Contract
EXHIBIT 10.2
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT TO THIS NOTE OR SUCH SECURITIES, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH ACT AND
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.
$1,000,000.00
|
Austin, Texas | Effective as of July 7, 2004 |
For value received, Tejas Incorporated, a Delaware corporation (the “Company”), hereby
promises to pay to Xxxxxx Family Partners, Ltd. or registered assigns (the “Holder”), the
principal sum of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00), on the dates specified herein,
with interest as specified herein.
This Note is subject to the following additional provisions, terms and conditions:
ARTICLE 1. DEFINITIONS.
Section 1.1.
Certain Definitions.
“Applicable Rate” means 10% per annum.
“Bankruptcy Law” means Title 11, United State Code or any similar federal or state law
for the relief of debtors.
“Business Day” means any day that is not a Saturday or Sunday or a day on which banks
are required or permitted to be closed in Austin, Texas.
“Common Stock” means the Company’s common stock, $0.001 par value.
“Conversion Price” means Ten Dollars ($10.00).
“Default Rate” means 14% per annum.
“DGCL” means the Delaware General Corporation Law, as amended from time to time.
“Distribution Event” means any insolvency, bankruptcy, receivership, liquidation,
reorganization or similar proceeding (whether voluntary or involuntary) relating to the Company or
its property, or any proceeding for voluntary or involuntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or bankruptcy.
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“Holder” has the meaning given to such term in the first paragraph of this Note.
“Interest Payment Date” means the first day of each calendar quarter.
“Maturity Date” means December 1, 2005.
“Maximum Rate” means the maximum nonusurious interest rate permitted under applicable
law.
“Note” means this Replacement Subordinated Convertible Promissory Note made by the
Company payable to the Holder, together with all amendments and supplements hereto, all
substitutions and replacements herefor, and all renewals, extensions, increases, restatements,
modifications, rearrangements and waivers hereof from time to time.
“Person” means any individual, corporation, partnership, joint venture, association,
limited liability company, joint-stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
“Preferred Stock Conversion Price” means One Thousand Dollars ($1,000.00).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
“Subsidiary” means Tejas Securities Group, Inc., a wholly-owned subsidiary of the
Company.
ARTICLE 2. BASIC TERMS.
Section 2.1.
Principal.
(a) Scheduled Repayment. The principal of this Note shall be due and payable on the
Maturity Date.
(b) Prepayment. The principal and/or interest on this Note may not be prepaid
in whole or in part without the prior consent of Holder.
Section 2.2. Interest.
(a) The Company agrees to pay interest in respect of the unpaid principal amount of this Note
at a rate per annum equal to the lesser of the Applicable Rate or the Maximum Rate.
Notwithstanding the preceding sentence, the Company agrees to pay interest in respect of overdue
principal, and, to the extent permitted by law, overdue interest, at a rate per annum equal to the
lesser of the Default Rate or the Maximum Rate.
(b) Interest on the unpaid principal amount of this Note shall be due and payable (i) on each
Interest Payment Date and the Maturity Date, (ii) upon the payment or conversion of any of the
principal of this Note, (iii) at the maturity of this Note (whether by
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acceleration or otherwise), and (iv) after maturity (whether by acceleration or otherwise), on
demand.
(c) All computations of interest, both before and after maturity, shall be made on the basis
of a year of 365 days (or 366 days, as applicable) for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such interest is payable.
Section 2.3. Payments in General. Whenever any payment to be made under this Note
shall be stated to be due on a day that is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day, and, with respect to payments of principal, interest
thereon shall be payable at the applicable rate during such extension. Each payment received by
the Holder shall be applied first to collection expenses, if any, then to the payment of accrued
but unpaid interest hereunder, and then to the reduction of the unpaid principal balance hereof.
Section 2.4. Surrender of Note on Transfer or Conversion. This Note shall, as a
condition to transfer, be surrendered to the Company in exchange for a new Note in a principal
amount equal to the principal amount remaining unpaid on the surrendered Note, and with the same
terms and conditions as this Note. In case the entire principal amount of this Note is prepaid or
converted pursuant to Article 4, this Note shall be surrendered to the Company for
cancellation and shall not be reissued.
Section 2.5. No Collateral. This Note is unsecured.
Section 2.6. Subordination. The Holder’s rights to payments hereunder are subordinate
to the rights and security interests of First United Bank pursuant to Promissory Note dated
February 17, 2004, as amended, modified, revised or restructured from time to time. The Company
shall obtain the prior written consent of Holder prior to (i) incurring any indebtedness for
borrowed money following the date of this Note or (ii) subordinating this Note to any rights and
security interests granted to a bank or other third party institutional lender following the date
of this Note. Upon giving such written consent, the Holder agrees to execute all documentation
reasonably requested by a bank or other third party institutional lender to subordinate the
Holder’s rights to payment under this Note.
ARTICLE 3. DEFAULT AND REMEDIES.
Section 3.1.
Events of Default. An “Event of Default” occurs if:
(a) the Company defaults in the payment of principal or interest on the Note when the same
becomes due and payable and such default continues for 3 days after the Company has received
written notice thereof;
(b) default by the Company in the punctual performance of any other obligation, covenant, term
or provision contained in this Note, and such default shall continue unremedied for a period of 10
days or more following written notice of default by Holder to the Company;
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(c) the closing price of the Company’s publicly traded Common Stock, as reported on a national
or regional securities exchange, quotation system, or over-the-counter bulletin board, is less than
$1.00 per share for ten (10) consecutive trading days;
(d) Xxxx Xxxxxx is no longer employed by the Company or the Subsidiary;
(e) the net liquidating equity of the Subsidiary held at its clearing organization as of the
close of business on the last Business Day of a calendar month is less than Two Million Dollars
($2,000,000); or
(f) the Company (i) commences a voluntary case concerning itself under any Bankruptcy Law now
or hereafter in effect, or any successor thereof; (ii) is the object of an involuntary case under
any Bankruptcy Law; or (iii) commences any Distribution Event or is the object of an involuntary
Distribution Event.
Section 3.2. Remedies.
(a) If an Event of Default (other than an Event of Default under Section 3.1(f)) shall
occur, the Holder may declare by notice in writing given to the Company, the entire unpaid
principal amount of the Note, together with accrued but unpaid interest thereon, to be immediately
due and payable, in which case the Note shall become immediately due and payable, both as to
principal and interest, without presentment, demand, default, notice of intent to accelerate and
notice of such acceleration, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or elsewhere to the contrary notwithstanding; provided, that if the only
Event of Default arises under Section 3.1(d) because Xxxx Xxxxxx has died or become
disabled, then the Notice shall become due and payable, both as to principal and interest, sixty
(60) days after receipt of such notice by the Company.
(b) If an Event of Default under Section 3.1(f) shall occur and be continuing, the
entire unpaid principal amount of the Note, together with accrued but unpaid interest thereon,
shall automatically become immediately due and payable, both as to principal and interest, without
presentment, demand, default, notice of intent to accelerate and notice of such acceleration,
protest or notice of any kind, all of which are hereby expressly waived, anything herein or
elsewhere to the contrary notwithstanding.
(c) If any Event of Default shall have occurred, the Holder may proceed to protect and enforce
their rights either by suit in equity or by action at law, or both.
ARTICLE
4. CONVERSION.
Section 4.1.
Right of Conversion.
(a) The Holder shall have the right at any time, to convert, subject to the terms and
provisions of this Article 4, the unpaid principal of this Note into a number of fully paid
and nonassessable shares of Common Stock equal to (i) the amount of unpaid principal that the
Holder elects to convert pursuant to Section 4.2, divided by (ii) the Conversion Price.
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(b) In the event (i) the Company amends its certificate of incorporation in accordance with
the DGCL and its existing certificate of incorporation and bylaws (including but not limited to
obtaining approval of the Company’s stockholders for such amendment) to authorize the Company to
issue shares of preferred stock with such terms as described in (c) below and (ii) the Board of
Directors of the Company establishes, in accordance with the DGCL and its amended certificate of
incorporation and bylaws, a separate series of the Company’s preferred stock with such terms as
described in (c) below and for the purpose of enabling the Holder to convert this Note into shares
of such preferred stock, then the Holder shall have the right at any time to convert, subject to
the terms of this Article 4, the unpaid principal of this Note into a number of fully paid
and nonassessable shares of the Company’s preferred stock (the terms of which are described in
Section 4.1(c) below, the “Preferred Stock”) equal to (i) the amount of unpaid
principal that the Holder elects to convert pursuant to Section 4.2, divided by (ii) the
Preferred Stock Conversion Price.
(c) The terms of the Preferred Stock shall generally include (i) a 10% cumulative dividend
payment requirement, payable on a quarterly basis, (ii) a right of the Company to mandatorily
convert the Preferred Stock into Common Stock at the Conversion Price in the event that the Common
Stock of the Company trades above $10.00 per share for ten (10) consecutive trading days with a
trading volume of at least 50,000 shares for each such trading day, (iii) a liquidation preference
over the Common Stock equal to the Conversion Price (as appropriately adjusted for any stock
splits, stock dividends or similar events), (iv) a right of the Holder to convert the Preferred
Stock into Common Stock on a one-for-one basis, subject to antidilution provisions similar to the
antidilution provisions set forth in Section 4.8, (v) the Preferred Stock shall vote on an
as converted basis with the Common Stock on all matters requiring a stockholder vote except where a
separate class vote is required pursuant to the terms of the DGCL, and (vi) such other terms as
agreed to by the Holder and the Company. Notwithstanding Section 4.1(b), if the Company
and the Holder are unable to reasonably agree on the terms of the Preferred Stock, the Note shall
not be convertible into Preferred Stock.
Section 4.2. Mechanics of Exercise. The right of conversion shall be exercised by the
surrender of this Note to the Company during usual business hours at its principal place of
business accompanied by written notice (a) that the Holder elects to convert all or a portion of
the unpaid principal of this Note and such portion being so converted, and (b) specifying the name
(with address) in which the certificate for shares is to be issued and, if the certificate is to be
issued to a Person other than the Holder, (i) a written instrument of transfer in form reasonably
satisfactory to the Company, duly executed by the Holder, together with transfer tax stamps or
funds therefor if required pursuant to Section 4.7 and (ii) an opinion of counsel
satisfactory to the Company to the effect that registration of such transfer under the Securities
Act is not required. Upon surrender for conversion, this Note shall be cancelled and, if less than
all of the unpaid principal amount of this Note is to be converted, the Company shall issue a new
Note to the Holder in a principal amount equal to the unpaid principal amount of this Note not so
converted.
Section 4.3. Issuance of Shares; Time of Conversion. As promptly as practicable after
the surrender, as herein provided, of this Note for conversion, the Company shall deliver or cause
to be delivered at the Company’s office (or such other location that the Holder reasonably requests
in writing) a certificate for the shares of Common Stock or Preferred Stock (as the case
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may be) issuable in connection with such conversion. To the extent permitted by law, the
rights of the Holder as the Holder shall cease as of the date of actual receipt of such stock
certificate by the Person entitled to receive the stock certificate, and the Person entitled to
receive the stock certificate deliverable upon such conversion shall be treated for all purposes as
having become the record holder of the stock represented by such certificate at such time.
Notwithstanding delivery of this Note to the Company for conversion, the Holder shall be deemed to
continue to hold this Note and shall be entitled to all of the rights hereunder (including
interest) until the delivery of such stock certificate to the Person entitled to receive such stock
certificate, other than rights arising from any Event of Default that results solely from the
expiration of a time period (including the Maturity Date) for so long as the Company is taking all
reasonable efforts to provide such stock certificate promptly.
Section 4.4. No Stockholder Rights. Prior to the issuance of Common Stock or
Preferred Stock (as the case may be) upon conversion, the Holder shall not be entitled to any
rights of a stockholder with respect to the Common Stock or Preferred Stock, including (without
limitation) the right to vote such stock, receive dividends or other distributions thereon,
exercise preemptive rights or be notified of stockholder meetings, and the Holder shall not, by
virtue of holding this Note, be entitled to any notice or other communication concerning the
business or affairs of the Company.
Section 4.5. Shares to be Reserved. Prior to the time this Note is repaid in full or
is converted pursuant to the terms hereof, the Company covenants that it will reserve and keep
available out of its authorized but unissued Common Stock or Preferred Stock (as the case may be),
free from preemptive rights, solely for the purpose of issuance upon conversion of this Note as
herein provided, such number of shares of Common Stock or Preferred Stock (as the case may be) as
shall then be issuable upon the conversion of all principal on this Note. The Company covenants
that all Common Stock or Preferred Stock (as the case may be) which shall be so issuable shall,
when issued, be duly and validly issued and fully paid and nonassessable and shall be free of any
liens, encumbrances, or restrictions on transfer (other than those created by applicable state
and/or federal securities law).
From and after the date of this Note, the Company shall take all necessary or desirable
actions within its control, including without limitation calling board and stockholder meetings,
sending appropriate notices and proxy materials for such meetings and actively soliciting proxies,
in order to amend its certificate of incorporation in accordance with the DGCL and its certificate
of incorporation and bylaws (including but not limited to obtaining the approval of the Company’s
stockholders for such amendment) to authorize the Company to issue shares of preferred stock as
soon as is reasonably practicable. The board of directors of the Company shall (i) adopt a
resolution setting forth such proposed amendment, declaring its advisability and calling a meeting
of the stockholders entitled to vote in respect thereof for the consideration of such amendment,
(ii) recommend to the stockholders the approval of such amendment and not change such
recommendation, and (iii) following the approval of such amendment by the Company’s stockholders,
establish in accordance with the DGCL and the Company’s amended certificate of incorporation and
bylaws a separate series of the Company’s preferred stock having the terms of the Preferred Stock.
Section 4.6. No Registration or Listing of Shares.
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(a) The shares of Common Stock or Preferred Stock (as the case may be) issuable on conversion
will not be registered with any governmental authority or, in the case of Preferred Stock, listed
on any exchange or trading system, and except as set forth in this Section 4.6, the Company
shall have no obligation to register or, in the case of Preferred Stock, list such stock. The
stock issued upon conversion of the Note shall bear a restrictive legend describing limitations of
the transferability of such stock under the Securities Act and any other restrictions imposed by
law or contract.
(b) The Holder shall be granted piggy back registration rights in the shares of Common Stock
issuable upon conversion of this Note or the Preferred Stock, pursuant to the Registration Rights
Agreement dated as of this date hereof between the Company and Holder.
Section 4.7. Taxes and Charges. The issuance of certificates for stock upon the
conversion of this Note shall be made without charge to the Holder for such certificates or for any
tax in respect of the issuance of such certificates or the securities represented thereby, and such
certificates shall be issued in the respective names of, or in such names as may be directed by,
the Holder; provided, however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the Holder of the Note, and the Company shall not be required to issue or
deliver such certificates unless or until the Person or Persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
Section 4.8. Adjustments. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation or any other change in the
corporate structure of the Company, or a sale by the Company of all or substantially all of its
assets, or any distribution to stockholders other than a normal cash dividend, the Board of
Directors of the Company shall make appropriate adjustment in the number and kind of shares of
Common Stock into which this Note is convertible; provided, that in no event shall (a) the
Preferred Stock Conversion Rate be less than $1,000.00 or (b) more than 1,000 shares of Preferred
Stock be issued as a result of conversion of this Note. Without the advance written approval of
the Holder, the Company shall not authorize or issue, or obligate itself to issue, any capital
stock of the Company for a price per share less than the then applicable Conversion Price, other
than Common Stock issued to employees, directors, or consultants of the Company pursuant to a stock
option plan, stock incentive plan, stock appreciation right, or other plan or arrangement in the
ordinary course of the Company’s business.
ARTICLE 5. MISCELLANEOUS.
Section 5.1. Amendment. This Note may be amended, modified, superseded or cancelled,
and any of the terms, covenants, representations, warranties or conditions hereof and thereof may
be waived, only by a written instrument executed by the Holder and the Company.
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Section 5.2. Successors and Assigns.
(a) The rights and obligations of the Company and the Holder under this Note shall be binding
upon, and inure to the benefit of, and be enforceable by, the Company and the Holder, and their
respective permitted successors and assigns.
(b) The Holder may not sell, assign (by operation of law or otherwise), transfer, pledge,
grant a security interest in, or otherwise dispose of this Note or any portion hereof or any rights
or obligations hereunder unless (i) the Company has granted its prior written consent, and (ii) the
Company shall have received a written opinion of counsel acceptable to the Company, addressed to
the Company, to the effect that any such proposed transfer or other disposition complies with all
applicable Federal and state securities laws; provided, that the written consent of the Company
shall not be required for any sale, assignment, transfer or other disposition to Xxxx Xxxxxx or his
spouse, parents, siblings or lineal descendants (by blood, marriage or adoption), or any trust,
partnership, corporation, limited liability company or other similar entity solely for the benefit
of Xxxx Xxxxxx or his spouse, parents, siblings or lineal descendants (by blood, marriage or
adoption).
(c) The registered owner of this Note may be treated as the owner of it for all purposes.
Section 5.3. Defenses. The obligations of the Company under this Note shall not be
subject to reduction, limitation, impairment, termination, defense, set-off, counterclaim or
recoupment for any reason.
Section 5.4. Replacement of Note. Upon receipt by the Company of evidence,
satisfactory to it, of the loss, theft, destruction, or mutilation of this Note and (in the cases
of loss, theft or destruction) of any indemnity reasonably satisfactory to it, and upon surrender
and cancellation of this Note, if mutilated, the Company will deliver a new Note of like tenor in
lieu of this Note. Any Note delivered in accordance with the provisions of this Section
5.4 shall be dated as of the date of this Note.
Section 5.5. Attorneys’ and Collection Fees. Should the indebtedness evidenced by
this Note or any part hereof be collected at law or in equity or in bankruptcy, receivership or
other court proceedings, the Company agrees to pay, in addition to principal and interest due and
payable hereon, all costs of collection, including reasonable attorney’s fees and expenses,
incurred by the Holder in collecting or enforcing this Note.
Section 5.6. Governing Law. This Note and the validity and enforceability hereof
shall be governed by and construed and interpreted in accordance with the laws of the State of
Texas without giving effect to conflict of laws rules or choice of laws rules thereof.
Section 5.7. Waivers. Except as may be otherwise provided herein, the makers,
signers, sureties, guarantors and endorsers of this Note severally waive demand, presentment,
notice of dishonor, notice of intent to demand or accelerate payment hereof, notice of
acceleration, diligence in collecting, grace, notice, and protest, and agree to one or more
extensions for any period or periods of time and partial payments, before or after maturity,
without prejudice to the Holder.
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Section 5.8. No Waiver by Xxxxxx. No failure or delay on the part of the Holder in
exercising any right, power or privilege hereunder and no course of dealing between the Company and
the Holder shall operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
Section 5.9. No Impairment. The Company will not, by amendment of its certificate of
incorporation or through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or performed hereunder by
the Company, but will at times in good faith assist in the carrying out of all the provisions of
this Note.
Section 5.10. Limitation on Interest. Notwithstanding any other provision of this
Note, interest on the indebtedness evidenced by this Note is expressly limited so that in no
contingency or event whatsoever, whether by acceleration of the maturity of this Note or otherwise,
shall the interest contracted for, charged or received by the Holder exceed the maximum amount
permissible under applicable law. If from any circumstances whatsoever fulfillment of any
provisions of this Note or of any other document evidencing, securing or pertaining to the
indebtedness evidenced hereby, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to
be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the
Holder shall ever receive anything of value as interest or deemed interest by applicable law under
this Note or any other document evidencing, securing or pertaining to the indebtedness evidenced
hereby or otherwise an amount that would exceed the highest lawful rate, such amount that would be
excessive interest shall be applied to the reduction of the principal amount owing under this Note
or on account of any other indebtedness of the Company to the Holder, and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal of this Note and
such other indebtedness, such excess shall be refunded to the Company. In determining whether or
not the interest paid or payable with respect to any indebtedness of the Company to the Holder,
under any specific contingency, exceeds the highest lawful rate, the Company and the Holder shall,
to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, (c) amortize, prorate, allocate and spread the total amount of interest throughout the
term of such indebtedness so that the actual rate of interest on account of such indebtedness does
not exceed the maximum amount permitted by applicable law, and/or (d) allocate interest between
portions of such indebtedness, to the end that no such portion shall bear interest at a rate
greater than that permitted by applicable law. The terms and provisions of this paragraph shall
control and supersede every other conflicting provision of this Note and all other agreements
between the Company and the Holder.
Section 5.11. Severability. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision(s) shall be excluded from this Note and the
balance of this Note shall be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.
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EXECUTED as of the date first written above.
| TEJAS INCORPORATED | ||||
| By: /s/ Xxxx X. Xxxxxx | ||||
| Name: | Xxxx X. Xxxxxx | |||
| Title: | Chief Financial Officer | |||
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