Amendment No. 2 to Convertible Notes and Agreement to Convert between SJMB, L.P. and Industrial Holdings, Inc.
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This amendment, effective June 29, 2001, is between SJMB, L.P. and Industrial Holdings, Inc. It modifies previous agreements regarding two convertible promissory notes held by SJMB. The amendment reinstates the original conversion terms, details the conversion of Note A into IHI common stock, and sets terms for the conversion and partial cash payment of Note B upon the merger of IHI and T-3 Energy Services. It also outlines conditions if the merger does not occur by December 31, 2001, including a cash payment, issuance of a warrant, and registration rights for SJMB.
EX-10.4 7 h91116ex10-4.txt AMEND.NO.2 TO CONVERTIBLE NOTES & AGRMT TO CONVERT 1 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 2 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 3 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 Ronald J. Judy ("Judy"). b. Legacy, Blackcross, Antar, Judy, 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 Judy, 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. 4 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/ JOHN L. THOMPSON ------------------------------------------ Name: John L. Thompson Title: Chief Executive Officer of the general partner INDUSTRIAL HOLDINGS, INC. By: /s/ ROBERT E. CONE ------------------------------------------ Name: Robert E. Cone 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/ MICHAEL L. STANSBERRY ----------------------------------- Michael L. Stansberry 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/ THOMAS DENISON ----------------------------------- Thomas Denison Managing Director 5 ANTAR.& Co. By: /s/ E.R. NAUMES ----------------------------------- E.R. Naumes General Partner BLACKCROSS By: /s/ BLAKE BERTEA ----------------------------------- Blake Bertea Managing Partner RONALD J. JUDY /s/ RONALD J. JUDY ------------------- Ronald J. Judy 6 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:
Calculation of Industrial Holdings common shares to be issued upon conversion of Note B:
