holder's option at any time
on or after the
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Conversion Date (as defined below) to convert the entire principal amount of
this Note into such number of unregistered, fully paid and nonassessable shares
of Common Stock of the Company ("Genesis Stock") as determined by dividing the
principal amount of this Note (as determined by Section 3.2 below) by the
Conversion Price (as defined below). If the holder elects to convert this Note
into Genesis Stock, the holder shall notify the Company by written notice of
such election no later than ten (10) Business Days prior to the date on which
holder desires to convert this Note (the "Exercise Date").
3.2. For purposes of the conversion calculation only, the principal amount
of this Note shall be deemed to be: (x) TWELVE MILLION, SEVEN HUNDRED FIFTY
THOUSAND AND NO/100ths DOLLARS ($12,750,000.00); minus (y) the NTA Shortfall
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Amount, if any; minus (z) the amount of any set-off, if any, pursuant to Section
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5 hereof. The Conversion Price shall be $12.75 per share of Genesis Stock;
provided, however, that the Conversion Price shall be adjusted to give
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appropriate effect to the occurrence prior to the Conversion Date of any
dividend paid by the Company in shares of Genesis Stock, stock split or
combination of shares of Genesis Stock, reclassification of Genesis Stock or
capital reorganization of the Company. The Conversion Date shall be the day
immediately following the tenth consecutive trading day on which the closing
price at which the Genesis Stock traded on Nasdaq on each such day as reported
in the Wall Street Journal was equal to or exceeded the Conversion Price. The
number of shares of Genesis Stock issuable upon conversion of this Note shall be
determined by dividing the principal amount of this Note (as determined pursuant
to the first sentence of this Section 3.2) by the Conversion Price, rounding any
fractional result down to the nearest whole share. No fractional shares of
Genesis Stock shall be issued upon conversion of this Note.
3.3. On the Exercise Date, the holder shall surrender this Note at the
office of the transfer agent for Genesis Stock, together with written notice
that shall state such holder's name. The certificates for the shares of Genesis
Stock shall be issued in the name of the holder (or its nominees) as of the
Exercise Date, and shall be delivered no later than 10 Business Days following
the date the Note is surrendered. Until delivery of shares of Genesis Stock to
the holder, the holder shall not be entitled to sell, transfer, pledge, encumber
or vote any such shares. The Company shall, on the date it delivers the Genesis
Stock pursuant hereto, cause there to be delivered to the holder certificates
representing the number of full shares of unregistered, fully paid and
nonassessable shares of Genesis Stock into which this Note may be converted in
accordance with the provisions hereof.
3.4. In the event that, on the Conversion Date, the holder does not
exercise its Conversion Right, no interest shall accrue or be payable in respect
of the period following the Conversion Date and prior to the Exercise Date and
only interest accrued prior to the Conversion Date shall be payable.
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4. Cancellation of Note.
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Upon payment in full (and/or set-off (as provided in Section 5 hereof)) of
all outstanding obligations under this Note or the receipt by the holder of the
appropriate number of shares of Genesis Stock upon conversion of the Note into
Genesis Stock pursuant to Section 3, the Company's obligations in respect of
payment of this Note shall terminate and the holder shall surrender this Note to
the Company.
5. Set-off and Recoupment Rights.
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The Company, by its execution of this Note, and the holder by its
acceptance of this Note, covenants and agrees that the Company shall, in the
event a Buyer Indemnified Party suffers any Adverse Consequences required to be
paid by the holder or ▇▇▇ Target Media, Inc. pursuant to the Asset Purchase
Agreement, set-off against its obligations under this Note (including without
limitation, the issuance and delivery of Genesis Stock upon a conversion of this
Note pursuant to Section 3 hereof), and recoup the amounts of any Adverse
Consequences, as required pursuant to Section 5(g) of the Asset Purchase
Agreement, provided however, that no such reduction shall be made prior to a
"final determination" as defined below, and provided further that the Company
shall be entitled to reduce the Note only in the event that the Company has not
been fully indemnified for such Adverse Consequences within 30 days of such
final determination. The Company will give to the holder of this Note written
notice of such election, which includes the amount to be set-off, and the amount
of obligations under this Note shall be reduced by the amount set forth in such
notice as fully as if such amount had been paid (or such shares of Genesis Stock
had been delivered) to the holder by the Company. For purposes of this Section
5, a determination shall be a "final determination" if made by a court of
competent jurisdiction pursuant to Section 9(f) of the Asset Purchase Agreement
and if any and all appeals therefrom shall have been resolved or if thirty (30)
days shall have passed from the rendering of such determination (or of any
determination on appeal therefrom) and no party shall have duly commenced an
appeal therefrom.
6. Events of Default.
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6.1. In the event that:
(a) the Company defaults for more than ten (10) Business Days in
making any payment of principal or interest required to be made on
this Note which default is not cured within 10 Business Days from
the receipt by Company of written notice by holder of such
default; or
(b) the Company: (i) commences any case, proceeding or other action
(x) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking
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reorganization, arrangement, composition or other relief with
respect to it or its debts or (y) seeking appointment of a
receiver, trustee, custodian or other similar official for it or
for all or any substantial part of its assets, or shall make a
general assignment for the benefit of its creditor; or (ii) is the
debtor named in any other case, proceeding or other action of a
nature referred to in clause (i) above which (x) results in the
entry of an order for relief or any such adjudication or
appointment or (y) remains undismissed, undischarged or unbonded
for a period of sixty (60) days; or (iii) takes any action in
furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the facts set forth in clause (i) or (ii)
above; or (iv) shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they
become due;
then, and in any such event as set forth in Section 6.1(a) or Section 6.1(b) (an
"Event of Default"), and at any time thereafter, if such Event of Default shall
then be continuing, any holder of this Note may, by written notice to the
Company, declare this Note due and payable, whereupon this Note shall be due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, and in such event the holder shall also have
the right at the holder's option to immediately convert the entire principal
amount of this Note on the date of holder's election to convert, without regard
to other notice periods provided herein, together with any accrued but unpaid
interest owing hereunder through but not after the date which is 90 days
following the Event of Default, into such number of unregistered, fully-paid and
non-assessable shares of Genesis Stock as determined by dividing the principal
amount, together with interest owing hereunder through but not after the date
which is 90 days following the Event of Default, of this Note by the Signing
Stock Price; provided that the Company shall remain liable to pay the amount of
interest accruing after the 90th day following such Event of Default.
7. Investment Representation.
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The holder of this Note hereby acknowledges that this Note and any shares
of Genesis Stock to be issued upon conversion of this Note have not been and
will not be registered (i) under the Securities Act of 1933, as amended (the
"Act"), on the ground that the issuance of this Note is exempt from registration
under Section 4(2) of the Act as not involving any public offering or (ii) under
any applicable state securities law on the ground that the issuance of this Note
does not involve any public offering; and that the Company's reliance on the
Section 4(2) exemption of the Act and on applicable state securities laws is
predicated in part on the representations hereby made to the Company by the
holder that it is acquiring the Note and the shares of Genesis Stock (if any)
for investment for its own account, with no intention of dividing its
participation with others or otherwise distributing the same, subject,
nevertheless, to any requirements of law that the disposition of its property
shall at all times be within its control.
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8. Miscellaneous.
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8.1. Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Note and of a letter of
indemnity reasonably satisfactory to the Company, and upon reimbursement to the
Company of all reasonable expenses incident thereto, and upon surrender or
cancellation of the Note, if mutilated, the Company will make and deliver a new
Note of like tenor in lieu of such lost, stolen, destroyed or mutilated Note.
8.2. In the event that one of the Events of Default specified in Section 6
hereof has occurred and is continuing, the holder of this Note shall be
reimbursed by the Company for the payment of its reasonable attorneys' fees
relating to the enforcement of any of the provisions of this Note.
8.3. This Note and the rights and obligations of the Company and any
holder hereunder shall be construed in accordance with and be governed by the
laws of the State of Delaware and shall be subject to the arbitration provisions
set forth in Section 9 of the Asset Purchase Agreement as if expressly included
herein.
8.4. The Company shall assign all of its rights and obligations under this
Note to any party who is a successor by merger to the Company, and such
assignment or merger shall not require any consent of any holder of this Note.
This Note and the rights hereunder are transferable by the holder without the
prior written consent of the Company to any party to whom holder transfers all
of its shares of Genesis Stock.
8.5 Time is of the essence of this Note. If any provisions of this Note
or the application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Note and the application of
such provisions to other persons or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by law.
8.6 Holder shall be under no duty to exercise any or all of the rights or
remedies given by this Note and Company shall not be discharged from its
obligations hereunder should holder agree to waive any right it may have
hereunder or to suspend the right to enforce this Note at any time. No waiver
by holder shall be deemed to extend to any prior or subsequent default hereunder
or affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
8.7 Company shall notify holder of its Conversion Right to the extent
available pursuant to the terms hereof on or about January 14, 2001 to the
extent said Conversion Right has not been exercised prior to such date. Such
notice shall be given in accordance with the notice provisions set forth in the
Asset Purchase Agreement.
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IN WITNESS WHEREOF, the Company has executed this Note as of the day and
year first above written.
GENESIS DIRECT, INC.
By:__________________________________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President and Chief Executive Officer
Attest:
_________________________
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