CONVERTIBLE, SUBORDINATED PROMISSORY NOTE
$ 1,200,000.00 Melbourne, Florida March , 1998
FOR VALUE RECEIVED, the undersigned, Metretek, Incorporated, a Florida
corporation (the "Purchaser"), and Xxxxxx Natural Gas Services, Inc., a
Delaware corporation ("Marcum" 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 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 March , 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 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
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 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.
(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.
[To be based upon, and slightly less restrictive than, the debt
covenant in Xxxxxx'x new credit facility.]
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;
(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 , 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.
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:
Its:
XXXXXX NATURAL GAS SERVICES, INC.
By:
Its:
EXHIBIT A
CONVERSION NOTICE
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:
$
The undersigned requests that a certificate for such Common Shares be
issued in the name of and delivered to:
(Name)
(Address)
(City, State, Zip Code)
(Employer Identification Number)
Dated: Signature:
