EXHIBIT 4.2
THIS CONVERTIBLE PROMISSORY NOTE AND THE
SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURSDICTION AND MAY NOT
UNDER ANY CIRCUMSTANCES BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF (OTHER
THAN AS MAY BE PERMITTED BY THIS
NOTE) EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS, OR (ii) TO
THE EXTENT APPLICABLE, RULE 144 UNDER THE
SECURITIES ACT (OR ANY SIMILAR RULE
UNDER THE SECURITIES ACT RELATING TO THE
DISPOSITION OF SECURITIES) TOGETHER
WITH AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT
OR APPLICABLE STATE SECURITIES LAWS.
NATIONAL INVESTMENT MANAGERS INC.
CONVERTIBLE PROMISSORY NOTE
U.S. $30,000.00
August 2, 2005
New York, New York
The undersigned, National Investment Managers Inc., a Florida
corporation with offices at 830 Third
Avenue, New York, New York 10022 (the
"Company"), promises to pay to Elizabeth
Davies (the "Holder"), at such place as
may be designated by the Company to the
Holder, the principal sum of Thirty
Thousand Dollars ($30,000.00), plus
interest, in the manner and on the terms set
forth below.
SECTION 1.
Principal and
Interest.
(a) Subject to the conversion rights set forth below, principal
under this Note shall be payable in two (2)
equal successive annual installments
of Fifteen Thousand Dollars ($15,000.00)
each on July 31, 2006 and July 31, 2007
(the "Maturity Date"). This Note may be
prepaid at any time or from time to time
without penalty or premium.
(b) Interest on the principal amount hereof from time to time
outstanding shall accrue at a rate per
annum equal to seven percent (7%),
computed on the basis of a 360-day year.
Interest accrued on the principal
amount hereof from time to time outstanding
shall be due and payable annually,
in arrears, together with payments of
principal.
Payments
of principal and interest hereunder shall be subordinated in
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right of payment to the payment of all
Senior Indebtedness, to the extent and in
the manner set forth in the agreements and
instruments evidencing such Senior
Indebtedness, provided, however, that the
foregoing subordination shall not
prohibit regularly scheduled payments of
principal and interest to the Holder
hereunder for so long as the Company is not
in default under the terms of such
Senior Indebtedness. "Senior Indebtedness"
shall mean the principal of, premium,
if any, and interest on the Company's or
any of the Company's subsidiaries'
indebtedness for money borrowed, whenever
created, incurred or assumed by the
Company or any such subsidiary, as
borrower, guarantor or otherwise, whether
currently outstanding or hereafter created.
By its acceptance of this Note,
Holder agrees to execute and deliver any
documentation requested by the Company
or any holder of Senior Indebtedness
evidencing the foregoing subordination.
SECTION 2.
Stock Purchase
Agreement.
This Note is issued pursuant to a Stock Purchase Agreement,
dated
August __, 2005, by and among the Company,
Stephen H. Rosen & Associates, Inc.,
Stephen H. Rosen ("Rosen") and the Holder
(as amended at any time, the "Stock
Purchase Agreement"), and is intended to be
afforded the benefits thereof.
Capitalized terms used but not otherwise
defined herein shall have the meanings
given such terms in the Stock Purchase
Agreement.
SECTION 3.
Offset Rights.
Amounts of principal and interest due and payable by the
Company
hereunder are subject to offset, in direct
order of maturity, on a pro rata
basis with amounts due under the
Convertible Promissory Note, of even date
herewith, delivered by the Purchaser to
Stephen H. Rosen (the "Rosen Note"), in
proportion to their respective original
principal amounts (the "Sharing Ratio"),
as follows:
(a) for indemnification claims made by the Company, on a
dollar-for-dollar basis, in accordance with
the provisions of Section 10.6 of
the Stock Purchase Agreement, subject to
the limitation in Section 10.8 of the
Stock Purchase Agreement with respect to
the Holder;
(b) for failure of the Company's affiliate, Stephen H. Rosen
Associates, Inc. ("SHRA"), during the
12-month period commencing on the date
hereof (the "First Measurement Period"), to
achieve EBITDA (as defined below) of
$540,000 (the "Minimum EBITDA"), as
determined by the Company's accountants, in
which event the installments of principal
and interest due and payable under
this Note on July 31, 2006 shall be reduced
by an amount equal to the amount by
which the Minimum EBITDA exceeds the EBITDA
of SHRA during the First Measurement
Period; and
(c) for failure of SHRA, during the 12-month period following
the
First Measurement Period (the "Second
Measurement Period"), to achieve the
Minimum EBITDA, as determined by the
Company's accountants, in which event the
installments of principal and interest due
and payable under this Note on July
31, 2007 shall be reduced by an amount
equal to the amount by which the Minimum
Amount exceeds the EBITDA of SHRA during
the Second Measurement Period.
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Notwithstanding the foregoing, (i) if the payments under this
Note
are reduced due to an EBITDA shortfall for
the First Measurement Period, such
reduced amount shall be reinstated at the
end of the Second Measurement Period
if, and to the extent that, the combined
EBITDA for the First Measurement Period
and the Second Measurement Periods equals
or exceeds $1,080,000, and (ii) there
shall be no offset for any shortfall during
the Second Measurement Period if and
to the extent that the combined EBITDA for
the First Measurement Period and the
Second Measurement Period equals or exceeds
$1,080,000.
No reduction of principal or interest due and payable under
this
Note shall be made on account of an EBITDA
shortfall if the Rosen Note is
accelerated due to an Event of Default
under Section 5(d) of the Rosen Note
(termination of Rosen's without cause) or
Section 5(e) of the Rosen Note (SHRA's
election not to renew the employment
agreement between SHRA and Rosen dated the
date hereof (the "Employment
Agreement").
If this Note is converted in whole or in part, and amounts to
be
offset hereunder exceed remaining amounts
due and payable, such excess shall be
paid by the Holder to the Company in cash
no later than ten (10) business days
after the Company's demand therefor.
Notwithstanding anything in this Note to the contrary, the
Company
shall be afforded a grace period of ten
(10) business days from the end of each
of the First Measurement Period and the
Second Measurement Period, respectively,
to determine the amounts, if any, to be
offset under this Section 3.
For purposes of this Note, "EBITDA" means pre-tax income, plus
interest expense, plus depreciation and
amortization expense, as determined by
the Company's certified public accountants,
which determination shall be binding
on the parties. In determining EBITDA,
salary expense attributable to Stephen H.
Rosen shall not exceed $100,000 during any
12-month period.
SECTION
3A. Increase in Note
Principal.
In the event that EBITDA for SHRA for the First Measurement
Period
exceeds $660,000, an amount equal to thirty
percent (30%) of such excess shall
be payable by the Company to the Holder and
Rosen as additional principal
(without interest) no later than thirty
(30) days after the end of the First
Measurement Period, allocable to the Holder
and Rosen in accordance with the
Sharing Ratio.
In the event that EBITDA for SHRA for the Second Measurement
Period
exceeds $660,000, an amount equal to thirty
percent (30%) of such excess shall
be payable by the Company to the Holder and
Rosen as additional principal
(without interest) no later than (30) days
after the end of the Second
Measurement Period, allocable to the Holder
and Rosen in accordance with the
Sharing Ratio.
Notwithstanding the foregoing, if (i) Rosen is offered
continued
employment at the end of the one-year term
of the Employment Agreement and
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declines such offer, or (ii) Rosen resigns
from his employment with SHRA or is
terminated for Cause (as defined in the
Employment Agreement) prior to the
Maturity Date (a "Section 3A Termination
Event"), then any right to payment
under this Section 3A shall terminate, and
any payments previously made by the
Company under this Section 3A shall be
repaid to the Company upon demand
therefor.
Amounts
payable under this Section 3A shall not be affected by any
conversion of all or any portion of this
Note.
SECTION 4.
Conversion.
(a) Conversion Right. (i) Commencing on the date hereof, until
the
close of business on July 31, 2007, the
Holder shall have the right, from time
to time (the "Conversion Right") in its
sole discretion, to convert all or a
portion of the outstanding principal amount
and accrued and unpaid interest
then-outstanding hereunder into such number
of shares ("Conversion Shares") of
the Common Stock, par value $0.001 per
share, of the Company (the "Common
Stock"), as are determined by dividing (i)
the sum of the principal and interest
to be converted by (ii) the Conversion
Price (as defined below); provided,
however, that any conversion hereunder
shall be in increments of principal and
interest of not less than Twenty-Five
Thousand Dollars ($25,000) or the entire
remaining outstanding balance of this Note,
whichever is less. Any portion of
the principal and interest hereunder that
is so converted shall be deemed to be
converted in the direct order of maturity
and applied against the earliest cash
payment(s) that would otherwise be due and
payable hereunder.
"Conversion Price" for any conversion hereunder shall be equal
to
the Fair Market Value per share of the
Common Stock as in effect on the
Determination Date.
"Determination Date" shall mean the June 30 or December 31,
whichever i
