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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ___)*
Intelect Communications Systems Limited
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Shares, par value US $0.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
G47962108
- --------------------------------------------------------------------------------
(CUSIP Number)
Mr. Leslie Wm. Adams
The Coastal Corporation
Nine Greenway Plaza, Houston, Texas 77046-0995
(713) 877-6259
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 2, 1997
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box o.
Check the following box if a fee is being paid with the statement |_|. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7).
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
SEC 1746 (9-88) 1 of 9
<PAGE>
SCHEDULE 13D
CUSIP No. G47962108 Page 2 of 9 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
A. Coby C. Hesse, as a trustee of The Coastal Corporation Second
Pension Trust
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 5,714,010
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH
-0-
10 SHARED DISPOSITIVE POWER
5,714,010
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,714,010
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.77%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. G47962108 Page 3 of 9 Pages
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
A. Donald H. Gullquist, as a trustee of The Coastal Corporation Second
Pension Trust
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 5,714,010
PERSON
WITH 9 SOLE DISPOSITIVE POWER
-0-
10 SHARED DISPOSITIVE POWER
5,714,010
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,714,010
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.77%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. G47962108 Page 4 of 9 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
A. Carl A. Corrallo, as a trustee of The Coastal Corporation Second
Pension Trust
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 5,714,010
REPORTING
PERSON 9 SOLE DISPOSITIVE POWER
WITH
-0-
10 SHARED DISPOSITIVE POWER
5,714,010
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,714,010
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.77%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. G47962108 Page 5 of 9 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
A. Pension Plan for Employees of The Coastal Corporation
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
00
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 5,714,010
PERSON
WITH 9 SOLE DISPOSITIVE POWER
-0-
10 SHARED DISPOSITIVE POWER
5,714,010
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,714,010
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
21.77%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
EP
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. G47962108 Page 7 of 9 Pages
ITEM 1: SECURITY AND ISSUER.
This statement relates to the common shares, par value US $0.01 per share
(the "Common Stock"), of Intelect Communications Systems Limited, a Bermuda
company (the "Company"). The address of the principal executive offices of the
Company is 1100 Executive Drive, Richardson, Texas 75081.
ITEM 2: IDENTITY AND BACKGROUND.
This statement is being filed by (a) Coby C. Hesse, Donald H. Gullquist and
Carl A. Corrallo (the "Trustees"), who are the trustees of The Coastal
Corporation Second Pension Trust (the "Trust") and (b) the Pension Plan for
Employees of The Coastal Corporation (the "Plan"). The business address of each
of the Trustees and of the Plan is Nine Greenway Plaza, Houston, Texas
77046-0995. Mr. Hesse is Executive Vice President of The Coastal Corporation, a
Delaware corporation ("Coastal"); Mr. Gullquist is Senior Vice President of
Coastal; and Mr. Corrallo is Senior Vice President and General Counsel of
Coastal. The principal business of Coastal is an Energy Holding Company and its
address is Nine Greenway Plaza, Houston, Texas 77046-0995. The Plan is a pension
plan established by Coastal for the benefit of its employees and is subject to
the provisions of the Employee Retirement Income Security Act of 1974. Coastal
established the Trust to administer certain of the Plan's assets for the
exclusive benefit of the participants, retired participants or their
beneficiaries of the Plan. During the last five years, neither the Plan nor any
Trustee has been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or has been a party to a civil proceeding of
a judicial or administrative body of competent jurisdiction as a result of which
it or he was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws. Each
of the Trustees is a citizen of the United States, and the Plan was established
under the laws of the United States.
ITEM 3: SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
The assets of the Plan administered by the Trust were used by the Trust to
make the loan under the Loan Agreement described in Item 5 and to purchase the
shares of Preferred Stock on June 2, 1997, as described in Item 5. The total
amount of the loan made by the Trust under the Loan Agreement was $5,000,000.
The total consideration used to make the June 2, 1997, purchase was $5,000,000
in cash and $3,500,000 in canceled debt under the Loan Agreement.
ITEM 4: PURPOSE OF TRANSACTION
The Trust purchased shares of the Company's $2.0145 Cumulative Convertible
Preferred Stock, Series A, par value $.01 per share (the "Preferred Stock") on
June 2, 1997. The Preferred Stock is convertible into shares of the Common
Stock, on a share-for-share basis, at any time (subject to certain anti-dilutive
adjustments). On June 2, 1997, 2,482,005 shares of the Preferred Stock were
purchased for cash at a price of $2.0145 per share, for a total cash
consideration of $5,000,000. Also on June 2, 1997, the Trust purchased an
additional 1,737,404 shares of the Preferred Stock by means of the cancellation
of indebtedness of the Company to the Trust in an amount equal to $2.0145 per
share, for a total of $3,500,000.36 in canceled debt. The debt from the Company
to the Trust is evidenced by a Loan Agreement dated as of May 8, 1997, between
Intelect Systems Corp., a Delaware corporation ("ISC"), the Company and the
Trust under which the Company granted the Trust the right to acquire shares of
preferred stock to be established in the future in exchange for the Company's
indebtedness to the Trust pursuant to the Loan Agreement, agreed to issue the
Trust a warrant for the acquisition of 750,000 shares of Common Stock at an
exercise price of $2.00 per share (the "Warrant") and, subject to certain
conditions, agreed to sell the Trust an additional 2,482,005 shares of preferred
stock to be established at a price equal to $2.0145 per share. On May 30, 1997,
the shares of the Preferred Stock were established under the laws of Bermuda,
and such preferred stock is referred to in this Schedule 13D as the "Preferred
Stock".
Under the terms of the Loan Agreement, the Trust may convert any remaining
indebtedness outstanding under the Loan Agreement (including the remaining
$1,500,000 in principal and accrued interest and any fees owed by the Company to
the Trust pursuant to the Loan Agreement) into shares of the Preferred Stock at
a price equivalent to $2.0145 per share, by canceling an equal amount of
indebtedness. Currently, the amount of principal indebtedness outstanding under
the Loan Agreement is $1,500,000; if the Trust were to elect to exchange all of
this indebtedness for Preferred Stock, the Trust would acquire an additional
744,601 shares of the Preferred Stock, plus an additional number of shares equal
to the aggregate accrued interest on the indebtedness divided by $2.0145. The
Trust's right to convert indebtedness to Preferred Stock must be exercised
before August 1, 1997.
<PAGE>
SCHEDULE 13D
CUSIP No. G47962108 Page 7 of 9 Pages
The shares of Preferred Stock acquired by the Trust were acquired and are
held for investment purposes. The loan made pursuant to the Loan Agreement was
made by the Trust for investment purposes. The Trust currently intends to
exercise its right to convert the remaining indebtedness under the Loan
Agreement into Preferred Stock in the near future. However, the Trust has no
current intention to convert its shares of the Preferred Stock (whether now held
or acquired in the future) into shares of the Common Stock or to exercise the
Warrant. The Trust intends to review the possibility of converting shares of the
Preferred Stock and exercising the Warrant from time to time and will determine
whether to make such conversions based on several factors, including the
financial condition of the Company, the market price of the Common Stock, the
requirements and best interests of the Plan, and other general economic factors.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
According to a representation made by the Company to the Trust in the Loan
Agreement, the total number of outstanding shares of the Common Stock is
20,531,598; this number is used for purposes of calculating the percentages used
in this Schedule 13D. Currently, the Trust owns no shares of the Common Stock of
record, but may be deemed to own 5,714,010 shares of the Common Stock,
constituting 21.77% of the total outstanding shares of the Common Stock. The
number of shares of the Common Stock that the Company owns beneficially is
comprised of (a) 4,219,412 shares of the Common Stock that the Trust may acquire
upon conversion of the 4,219,412 shares of the Preferred Stock that the Trust
currently owns; (b) 744,601 shares of the Common Stock that may be issued to the
Trust upon conversion of 744,601 shares of the Preferred Stock that may be
issued to the Trust under the terms of the Loan Agreement in exchange for
cancellation of the Company's indebtedness to the Trust under the terms of the
Loan Agreement; and (c) 750,000 shares of the Common Stock that may be issued to
the Trust on conversion of the Warrant. The only shares of Preferred Stock
outstanding are the shares held by the Trust, and, to the Trust's knowledge, no
other person has a right to acquire any of the Preferred Stock. The board of
trustees of the Trust has the sole power to vote or to direct the vote and to
dispose or direct the disposition of all assets of the Trust on behalf of the
Plan. The board of trustees of the Trust may act by majority vote at a meeting
or unanimously in writing without a meeting.
ITEM 6: CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER
The Company, ISC and the Trust are parties to the Loan Agreement, which is
described in this Schedule 13D, and a copy of which is attached to this Schedule
13D as Exhibit A and is incorporated into this Schedule 13D by reference.
The Warrant grants the Trust the right to purchase shares of the Common
Stock at a purchase price of $2.00 on or before May 7, 2002; a copy of the
Warrant is attached to this Schedule 13D as Exhibit B and is incorporated into
this Schedule 13D by reference.
The Trust and the Company are parties to that certain Registration Rights
Agreement, which obligates the Company to register the shares of Common Stock
for which the Warrants may be exercised under certain circumstances. A copy of
the Registration Rights Agreement is attached to this Schedule 13D as Exhibit C
and is incorporated into this Schedule 13D by reference.
The Company and the Trust are parties to that certain Subscription
Agreement dated May 30, 1997, pursuant to which the Trust acquired shares of the
Preferred Stock on June 2, 1997. A copy of the Subscription Agreement is
attached to this Schedule 13D as Exhibit D and is incorporated into this
Schedule 13D by reference.
The Trust and the Company are parties to that certain Registration Rights
Agreement, which obligates the Company to register the shares of Common Stock
into which the Preferred Stock may be converted under certain circumstances. A
copy of the Registration Rights Agreement is attached to this Schedule 13D as
Exhibit E and is incorporated into this Schedule 13D by reference.
The Second Master Trust Agreement, dated July 19, 1983, between Coastal and
the then-appointed trustees of the Trust, as amended , including Amendment Seven
dated May 2, 1997, between Coastal and then-appointed trustees of the Trust
establish the Trust on behalf of the Plan and governs the operation of the
Trust, including the rights of the Trustees to vote securities held by the Trust
and to make investment decisions with respect to securities held by the Trust; a
copy of the Trust Agreement and Amendment Seven is attached to this Schedule 13D
as Exhibit F and is incorporated into this Schedule 13D by reference.
ITEM 7: MATERIAL TO BE FILED AS EXHIBITS
1. Exhibits A through F identified in Item 6.
2. Agreement among the Trustees and the Plan to jointly file this Schedule
13D pursuant to Rule 13d-1(f) under the Securities Exchange Act of 1934.
<PAGE>
After reasonable inquiry and to the best of the knowledge and belief of
each of the undersigned, each of the undersigned certifies that the information
set forth in this statement is true, complete and correct.
June 12, 1997 ________________________________________________
COBY C. HESSE, as Trustee
for The Coastal Corporation Second Pension Trust
________________________________________________
DONALD H. GULLQUIST, as Trustee
for The Coastal Corporation Second Pension Trust
________________________________________________
CARL A. CORRALLO, as Trustee
for The Coastal Corporation Second Pension Trust
PENSION PLAN FOR EMPLOYEES OF THE COASTAL
CORPORATION
By _____________________________________________
DONALD H. GULLQUIST
Senior Vice President
The Coastal Corporation
<PAGE>
Exhibit 7(a)
Agreement Pursuant to Rule 13d-1(f)(1) Under
the Securities Exchange Act of 1934
For purposes of filing a statement on Schedule 13D with respect to shares
of common stock, par value US $0.01 per share, of Intelect Communications
Systems Limited that may be deemed to be beneficially owned by the Pension Plan
for Employees of The Coastal Corporation, The Coastal Corporation Second Pension
Trust and the individual trustees of that Trust, each of the undersigned agrees
that the Schedule 13D to which this agreement is attached as an exhibit may be
filed on behalf of each of the undersigned.
_____________________________________
Coby C. Hesse
_____________________________________
Donald H. Gullquist
_____________________________________
Carl A. Corrallo
PENSION PLAN FOR EMPLOYEES OF
THE COASTAL CORPORATION
By __________________________________
Donald H. Gullquist
Senior Vice President
The Coastal Corporation
SECOND MASTER TRUST AGREEMENT
AGREEMENT made as of the 19th day of July, 1983 between The Coastal
Corporation, a Delaware corporation (hereinafter referred to as the "Company")
and the individuals who have executed this document as Trustees (hereinafter
referred to as the "Trustees").
W I T N E S S E T H
WHEREAS, the Company desires to establish an additional master trust known
as "The Coastal Corporation Second Pension Trust" (hereinafter referred to as
the "Second Master Trust"), which will serve as an additional funding medium for
the "Pension Plan for Employees of The Coastal Corporation" (the "Coastal
Plan"); and
WHEREAS, a separate additional master retirement trust with the Trustees
similar to the Second Master Trust ("Related Trusts") has been adopted by the
employee pension plans of the Company's subsidiaries and/or affiliates listed on
the Schedule of Commingled Plans (the "Related Plans") annexed hereto; and
WHEREAS, certain assets of the Coastal Plan and Related Plans are currently
in a trust fund (the "Master Trust") held by Bankers Trust Company as Trustee
(the "Master Trustee"), pursuant to an agreement (the "Master Trust Agreement")
dated as of January 1, 1982 between the Company and the Master Trustee;
NOW, THEREFORE, in consideration of the premises, the Company and the
Trustees do hereby declare and agree each with the other that the Second Master
Trust is hereby established as follows:
1. The Trustees shall appoint a custodian (hereinafter referred to as the
"Custodian") to accept and hold, as Custodian, as hereinafter provided such sums
of money and other property acceptable to the Trustees as shall from time to
time be paid or delivered to the Second Master Trust (including, but not limited
to, any money or other property which, upon direction of the Company, may be
transferred to the Second Master Trust from the Master Trust) and such income,
increments and accruals thereon as may occur from time to time. All such monkey
and other property and all investments and reinvestments made therewith or
proceeds thereof and all income and increments thereon, less the payments which
at the time of reference shall have been made by the Custodian at the direction
of the Trustees as authorized herein, are sometimes referred to herein as the
"Fund". The Fund shall be held by the Custodian and dealt with in accordance
with the express provisions of this Agreement. No bond shall be required of the
Custodian unless required by law.
-1-
<PAGE>
The Custodian shall have no authority with respect to investment,
reinvestment, retention, sale or other disposition of any assets of the Fund
except to act as agent if so authorized by the Trustees.
Assets of the Coastal Plan and the Related Plans may be commingled under
the Second Master Trust for purposes of common investment. However, the
management and control of such commingled assets shall be exercised only
pursuant to the provisions of the Second Master Trust and the Related Trusts,
respectively.
2. The Trustees are directed and authorized (a) to invest and reinvest the
Fund, through any agent, which agent may be the Custodian, as hereinafter
prescribed, (b) to direct the Custodian to pay monies and make distributions
from the Fund on the order of the Trustees or such person or persons as may be
designated in writing by the Trustees (such person or persons being hereinafter
referred to as the "Fiduciary"), for the purpose of transfer to the Master Trust
or distributing to participants, retired participants and their beneficiaries
the benefits due them, including payment to any insurance company for the
purpose of providing such benefits, and (c) to pay the expenses of the Fund as
hereinafter provided.
Notwithstanding anything in this Agreement to the contrary, no part of the
corpus or income of the Fund shall be used for or diverted to purposes other
than the exclusive benefit of the participants, retired participants or their
beneficiaries; provided, however, that the Custodian shall be entitled to assume
that any action by the Trustees, the Company, any of its subsidiaries or
affiliated companies, or the Fiduciary pursuant to any of the provisions of this
Agreement shall comply with the foregoing provision of this paragraph, and the
Custodian shall nob be liable in respect of any action they may take in good
faith pursuant thereto.
3. The Trustees shall invest and reinvest the Fund as provided herein, and
keep the Fund invested, without distinction between corpus and income, entirely
in common stock of the Company ("Common Stock"), and shall accept contributions
in the form of Common Stock (if any contribution to the Fund is received from
the Company in the form of treasury shares or authorized but previously unissued
shares of Common Stock); provided, however, that the Company shall inform the
Trustees periodically or at their request of the aggregate market value of plan
assets and the market value, if any, of Common Stock held by the Master Trust,
and in no event shall the Trustees make any purchases of Common Stock or accept
any contribution in the form of Common Stock if and to the extent that the then
aggregate market value of Common Stock held pursuant to the Fund and the Master
Trust would exceed ten percent of the then aggregate market value of the assets
of the Master Trust plus the Fund.
Notwithstanding anything in this Agreement to the contrary, pending the
purchases of Common Stock or pending any payment or distribution from the Fund
as provided in this
-2-
<PAGE>
Agreement, the Trustees may temporarily invest all or any part of the Fund
in interest-bearing accounts or commingled accounts maintained by a bank or
banks, or in such short-term debt instruments as they, in their sole discretion,
deem appropriate, or in any regulated fund invested in short-term debt
instruments. Subject to the foregoing provisions of this Article 3, the Trustees
shall reinvest all interest, dividends and other income earned by the Fund in
Common Stock.
4. Subject to the provisions of Article 3 hereof, the Trustees are
authorized and empowered:
(a) to sell, exchange, convey, transfer or otherwise dispose
of any securities or other property held by the Fund, by private
contract or at public auction. No person dealing with the Trustees or
Custodian shall be bound to see to the validity, expediency or
propriety of any such sale or other disposition;
(b) to vote any stock, bonds or other securities; to give
general or special proxies or powers of attorney with or without power
of substitution; to exercise any conversion privileges, subscription
rights or other options, and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and
to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise any of the
powers of an owner with respect to stocks, bonds, securities or other
property held as part of the Fund;
(c) to appoint a Custodian to hold assets of the Fund, which
Custodian is to cause any securities or other property held as part of
the Fund to be registered in the name of the Custodian or in the name
of one or more nominees of the Custodian or to hold any investments in
bearer form, but the books and records of the Custodian shall at all
times show that all such investments are part of the Fund;
(d) to borrow or raise money for the purposes of the Coastal
Plan in such amount and upon such terms and conditions as they shall
deem advisable and, for any sum so borrowed, to issue their promissory
note as Trustees and to secure the repayment thereof by pledging all,
or any part, of the Fund; and no person lending money to the Trustees
shall be bound to see to the application of the money lent or to
inquire into the validity, expediency or propriety of any such
borrowing;
(e) to keep such portion of the fund in cash or cash balances
as the Trustees may, from time to time, deem to be in the best
interest of the Coastal Plan, without liability for interest thereon
and, without affecting the generality of the foregoing, to keep such
portion of the Fund in cash or cash balances as may be specified from
time to time in a written request of the Fiduciary to meet
contemplated requisitions or orders of the Fiduciary;
(f) to have the Custodian accept and retain for such time as
the Trustee may seem advisable any securities or other property
received or acceptable by them as Trustees hereunder, whether or not
such securities or other property would normally be purchased as
investments hereunder;
-3-
<PAGE>
(g) to appoint such accountants, actuaries, legal counsel,
investment advisors, specialists and other persons as they may deem
necessary or advisable in connection with the furtherance of their
responsibilities hereunder. The Trustees shall be entitled to rely
conclusively upon, and shall be fully protected in any action taken by
them in good faith in reliance upon, any opinions or reports which
shall be furnished to them by any such accountant, actuary, counsel,
advisor, specialist or other person;
(h) to appoint a bank or bank's trust company or trust
companies as Custodian, and to enter into and execute an agreement
with such Custodian setting forth the duties and responsibilities of
such Custodian with respect to the assets of the Fund; and
(i) to do all acts which they may deem necessary or proper and
to exercise any and all powers of the Trustees under this Agreement
under such terms and conditions as they deem to be for the best
interests of the Fund.
5. All expenses attendant to the management, control, and investment of the
assets of the Fund, including expenses arising out of any investment management
agreement or custodian agreement, expenses incurred by the Trustees hereunder,
and compensation for agents and for legal services of counsel, and expenses
incident there to, and the Trustees' compensation, if any (which, while such
compensation may be paid from the Fund, shall be in such amounts as may be
agreed upon in writing by the Company and the Trustees), and all other proper
charges and disbursements of the Trustees, including all proper taxes of any and
all kinds whatsoever that may be levied or assessed under existing or future
laws of any jurisdiction upon or in respect of the trust hereby created or the
Fund or any money, property or securities forming a part thereof, shall be paid
by the Trustees out of the Fund.
6. The Trustees may consult with legal counsel approved by the Company (who
may be counsel to the Company) concerning any question which may arise with
reference to their duties under this Agreement and the opinion of such counsel
shall be full and complete protection in respect of any action taken or suffered
by the Trustees hereunder in good faith and in accordance with the opinion of
such counsel.
7. The Custodian shall keep accurate and detailed accounts of all
investments, receipts and disbursements and other transactions hereunder and all
accounts, books and records relating thereto shall be open at all reasonable
times to inspection and audit by the Trustees, the Fiduciary or any person
designated by the Company. As soon as practicable after the close of the
business of each year, the Trustees shall certify in writing to the Company or
shall cause the Custodian to certify in writing to the Company the market value
of the Fund as of the close of business on the last business day of such year.
Within ninety days following the close of each plan year of the Coastal Plan and
within ninety days after the removal or resignation of any Custodian or
termination of the trust as provided herein, the Custodian shall file with the
Company a certified written report setting forth all investments, receipts and
disbursements, and other transactions
-4-
<PAGE>
effected by them during such year or during the period from the close of
such plan year to the date of such removal, resignation or termination. Except
as provided to the contrary by Section 413(a) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), upon the expiration of one hundred
fifty days from the date of filing such annual or other account, the Trustees
and Custodian shall be forever released and discharged from all liability and
accountability to anyone with respect to the propriety of their acts and
transactions shown in such account, except with respect to any, such acts or
transactions as to which the Company shall file with the Custodian or Trustees
written objections within such one hundred fifty day period.
The Company, as administrator of the Coastal Plan, shall be responsible for
preparing and filing any and all federal, state and local tax and other returns
that may be necessary in connection with the Fund.
Neither the Company, any participating subsidiary or affiliated company,
nor the Fiduciary shall have the right to demand or be entitled to any further
or different accounting by the Custodian or Trustees. The foregoing, however,
shall not preclude the Custodian or Trustees from having its account settled by
a court of competent jurisdiction.
The Company shall furnish or cause to be furnished to the Trustees, as soon
as practicable after their transmittal to the Company, such statements of the
assets and liabilities of the Master Trust as may be furnished to the Company by
the Master Trustee pursuant to the Master Trust Agreement. In furtherance of
their responsibilities hereunder, the Trustees shall be allowed to inspect the
books of account of the Master Trustee upon request at any reasonable time
during business hours.
8. The Trustees may act by majority vote at a meeting or unanimously in
writing without a meeting. Any Trustee may participate at a meeting by means of
conference telephone or similar communications equipment. Notwithstanding the
foregoing: (a) instructions for the transfer of money and property to the Master
Trust may be signed by any one Trustee with the same force and effect as if
signed by all Trustees then acting hereunder, and (b) the Trustees may by
written authorization empower any one of them to individually execute any other
document or documents on behalf of the Trustees, which authorization shall
remain in effect until revoked by any Trustee.
9. (a) The Trustees shall discharge their duties with respect to the
Coastal Plan and the Fund solely in the interest of the participants and their
beneficiaries and
(1) for the exclusive purpose of providing benefits to
participants and their beneficiaries and defraying reasonable expenses
of administering the Coastal Plan;
(2) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man, acting in like
capacity and familiar with such matters, would use in the conduct of
an enterprise of a like character and with like aims;
-5-
<PAGE>
(3) after taking into account the investment of assets held
pursuant to the Coastal Plan including assets held pursuant to the
Master Trust, by diversifying the investments of the Coastal Plan so
as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; and
(4) in accordance with the documents and instruments governing
the Coastal Plan insofar as such documents and instruments are
consistent with the provisions of ERISA.
(b) Except as provided in the succeeding sentence, the
Trustees shall not be liable with respect to any act or omission of the
Master Trust in connection with its responsibilities under the Master Trust
Agreement. No Trustee shall be liable for any breach of fiduciary responsibility
under ERISA by any other fiduciary with respect to the Coastal Plan unless (i)
he participates knowingly in, or knowingly undertakes to conceal, an act or
omission of such fiduciary, knowing such act or omission to be such a breach, or
(ii) by his failure to comply with the provisions of paragraph (a) of this
Article 9, he has enabled such other fiduciary to commit such a breach, or (iii)
he has knowledge of such a breach by such other fiduciary and has not made
reasonable efforts under the circumstances to remedy such breach.
10. Any Trustee may be removed by the Company at any time upon notice in
writing to the Trustees. A Trustee may resign at any time upon thirty days
notice in writing to the Company. Upon such removal or resignation of a Trustee,
or upon the death or disability of a Trustee, the Board of Directors of the
Company (the "Board") shall within thirty days appoint and designate a successor
trustee, who shall have the same powers and duties as those conferred upon the
Trustees hereunder. The Company may appoint one or more additional Trustees at
any time who shall have the same powers as those conferred upon the Trustees
hereunder.
11. Any action by the Board pursuant to any of the provisions of this
Agreement shall be evidenced by a resolution of the Board certified to the
Trustees over the signature of the Secretary or Assistant Secretary of the
Company under its corporate seal, and the Trustees shall be fully protected in
acting in accordance with such resolution so certified to it. All requests,
directions, requisitions for monies, certifications, and instructions by the
Trustees or Fiduciary to the Custodian shall be in writing, signed by the
Trustees or Fiduciary, and the Custodian shall act and shall be fully protected
in acting in accordance with such requests, directions, requisitions,
certifications and instructions. The Trustees or Fiduciary need not specify the
application to be made of any monies, and the Custodian shall be fully protected
in making payments of monies upon requisitions of the Trustees or Fiduciary and
shall be charged with no responsibility whatsoever respecting the application of
such monies or for the administration of the Coastal Plan. The Trustees shall
promptly furnish to the Custodian certificates evidencing the appointment and
termination of the Fiduciary, together with specimen signatures of such
Fiduciary, and for all purposes hereunder the Custodian shall be conclusively
entitled to rely upon such certificates as evidence of the identity and
authority of the person or persons as disclosed thereby.
-6-
<PAGE>
12. The Company reserves the right at any time (1) to modify or amend in
whole or in part, by written agreement with the Trustees, any or all of the
provisions of this Agreement, or (2) to terminate this Agreement upon notice in
writing to the Trustees; and the Company hereby covenants and agrees with the
Trustees that any such termination, modification, or amendment shall not permit
any part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of participants of the Coastal
Plan and their beneficiaries. However, if a contribution is made by mistake of
fact, this Agreement shall not prohibit the return of such contribution within
one year after the payment of such contribution, or if a contribution is
conditional on qualification of any of the Coastal Plan under Section 401(a) of
the Internal Revenue Code of 1954, as amended, and if any such plan does not so
qualify, this Agreement shall not prohibit the return of such contribution
within one year after the date of qualification of such plan, or if a
contribution is conditioned upon its deductibility under Section 404 of the
Internal Revenue Code of 1954, as amended, then, to the extent such deduction is
disallowed, this Agreement shall not prohibit the return of such contribution
within one year after the disallowance of such deduction. In the event of
termination of the trust created hereunder, all cash, securities and other
property then constituting the Fund, less any amounts constituting charges and
expenses properly payable from the Fund, shall be paid over or delivered by the
Trustees to the Master Trust, subject to the provisions of ERISA. In making such
or any other payments or deliveries to the Master Trust, however, the Trustees
shall, unless otherwise prescribed by law, ruling or regulation, have no duty to
determine whether or not such payments constitute any use or diversion of the
Fund for purposes other than the payment or provision for the payment of the
retirement benefits and the cash payments provided for in the Coastal Plan.
13. The Company, to the extent legally permissible, shall indemnify the
Trustees, the Fiduciary, and the Custodian, and each of them, against all
liabilities and expenses reasonably incurred in connection with the defense or
disposition or any action, suit, claim or other proceeding, either civil or
criminal, commenced or threatened, by reason of such Trustee, Fiduciary or
Custodian having served in such fiduciary capacity, except with respect to any
matter as to which such Trustee, Fiduciary or Custodian shall have been
adjudicated to have been guilty of gross negligence or willful misconduct. Such
indemnification shall be made only to the extent that liabilities and expenses
are not covered by insurance policies.
14. The Trustees, by joining in the execution of this Agreement, hereby
signify their acceptance of the trust created hereunder, their investment
management and fiduciary capacity, and agreement to the allocation of fiduciary
responsibilities, obligations and duties contained in this Agreement.
15. This Agreement shall be construed and enforced according to the laws of
the State of Texas and all provisions hereof shall be administered according to
the laws of said state, except as said laws are superceded by ERISA.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date indicated but to be effective as of the date first above written.
ATTEST: THE COASTAL CORPORATION
(Corporate Seal)
_____________________________ By: _______________________________________
Austin M. O'Toole James R. Paul Date
Vice President and Senior Vice President
Assistant Secretary
ATTEST:
_____________________________ _______________________________________
Phyllis D. O'Neal M. T. Arnold, Trustee Date
ATTEST:
_____________________________ _______________________________________
Alisa D. Powell Murry D. Page, Trustee Date
ATTEST:
_____________________________ ______________________________________
Karen S. Cole Bernard W. Schrader, Trustee Date
-8-
<PAGE>
SCHEDULE OF COMMINGLED PLANS
1. Derby Refining Company Pension Plan.
2. SUFCo Retirement Plan
-1-
SEVENTH AMENDMENT TO
THE COASTAL CORPORATION
SECOND MASTER TRUST AGREEMENT
THIS AMENDMENT is made as of May 2, 1997, by and between The Coastal
Corporation, a Delaware corporation (the "Company") and the individuals who have
executed this Amendment as Trustees (individually, a "Trustee," and collectively
the "Trustees").
W I T N E S S:
WHEREAS, the Company and certain individual Trustees entered into a Second
Master Trust Agreement (the "Second Master Trust Agreement") dated as of July
19, 1983 with respect to a trust known as "The Coastal Corporation Second
Pension Trust" (the "Trust") (defined terms used herein have the meanings
ascribed by the Second Master Trust Agreement) ; and
WHEREAS, pursuant to Section 3 of the Second Master Trust Agreement, the
trust fund shall be invested and reinvested in common stock of the Company; and
WHEREAS, the Company desires to amend Section 3 to provide additional
investment options for the Trust; and
WHEREAS, the Company desires to appoint Messrs. Coby C. Hesse, Donald H.
Gullquist and Carl A. Corrallo to serve as Trustees in place of Messrs. M.
Truman Arnold, Ronald A. Brownlee and Daniel J. Daly, Jr.; and
WHEREAS, Messrs. Coby C. Hesse, Donald H. Gullquist and Carl A. Corrallo,
by execution of this Amendment, accept their appointments as successor Trustees
of the Trust as of May 2, 1997; and
WHEREAS, pursuant to Section 12, the Company may amend the Second Master
Trust Agreement "by written agreement with the Trustees;"
NOW, THEREFORE, the Second Master Trust Agreement is amended pursuant to
Section 12 in the following respects:
1. Section 3 of the Second Master Trust Agreement is hereby amended in its
entirety to read as follows:
"3. The Trustees shall invest and reinvest the Fund as provided
herein, and keep the Fund invested, without distinction between corpus and
income, in:
A. common stock of the Company ("Common Stock"), and shall accept
contributions in the form of Common Stock (if any contribution to
the Fund is received from the Company in the form of treasury
shares or authorized but previously unissued shares of Common
Stock); provided, however, that the Company shall inform the
Trustees periodically, or at their request, of the aggregate
market value of plan assets and the market value, if any, of
Common Stock held by the Master Trust, and in no event shall the
Trustees make any purchases of Common Stock or accept any
contribution in the form of Common Stock if and to the extent
that the then aggregate market value of Common Stock held
pursuant to the Fund and the Master Trust would exceed ten
percent (10%) of the then aggregate market value of the assets of
the Master Trust plus the Fund;
B. the securities, including stock, bonds and other evidences of
indebtedness, and including venture capital investments,
determined to be prudent and otherwise in conformance with
applicable laws and regulations governing pension fund
investments (collectively "Securities") of any company other than
the Company, provided , however, in no event shall the Trustees
purchase Securities to the extent that the then aggregate market
<PAGE>
value of Securities held pursuant to the Fund and the Master
Trust would exceed five percent (5%) of the then aggregate market
value of the assets of the Master Trust plus the Fund.
Notwithstanding anything in this Agreement to the contrary,
pending the investment of the Fund or pending any payment or
distribution from the Fund as provided in this Agreement, the
Trustees may temporarily invest all or any part of the Fund in
interest-bearing accounts or commingled accounts maintained by a
bank or banks, or in such short-term debt instruments as they, in
their sole discretion, deem appropriate, or in any regulated fund
invested in short-term debt instruments."
2. Except for the preceding, all of the terms of the Second Master Trust
Agreement, as amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the Company through its duly authorized officer, and
the Trustees have executed this Amendment and the Company has caused its
corporate seal to be affixed hereto and attested as of the date indicated above
and the provisions of this Amendment shall be effective as of the date indicated
above, unless otherwise stated herein or required by law.
ATTEST: THE COASTAL CORPORATION
_______________________________ By: ______________________________
TRUSTEES:
___________________________________
Coby C. Hesse
___________________________________
Donald H. Gullquist
___________________________________
Carl A. Corrallo
2
<PAGE>
LOAN AGREEMENT
BETWEEN
THE COASTAL CORPORATION SECOND PENSION TRUST
AND
INTELECT SYSTEMS CORP.
AND
INTELECT COMMUNICATIONS SYSTEMS LIMITED
<PAGE>
TABLE OF CONTENTS
(This Table of Contents attached to the Loan Agreement is provided for
convenience only, is not a part of such , and shall not in any way affect the
meaning or construction thereof.)
Page
ARTICLE 1 GENERAL TERMS............................................ 1
1.01 Definitions ............................................. 1
ARTICLE 2 AMOUNT AND TERMS OF LOAN ................................ 4
2.01 The Loan ................................................ 4
2.02 Interest Rate ........................................... 4
2.03 Security ................................................ 4
2.04 Computation ............................................. 5
2.05 Use of Proceeds ......................................... 5
2.06 Payment and Prepayment Procedure......................... 6
2.07 Issuance of Preferred Stock - Conversion to Equity....... 6
2.08 Warrants................................................. 7
2.09 Business Days ........................................... 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES .......................... 7
3.01 Organization ............................................ 7
3.02 Authorization; No Conflict .............................. 7
3.03 Binding Obligations ..................................... 7
3.04 Financial Condition ..................................... 7
3.05 Defaults ................................................ 7
3.06 Use of Proceeds; Margin Stock ........................... 8
3.07 Tax Returns and Payments ................................ 8
3.08 Litigation Representation ............................... 8
3.09 Compliance with ERISA ................................... 8
3.10 Environmental Matters.................................... 8
3.11 Compliance with Applicable Laws.......................... 8
3.12 Patents, Licenses, Etc................................... 9
3.13 Outstanding Common Stock................................. 9
3.14 Disclosure............................................... 9
ARTICLE 4 AFFIRMATIVE COVENANTS ................................... 9
4.01 Financial Statements and Reports ........................ 9
4.02 Legal Existence.......................................... 9
4.03 Insurance ............................................... 9
4.04 Maintenance of Property ................................. 9
4.05 Inspection of Property; Books and Records; Discussions... 10
4.06 Patents, Licenses, Etc. ................................. 10
4.07 Further Assurances....................................... 10
4.08 Performance of Obligations............................... 10
4.09 Reimbursement of Expenses................................ 10
4.10 Notice of Certain Events................................. 10
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<PAGE>
ARTICLE 5 NEGATIVE COVENANTS ...................................... 11
5.01 Restrictions on Borrowing................................ 11
5.02 Payment of Dividends .................................... 11
5.03 Liens and Pledges of Assets and Stock.................... 11
5.04 Patents, Licenses, Etc. ................................. 11
5.05 Consolidation or Merger.................................. 11
5.06 Sale of Assets........................................... 11
5.07 Liquidation.............................................. 11
5.08 Restrictions on Sales and Leasebacks..................... 12
ARTICLE 6 EVENTS OF DEFAULT ....................................... 12
6.01 Events .................................................. 12
6.02 Remedies ................................................ 13
6.03 Right of Set-Off ........................................ 13
ARTICLE 7 CONDITIONS .............................................. 14
7.01 Note .................................................... 14
7.02 Officer's Certificates .................................. 14
7.03 Consents................................................. 14
7.04 No Default .............................................. 14
7.05 Good Standing............................................ 14
7.06 Opinion of Counsel ...................................... 14
ARTICLE 8 MISCELLANEOUS ........................................... 14
8.01 Notices.................................................. 14
8.02 Benefit of Agreement..................................... 15
8.03 Survival of Agreements .................................. 15
8.04 Renewal, Extension or Rearrangement ..................... 15
8.05 Invalidity............................................... 15
8.06 Amendment or Waiver ..................................... 15
8.07 No Waiver; Remedies Cumulative .......................... 15
8.08 Interest ................................................ 16
8.09 Headings................................................. 16
8.10 Counterparts ............................................ 16
8.11 Governing Law ........................................... 16
8.12 Exhibits................................................. 16
8.13 Entire Agreement......................................... 17
EXHIBIT A PROMISSORY NOTE
EXHIBIT B OPINION OF COUNSEL
EXHIBIT C PLEDGE AGREEMENT
EXHIBIT D WARRANT
EXHIBIT E REGISTRATION AGREEMENT
EXHIBIT F RIGHT OF FIRST REFUSAL
-ii-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of this 8th day of May
1997 by and between INTELECT SYSTEMS CORP., a Delaware corporation ("ISC"), and
INTELECT COMMUNICATIONS SYSTEMS LIMITED, a corporation organized under the laws
of Bermuda ("ICSL" or the "Company" and together with ISC called the
"Borrower"); and THE COASTAL CORPORATION SECOND PENSION TRUST ("Lender") (the
"Parties"):
W I T N E S S:
WHEREAS, Borrower and its Subsidiaries have developed and are
marketing Technologies and Products for the communications industry;
WHEREAS, Borrower has an existing line of credit with St. James
Capital Corp., a Delaware corporation;
WHEREAS, Borrower seeks additional debt funding for its working
capital requirements from another source on a secured basis and is willing to
offer equity participation through the issuance of Warrants;
WHEREAS, Borrower is willing to grant Lender the option to acquire
additional shares of Preferred Stock;
WHEREAS, Lender desires to loan funds to Borrower to meet its current
working capital requirements on the terms and conditions herein; and
WHEREAS, the Parties desire to memorialize the terms and conditions
for the making of a working capital Loan, the pledge of all the authorized stock
of the Subsidiaries of Borrower as security for the Loan and the issuance of
Warrants for the acquisition of the Common Stock of ICSL, all as the Parties
have agreed in conference as of May 2, 1997;
NOW, THEREFORE, for and in consideration of the premises, and the
mutual covenants and agreements herein contained and of the Loan hereinafter
referred to, the Borrower and the Lender agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Definitions. As used in this Loan Agreement, the
following terms shall have the following meanings, unless the context otherwise
requires:
"Agreement" shall mean this Loan Agreement, as the same may from time
to time be amended or supplemented.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978 as
codified under 11 U.S.C. ss.101, et seq. and Bankruptcy shall have the meaning
given in the Bankruptcy Code.
"Borrower" shall mean Intelect Systems Corp. ("ISC"), and Intelect
Communications Systems Limited ("ICSL").
"Borrower and its Consolidated Subsidiaries" shall mean the Borrower
and its Subsidiaries which are taken on a consolidated basis for financial
reporting purposes. The Consolidated Subsidiaries of the Borrower are: Intelect
Systems Corp.; Intelect Network Technologies Company (formerly Intelect, Inc.);
DNA Enterprises, Inc.; Intelect Visual Communications Corp.; and Intelect
Network Systems, Ltd.
"Business Day" shall mean a day (other than a Saturday, Sunday or
legal holiday) for commercial lenders pursuant to the laws of the State under
which the Lender is governed.
"Capital Stock" shall mean all common and preferred stock of the
Borrower, but shall not include preferred stock subject to mandatory redemption
requirements.
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<PAGE>
"Collateral" shall have the meaning given in Section 2.03(a).
"Common Stock" means the shares of common stock of ICSL, par value
$.01 per share.
"Company" shall mean ICSL, including all successors thereto, and
whether merged, consolidated, reincorporated or as its name, domicile or
jurisdiction may change from time to time.
"Consolidated Current Assets" shall mean the current assets of the
Borrower and its Consolidated Subsidiaries.
"Consolidated Current Liabilities" shall mean the current liabilities
of the Borrower and its Consolidated Subsidiaries.
"Consolidated Net Worth" shall mean the amount specified on the most
recently available quarterly or annual balance sheet of the Borrower and its
Consolidated Subsidiaries under the heading "Shareholders' Equity".
"Consolidated Subsidiaries" means Intelect Systems Corp.; Intelect
Network Technologies Company (formerly, Intelect Inc.); DNA Enterprises, Inc.;
Intelect Visual Communications Corp.; and Intelect Network Systems, Ltd.
"Conversion Ratio" shall have the meaning given in Section 2.07.
"Default" shall mean the occurrence of any of the events specified in
Article 6 hereof, whether or not any requirement for notice or lapse of time or
other condition precedent has been satisfied.
"Dollar", "Dollars" and "$" shall mean the lawful currency of the
United States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and all current rules and regulations promulgated thereunder.
"Event of Default" shall mean the occurrence of any of the events
specified in Article 6 hereof, provided that any requirement for notice or lapse
of time or any other condition precedent has been satisfied.
"Financial Statements" shall mean the financial statements of the
Borrower described in Section 4.01 hereof.
"GAAP" shall mean generally accepted accounting principles of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate
from time to time allowed by applicable law as now, or to the extent allowed by
law as may hereafter be, in effect in any jurisdiction in which the interest
rate or laws are mandatorily applicable.
"Holder" shall mean the holder of the Note.
"Indebtedness" shall mean all principal, interest and commitment fees
owing by the Borrower to the Lender in connection with the Note or this
Agreement.
"Lender" shall mean The Coastal Corporation Second Pension Trust.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" shall mean any sum extended under the Agreement, as it may be
amended from time to time.
-2-
<PAGE>
"Loan Documents" shall mean this Agreement and all Exhibits hereto,
including the Promissory Note, as they may be amended from time to time.
"Makers" means the makers of the Note.
"Margin Percentage" shall mean Two Percent (2%) which is added to the
Prime to determine the applicable interest rate on the Note.
"Material Adverse Effect" shall mean a material and adverse effect on
the operations or financial condition of the Borrower or its Subsidiaries.
"Maturity Date" shall mean the Termination Date.
"Note" shall mean the Promissory Note of the Borrower described in
Section 2.01 hereof and being in the form of Note attached as Exhibit A hereto,
together with any and all renewals, extensions for any period, increases or
rearrangements thereof.
"Pari Passu Agreement" means the In Pari Passu Agreement between St.
James Capital Corp. and Lender of even date herewith.
"Parties" shall have the meaning given in the Preamble.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens now or hereafter securing the Note;
(b) pledges or deposits made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or benefits or
to participate in any fund in connection with workers' compensation,
unemployment insurance, pensions, or other social security programs; (c)
good-faith pledges or deposits made to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money), or leases, or to
secure statutory obligations, surety or appeal bonds, or indemnity, performance,
or other similar bonds in the ordinary course of business; (d) Liens for taxes
and Liens imposed by operation of law (including Liens of mechanics,
materialmen, warehousemen, carriers and landlords), if (i) no amounts are due
and payable and no Lien has been filed (or agreed to), or (ii) the validity or
amount secured thereof is being contested in good faith by lawful proceedings
diligently conducted, reserves required by GAAP have been made, and levy and
execution thereon have been (and continue to be) stayed or payment thereof is
covered in full (subject to the customary deductible) by insurance; (e) Liens
currently in existence; (f) Liens covering purchase money debt incurred to
finance equipment or inventory in the ordinary course of business; and (g) Liens
securing the indebtedness to St. James Capital Corp. as provided in Section
2.03(b).
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any multi-employer plan or single employer plan, as
defined in Section 4001 and subject to Title IV of ERISA, which is maintained,
or at any time during the five (5) calendar years preceding the date of this
Agreement was maintained, for employees of the Borrower or a Subsidiary.
"Pledge Agreement" means that certain Pledge Agreement, the form of
which is attached hereto on Exhibit C, dated of even date herewith, executed by
Borrower in favor of the Lender pursuant to which Borrower grants to the Lender
a Lien on all of the issued and outstanding shares of Capital Stock of the
Subsidiaries, as originally executed or as it may from time to time be
supplemented, modified or amended.
"Preferred Stock" shall have the meaning given in Section 2.07 .
"Prime Interest Payment Date" shall mean, the last day of each March,
June, September and December.
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<PAGE>
"Prime Rate" shall mean the interest rate per annum announced from
time to time by First Bank National Association as its prime rate for U.S.
Dollar loans payable in the United States of America.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Registration Rights Agreement" means that certain Registration Rights
Agreement the form of which is attached as Exhibit E, dated of even date
herewith executed by Borrower in favor of the Lender, covering registration
rights in respect to the shares of ICSL's Common Stock that may be acquired on
the exercise of the Warrants, as originally executed or as it may from time to
time be supplemented, modified or amended.
"Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the issued and outstanding securities having ordinary voting
power for the election of directors is owned or controlled, directly or
indirectly, by the Borrower and/or one or more of its Subsidiaries.
"Termination Date" shall mean March 27, 1998.
"Transaction Documents" means this Loan Agreement, the Note, the
Pledge Agreement, the Warrants and the Registration Rights Agreement.
"Warrants" means any Warrant to purchase shares of ICSL's Common
Stock, par value $.01 per share, including the Warrant issued pursuant to the
terms of that certain Warrant dated as of the date hereof, in the form attached
hereto as Exhibit D, executed by ICSL in favor of Borrower, as hereafter
amended, modified, substituted or replaced.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
Section 2.01 The Loan. Subject to the terms and conditions and relying
on the representations and warranties contained in this Agreement, the Lender
agrees to make the following Loan to the Borrower:
(a) Lender will Loan to the Borrower Five Million Dollars
($5,000,000). To evidence the Loan made by the Lender pursuant to this
Subsection, the Borrower will execute and deliver the Note dated as of the date
of this Agreement and payable on or before the Termination Date. Interest on the
Note shall be payable on each Prime Interest Payment Date and on the Termination
Date, as it accrues on the principal amount from time to time outstanding, at
the rate provided in Section 2.02 hereof.
(b) The Loan advanced hereunder shall be repaid on its Maturity
Date in a single installment together with any accrued but unpaid interest then
due and payable with respect to such Loan. On the Termination Date, the
aggregate unpaid principal amount then outstanding, together with accrued
interest thereon and any other amounts payable hereunder shall be due and
payable in full.
Section 2.02 Interest Rate. The Note shall bear interest from the date
thereof until the Termination Date at the Prime Rate plus the Margin Percentage,
but in no event to exceed the Highest Lawful Rate. Adjustments in such interest
rate shall be made on the same day as each change announced in the Prime Rate,
and to the extent allowed by law, on the effective date of any change in the
Highest Lawful Rate. Past due principal and interest in respect of the Note
shall bear interest at a varying rate per annum which is five percent (5%) per
annum in excess of the Prime Rate (but in no event to exceed the Highest Lawful
Rate) and shall be payable on demand.
Section 2.03 Security.
(a) Concurrently with the execution and delivery hereof, Borrower
has executed and delivered to Lender a certain Borrower Pledge Agreement dated
as of the date hereof (the "Pledge Agreement") under which Borrower pledges its
interest in the stock of Intelect Network Technologies Company, DNA Enterprises,
Inc. and Intelect Visual Communications Corp. ("Collateral").
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(b) The Parties acknowledge and agree that, pursuant to a certain
Borrower Pledge Agreement dated February 22, 1997, as amended by First Amendment
to Borrower Pledge Agreement dated March 27, 1997, and Second Amendment to
Borrower Pledge Agreement dated April 24, 1997, and Third Amendment to Borrower
Pledge Agreement dated of even date herewith (the "St. James Pledge Agreement")
executed by ISC in favor of St. James Capital Corp., Borrower has granted a
security interest to St. James in the Collateral to secure the payment of a
Floating Rate Promissory Note dated February 26,1997, as amended by the Amended
and Restated Floating Rate Promissory Note, and the Second Amended and Restated
Floating Rate Promissory Note, dated as of February 26, 1997, made by Borrower
payable to the order of St. James in the original principal amount of
$6,000,000.00.
(c) The rights and obligations of each of St. James and the
Lender with respect to the Collateral are as provided in the Pari Passu
Agreement, it being the intent of Borrower to share in such Collateral in pari
passu with St. James.
(d) It shall be a condition to this Agreement and the Loan
hereunder that Borrower obtain the consent of St. James to the Liens and
security interests granted under this Agreement for the benefit of Lender.
(e) Borrower further acknowledges that the stock of the
Consolidated Subsidiaries has a current value in excess of the amount of the
initial Loan contemplated under this Agreement. Borrower agrees to grant a
security interest in the such Collateral under the terms of the Pledge Agreement
(a) to facilitate future borrowings under this Agreement as it may be amended
from time to time; (b) in light of the volatility of such Collateral; and (c) to
permit Lender to elect remedies in the event of a Default.
Section 2.04 Computation.
(a) All interest fees shall be computed on the per annum basis of
the actual number of days elapsed in a year of 365 or 366 days, as the case may
be.
(b) In the event that at any time the sum of the applicable
Margin Percentage plus the Prime Rate exceeds the Highest Lawful Rate, the rate
of interest to accrue on the Note shall be limited to the Highest Lawful Rate,
but any subsequent reductions in the Prime Rate shall not reduce the rate of
interest to accrue on the Note below the Highest Lawful Rate until the total
amount of interest accrued on the Note equals the amount of interest that would
have accrued if a varying rate per annum equal to the applicable Margin
Percentage plus the Prime Rate had at all times been in effect.
(c) In the event that at maturity or final payment of the Note
the total amount of interest paid or accrued on the Note is less than the total
amount of interest which would have accrued if a varying rate per annum equal to
the applicable Margin Percentage plus the Prime Rate had at all times been in
effect, then the Borrower agrees to pay to the Lender an amount equal to the
difference between (i) the amount of interest which would have accrued on the
Note if the Highest Lawful Rate had at all times been in effect, and (ii) the
amount of interest otherwise accrued in accordance with the provisions of
Section 2.02 hereof and this Section 2.04.
Section 2.05 Use of Proceeds.
(a) The proceeds of all Loans hereunder are to be used to meet
the working capital requirements of Borrower and its Subsidiaries. No part of
the proceeds of any Loan may be used to prepay any loan or debt obligation of
the Borrower, to acquire the stock or assets of any unrelated entity, or for any
other purpose not in the ordinary course of business of Borrower or its
Subsidiaries, provided that the proceeds may be used to pay the current
obligations and other corporate requirements of Borrower, provided further, that
the proceeds may not be used to pay the obligations incurred by the Borrower in
connection with the acquisition of DNA Enterprises, Inc. without Lender's
written consent, which shall not be unreasonably withheld.
(b) No portion of the proceeds of any Loan shall be used by the
Borrower, or any one of them, in any manner that might cause the borrowing or
the application of such proceeds to violate Regulation G, Regulation U,
Regulation T, or Regulation X or any other regulation of the Board or to violate
the Securities Exchange Act of 1934, in each case as in effect on the date or
dates of such borrowing and such use of proceeds.
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Section 2.06 Payment and Prepayment Procedure. All payments and
prepayments made by the Borrower under the Note or this Agreement shall be made
to the Lender by wire transfer as specified in Section 8.01 on the date that
such payment is required to be made. The Borrower shall have the right to prepay
the Note in whole or in part from time to time. In such event, the Borrower
shall notify the Lender by 11:00 AM local time of the Lender, on the day that
such prepayment will be made, and such prepayment shall be made on such day
(without premium or penalty), together with any required payment of accrued
interest on the amount prepaid.
Section 2.07 Issuance of Preferred Stock - Conversion to Equity.
(a) At any time, and from time to time, at which there is Indebtedness
outstanding, but not later than August 1, 1997, and provided that Lender has
acquired the convertible preferred stock as provided in Section 2.07(e),
Borrower may request, or Lender may require, that the balance of such
Indebtedness be redeemed in the form of convertible preferred stock of the
Company at a redemption price of one hundred percent (100%) of the principal
amount of such Indebtedness, in each case plus accrued and unpaid interest to
the date fixed for redemption. Such request shall be in writing and the stock
shall be issued within five (5) Business Days after receipt of such notice.
Borrower shall authorize and issue a class of convertible preferred stock
("Preferred Stock") possessing substantially the characteristics identified
below to meet its obligation under this Section. The number of shares of
Preferred Stock issued in satisfaction of the redemption shall be equal to the
product of the balance of Indebtedness divided by the price per share of the
Preferred Stock as determined in Section 2.07(c).
(b) The Preferred Stock will have a face amount of Two and 1.45/100
Dollars ($2.0145) and pay an annual dividend of ten percent (10%) payable
quarterly in arrears on each December 31, March 31, June 30 and September 30,
either in immediately available funds, or in Common Stock in an amount
equivalent to the accrued dividend, converted into Common Stock at the average
closing market bid price for the five (5) consecutive trading days prior to the
date the dividend is otherwise payable. Each share of the Preferred Stock shall
be convertible into one (1) share of Common Stock ("Conversion Ratio") with
rights of preemption and anti-dilution. The price of the Preferred Stock shall
be the average closing market bid price for the five (5) consecutive trading
days through May 8, 1997, plus two percent (2%). The Parties stipulate that the
average closing market bid price for the five (5) consecutive trading days is
$1.975, and the purchase price per share of the Preferred Stock shall be
$2.0145.
(c) The anti-dilution provisions applicable to the conversion of the
Preferred Stock to ICSL Common Stock shall provide for adjustments in the
Conversion Ratio as follows: Notwithstanding Sections 2.07 (a) and (b), the
number of shares of ICSL Common Stock into which the Preferred Stock would be
convertible shall be adjusted to maintain the ratio that the total number of
shares of Preferred Stock issuable under this Section 2.07 bears to the number
of shares of ICSL Common Stock outstanding as of May 8, 1997. The Conversion
Ratio calculation shall be adjusted to take into account (i) Common Stock issued
under ICSL's 7.5 % and 7% Convertible Debentures from and after May 8, 1997, and
(ii) options, warrants or other rights to Common Stock exercised after the date
hereof but excluding options issued or to be issued pursuant to ICSL's employee
stock option plans.
(d) Provided that Lender has acquired the convertible preferred stock
as provided in this Section 2.07, in addition to rights of preemption, Lender
shall be entitled to a right of first refusal in any private offering of an
equity interest, including other preferred stock, warrants or convertible
debentures, to be offered by Borrower or brought to Borrower. The procedures for
notice and exercise of such right of first refusal are set out in Exhibit F.
(e) For good and valuable consideration, the receipt of which is
hereby acknowledged, Borrower agrees to sell to Lender, and Lender agrees to
acquire, by May 30, 1997, 2,482,005 shares of the Preferred Stock at the price
specified in Section 2.07(b), subject to the completion of due diligence
satisfactory to the Lender and compliance with regulatory requirements.
(f) Nothing in this Section 2.07 may be read or construed (i) to
violate the rules of the Securities and Exchange Commission or any market in
which shares of ICSL are traded, and including the maintenance criteria of the
NASDAQ Rule 4460(i)(1)(D)(iii), (as applied to all shares of ICSL's Common and
Preferred Stock deemed to be aggregated under said Rule), or (ii) to trigger the
right of first refusal under ICSL's 7.5% and 7% Convertible Debentures, and the
Parties agree that in the event either (i) or (ii) would otherwise occur, this
Agreement shall not be enforceable against either Party to the extent of such
occurrence, and further, the Parties agree that in the event either (i) or (ii)
would otherwise
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occur, they shall amend this Agreement to reflect, and the Designation of Rights
and Preferences of the Preferred Stock shall reflect, such adjustment to price
or quantity as may be necessary to avoid the occurrence of either (i) or (ii).
Section 2.08 Warrants. As an inducement to enter this Agreement, but
for which Lender would not do, Borrower agrees to issue to Lender Warrants for
the acquisition of 750,000 shares of Common Stock of Borrower at a price per
share of Two Dollars ($2.00). Borrower agrees to issue a Warrant in the form of
Exhibit D, hereto at or prior to the making of any Loan under this Agreement.
Section 2.09 Business Days. If the date for any payment due hereunder
falls on a day which is not a Business Day, then for all purposes of the Note
and this Agreement the same shall be deemed to have fallen on the next following
Business Day.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into the Note and Agreement,
each of ICSL and ISC represents and warrants to the Lender (which
representations and warranties shall survive the delivery of the Note and the
making of the Loan or Loans hereunder) that:
Section 3.01 Organization. ISC is a corporation duly existing and in
good standing under the laws of the State of Delaware and ICSL is a corporation
duly existing and in good standing under the laws of Bermuda. Each of the
Borrower and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation,
has all requisite corporate power and authority to own its Property and to carry
on its business as now conducted, and is in good standing and authorized to do
business in each jurisdiction in which the Borrower or such Subsidiary owns real
Property or conducts such business, where the failure to maintain such good
standing or authorization is reasonably expected to have a Material Adverse
Effect.
Section 3.02 Authorization; No Conflict. The execution and delivery of
this Agreement, the borrowing hereunder, the execution and delivery of the Note
and the performance by the Borrower of its obligations under this Agreement and
the Note are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, have received all necessary governmental
approvals (if any shall be required) and do not and will not contravene or
conflict with any rule, regulation, decree or order or provision of law or of
the charter or by-laws of the Borrower or of any agreement binding upon the
Borrower or any of its properties, except to the extent any such consent or
approval has been obtained or waived, and delivered to Lender.
Section 3.03 Binding Obligations. This Agreement does, and the Note
upon its creation, execution and delivery will, constitute legal valid and
binding obligations of the Borrower, enforceable in accordance with their terms,
except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or the right to obtain the remedy of specific performance.
Section 3.04 Financial Condition. The audited annual consolidated
Financial Statements of the Borrower and its Consolidated Subsidiaries for its
most recently ended fiscal year (the "1996 Financial Statements"), and the
unaudited consolidated interim Financial Statements of the Borrower and its
Consolidated Subsidiaries for its most recently ended fiscal quarter (for which
such annual or quarterly Financial Statements are available), which have been
delivered to the Lender, are complete and correct in all material respects, have
been prepared in accordance with GAAP, consistently applied, and present fairly
the consolidated financial condition and results of the operations of the
Borrower and its Consolidated Subsidiaries as at the date or dates and for the
period or periods stated (subject only to normal year-end audit adjustments with
respect to such unaudited interim statements). No material adverse change has
since occurred in the consolidated financial condition or operations of the
Borrower and its Consolidated Subsidiaries except as otherwise disclosed to the
Lender.
Section 3.05 Defaults. Except for defaults in payments required to be
made in connection with the acquisition of DNA Enterprises, Inc., as described
in "Note 24 (b)" of the 1996 Financial Statements, neither the Borrower nor any
Subsidiary is in Default (in any respect which materially and adversely affects
the consolidated business, Property,
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operations or financial condition of the Borrower and its Consolidated
Subsidiaries) under any instrument evidencing borrowed money to which the
Borrower or a Subsidiary is a party or by which it is bound.
Section 3.06 Use of Proceeds; Margin Stock. None of the proceeds of
the Note will be used for the purpose of, and the Borrower is not engaged in the
business of extending credit for the purpose of, purchasing or carrying any
"margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System (12 C.F.R. Part 21), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry a
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation U.
Section 3.07 Tax Returns and Payments. To the best of the Borrower's
knowledge, each has (i) filed all tax returns which it is required to file,
where the failure to file such returns would have a Material Adverse Effect on
the consolidated financial condition or operations of the Borrower and its
Consolidated Subsidiaries, and (ii) paid, or has provided adequate reserves for
the payment of all material federal and state income taxes applicable for all
prior fiscal years and for the current fiscal year down to the date hereof.
Section 3.08 Litigation Representation. Except for those matters
disclosed in "Notes 19 and 24 (b)" of the 1996 Financial Statements, there is no
litigation (including without limitation, derivative actions), arbitration
proceedings or governmental proceedings pending or, to the knowledge of the
Borrower, threatened against it or any Subsidiary which involves the reasonable
probability of a judgment not covered by insurance and which would have a
Material Adverse Effect on the Borrower and its Consolidated Subsidiaries.
Section 3.09 Compliance with ERISA. To the best of the Borrower's
knowledge, the Borrower and each of its Subsidiaries are in compliance in all
material respects with ERISA. Neither the Borrower nor any of its Subsidiaries
has any material liability under any type of Plan. No reportable event, as set
forth in Section 4043(b) of ERISA, has occurred and is continuing with respect
to any Plan which results in any material liability to the PBGC.
Section 3.10 Environmental Matters. To the best of the Borrower's
knowledge, neither the Borrower nor any Subsidiary (i) has received written
notice, nor has any officer of the Borrower otherwise learned, of any claim,
demand, action, event, condition, report or investigation indicating or
concerning any potential or actual liability which individually or in the
aggregate would have a Material Adverse Effect, arising in connection with: (x)
any noncompliance with or violation of the requirements of any applicable
federal, state or local environmental health and safety statutes and regulations
or (y) the release or threatened release of any toxic or hazardous waste,
substance or constituent, or other substance into the environment, (ii) has any
liability in connection with the release or threatened release of any toxic or
hazardous waste, substance or constituent, or other substance into the
environment which in the aggregate would have a Material Adverse Effect, (iii)
has received notice of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release or threatened release of any
toxic or hazardous waste, substance or constituent or other substance into the
environment for which the Borrower or any Subsidiary is or may be liable where
the taking or the failure to take such remedial action would have a Material
Adverse Effect, or (iv) has received notice that the Borrower or any Subsidiary
is or may be liable to any Person under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 et seq. ("CERCLA"), or any analogous state law, the failure to comply with
which would have a Material Adverse Effect. To the best of the Borrower's
knowledge, the Borrower and each Subsidiary is in compliance in all material
respects with the financial responsibility requirements of federal and state
environmental laws to the extent applicable, including, without limitation,
those contained in 40 C.F.R., parts 264 and 265, subpart H, and any analogous
state law, the failure to comply with which would have a Material Adverse
Effect.
Section 3.11 Compliance with Applicable Laws. Neither the Borrower nor
any Subsidiary is in default with respect to any judgment, order, writ,
injunction, decree or decision of any governmental authority, which default
would have a Material Adverse Effect. To the best of the Borrower's knowledge,
the Borrower and each Subsidiary is in compliance with all applicable statutes
and regulations, including ERISA, of all governmental authorities, a violation
of which would have a Material Adverse Effect.
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Section 3.12 Patents, Licenses, Etc. Except for those matters
described in "Note 8" to the 1996 Financial Statements, the Borrower warrants
that it has all right and title to, and has maintained and caused each
Subsidiary to maintain in full force and effect, all material licenses,
copyrights, patents, permits, applications, reports, authorizations, easements
and other rights as are necessary for the conduct of the business of Borrower
and its Consolidated Subsidiaries, where the termination of such rights would
have a Material Adverse Effect.
Section 3.13 Outstanding Common Stock. As of May 8, 1997, there were
20,531,598 shares of Common Stock Outstanding.
Section 3.14 Disclosure. Each of Borrower's representations in the
Transaction Documents are true, complete and accurate in all material respects.
Borrower has disclosed all material facts of which it has knowledge and
regarding the transaction contemplated by this Agreement. Borrower has not
failed to disclose to Lender any material fact necessary in order to make any
statement made, in light of the circumstances under which made, not misleading.
ARTICLE 4
AFFIRMATIVE COVENANTS
Section 4.01 Financial Statements and Reports. The Borrower will
promptly furnish to the Lender:
(a) Annual Reports. As soon as available and in any event within
one hundred and twenty (120) days after the close of each fiscal year of the
Borrower, the audited balance sheet of the Borrower and its Consolidated
Subsidiaries as at the end of such year, the audited statement of income of the
Borrower and its Consolidated Subsidiaries for such year, and the audited
statement of reconciliation of capital accounts of the Borrower and its
Consolidated Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year,
accompanied by the opinion of independent public accountants of national
standing; and
(b) Quarterly Reports. As soon as available and in any event
within sixty (60) days after the end of each of the first three quarterly
periods in each fiscal year of the Borrower, a copy of the Borrowers Form 10Q as
filed with the Securities and Exchange Commission.
(c) Other Information. Such other information regarding the
financial condition and operations of the Borrower and its Consolidated
Subsidiaries as the Lender may reasonably request. All such balance sheets and
other Financial Statements referred to in Subsections 4.01(a) and (b) above
shall conform to GAAP except for such changes in accounting principles or
practice with which the independent public accountants concur, and subject to
normal year-end audit adjustments with respect to the unaudited quarterly
statements described in Subsection 4.01(b) hereof.
Section 4.02 Legal Existence. The Borrower will, and will cause each
Subsidiary to do, or cause to be done, all things necessary to preserve and keep
in full force and effect its legal existence, rights and franchises; provided,
however, that nothing in this Section 4.02 shall prevent (i) the withdrawal by
the Borrower or any Subsidiary of its qualification as a foreign corporation in
any jurisdiction; (ii) a consolidation or merger permitted by other provisions
of this Agreement; or (iii) the redomicile of ICSL as to a jurisdiction within
the United States. The Borrower will use, and will cause each Subsidiary to use,
its best efforts to comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its Property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls).
Section 4.03 Insurance. The Borrower shall maintain, and cause each
Subsidiary to maintain, insurance on its Property against such risks and in
substantially the same amounts as are currently maintained, including, without
limitation, general liability and workers' compensation insurance.
Section 4.04 Maintenance of Property. The Borrower shall cause all
material Property owned by or leased to the Borrower or any Subsidiary and used
or useful in the conduct of the Borrower's business or the business of any
Subsidiary to be maintained and kept in normal condition, repair and working
order and supplied with all necessary
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equipment and cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower or
such Subsidiary may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Borrower or any
Subsidiary from discontinuing the use, operation or maintenance of any such
Property, or disposing of any such Property, if such discontinuance or disposal
is, in the judgment of the Board of Directors or the board of directors, board
of trustees or managing partners of the Subsidiary concerned, or of any officer
(or other agent employed by the Borrower or any of its Subsidiaries) of the
Borrower or such Subsidiary having managerial responsibility for any such
Property, desirable in the conduct of the business of the Borrower or any
Subsidiary, and if such discontinuance or disposal is not disadvantageous in any
material respect to the Lender.
Section 4.05 Inspection of Property; Books and Records; Discussions.
Upon reasonable request by the Lender, the Borrower shall permit representatives
of the Lender, upon at least two (2) Business Days' prior written notice to a
financial officer of the Borrower and subject to assertions of attorney-client
privilege and to confidentiality obligations reasonably necessary to protect
proprietary information, to visit the offices of the Borrower and its
Subsidiaries, to inspect, under guidance of officers of the Borrower, any of its
Property and examine and make copies or abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired, and to
discuss the business, operations, prospects, licenses, Property and financial
condition of the Borrower and its Subsidiaries with the officers thereof.
Section 4.06 Patents, Licenses, Etc. With the exception of the matter
in "Note 8" of the 1996 Financial Statements, the Borrower shall maintain and
cause each Subsidiary to maintain, in full force and effect, all material
licenses, copyrights, patents, permits, applications, reports, authorizations,
easements and other rights as are necessary for the conduct of its business, the
termination of which would have a Material Adverse Effect. With the exception of
the matter in "Note 8" of the 1996 Financial Statements, Borrower shall pay all
royalties, annuities and license fees as they become due and shall not forfeit
or allow to lapse any rights under any patent, copyright or license.
Section 4.07 Further Assurances. The Borrower will promptly cure any
defects in the creation and execution of the Loan Documents. The Borrower, at
its expense, will promptly execute and deliver to the Lender all such further
documents, agreements and instruments as may reasonably be requested by the
Lender in order to effect any obligation of the Borrower under this Agreement.
Section 4.08 Performance of Obligations. The Borrower will pay the
Note according to the reading, tenor and effect thereof, and the Borrower will
do and perform every act and discharge all of the obligations provided to be
performed and discharged by the Borrower under this Agreement at the time or
times and in the manner specified.
Section 4.09 Reimbursement of Expenses. The Borrower will, upon
request, promptly reimburse the Lender for all amounts expended, advanced or
incurred by the Lender (including reasonable attorneys' fees and disbursements)
to satisfy any obligations of the Borrower under this Agreement or to enforce
the rights of the Lender under this Agreement.
Section 4.10 Notice of Certain Events. The Borrower shall promptly
notify the Lender if the Borrower learns of any of the following if such occurs
while the Loan is outstanding: (i) any event which constitutes a continuing
Default or Event of Default, together with a detailed statement by a financial
officer of the Borrower of the steps being taken to cure the effect of such
Default or Event of Default; or (ii) the receipt of any notice from, or the
taking of any other action by, the holder of any promissory note, debenture or
other evidence of indebtedness for borrowed money of the Borrower or any
Subsidiary with respect to a claimed default, together with a detailed statement
by a financial officer of the Borrower specifying the notice given or other
action taken by such holder and the nature of the claimed default and what
action the Borrower or such Subsidiary is taking or proposes to take with
respect thereto, or (iii) the commencement of any legal, judicial, or regulatory
proceedings affecting the Borrower or any Subsidiary or any Property of the
Borrower or such Subsidiary not covered by insurance and which could reasonably
be expected to be adversely determined and which, if so determined, would have a
Material Adverse Effect on the business or the financial condition of the
Borrower and its Consolidated Subsidiaries; or (iv) any dispute between the
Borrower or any Subsidiary and any governmental or regulatory body or any other
Person which, could reasonably be expected to be adversely
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determined, and which, if so determined, could reasonably be expected to
materially interfere with the normal business operations of the Borrower and its
Consolidated Subsidiaries; or (v) the occurrence of any material adverse changes
in the financial condition or operations of the Borrower and its Consolidated
Subsidiaries from those reflected in the latest Financial Statements.
ARTICLE 5
NEGATIVE COVENANTS
Until the expiration or termination of this Agreement and thereafter
until all obligations of the Borrower hereunder are paid in full, without the
consent of the Lender, the Borrower will not:
Section 5.01 Restrictions on Borrowing. So long as the Indebtedness is
outstanding, Borrower shall not, nor permit any Subsidiary to, create, incur,
assume or suffer to exist any liability for borrowed money, other than as
permitted in Section 5.03, without the consent of Lender which consent shall not
be unreasonably withheld. Borrower will not enter into or become subject to, and
will not permit any of its Subsidiaries to enter into or become subject to, any
agreement (other than this Agreement) that prohibits or otherwise restricts the
right of such Borrower or its Subsidiaries to create, incur, assume or suffer to
exist any Lien in favor of the Lender on any of such Borrower's, or any of its
Subsidiaries', assets.
Section 5.02 Payment of Dividends. Declare or pay any dividend or make
any distribution on its Capital Stock or to the holders of its Capital Stock
(other than (i) dividends or distributions payable in its Capital Stock and (ii)
dividends on its Preferred Stock other than mandatory redemption Preferred Stock
of the Borrower) or purchase, redeem or otherwise acquire or retire for value,
or permit any Subsidiary to purchase or otherwise acquire for value, any such
Capital Stock if at the time of such action any Loan under this Agreement is
outstanding; provided, however that Borrower shall be permitted to repurchase
its 7.5% Convertible Debentures dated August 9, 1996 and 7% Convertible
Debentures dated October 15, 1996.
Section 5.03 Liens and Pledges of Assets and Stock. So long as the
Indebtedness is outstanding, Borrower shall not, nor permit any Subsidiary to,
create, incur, assume or suffer to exist, directly or indirectly, any Lien on
all or substantially all of the assets of the Borrower or any Subsidiary or the
capital stock of any Subsidiary without the consent of Lender which consent
shall not be unreasonably withheld; provided, however, that this Section 5.05
shall not prohibit the Borrower or any Subsidiary from creating, assuming or
suffering to exist the following Liens: (i) Liens existing as of the date hereof
and renewals and replacements thereof or the repledging of assets pledged
thereunder; (ii) Liens created under existing mortgages and pledge agreements;
(iii) Liens incurred in the ordinary course of business not in connection with
the borrowing of money; or (iv) Permitted Liens.
Section 5.04 Patents, Licenses, Etc. The Borrower shall not sell or
transfer any material licenses, copyrights, patents, permits, applications,
reports, authorizations, easements and other rights necessary for the conduct of
its business, the termination of which would have a Material Adverse Effect.
Borrower shall not forfeit or allow to lapse any rights under any patent,
copyright or license, the loss of which would have a Material Adverse Effect.
Section 5.05 Consolidation or Merger. Enter into or permit any
Subsidiary to enter into any merger or consolidation unless, in the case of the
Borrower, the surviving entity (i) is in compliance with the covenants contained
in this Agreement immediately after such merger, (ii) assumes all obligations of
the Borrower under this Agreement, and (iii) is organized under the laws of the
United States or any state thereof, provided that nothing herein shall prohibit
the merger of one or more Subsidiaries into the Borrower or any other
Subsidiary.
Section 5.06 Sale of Assets. Sell or otherwise transfer all or
substantially all of its fixed assets or permit any Subsidiary to do so;
provided that nothing herein shall prohibit the sale or transfer of fixed assets
of a Subsidiary to the Borrower or to another Subsidiary.
Section 5.07 Liquidation. The Borrower shall not adopt a plan of
liquidation which provides for, contemplates or the effectuation of which is
preceded by (i) the sale, lease, conveyance or other disposition of all or
substantially all
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of the assets of the Borrower otherwise than substantially as an entirety and
(ii) the distribution of all or substantially all of the proceeds of such sale,
lease, conveyance or other disposition and of the remaining assets of the
Borrower to the holders of Capital Stock of the Borrower unless the Borrower
shall in connection with the adoption of such plan make provision for, or agree
that prior to making any liquidating distributions it will make provision,
reasonably satisfactory to the Lender, for the satisfaction of the Borrower's
obligations under the Loan Documents as to the payment of principal and
interest, including prepayment thereof in accordance with the prepayment
provisions hereof. Borrower shall be deemed to make provision for such payments
only if there is an express assumption of the due and punctual payment of the
Borrower's obligations hereunder and under the Note and the performance and
observance of all covenants and conditions to be performed by the Borrower
hereunder, by the execution and delivery of an agreement in form and substance
satisfactory to the Lender by a Person which acquires or will acquire (otherwise
than pursuant to a lease) a portion of the assets of the Borrower, and which
Person will have assets (immediately after the acquisition) and aggregate net
earnings (for such Person's four (4) full fiscal quarters immediately preceding
the acquisition) equal to not less than the assets of the Borrower (immediately
preceding the acquisition) and the aggregate net earnings of the Borrower (for
its four (4) full fiscal quarters immediately preceding such acquisition),
respectively, and which is organized and existing under the laws of the United
States, any state thereof or the District of Columbia; provided, however, that
the Borrower shall not make any liquidating distribution until after the
Borrower shall have certified to the Lender with a certificate of an Authorized
Signatory of the Borrower at least five (5) days prior to the making of any
liquidating distribution that it has complied with the provisions of this
Section.
Section 5.08 Restrictions on Sales and Leasebacks. The Borrower shall
not sell or transfer any Property of the Borrower with the Borrower taking back
a lease of such Property of the Borrower unless (i) such Property is sold within
three hundred sixty (360) days from the date of acquisition of such Property or
the date of the completion of construction or commencement of full operations on
such Property whichever is later, or (ii) the Borrower within one hundred twenty
(120) days after such sale, applies or causes to be applied to the retirement of
debt of the Borrower or any Subsidiary (other than Debt of the Borrower which,
by its terms or the terms of the instrument pursuant to which it was issued, is
subordinate in right of payment to the Note) an amount not less than the greater
of (x) the net proceeds of the sale of such Property or (y) the fair value (as
determined in any manner approved by the Board of Directors) of such Property.
The provisions of this Section shall not prevent a sale or transfer of any
Property with a lease for a period, including renewals, of not more than
thirty-six (36) months.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 Events. Any of the following events shall be considered
an "Event of Default" as that term is used herein:
(a) Default on Other Debt. Other than the matters disclosed in
"Notes 8" and "24(b)" of the 1996 Financial Statements, the Borrower or any
Subsidiary fails to make payment when due on any indebtedness for borrowed money
in an aggregate principal amount in excess of One Hundred Thousand Dollars
($100,000) at the time outstanding (after giving effect to any applicable grace
periods); or any default shall occur with respect to any such indebtedness, or
under any agreement securing or relating to such indebtedness, the effect of
which is to cause or to permit any holder of such indebtedness or a trustee to
cause (whether or not such holder or trustee elects to cause) such indebtedness,
or portion thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment and such default remains uncured for a
period of thirty (30) days; or
(b) Non-Payment of Indebtedness. Default is made in the payment
or prepayment when due of any Indebtedness and such Default continues for a
period in excess of five (5) days; or
(c) Representations and Warranties. Any representation or
warranty made by the Borrower in this Agreement proves to have been incorrect in
any material respect as of the date hereof; or any representation, statement
(including Financial Statements), certificate or data furnished or made by the
Borrower under this Agreement, proves to have been untrue in any material
respect, as of the date as of which the facts therein set forth were stated and
which in either such case may constitute a Material Adverse Effect; or
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<PAGE>
(d) Covenants. Default is made in the due observance or
performance of any of the covenants or agreements contained in this Agreement to
be kept or performed by the Borrower and such Default continues unremedied for a
period of thirty (30) days after the earlier of (i) notice thereof being given
by the Lender to the Borrower, or (ii) such Default otherwise becoming known to
the Borrower, where such Default would have a Material Adverse Effect; or
(e) Involuntary Bankruptcy or Receivership Proceedings. A
custodian, receiver, conservator, liquidator or trustee of the Borrower or any
Subsidiary or of any Property thereof is appointed by the order or decree of any
court or agency or supervisory authority having jurisdiction, and such decree or
order remains unstayed for more than sixty (60) days; or the Borrower or any
Subsidiary is adjudicated bankrupt or insolvent and such order or decree remains
unstayed for more than sixty (60) days; or any Property of the Borrower or any
Subsidiary is sequestered by court order; or a petition is filed against the
Borrower or any Subsidiary under any state or federal bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution,
liquidation or receivership law of any jurisdiction, whether now or hereafter in
effect, and is not stayed or dismissed within sixty (60) days after such filing;
or
(f) Voluntary Petitions - the Borrower or any Subsidiary files a
petition in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, or consents to the filing of
any such petition under any such law; or
(g) Assignments for Benefit of Creditors, Etc. - the Borrower or
any Subsidiary makes an assignment for the benefit of its creditors, or admits
its inability to pay its debts as they become due, or consents to the
appointment of a receiver, custodian, trustee or liquidator of the Borrower or
any Subsidiary or of all or any part of its respective Property; or
(h) Discontinuance of Business - the Borrower, Intelect Network
Technologies Company , DNA Enterprises, Inc., or Intelect Visual Communications
Corp. discontinues its business; or
(i) ERISA Default - a Plan fails to maintain the qualifications
for any Plan required by ERISA, and there shall result from any such event or
events either liability or a material risk of incurring liability to the PBGC or
to a Plan, which would have a Material Adverse Effect; or
(j) Cross Default. Borrower is in Default under any of the other
Transaction Documents.
Section 6.02 Remedies. Upon the happening of any Event of Default
specified in Section 6.01 hereof, the Lender may by written notice to the
Borrower declare (i) all Loans then outstanding to be immediately due and
payable without presentment, demand, protest, notice of protest, or dishonor or
other notice of Default of any kind, all of which are hereby expressly waived by
the Borrower, and/or (ii) all obligations, if any, of the Lender hereunder to be
immediately terminated.
Section 6.03 Right of Set-Off. Upon the occurrence and during the
continuance of any Event of Default the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Indebtedness of the Borrower,
irrespective of whether the Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured. The Lender
agrees promptly to notify the Borrower after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. In addition, the Lender recognizes and agrees, and
any other holder of the Note by acceptance hereof shall be deemed to agree, that
any and all balances, credits, deposits, accounts or moneys of the Borrower now
or hereafter with the Lender or other holder shall, at the direction of the
Borrower, be applied to the payment and prepayment of any obligation of the
Borrower to the Lender or other holder hereunder.
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ARTICLE 7
CONDITIONS
The obligation of the Lender to make the Loan to be evidenced by the
Note is subject to the satisfaction of the following conditions:
Section 7.01 Note. The Borrower shall have duly and validly
authorized, executed and delivered the Note to the Lender.
Section 7.02 Officer's Certificates. The Lender shall have received
certificates of the Secretary or an Assistant Secretary of the Borrower setting
forth (i) resolutions of its Board of Directors in form and substance
satisfactory to the Lender with respect to the authorization of the Note and
this Agreement and the officers of the Borrower authorized to sign such
instruments, and (ii) specimen signatures of the officers so authorized.
Section 7.03 Consents. The Lender shall have received the consent of
St. James to the Liens and security interests granted under this Agreement for
the benefit of Lender.
Section 7.04 No Default. The Lender shall have received certificates
of an officer of the Borrower stating no Default shall have occurred and be
continuing which in any respect could have a Material Adverse Effect on the
Borrower or any Subsidiary and there shall not have occurred and be continuing
any condition, event or act which constitutes an Event of Default under any
instrument evidencing borrowed money to which the Borrower or any Subsidiary is
bound.
Section 7.05 Good Standing. Borrower shall deliver certificate of good
standing for Borrower and its Subsidiaries.
Section 7.06 Opinion of Counsel. Lender shall have received from
counsel of the Borrower, an opinion addressed to the Lender and dated the date
of such Loan covering the matters set forth in Exhibit B, hereto.
ARTICLE 8
MISCELLANEOUS
Section 8.01 Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
Parties hereto shall be deemed to have been duly given or made when delivered to
the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement or the Note,
addressed to such party at its address set forth below or at such other address
as either of the Parties hereto may hereafter notify the other in writing.
To Borrower: INTELECT COMMUNICATIONS SYSTEMS LIMITED
INTELECT SYSTEMS CORPORATION
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
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<PAGE>
To Lender: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attn: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attn: Director, Financial Administration
For wire transfers of funds to Lender under all Transaction Documents:
Texas Commerce Bank - Houston, Texas
ABA #113000609
Trust Wires Clearing Account DDA #00101606276
Cusip #
Description: Dividend Income Intelect Communications
OBI# Attn: Trust Receipts FFC: 5502001-1867300
The Coastal Corporation Second Pension Trust
Attn: Mary Grace Greenwood - (713) 216-4539
Section 8.02 Benefit of Agreement. This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the Parties hereto; provided, however, the Borrower may not
assign or transfer any of its interest hereunder without the prior written
consent of the Lender and provided further that the Lender may not assign the
Note or its interest hereunder without the prior written consent of the
Borrower, which consent of either party shall not be withheld unreasonably.
Section 8.03 Survival of Agreements. All representations and
warranties of the Borrower herein shall survive the effective date of this
Agreement.
Section 8.04 Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Note shall apply with equal force and effect to
each and all promissory notes hereinafter executed which in whole or in part
represent a renewal, extension for any period, increase or rearrangement of the
Note.
Section 8.05 Invalidity. In the event that any one or more of the
provisions contained in the Note or this Agreement shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the Note
or this Agreement.
Section 8.06 Amendment or Waiver. This Agreement may not be amended,
changed, waived, discharged or terminated without the written consent of the
Borrower and the Lender.
Section 8.07 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Borrower or the Lender in exercising any right, power or
privilege hereunder and no course of dealing between the Borrower and the Lender
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under the Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Borrower or the Lender would
otherwise have.
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<PAGE>
Section 8.08 Interest. It is the intention of the Parties hereto to
conform strictly to applicable usury laws as presently in effect. Accordingly,
if the transactions contemplated hereby would be usurious under applicable law
(including the laws of the United States of America and the law of any
jurisdiction whose laws are mandatorily applicable), then, in that event,
notwithstanding anything to the contrary in the Note or this Agreement, it is
agreed as follows: (i) the aggregate of all consideration which constitutes
interest under applicable law that is contracted for, charged or received under
the Note or this Agreement or under any other agreements or otherwise in
connection with the Note shall under no circumstances exceed the Highest Lawful
Rate, and any excess shall be credited on the Note by the holder thereof (or, if
the Note shall have been paid in full, refunded to the Borrower); and (ii) in
the event that the maturity of the Note is accelerated by reason of an election
of the Holder thereof resulting from any Event of Default under this Agreement
or otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest may never include more than otherwise
would be calculated at the Highest Lawful Rate, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid, shall
be credited on the Note (or, if the Note shall have been paid in full, refunded
to the Borrower).
Section 8.09 Headings. The descriptive headings of this Agreement are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
Section 8.10 Counterparts. This Agreement may be executed in any
number of counterparts and by the different Parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A
complete set of counterparts shall be lodged with the Borrower and the Lender.
Section 8.11 Governing Law. THIS AGREEMENT, AND THE APPLICATION OR
INTERPRETATION THEREOF, SHALL BE GOVERNED EXCLUSIVELY BY ITS TERMS AND BY THE
LOCAL, INTERNAL LAW OF THE STATE OF TEXAS, U.S.A., EXCEPT TO THE EXTENT THE
CONFLICTS OF LAWS RULES OF THE STATE OF TEXAS WOULD REQUIRE THE APPLICATION OF
THE LAW OF ANOTHER JURISDICTION IN WHICH CASE THE LAWS OF THE STATE OF TEXAS
SHALL NONETHELESS APPLY. THE PARTIES CONSENT TO JURISDICTION IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF HARRIS, STATE OF TEXAS, U.S.A.
Section 8.12 Exhibits. The following exhibits are attached hereto and
incorporated herein by reference thereto for all relevant purposes of this
Agreement:
Exhibit A - Promissory Note Exhibit
B - Opinion of Counsel Exhibit C -
Pledge Agreement Exhibit D - Warrant
Exhibit E - Registration Agreement
Exhibit F - Right of First Refusal
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<PAGE>
Section 8.13 Entire Agreement. This Agreement, including the Exhibits
attached hereto and the documents delivered pursuant hereto, constitutes the
entire agreement between the Parties with respect to the subject matter of this
Agreement and supersedes all previous communications, representations,
understandings, and agreements, either oral or written, between the Parties with
respect to the subject matter.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH ANY OF THE MAKERS OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to
be duly executed as of the date first above written.
INTELECT SYSTEMS CORP. THE COASTAL CORPORATION SECOND
PENSION TRUST
By: By:
Title: Title:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By:
Title:
<PAGE>
LOAN AGREEMENT
EXHIBIT A
FORM OF PROMISSORY NOTE
<PAGE>
LOAN AGREEMENT
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
<PAGE>
LOAN AGREEMENT
EXHIBIT C
FORM OF PLEDGE AGREEMENT
<PAGE>
LOAN AGREEMENT
EXHIBIT D
FORM OF WARRANT
<PAGE>
LOAN AGREEMENT
EXHIBIT E
FORM OF REGISTRATION AGREEMENT
<PAGE>
LOAN AGREEMENT
EXHIBIT F
RIGHT OF FIRST REFUSAL
Right of First Refusal. Provided that Lender has acquired the
convertible preferred stock as provided in Section 2.07, Lender shall be
entitled to a right of first refusal in any private offering of an equity
interest, including other preferred stock, warrants or convertible debentures,
to be offered by Borrower or brought to Borrower. This right shall remain for so
long as Lender holds any security or warrant for a security of the Borrower. The
procedures for notice and exercise of such right of first refusal are as
follows:
(1) In the event that Borrower offers, seeks to offer, or
receives a proposal to offer, an equity interest, including preferred stock,
warrants or convertible debentures, Borrower shall first offer the right to
participate in such offering to Lender. Borrower shall deliver a true copy of
such proposal, term sheet, information memorandum or other offering description
("Proposal") to Lender.
(2) Lender shall have thirty (30) days thereafter to indicate its
intent to participate at the price and otherwise on the terms and conditions
contained in such Proposal by giving written notice to Borrower to such effect
within said period.
(3) Lender shall have the right to participate in such offering
in whole or in part, in its sole discretion.
(4) All other terms and conditions of Lender's participation in
such offering shall be on a commercially reasonable basis, and in compliance
with all applicable laws and regulations. Lender may conduct such due diligence
as is reasonably necessary and appropriate under the circumstances.
(5) If Lender does not give notice of its intent to participate,
Borrower shall have the right to consummate such proposed transaction.
(6) In any event, if and when the proposed transaction is
consummated, a true and correct copy of the offering documents shall be
delivered to Lender.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Rights Agreement")
is made as of May 8, 1997, by and between INTELECT COMMUNICATIONS SYSTEMS
LIMITED, a Bermuda corporation (the "Company"), and THE COASTAL CORPORATION
SECOND PENSION TRUST ("Purchaser").
W I T N E S S :
WHEREAS, on the date hereof, Purchaser acquired from the Company and
Intelect Systems Corporation, a Delaware corporation and wholly-owned subsidiary
of the Company, as Makers, a Promissory Note (the "Note") in the original
principal amount of $5,000,000;
WHEREAS, on the date hereof, Purchaser received from the Company Warrants
to purchase shares of the Company's common stock, $.01 par value (the "Common
Stock") which may be exercised to acquire a certain number of shares of Common
Stock, subject to adjustment (the "Shares");
WHEREAS, the Company wishes to grant Purchaser certain registration rights
in respect of the Shares, as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall have the meaning given in the second recital.
"Company" shall have the meaning given in the Preamble.
"Exchange Act" means the Securities Exchange Act of 1934.
"Indemnified Party" shall have the meaning given in Section 2.5.3.
"Indemnifying Party" shall have the meaning given in Section 2.5.3.
"Makers" means Company and Itelect Systems Corporation.
"Note" shall mean the $5,000,000 Promissory Note given by Makers to
Purchaser.
"Purchaser" shall have the meaning given in the Preamble.
The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"Registrable Securities" shall mean (i) the Shares; and (ii) any Common
Stock issued or issuable at any time or from time to time in respect of the
Shares upon a stock split, stock dividend, recapitalization or other similar
event involving the Company.
<PAGE>
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Registration Rights Agreement, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
"Registration Statement" shall have the meaning given in Section 2.1.1.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the holders of the Registrable Securities and, except as set forth above, all
fees and disbursements of counsel for such holders.
"Selling Security Holder" shall have the meaning given in Section 2.5.4.
"Shares" shall mean Common Stock acquired by Purchaser through exercise of
the Warrants.
"Underwritten Public Offering" shall mean a public offering in which the
Common Stock is offered and sold on a firm commitment basis through one or more
underwriters, all pursuant to (i) an effective registration statement under the
Securities Act and (ii) an underwriting agreement between the Company and such
underwriters.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration.
2.1.1 At any time and from time to time, but in no event earlier than
August 31, 1997, a holder or holders of Registrable Securities holding in the
aggregate at least SEVEN HUNDRED FIFTY THOUSAND (750,000) Shares of the then
existing Registrable Securities may make a one-time written demand upon the
Company, to file, within sixty (60) days after such written demand is made, with
the Securities and Exchange Commission a shelf registration statement covering
the resale of all of the Registrable Securities on Form S-1, S-2 or S-3 (the
"Registration Statement"). The Company shall use its reasonable best efforts to
cause such Registration Statement to become effective as soon as practicable and
to cause all of the Registrable Securities to be qualified in such state
jurisdictions as the holders may request.
2.1.2 Except as set forth herein, the Company shall take all
reasonable steps necessary to keep the Registration Statement current and
effective until the lesser of: (i) two years and (ii) until the Registrable
Securities are transferable pursuant to Rule 144 under the Securities Act
without the volume limitations set forth in such rule.
2.1.3 The Company shall be entitled to require that a holder or
holders of Registrable Securities refrain from effecting any public sales or
distributions of the Registrable Securities pursuant to a Registration Statement
that has been declared effective by the Commission or otherwise, if the board of
directors of the Company reasonably determines that such public sales or
distributions would interfere in any material respect with any transaction
involving the Company that the board of directors reasonably determines to be
material to the Company. The board of directors shall, as promptly as
practicable, give the holders of the Registrable Securities written notice of
any such development. In the event of a request by the board of directors of the
Company that the holders of Registrable Securities refrain from effecting any
public sales or distributions of the Registrable Securities, the Company shall
be required to lift such restrictions regarding effecting public sales or
distributions of the Registrable Securities as soon as reasonably practicable
after the board of directors shall reasonably determine public sales or
distributions by the holders of the Registrable Securities shall not interfere
with such transaction, provided, that in no event shall any requirement that the
holders of Registrable Securities refrain from effecting public sales or
distributions in the Registrable Securities extend for more than 90 days.
- 2 -
<PAGE>
2.1.4 Notwithstanding the foregoing, the one-time demand registration
rights provided in this Section 2.1 shall be subject to the following additional
limitations:
(i) Company shall not be obligated to file such Registration
Statement on a Form S-2 or S-3 if it does not then meet the
requirements (including the financial statement requirements) of
such Form, and if the Company is required to file a Form S-1, it
should not be obligated to file the Form S-1 until it shall have
prepared current financial statements as required by Form S-1;
(ii) If, upon receipt of any request for registration of
Registrable Securities pursuant to this Section 2.1, the Company
is then engaged by a reputable and nationally or regionally
recognized investment banking firm regarding a good faith
proposed registered public offering of Shares of Common Stock,
then the Company shall give notice of such negotiations to all
holders of Registrable Securities within fifteen (15) days of the
date upon which the Company received such holder's request and
the Company shall not, for sixty (60) days after giving such
notice to such holders, be required to undertake a required
registration of the Registrable Securities pursuant to this
Section 2.1 in response to such holder's request; provided,
however, that if such registration statement of such proposed
public offering is not filed within sixty (60) days after the
Company gives such notice to holders of the Registrable
Securities, the Company shall respond to the holder's request for
registration of Registrable Securities and, unless otherwise
required by the provisions of this Section 2.1, register such
Registrable Securities, no later than twenty (20) days after the
expiration of such sixty (60) day period and as provided herein.
2.2 Piggyback Registration.
2.2.1 Subject to the terms hereof, if at any time or from time to time
the Company or any shareholder of the Company shall determine to register any of
its securities (except for registration statements relating to employee benefit
plans or exchange offers), either for its own account or the account of a
security holder, the Company will promptly give to the holders of Registrable
Securities written notice thereof not less than 30 days prior to the filing of
any registration statement; and include in such registration (and any related
qualification under blue sky laws or other compliance), and in the underwriting
involved therein, if any, such Registrable Securities as such holders may
request in a writing delivered to the Company within twenty (20) days after the
holders' receipt of Company's written notice.
2.2.2 The holders of Registrable Securities may participate in any
number of registrations until all of the Shares held by holders of Registrable
Securities have been distributed pursuant to a registration or until the Shares
are transferable pursuant to Rule 144 under the Securities Act.
2.2.3 If any registration statement is an Underwritten Public
Offering, the right of holders of Registrable Securities to registration
pursuant to this Section shall be conditioned upon each such holder's
participation in such reasonable underwriting arrangements as the Company shall
make regarding the offering, and the inclusion of Registrable Securities in the
underwriting shall be limited to the extent provided herein. Holders of
Registrable Securities and all other shareholders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section, if the managing underwriter concludes in its
reasonable judgment that the number of Shares to be registered for selling
shareholders (including the holders of Registrable Securities) would materially
adversely effect such offering, the number of Shares to be registered, together
with the number of Shares of Common Stock or other securities held by other
shareholders proposed to be registered in such offering, shall be reduced on a
pro rata basis based on the number of Shares proposed to be sold by the holders
of Registrable Securities as compared to the number of Shares proposed to be
sold by all shareholders. If any holder of Registrable Securities disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the managing underwriter, delivered not less
than 10 days before the effective date. The Registrable Securities excluded by
the managing underwriter or withdrawn from such underwriting shall be withdrawn
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<PAGE>
from such registration, and shall not be transferred in a public distribution
prior to one hundred twenty (120) days after the effective date of the
registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
2.2.4 The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section prior to the effectiveness of
such registration whether or not the holders of Registrable Securities have
elected to include securities in such registration.
2.3 Expenses of Registration. All Registration Expenses shall be borne
by the Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of the holders of Registrable Securities shall
be borne by the holders of Registrable Securities.
2.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep the holders of Registrable
Securities advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company will:
2.4.1 Prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable efforts to
cause such registration statement to become and remain effective until the
distribution described in such registration statement has been completed;
2.4.2 Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such underwriter
may reasonably request in order to facilitate the public sale of the Shares by
such underwriter, and promptly furnish to each underwriter and the holders of
Registrable Securities notice of any stop-order or similar notice issued by the
Commission or any state agency charged with the regulation of securities, and
notice of any NASDAQ or securities exchange listing; and
2.4.3 Cause the Shares to be listed on the NASDAQ small-cap market or
a securities exchange on which the Common Stock is approved for listing.
2.5 Indemnification.
2.5.1 To the extent permitted by law, the Company will indemnify each
holder of Registrable Securities, each of its officers and directors and
partners, and each person controlling such holder within the meaning of Section
15 of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
or liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, to the extent
such expenses, claims, losses, damages or liabilities arise out of or are based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
similar document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each holder of
Registrable Securities, each of its officers and directors and partners, and
each person controlling each holder of Registrable Securities, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained herein shall not apply to
amounts paid in settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Company (which consent shall
not unreasonably be withheld); provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by a holder of
Registrable Securities, such controlling
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<PAGE>
person or such underwriter specifically for use therein; provided, however, that
the indemnity contained herein shall not apply to amounts paid in settlement of
any claim, loss, damage, liability, or expense if settlement is effected without
the consent of such holder of Registrable Securities (which consent shall not be
unreasonably withheld). Notwithstanding the foregoing, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus filed
with the Commission pursuant to the applicable rules of the Commission or in any
supplement or addendum thereto, the indemnity agreement herein shall not inure
to the benefit of any underwriter if a copy of the final prospectus filed
pursuant to such rules, together with all supplements and addenda thereto, was
not furnished to the person or entity asserting the loss, liability, claim or
damage at or prior to the time such furnishing is required by the Securities
Act.
2.5.2 To the extent permitted by law, each holder of Registrable
Securities will, if securities held by such holder are included in the
securities as to which such registration, qualification or compliance is being
effected pursuant to terms hereof, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other person selling the Company's securities covered by such registration
statement, each of such person's officers and directors and each person
controlling such persons within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) by such holder of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
such holder of Registrable Securities of any rule or regulation promulgated
under the Securities Act applicable to holders of Registrable Securities and
relating to action or inaction required of holders of Registrable Securities in
connection with any such registration, qualification or compliance, and will
reimburse the Company, such other persons, such directors, officers, persons,
underwriters or control persons for any legal or other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such holder of Registrable Securities specifically
for use therein; provided, however, that the indemnity contained herein shall
not apply to amounts paid in settlement of any claim, loss, damage, liability or
expense if settlement is effected without the consent of such holder of
Registrable Securities (which consent shall not be unreasonably withheld).
Notwithstanding the foregoing, the liability of such Holder of Registrable
Securities under this Subsection 2.5.2 shall be limited in an amount equal to
the net proceeds from the sale of the Shares sold by such holder of Registrable
Securities, unless such liability arises out of or is based on willful conduct
by such holder of Registrable Securities. In addition, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus filed
pursuant to applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of the
Company or any underwriter, if a copy of the final prospectus filed pursuant to
such rules, together with all supplements and addenda thereto, was not furnished
to the person or entity asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act.
2.5.3 Notwithstanding the foregoing paragraphs (a) and (b) of this
Section, each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different
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<PAGE>
defenses, which defenses are inconsistent with the defenses of the
Indemnified Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party.
2.5.4 If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and all shareholders offering
securities in the offering (the "Selling Security Holders") on the other from
the offering of the Company's securities, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the Selling
Security Holders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Selling Security Holders on the other shall be
the net proceeds from the offering before deducting expenses) received by the
Company on the one hand and the Selling Security Holders on the other. The
relative fault of the Company on the one hand and the Selling Security Holders
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Selling Security Holders and the parties' relevant intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Selling Security Holders agree that
it would not be just and equitable if contribution pursuant to this Section were
based solely upon the number of entities from whom contribution was requested or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this Section. The amount paid or payable by
an Indemnified Party as a result of the losses, claims, damages and liabilities
referred to above in this Section shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim, subject to the provisions
hereof. Notwithstanding the provisions of this Section, no Selling Shareholder
shall be required to contribute any amount or make any other payments under this
Agreement which in the aggregate exceed the proceeds received by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
2.6 Certain Information.
2.6.1 The holders of Registrable Securities agree, with respect to any
Registrable Securities included in any registration, to furnish to the Company
such information regarding such holder, the Registrable Securities and the
distribution proposed by the such holder as the Company may reasonably request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
2.6.2 The failure of the holder of Registrable Securities to furnish
the information requested pursuant to Section 2.6.1 shall not affect the
obligation of the Company to the other Selling Security Holders who furnish such
information unless, in the reasonable opinion of counsel to the Company or the
underwriters, such failure impairs or may impair the legality of the
Registration Statement or the underlying offering.
2.7 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of Restricted Securities (used herein as defined in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to use
its best lawful efforts to:
2.7.1 Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times during
which the Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act");
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<PAGE>
2.7.2 File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at all times during which the Company is subject to such reporting
requirements); and
2.7.3 So long as any holder of Registrable Securities owns any
Restricted Securities as defined in Rule 144 promulgated under the Securities
Act), to furnish to such holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 and with regard to the Securities Act and the Exchange Act (at all times
during which the Company is subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as such holder of Registrable Securities
may reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any such securities without
registration.
2.8 Transferability. The rights conferred by this Agreement shall be
freely transferable to a recipient of Registrable Securities.
2.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
THE LAWS OF THE STATE OF TEXAS.
2.10 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the Company and the
Purchaser.
2.11 Notices, etc. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement or the Note, addressed to
such party at its address set forth below or at such other address as either of
the parties hereto may hereafter notify the other in writing.
To Company: INTELECT COMMUNICATION SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr.,
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
To Holder: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attn: Corporate Secretary
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<PAGE>
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attn: Director, Financial Administration
For wire transfers of funds to Lender under all Transaction Documents:
Texas Commerce Bank
Houston, Texas
ABA #113000609
Trust Wires Clearing Account
DDA #00101606276
Cusip #
Description: Dividend Income
Intelect Communication
OBI# Attn: Trust Receipts
FFC: 5502001-1867300
The Coastal Corporation Second Trust
Attn: Mary Grace Greenwood
(713) 216-4539
2.12 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
2.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
2.14 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
2.15 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the Parties have executed this agreement as of the date
first set forth above.
THE COASTAL CORPORATION INTELECT COMMUNICATIONS SYSTEMS
SECOND PENSION TRUST LIMITED
By: ___________________________ By: ____________________________
Title: ________________________ Title: _________________________
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THE SECURITIES REPRESENTED BY THIS WARRANT 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 LAW AND, ACCORDINGLY,
THE SECURITIES REPRESENTED BY THIS WARRANT 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.
WARRANT
to Purchase Common Stock of
INTELECT COMMUNICATIONS SYSTEMS LIMITED
Expiring on May 7, 2002
This Common Stock Purchase Warrant (the "Warrant") certifies that for value
received, THE COASTAL CORPORATION SECOND PENSION TRUST (the "Holder") or its
assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, SEVEN HUNDRED FIFTY THOUSAND
(750,000) shares of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (as hereinafter defined) at an initial
Exercise Price (as hereinafter defined) per share of TWO DOLLARS (US $2.00),
subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. The number of Warrants (as hereinafter defined), the
number of shares of Common Stock purchasable hereunder, and the Exercise Price
therefor are subject to adjustment as hereinafter set forth. This Warrant and
all rights hereunder shall expire at 5:00 p.m., Houston, Texas time, on May 7,
2002.
As used herein, the following terms shall have the meanings set forth
below:
"Cashless Exercise" has the meaning given in Section 1.1.
"Company" shall mean Intelect Communications Systems Limited, a Bermuda
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.
"Common Stock" shall mean and include the Company's Common Stock, par value
$0.01 per share, authorized on the date of the original issue of this Warrant
and shall also include (i) in case of any reorganization, reclassification,
consolidation, merger, share exchange or sale, transfer or other disposition of
assets of the character referred to in Section 3.5 hereof, the stock, securities
provided for in such Section 3.5, and (ii) any other shares of Common Stock of
the Company into which such shares of Common Stock may be converted.
"Convertible Securities" has the meaning given in Section 3.2 (b)(i).
"Exercise Date" has the meaning given in Section 1.1.
"Exercise Price" shall mean the initial purchase price of TWO DOLLARS (US
$2.00) per share of Common Stock payable upon exercise of the Warrants, as
adjusted from time to time pursuant to the provisions hereof.
"Market Price" for any day, when used with reference to Common Stock, shall
mean the price of said Common Stock determined as follows: (x) 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 for the Common Stock on the
National Association of Securities Dealers National Market 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, in each such case, unless otherwise
provided herein, averaged over a period of ten (10) consecutive Trading Days
prior to the date as of which the determination is to be made; or (y) if the
Common Stock shall not be listed or admitted to trading as provided in clause
"(x)" above, the fair market value of the Common Stock as determined in good
faith by the Board of Directors of the Company.
"Note" shall mean the Promissory Note of the Company issued to Holder in
the principal amount of $5,000,000, of even date herewith.
<PAGE>
"Outstanding," when used with reference to Common Stock, shall mean (except
as otherwise expressly provided herein) at any date as of which the number of
shares thereof is to be determined, all issued shares of Common Stock, except
shares then owned or held by or for the account of the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subscription Notice" has the meaning given in Section 1.1.
"Trading Days" shall mean any days during the course of which the principal
securities exchange on which the Common Stock is listed or admitted to trading
is open for the exchange of securities.
"Warrant" shall mean the right upon exercise to purchase one Warrant Share.
"Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the Holder hereof upon the exercise of the Warrants.
ARTICLE I
EXERCISE OF WARRANTS
Section 1.1 Method of Exercise. The Warrants represented hereby may be
exercised by the Holder hereof, in whole or in part, at any time and from time
to time on or after the date hereof until 5:00 p.m., Houston, Texas time, on May
7, 2002 (the "Exercise Date"). To exercise the Warrants, the Holder hereof shall
deliver to the Company, at the Warrant Office designated in Section 2.1 hereof,
(i) a written notice in the form of the Subscription Notice attached as an
exhibit hereto, stating therein the election of such holder to exercise the
Warrants in the manner provided in the Subscription Notice; (ii) payment in full
of the Exercise Price (A) in cash or by bank check for all Warrant Shares
purchased hereunder, or (B) if the Company and the Holder mutually elect,
through a "cashless" or "net-issue" exercise of each such Warrant ("Cashless
Exercise"); the Holder shall exchange each Warrant subject to a Cashless
Exercise for that number of Warrant Shares determined by multiplying the number
of Warrant Shares issuable hereunder by a fraction, the numerator of which shall
be the difference between (x) the Market Price and (y) the Exercise Price for
each such Warrant, and the denominator of which shall be the Market Price; the
Subscription Notice shall set forth the calculation upon which the Cashless
Exercise is based, or (C) a combination of (A) and (B) above; and (iii) this
Warrant. The Warrants shall be deemed to be exercised on the date of receipt by
the Company of the Subscription Notice, accompanied by payment for the Warrant
Shares and surrender of this Warrant, as aforesaid, and such date is referred to
herein as the "Exercise Date". Upon such exercise, the Company shall, as
promptly as practicable and in any event within ten (10) business days, issue
and deliver to such holder a certificate or certificates for the full number of
the Warrant Shares purchased by such Holder hereunder, and shall, unless the
Warrants have expired, deliver to the Holder hereof a new Warrant representing
the number of Warrants, if any, that shall not have been exercised, in all other
respects identical to this Warrant. As permitted by applicable law, the person
in whose name the certificates for Common Stock are to be issued shall be deemed
to have become a holder of record of such Common Stock on the Exercise Date and
shall be entitled to all of the benefits of such holder on the Exercise Date,
including without limitation the right to receive dividends and other
distributions for which the record date falls on or after the Exercise Date and
to exercise voting rights.
Section 1.2 Expenses and Taxes. The Company shall pay all expenses, and
taxes (including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
Section 1.3 Reservation of Shares. The Company shall reserve at all times
so long as the Warrants remain outstanding, free from preemptive rights, out of
its treasury Common Stock or its authorized but unissued shares of Common Stock,
or both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
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<PAGE>
Section 1.4 Valid Issuance. All shares of Common Stock that may be issued
upon exercise of the Warrants will, upon issuance by the Company, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof and, without limiting the
generality of the foregoing, the Company shall take no action or fail to take
any action which will cause a contrary result (including, without limitation,
any action that would cause the Exercise Price to be less than the par value, if
any, of the Common Stock).
Section 1.5 Purchase Agreement. The Warrants represented hereby are part of
a duly authorized issuance and sale of Warrants to purchase Common Stock issued
and sold pursuant to the Loan Agreement between Holder and Company of even date
herewith.
Section 1.6 Acknowledgment of Rights. At the time of the exercise of the
Warrants in accordance with the terms hereof and upon the written request of the
Holder hereof, the Company will acknowledge in writing its continuing obligation
to afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
provided, however, that if the Holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
Section 1.7 No Fractional Shares. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of this Warrant. If more
than one Warrant shall be presented for exercise at the same time by the same
holder, the number of full shares of Common Stock which shall be issuable upon
such exercise shall be computed on the basis of the aggregate number of whole
shares of Common Stock purchasable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except for the provisions of this
Section 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
Section 2.1 Warrant Office. The Company shall maintain an office for
certain purposes specified herein (the "Warrant Office"), which office shall
initially be the Company's offices at 1100 Executive Drive, Richardson, Texas
75081 and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the Holder hereof. The Company shall
maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
Section 2.2 Ownership of Warrants. The Company may deem and treat the
person in whose name the Warrants are registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.
Section 2.3 Restrictions on Transfer of Warrants.
(a) The Company agrees to maintain at the Warrant Office books for the
registration and transfer of the Warrants. Subject to the restrictions on
transfer of the Warrants in this Section 2.3, the Company, from time to time,
shall register the transfer of the Warrants in such books upon surrender of this
Warrant at the Warrant Office properly endorsed or accompanied by appropriate
instruments of transfer and written instructions for transfer satisfactory to
the Company. Upon any such transfer and upon payment by the Holder or its
transferee of any applicable transfer taxes, new Warrants shall be issued to the
transferee and the transferor (as their respective interests may appear) and the
surrendered Warrants shall be canceled by the Company. The Company shall pay all
taxes (other than securities transfer taxes or income taxes) and all other
expenses and charges payable in connection with the transfer of the Warrants
pursuant to this Section 2.3.
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(b) Restrictions in General. The Holder of the Warrants agrees that it
will neither (i) transfer the Warrants prior to delivery to the Company of
written notice of such transfer, nor (ii) transfer such Warrant Shares prior to
delivery to the Company of written notice of such transfer, or until
registration of such Warrant Shares under the Securities Act and any applicable
state securities or Blue Sky laws has become effective.
Section 2.4 Compliance with Securities Laws. Subject to the terms of the
Registration Rights Agreement between the Holder and the Company dated as of the
date hereof and notwithstanding any other provisions contained in this Warrant,
the Holder hereof understands and agrees that the following restrictions and
limitations shall be applicable to all Warrant Shares and to all resales or
other transfers thereof pursuant to the Securities Act:
(a) The Holder hereof agrees that the Warrant Shares shall not be sold
or otherwise transferred unless the Warrant Shares are registered under the
Securities Act and applicable state securities or Blue Sky laws or are exempt
therefrom.
(b) A legend in substantially the following form will be placed on the
certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE 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."
(c) Stop transfer instructions will be imposed with respect to the
Warrant Shares so as to restrict resale or other transfer thereof, subject to
this Section 2.4.
(d) The Holder understands that it must bear the economic risk of the
investment for an indefinite period of time because the Warrant Shares have not
been registered under the Securities Act and therefor cannot be sold unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. The Holder acknowledges that the Holder or the
Holder's representative is familiar with the condition, financial and otherwise,
of the Company. The Holder or the Holder's representative has such knowledge and
experience in financial and business matters that the Holder or the Holder's
representative is able to weigh the information so received and to evaluate the
merits and risks of the Holder's investment in the Warrant Shares.
ARTICLE III
ANTI-DILUTION
Section 3.1 Anti-Dilution Provisions. The Exercise Price shall be subject
to adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise 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 Exercise Price resulting from such adjustment.
Section 3.2 Adjustment of Exercise Price Upon Issuance of Common Stock.
(a) (i) 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 Exercise Price, then, forthwith upon such issue or
sale, the Exercise Price shall be reduced (but not increased, except as
otherwise specifically provided in Section 3.2 hereof), 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 consideration received by the Company
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upon such issuance or sale on a per share basis 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.
(ii) Notwithstanding the provisions of this Section 3.2, no adjustment
shall be made in the Exercise Price in the event that the Company issues,
in one or more transactions, (A) Common Stock or Convertible Securities
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 that are issuable under
currently effective employee plans and agreements); (B) Common Stock upon
exercise of the Warrants or any other Warrant issued pursuant to the terms
of the Agreement or otherwise issued to the Holder; (C) Common Stock upon
exercise of any stock purchase Warrant or option (other than the options
referred to in clause "(A)" above) or other convertible security
outstanding on the date hereof; (D) Common Stock upon conversion of the
Note; or (E) Common Stock issued as consideration in acquisitions. In
addition, for purposes of calculating any adjustment of the Exercise Price
as provided in this Section 3.2, 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.
(b) For purposes of this Section 3.2, the following Sections 3.2(b)(i)
to 3.2(b)(v) inclusive, shall be applicable:
(i) 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 (A) 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 (B) 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 Exercise 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 Exercise Price specified in Section 3.2(a) hereof. Except as
provided in Section 3.2(b) hereof, no further adjustment of the Exercise
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.
(ii) 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 3.2(b),
the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in Section 3.2(b), or
the rate at which any Convertible Securities referred to in Section
3.2(b), are convertible into or exchangeable for Common Stock shall change
(other than under or by reason of provisions designed to protect against
dilution), the Exercise Price then in effect hereunder shall forthwith be
readjusted (increased or decreased, as the case may be) to the Exercise
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,
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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 3.2(b), or on the termination of any
such right to convert or exchange any such Convertible Securities referred
to in Section 3.2(b), the Exercise Price then in effect hereunder shall
forthwith be readjusted (increased or decreased, as the case may be) to the
Exercise 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 3.2(b) or the rate at which any
Convertible Securities referred to in Section 3.2(b) 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 Exercise 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 Exercise Price then in effect hereunder is
thereby reduced.
(iii) 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 with consideration.
(iv) Record Date. In the 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.
(v) 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 3.2.
Section 3.3 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.
Section 3.4 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 Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant 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 Exercise Price
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in effect immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares purchasable upon the exercise of this
Warrant immediately prior to such combination shall be proportionately reduced.
Except as provided in this Section 3.4, no adjustment in the Exercise Price and
no change in the number of Warrant Shares purchasable shall be made under this
Article III as a result of or by reason of any such subdivision or combination.
Section 3.5 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 a holder of Common Stock of
the Company 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:
(a) As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this Section 3.5), lawful and adequate
provisions shall be made whereby the holder of Warrants shall thereafter have
the right to purchase and receive upon the terms and conditions specified in
this Warrant and in lieu of the Warrant 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 Warrant 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 Exercise Price and of the
number of Warrant 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 Warrants.
(b) 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 Exercise 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.
(c) 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 the Holder hereof, such successor person will issue a
new Warrant revised to reflect the modifications in this Warrant effected
pursuant to this Section 3.5.
(d) 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 exercise of the
Warrants 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.
Section 3.6 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 Exercise Price in effect
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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.
Section 3.7 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 an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 3.7 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.
Section 3.8 Notice of Adjustment. Whenever the Exercise Price or the number
of Warrant Shares issuable upon the exercise of the Warrants 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 Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants 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 Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
Section 3.9 Notifications to Holders. In case at any time the Company
proposes:
(a) 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;
(b) 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;
(c) 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
(d) 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 of 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 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.
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Section 3.10 Company to Prevent Dilution. If any event or condition occurs
as to which other provisions of this Article III are not strictly applicable or
if strictly applicable would not fairly protect the exercise or purchase rights
of the Warrants 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
Warrant, 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 Exercise Price and the number of Warrant 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 Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in Section 3.4 hereof, and
then in no event to an amount greater than the Exercise Price as adjusted
pursuant to Section 3.4 hereof.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Entire Agreement. This Warrant, together with the Agreement,
contain the entire agreement between the Holder hereof and the Company with
respect to the Warrant Shares purchasable upon exercise hereof and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
Section 4.2 Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 4.3 Waiver and Amendment. Any term or provision of this Warrant may
be waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
Section 4.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
Section 4.5 Copy of Warrant. A copy of this Warrant shall be filed among
the records of the Company.
Section 4.6 Notice. All notices, requests, demands or other communications
to or upon the respective parties hereto shall be deemed to have been duly given
or made when delivered to the party to which such notice, request, demand or
other communication is required or permitted to be given or made under this
Warrant addressed to such party at its address set forth below or at such other
address as either of the parties hereto may hereafter notify the other in
writing.
To Pledgor: INTELECT COMMUNICATION SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr.,
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
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Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attn: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attn: Director, Financial Administration
For wire transfers of funds to Lender under all Transaction Documents:
Texas Commerce Bank
Houston, Texas
ABA #113000609
Trust Wires Clearing Account
DDA #00101606276
Cusip #
Description: Dividend Income
Intelect Communication
OBI# Attn: Trust Receipts
FFC: 5502001-1867300
The Coastal Corporation Second Trust
Attn: Mary Grace Greenwood
(713) 216-4539
Section 4.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
Section 4.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 4.8.
Section 4.9 Registration Rights. The Warrant Shares shall be entitled to
such registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.
Section 4.10 Headings. The Article and Section and other headings herein
are for convenience only and are not a part of this Warrant and shall not affect
the interpretation thereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be issued as of
the date above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: ___________________________________
Name: _________________________________
Title: ________________________________
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SUBSCRIPTION NOTICE
The undersigned, the Holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
__________________________________
Date:________________________
<PAGE>
ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
_________________________________
Date: _______________________
INTELECT COMMUNICATIONS SYSTEMS LIMITED
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Rights Agreement")
is made as of May 30, 1997, by and between INTELECT COMMUNICATIONS SYSTEMS
LIMITED, a Bermuda company with limited liability ("Company"), and THE COASTAL
CORPORATION SECOND PENSION TRUST ("Coastal").
W I T N E S S :
WHEREAS, on the date hereof, Coastal and the Company entered into a
Subscription Agreement for the Company's $.01 per share par value, ten percent
dividend, cumulative, convertible preferred stock, Series A, priced at $2.0145
("Preferred Stock");
WHEREAS, the Company may issue additional shares of Preferred Stock to
Coastal from time to time;
WHEREAS, the Company wishes to grant Coastal certain registration rights in
respect of the $.01 per share par value common stock ("Common Stock") issuable
upon conversion of or as dividends on the Preferred Stock as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings set
forth below:
"Coastal" shall have the meaning given in the Preamble.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's $.01 per share par value common
stock.
"Company" shall have the meaning given in the Preamble.
"Exchange Act" means the Securities Exchange Act of 1934.
"Indemnified Party" shall have the meaning given in Section 2.5.3.
"Indemnifying Party" shall have the meaning given in Section 2.5.3.
"Preferred Stock" shall mean the Company's $.01 per share par value, ten
percent dividend, cumulative, convertible preferred stock, Series A, priced at
$2.0145.
"Registrable Securities" shall mean the Common Stock, including any Common
Stock issued or issuable at any time or from time to time in respect of a stock
split, stock dividend, recapitalization or other similar event involving the
Company.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Registration Rights Agreement, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses, escrow
fees, fees and disbursements of counsel
<PAGE>
for the Company, Blue Sky fees and expenses, the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).
"Registration Statement" shall have the meaning given in Section 2.1.1.
The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the holders of the Registrable Securities and, except as set forth above, all
fees and disbursements of counsel for such holders.
"Selling Security Holder" shall have the meaning given in Section 2.5.4.
"Shares" shall mean Common Stock acquired by Coastal through exercise of
the Warrants.
"Underwritten Public Offering" shall mean a public offering in which the
Common Stock is offered and sold on a firm commitment basis through one or more
underwriters, all pursuant to (i) an effective registration statement under the
Securities Act and (ii) an underwriting agreement between the Company and such
underwriters.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration.
2.1.1 At any time and from time to time, but in no event earlier than
August 31, 1997, a holder or holders of Registrable Securities holding in the
aggregate at least ten percent (10%) of the then existing Registrable Securities
may make a one-time written demand upon the Company, to file, within sixty (60)
days after such written demand is made, with the Securities and Exchange
Commission a shelf registration statement covering the resale of all of the
Registrable Securities on Form S-1, S-2 or S-3 (the "Registration Statement").
The Company shall use its reasonable best efforts to cause such Registration
Statement to become effective as soon as practicable and to cause all of the
Registrable Securities to be qualified in such state jurisdictions as the
holders may request.
2.1.2 Except as set forth herein, the Company shall take all
reasonable steps necessary to keep the Registration Statement current and
effective until the lesser of: (i) two years and (ii) until the Registrable
Securities are transferable pursuant to Rule 144 under the Securities Act
without the volume limitations set forth in such rule.
2.1.3 The Company shall be entitled to require that a holder or
holders of Registrable Securities refrain from effecting any public sales or
distributions of the Registrable Securities pursuant to a Registration Statement
that has been declared effective by the Commission or otherwise, if the board of
directors of the Company reasonably determines that such public sales or
distributions would interfere in any material respect with any transaction
involving the Company that the board of directors reasonably determines to be
material to the Company. The board of directors shall, as promptly as
practicable, give the holders of the Registrable Securities written notice of
any such development. In the event of a request by the board of directors of the
Company that the holders of Registrable Securities refrain from effecting any
public sales or distributions of the Registrable Securities, the Company shall
be required to lift such restrictions regarding effecting public sales or
distributions of the Registrable Securities as soon as reasonably practicable
after the board of directors shall reasonably determine public sales or
distributions by the holders of the Registrable Securities shall not interfere
with such transaction, provided, that in no event shall any requirement that the
holders of Registrable Securities refrain from effecting public sales or
Distributions in the Registrable Securities extend for more than 90 days.
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<PAGE>
2.1.4 Notwithstanding the foregoing, the one-time demand registration
rights provided in this Section 2.1 shall be subject to the following additional
limitations:
(i) Company shall not be obligated to file such Registration
Statement on a Form S-2 or S-3 if it does not then meet the
requirements (including the financial statement requirements)
of such Form, and if the Company is required to file a
Form S-1, it should not be obligated to file the Form S-1 until
it shall have prepared current financial statements as
required by Form S-1;
(ii) If, upon receipt of any request for registration of Registrable
Securities pursuant to this Section 2.1, the Company is then
engaged by a reputable and nationally or regionally recognized
investment banking firm regarding a good faith proposed
registered public offering of Shares of Common Stock, then the
Company shall give notice of such negotiations to all holders of
Registrable Securities within fifteen (15) days of the date upon
which the Company received such holder's request and the Company
shall not, for sixty (60) days after giving such notice to such
holders, be required to undertake a required registration of the
Registrable Securities pursuant to this Section 2.1 in response
to such holder's request; provided, however, that if such
registration statement of such proposed public offering is not
filed within sixty (60) days after the Company gives such notice
to holders of the Registrable Securities, the Company shall
respond to the holder's request for registration of Registrable
Securities and, unless otherwise required by the provisions of
this Section 2.1, register such Registrable Securities, no later
than twenty (20) days after the expiration of such sixty (60) day
period and as provided herein.
2.2 Piggyback Registration.
2.2.1 Subject to the terms hereof, if at any time or from time to time
the Company or any shareholder of the Company shall determine to register any of
its securities (except for registration statements relating to employee benefit
plans or exchange offers), either for its own account or the account of a
security holder, the Company will promptly give to the holders of Registrable
Securities written notice thereof not less than 30 days prior to the filing of
any registration statement; and include in such registration (and any related
qualification under Blue Sky laws or other compliance), and in the underwriting
involved therein, if any, such Registrable Securities as such holders may
request in a writing delivered to the Company within twenty (20) days after the
holders' receipt of Company's written notice.
2.2.2 The holders of Registrable Securities may participate in any
number of registrations until all of the Shares held by holders of Registrable
Securities have been distributed pursuant to a registration or until the Shares
are transferable pursuant to Rule 144 under the Securities Act.
2.2.3 If any registration statement is an Underwritten Public
Offering, the right of holders of Registrable Securities to registration
pursuant to this Section shall be conditioned upon each such holder's
participation in such reasonable underwriting arrangements as the Company shall
make regarding the offering, and the inclusion of Registrable Securities in the
underwriting shall be limited to the extent provided herein. Holders of
Registrable Securities and all other shareholders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section, if the managing underwriter concludes in its
reasonable judgment that the number of Shares to be registered for selling
shareholders (including the holders of Registrable Securities) would materially
adversely effect such offering, the number of Shares to be registered, together
with the number of Shares of Common Stock or other securities held by other
shareholders proposed to be registered in such offering, shall be reduced on a
pro rata basis based on the number of Shares proposed to be sold by the holders
of Registrable Securities as compared to the number of Shares proposed to be
sold by all shareholders. If any holder of Registrable Securities disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the managing underwriter, delivered not less
than 10 days before the effective date. The Registrable Securities excluded by
the managing underwriter or withdrawn from such underwriting shall be withdrawn
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<PAGE>
from such registration, and shall not be transferred in a public distribution
prior to one hundred twenty (120) days after the effective date of the
registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
2.2.4 The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section prior to the effectiveness of
such registration whether or not the holders of Registrable Securities have
elected to include securities in such registration.
2.3 Expenses of Registration. All Registration Expenses shall be borne by
the Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of the holders of Registrable Securities shall
be borne by the holders of Registrable Securities.
2.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep the holders of Registrable
Securities advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company will:
2.4.1 Prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable efforts to
cause such registration statement to become and remain effective until the
distribution described in such registration statement has been completed;
2.4.2 Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such underwriter
may reasonably request in order to facilitate the public sale of the Shares by
such underwriter, and promptly furnish to each underwriter and the holders of
Registrable Securities notice of any stop-order or similar notice issued by the
Commission or any state agency charged with the regulation of securities, and
notice of any NASDAQ or securities exchange listing; and
2.4.3 Cause the Shares to be listed on the NASDAQ National Market
System or a securities exchange on which the Common Stock is approved for
listing.
2.5 Indemnification.
2.5.1 To the extent permitted by law, the Company will indemnify each
holder of Registrable Securities, each of its officers and directors and
partners, and each person controlling such holder within the meaning of Section
15 of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
or liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, to the extent
such expenses, claims, losses, damages or liabilities arise out of or are based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
similar document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each holder of
Registrable Securities, each of its officers and directors and partners, and
each person controlling each holder of Registrable Securities, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained herein shall not apply to
amounts paid in settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Company (which consent shall
not unreasonably be withheld); provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by a holder of
Registrable Securities, such controlling
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<PAGE>
person or such underwriter specifically for use therein; provided, however, that
the indemnity contained herein shall not apply to amounts paid in settlement of
any claim, loss, damage, liability, or expense if settlement is effected without
the consent of such holder of Registrable Securities (which consent shall not be
unreasonably withheld). Notwithstanding the foregoing, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus filed
with the Commission pursuant to the applicable rules of the Commission or in any
supplement or addendum thereto, the indemnity agreement herein shall not inure
to the benefit of any underwriter if a copy of the final prospectus filed
pursuant to such rules, together with all supplements and addenda thereto, was
not furnished to the person or entity asserting the loss, liability, claim or
damage at or prior to the time such furnishing is required by the Securities
Act.
2.5.2 To the extent permitted by law, each holder of Registrable
Securities will, if securities held by such holder are included in the
securities as to which such registration, qualification or compliance is being
effected pursuant to terms hereof, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other person selling the Company's securities covered by such registration
statement, each of such person's officers and directors and each person
controlling such persons within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) by such holder of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
such holder of Registrable Securities of any rule or regulation promulgated
under the Securities Act applicable to holders of Registrable Securities and
relating to action or inaction required of holders of Registrable Securities in
connection with any such registration, qualification or compliance, and will
reimburse the Company, such other persons, such directors, officers, persons,
underwriters or control persons for any legal or other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such holder of Registrable Securities specifically
for use therein; provided, however, that the indemnity contained herein shall
not apply to amounts paid in settlement of any claim, loss, damage, liability or
expense if settlement is effected without the consent of such holder of
Registrable Securities (which consent shall not be unreasonably withheld).
Notwithstanding the foregoing, the liability of such Holder of Registrable
Securities under this Subsection 2.5.2 shall be limited in an amount equal to
the net proceeds from the sale of the Shares sold by such holder of Registrable
Securities, unless such liability arises out of or is based on willful conduct
by such holder of Registrable Securities. In addition, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus filed
pursuant to applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of the
Company or any underwriter, if a copy of the final prospectus filed pursuant to
such rules, together with all supplements and addenda thereto, was not furnished
to the person or entity asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act.
2.5.3 Notwithstanding the foregoing Subsection 2.5.1 and 2.5.2, each
party entitled to indemnification under this Section (the "Indemnified Party")
shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different
- 5 -
<PAGE>
defenses, which defenses are inconsistent with the defenses of the Indemnified
Party. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party.
2.5.4 If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and all shareholders offering
securities in the offering (the "Selling Security Holders") on the other from
the offering of the Company's securities, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the Selling
Security Holders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Selling Security Holders on the other shall be
the net proceeds from the offering (before deducting expenses) received by the
Company on the one hand and the Selling Security Holders on the other. The
relative fault of the Company on the one hand and the Selling Security Holders
on the other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Selling Security Holders and the parties' relevant intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Selling Security Holders agree that
it would not be just and equitable if contribution pursuant to this Section were
based solely upon the number of entities from whom contribution was requested or
by any other method of allocation which does not take account of the equitable
considerations referred to above in this Section. The amount paid or payable by
an Indemnified Party as a result of the losses, claims, damages and liabilities
referred to above in this Section shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim, subject to the provisions
hereof. Notwithstanding the provisions of this Section, no Selling Shareholder
shall be required to contribute any amount or make any other payments under this
Agreement which in the aggregate exceed the proceeds received by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
2.6 Certain Information.
2.6.1 The holders of Registrable Securities agree, with respect to any
Registrable Securities included in any registration, to furnish to the Company
such information regarding such holder, the Registrable Securities and the
distribution proposed by the such holder as the Company may reasonably request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
2.6.2 The failure of the holder of Registrable Securities to furnish
the information requested pursuant to Section 2.6.1 shall not affect the
obligation of the Company to the other Selling Security Holders who furnish such
information unless, in the reasonable opinion of counsel to the Company or the
underwriters, such failure impairs or may impair the legality of the
Registration Statement or the underlying offering.
2.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of Restricted Securities (used herein as defined in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to use
its best lawful efforts to:
2.7.1 Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times during
which the Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act");
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<PAGE>
2.7.2 File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at all times during which the Company is subject to such reporting
requirements); and
2.7.3 So long as any holder of Registrable Securities owns any
Restricted Securities (as defined in Rule 144 promulgated under the Securities
Act), to furnish to such holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 and with regard to the Securities Act and the Exchange Act (at all times
during which the Company is subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as such holder of Registrable Securities
may reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any such securities without
registration.
2.8 Transferability. The rights conferred by this Agreement shall be freely
transferable to a recipient of Registrable Securities.
2.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE
LAWS OF THE STATE OF TEXAS.
2.10 Entire Agreement; Amendment. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the Company and Coastal.
2.11 Notices, etc. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement or the Note, addressed to
such party at its address set forth below or at such other address as either of
the parties hereto may hereafter notify the other in writing.
To Company: INTELECT COMMUNICATION SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr.
To Holder: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attention: Corporate Secretary
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<PAGE>
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attention: Director, Financial Administration
2.12 Delays or Omissions. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
2.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
2.14 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
2.15 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not considered in construing or
interpreting this Agreement.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.
THE COASTAL CORPORATION INTELECT COMMUNICATIONS SYSTEMS
SECOND PENSION TRUST LIMITED
By: _________________________ By: ____________________________
Donald H. Gullquist Herman M. Frietsch
Senior Vice President Chairman & CEO
The Coastal Corporation
Signature Page to Registration Rights Agreement
INTELECT COMMUNICATIONS SYSTEMS LIMITED
SUBSCRIPTION AGREEMENT
FOR
SERIES A CUMULATIVE PREFERRED STOCK
THIS SUBSCRIPTION AGREEMENT (this "Agreement") made and entered into as of
this 30th day of May 1997, by and between INTELECT COMMUNICATIONS SYSTEMS
LIMITED, a company incorporated in Bermuda with limited liability ("ICSL" or the
"Company") and THE COASTAL CORPORATION SECOND PENSION TRUST ("Coastal") (the
"Parties"):
W I T N E S S:
WHEREAS, the Company has authorized share capital consisting of (a)
80,000,000 shares $.01 per share par value common stock ("Common Stock") and (b)
15,000,000 shares $.01 per share par value preferred stock;
WHEREAS, the Company has authorized the issuance of 10,000,000 shares $.01
per share par value, ten percent dividend, cumulative, convertible preferred
stock, Series A, priced at $2.0145 ("Preferred Stock");
WHEREAS, Coastal wishes to purchase the Preferred Stock for the
consideration and on the terms and conditions set forth herein;
WHEREAS, the Parties desire to memorialize their agreement for the issuance
and acquisition of the Preferred Stock of ICSL;
NOW, THEREFORE, for and in consideration of the premises, and the mutual
covenants and agreements herein contained, the Company and Coastal agree as
follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Definitions. As used in this Agreement, the following terms
shall have the following meanings, unless the context otherwise requires:
"Act" shall mean the Securities Act of 1933, as amended.
"Agreement" shall mean this Agreement, as the same may from time to time be
amended, modified or supplemented.
"Amended and Restated Note" shall mean the Amended and Restated Note the
form of which is attached hereto as Exhibit A
"Business Day" shall mean a day (other than a Saturday, Sunday or legal
holiday) for commercial lenders pursuant to the laws of the State under which
Coastal is governed.
"Capital Stock" shall mean all common and preferred stock of the Company,
but shall not include preferred stock subject to mandatory redemption
requirements.
"CERCLA" shall have the meaning given in Section 4.01(k).
"Claim" shall have the meaning given in Section 8.02.
"Closing" shall have the meaning given in Section 2.01(b).
"Coastal" shall mean The Coastal Corporation Second Pension Trust.
"Common Stock" means the common shares of ICSL, par value $.01 per share.
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"Company" shall mean ICSL, including all successors thereto, and whether
merged, consolidated, reincorporated or as its name, domicile or jurisdiction
may change from time to time.
"Company and its Consolidated Subsidiaries" shall mean the Company and its
Subsidiaries which are taken on a consolidated basis for financial reporting
purposes. The Consolidated Subsidiaries of the Company are: Intelect Systems
Corp.; Intelect Network Technologies Company (formerly Intelect, Inc.); DNA
Enterprises, Inc.; Intelect Visual Communications Corp.; and Intelect Network
Systems, Ltd.
"Default" shall mean the occurrence of any of the events specified in
Article 7 hereof, whether or not any requirement for notice or lapse of time or
other condition precedent has been satisfied.
"Designation of Rights and Preferences" and "Designation" shall have the
meaning given in Section 2.01(a).
"Dollar", "Dollars" and "$" shall mean the lawful currency of the United
States of America.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and all current rules and regulations promulgated thereunder.
"Event of Default" shall mean the occurrence of any of the events specified
in Article 7 hereof, provided that any requirement for notice or lapse of time
or any other condition precedent has been satisfied.
"Financial Statements" shall mean the financial statements of the Company
described in Section 5.01 hereof.
"GAAP" shall mean generally accepted accounting principles of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board.
"Indebtedness" shall mean all principal, interest and commitment fees owing
by the Company to Coastal in connection with the Note or this Agreement.
"Indemnified Party" shall have the meaning given in Section 8.02.
"Lien" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"Loan Agreement" shall mean the Loan Agreement dated May 8, 1997, and all
Exhibits hereto, including the Promissory Note, as they may be amended from time
to time.
"Material Adverse Effect" shall mean a material and adverse effect on the
operations or financial condition of the Company or its Subsidiaries.
"Note" shall mean the Promissory Note of the Company described in the Loan
Agreement.
"Parties" shall have the meaning given in the Preamble.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens now or hereafter securing the Note; (b)
pledges or deposits made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or benefits or
to participate in any fund in connection with workers' compensation,
unemployment insurance, pensions, or other social security programs; (c)
good-faith pledges or deposits made to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money), or leases, or to
secure statutory obligations, surety or appeal bonds, or indemnity, performance,
or other similar bonds in the ordinary course of business; (d) Liens for taxes
and Liens imposed by operation of law (including Liens of mechanics,
materialmen, warehousemen, carriers and landlords), if (i) no
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amounts are due and payable and no Lien has been filed (or agreed to), or (ii)
the validity or amount secured thereof is being contested in good faith by
lawful proceedings diligently conducted, reserves required by GAAP have been
made, and levy and execution thereon have been (and continue to be) stayed or
payment thereof is covered in full (subject to the customary deductible) by
insurance; (e) Liens currently in existence; (f) Liens covering purchase money
debt incurred to finance equipment or inventory in the ordinary course of
business; and (g) Liens securing the indebtedness to St. James Capital Corp.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any multi-employer plan or single employer plan, as
defined in Section 4001 and subject to Title IV of ERISA, which is maintained,
or at any time during the five (5) calendar years preceding the date of this
Agreement was maintained, for employees of the Company or a Subsidiary.
"Preferred Stock" shall have the meaning given in the Recitals.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Redemption" shall have the meaning given in Section 2.02(a).
"Registration Rights Agreement" means the Registration Rights Agreement the
form of which is attached hereto to Exhibit B, as originally executed or as it
may from time to time be supplemented, modified or amended.
"Securities Act" means the Security Act of 1933, as amended.
"Subsidiary" shall mean any corporation of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting power for
the election of directors is owned or controlled, directly or indirectly, by the
Company and/or one or more of its Subsidiaries.
"Transaction Documents" means this Agreement, the Designation, the
Registration Rights Agreement and all Exhibits, Certificates and Opinions
pertaining thereto.
ARTICLE 2
TERMS OF SUBSCRIPTIONS
Section 2.01 Issuance and Purchase of Preferred Stock.
(a) On the terms and subject to the conditions of this Agreement, the
Company agrees to issue, and Coastal agrees to purchase, 2,482,005 shares of the
Preferred Stock for a purchase price of Two and 1.45/100 Dollars ($2.0145) per
share, for an aggregate purchase price of Five Million Dollars ($5,000,000) in
immediately available funds. The Preferred Stock shall have the designations,
preferences, rights and limitations as specified in the Certificate of
Designation of Rights and Preferences dated May 30, 1997.
(b) The sale and purchase of the Preferred Stock shall take place at
10:00 AM, May 30, 1997, at the offices of Coastal at Nine Greenway Plaza,
Houston, Texas and thereafter until completed (the "Closing"). At the Closing,
the Company shall deliver to Coastal certificates evidencing the shares of
Preferred Stock, registered in the name of Coastal, against payment as specified
herein. Payment shall be in the form of a wire transfer to an account designated
by the Company. The Closing shall be subject to the conditions set forth in
Article 3.
Section 2.02 Conversion of Loan to Preferred Stock .
(a) At any time, and from time to time, at which there is Indebtedness
outstanding, Company may request, or Coastal may require, that all or part of
the balance of such Indebtedness be redeemed in the form of
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issuance of the Preferred Stock of the Company at a redemption price of one
hundred percent (100%) of the principal amount of such Indebtedness to be
redeemed, in each case, plus accrued and unpaid interest to the date fixed for
redemption (the "Redemption"). Such request shall be in writing and the stock
shall be issued within five (5) Business Days after receipt of such notice. The
number of shares of Preferred Stock issued in satisfaction of the Redemption
shall be equal to the product of the amount of the Indebtedness to be redeemed
divided by the price per share of the Preferred Stock stipulated in Section
2.07(b) of the Loan Agreement, Two and 1.45/100 Dollars ($2.0145) per share.
(b) At the Closing, on the terms and subject to the conditions of this
Agreement, the Company agrees to issue, and Coastal agrees to accept 1,737,404
shares of the Preferred Stock at a purchase price of Two and 1.45/100 Dollars
($2.0145) per share, for an aggregate purchase price of Three Million Five
Hundred Thousand and 36/100 Dollars ($3,500,000.36), said amount to be credited
against, and in partial redemption of, the Indebtedness. The Redemption of the
Preferred Stock shall take place at 10:00 AM, May 30, 1997 at the offices of
Coastal at Nine Greenway Plaza, Houston, Texas. At the Redemption, the Company
shall deliver to Coastal certificates evidencing the shares of Preferred Stock,
registered in the name of Coastal, against payment as specified herein. The
Redemption shall be subject to the conditions set forth in Article 3. Company
shall execute and deliver an Amended and Restated Note in the form attached as
Exhibit B to reflect cancellation of that portion of the Indebtedness redeemed.
(c) Each subsequent Redemption until the Indebtedness, including all
amounts due and owing under the Amended and Restated Note, has been paid in
full, shall be subject to certification satisfactory to Coastal that the
conditions of Article 3 hereof have been met and are satisfied as of the date of
such Redemption. As of each such Redemption, Coastal shall annotate the Amended
and Restated Note to reflect cancellation of that portion of the Indebtedness
redeemed. All fees and disbursements (including, without limitation, all
investment banking, legal and other fees and disbursements) of Coastal in
connection with each Redemption shall be paid, to the extent that the Company
has been billed at least one Business Day prior to the Redemption date, upon the
Redemption, and upon request thereafer to the extent not paid.
Section 2.03 Restrictive Legend. Each certificate representing shares of
the Preferred Stock shall be inscribed with the following restrictive legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. NO SALE, OFFER TO
SELL, TRANSFER OR OTHER DISPOSITION OF THE SHARES REPRESENTED
BY THIS CERTIFICATE SHALL BE MADE UNLESS A REGISTRATION
STATEMENT UNDER THE ACT, WITH RESPECT TO SUCH SHARES IS THEN
IN EFFECT OR UNLESS THE HOLDER OBTAINS AN OPINION OF COUNSEL
IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY
THAT SUCH DISPOSITION IS EXEMPT FROM REGISTRATION UNDER THE
ACT OR ANY APPLICABLE STATE BLUE SKY LAW. THE COMPANY WILL
FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT CHARGE, A
FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS
AND RELATIVE RIGHTS OF THE SHARES OF EACH SERIES OF PREFERRED
STOCK AUTHORIZED TO BE ISSUED BY THE COMPANY."
Section 2.04 Rights and Preferences. The Preferred Stock shall have the
designations, preferences, rights and limitations as specified in the
Certificate of Designation of Rights and Preferences dated May 30, 1997,
including rights to convert the Series A Preferred Shares into Common Stock.
Section 2.05 Costs. The Company shall pay all documentary, stamp, transfer
or other transactional taxes attributable to the issuance or delivery of shares
of Common Stock of the Company or other securities or property upon conversion
of the Preferred Shares; provided, however, that the Company shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares or
securities in the name other than that of the holder of the Preferred Shares in
respect of which such shares are being issued.
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Section 2.06 Registration Rights. The Company agrees to grant to Coastal
certain registration rights under a Registration Rights Agreement, the form of
which is attached as Exhibit B, to be executed at Closing, covering registration
rights in respect to the Common Stock to be acquired upon conversion of the
Preferred Stock acquired under this Agreement upon Closing or Redemption or as
dividends upon the Preferred Stock or otherwise.
Section 2.07 Right of First Refusal. Provided that Coastal has acquired the
Series A Preferred Stock as provided in Section 2.01, for so long as Coastal
holds any security or warrant for a security of the Company, in addition to any
other rights granted in this Agreement or the Designation, Company hereby grants
to Coastal the rights of first refusal to participate in any offering of an
equity interest, including common stock, preferred stock, warrants or
convertible debentures, to be offered by Company or brought to Company, but
excluding (i) underwritten public offerings of Common Stock, (ii) project
financings, (iii) bank financings, (iv) any capital stock of the Corporation
issued pursuant to warrants or other rights issued prior to the date hereof, (v)
the issuance, sale, exercise or conversion or grant of options to purchase
Common Stock pursuant to any of the Corporation's employee stock option,
compensation, bonus or incentive plans or otherwise, and (vi) the issuance or
sale of any equity or debt securities used in acquisitions by the Corporation of
operating assets or stock of entities to be owned and operated by the
Corporation or a Subsidiary. The procedures for notice and exercise of such
right of first refusal are as follows:
(a) In the event that Company offers, seeks to offer, or receives a
proposal to offer, an equity interest, including preferred stock, warrants or
convertible debentures, Company shall first offer the right to participate in
such offering to Coastal. Company shall deliver a true copy of such proposal,
term sheet, information memorandum or other offering description ("Proposal") to
Coastal.
(b) Coastal shall have thirty (30) days thereafter to indicate its
intent to participate at the price and otherwise on the terms and conditions
contained in such Proposal by giving written notice to Company to such effect
within said period and stating therein the quantity of securities to be
purchased. All other terms and conditions of Coastal's participation in such
offering shall be on a commercially reasonable basis, and in compliance with all
applicable laws and regulations. Coastal may conduct such due diligence as is
reasonably necessary and appropriate under the circumstances.
(c) If Coastal fails to exercise its right of first refusal within
such thirty (30) day period, then the Company shall have one hundred twenty
(120) days thereafter to sell the securities with respect to which Coastal's
rights were not exercised, at a price and upon general terms no more favorable
to the purchasers thereof than specified in the Company's notice. In the event
that the Company has not sold the securities within such one hundred twenty
(120) day period, the Company shall not thereafter issue or sell any securities
without first offering such securities to Coastal in the manner provided above.
(d) In any event, if and when the proposed transaction is consummated,
a true and correct copy of the offering documents shall be delivered to Coastal.
ARTICLE 3
CONDITIONS
The obligation of Coastal to purchase the Preferred Stock is subject to the
satisfaction of the following conditions:
Section 3.01 Secretary's Certificates. Coastal shall have received
certificates of the Secretary or an Assistant Secretary of the Company setting
forth (i) resolutions of its Board of Directors in form and substance
satisfactory to Coastal with respect to the authorization of this Agreement and
the officers of the Company authorized to sign such instruments, (ii) specimen
signatures of the officers so authorized, and (iii) a certified copy of the
Designation.
Section 3.02 Good Standing. Company shall deliver certificate of good
standing for Company and its Subsidiaries.
Section 3.03 No Default. Coastal shall have received certificates of an
officer of the Company stating no Default shall have occurred and be continuing
which in any respect could have a Material Adverse Effect on the
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Company or any Subsidiary and there shall not have occurred and be continuing
any condition, event or act which constitutes an Event of Default under any
instrument evidencing borrowed money to which the Company or any Subsidiary is
bound.
Section 3.04 Regulatory Requirements. The Parties to this Agreement have
determined that all regulatory requirements which are conditions precedent to
the execution of this Agreement has been met, or the time for such approvals
shall have lapsed and no further regulatory action be required.
Section 3.05 Representations and Warranties. The representations and
warranties made by the Company herein and in every other written document
delivered pursuant hereto shall then be true in all material respects; and the
Company shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by them at or before the Closing.
Section 3.06 Payment of Fees and Disbursements. All fees and disbursements
(including, without limitation, all investment banking, legal and other fees and
disbursements) of Coastal in connection with the transactions contemplated by
this Agreement, or any other Transaction Documents shall have been paid, to the
extent that the Company has been billed at least one Business Day prior to the
Closing or Redemption date.
Section 3.07 Opinions of Counsel.
(a) Coastal shall have received from United States counsel for the
Company, an opinion addressed to Coastal to the effect that:
(i) the Company is a corporation duly organized, validly existing,
and in good standing under the laws of Bermuda, and has the corporate power
to conduct its business, to enter into and to perform its obligations under
this Agreement, and to issue the Preferred Stock;
(ii) the authorized capital stock of the Company consists of (x)
80,000,000 shares of Common Stock, US $.01 par value, and (y) 15,000,000
shares of Preferred Shares, US $.01 par value, with the only Preferred
Shares issued being those to be issued to Coastal under this Agreement;
(iii) upon the payment of the consideration described in this
Agreement, the Preferred Stock will be duly authorized, validly issued,
fully paid, and nonassessable;
(iv) all shares of Common Stock issuable upon conversion of the
Preferred Shares have been duly reserved for issuance and, when issued upon
conversion of the Preferred Shares in accordance with its terms, will be
duly authorized, validly issued, fully paid, and nonassessable;
(v) all shares of Common Stock issuable in payment of dividends
on Preferred Shares as provided for in this Agreement will be, when so
issued, duly authorized, validly issued, fully paid, and nonassessable.
(vi) The Company has the corporate power to execute, deliver and
carry out the terms and provisions of the Agreement and the Transaction
Documents and has taken all necessary corporate action to authorize the
execution, delivery and performance thereof. The Agreement and the Note
have been duly executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company enforceable in
accordance with their respective terms except to the extent that
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally
and by equitable principles (regardless of whether enforcement is sought in
equity or at law).
(vii) To the best of our knowledge without having undertaken an
independent investigation, neither the execution, delivery or performance
by the Company of the Transaction Documents nor the consummation of the
transactions therein contemplated, nor compliance with the terms and
provisions thereof, (i) will contravene any applicable provision of any
law, statute, rule or regulation, or of any order, writ, injunction or
decree of any court or governmental instrumentality known to such counsel
or (ii) will conflict,
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or be inconsistent with, or result in any breach of, or constitute a
default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets
of the Company pursuant to the terms of any indenture, mortgage, deed of
trust, agreement or other instrument to which the Company is a party or by
which it or any of its property or assets is bound or to which it may be
subject, or (iii) will violate any provision of the Memorandum of
Association or Bye-Laws of the Company.
(viii) To the best of our knowledge, except as disclosed in the
Financial Statements, there are no actions, suits or proceedings pending or
threatened against or affecting the Company before any court or before any
governmental or administrative body or agency the outcome of which is
likely to materially and adversely affect the operations, business,
property or assets or the financial condition of the Company.
(ix) No order, consent, approval, license, authorization, or
validation of, or filing, recording or registration with, or exemption by,
any governmental or public body or authority, or any subdivision thereof,
is required to authorize, or is required in connection with (i) the
execution, delivery and performance of the Agreement or the Transaction
Documents, or (ii) the legality, validity, binding effect or enforceability
of the Agreement or the Transaction Documents.
(x) To the best of our knowledge, each of the representations
and warranties of the Company set forth in any of the Transaction Documents
are true and correct as of the date hereof and all conditions precedent
under the Transaction Documents have been satisfied.
(b) Coastal shall have received from Bermuda counsel for the Company,
an opinion addressed to Coastal in the form attached as Exhibit C.
(c) The opinions required by this Section may, as to matters of fact,
be given in reliance upon certificates of officers of the Company and public
officials and shall contain such other normal and customary qualifications.
Section 3.08 NASDAQ Requirements. Nothing in the Transaction Documents may
be read or construed (i) to violate the rules of the Securities and Exchange
Commission or any market in which shares of ICSL are traded, and including the
maintenance criteria of the NASDAQ Rule 4460(i)(1)(D)(iii), (as applied to all
shares of ICSL's Common and Preferred Stock deemed to be aggregated under said
Rule), or (ii) to trigger the right of first refusal under ICSL's 7.5% and 7%
Convertible Debentures, and the Parties agree that in the event either (i) or
(ii) would otherwise occur, this Agreement shall not be enforceable against
either Party to the extent of such occurrence, and further, the Parties agree
that in the event either (i) or (ii) would otherwise occur, they shall amend
this Agreement to reflect, and the Designation of Rights and Preferences of the
Preferred Stock shall reflect, such adjustment to price or quantity as may be
necessary to avoid the occurrence of either (i) or (ii).
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.01 By The Company. The Company represents and warrants to Coastal
that:
(a) Organization. ICSL is a corporation duly existing and in good
standing under the laws of Bermuda. Each of Company and its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, has all requisite corporate
power and authority to own its Property and to carry on its business as now
conducted, and is in good standing and authorized to do business in each
jurisdiction in which the Company or such Subsidiary owns real Property or
conducts such business, where the failure to maintain such good standing or
authorization is reasonably expected to have a Material Adverse Effect.
(b) Authorization; No Conflict. The execution and delivery of this
Agreement, and the performance by the Company of its obligations under this
Agreement are within the Company's corporate powers, have been duly authorized
by all necessary corporate action, have received all necessary governmental
approvals (if any shall be required) and do not and will not contravene or
conflict with any rule, regulation, decree or order or provision of law
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or of the charter or the Bye-Laws of the Company or of any agreement binding
upon the Company or any of its properties, except to the extent any such consent
or approval has been obtained or waived, and delivered to Coastal.
(c) Capitalization. At the date of this Agreement, the authorized
Capital Stock of the Company consists of 80,000,000 shares of Common Stock, US
$.01 of which ____ are issued and outstanding as of ___________, 1997, and
15,000,000 preferred shares, US $.01 of which no shares are issued and
outstanding prior to the issuance of the Preferred Stock to Coastal under this
Agreement. As of May 8, 1997, there were 20,531,598 shares of Common Stock
outstanding.
(d) Valid Issuance of Securities. Upon receipt of the consideration
from Coastal as described herein, the Preferred Stock will be duly authorized,
validly issued, fully paid, and nonassessable. All shares of Common Stock
issuable in payment of dividends on outstanding Preferred Shares, and all shares
of Common Stock issuable upon conversion of the Preferred Stock, will be duly
reserved for issuance, and when so issued, will be duly authorized, fully paid,
and nonassessable.
(e) Binding Obligations. This Agreement constitutes the binding
obligation of the Company, enforceable in accordance with its terms, except to
the extent that the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally or the
right to obtain the remedy of specific performance.
(f) Financial Condition. The audited annual consolidated Financial
Statements of the Company and its Consolidated Subsidiaries for its most
recently ended fiscal year (the "1996 Financial Statements"), and the unaudited
consolidated interim Financial Statements of the Company and its Consolidated
Subsidiaries for its most recently ended fiscal quarter (for which such annual
or quarterly Financial Statements are available), which have been delivered to
Coastal, are complete and correct in all material respects, have been prepared
in accordance with GAAP, consistently applied, and present fairly the
consolidated financial condition and results of the operations of the Company
and its Consolidated Subsidiaries as at the date or dates and for the period or
periods stated (subject only to normal year-end audit adjustments with respect
to such unaudited interim statements). No material adverse change has since
occurred in the consolidated financial condition or operations of the Company
and its Consolidated Subsidiaries, except as otherwise disclosed to Coastal.
(g) Defaults. Except for defaults in payments required to be made in
connection with the acquisition of DNA Enterprises, Inc., as described in "Note
24 (b)" of the 1996 Financial Statements, neither the Company nor any Subsidiary
is in Default (in any respect which materially and adversely affects the
consolidated business, Property, operations or financial condition of the
Company and its Consolidated Subsidiaries) under any instrument evidencing
borrowed money to which the Company or a Subsidiary is a party or by which it is
bound.
(h) Tax Returns and Payments. The Company has (i) filed all tax
returns which it is required to file, where the failure to file such returns
would have a Material Adverse Effect on the consolidated financial condition or
operations of the Company and its Consolidated Subsidiaries, and (ii) paid, or
has provided adequate reserves for the payment of all material federal and state
income taxes applicable for all prior fiscal years and for the current fiscal
year down to the date hereof.
(i) Litigation Representation. Except for those matters disclosed in
"Notes 19 and 24 (b)" of the 1996 Financial Statements, there is no litigation
(including without limitation, derivative actions), arbitration proceedings or
governmental proceedings pending or, to the knowledge of the Company, threatened
against it or any Subsidiary which involves the reasonable probability of a
judgment not covered by insurance and which would have a Material Adverse Effect
on the Company and its Consolidated Subsidiaries.
(j) Compliance with ERISA. The Company and each of its Subsidiaries
are in compliance in all material respects with ERISA. Neither the Company nor
any of its Subsidiaries has any material liability under any type of Plan. No
reportable event, as set forth in Section 4043(b) of ERISA, has occurred and is
continuing with respect to any Plan which results in any material liability to
the PBGC.
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(k) Environmental Matters. Neither the Company nor any Subsidiary (i)
has received written notice, nor has any officer of the Company otherwise
learned, of any claim, demand, action, event, condition, report or investigation
indicating or concerning any potential or actual liability which individually or
in the aggregate would have a Material Adverse Effect, arising in connection
with: (x) any noncompliance with or violation of the requirements of any
applicable federal, state or local environmental health and safety statutes and
regulations or (y) the release or threatened release of any toxic or hazardous
waste, substance or constituent, or other substance into the environment, (ii)
to the best of Company's knowledge, has any liability in connection with the
release or threatened release of any toxic or hazardous waste, substance or
constituent, or other substance into the environment which in the aggregate
would have a Material Adverse Effect, (iii) has received notice of any federal
or state investigation evaluating whether any remedial action is needed to
respond to a release or threatened release of any toxic or hazardous waste,
substance or constituent or other substance into the environment for which the
Company or any Subsidiary is or may be liable where the taking or the failure to
take such remedial action would have a Material Adverse Effect, or (iv) has
received notice that the Company or any Subsidiary is or may be liable to any
Person under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq. ("CERCLA"), or
any analogous state law, the failure to comply with which would have a Material
Adverse Effect. To the best of the Company's knowledge, the Company and each
Subsidiary is in compliance in all material respects with the financial
responsibility requirements of federal and state environmental laws to the
extent applicable, including, without limitation, those contained in 40 C.F.R.,
parts 264 and 265, subpart H, and any analogous state law, the failure to comply
with which would have a Material Adverse Effect.
(l) Compliance with Applicable Laws. Neither the Company nor any
Subsidiary is in default with respect to any judgment, order, writ, injunction,
decree or decision of any governmental authority, which default would have a
Material Adverse Effect. To the best of the Company's knowledge, the Company and
each Subsidiary is in compliance with all applicable statutes, rules and
regulations, including ERISA, of all governmental authorities, and (except as
disclosed to Coastal) of every exchange on which the Capital Stock of the
Company is listed, a violation of which would have a Material Adverse Effect.
(m) Patents, Licenses, Etc. Except for those matters described in
"Note 8" to the 1996 Financial Statements, the Company warrants that it has all
right and title to, and has maintained and caused each Subsidiary to maintain in
full force and effect, all material licenses, copyrights, patents, permits,
applications, reports, authorizations, easements and other rights as are
necessary for the conduct of the business of Company and its Consolidated
Subsidiaries, where the termination of such rights would have a Material Adverse
Effect.
(n) Disclosure. Each of Company's representations in the Transaction
Documents are true, complete and accurate in all material respects. Company has
disclosed all material facts of which it has knowledge and regarding the
transaction contemplated by this Agreement. Company has not failed to disclose
to Coastal any material fact necessary in order to make any statement made, in
light of the circumstances under which made, not misleading.
Section 4.02 By Coastal. Coastal represents and warrants to the Company
that:
(a) Binding Obligation. his Agreement constitutes a valid and binding
obligation of Coastal enforceable against it in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights, and equitable remedies.
(b) No Conflict. Coastal's execution, delivery and performance of this
Agreement does not, violate, conflict with, or constitute a breach of or default
under any loan or credit agreement, indenture, mortgage, deed of trust,
contract, lease, license, or other contract or agreement to which Coastal is a
party or by which its property is bound, or violate any order, writ, injunction,
or decree of any court, administrative agency or governmental body.
(c) No Approvals. No consent, approval or authorization of, or
declaration to or filing with, any governmental or private party is required for
the valid authorization, execution, delivery and performance by Coastal of this
Agreement.
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(d) No Litigation. There are no claims, actions, suits, proceedings or
investigations pending, or, to the knowledge of Coastal threatened against it,
which, if adversely resolved, would materially impair its ability to perform its
obligations under this Agreement or which challenge the legality of, or seek to
enjoin, restrain or prohibit the consummation of the transactions contemplated
by this Agreement.
(e) Investment Purpose. The Securities to be issued to Coastal under
or as contemplated in this Agreement are being acquired, or will be acquired for
investment, for its own account, and not with a view to, or for resale in
connection with, any distribution of Securities within the meaning of the
Securities Act. No Securities may be sold, transferred, or otherwise disposed of
without registration under the Securities Act and any applicable state
securities laws, except under any exemption from those laws.
ARTICLE 5
AFFIRMATIVE COVENANTS
Section 5.01 Financial Statements and Reports. The Company will promptly
furnish to Coastal:
(a) Annual Reports. As soon as available and in any event within one
hundred and twenty (120) days after the close of each fiscal year of the
Company, the audited balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such year, the audited statement of income of the
Company and its Consolidated Subsidiaries for such year, and the audited
statement of reconciliation of capital accounts of the Company and its
Consolidated Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year,
accompanied by the opinion of independent public accountants of national
standing; and
(b) Quarterly Reports. As soon as available and in any event within
sixty (60) days after the end of each of the first three quarterly periods in
each fiscal year of the Company, a copy of the Company's Form 10-Q as filed with
the Securities and Exchange Commission.
(c) Other Information. Such other information regarding the financial
condition and operations of the Company and its Consolidated Subsidiaries as
Coastal may reasonably request. All such balance sheets and other Financial
Statements referred to in Subsections 501(a) and (b) above shall conform to GAAP
except for such changes in accounting principles or practice with which the
independent public accountants concur, and subject to normal year-end audit
adjustments with respect to the unaudited quarterly statements described in
Subsection 5.01(b) hereof.
(d) Actions. Notice of all actions, suits, claims, proceeding,
investigation and inquiries that could reasonably be expected to have a Material
Adverse Effect
(e) Defaults. Promptly, and in any event within three(3) Business
Days, after any officer of the Company obtains knowledge of the existence of any
Default under this Agreement or a default under any other contract to which the
Company is a party and which could reasonably be expected to have a Material
Adverse Effect.
Section 5.02 Legal Existence. The Company will, and will cause each
Subsidiary to do, or cause to be done, all things necessary to preserve and keep
in full force and effect its legal existence, rights and franchises; provided,
however, that nothing in this Section 5.02 shall prevent (i) the withdrawal by
the Company or any Subsidiary of its qualification as a foreign corporation in
any jurisdiction; (ii) a consolidation or merger permitted by other provisions
of this Agreement; or (iii) the redomicile of ICSL as to a jurisdiction within
the United States. The Company will use, and will cause each Subsidiary to use,
its best efforts to comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its Property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls).
Section 5.03 Use of Proceeds. The proceeds hereunder are to be used to meet
the working capital requirements of Company and its Subsidiaries. No part of the
proceeds may be used to prepay any loan or debt obligation of the Company, to
acquire the stock or assets of any unrelated entity, or for any other purpose
not in the ordinary course of business of Company or its Subsidiaries, provided
that the proceeds may be used to pay the current obligations and other corporate
requirements of Company, provided further, that the proceeds may not be used to
pay
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the obligations incurred by the Company in connection with the acquisition of
DNA Enterprises, Inc. without Coastal's written consent, which shall not be
unreasonably withheld.
Section 5.04 Insurance. The Company shall maintain, and cause each
Subsidiary to maintain, insurance on its Property against such risks and in
substantially the same amounts as are currently maintained, including, without
limitation, general liability and workers' compensation insurance.
Section 5.05 Maintenance of Property. The Company shall cause all material
Property owned by or leased to the Company or any Subsidiary and used or useful
in the conduct of the Company's business or the business of any Subsidiary to be
maintained and kept in normal condition, repair and working order and supplied
with all necessary equipment and cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company or such Subsidiary may be necessary, so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company or any Subsidiary from discontinuing the use, operation or
maintenance of any such Property, or disposing of any such Property, if such
discontinuance or disposal is, in the judgment of the Board of Directors or the
board of directors, board of trustees or managing partners of the Subsidiary
concerned, or of any officer (or other agent employed by the Company or any of
its Subsidiaries) of the Company or such Subsidiary having managerial
responsibility for any such Property, desirable in the conduct of the business
of the Company or any Subsidiary, and if such discontinuance or disposal is not
disadvantageous in any material respect to Coastal.
Section 5.06 Inspection of Property; Books and Records; Discussions. Upon
reasonable request by Coastal, the Company shall permit representatives of
Coastal, upon at least two (2) Business Days' prior written notice to a
financial officer of the Company and subject to assertions of attorney-client
privilege and to confidentiality obligations reasonably necessary to protect
proprietary information, to visit the offices of the Company and its
Subsidiaries, to inspect, under guidance of officers of the Company, any of its
Property and examine and make copies or abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired, and to
discuss the business, operations, prospects, licenses, Property and financial
condition of the Company and its Subsidiaries with the officers thereof.
Section 5.07 Patents, Licenses, Etc. With the exception of the matter in
"Note 8" of the 1996 Financial Statements, the Company shall maintain and cause
each Subsidiary to maintain, in full force and effect, all material licenses,
copyrights, patents, permits, applications, reports, authorizations, easements
and other rights as are necessary for the conduct of its business, the
termination of which would have a Material Adverse Effect. With the exception of
the matter in "Note 8" of the 1996 Financial Statements, Company shall pay all
royalties, annuities and license fees as they become due and shall not forfeit
or allow to lapse any rights under any patent, copyright or license.
Section 5.08 Further Assurances. The Company will promptly cure any defects
in the creation and execution of the Transaction Documents. The Company, at its
expense, will promptly execute and deliver to Coastal all such further
documents, agreements and instruments as may reasonably be requested by Coastal
in order to effect any obligation of the Company under this Agreement.
Section 5.09 Reimbursement of Expenses. The Company will, upon request,
promptly reimburse Coastal for all amounts expended, advanced or incurred by
Coastal (including reasonable attorneys' fees and disbursements) to satisfy any
obligations of the Company under this Agreement or to enforce the rights of
Coastal under this Agreement, including all fees and disbursements (including,
without limitation, all investment banking, legal and other fees and
disbursements) of Coastal in connection with the transactions contemplated by
this Agreement, or any other Transaction Documents.
Section 5.10 Notice of Certain Events. The Company shall promptly notify
Coastal if the Company learns of any of the following if such occurs while the
Loan is outstanding: (i) any event which constitutes a continuing Default or
Event of Default, together with a detailed statement by a financial officer of
the Company of the steps being taken to cure the effect of such Default or Event
of Default; or (ii) the receipt of any notice from, or the taking of any other
action by, the holder of any promissory note, debenture or other evidence of
indebtedness for borrowed money of the Company or any Subsidiary with respect to
a claimed default, together with a detailed statement by a financial officer of
the Company specifying the notice given or other action taken by such holder and
the nature of the claimed
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default and what action the Company or such Subsidiary is taking or proposes to
take with respect thereto, or (iii) the commencement of any legal, judicial, or
regulatory proceedings affecting the Company or any Subsidiary or any Property
of the Company or such Subsidiary not covered by insurance and which could
reasonably be expected to be adversely determined and which, if so determined,
would have a Material Adverse Effect on the business or the financial condition
of the Company and its Consolidated Subsidiaries; or (iv) any dispute between
the Company or any Subsidiary and any governmental or regulatory body or any
other Person which, could reasonably be expected to be adversely determined, and
which, if so determined, could reasonably be expected to materially interfere
with the normal business operations of the Company and its Consolidated
Subsidiaries; or (v) the occurrence of any material adverse changes in the
financial condition or operations of the Company and its Consolidated
Subsidiaries from those reflected in the latest Financial Statements.
Section 5.11 Hart-Scott-Rodino. The Company agrees to file such notices of
exemption or applications for approval or authority as it, in consultation with
legal counsel, deems necessary or advisable with the Federal Trade Commission
and the Antitrust Division of the Department of Justice as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, (15 U.S.C. ss.18a) as
amended and the rules and regulations promulgated thereunder by the Federal
Trade Commission. Coastal will assist in preparation of the filing and any
response required by either entity.
ARTICLE 6
NEGATIVE COVENANTS
Without the consent of Coastal, the Company will not:
Section 6.01 Payment of Dividends. Declare or pay any dividend or make any
distribution on its Capital Stock or to the holders of its Capital Stock (other
than (i) dividends or distributions payable in its Capital Stock and (ii)
dividends on its Preferred Stock other than mandatory redemption Preferred Stock
of the Company) or purchase, redeem or otherwise acquire or retire for value, or
permit any Subsidiary to purchase or otherwise acquire for value, any such
Capital Stock if at the time of such action any Loan under this Agreement is
outstanding; provided, however that Company shall be permitted to repurchase its
7.5% Convertible Debentures dated August 9, 1996 and 7% Convertible Debentures
dated October 15, 1996.
Section 6.02 Liens and Pledges of Assets and Stock. Company shall not, nor
permit any Subsidiary to, create, incur, assume or suffer to exist, directly or
indirectly, any Lien on all or substantially all of the assets of the Company or
any Subsidiary or the capital stock of any Subsidiary without the consent of
Coastal which consent shall not be unreasonably withheld; provided, however,
that this Section shall not prohibit the Company or any Subsidiary from
creating, assuming or suffering to exist the following Liens: (i) Liens existing
as of the date hereof and renewals and replacements thereof or the repledging of
assets pledged thereunder; (ii) Liens created under existing mortgages and
pledge agreements; (iii) Liens incurred in the ordinary course of business not
in connection with the borrowing of money; or (iv) Permitted Liens.
Section 6.03 Patents, Licenses, Etc. The Company shall not sell or transfer
any material licenses, copyrights, patents, permits, applications, reports,
authorizations, easements and other rights necessary for the conduct of its
business, the termination of which would have a Material Adverse Effect. Company
shall not forfeit or allow to lapse any rights under any patent, copyright or
license, the loss of which would have a Material Adverse Effect.
Section 6.04 Consolidation or Merger. Enter into or permit any Subsidiary
to enter into any merger or consolidation unless, in the case of the Company,
the surviving entity (i) is in compliance with the covenants contained in this
Agreement immediately after such merger, (ii) assumes all obligations of the
Company under this Agreement, and (iii) is organized under the laws of the
United States or any state thereof, provided that nothing herein shall prohibit
the merger of one or more Subsidiaries into the Company or any other Subsidiary.
Section 6.05 Sale of Assets. Sell or otherwise transfer all or
substantially all of its fixed assets or permit any Subsidiary to do so;
provided that nothing herein shall prohibit the sale or transfer of fixed assets
of a Subsidiary to the Company or to another Subsidiary.
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<PAGE>
Section 6.06 Liquidation. The Company shall not adopt a plan of liquidation
which provides for, contemplates or the effectuation of which is preceded by (i)
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Company otherwise than substantially as an entirety and (ii)
the distribution of all or substantially all of the proceeds of such sale,
lease, conveyance or other disposition and of the remaining assets of the
Company to the holders of Capital Stock of the Company unless the Company shall
in connection with the adoption of such plan make provision for, or agree that
prior to making any liquidating distributions it will make provision, reasonably
satisfactory to Coastal, for the satisfaction of the Company's obligations under
the Transaction Documents.
Section 6.07 Restrictive Agreements Prohibited. Enter into or continue to
be a party to any agreement which by its terms restricts the Company's
performance of this Agreement or any related document or the terms of the
Preferred Stock or any agreement which by its terms restricts the payment by the
Company of any dividends or other distributions with respect to Coastal's shares
of Preferred Stock or Common Stock.
Section 6.08 Bye-Laws. Amend the Bye-Laws in any way which would by its
terms restrict the Company's performance of this Agreement or any related
document or the terms of the Preferred Stock or which by its terms restricts the
payment by the Company of any dividends or other distributions with respect to
Coastal's shares of Preferred Stock or Common Stock.
ARTICLE 7
EVENTS OF DEFAULT
Section 7.01 Events. Any of the following events shall be considered an
"Event of Default" as that term is used herein:
(a) Default on Other Debt. Other than the matters disclosed in "Notes
8" and "24(b)" of the 1996 Financial Statements, the Company or any Subsidiary
fails to make payment when due on any indebtedness for borrowed money in an
aggregate principal amount in excess of One Hundred Thousand Dollars ($100,000)
at the time outstanding (after giving effect to any applicable grace periods);
or any default shall occur with respect to any such indebtedness, or under any
agreement securing or relating to such indebtedness, the effect of which is to
cause or to permit any holder of such indebtedness or a trustee to cause
(whether or not such holder or trustee elects to cause) such indebtedness, or
portion thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment and such default remains uncured for a
period of thirty (30) days; or
(b) Non-Payment of Indebtedness. Default is made in the payment or
prepayment when due of any Indebtedness and such Default continues for a period
in excess of five (5) days; or
(c) Representations and Warranties. Any representation or warranty
made by the Company in this Agreement proves to have been incorrect in any
material respect as of the date hereof; or any representation, statement
(including Financial Statements), certificate or data furnished or made by the
Company under this Agreement, proves to have been untrue in any material
respect, as of the date as of which the facts therein set forth were stated and
which in either such case may constitute a Material Adverse Effect; or
(d) Covenants. Default is made in the due observance or performance of
any of the covenants or agreements contained in this Agreement to be kept or
performed by the Company and such Default continues unremedied for a period of
thirty (30) days after the earlier of (i) notice thereof being given by Coastal
to the Company, or (ii) such Default otherwise becoming known to the Company,
where such Default would have a Material Adverse Effect; or
(e) Involuntary Bankruptcy or Receivership Proceedings. A custodian,
receiver, conservator, liquidator or trustee of the Company or any Subsidiary or
of any Property thereof is appointed by the order or decree of any court or
agency or supervisory authority having jurisdiction, and such decree or order
remains unstayed for more than sixty (60) days; or the Company or any Subsidiary
is adjudicated bankrupt or insolvent and such order or decree remains unstayed
for more than sixty (60) days; or any Property of the Company or any Subsidiary
is sequestered by court order; or a petition is filed against the Company or any
Subsidiary under any state or federal bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, liquidation or receivership law
of any
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<PAGE>
jurisdiction, whether now or hereafter in effect, and is not stayed or dismissed
within sixty (60) days after such filing; or
(f) Voluntary Petitions. The Company or any Subsidiary files a
petition in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, or consents to the filing of
any such petition under any such law; or
(g) Assignments for Benefit of Creditors, Etc. The Company or any
Subsidiary makes an assignment for the benefit of its creditors, or admits its
inability to pay its debts as they become due, or consents to the appointment of
a receiver, custodian, trustee or liquidator of the Company or any Subsidiary or
of all or any part of its respective Property; or
(h) Discontinuance of Business. The Company, Intelect Network
Technologies Company, DNA Enterprises, Inc., or Intelect Visual Communications
Corp. discontinues its business; or
(i) ERISA Default. A Plan fails to maintain the qualifications for any
Plan required by ERISA, and there shall result from any such event or events
either liability or a material risk of incurring liability to the PBGC or to a
Plan, which would have a Material Adverse Effect; or
(j) Cross Default. Company is in Default under any of the other
Transaction Documents.
ARTICLE 8
SPECIAL INDEMNITY
Section 8.01 Expenses. The Company shall pay (to the maximum extent
permitted by law) all investment fees and expenses and all other reasonable fees
and disbursements (including without limitation, all reasonable fees and
disbursements of counsel) in connection with the transactions contemplated
hereby and by the other Transaction Documents, whether or not such transactions
shall be consummated, and shall pay the reasonable fees and disbursements of
counsel for the holders of the Preferred Stock in connection with any subsequent
amendment, waiver, consent, modification or enforcement hereof or thereof.
Section 8.02 Indemnity. The Company agrees to indemnify and hold harmless
(to the maximum extent permitted by law) Coastal and its Affiliates and their
respective directors, members, beneficiaries, trustees beneficial owners,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel and consultants)
(any of the foregoing a "Claim") that may be incurred by or asserted or awarded
against any Indemnified Party, in each case arising in each case arising out of
or in connection with or by reason of the actual or proposed use of the proceeds
of the sale of the Series A Preferred Stock (except to the extent, and only to
the extent, that such Claim is for any loss in value of the Series A Preferred
Stock).
ARTICLE 9
MISCELLANEOUS
Section 9.01 Notices. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective Parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement or the Note, addressed to
such party at its address set forth below or at such other address as either of
the Parties hereto may hereafter notify the other in writing.
To Company: INTELECT COMMUNICATIONS SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
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<PAGE>
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr.
To Coastal: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attn: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attn: Director, Financial Administration
Section 9.02 Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the Parties hereto; provided, however, the Company may not assign or
transfer any of its interest hereunder without the prior written consent of
Coastal and provided further that Coastal may not assign its interest hereunder
without the prior written consent of the Company, which consent of either party
shall not be withheld unreasonably.
Section 9.03 Survival of Agreements. All representations and warranties of
the Company herein shall survive the effective date of this Agreement.
Section 9.04 Invalidity. In the event that any one or more of the
provisions contained in this Agreement shall, for any reason, be held invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of the this Agreement.
Section 9.05 Amendment or Waiver. This Agreement may not be amended,
changed, waived, discharged or terminated without the written consent of the
Company and Coastal.
Section 9.06 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Company or Coastal in exercising any right, power or privilege
hereunder and no course of dealing between the Company and Coastal shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Company or Coastal would otherwise have.
Section 9.07 Headings. The descriptive headings of this Agreement are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
Section 9.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the different Parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and Coastal.
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<PAGE>
Section 9.09 Governing Law. THIS AGREEMENT, AND THE APPLICATION OR
INTERPRETATION THEREOF, SHALL BE GOVERNED EXCLUSIVELY BY ITS TERMS AND BY THE
LOCAL, INTERNAL LAW OF THE STATE OF TEXAS, EXCEPT TO THE EXTENT THE CONFLICTS OF
LAWS RULES OF THE STATE OF TEXAS WOULD REQUIRE THE APPLICATION OF THE LAW OF
ANOTHER JURISDICTION IN WHICH CASE THE LAWS OF THE STATE OF TEXAS SHALL
NONETHELESS APPLY. THE PARTIES CONSENT TO JURISDICTION IN THE STATE AND FEDERAL
COURTS LOCATED IN HARRIS COUNTY, TEXAS.
Section 9.10 Entire Agreement. This Agreement, including the Exhibits
attached hereto and the documents delivered pursuant hereto, constitutes the
entire agreement between the Parties with respect to the subject matter of this
Agreement and supersedes all previous communications, representations,
understandings, and agreements, either oral or written, between the Parties with
respect to the subject matter.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
duly executed as of the date first above written.
INTELECT COMMUNICATIONS THE COASTAL CORPORATION SECOND
SYSTEMS LIMITED PENSION TRUST
By: _________________________ By: ____________________________
Herman M. Frietsch Donald H. Gullquist
Chairman & CEO Senior Vice President
The Coastal Corporation
Signature Page to Subscription Agreement for Series A Preferred Stock
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<PAGE>
PREFERRED SHARES SUBSCRIPTION AGREEMENT
BETWEEN
THE COASTAL CORPORATION SECOND PENSION TRUST
AND
INTELECT COMMUNICATIONS SYSTEMS LIMITED
<PAGE>
TABLE OF CONTENTS
(This Table of Contents attached to the Agreement is provided for convenience
only, is not a part of such, and shall not in any way affect the meaning or
construction thereof.)
Page
ARTICLE 1 GENERAL TERMS.............................................. 1
1.01 Definitions................................................ 1
ARTICLE 2 TERMS OF SUBSCRIPTIONS..................................... 3
2.01 Issuance and Purchase of Preferred Stock................... 3
2.02 Conversion of Loan to Preferred Stock...................... 3
2.03 Restrictive Legend......................................... 4
2.04 Rights and Preferences..................................... 4
2.05 Costs...................................................... 4
2.06 Registration Rights........................................ 5
2.07 Right of First Refusal..................................... 5
ARTICLE 3 CONDITIONS................................................. 5
3.01 Secretary's Certificates................................... 5
3.02 Good Standing.............................................. 5
3.03 No Default................................................. 6
3.04 Regulatory Requirements.................................... 6
3.05 Representations and Warranties............................. 6
3.06 Payment of Fees and Disbursements.......................... 6
3.07 Opinions of Counsel........................................ 6
3.08 NASDAQ Requirements........................................ 7
ARTICLE 4 REPRESENTATIONS AND WARRANTIES............................. 7
4.01 By The Company............................................. 7
4.02 By Coastal................................................. 9
ARTICLE 5 AFFIRMATIVE COVENANTS...................................... 10
5.01 Financial Statements and Reports........................... 10
5.02 Legal Existence............................................ 10
5.03 Use of Proceeds............................................ 10
5.04 Insurance.................................................. 11
5.05 Maintenance of Property.................................... 11
5.06 Inspection of Property; Books and Records; Discussions..... 11
5.07 Patents, Licenses, Etc..................................... 11
5.08 Further Assurances......................................... 11
5.09 Reimbursement of Expenses.................................. 11
5.10 Notice of Certain Events................................... 11
5.11 Hart-Scott-Rodino.......................................... 12
ARTICLE 6 NEGATIVE COVENANTS......................................... 12
6.01 Payment of Dividends....................................... 12
6.02 Liens and Pledges of Assets and Stock...................... 12
6.03 Patents, Licenses, Etc..................................... 12
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6.04 Consolidation or Merger.................................... 12
6.05 Sale of Assets............................................. 12
6.06 Liquidation................................................ 12
6.07 Restrictive Agreements Prohibited.......................... 13
6.08 Bye-Laws................................................... 13
ARTICLE 7 EVENTS OF DEFAULT.......................................... 13
7.01 Events..................................................... 13
ARTICLE 8 SPECIAL INDEMNITY.......................................... 14
8.01 Expenses................................................... 14
8.02 Indemnity.................................................. 14
ARTICLE 9 MISCELLANEOUS.............................................. 14
9.01 Notices.................................................... 14
9.02 Benefit of Agreement....................................... 15
9.03 Survival of Agreements..................................... 15
9.04 Invalidity................................................. 15
9.05 Amendment or Waiver........................................ 15
9.06 No Waiver; Remedies Cumulative............................. 15
9.07 Headings................................................... 15
9.08 Counterparts............................................... 15
9.09 Governing Law.............................................. 16
9.10 Entire Agreement........................................... 16
EXHIBIT A AMENDED AND RESTATED NOTE
EXHIBIT B REGISTRATION RIGHTS AGREEMENT
EXHIBIT C OPINION OF COUNSEL
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