CONVERSION OPTION
Exhibit
4.12
This
Conversion Option (“Option”)
is
made as of September 12, 2005 by Magnetech Integrated Services Corp., an
Indiana
corporation (“Parent”),
and
Magnetech Industrial Services, Inc., an Indiana corporation and wholly owned
subsidiary of Parent (“Company”),
in
favor of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (“Lender”).
Lender
has loaned to the Company $3,000,000 as evidenced by the Company’s Promissory
Note dated effective as of January 1, 2004, a copy of which is attached hereto
as Exhibit
A
(the
“Note”).
Parent and the Company wish to provide Lender with an option to convert the
indebtedness under the Note into shares of common stock of Parent, no par
value
(the “Common
Stock”),
in
accordance with the terms of this Option.
1. Option
to Convert. Subject
to the terms and conditions of this Option, Lender has the option to convert,
at
any time and from time to time, any or all amounts owed by the Company to
the
Lender under the Note, including without limitation principal, interest and
fees, into shares of Common Stock at a conversion price of $0.10 per share
(the
“Conversion
Price,”
which
shall be subject to adjustment as provided in this Option).
2. Adjustments
to Conversion Price.
The
Conversion Price and number and kind of shares or other securities to be
issued
upon exercise of this Option shall be adjusted from time to time as
follows:
(a) Reorganization
or Reclassification.
If
Parent effects a reorganization or reclassification in which the Common Stock
is
changed into the same or a different number of shares of stock or other
securities or property, lawful provision shall be made as part of the terms
of
the reorganization or reclassification so that this Option shall remain
outstanding and evidence the right to convert into the number and kind of
stock
and other securities and property that would have been received by a holder
of
that number of shares of Common Stock issuable upon the exercise in full
of this
Option immediately before such reorganization or reclassification. Such terms
shall provide for adjustments which shall be as nearly equivalent as may
be
practicable to adjustments provided for in this Section 2.
(b) Merger,
Consolidation or Asset Sale.
If
Parent merges or consolidates with or into another company or entity or sells
all or substantially all of its assets, lawful provision shall be made as
part
of the terms of the merger, consolidation or sale so that this Option shall
remain outstanding and evidence the right to convert into the number and
kind of
stock and other securities and property that would have been received by
a
holder of that number of shares of Common Stock issuable upon the exercise
in
full of this Option immediately before such merger, consolidation or sale
of
assets. Such terms shall provide for adjustments which shall be as nearly
equivalent as may be practicable to adjustments provided for in this Section
2.
(c) Stock
Splits, Combinations and Dividends.
If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common
Stock
or any preferred stock issued by the Company in shares of Common Stock, the
Conversion Price shall be proportionately reduced in case of
subdivision
of shares or stock dividend or proportionately increased in the case of
combination of shares.
(d) Share
Issuances.
Subject
to the provisions of this Section 2, if Parent shall at any time prior to
the
exercise of this Option in full issue any shares of Common Stock to a person
other than the Lender (except (i) pursuant to Sections 2(a), (b) or (c) above;
(ii) pursuant to options, warrants, or other obligations to issue shares
outstanding on the date hereof as disclosed to the Lender in writing; or
(iii)
pursuant to any employee equity incentive plan adopted by Parent) for a
consideration per share (the “Offer
Price”)
less
than the Conversion Price in effect at the time of such issuance, then the
Conversion Price shall be reduced to a price determined by multiplying the
Conversion Price by a fraction (x) the numerator of which is the sum of (A)
the
number of shares of Common Stock outstanding immediately before the issuance
of
the Common Stock plus (B) the number of shares of Common Stock that the
aggregate offering price of the total number of shares so offered would purchase
at the Conversion Price, and (y) the denominator of which is the sum of (A)
the
number of shares of Common Stock outstanding immediately before the issuance
plus (B) the number of new shares of Common Stock being issued.
(e) For
purposes of any computation respecting consideration received pursuant to
Section 2(d) above, the following shall apply:
(i) with
respect to the issuance of shares of Common Stock for cash, the consideration
shall be the amount of such cash, provided that in no case shall any deduction
be made for any commissions, discounts or other expenses incurred by Parent
for
any underwriting of the issue or otherwise in connection therewith;
(ii) with
respect to the issuance of shares of Common Stock for a consideration in
whole
or in part other than cash, the consideration other than cash shall be deemed
to
be the fair market value thereof as determined in good faith by the Board
of
Directors of Parent (irrespective of the accounting treatment thereof);
and
(iii) with
respect to any shares of Common Stock issued upon the exercise or conversion
of
any option, warrant or other convertible security, the aggregate consideration
received for such shares of Common Stock shall be deemed to be the consideration
received by Parent for the issuance of such convertible securities plus the
additional minimum consideration, if any, to be received by Parent upon the
conversion or exchange thereof (the consideration in each case to be determined
in the same manner as provided in subsections (i) and (ii) of this Section
2(e)).
(f) Higher
Value.
If any
action would require adjustment of the Conversion Price pursuant to more
than
one of the provisions of this Section 2, only one adjustment will be made
with
respect to that action and such adjustment will be the amount of the adjustment
that has the highest value to the Lender.
(g) Certificate.
After
the occurrence of any transaction the result of which is an adjustment to
the
Conversion Price or the number and kind of shares or other securities to
be
2
issued
upon exercise of this Option, an authorized officer of Parent shall promptly
provide to Lender a written statement certifying as to the type and amount
of
the adjustment.
(h) Fractional
Shares.
Parent
shall not be required to deliver fractional shares of Common Stock issuable
upon
an exercise of this Option. In lieu of issuing fractional shares, Parent
shall
pay an amount in cash equal to the fair market value of such fractional shares
as determined in good faith by the Board of Directors of Parent.
3. Mechanics
of Conversion.
To
exercise this Option, Lender shall complete, execute and deliver to Parent,
at
its principal offices, the Conversion Notice attached as Exhibit
B
to this
Option. The effective date of conversion shall be the date on which the
Conversion Notice is received by Parent. Within five (5) business days after
receipt of the Conversion Notice, Parent shall issue or cause to be issued
to
Lender a certificate evidencing that number of duly authorized, validly issued,
fully paid and non-assessable shares of Common Stock determined by dividing
the
amount of principal, interest and/or fees under the Note being converted
by the
Conversion Price in effect at the effective date of conversion.
4. Reservation
of Shares.
While
this Option is outstanding, Parent shall reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full exercise of this Option. Parent agrees that
its
issuance of this Option shall constitute full authority to its officers,
agents,
and transfer agents who are charged with the duty of executing and issuing
stock
certificates to execute and issue the necessary certificates for the Common
Stock upon any exercise of this Option.
5. Full
Satisfaction.
Conversion of the amounts owed under the Note into the Common Stock in
accordance with this Option shall be deemed full satisfaction of such amounts.
In the case of a partial conversion of the Note, (a) amounts owed under the
Note
that are not converted into Common Stock will continue to be owing by the
Company to Lender under the same terms and conditions set forth in the Note,
and
(b) the conversion of principal and interest shall apply to amounts last
falling
due under the Note and shall not affect the timing or amount of succeeding
required installments under the Note.
6. Authorization.
Parent
and the Company represent and warrant, jointly and severally, to Lender that
(a)
they are duly authorized to execute, deliver and perform this Option, (b)
such
execution, delivery and performance will not violate, contravene or cause
a
default under Parent’s or the Company’s articles of incorporation or bylaws, any
legal requirement, rule or order to which Parent or the Company is subject,
or
any agreement, covenant or obligation to which Parent or the Company is a
party
or to which it is subject, and (c) upon issuance, the Common Stock will be
duly
authorized, validly issued, fully paid and non-assessable.
7. No
Registration.
This
Option
and any securities issuable upon the exercise of this Option have not been
registered under the Securities Act of 1933 (the “Act”) or any applicable state
securities laws. This Option and such securities may not be offered for sale
or
sold, transferred, pledged, hypothecated or otherwise disposed of except
pursuant to an effective registration statement under the Act and such state
laws or such securities or such transfer is exempt from such registration
requirements.
3
8. Miscellaneous.
This
Option sets forth the entire agreement and understanding of the parties in
respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to that subject matter
hereof. Subject to Section 7, this Option may be assigned by the Lender to
any
person to whom the Lender assigns his interests under the Note. This Option
is
not assignable by Parent or the Company without the Lender’s express written
consent. All of the terms of this Option shall be binding upon, inure to
the
benefit of and be enforceable by and against each party and its or his
respective successors, assigns, heirs and personal representatives, as
applicable. This Option may be amended, modified, superseded or canceled
and any
of its terms or conditions may be waived only by a written instrument executed
by both parties or, in the case of a waiver, by the party waiving compliance.
This Option shall be governed by and construed in accordance with the laws
of
the State of Indiana as applicable to contracts made and to be performed
in that
State, without regard to conflict of laws principles.
Signed
as
of the date first written above.
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MAGNETECH
INTEGRATED SERVICES CORP.
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By
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/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||
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Its
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President & CEO | ||
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MAGNETECH
INDUSTRIAL SERVICES, INC.
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By
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/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | ||
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Its
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President & CEO | ||
4
PROMISSORY
NOTE
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$3,000,000.00
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South
Bend, Indiana
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Effective
January 1, 2004
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FOR
VALUE RECEIVED,
MAGNETECH INDUSTRIAL SERVICES, INC., an Indiana corporation (“Magnetech”)
promises to pay to the order of ▇▇▇▇ ▇ ▇▇▇▇▇▇▇ (“Lender”) the principal sum of
Three Million Dollars ($3,000,000), with interest thereon at 1% below
the Prime
Rate, payable at ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other place as Lender may designate in writing
from
time to time hereafter. For purposes of this Promissory Note, “Prime Rate” shall
mean the Prime Rate as published in The
Wall Street Journal,
and
which is described as the base rate on corporate loans at large U.S.
money
center commercial banks. The Prime Rate will be adjusted on the first
business
day of each month during the period this Note is outstanding.
Interest
only on the outstanding principal balance of the Note shall be due and
payable
commencing on February 1, 2004 and continuing on the 1st
day of
each month thereafter until December 31, 2008, when all principal and
accrued
interest under this Note shall be due and payable in one lump sum amount;
provided,
that
Magnetech, upon at least 60 days prior written notice to Lender (which
notice
may not be sent by Magnetech prior to July 1, 2008), may extend the term
of this
Note for an additional period of sixty (60) months (the “Extended Term”).
In
the
event the term of this Note is extended by Magnetech, interest only on
the
outstanding principal balance shall be due and payable to Lender on January
1,
2009. Thereafter, equal monthly principal installments of Fifty Thousand
Dollars
($50,000) and all accrued interest on the outstanding principal balance
shall be
due and payable commencing on February 1, 2009
and
continuing on the 1st
day of
each month thereafter until December 31, 2013, when all remaining principal
and
accrued interest under this Note shall be due and payable in one lump
sum
amount. Notwithstanding anything in this Note to the contrary, the interest
rate
payable on the outstanding principal balance of the Note during the Extended
Term shall be the Prime Rate, plus 1%. The Prime Rate will continue to
be
adjusted on the first day of each month during the Extended Term.
Magnetech
may prepay the unpaid principal balance of this Note at any time or from
time to
time without penalty. Any prepayment shall include interest to the date
it is
made. Partial prepayments shall be applied to the installments in the
inverse
order of their maturity.
Any
amounts not paid when due shall bear interest at a rate
which is four percent (4%) per year in excess of the interest rate otherwise
payable hereon or, if less, at the highest rate then permitted under
applicable
law. Interest
shall be computed on the basis of a three hundred sixty-five (365) day
year and
accrue for each day any principal sum remains unpaid.
Upon
(i)
the failure by Magnetech to pay any amount when due under the terms of
this
Note, (ii) the dissolution of Magnetech, (iii) the making of a general
assignment for the benefit of creditors by Magnetech, (iv) the filing
of any
petition or the commencement of any proceeding voluntarily by Magnetech
for any
relief under any bankruptcy or insolvency laws or any law
relating
to the relief of debtors or the consent by Magnetech to the entry of
an order in
an involuntary case, or (v) the entry of an order or decree by a court
of
competent jurisdiction in an involuntary case, that is for relief against
Magnetech, under any bankruptcy or insolvency laws or any law relating
to the
relief of debtors, all of the indebtedness evidenced hereby and remaining
unpaid
shall, at the option of Lender, become immediately due and payable with
attorneys’ fees and costs incurred by Lender in enforcing this Note.
Magnetech
and all guarantors, sureties, and endorsers severally waive demand, presentment
for payment, notice of dishonor, notice of nonpayment, protest, notice
of
protest, and diligence by Lender in collection and bringing suit on this
Note
and all benefits of homestead, valuation and appraisement laws and expressly
agree that Lender may renew, extend or otherwise modify this Note from
time to
time without notice with full reservation of Lender’s rights. Any such renewal,
extension or modification shall not release Magnetech or any guarantor,
surety
or endorser from any liability under this Note.
Magnetech
further agrees, subject only to any limitation imposed by applicable
law, to pay
all expenses incurred by Lender in collecting any amounts payable hereunder
which are not paid when due, whether by acceleration or otherwise, including
reasonable attorneys' and paralegals' fees and expenses and court
costs.
LENDER'S
ACCEPTANCE OF LATE OR PARTIAL PAYMENTS, EXCUSE OF ANY DEFAULT, OR DELAY
IN
ENFORCEMENT OF ANY RIGHT, SHALL NOT ESTABLISH A CUSTOM OR COURSE OF CONDUCT
AS
TO ANY WAIVER OF LENDERS' RIGHTS AND REMEDIES.
This
Note
is binding upon Magnetech and its legal representatives, successors and
assigns
and shall inure to the benefit of Lender and its successors and assigns.
This
Note and all payments due hereunder are being delivered and accepted
in the
State of Indiana, and this Note shall be governed in all respects, including
validity, interpretation and effect, by the laws of the State of Indiana,
without regard to principles of conflicts of law.
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MAGNETECH:
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MAGNETECH
INDUSTRIAL SERVICES, INC.
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By:
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/s/
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇
▇. ▇▇▇▇▇▇▇, President & CEO
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EXHIBIT
B
CONVERSION
NOTICE
Pursuant
to the Conversion Option dated __________, 2005 made by Magnetech Integrated
Services Corp. (“Parent”) and Magnetech Industrial Services, Inc. (the
“Company”) in favor of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, the undersigned hereby elects to convert
the amounts shown below owed under the Promissory Note dated effective January
1, 2004 issued by the Company to ▇▇. ▇▇▇▇▇▇▇ in the original principal amount
of
$3,000,000. The conversion shall be made in accordance with the terms and
conditions set forth in the Conversion Option.
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Amounts
to be converted:
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Principal
Amount: $
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Interest: $
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Fees: $
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Date
of Notice:
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Signature:
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Print
Name:
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Address:
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