EXHIBIT 4.1 - FORM OF $3,450,000 CONVERTIBLE PROMISSORY NOTE A
THE SECURITIES REPRESENTED BY THIS NOTE AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
THE RIGHT TO RECEIVE ANY PAYMENTS HEREON IS SUBJECT TO THE TERMS OF THAT CERTAIN
SUBORDINATION AGREEMENT AND ASSIGNMENT AGREEMENT DATED AS OF JUNE 30, 2000 BY
AND BETWEEN THE MAKER AND THE LENDER AND IN FAVOR OF COMERICA BANK-TEXAS,
NATIONAL BANK OF CANADA AND HIBERNIA NATIONAL BANK, REFERENCE TO WHICH
INSTRUMENT IS HERE MADE AND WHICH INSTRUMENT IS HERE INCORPORATED BY REFERENCE
FOR ALL PURPOSES. THIS IS NOT A NEGOTIABLE NOTE. ANY HOLDERS' RIGHTS IN THIS
NOTE ARE SUBJECT TO THE PROVISIONS OF THE SUBORDINATION AGREEMENT.
INDUSTRIAL HOLDINGS, INC.
$3,450,000 SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$3,450,000 Houston, Texas August __,2000
INDUSTRIAL HOLDINGS, INC., a Texas corporation (hereinafter called the
"Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to SJMB, L.P., a Delaware limited partnership (hereinafter called the "Holder"),
or its registered assigns, the principal sum of up to Three Million Four Hundred
and Fifty Thousand Dollars ($3,450,000), together with interest on the amount of
such principal sum from time to time outstanding, payable in accordance with the
terms set forth below.
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular; (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as promulgated from time to time by the
Association of Independent Certified Public Accountants; and (c) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Note as a whole and not to any particular Article, Section or other
subdivision.
"BOARD OF DIRECTORS" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
"COMMON STOCK" means shares of common stock, par value $0.01 per share, of
the Company.
"CONVERSION PRICE" means the price per share determined in accordance with
Articles IV and V (as adjusted in accordance with the terms of this Note) at
which shares of Common Stock shall be delivered to Holder upon conversion of
this Note.
"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"EVENT OF DEFAULT" has the meaning specified in Section 3.1.
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"INDEBTEDNESS" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (a) for the principal of and premium, if any, and
interest on all debts of the Person whether outstanding on the date of this Note
or thereafter created (i) for money borrowed by such Person (including
capitalized lease obligations), (ii) for money borrowed by others (including
capitalized lease obligations) and guaranteed, directly or indirectly, by such
Person, or (iii) constituting purchase money indebtedness, or indebtedness
secured by property ("Purchase Money Indebtedness") at the time of the
acquisition of such property by such Person, for the payment of which the Person
is directly or contingently liable; (b) for all accrued obligations of the
Person in respect of any contract, agreement or instrument imposing an
obligation upon the Person to pay over funds; (c) for all trade debt of the
Person; and (d) for all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the indebtedness referred
to in (a), (b) or (c) above.
"MATURITY DATE", when used with respect to this Note, means the date which
is the earlier of (1) eighteen (18) months following the date hereof, and (2)
such earlier date upon which this Note becomes due and payable under Section
3.2.
"NOTE" means this $3,450,000 11% Convertible Promissory Note, as hereafter
amended, modified, substituted or replaced.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
other entity, unincorporated organization or government or any agency or
political subdivision thereof.
"SIGNIFICANT SUBSIDIARY" means at any time, any Subsidiary of the Company
that constitutes a "Significant Subsidiary" of the Company within the meaning of
Rule 1-02 of Regulation S-X under the Securities Act of 1933, as amended.
"SUBORDINATION AGREEMENT" means that certain Subordination Agreement dated
as of June 30, 2000 by and among the Company, the Holder and Comerica Bank-Texas
as Agent, the terms of which are incorporated by reference as if fully set forth
herein, and by which the repayment of this Note is subordinated to certain
indebtedness owing by the Company to Comerica Bank-Texas, National Bank of
Canada and Hibernia National Bank all as more fully provided therein.
"SUBSIDIARY" means a corporation or other entity more than 50% of the
outstanding voting stock of which, or more than 50% of the equity interest in
which, is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries of the Company, or by any combination of the Company and one or
more other Subsidiaries. For purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors, and
equity interests means the right to receive the profits of the entity, when
disbursed, or the assets of the entity upon liquidation or dissolution.
ARTICLE II
INTEREST AND REPAYMENT
2.1 INTEREST. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate equal to eleven percent (11%) per annum calculated on the basis
of a 360-day year. All past due amounts of principal and interest shall bear
interest at fifteen percent (15%) per annum calculated on the basis of a 360-day
year until paid.
2.2 PAYMENT OF PRINCIPAL AND INTEREST. Subject to the terms of the
Subordination Agreement, the principal and all accrued and unpaid interest under
this Note shall be due and payable in full on the Maturity Date.
2.3 PREPAYMENTS. Subject to the terms of the Subordination Agreement and
also subject to Holder's right to convert, at any time before the Maturity Date,
the Company may prepay this Note, in whole or in part, without penalty or
discount, upon five days' prior written notice given to Holder pursuant to
Section 7.5. All payments made under this Note shall be applied first to accrued
interest, and the balance, if any, to principal;
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provided, however, that interest shall accrue on any remaining principal balance
and shall be payable at the rate provided above.
2.4 MANNER OF PAYMENT. Payments of principal and interest on this Note
will be made by delivery of a check to Holder at its address as set forth in
this Note or a wire transfer pursuant to instructions from Holder. If the date
upon which the payment of principal and interest is required to be made pursuant
to this Note occurs other than on a Business Day, then such payment of principal
and interest shall be made on the next occurring Business Day following said
payment date and shall include interest through said next occurring Business
Day.
ARTICLE III
REMEDIES
3.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment or mandatory prepayment of
the principal or interest on this Note or that certain other $3,450,000
Convertible Promissory Note issued by the Company to SJMB pursuant to the
terms of the OF Letter Agreement (the "Second Note") when such principal
or interest becomes due and payable; or
(b) the Company defaults in the performance of any covenant made by
the Company, in and of (i) that certain Letter Agreement dated June 30,
2000 among the Company, Holder, OF Acquisition, L.P., St. James
Management, L.L.C. and Philform, Inc. (the "OF Letter Agreement"); (ii)
the Common Stock Purchase Warrants issued by the Company to Holder
pursuant to the terms of the OF Letter Agreement (the "OF Warrants");
(iii) the Registration Rights Agreement dated as of June 30, 2000 between
the Company and the initial Holder hereof (the "Registration Rights
Agreement"); (iv) this Note (other than a default in the performance of a
covenant specifically addressed elsewhere in this Section 3.1); (v) the
Second Note; (vi) that certain Reimbursement Agreement dated as of June
16, 2000 among Holder and the Company (the "Reimbursement Agreement"); or
(vii) any document or agreement pursuant to which this Note is secured by
assets of the Company or any of its Subsidiaries and such default remains
uncured for a period of 30 days; PROVIDED THAT a default in the
performance of any covenant in Section 6.1 of this Note shall be an Event
of Default immediately upon occurrence; or
(c) any representation or warranty made by the Company or any
Significant Subsidiary in the OF Warrants, the Registration Rights
Agreement, the OF Letter Agreement, this Note, the Second Note or the
Reimbursement Agreement or in any certificate furnished by the Company in
connection with the consummation of the transaction contemplated thereby
or hereby, is untrue in any material respect as of the date of making
thereof; or
(d) a default or event of default occurs under any document
evidencing any Indebtedness of the Company or any Significant Subsidiary
(other than the Indebtedness evidenced by this Note or the Second Note or
good-faith disputes with trade creditors) having an aggregate principal
amount in excess of $500,000 and all applicable cure periods have run with
respect thereto without such default or event of default having been cured
to the satisfaction of the holder of such Indebtedness; PROVIDED, HOWEVER,
that the Company's current defaults in certain indebtedness owed to
Trinity Industries, Inc. and EnSerCo L.L.C. shall not be considered a
default hereunder; or
(e) a court of competent jurisdiction enters a final and
non-appealable judgment or judgments against the Company or any
Significant Subsidiary, or any property or assets of the Company or any
Significant Subsidiary, for the payment of money aggregating $100,000 or
more in excess of applicable insurance coverage; or
(f) a court of competent jurisdiction enters (i) a decree or order
for relief in respect of the Company or any Significant Subsidiary in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (ii) a
decree or order adjudging the Company or any Significant 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 or any
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Significant Subsidiary under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Significant
Subsidiary or of any substantial part of the property of the Company or
any Significant Subsidiary or ordering the winding up or liquidation of
the affairs of the Company or any Significant Subsidiary and any such
decree or order of relief or any such other decree or order remains
unstayed for a period of 90 days from its date of entry; or
(g) the Company or any Significant Subsidiary commences a voluntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the Company or
any Significant Subsidiary files a petition, answer or consent seeking
reorganization or relief under any applicable federal or state law, or the
Company or any Significant Subsidiary makes an assignment for the benefit
of creditors, or admits in writing its inability to pay its debts
generally as they become due; or
(h) any person or group (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) becomes the beneficial owner of 40% or
more of the total voting power of the Company and was not the beneficial
owner of 40% or more of the total voting power of the Company as of the
date hereof; provided that the foregoing shall not include the initial
Holder hereof, its affiliates or any person or group who or which acquires
the OF Warrants or shares of the Company's Common Stock issuable upon
exercise of the OF Warrants or upon conversion of this Note or the Second
Note; and further provided that such default has not been cured or waived
within ninety (90) days following such change of beneficial ownership; or
(i) the Company or any Significant Subsidiary (1) merges or
consolidates with or into any other Person (unless the Company or any
Significant Subsidiary is the surviving or acquiring party); (2) dissolves
or liquidates; or (3) sells all or any substantial portion of its assets
(unless the purchaser is a Significant Subsidiary of the Company).
3.2 ACCELERATION OF MATURITY. This Note and all accrued interest shall
automatically become immediately due and payable if an Event of Default
described in Sections 3.1(f), 3.1(g) or 3.1(i) occurs and, this Note shall, at
the option of the Holder in its sole discretion, become immediately due and
payable if any other Event of Default occurs, and in every such case the Holder
of this Note may declare the principal and interest on the Note to be due and
payable immediately.
ARTICLE IV
CONVERSION OF NOTE
Subject to and upon compliance with the provisions of this Article, at the
option of Holder, all or any part of this Note may be converted at any time, at
the principal amount hereof together with accrued and unpaid interest thereon,
into fully paid and nonassessable shares (calculated as to each conversion to
the nearest 1/100 of a share) of Common Stock. The Conversion Price shall
initially be $1.15 per share, subject to adjustment as provided in Article V
below. Notwithstanding anything else to the contrary set forth herein, the
Holder shall have the right to convert this Note pursuant to the terms set forth
herein at any time, including the 30 Business Days following (i) the Maturity
Date or (ii) any prepayment pursuant to Section 2.3 hereof. If Holder elects to
convert this Note after a prepayment has been made pursuant to Section 2.3, then
Holder shall return all or such portion of the funds paid to Holder as to which
Holder has elected to convert.
ARTICLE V
ADJUSTMENT OF CONVERSION PRICE
5.1 ANTI-DILUTION PROVISIONS. The Conversion Price shall be subject to
adjustment from time to time as hereinafter provided.
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5.2 ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON STOCK.
5.2.1 (A) If and whenever after the date hereof the Company shall
issue or sell any Common Stock for no consideration or for a consideration
per share less than the Conversion Price, issue convertible securities
other than this Note or the Second Note, issue warrants other than the
Warrants issued as of the date hereof, grant stock options, or issue any
other common stock equivalent (other than shares reserved for issuance to
officers, employees, directors, consultants or advisors of the Company
pursuant to existing stock option or restricted stock purchase plans)
then, forthwith, upon such issue or sale, the Conversion Price shall be
reduced (but not increased, except as otherwise specifically provided in
Section 5.2.2), to the lower price per share (calculated as provided in
this Section 5.2 to the nearest one-tenth of a cent) but in no event less
than $0.01 per share.
(B) Notwithstanding the provisions of this Section 5.2, no
adjustment shall be made in the Conversion Price in the event that the
Company issues, in one or more transactions, (i) Common Stock upon
exercise of any options issued to officers, directors or employees of the
Company pursuant to a stock option plan or an employment, severance or
consulting agreement as now or hereafter in effect, in each case approved
by the Board of Directors (provided that the aggregate number of shares of
Common Stock which may be issuable, including options issued prior to the
date hereof, under all such employee plans and agreements shall at no time
exceed the number of such shares of Common Stock outstanding on the date
hereof on a fully diluted basis that are issuable under currently
effective employee plans and agreements); (ii) Common Stock upon
conversion of this Note, the Second Note or any warrants issued pursuant
to the terms of the OF Letter Agreement; (iii) Common Stock upon exercise
of any stock purchase warrant or option (other than the options referred
to in clause (i) above) or other convertible security outstanding on the
date hereof; (iv) Common Stock issued as consideration in acquisitions
(including warrants, options or convertible securities issued as
consideration for an acquisition or to officers, directors or employees of
the acquired entity in conjunction therewith);or (v) warrants or
convertible notes pursuant to any of the transactions contemplated by that
certain Amended and Restated Letter of Intent dated June 12, 2000, among
Holder, the Company and St. James Capital Partners, L.P. or Common Stock
issuable upon conversion of any such notes or exercise of any such
warrants. In addition, for purposes of calculating any adjustment of the
Conversion Price as provided in this Section 5.2, all of the shares of
Common Stock issuable pursuant to any of the foregoing shall be assumed to
be outstanding prior to the event causing such adjustment to be made.
5.2.2 For purposes of this Section 5.2, the following shall be
applicable:
(A) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time after the
date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called
"Convertible Securities") (other than warrants, options or convertible
securities issued as consideration for or assumed in conjunction with an
acquisition or to officers, directors, or employees of the acquired entity
in conjunction therewith), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which shares of
Common Stock are issuable upon the exercise of such rights or options or
upon conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of such rights or options, or plus, in
the case of such rights or options that relate to Convertible Securities,
the minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights or options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such rights or options) shall be less than
the Conversion Price in effect as of the date of granting such rights or
options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon conversion or exchange
of all such Convertible Securities issuable upon the exercise of such
rights or options shall be deemed to be outstanding as of the date of the
granting of such rights or options and to
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have been issued for such price per share, with the effect on the
Conversion Price specified in Section 5.2.1 hereof. Except as provided in
Section 5.2.2 hereof, no further adjustment of the Conversion Price shall
be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon exercise of such rights or options or upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) CHANGE IN OPTION PRICE OR CONVERSION RATE. If: (i) the purchase
price provided for in any right or option, (ii) the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock shall be
decreased (other than under or by reason of provisions designed to protect
against dilution), the Conversion Price then in effect shall be decreased
to the Conversion Price that would have been in effect had such rights,
options or Convertible Securities provided for such changed purchase
price, additional consideration or conversion rate at the time initially
issued.
(C) CONSIDERATION FOR STOCK. In case at any time Common Stock or
Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash,
the consideration therefor shall be deemed to be the amount received by
the Company therefor. In case at any time any Common Stock, Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration, as
determined reasonably and in good faith by the Board of Directors of the
Company. In case at any time any Common Stock, Convertible Securities or
any rights or options to purchase any Common Stock or Convertible
Securities shall be issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of
consideration received therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as such Board of Directors may determine to be attributable to
such Common Stock, Convertible Securities, rights or options as the case
may be. In case at any time any rights or options to purchase any shares
of Common Stock or Convertible Securities shall be issued in connection
with the issuance and sale of other securities of the Company, together
consisting of one integral transaction in which no consideration is
allocated to such rights or options by the parties, such rights or options
shall be deemed to have been issued without consideration.
(D) RECORD DATE. In the case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock or
Convertible Securities, or (ii) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be deemed to be the
date of the issuance or sale of the Common Stock or Convertible Securities
deemed to have been issued or sold as a result of the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(E) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned directly by
the Company in treasury, and the disposition of any such shares shall be
considered an issuance or sale of Common Stock for the purpose of this
Section 5.2.
5.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
5.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares into which
this Note may be converted immediately prior to such subdivision shall be
proportionately increased, and conversely, in the event that the outstanding
shares of Common Stock shall at any time be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased and the number
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of Shares into which this Note may be converted immediately prior to such
combination shall be proportionately reduced. Except as provided in this Section
5.4 no adjustment in the Conversion Price and no change in the number of Shares
shall be made under this Article V as a result of or by reason of any such
subdivision or combination.
5.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that holders of Common Stock
shall be entitled to receive capital stock, securities or assets with respect to
or in exchange for their shares, then the following provisions shall apply:
5.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in Section 5.5.3), lawful and adequate
provisions shall be made whereby the holder of this Note shall thereafter
have the right to purchase and receive upon the terms and conditions
specified in this Note and in lieu of the shares immediately theretofore
receivable upon the exercise of the rights represented hereby, such shares
of capital stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such
Common Stock equal to the number of shares immediately theretofore so
receivable had such reorganization, reclassification, consolidation,
merger, share exchange or sale not taken place, and in any such case
appropriate provision reasonably satisfactory to such holder shall be made
with respect to the rights and interests of such holder to the end that
the provisions hereof (including, without limitation, provisions for
adjustments of the Conversion Price and of the number of shares receivable
upon the exercise) shall thereafter be applicable, as nearly as possible,
in relation to any shares of capital stock, securities or assets
thereafter deliverable upon the exercise of this Note.
5.5.2 In the event of a merger, share exchange or consolidation of
the Company with or into another Person as a result of which a number of
shares of common stock or its equivalent of the successor Person greater
or lesser than the number of shares of Common Stock outstanding
immediately prior to such merger, share exchange or consolidation are
issuable to holders of Common Stock, then the Conversion Price in effect
immediately prior to such merger, share exchange or consolidation shall be
adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock.
5.5.3 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if
other than the Company) resulting from such consolidation, share exchange
or merger or the Person purchasing or otherwise acquiring such assets
shall have assumed by written instrument executed and mailed or delivered
to the Holder hereof at the last address of such Holder appearing on the
books of the Company the obligation to deliver to such Holder such shares
of capital stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive, and all
other liabilities and obligations of the Company hereunder. Upon written
request by the Holder hereof, such Successor Person will issue a new Note
revised to reflect the modifications in this Note effected pursuant to
this Section 5.5.
5.5.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger, share
exchange or sale, transfer or other disposition of all or substantially
all of the Company's assets with the Person having made such offer or with
any affiliate of such Person, unless prior to the consummation of such
consolidation, merger, share exchange, sale, transfer or other disposition
the holder hereof shall have been given a reasonable opportunity to then
elect to receive upon the conversion of this Note either the capital
stock, securities or assets then issuable with respect to the Common Stock
or the capital stock, securities or assets, or the equivalent, issued to
previous holders of the Common Stock in accordance with such offer.
5.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock
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(other than Common Stock, Convertible Securities or options or rights thereto)
or other property), the Conversion Price in effect immediately prior to such
declaration of such dividend or other distribution shall be reduced by an amount
equal to the amount of such dividend or distribution payable per share of Common
Stock, in the case of a cash dividend or distribution, or by the fair value of
such dividend or distribution per share of Common Stock (as reasonably
determined in good faith by the Board of Directors of the Company), in the case
of any other dividend or distribution. Such reduction shall be made whenever any
such dividend or distribution is made and shall be effective as of the date as
of which a record is taken for purpose of such dividend or distribution or, if a
record is not taken, the date as of which holders of record of Common Stock
entitled to such dividend or distribution are determined.
5.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon conversion of the Note and no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.01 in the Conversion Price; provided, however, that any
adjustments which by reason of this Section 5.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
5.8. NOTICE OF ADJUSTMENT. Whenever the Conversion Price or the number of
Shares issuable upon the conversion of the Note shall be adjusted as herein
provided, or the rights of the holder hereof shall change by reason of other
events specified herein, the Company shall compute the adjusted Conversion Price
and the adjusted number of Shares in accordance with the provisions hereof and
shall prepare an Officer's Certificate setting forth the adjusted Conversion
Price and the adjusted number of Shares issuable upon the conversion of this
Note or specifying the other shares of stock, securities or assets receivable as
a result of such change in rights, and showing in reasonable detail the facts
and calculations upon which such adjustments or other changes are based. The
Company shall cause to be mailed to the Holder hereof copies of such Officer's
Certificate together with a notice stating that the Conversion Price and the
number of Shares purchasable upon conversion of this Note have been adjusted and
setting forth the adjusted Conversion Price and the adjusted number of Shares
purchasable upon conversion of this Note.
5.9 NOTIFICATIONS TO HOLDER. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution
(other than cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the holders
of its Common Stock any additional shares of capital stock of any
class or other rights;
(iii) to effect any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation, merger or share exchange of the Company with another
Person, or sale, transfer or other disposition of all or
substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution,
liquidation or winding up of the Company,
then, in any one or more of such cases, the Company shall give the Holder hereof
(a) at least 10 days (but not more than 90 days) prior written notice of the
date on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of any such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days
(but not more than 90 days) prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto, and
such notice in accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock, as the case may be, for securities or other property deliverable
upon such
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reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, as the case may
be.
5.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
this Note evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Note, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Conversion Price and the number of shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Conversion
Price as otherwise determined pursuant to this Article except in the event of a
combination of shares of the type contemplated in Section 5.4 hereof, and then
in no event to an amount greater than the Conversion Price as adjusted pursuant
to Section 5.4 hereof.
ARTICLE VI
COVENANTS
The Company covenants and agrees that, so long as this Note is
outstanding:
6.1 PAYMENT OF PRINCIPAL AND ACCRUED INTEREST. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof.
6.2 CORPORATE EXISTENCE. The Company will, and will cause each Subsidiary
to, do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights (charter and statutory) and
franchises unless failure to do so will not result in a material adverse effect
on the business, assets or financial condition of the Company and its
Subsidiaries, taken as a whole; provided, however, that the Company or a
Subsidiary shall not be required to preserve any such right or franchise if it
shall reasonably determine that the preservation thereof is no longer desirable
in the conduct of its business.
6.3 TAXES; CLAIMS; ETC. The Company will, and will cause each Subsidiary
to, promptly pay and discharge all lawful taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits, or upon any of
its properties, real, personal, or mixed, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies or
otherwise which, if unpaid, might become a lien or charge upon such properties
or any part thereof, and which lien or charge will have a material adverse
effect on the business of the Company; provided, however, that neither the
Company nor any Subsidiary shall be required to pay or cause to be paid any such
tax, assessment, charge, levy, or claim prior to institution of foreclosure
proceedings if the validity thereof shall concurrently be contested in good
faith by appropriate proceedings and if the Company shall have established
reserves deemed by the Company adequate with respect to such tax, assessment,
charge, levy, or claim.
6.4 MAINTENANCE OF EXISTENCE AND PROPERTIES. The Company will, and will
cause each Subsidiary to, keep its material properties in good repair, working
order, and condition, ordinary wear and tear excepted, so that the business
carried on may be properly conducted at all times in accordance with prudent
business management.
6.5 RESERVATION OF SHARES. The Company shall reserve at all times so long
as all or any part of this Note remains outstanding, free from preemptive
rights, out of its treasury Common Stock or its authorized but unissued shares
of Common Stock, or both, solely for the purpose of effecting the conversion of
this Note pursuant to Article IV hereof, a sufficient number of shares of Common
Stock to provide for the conversion of this Note.
6.6 NOTICE OF DEFAULTS. The Company will promptly notify the Holder in
writing of the occurrence of (i) any Event of Default under this Note, and (ii)
any event of default (or if any event of default would result upon any payment
with respect to this Note) with respect to any Indebtedness as such event of
default is defined therein or in the instrument under which it is outstanding,
permitting holders to accelerate the maturity of such Indebtedness.
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ARTICLE VII
MISCELLANEOUS
7.1 CONSENT TO AMENDMENTS. This Note may be amended, and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if and only if the Company shall obtain the written consent
to such amendment, action or omission to act from the holders of a majority of
the aggregate principal amount of this Note.
7.2 BENEFITS OF NOTE; NO IMPAIRMENT OF RIGHTS OF HOLDER OF SENIOR
INDEBTEDNESS. Nothing in this Note, express or implied, shall give to any
Person, other than the Company, Holder, and their successors any benefit or any
legal or equitable right, remedy or claim under or in respect of this Note.
7.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
7.4 ASSIGNMENTS. Holder may sell, transfer and assign this Note and any
rights hereunder upon written notice to the Company. Any lender to which Holder
grants a security interest in this Note shall be entitled to exercise all
remedies to which it is entitled by contract or by law, including (without
limitation) transferring this Note into its own name or into the name of any
purchaser at any sale undertaken in connection with enforcement by such lender
of its remedies.
7.5 NOTICE; ADDRESS OF PARTIES. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference
to this Note shall be deemed to have been sufficiently given or served for
all purposes on the third business day after being sent as certified or
registered mail, postage and charges prepaid, to the following addresses: if
to the Company: Industrial Holdings, Inc., 7135 Ardmore, Houston, Texas
77054, Attn: President, or at any other address designated by the Company in
writing to Holder; if to Holder: SJMB, L.P., c/o SJMB, L.L.C., 777 Post Oak
Boulevard, Suite 950, Houston, Texas 77056, Attn: John L. Thompson, or at
any other address designated by Holder to the Company in writing.
7.6 SEPARABILITY CLAUSE. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
7.7 GOVERNING LAW. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of Texas (without regard to
principles of choice of law).
7.8 USURY. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (hereinafter referred to in this Section 7.8
as "Applicable Law"). The Holder shall have no right to claim, to charge or to
receive any interest in excess of the maximum rate of interest, if any,
permitted to be charged on that portion of the amount representing principal
which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 7.8 as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by Applicable Law for
contracting for, charging or receiving Interest in excess of the maximum rate
allowed by Applicable Law. Any such excess which is unpaid shall be canceled.
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7.9 COLLECTION FEES. If this Note is placed in the hands of an attorney
for collection, and if it is collected through any legal proceedings at law or
in equity or in bankruptcy, receivership or other court proceedings, the Company
hereby undertakes to pay all reasonable costs and expenses of collection
including, but not limited to, court costs and the reasonable attorney's fees of
Holder.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
INDUSTRIAL HOLDINGS, INC.
By:_______________________________________
Name: Michael N. Marsh
Title: President and Chief Executive
Officer
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