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Exhibit 4.3
THIS NOTE IS NONNEGOTIABLE
____% CONVERTIBLE SUBORDINATED NOTE
DUE ______________, 2003
$______________________ Nashville, Tennessee
_______________, 1999
SERVICE EXPERTS, INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay ________ ("Shareholder") the principal
amount of ________ ($________), together with accrued interest thereon at the
rate of ____% per annum (computed on the basis of a 365-day year) from the date
hereof. Principal shall be payable in four equal annual installments beginning
one year from the date hereof. Interest shall be payable quarterly on each
January 1, April 1, July 1 and October 1 after the date hereof. The final
principal installment and all accrued and unpaid interest shall be due and
payable _____ __, 2003 (the "Maturity Date"). Payments of principal and interest
on this Note shall be made in lawful money of the United States of America at
the principal office of Shareholder, or at such other office or agency as the
holder shall have designated by written notice to the Company. The Company shall
have the right to prepay this Note in whole or in part without penalty upon
thirty (30) days prior written notice.
1. Events of Default. If any of the following conditions or events
(each an "Event of Default" and collectively, the "Events of Default") shall
occur and be continuing:
(a) if the Company shall default in the payment of any
principal on this Note when the same becomes due and payable, whether at
maturity or otherwise, and such payment shall not have been made within thirty
(30) days after written notice of default shall have been received by the
Company from the holder of this Note; or
(b) if the Company shall default in the payment of any
interest on the Note when the same becomes due and payable and such default
shall continue more than thirty (30) days after written notice of default shall
have been received by the Company from the holder of this Note; or
(c) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated as bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against the Company in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
custodian, trustee, receiver or liquidator of the Company or such subsidiary or
of all or any substantial part of the properties of the Company or such
subsidiary, or if the Company or its directors or majority shareholders shall
take any action looking to the dissolution or liquidation of the Company; or
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(d) if, within sixty (60) days after the commencement of an
involuntary bankruptcy proceeding or other action against the Company seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been dismissed or all orders or
proceedings thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall thereafter be set
aside, or if, within sixty (60) days after the appointment without the consent
or acquiescence of the Company or any custodian, trustee, receiver or liquidator
of the Company or of all or any substantial part of the properties of the
Company, such appointments shall not have been vacated;
then, and in any such Event of Default, the holder hereof may at any time
(unless all defaults shall theretofore have been remedied) at its option, by
written notice to the Company, declare this Note to be due and payable,
whereupon this Note shall forthwith mature and become due and payable, together
with interest accrued and unpaid hereon, without presentment, demand, protest or
notice, all of which are hereby waived.
2. Conversion.
2.1 Conversion Privilege
2.1.1 Conversion by Shareholder. This Note may, at
the election of the holder hereof and at any time prior to the earlier of the
Maturity Date or the prepayment in full of this Note, be converted into the
number of fully paid and nonassessable shares of Common Stock, $0.01 par value
per share, of the Company (the "Common Stock") determined by dividing (x) the
principal amount being converted by (y) the conversion price of $______ (which
is 140% of the Closing Price), as adjusted from time to time in accordance with
Sections 2.4 and 2.5 hereof (such conversion price, as so adjusted and
readjusted and in effect at any time, being herein called the "Conversion
Price"). As used herein, "Closing Price" means the average closing sales price
of a share of the Common Stock as reported on the New York Stock Exchange for
the five trading days ending on the second trading day preceding the date
hereof.
2.1.2 Conversion by the Company. In the event the
closing sales price of a share of Common Stock as reported on the New York Stock
Exchange exceeds the Conversion Price on five (5) consecutive trading days, the
Company, at its election, may convert this Note into the number of fully paid
and nonassessable shares of Common Stock determined by dividing (x) the
principal amount outstanding by (y) the Conversion Price. Upon such conversion
and without any further action by the parties hereto, the holder hereof will not
be entitled to any additional principal or interest payments hereunder. Upon
receipt of written notice from the Company informing the holder of the
conversion of the Note, the holder shall convert the Note in accordance with the
provisions of Section 2.2 below.
2.2 Manner of Conversion, Partial Conversion, Etc.
2.2.1. Surrender of Note. This Note may be converted
by the holder hereof by surrender of this Note any time prior to the Maturity
Date, accompanied by written notice stating that such holder elects to convert
all or a portion of the principal amount thereof and stating the name or names,
together with addresses, in which the certificate or certificates for shares of
Common Stock are to be issued. Any conversion shall be deemed to have been
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effected (i) with respect to a conversion under Section 2.1.1, immediately prior
to the close of business on the date on which this Note shall have been so
surrendered to the Company and (ii) with respect to a conversion under Section
2.1.2, immediately prior to the close of business on the fifth consecutive
trading day that the closing sales price of a share of Common Stock as reported
on the New York Stock Exchange exceeds the Conversion Price; and at such time
the rights of the holder as to that portion of this Note so converted shall
cease, and the person in whose name or names any certificate or certificates for
shares of Common Stock (or other securities) shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record
thereof.
2.3. Delivery of Stock Certificates; Fractional Shares. As
promptly as practicable after the conversion of this Note in whole or in part,
and in any event within ten (10) days thereafter, the Company at its expense
will issue and deliver to the holder of this Note, or as such holder (upon
payment by such holder of any applicable transfer taxes and subject to
compliance with securities laws) may direct, a certificate or certificates for
the number of full shares of Common Stock issuable upon such conversion, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the market value of one full
share of Common Stock as of the close of business on the date of such
conversion, as determined by the Board of Directors. Upon issuance, such
certificates may bear a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH THE TERMS OF THE LETTER AGREEMENT, DATED ___________,
1999, BETWEEN THE REGISTERED HOLDER HEREOF AND SERVICE EXPERTS, INC., A
COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF SERVICE
EXPERTS, INC."
2.4. Adjustment of Conversion Price. The Conversion Price
shall be adjusted from time to time as follows:
2.4.1. In case the Company shall hereafter (i) pay a
dividend or make a distribution on its Common Stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares, or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Conversion Price in effect
immediately prior to such action shall be adjusted so that the Holder of this
Note or any portion hereof thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
this Note or such portion hereof been converted immediately prior thereto. Any
adjustment made pursuant to this subsection 2.4.1 shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this subsection 2.4.1, the Holder of this Note or such portion
hereof thereafter surrendered for conversion shall become entitled to receive
shares of two or more classes of capital stock or shares of Common Stock and
other capital stock of the Company, the Board of Directors (whose determination
shall be conclusive) shall reasonably determine the allocation of the adjusted
Conversion Price between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock.
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2.4.2. If the amount of any single adjustment of the
Conversion Price required pursuant to this subsection 2.4.2 would be less than
one cent ($0.01) at the time such adjustment is otherwise so required to be
made, such amount shall be carried forward and adjustment with respect thereto
made at the time of and together with any subsequent adjustment which, together
with such amount and any other amount or amounts so carried forward, shall
aggregate at least one cent ($0.01) when the Conversion Price is adjusted.
2.5. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, Etc. If at any time the Company shall be a party to any
transaction (including without limitation a merger, consolidation, sale of all
or substantially all of the Company's assets or recapitalization of the Common
Stock) in which the previously outstanding Common Stock shall be changed into or
exchanged for different securities of the Company or changed into or exchanged
for common stock or other securities of another company or interests in a
noncorporate entity or other property (including cash) or any combination of any
of the foregoing (each such transaction being hereinafter referred to as the
"Transaction," the Company (in the case of a recapitalization of the Common
Stock) or such other company or entity (in each other case) being hereinafter
referred to as the "Acquiring Company," and the common stock (or equivalent
equity interests) of the Acquiring Company being hereinafter referred to as the
"Acquirer's Stock"), then as a condition to the consummation of the Transaction,
lawful and adequate provisions shall be made so that, upon the basis and the
terms and in the manner provided in this Section 2.5, the holder of this Note,
upon the conversion thereof at any time after the consummation of the
Transaction, shall be entitled to receive, in lieu of the Common Stock issuable
upon such conversion prior to such consummation the stock and other securities,
cash and property to which the holder would have been entitled upon the
consummation of the Transaction if the holder had converted this Note
immediately prior thereto (subject to adjustments from and after the date of the
consummation of the Transaction (the "Consummation Date") as nearly equivalent
as possible to the adjustments provided for in Section 2.4 and this Section
2.5).
2.6. Notices of Record Date, Etc. In the event of
(a) any action by the Company which would require an
adjustment to the Conversion Price pursuant to Section 2.4, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the Common Stock, any consolidation or
merger involving the Company and any other person, any transfer of all or
substantially all the assets of the Company to any other person or any other
transaction described in Section 2.5 hereof, or
(c) any voluntary or involuntary dissolution,
liquidation or winding-up of the Company,
the Company will mail to the holder of this Note, at least ten (10) days prior
to the date of any action referred to in the notice referred to herein, a notice
specifying (i) the date on which any such record is to be taken for the purpose
of determining the holders of record of Common Stock entitled to receive such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution,
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liquidation, winding-up or other transaction referred to in Section 2.4 or 2.5
hereof is to take place, and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock shall be entitled or obligated to
exchange their shares of Common Stock for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation, winding-up or other
transaction referred to in Section 2.4 or 2.5 hereof. In addition, promptly
after the occurrence of any event which results in an adjustment of the
Conversion Price, the Company shall mail to the holder of this Note a notice of
such adjustment together with a statement setting forth the computations
relating thereto. Failing to give such notice or any default therein shall not
affect the legality or validity of the proceedings described in Subsection (a),
(b) or (c) of this Section 2.6.
2.7. Reservation of Stock, Etc., Issuable on Conversion. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the conversion of this Note, the number of shares of Common Stock
(or other securities), whether authorized but unissued shares reserved by it
which are free from preemptive rights or issued shares which have been
reacquired by it, from time to time issuable upon the conversion of this Note at
the time outstanding. The Company hereby covenants that all such securities
shall be duly authorized and, when issued upon such conversion, shall be validly
issued and, in the case of shares, fully paid and nonassessable with no
liability on the part of the holders thereof.
2.8. Conversion Agent. The Company may, upon ten (10) days
prior written notice to the holder of this Note, appoint a bank or trust company
as agent for the purpose of accepting this Note surrendered for conversion and
issuing Common Stock upon the conversion of this Note pursuant to Section 2.2,
and thereafter (as long as the authority of such agent shall continue in effect)
any such surrender and conversion and issuance shall be made at such office to
and by such agent.
3. Subordination.
3.1. Definition. For purposes of this Section 3.1 the term
"Senior Debt" shall mean any indebtedness for borrowed money, the payment of
which the Company is at the time of determination responsible or liable as
obligor, guarantor or otherwise, other than (a) indebtedness as to which, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is expressly provided that such indebtedness is junior and
subordinate to other indebtedness and obligations of the Company, (b)
indebtedness which by its terms refers explicitly to this Note and states that
such indebtedness shall not be senior thereto and shall be equally subordinated
and equally junior, and (c) indebtedness of the Company in respect of this Note.
Senior Debt shall continue to be Senior Debt and entitled to the benefits of the
subordination provisions set forth herein irrespective of any amendment,
modification, or waiver of any term of the Senior Debt or extension or renewal
of the Senior Debt.
3.2. Note Subordinate to Senior Debt. The Company, for itself,
its successors and assigns, covenants and agrees, and each holder, by its
acceptance of this Note or any portion hereof, likewise covenants and agrees,
that this Note shall be subordinated and subject, to the extent and in the
manner herein set forth, in right of payment to the prior payment in full of all
Senior Debt. The provisions of this Section 3 are made for the benefit of all
holders of Senior Debt, and any such holder may proceed to enforce such
provisions.
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3.3. Other Subordinated Indebtedness. This Note shall rank on
a parity with all other of the Company's Subordinated Convertible Notes.
3.4. Payment Over of Proceeds Upon Dissolution, Etc. No
payment on account of principal of (or premium, if any) or interest on this Note
shall be made, if any default or event of default with respect to any Senior
Debt, which permits or with the giving of notice or passage of time or both
would permit the holders thereof (or a trustee on their behalf) to accelerate
the maturity thereof, shall have occurred and be continuing.
In the event this Note is declared due and payable
before the maturity date hereof, or upon any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any dissolution or winding-up or total or partial
liquidation or reorganization of the Company, whether voluntary or involuntary
or in bankruptcy, insolvency, receivership or other proceedings, or upon any
assignment by the Company for the benefit of creditors or any other marshalling
of the assets of the Company, all principal of (and premium, if any) and
interest due or to become due upon all Senior Debt (including any interest
thereon occurring after the commencement of any such proceeding) shall first be
paid in full before the holder of this Note shall be entitled to retain any
assets (other than shares of stock of the Company as reorganized or readjusted
or securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is subordinated, at least
to the same extent as this Note, to the payment of all Senior Debt which may at
the time be outstanding, provided that the rights of the holders of the Senior
Debt are not altered by such reorganization or readjustment) so paid or
distributed in respect of this Note (for principal, premium, if any, or
interest); and upon such dissolution or winding-up or liquidation or
reorganization or assignment or marshalling of assets, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than shares of stock of the Company as reorganized
or readjusted or securities of the Company or any other corporation provided for
by a plan or reorganization or readjustment, the payment of which is
subordinated, at least to the same extent as this Note, to the payment of all
Senior Debt which may at the time be outstanding or committed, provided that the
rights of the holders of the Senior Debt are not altered by such reorganization
or readjustment), to which the holders of this Note would be entitled, except
for the provisions of this Section, shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of this Note if received
by them or it, directly to the holders of Senior Debt (pro rata to each such
holder as their interests may appear on the basis of the respective amounts of
Senior Debt held by such holder, including any interest thereon accruing after
the commencement of any such proceedings) or their representatives, to the
extent necessary to pay all Senior Debt in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt, before
any payment or distribution is made to the holders of this Note.
Should any payment, distribution, security or
proceeds thereof, the receipt of which is prohibited by this Agreement, be
received by the Shareholder prior to the satisfaction of all Senior Debt, the
Shareholder will forthwith deliver the same to the holders of the Senior Debt in
precisely the form received (except for the endorsement or assignment of the
Shareholder where necessary), for application on any indebtedness, due or not
due, of the Company to the Shareholder, and, until so delivered, the same shall
be held in trust by the Shareholder as property of the holders of the Senior
Debt. In the event of the failure of the Shareholder to make any such
endorsement or assignment, the holders of the Senior Debt, or any of their
officers or employees, are hereby irrevocably authorized to make the same.
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No holder of Senior Debt shall be prejudiced in his
right to enforce subordination of this Note by any act or failure to act on the
part of the Company.
Subject to the payment in full of all Senior Debt,
the holder of this Note shall be subrogated (equally and ratably with the
holders of all indebtedness of the Company which, by its express terms, ranks on
a parity with this Note and is entitled to like rights of subrogation) to the
rights of the holders of Senior Debt to receive payments or distributions of
assets of the Company applicable to the Senior Debt until this Note shall be
paid in full. For purposes of such subrogation, no payments or distributions on
the Senior Debt pursuant to this Section shall, as between the Company, its
creditors other than the holders of Senior Debt, and the holder of this Note, be
deemed to be a payment by the Company to or on account of the Senior Debt, and
no payments or distributions to the holders of this Note of assets by virtue of
the subrogation herein provided for shall, as between the Company, its creditors
other than the holder of Senior Debt, and the holders of this Note, be deemed to
be a payment to or on account of this Note. The provisions of this Section are
and are intended solely for the purpose of defining the relative rights of the
holder of this Note, on the one hand, and the holders of Senior Debt, on the
other hand, and nothing contained in this Section or in this Note is intended to
or shall impair the obligation of the Company, which is unconditional and
absolute, to pay the principal of (and premium, if any) and interest on this
Note as and when the same shall become due and payable in accordance with its
terms, or to affect the relative rights of the holders of this Note and
creditors of the Company other than the holders of Senior Debt, nor shall
anything herein prevent the holders of this Note from exercising all remedies
otherwise permitted by applicable law upon default under this Note, subject to
the rights, if any, under this Section, of the holders of Senior Debt in respect
of cash, property or securities of the Company otherwise payable or delivered to
the holders of this Note upon the exercise of any such remedy.
Nothing contained in this Section 3.4 shall prevent
conversion of this Note.
4. Miscellaneous.
4.1. Governing Law. This Note shall be governed by the laws of
the State of Tennessee.
4.2. Notices. All notices delivered pursuant to the terms
hereof shall be deemed effective upon receipt thereof.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its duly authorized officer on the date first above written.
SERVICE EXPERTS, INC.
By:
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Title:
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