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EXHIBIT 10.1
CONVERTIBLE, SUBORDINATED PROMISSORY NOTE
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$ 1,200,000.00 Melbourne, Florida
May 4, 1998
FOR VALUE RECEIVED, the undersigned, Metretek, Incorporated, a Florida
corporation (the "Purchaser"), and Xxxxxx Natural Gas Services, Inc., a Delaware
corporation ("Xxxxxx" and, collectively with Purchaser, the "Maker"), hereby
promises to pay to the order of Eagle Research Corporation, a West Virginia
corporation (the "Payee"), and assigns, at its principal office located at Xxxxx
Depot, West Virginia or at such other place as the Payee or other holder hereof
(the "Holder") may from time to time designate in writing, in lawful money of
the United States of America, the principal sum of One Million Two Hundred
Thousand and No/100 Dollars ($1,200,000.00), subject to reduction as provided in
Section 8 hereof, together with interest on the unpaid balance of such principal
sum at the rate provided in Section 2 hereof.
1. REPAYMENT OF PRINCIPAL. The principal sum of this Note shall be due
and payable on May 4, 2002, in a single installment in an amount equal to the
entire principal sum of this Note then outstanding.
2. INTEREST. This Note shall bear interest on the unpaid principal sum
from the date hereof at the rate per annum equal to seven and one-half percent
(7.50%) Interest on this Note shall be computed on the basis of the actual
number of days elapsed (including the first day but excluding the last day)
during which the unpaid principal sum is outstanding, divided by a year of 365
or 366 days, as the case may be. Accrued, unpaid interest on the outstanding
principal sum of this Note shall be due and payable quarterly in arrears on the
first day of each July, October, January and March, commencing July 1, 1998, and
at the maturity of this Note (however such maturity shall occur). All payments
shall be applied first to accrued, unpaid interest and the balance, if any,
applied to the outstanding principal sum of this Note. All past due principal of
and interest on this Note shall bear interest from the due date thereof (whether
by acceleration or otherwise) until paid at the rate per annum equal to ten and
one-half percent (10.5%), provided that in no event shall such interest rate
exceed the maximum interest rate permitted by law.
3. PREPAYMENT. The Maker shall have the right to prepay the outstanding
principal sum of this Note, in whole at any time or in part from time to time,
without premium or penalty, subject only to the provisions of Section 4(a)
hereof.
4. CONVERSION. This Note is convertible into shares of common stock,
par value $.01 per share ("Common Shares"), of Xxxxxx upon the terms and subject
to the conditions set forth in this Section 4.
(a) CONVERSION OPTION. At the option of the Holder, upon the
terms and subject to the conditions set forth in this Section 4, this Note may
be converted into Common Shares (i) at any time on or after the date hereof, in
increments of no less than $250,000, or (ii) for a period of thirty (30) days
commencing on the date the Maker gives notice to the Holder ("Prepayment
Notice") of its
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intention to prepay all or a portion (in excess of $100,000) of the outstanding
principal sum of this Note (the "Prepayment Payment"), in increments no less
than the lesser of the Prepayment Amount or $250,000. In the event and to the
extent the Holder converts all or a portion of the Prepayment Amount and Xxxxxx
delivers the Common Shares into which such portion was converted, then Maker's
obligation to make that portion of the Prepayment Amount shall be deemed to be
fulfilled by delivery to Holder of the Common Shares into which such portion was
converted.
(b) CONVERSION RATE. This Note may be converted into Common
Shares at the initial conversion rate of one Common Share for each $1.421875 of
the principal sum of this Note, subject to adjustment as described below.
(c) CONVERSION PROCEDURE. In order to convert this Note into
Common Shares, the Holder must (i) complete, sign and deliver to Xxxxxx the
Conversion Notice attached to this Note as Exhibit A, (ii) surrender this Note
to Xxxxxx, (iii) furnish appropriate endorsements and transfer documents if
required by Xxxxxx, and (iv) pay any transfer or similar tax, if required. The
date upon which Xxxxxx receives the duly signed and completed Conversion Notice,
the Note and all other required documentation and fees is referred to herein as
the "Conversion Date." As promptly as practicable after the Conversion Date,
Xxxxxx shall issue and deliver one or more certificates for the whole number of
Common Shares issuable upon such conversion, together with an cash payment in
lieu of any fractional Common Shares. Such conversion shall be deemed effective
immediately prior to the close of business on the Conversion Date, and at such
time the rights of the Holder with respect to the indebtedness evidenced hereby
shall cease. The Holder shall not be entitled to receive any cash dividends
payable to holders of Common Shares as of any record date before the Conversion
Date.
(e) FRACTIONAL SHARES. No fractional Common Shares shall be
issued upon conversion of this Note but, in lieu thereof, Xxxxxx will pay to the
Holder an amount in cash based upon the Conversion Rate.
(f) CONVERSION RATE ADJUSTMENT FOR CERTAIN GENERAL EVENTS.
(i) GENERAL EVENTS. The Conversion Rate is subject to
adjustment upon the occurrence of any of the following events: (A) the issuance
of Common Shares as a dividend or a distribution with respect to the Common
Shares; (B) the subdivision of the outstanding Common Shares into a greater
number of shares; (C) the combination of the outstanding Common Shares into a
smaller number of shares; (D) the issuance to all holders of Common Shares of
certain rights or warrants entitling them to subscribe for or purchase Common
Shares (or securities convertible into Common Shares) at a price less than the
lesser of the then current market price per Common Share or the Conversion Rate;
and (E) the distribution to all holders of Common Shares of shares of capital
stock (other than Common Shares), evidences of indebtedness of Xxxxxx or of
other non-cash assets (including securities but excluding those rights,
warrants, dividends and distributions referred to above or paid in cash).
(ii) ADJUSTMENT.
(A) GENERALLY. In the event of the
occurrence of any of the foregoing events, then the Conversion Rate in effect
immediately prior to such event shall be adjusted so that, upon the conversion
of the Note the Holder receives the number of Common Shares or other Securities
or assets which it would have received immediately following such event if it
had converted the Note
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immediately prior to the record date relative to such event. Any adjustment of
the Conversion Rate shall become effective immediately after the record date, in
the case of a dividend or distribution, and immediately after the effective
date, in the case of a subdivision, combination or reclassification. All
calculations under this Section 4(f) shall be made to the nearest 1/100th of a
cent.
(B) 1% MINIMUM ADJUSTMENT. No adjustment in
the Conversion Rate will be required to be made unless and until such adjustment
that would require a change of at least one percent (1%) of the Conversion Rate
then in effect; provided, however, that any adjustment that would not be
required to be made shall be taken into account in any subsequent adjustment.
(C) MULTIPLE ADJUSTMENTS. If any event would
require adjustment of the Conversion Rate pursuant to more than one of the
provisions described above, only one adjustment shall be made, and such
adjustment shall be in the amount of the adjustment having the highest absolute
value to the Holder.
(D) EVENTS NOT REQUIRING ADJUSTMENT. Except
as set forth in this Section 4, the Conversion Rate shall not be adjusted for
the issuance of Common Shares or securities convertible into or exchangeable for
Common Shares or securities granting the right to purchase any of the foregoing.
No adjustments shall be made for a event referred to above if the Holder is
entitled to participate in the event on the basis and with notice that the Board
of Directors of Xxxxxx determines to be fair and appropriate in light of the
basis and notice on which the holders of Common Shares participate in the event.
No adjustments need to be made for rights to purchase Common Shares pursuant to
a company plan for reinvestment of dividends or interest. No adjustments need to
be made for a change in the par value of the Common Shares.
(E) SPECIAL AUTHORITY. Xxxxxx reserves the
right to make such reductions in the Conversion Rate in addition to these
required in the foregoing provisions as it considers to be advisable in order
that any event treated for federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the recipients.
(F) NOTICES OF ADJUSTMENTS. Whenever the
Conversion Rate is adjusted, the Company will promptly mail to the Holder a
notice of the adjustment.
(g) MERGERS, CONSOLIDATIONS, AND SALE OF ASSETS. In the event
the Company shall be a party to any transaction (including without limitation
(i) any recapitalization or reclassification of the Common Shares (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination of the Common Shares),
(ii) any consolidation or merger of the Company with or into another person or
any merger of another person into the Company (other than a merger that does not
result in a reclassification, conversion, exchange or cancellation of the Common
Shares), (iii) any sale or transfer of all or substantially all of the assets of
the Company, or (iv) any compulsory share exchange) pursuant to which either the
Common Shares shall be converted into the right to receive other securities,
cash or other property, or in the case of a sale or transfer of all or
substantially all of the assets of the Company, the holders of the Common Shares
shall be entitled to receive other securities, cash or other property, then
appropriate provision shall be made as part of the terms of such transaction so
that Holder shall have the right thereafter to convert this Note only into the
kind and amount of the securities, cash or other property that would have been
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of Common Shares
issuable upon conversion of such Note
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immediately prior to such recapitalization, reclassification, consolidation,
merger, sale, transfer or share exchange.
(h) VOLUNTARY REDUCTION IN CONVERSION RATE. The Maker from
time to time may, to the extent permitted by law, reduce the Conversion Rate of
this Note by any amount for any period of at least twenty (20) days, in which
case the Maker shall give at least fifteen (15) days prior written notice of
such reduction.
(i) RESERVATION OF COMMON SHARES. Xxxxxx shall at all times
reserve and keep available out of its authorized but unissued Common Shares,
solely for the purpose of effecting the conversion of this Note, such number of
Common Shares as shall from time to time be sufficient to effect the conversion
of the then outstanding principal sum of the Note. If at any time the number of
authorized but unissued Common Shares shall not be sufficient to effect the
conversion of this Note, then Xxxxxx shall take such corporate action as may be
necessary to increase its authorized but unissued Common Shares to such number
of Common Shares as shall be sufficient for such purpose.
(j) COST OF CONVERSION. Xxxxxx shall pay all documentary,
stamp or other transactional taxes attributable to the issuance or delivery of
Common Shares upon conversion of this Note. However, Holder shall be required to
pay any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such Common Shares in a name other
than that of the Holder.
(k) COMMON SHARE LIMITATION. Notwithstanding any other
provision of the Note to the contrary, in no event shall the aggregate number of
Common Shares to be issued by Xxxxxx upon conversion of the Note when added to
the aggregate number of Common Shares issued by Xxxxxx to Purchaser upon the
closing of the Purchase Agreement, exceed 19.99% of the aggregate number of
Common Shares outstanding as of the date immediately prior to the date hereof.
5. SUBORDINATION.
(a) SUBORDINATION OF PAYMENT. The indebtedness evidenced by
this Note is subordinated and junior in right of payment to the prior payment in
full of all indebtedness of the Company and its subsidiaries to any bank, or
other financial institution for money borrowed under any loan agreement, credit
agreement, promissory note or similar instruments ("Bank Debt"). No payment of
principal or interest on that Note may be paid (i) if any Bank Debt is not paid
when due and any applicable grace period with respect to such default has ended
and such default has not been cured or waived or ceased to exist, or (ii) if the
maturity of any Bank Debt has been accelerated because of a default by Xxxxxx.
(b) DISSOLUTION, LIQUIDATION AND BANKRUPTCY. Upon any
distribution of assets of Xxxxxx to creditors upon any dissolution, winding-up,
liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceeding, all principal premium,
if any, and interest due or to become due on all Bank Debt must be paid in full
before the Holder is entitled to receive or retain any payments.
(c) SUBROGATION. Upon satisfaction of all claims of all Bank
Debt then outstanding, the rights of the Holder shall be subrogated to the
rights of the Holders of Bank Debt to receive payments or distributions
applicable to Bank Debt until all amounts owing on this Note are paid in full.
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(d) CERTAIN DISTRIBUTIONS. In the event that, notwithstanding
the foregoing, a payment or distribution of assets of Xxxxxx of any kind in
contravention of any of the provisions set forth in this Section 5(e) pertaining
to subordination, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Note before all
Bank Debt is paid in full, then such payment or distribution shall be held by
the Holder in trust for the benefit of Holders of Bank Debt or their
representatives to the extent necessary to make payment in full of all Bank Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
or provision therefor, to or for the holders of Bank Debt.
6. DEBT COVENANT.
(a) COVENANTS. Xxxxxx covenants and agrees that, so long as
Maker has any obligations to Payee under this Note, Xxxxxx shall observe and
perform the following financial covenants, unless the Payee shall otherwise
consent in writing:
(i) CONSOLIDATED TANGIBLE NET WORTH. Xxxxxx'x
consolidated tangible net worth (as such term is defined in accordance with GAAP
and including any and all subordinate debt which has been approved by Lender in
it sole discretion) shall not be less than $6,700,000, calculated as of the end
of each fiscal quarter.
(ii) DEBT SERVICE COVERAGE RATIO. The ratio of
Xxxxxx'x earnings before interest, taxes, depreciation, amortization and
extraordinary gains to interest expense (as such terms are defined in accordance
with GAAP) shall not be less than 1.8 to 1.0, calculated as of the end of each
fiscal quarter.
(b) COMPUTATION. For purposes of computing the debt covenants
set forth in Section 6(a) hereof:
(i) The term GAAP means Generally Accepted Accounting
Principles, applied on a consistent basis by Xxxxxx, as set forth in Opinions of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board
and/or their respective successors, and which are applicable in the
circumstances as of the date of question.
(ii) The financial covenants with respect to Xxxxxx
shall be computed based upon Xxxxxx'x consolidated financial statements which
include the accounts of Xxxxxx and its subsidiaries after elimination of
inter-company accounts and transactions.
7. DEFAULT.
(a) EVENTS OF DEFAULT. Each of the following shall be deemed
an "Event of Default":
(i) The failure of the Maker to pay interest on the
Note within thirty (30) days of the date when the same becomes due and payable;
(ii) The failure of the Maker to pay the principal
sum of this Note on the date when the same becomes due and payable;
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(iii) The failure of the Maker to convert the
principal sum of the Note into Common Shares (as defined below) upon the terms
and subject to the conditions set forth in this Note;
(iv) The failure of the Maker to observe or perform
any of its other covenants set forth in this Note, which failure continues for a
period of thirty (30) days after receipt of notice by the Holder of such
failure;
(v) The commencement by the Maker of a voluntary
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or a substantial part of
its property, or the consent by the Maker to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or the making by the Maker of a
general assignment for the benefit of creditors; or
(vi) The commencement of an involuntary proceeding
against the Maker seeking liquidation, reorganization, or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for it or a substantial part of
its property, which involuntary proceeding remains undismissed and unstayed for
a period of sixty (60) days.
(b) REMEDIES UPON DEFAULT. If an Event of Default under this
Note shall occur and be continuing, the Holder shall have the right to declare
the outstanding principal sum of and accrued interest to the date of
acceleration on this Note then outstanding to be due and payable by giving
written notice to the Maker to that effect, and upon the Company's receipt of
such Notice, the principal sum of and accrued interest on this Note shall become
due and payable. In addition, if an Event of Default shall occur and be
continuing, the Holder may pursue any available remedy to collect the payment of
principal or interest on this Note or to enforce the performance of any
provision of this Note. The Holder shall have the right to waive any past or
existing default or Event of Default and its consequences Note.
8. ASSET PURCHASE AGREEMENT AND CONVERTIBLE NOTE ADJUSTMENT. This Note
is the "Convertible Note" provided for in that certain Asset Purchase Agreement,
dated March 23, 1998 (the "Agreement"), by and among Payee, American Meter
Company, Purchaser and Xxxxxx and is executed by Maker as part of the
consideration for the sale by Payee to Purchaser of the "Assets" (as that term
is defined in the Agreement). The principal sum of this Note shall be reduced by
the amount of any "Convertible Note Adjustment", as such term is defined, at the
time and in the manner that such reduction is provided for in Section 2.4 of the
Agreement.
9. WAIVER OF PROCEDURAL DEFENSES. Makers and each endorser, surety and
guarantor hereby waives presentment for payment, demand for payment, notice of
non-payment or dishonor, protest, notice of protest, notice of acceleration or
maturity, and any and all other notices and demands whatsoever, and agree to
remain bound until the principal and interest are paid in full, notwithstanding
any extensions of time for payment which may be granted, even though the period
of extension may be indefinite, and notwithstanding any inaction by or failure
to asset any legal right available to the Holder.
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10. SEVERABILITY. If any provision of this Note or application thereof
to any person or circumstance is held invalid, such invalidity shall not affect
other provisions of this Note which can be given effect without the invalid
provisions, and to this end the provisions of this Note shall be severable.
11. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflict or choice of law.
12. NO WAIVER. No delay or omission of the Holder to exercise any right
or power arising under this Note shall impair any such right or power or be
construed to be a waiver of any such right or power, nor shall the action or
nonaction of the Holder in case of default on the part of Maker impair any right
or power resulting therefrom.
13. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Note nor the rights nor obligations herein may
be assigned by the Maker without the prior written consent of the Holder;
provided, however, that the Maker has the right at all times to assign any of
its respective rights or obligations under this Note to a direct or indirect
wholly-owned subsidiary of the Maker, wholly-owned provided that, in the event
of such assignment, the Maker shall remain liable for all of its respective
obligations hereunder.
MAKER:
METRETEK, INCORPORATED
By: /s/ W. Xxxxxxx Xxxxxx
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Its: Chief Executive Officer
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XXXXXX NATURAL GAS SERVICES, INC.
By: /s/ W. Xxxxxxx Xxxxxx
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Its: President
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EXHIBIT A
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CONVERSION NOTICE
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The undersigned, the Holder of the enclosed Convertible, Subordinated
Promissory Note (the "Note"), hereby irrevocably elects to exercise its option
to convert the Note into shares of common stock, par value per unit $.01 per
share ("Common Shares"), of Xxxxxx Natural Gas Services, Inc. in the following
amount:
$
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The undersigned requests that a certificate for such Common Shares be
issued in the name of and delivered to:
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(Name)
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(Address)
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(City, State, Zip Code)
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(Employer Identification Number)
Dated: Signature:
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