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EXHIBIT 10.16
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 RESOLD, PLEDGED, OR OTHERWISE
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.
ACR GROUP, INC.
10% Convertible Promissory Note
$1,400,000 Houston, Texas January 24, 1997
ACR Group, Inc., a Texas corporation (hereinafter called the
"Company," which term includes any successor corporation), and its Subsidiaries
(as such term is hereinafter defined), for value received, hereby promises to
pay to St. James Capital Partners, L.P., a Delaware limited partnership
(hereinafter called "Holder"), or its registered assigns, the principal sum of
One Million Four Hundred Thousand Dollars ($1,400,000) (or such lesser amount
as may be then outstanding hereunder) together with interest on the amount of
such principal sum from time to time outstanding, payable in accordance with
the terms set forth below.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SECURED BY
THE SECURITY IN DOCUMENTS (AS HEREINAFTER DEFINED). THIS NOTE IS SUBORDINATE
IN CERTAIN RESPECTS TO CERTAIN DEBT PAYABLE TO NATIONSBANK OF TEXAS, N.A.
(TOGETHER WITH ITS SUCCESSORS AND ASSIGNS, "NATIONSBANK").
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
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.
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"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.
"Company Financial Statements" shall mean those audited financial
statements of the Company included in the Company's most recent annual report
as filed with the United States Securities and Exchange Commission on Form
10-K, and any amendments thereto.
"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 into Common Stock.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Default Rights" means any action by NationsBank to (i) suspend
further advances to the Company or any Subsidiary of the Company or (ii) offset
any accounts of the Company or any Subsidiary of the Company with NationsBank.
"Event of Default" has the meaning specified in L Section 3.1.
"Final Maturity Date," when used with respect to this Note, means
January 24, 1999 (or such earlier date upon which this Note becomes due and
payable under Section 3.2).
"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 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.
"Initial Maturity Date," when used with respect to this Note, means
January 24, 1998 (or such earlier date upon which this Note is due and payable
under Section 3.2).
"Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined by reference to the last
reported sale price for the Common Stock on such day on the principal
securities exchange on which the Common Stock is listed or admitted to trading
or if no such sale takes place on such date, the average of the closing bid and
asked prices thereof as officially reported, or, if not so listed or admitted
to trading on any securities exchange, the last sale price
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for the Common Stock on the National Association of Securities Dealers
small-cap or national market system, as the case may be, on such date, or, if
there shall have been no trading on such date or if the Common Stock shall not
be listed on such system, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any NASD member firm selected from
time to time by the Company for such purpose.
"NationsBank Loan Agreement" means that certain Loan Agreement dated
as of the 8th day of March, 1994, executed by the Company in favor of
NationsBank, as the same may from time to time be modified, supplemented,
amended or restated pursuant to the terms thereof.
"Note" means this 10% Convertible Promissory Note, as hereafter
amended, modified, substituted or replaced.
"Outside Financing" shall be defined as any transaction where the
Company or any Subsidiary, now or hereafter acquired, sells its equity or debt
securities for cash whether in public or private offerings or bond financings,
provided, however, that an Outside Financing shall not include any transactions
involving (i) the sale of any securities of the Company for the sole purpose of
financing acquisitions, (ii) the issuance of shares of Common Stock pursuant to
existing stock options to employees, officers and directors or existing plans
covering such persons, (iii) any increasing or refinancing of the Company's
existing line of credit facility With NationsBank of Texas, N.A. (or any
successor-in-interest), provided that (a) such debt is utilized for purposes
similar to those set forth in such line of credit facility as of the date
hereof and (b) the borrowing base limitations, as set forth in Section 3.11
of the NationsBank Loan Agreement as of the date hereof, are not modified or
amended other than to increase the applicable percentage of "Other Eligible
Inventory" referenced therein to not more than fifty percent (50%), (iv) any
refinancing or increasing of the Company's existing credit facility with The
Catalyst Fund, Ltd., provided that the aggregate principal amount of all such
debt does not exceed $1,000,000, (v) purchase money debt incurred to finance
equipment and inventory in the ordinary course of business and (vi) debt or
other obligations arising under sale-leaseback transactions involving the
Company's or any of its Subsidiaries' existing land and buildings.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
"Purchase Agreement" means that certain Agreement of Purchase and Sale
dated of even date herewith, by and between the Company and the Holder.
"SEC" means the U.S. Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act of 1933, as
amended.
"Security Documents" means the Borrower Security Agreement, the
Subsidiary Security Agreement, the Subsidiary Guaranty and the Collateral
Agency Agreement, each of even date herewith, the forms of which are attached
as exhibits to the Purchase Agreement.
"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.
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"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
Subsidiary 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, whether
at all times or only so long as no senior class of stock has such voting power
by reason of any contingency.
ARTICLE II
PAYMENTS
2.1 Interest. From the date of this Note through the Initial
Maturity Date or the Final Maturity Date, as the case may be, interest shall
accrue hereunder on the unpaid outstanding principal sum of this Note at 10%
per annum calculated on the basis of a 360 day year. All past due amounts of
principal and interest shall bear interest at 15% per annum calculated on the
basis of a 360 day year until paid.
2.2 Payment of Principal and Interest. The principal and unpaid
interest of this Note shall be due and payable in full on the Initial Maturity
Date; provided however, that the Company has the right to extend this Note
until the Final Maturity Date by providing Holder with written notice of its
intent to extend this Note, such notice to be received by Holder at least 30
days prior to the Initial Maturity Date. Notwithstanding anything else to the
contrary set forth herein, if this Note is not paid in full by the Initial
Maturity Date, Holder is entitled to, and the Company shall deliver to Holder,
an executed warrant, the form of which shall be substantially identical to the
form of warrant attached as an Exhibit to the Purchase Agreement (including the
Exercise Price, as such term is defined therein), such warrant expiring five
years from the date of such issuance and covering a number of shares of Common
Stock equal to 10% of the then existing principal balance due under this Note.
2.3 Prepayments. Subject to Holder's right to convert, at any
time before the Initial Maturity Date or the Final Maturity Date, as the case
may be, the Company may prepay this Note, in whole or in part, upon five days'
prior written notice given to Holder pursuant to Section 7.6; provided that
this Note shall be mandatory prepaid on the second Business Day following the
occurrence of any Outside Financing, such prepayment to be in an amount equal
to the net proceeds received by the Company or any Subsidiary from such Outside
Financing but not to exceed the then outstanding principal and accrued and
unpaid interest on this Note. All payments made under this Note shall be
applied first to accrued interest, and the balance, if any, to principal;
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 checks to Holder at its address as set forth
in this Note or wire transfers 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.
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ARTICLE III
REMEDIES
3.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of the principal
or interest on this Note when such principal or interest becomes due
and payable and such default remains uncured for a period of five days;
or
(b) the Company defaults in the performance of any
covenant made by the Company, and such default remains uncured for a
period of 30 days in any of (i) the Purchase Agreement, (ii) that
certain Common Stock Purchase Warrant dated of even date herewith,
issued by the Company to the Holder, pursuant to which the Company
grants to the Holder certain rights to purchase shares of Common Stock
(the "Warrants"); (iii) that certain Registration Rights Agreement
dated of even date herewith, by and between the Company and the
Holder, pursuant to which the Company grants to the Holder certain
registration rights in respect of the shares of Common Stock that may
be acquired on the conversion of the Note and upon exercise of the
Warrants (the "Registration Rights Agreement"); (iv) the Security
Documents; or (v) this Note (other than a default in the performance
of a covenant specifically addressed elsewhere in this Section 3. 1);
or
(c) any representation or warranty made by the Company in
the Purchase Agreement, the Warrants, the Registration Rights
Agreement, or this Note 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) the Company or any Significant Subsidiary defaults in
the payment when due (whether by lapse of time, by declaration, by
call for redemption or otherwise) of the principal of or interest on
any Indebtedness of the Company or such Significant Subsidiary (other
than the Indebtedness evidenced by this Note) having an aggregate
principal amount in excess of $250,000 and such default remains
uncured for a period of 30 days; or
(e) a court of competent jurisdiction enters a 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 in excess of $500,000 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
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
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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 as 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) (1) 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 of this Agreement; (2) the
Company or any Subsidiary merges or consolidates with or into any other
Person (unless the Company or any of its Subsidiaries is the surviving
or acquiring party); (3) the Company or any Subsidiary dissolves or
liquidates; or (4) the Company or any Subsidiary sells all or any
substantial portion of its assets (unless the purchaser is a Subsidiary
of the Company).
3.2 Acceleration of Maturity. This Note shall become immediately
due and payable if an Event of Default described in Sections 3.l(f), 3.l(g),
3.1(h) 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 the Note may declare
the principal and interest on the Note to be due and payable immediately.
ARTICLE IV
CONVERSION OF NOTE
4.1 Conversion Privilege and Conversion Price. 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 at the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Conversion Price shall be
initially $2.40 per share of Common Stock. 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 anytime, including the 30
Business Days following (i) the expiration of the Initial Maturity Date or the
Final Maturity Date, as the case may be, 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.
4.2 Company Conversion Privilege. If, at any time, the Market
Price of the Common Stock for each of the previous 20 consecutive trading days
shall be $3.25 or more, then, upon ten days notice from the Company to the
Holder, the Company shall have the right to require the Note to be converted
into Common Stock at the Conversion Price in effect on the date of said
conversion, provided that the shares of Common Stock are traded on the NASDAQ
national market and, if not traded on the NASDAQ
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national market, have an average trading volume of at least 25,000 shares for
such 20 consecutive day period. The trading volume limitation set forth in the
preceding sentence shall not be applicable on the Initial Maturity Date and the
Final Maturity Date, if applicable, provided that the Market Price of the
Common Stock for each of the 20 consecutive trading days prior to such dates is
$3.25 or more. Notwithstanding the foregoing, in no event shall the Company be
entitled to require the Note to be converted, unless there is an effective
registration statement covering the shares of Common Stock to be issued upon
conversion.
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. Upon each
adjustment of the Conversion Price, the holder of this Note shall thereafter be
entitled to purchase, at the Conversion Price resulting from such adjustment,
the number of shares of Common Stock obtained by multiplying the Conversion
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the Conversion Price resulting from such adjustment.
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 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 price
(calculated to the nearest one-ten thousandth of a cent) determined by dividing
(x) an amount equal to the sum of (i) the aggregate number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the then
existing Conversion Price plus (ii) the consideration received by the Company
upon such issue or sale by (y) the aggregate number of shares of Common Stock
outstanding immediately after such issue or sale.
(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 exercise of this Note or any other warrant issued pursuant to the
terms of the Purchase 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; or (iv)
Common Stock issued as consideration in acquisitions. 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.
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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"), 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 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. Upon the
happening of any of the following events, namely, if the purchase
price provided for in any right or option referred to in Section
5.2.2(A) above, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
Section 5.2.2(A) hereof, or the rate at which any Convertible
Securities referred to in Section 5.2.2(A) hereof, are convertible
into or exchangeable for Common Stock shall change (other than under
or by reason of provisions designed to protect against dilution), the
Conversion Price then in effect hereunder shall forthwith be
readjusted (increased or decreased, as the case may be) to the
Conversion Price that would have been in effect at such time had such
rights, options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold. On the expiration of any such option or right
referred to in Section 5.2.2(A) hereof, or on the termination of any
such right to convert or exchange any such Convertible Securities
referred to in Section 5.2.2(A) hereof, the Conversion Price then in
effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Conversion Price that would have
been in effect at the time of such expiration or termination had such
right, option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been
granted, issued or sold, and the Common Stock issuable thereunder
shall no longer be deemed to be outstanding. If the purchase price
provided for in Section 5.2.2(A) hereof or the rate at which any
Convertible
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Securities referred to in Section 5.2.2(A) hereof are convertible into
or exchangeable for Common Stock shall be reduced at any time under or
by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon
the exercise of any such right or option or upon conversion or
exchange of any such Convertible Securities, the Conversion Price then
in effect hereunder shall, if not already adjusted, forthwith be
adjusted to such amount as would have obtained had such right, option
or Convertible Securities never been issued as to such Common Stock
and had adjustments been made upon the issuance of the Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
(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 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.
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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 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
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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 (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.
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5.9 Notifications to Holders. 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 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.
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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 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; provided, however,
that the Company 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 charges 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 SEC Reports. The Company will deliver to the Holder within 20
days after it files them with the SEC, copies of its annual and quarterly
reports and of the information, documents, and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. The Company will
timely comply with its reporting and filing obligations under the applicable
federal securities laws.
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.
6.7 Compliance with Laws. The Company will promptly comply with
all laws, ordinances and governmental rules and regulations to which it is
subject, the violation of which would materially and adversely affect the
Company.
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ARTICLE VII
MISCELLANEOUS
7.1 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 costs and expenses of collection
including, but not limited to, court costs and the reasonable attorney's fees
of Holder.
7.2 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 51% of the aggregate principal amount of this Note.
7.3 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.
7.4 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.
7.5 Restrictions on Transfer. Subject to the provisions of this
Section 7.5, this Note is transferable in the same manner and with the same
effect as in the case of a negotiable instrument payable to a specified person.
Prior to any transfer as provided herein, the transferor shall provide written
notice to the Company. The Company, however, may treat Holder as the owner
hereof for all purposes until this Note shall have been surrendered for
transfer as hereinafter provided. Upon surrender of this Note duly executed by
Holder or his agent or attorney, the Company shall execute and deliver a new
Note in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Note shall promptly be
canceled.
7.6 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: 3200 Wilcrest Drive, Suite 440, Houston, Texas 77042 or at any other
address designated by the Company in writing to Holder; if to Holder: St. James
Capital Partners, L.P., c/o St. James Capital Corp., 1980 Post Oak Boulevard,
Suite 2030, Houston, Texas 77056, Attn: John L. Thompson, or at any other
address designated by Holder to the Company in writing.
7.7 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.
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7.8 Governing Law. This Note shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware (without regard
to principles of choice of law).
7.9 Usury. It is the intention of the parties hereto to conform
strictly to the applicable laws of the State of Delaware 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 7.9 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 7.9 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.
7.10 Subordination to NationsBank. Holder agrees that no payments
other than Permitted Payments (as hereinafter defined) shall be made by the
Company without the prior written consent of NationsBank to which the Company
may be indebted from time to time ("NationsBank Debt"). As used herein,
"Permitted Payments" shall mean (i) the payment of principal and interest
payment due on this Note on January 23, 1999 ("Maturity Payment"), (ii) any
repayment of principal and interest made with the proceeds of a public or
private offering of common or preferred stock of Company or (iii) any repayment
of principal and interest made with the proceeds of a placement of subordinated
debt with terms and conditions reasonably acceptable to NationsBank. Holder
agrees that the Maturity Payment shall not be received on this Note during the
continuance of an Event of Default (as defined in the NationsBank Loan
Agreement after any applicable cure periods) or if such Maturity Payment would
cause the occurrence of an Event of Default. Upon the occurrence and
continuance of a suspension of the Maturity Payment on this Note, the Maturity
Payment on this Note shall be automatically reinstated upon the expiration of
90 days following the date on which such Maturity Payment was suspended if,
within such 90-day period, NationsBank shall not have accelerated the
NationsBank Debt or exercised one or more of the Default Rights available to
NationsBank, even if such payment would cause the occurrence of an Event of
Default, provided that the Maturity Payment shall be automatically reinstated
if prior to the expiration of such ninety (90) day period NationsBank resumes
advances to Company.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
ACR GROUP, INC.
By: /s/ ANTHONY R. MARESCA
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Anthony R. Maresca, Senior Vice President
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