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EXHIBIT 10.4
AMENDMENT NO. 2 TO
CONVERTIBLE NOTES
AND
AGREEMENT TO CONVERT
This Amendment No. 2 to Convertible Notes and Agreement to Convert
(this "Amendment"), dated effective as of June 29, 2001, is by and between SJMB,
L.P., a Texas limited partnership ("SJMB"), and Industrial Holdings, Inc., a
Texas corporation ("IHI").
WITNESSETH:
WHEREAS, SJMB is the holder of two Subordinated Convertible
Promissory Notes dated August 25, 2000, one in the original principal amount of
$3,450,000 convertible to IHI common stock at $1.15 per share ("Note A") and the
other in the original principal amount of $3,450,000 convertible to IHI common
stock at $2.00 per share ("Note B," and together with Note A, the "Convertible
Notes"); and
WHEREAS, IHI and SJMB have entered into (i) a Consent and Release
dated as of May 7, 2001, whereby SJMB has given its consent to the sale of A&B
Bolt and Supply, Inc. to T-3 Energy Services, Inc. ("T-3) and the subsequent
merger of IHI and T-3 (the "Merger"), and (ii) Amendment No. 1 to the
Convertible Notes and Agreement to Convert dated as of May 7, 2001 ("Amendment
No. 1"), whereby SJMB and IHI agreed that SJMB would convert the Convertible
Notes on the consummation of the Merger at a Conversion Price of $1.75 per
share; and
WHEREAS, SJMB and IHI desire that this Amendment govern, among
other things, (i) the termination of each party's obligations and rights set
forth in Amendment No. 1 and (ii) the conversion of the Convertible Notes prior
to and on the date of the consummation of the Merger, in accordance with the
terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Incorporation of the Convertible Notes. All capitalized terms
which are not defined herein shall have the same meanings as set forth in the
Convertible Notes, to the extent not inconsistent with this Amendment. To the
extent any terms and provisions of the Convertible Notes are inconsistent with
the amendments set forth herein, such terms and provisions shall be deemed
superseded hereby.
2. Termination of Amendment No. 1. Each party's obligations and
rights set forth in Amendment No. 1 are hereby terminated in their entirety. The
original Conversion Price as set forth in Article IV of each Convertible Note is
hereby reinstated.
3. Conversion of Note A. SJMB hereby elects to convert as of June
29, 2001, $3,450,000 of the principal and $326,792 of the accrued interest
outstanding under Note A, which represents all principal and accrued interest
due under Note A as of June 29, 2001 into
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3,284,167 shares of common stock of IHI pursuant to Article IV of Note A. Upon
receipt of the 3,284,167 shares of IHI common stock pursuant to this Section 3,
SJMB shall surrender the original Note A to IHI for cancellation.
4. Payment and Conversion of Note B at the Consummation of the
Merger. Notwithstanding any other provisions of the Convertible Notes, on the
date of the consummation of the Merger (the "Closing Date"), IHI shall pay
$350,000 of the accrued interest under Note B in cash to SJMB and all of the
remaining principal and accrued interest outstanding under Note B shall
automatically convert into the number of shares of IHI common stock equal to (1)
the number of shares that would have been received by SJMB had SJMB not
converted or received payment for any portion of principal or interest under the
Convertible Notes, but instead had converted the entire principal and interest
under both Convertible Notes as if outstanding on the Closing Date at $1.75 per
share (as provided by Amendment No. 1), less (2) the 3,284,167 shares issued to
SJMB pursuant to Section 3 above. For purposes of providing an example only, as
set forth in Schedule A, assuming that the Closing Date occurs on September 30,
2001, SJMB would receive an additional 1,143,004 shares of common stock of IHI
on the Closing Date (the difference between the 4,427,171 shares SJMB would have
received under Amendment No. 1 and the 3,284,167 received pursuant to Section 3
above). Upon receiving the common stock of IHI pursuant to this Section 4, SJMB
shall surrender the original Note B to IHI for cancellation.
5. Conversion Standstill; Assignment; and Prepayment.
Notwithstanding any provision of the Convertible Notes, SJMB agrees that except
as provided in this Amendment, it shall not exercise any right to convert any
portion of Note B prior to the earlier to occur of (i) the Closing Date and (ii)
December 31, 2001, unless such date is extended by the parties hereto, and SJMB
shall not assign any right, title or interest in Note B to any third party prior
to the Closing Date without the express written consent of IHI and without the
written agreement of such third party to be bound by the terms of this
Amendment. IHI agrees that it shall not prepay all or any portion of Note B
prior to the earlier to occur of (i) the Closing Date and (ii) December 31,
2001, unless such date is extended by the parties hereto. IHI will have the
right to prepay all or any part of the outstanding principal and accrued and
unpaid interest under Note B at any time after December 31, 2001; provided,
however, that IHI is not entitled to prepay any portion of Note B as to which
SJMB has given prior notice of conversion; provided further, notwithstanding any
provision of Note B to the contrary, once IHI has given notice of prepayment of
all or any portion of Note B, that portion of Note B may not be converted to
common stock of IHI. Each notice to convert any portion of Note B pursuant to
Section 4 of Note B shall be given five business days prior to conversion, and
once given, such notice shall be irrevocable. All notices of prepayment shall be
given pursuant to Section 2.3 of Note B, and once given, payment of the portion
of Note B being prepaid shall be made five business days from such notice.
6. Warrant. If the merger is not completed by December 31, 2001, on
that date, IHI shall (i) pay SJMB $600,000 in cash, (ii) issue SJMB a warrant
(the "Warrant) to purchase one million (1,000,000) shares of IHI common stock
with an exercise price of $1.00 per share in substantially the same form as the
warrant to purchase 750,000 shares of IHI common stock issued to SJMB as of June
29, 2000, and (iii) grant SJMB demand and piggy-back registration rights with
respect to the IHI Common Stock issuable upon exercise of the Warrant in
substantially the same form granted to SJMB pursuant to the Registration Rights
Agreement
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dated as of June 30, 2000 entered into between IHI and SJMB in connection with
the Convertible Notes. The obligations of IHI under this Section 6 shall be
secured by the security interests granted by IHI under the Subordinated Security
Agreement dated as of June 13, 2000 in favor of SJMB.
7. Miscellaneous.
a. IHI hereby acknowledges that SJMB has assigned
Note A and Note B to Legacy Trust Company, as collateral agent
("Legacy") for Blackcross, a California general partnership
("Blackcross"), Antar & Co. ("Antar") and Xxxxxx X. Xxxx
("Xxxx").
b. Legacy, Blackcross, Xxxxx, Xxxx, T-3 Energy
Services, Inc. and First Reserve Fund VIII, L.P. each hereby
consents to the conversion of Note A and the other terms of
this Amendment; and Legacy, Blackcross, Antar and Xxxx, as
assignees of Note B, each hereby agrees to be bound by the
terms of this Amendment.
c, This Amendment may not be amended without the
written consent of IHI and SJMB.
d. The section headings used in this Amendment are
for convenience of reference only and do not constitute a part
of this Amendment for any purpose.
e. This Amendment shall be governed by and construed
in accordance with the laws of the State of Texas, regardless
of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
f. The terms, covenants and conditions contained
herein shall inure to the benefit of, and bind, the respective
parties and their assigns, transferees and successors.
g. This Amendment may be executed in any number of
counterparts and by different parties in separate
counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of such counterparts
taken together shall constitute but one and the same
instrument.
h. This Amendment constitutes the entire agreement of
the parties of the matters described herein and may not be
modified or amended except in written instrument between the
parties hereto.
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IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed on this 29th day of June, 2001.
SJMB, L.P.
By: /s/ XXXX X. XXXXXXXX
------------------------------------------
Name: Xxxx X. Xxxxxxxx
Title: Chief Executive Officer of the
general partner
INDUSTRIAL HOLDINGS, INC.
By: /s/ XXXXXX X. XXXX
------------------------------------------
Name: Xxxxxx X. Xxxx
Title: President and Chief Executive Officer
T-3 Energy Services, Inc. and First Reserve Fund, VIII, Limited
Partnership hereby consent to the signing of this Amendment.
T-3 ENERGY SERVICES, INC.
By: /s/ XXXXXXX X. XXXXXXXXXX
-----------------------------------
Xxxxxxx X. Xxxxxxxxxx
President and CEO
FIRST RESERVE FUND VIII,
LIMITED PARTNERSHIP
By:First Reserve GP VIII, L.P.,
its General Partner
By:First Reserve Corporation,
its General Partner
By: /s/ XXXXXX XXXXXXX
-----------------------------------
Xxxxxx Xxxxxxx
Managing Director
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ANTAR.& Co.
By: /s/ X.X. XXXXXX
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X.X. Xxxxxx
General Partner
BLACKCROSS
By: /s/ XXXXX XXXXXX
-----------------------------------
Xxxxx Xxxxxx
Managing Partner
XXXXXX X. XXXX
/s/ XXXXXX X. XXXX
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Xxxxxx X. Xxxx
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SCHEDULE A
TO AMENDMENT NO. 2 TO
CONVERTIBLE NOTES
AND
AGREEMENT TO CONVERT
THIS SCHEDULE IS INCLUDED FOR ILLUSTRATION PURPOSES ONLY. IT ILLUSTRATES THE
CALCULATION OF INDUSTRIAL HOLDINGS COMMON SHARES TO BE ISSUED TO SJMB IN
ACCORDANCE WITH SECTION 4 OF THE AMENDMENT, ASSUMING THE CLOSING DATE IS
SEPTEMBER 30, 2001.
Calculation of Industrial Holdings common shares that would have been received
under Amendment No. 1:
Note A principal $3,450,000
Note A accrued interest at 9/30/01 $ 423,775
Note B principal $3,450,000
Note B accrued interest at 9/30/01 $ 423,775
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Total Note A and Note B principal and accrued interest at 9/30/01 $7,747,550
Conversion price $1.75
Conversion shares 4,427,171
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Calculation of Industrial Holdings common shares to be issued upon conversion of
Note B:
Industrial Holdings common shares that would have been
received under Amendment No. 1 4,427,171
Industrial Holdings common shares received upon conversion
of Note A pursuant to Section 3 of the Amendment 3,284,167
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Industrial Holdings common shares to be issued at
conversion of Note B 1,143,004
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