<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------
FORM 10 - Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO _______________
COMMISSION FILE NUMBER 0-11630
INTELECT COMMUNICATIONS SYSTEMS LIMITED
(Exact Name of Company as Specified in Its Charter)
BERMUDA N/A
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS
75081
(Address of Principal Executive Offices, Zip Code)
972-367-2100
(Company's Telephone Number, Including Area Code)
-----------------------------------
Indicate by check mark whether the Company: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 21,899,760 shares of Common Stock, par value $.01 per share,
outstanding on August 4, 1997.
<PAGE> 2
INTELECT COMMUNICATIONS SYSTEMS LIMITED
INDEX
<TABLE>
<CAPTION>
Page
Part I Financial Information
<S> <C> <C>
Item 1 Financial Statements
Consolidated Balance Sheets of the Company 2
at June 30, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Operations of the Company 3
(unaudited) for three months and six months ended June 30, 1997 and
1996
Consolidated Statements of Cash Flows of the Company 4
(unaudited) for the six months ended June 30, 1997 and 1996
Notes to the Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II Other Information
ITEM 2 Changes in Securities 14
ITEM 5 Other Information 14
ITEM 6 Exhibits and Reports on Form 8-K 15
Signatures
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTELECT COMMUNICATIONS SYSTEMS LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Assets June 30, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,009 4,863
Marketable securities 916 854
Accounts receivable, net 8,557 2,427
Inventories, net 3,598 2,978
Prepaid expenses 641 472
--------
Total current assets 16,721 11,594
Property and equipment, net 5,579 4,285
Goodwill, net 13,911 14,573
Software development costs, net 2,294 1,389
Deferred financing costs, net 1,416 582
Other intangible assets, net 3,688 2,879
Other assets 648 716
-------- --------
$ 44,257 36,018
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 7,735 -
Current maturities of long-term debt 6,411 4,125
Current installments of obligations under capital leases 49 57
Accounts payable 3,777 1,878
Accrued liabilities 3,496 3,302
Net liabilities of discontinued operations 400 400
Deferred income taxes 48 48
-------- --------
Total current liabilities 21,916 9,810
Convertible debentures - 14,913
Long-term debt, net of current maturities 270 3,238
Long-term obligations under capital leases, net of current installments 25 59
Deferred income taxes 344 267
-------- --------
22,555 28,287
-------- --------
Shareholders' equity:
$2.0145, 10% cumulative convertible preferred stock, series A, $.01 par value
(aggregate involuntary liquidation preference $20,145,000). Authorized
10,000,000 shares; 4,219,409 shares issued and outstanding in 1997 42 -
Common shares, $.01 par value, Authorized 80,000,000 shares; 21,149,760
and 15,027,728 shares issued and outstanding in 1997 and 1996 212 150
Additional paid-in capital 63,786 36,849
Unrealized gain on marketable securities 1 18
Accumulated deficit (42,339) (29,286)
-------- --------
Total shareholders' equity 21,702 7,731
-------- --------
$ 44,257 36,018
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
INTELECT COMMUNICATIONS SYSTEMS LIMITED AND SUBSIDIARIES
Consolidated Statements of Operations
(Thousands of Dollars, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ---------------------------------
1997 1996 1997 1996
------------------ ----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues:
Products $ 6,438 213 8,643 1,398
Services 2,205 901 4,026 2,712
Contracts 364 802 875 1,178
-------- -------- -------- --------
9,007 1,916 13,544 5,288
Cost of revenues:
Products 4,080 131 6,141 1,350
Services 1,634 891 2,927 1,987
Contracts 328 1,539 744 2,439
-------- -------- -------- --------
6,042 2,561 9,812 5,776
-------- -------- -------- --------
Gross profit (loss) 2,965 (645) 3,732 (488)
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative 4,427 3,659 8,692 6,016
Engineering and development 2,522 1,816 4,992 1,993
Amortization of goodwill 327 471 661 739
-------- -------- -------- --------
7,276 5,946 14,345 8,748
-------- -------- -------- --------
Operating loss (4,311) (6,591) (10,613) (9,236)
-------- -------- -------- --------
Other income (expense):
Interest expense (958) (110) (1,903) (167)
Other financing costs (282) - (282) -
Interest and other income (27) 128 (64) 291
-------- -------- -------- --------
(1,267) 18 (2,249) 124
-------- -------- -------- --------
Loss from continuing operations before
income taxes (5,578) (6,573) (12,862) (9,112)
Income taxes (39) 1,708 (77) 2,261
-------- -------- -------- --------
Loss from continuing operations (5,617) (4,865) (12,939) (6,851)
Loss on disposal of discontinued operations (20) - (113) (9)
-------- -------- -------- --------
Net loss $ (5,637) (4,865) (13,052) (6,860)
======== ======== ======== ========
Loss per share (primary and fully diluted):
Continuing operations $ (0.28) (0.36) (0.71) (0.52)
Discontinued operations - - (0.01) -
-------- -------- -------- --------
Net loss $ (0.28) (0.36) (0.72) (0.52)
======== ======== ======== ========
Weighted average number of shares and common
stock equivalents outstanding (in thousands) 19,810 13,317 18,210 13,162
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
INTELECT COMMUNICATIONS SYSTEMS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(13,052) (6,860)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization of intangible assets 1,498 1,079
Deferred income taxes 77 (2,261)
Noncash compensation - 500
Stock option compensation 121 239
Amortization of deferred financing costs 1,427 61
Other noncash financing costs 282 -
Other (8) (45)
Change in operating assets and liabilities, net of effects of acquired
companies:
Accounts receivable (6,230) (595)
Inventories (620) 85
Other assets (177) (95)
Accounts payable and accrued liabilities 2,407 61
Net liabilities of discontinued operations - (75)
-------- --------
Net cash used in operating activities (14,275) (7,906)
-------- --------
Cash flows from investing activities:
Purchase of other intangible assets (83) -
Capital expenditures (1,925) (2,059)
Proceeds on sale of fixed assets - 57
Purchase of marketable securities (78) (55)
Payments for other assets - (1,276)
Software development costs (1,021) (1,764)
Payment for acquisition of DNA, net of cash acquired - (3,010)
Loan receivable - 600
Payment for acquisition of IVC, net of cash acquired - (2,004)
-------- --------
Net cash used in investing activities (3,107) (9,511)
-------- --------
(Continued)
</TABLE>
4
<PAGE> 6
INTELECT COMMUNICATIONS SYSTEMS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Debt issuance costs $ (309) (294)
Proceeds from issuance of notes payable 11,200 -
Proceeds from issuance of convertible debentures - 5,000
Payments of principal on capital lease obligations (29) (59)
Payments of long-term debt (682) (119)
Payments on notes payable - (880)
Proceeds from issuance of common shares - 1,813
Proceeds from issuance of preferred shares 5,000 -
Exercise of employee stock options 348 -
-------- --------
Net cash provided by financing activities 15,528 5,461
-------- --------
Net decrease in cash and cash equivalents (1,854) (11,956)
Cash and cash equivalents, beginning of period 4,863 15,039
-------- --------
Cash and cash equivalents, end of period $ 3,009 $ 3,083
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
INTELECT COMMUNICATIONS SYSTEMS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by the Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying consolidated financial statements do not include
certain footnotes and financial presentations normally required under generally
accepted accounting principles and, therefore, should be read in conjunction
with the audited consolidated financial statements included in the Company's
Annual Report on Form 10-K as at December 31, 1996.
INVENTORIES
The components of inventories are as follows (thousands of US Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------------- ------------------------
<S> <C> <C>
Raw materials $ 3,747 2,727
Work in progress 609 292
Finished goods 392 1,213
-------------------- ------------------------
4,748 4,232
Less: allowance for obsolescence 1,150 1,254
-------------------- ------------------------
$ 3,598 2,978
==================== ========================
</TABLE>
FINANCING MATTERS
On May 8, 1997, the Company executed a Loan Agreement (the "Loan")
with The Coastal Corporation Second Pension Trust (the "Coastal Trust")
pursuant to which the Company borrowed $5,000,000, and the Coastal Trust agreed
to purchase $5,000,000 of convertible preferred stock by May 30, 1997. The Loan
bears interest at 2% over prime, matures on March 27, 1998, and is secured by
all outstanding shares of the Company's operating subsidiaries. The Loan is
redeemable into convertible preferred stock at any time, at either party's
request, until August 1, 1997. On May 30, the Coastal Trust redeemed $3,465,480
of the Loan, plus accrued interest of $34,520, for an additional 1,737,404
shares of Preferred Stock. The deadline for redemption of the remainder of the
Loan has been extended to August 14, 1997, and may be extended further. In
conjunction with the Loan, the Company issued warrants to purchase 750,000
common shares at $2.00 (which price was derived from the trailing five day
average closing bid, which was $1.975), exercisable at any time until May 7,
2002. On August 1, 1997, the Coastal Trust exercised its warrant and purchased
750,000 shares at $2.00 per share. The fair value of the warrants and options
at date of issuance, totaling $1,662,000, was credited to additional paid-in
capital. In connection with the unredeemed loan, $510,000 is being charged to
interest expense using the effective interest method over the loan period. Of
the remaining $1,152,000, $89,000 was charged to interest expense and
$1,063,000 was debited to additional paid-in capital at the date of loan
redemption.
6
<PAGE> 8
In connection with the Coastal Trust financing on May 30, 1997, the
Company authorized 10,000,000 shares of $2.0145, 10% Cumulative Convertible
Preferred Stock, Series A, (the "Preferred Stock") and issued 4,219,409 shares.
Dividends are payable quarterly beginning September 30, 1997, in cash or common
stock, at the Company's option. At June 30, 1997, $76,000 of cumulative
preferred dividends were accrued, the per share amount of which was not
material. The Preferred Stock may be redeemed, at the Company's option, at
110%, 105% and 100% of face value after June 1, 1999, 2000, and 2001,
respectively, and, after August 31, 1997, is convertible into Common Stock on
a share-for-share basis, subject to anti-dilution provisions. On May 30, 1997,
the Coastal Trust acquired 2,482,005 shares of Preferred Stock for $5,000,000,
and redeemed $3,465,480 of the Loan, plus accrued interest of $34,520, for an
additional 1,737,404 shares of Preferred Stock.
In February 1997, the Company signed a letter of intent with a private
lender to provide a credit facility (the "Credit Facility") of up to
$15,000,000. Simultaneous with the Coastal Loan, the unused Credit Facility was
terminated and the common collateral was shared in pari passu. The Company has
borrowed a total of $6,000,000 under the Credit Facility which is due March 27,
1998, including principal and interest at the rate of 2% over prime. The prime
rate at June 30, 1997 was 8.5%. Warrants issued under terms of the Credit
Facility, to purchase 750,000 Common Shares, were reissued at a $2.00 exercise
price, and additional warrants were issued to purchase 50,000 Common Shares at
$2.00, exercisable at any time until May 8, 2002, in exchange for termination
of the Credit Facility. The exercise price was derived from the trailing five
day average closing bid, which was $1.975. The fair value of the reissued
warrants at May 8, 1997, totaling $960,000, is being charged to interest
expense using the effective interest method over the remaining loan period. The
difference between the fair value of the reissued warrants and the unamortized
fair value of the original warrants at date of reissue was $232,000 and was
charged to interest expense and the fair value of the additional 50,000
warrants, totaling $65,000, was credited to additional paid-in capital and
charged to other financing costs in the three months ended June 30, 1997.
Effective on April 25, 1997, the Company issued 542,182 Common Shares
along with $60,000 in settlement of all future royalties under a technology
purchase agreement. The royalty agreement had been initially executed in
conjunction with certain technology purchased by the Company. The closing bid
price of the Company's Common Stock was $1.5625 on April 25, 1997. The fair
value of the consideration, totaling $907,000, is recorded as other intangible
assets and is being amortized to operations over a five year period on a
straight line basis.
Effective on May 1, 1997, in conjunction with a financial advisory
services agreement, the Company issued warrants to purchase 300,000 Common
Shares, 100,000 shares each at prices of $3.00, $5.00 and $7.00, exercisable at
any time after December 31, 1997 until December 31, 2002. The closing bid price
of the Company's Common Stock was $1.5625 on April 30, 1997. The fair value of
the warrants at date of issuance, totaling $217,000, was credited to additional
paid-in capital and charged to other financing costs in the three months ended
June 30, 1997.
On June 19, 1997, in conjunction with a distributor agreement, the
Company agreed to issue warrants to purchase up to 270,000 Common Shares at
$3.6312 per share in increments of 6,750 shares for each $1,000,000 of sales
attributable to the distributor on or before June 19, 2001, exercisable at any
time after issuance until June 19, 2004. The closing bid price of the Company's
Common Stock was $3.50 on June 18, 1997. The fair value of these contingent
warrants at date of issuance is charged to operations in the period of issue.
At June 30, 1997, 6,750 warrants with a fair value of $19,000 had been issued.
An additional 6,750 warrants were issued on July 25, 1997.
7
<PAGE> 9
RECENT PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings per Share," which supersedes APB Opinion No. 15, "Earnings per Share,"
was issued in February 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share ("EPS") for complex capital structures on the face
of the statement of operations. Basic EPS is computed by dividing income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options. SFAS 128 is
required to be adopted for financial statements issued for periods ending after
December 15, 1997, including interim periods. Earlier application is not
permitted. After adoption, all prior period data presented will be restated to
conform with SFAS 128. The Company does not expect that basic and diluted EPS
measured under SFAS 128 will be materially different from the current
presentation of primary and fully-diluted loss per common share measured under
APB Opinion No. 15. The Company will present both EPS measures on the face of
the statement of operations.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure," was issued in February 1997. The
Company does not expect the statement to result in any substantive change in
its disclosure.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 131
"Disclosures About Segments of an Enterprise and Related Information" were
issued in June 1997. The impact these pronouncements may have on the Company's
disclosures is being evaluated.
8
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1997
NET REVENUES
Net revenue for the three months and six months ended June 30, 1997
increased 370% and 156%, respectively, over the prior year periods. The product
sales increase was due to the emergence of the SONETLYNX product line, of which
$6,128,000 and $8,152,000, respectively, were sold, compared to none in the
prior year. Service revenue increased by 145% and 48%, respectively, due to the
growth of the technology and engineering services business of DNA Enterprises
acquired on February 13, 1996.
GROSS PROFIT (LOSS)
Gross profit was attributable to revenue sources as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- -------- -------- -------
(Thousands of US Dollars)
<S> <C> <C> <C> <C>
Products $ 2,358 82 2,502 48
Services 571 10 1,099 725
Contracts 36 (737) 131 (1,261)
--------- ------- ------- -------
$ 2,965 (645) 3,732 (488)
========= ======= ======= =======
</TABLE>
Gross profit increased over the prior year by $3,610,000 and
$4,220,000 in the three months and six month periods, respectively. Gross
profit attributable to products improved due to the substantial increase in
contribution of SONETLYNX products in both time periods. Services margins
improved because the engineering services business of DNA was the primary
constituent of the business category in 1997, and DNA activity expanded from
year to year. Contracts margins recovered from prior year losses due to the
completion in 1996 of a loss contract (Iceland air traffic control) included
among operations acquired in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling expenses increased to $2,768,000 from $1,479,000 in the three
months and to $5,012,000 from $2,211,000 in the six months ended June 30, 1997.
Selling expenses in the three months included $1,457,000 to promote and secure
orders for SONETLYNX products, and $615,000 to advance recognition and secure
beta sites for the Company's videoconferencing product.
General and Administrative expenses decreased to $1,659,000 from
$2,180,000 in the three months and to $3,680,000 from $3,805,000 in the six
months ended June 30, 1997. Included in the three month period were $541,000 of
corporate expenses, down from $890,000 in the first quarter, including
extraordinary transition costs of moving the corporate office from Bermuda. The
Company's principal manufacturing operations bore $455,000 of expense in the
three months, $371,000 supported the engineering services business, and
$260,000 was spent in connection with the videoconferencing business.
9
<PAGE> 11
ENGINEERING AND DEVELOPMENT EXPENSE (E&D)
Engineering and Development Expenses increased to $2,522,000 and
$4,992,000 in the three month and six month periods from $1,816,000 and
$1,993,000 in the prior year periods. Combining $532,000 of capitalized
software development costs with E&D expense, total spending for product
development increased 57% to $3,054,000 compared to $1,949,000 in the three
months ended June 30, 1996. Of these amounts, SONETLYNX increased to
$1,496,000 from $711,000, CS4 spending increased to $997,000 from $804,000,
videoconferencing product development costs decreased to $200,000 from
$383,000, and DSP and S4 development spending increased to $361,000 from
$101,000. For the six month periods, combined capitalized software and E&D
expense increased 60%.
During the second quarter, the SONETLYNX product line was enhanced by
the addition of path switching for the OC-1 controller, T1 and E1. The OC-3
controller became generally available together with its T1 and E1 interfaces.
Further progress was made on interoperability with major vendor equipment,
including OC-12. CS4 development work advanced the state of service creation by
establishing a new environment in which services can be created, tested and
deployed to significantly improve the time-to-market introduction of new
features in highly competitive markets. The LANscape videoconferencing product
was redesigned to decrease use of bandwidth and reduce cost. The DSP product
line was enhanced by the introduction of a new addition to the VME product line
that features four TMS320C80 digital signal processors and 10 billion
operations per second. Development of the S4 switch's universal console was
substantially completed.
INTEREST EXPENSE AND OTHER FINANCING COSTS
Interest expense in the three month and six month periods of 1997
includes $163,000 and $383,000 of cash interest on the convertible debentures,
the St. James Credit Facility and the Coastal Trust financing. Interest expense
in the prior year was attributable to short-term indebtedness which has been
repaid. Non-cash expenses in 1997 consisted of $582,000 allocated to beneficial
conversion features of the convertible debentures issued in 1996; $795,000 and
$938,000 in the three months and six months, respectively, of amortized
deferred financing costs in connection with the St. James Credit Facility and
the Coastal Trust financing executed in 1997; and $282,000 in other financing
costs in 1997. See Notes to Consolidated Financial Statements.
BACKLOG
The Company's backlog of orders increased to $8,370,000 at June 30,
1997 from $3,632,000 at December 31, 1996. Substantially all the March 31, 1997
backlog was scheduled for delivery by September 30, 1997. Of this amount,
$6,925,000 was for SONETLYNX product and $846,000 was for engineering services.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1997, cash used in operations
($14,275,000) and by investing activities ($3,107,000) was funded by $1,854,000
of available cash balances and by securing new financing, net of repayment, of
$15,528,000. Working capital is negative due to (i) borrowing under the St.
James Credit Facility and the Coastal Trust financing net of redemptions, and
(ii) progression of certain long term debt items to current status.
10
<PAGE> 12
Operating Activities
Net cash used in operations was $14,275,000 in the six months ended
June 30, 1997, consisting primarily of: (i) product development expenses of
$4,992,000, the majority of which did not contribute to current period sales,
(ii) sales and marketing expenses of $5,012,000 primarily of a market
development nature and (iii) an operating cost structure which could support a
higher level of sales as indicated by approximately $760,000 of under-applied
overhead, all of which resulted in an operating loss. In addition, $6,230,000
was used to increase amounts receivable, partly offset by a $2,407,000 increase
in accounts payable.
The Company maintained these levels of expenditure because (i) the
product developments were directed at markets believed to have very large
growth potential, and (ii) near-term sales and production growth opportunities
appeared to justify investment to stimulate the sales and prepare for
production. The revenue increases in the six months met the Company's
expectations, and backlog is at a level consistent with near-term growth plans.
The increase in receivables was caused by new product development delays which
resulted in shipments timed near the end of the period.
Investing Activities
Investment spending included fixed asset expenditures of $1,925,000,
of which $402,000 was for software and equipment to support CS4 development,
$388,000 was for equipment to support engineering and operations growth for
SONETLYNX products, and $108,000 was for equipment and software to support
growth of the engineering services business. Software development costs for
SONETLYNX were capitalized in the amount of $1,021,000.
Financing Activities
During the second quarter, the unused $1,167,000 balance of the St.
James Capital Corp. credit facility was used and an additional $1,000,000 was
added to the facility and used. (On June 30, 1997, the total balance due St.
James was $6,000,000.) Also during the quarter, the Coastal Corporation Second
Pension Trust ("Coastal Trust') loaned the Company $5,000,000 and purchased
$5,000,000 of the Company's Preferred Stock. (At the time of the purchase of
Preferred Stock, the Coastal Trust also converted $3,500,000 of the loan and
accrued interest to Preferred Stock.) On August 1, 1997, the Coastal Trust
exercised a warrant to purchase 750,000 shares of Common Stock for $2.00 per
share, resulting in proceeds to the Company of $1,500,000. See Notes to
Consolidated Financial Statements.
Outlook and Financial Strategy
The Company's outlook continues to anticipate expanding working
capital requirements and ongoing expenditures for new product and technology
development, marketing and sales programs. Internal cash generation from
operations is not expected to be sufficient to meet all such requirements until
during the 1998 timeframe. The Company's financial strategy is to continue to
utilize external sources of financing to provide funding for net capital
requirements.
External financing totaled $16,200,000 during the six months ending
June 30, 1997, and was utilized primarily for expenditures and investments
described above. Additional external funding of $1,500,000 was received on
August 1, 1997, from the exercise of warrants.
11
<PAGE> 13
At June 30, 1997, operating sources of liquidity included unrestricted
cash balances of $3,009,000 and accounts receivable of $8,557,000. The Company
presently believes the receivables level is higher than required by the amount
of sales in the three month period ended June 30, 1997. The high level was
caused by the timing of sales in May and June. The increase in shipments,
primarily of the SONETLYNX product, during the latter weeks of the second
quarter and the concurrent increase in inventory purchase requirements for
orders to be produced and shipped during the third quarter are tending to peak
working capital requirements by about $3,000,000 above earlier anticipated
levels during the third quarter period. Further expansion of new order activity
may continue this condition through the end of 1997, although the timing of
collections on accounts receivable from late second quarter shipments may
mitigate net cash requirements during the third quarter and into the fourth
quarter.
The Company's assumption regarding conversion of all Convertible
Debentures before maturity has proven correct. In the second quarter, all the
remaining debentures were converted, or an agreement had been reached regarding
their conversion, so that refinancing of the debt will not be necessary. See
Part II, Item 5, Other Matters.
Progress continues in discussions with major telecommunications
companies regarding the possibility of forming an alliance to finish
development and to market the CS4 product. Any funding from such sources would
likely be accompanied by an upward revision in planned expenses so that market
entry could be accelerated. Funding by the proposed partnering process would be
in addition to traditional financing discussed above.
Conclusion
Considering the financing resources available and potentially
available, the outlook for cash available from customer collections, the
outlook for cash uses in operations and investing, and the options available to
reduce spending, the Company believes it has the financial resources to meet
its business requirements through the current year. There can be no assurance,
however, that the proposed financings or the business results assumed in the
Company's financial plans will be realized.
CONTINGENT LIABILITIES
As discussed in ITEM 3, Legal Proceedings, in the Company's Annual
Report on Form 10-K, the Company is exposed to certain contingent liabilities
which, if resolved adversely to the Company, would adversely affect its
liquidity, its results of operations and/or its financial position.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE LIQUIDITY AND OPERATING RESULTS
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934 as amended. Actual events and
results could differ materially from those set forth in the forward-looking
statements. In particular, the recent growth in production and sales may not be
sustained if materials (including those supplied from sole sources) are not
available, the sales force does not identify new customers, the Company's
credit condition inhibits major customers, or new SONETLYNX and
videoconferencing product developments are delayed. The financial plan includes
commitments to significant amounts of spending for product development, sales
and marketing activity, and manufacturing capacity predicated on a high rate of
sales growth each quarter. If the rate of sales growth is not sustained,
certain of the expenses will not be sufficiently controllable in the short term
to avoid a negative cash flow impact. There can be no assurance that the
12
<PAGE> 14
currently high level of credit quality among the Company's customers can be
sustained or that integration of new products will proceed without
extraordinary delays. Accordingly, customer collections may not achieve the
assumptions of the plan. In order to meet increasing levels of demand for
manufactured products, the Company must make estimates of future orders with
enough precision to insure the availability of certain components with long
lead times. Any inaccuracy in such estimates could affect the expected
operating results. In general, there can be no assurance that component parts
will be available in sufficient quantity and on suitable credit terms to
support the planned growth in production rates. Adequacy of the financial plan
is partly dependent on the Company's ability to renegotiate payment obligations
to former owners of DNA and to renegotiate a technology license with a major
computer company. There can be no assurance that either of these assumed
negotiations will be accomplished with the cash flow consequences assumed in
the plan. External business conditions may also contribute risk to achieving
the plan, especially the rate at which telecommunications companies adopt
certain new products and the demand for engineering design services which are
contingent on the development budgets of others. Funding plans include
uncertainties, namely, trade credit may not become available to the extent
required to support production increases, alternative external sources of
financing may not be secured in a timely manner or on terms acceptable to the
Company or at all, availability of external sources may be affected by general
market price volatility, and/or partner funding of CS4 development may not be
secured soon enough to avoid development delays or to provide expense relief.
The Company's ability to raise funds from external sources may be restricted by
adverse resolution of legal proceedings discussed in Contingent Liabilities.
13
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES
(c) Recent sales of unregistered securities
Effective on April 25, 1997, the Company issued 542,182 Common Shares,
together with a payment of $60,000, to the beneficiary of a royalty agreement in
exchange for the cancellation of all his rights to current and future royalty
payments due under an Irrevocable Option Agreement dated as of October 1, 1995,
pursuant to which Intelect Network Technologies Company ("Intelect"), a wholly
owned subsidiary of the Company, purchased all of his rights in and to the
SONETLYNX technology. Under the Irrevocable Option Agreement, Intelect was
required to pay royalties, until October 2005, of 5% on the first $200,000,000
of aggregate sales of products using the SONETLYNX technology, 4% on aggregate
sales of $200,000,001 to $500,000,000, and 3% on aggregate sales over
$500,000,000. The issuance of the 542,182 shares to the beneficiary is in
complete cancellation of his royalty interests attributable to SONETLYNX
technology. In issuing such shares, the Company relied on an exemption from
registration specified under Section 4(2) of the Securities Act of 1933.
Effective on May 1, 1997, the Company, as consideration for an
Advisory Services Agreement with Renaissance Financial Securities Corporation
("Renaissance"), issued to AJC, Inc., an assignee of Renaissance, warrants to
purchase an aggregate of 300,000 Common Shares, exercisable over a five year
period commencing December 31, 1997, at exercise prices of $3.00, $5.00 and
$7.00 per share for respective increments of 100,000 warrants each. The Company
issued such warrants in reliance on an exemption from registration specified
under Section 4(2) of the Securities Act of 1933.
On June 19, 1997, the Company issued to Amerix Electronics, Inc.
("Amerix"), the Company's sales representative for Korea, warrants to purchase
Common Shares in increments of 6,750 Common Shares for every $1,000,000 in
sales of the Company's products purchased from the Company and paid for by
Amerix on or before June 19, 2001, up to an aggregate of 270,000 Common Shares,
at an exercise price of $3.6312 per share. In determining the amount of
products purchased by Amerix, the Company has included all orders for the
Company's products since January 10, 1997. All rights of Amerix to qualify for
and exercise such warrants expire on June 19, 2004. The Company issued such
warrants in reliance on an exemption from registration specified under Section
4(2) of the Securities Act of 1933.
Information regarding the issuance to The Coastal Corporation Second
Pension Trust (the "Coastal Trust") of 2,482,005 shares of the Company's Series
A Preferred Stock, $.01 par value, and the issuance to the Coastal Trust of
warrants to purchase 750,000 Common Shares at $2.00 per share, is disclosed in
Part I in Notes to Consolidated Financial Statements, and such information is
incorporated herein by reference. In issuing such shares and warrants, the
Company relief on an exemption from registration specified under Section 4(2)
of the Securities Act of 1933.
ITEM 5 - OTHER INFORMATION
The Company has entered into a preliminary settlement agreement ("Term
Sheet") with Infinity Investors Ltd. and Seacrest Capital Limited in settlement
of disputes arising under those certain Series A and Series B Convertible
Debentures issued by the Company to Infinity and Seacrest (collectively the
"Infinity Group") dated October 15, 1996 (the "October Debentures"). In May
1997, the Company disputed the validity of certain notices of conversion
relating to the October Debentures submitted by the Infinity Group. The Company
and the Infinity Group then commenced negotiations relating to, among other
things, the
14
<PAGE> 16
conversion ratios applicable to the remaining October Debentures,
and the negotiations have resulted in the Term Sheet. Pursuant to the Term
Sheet, the disputed principal balance of $4,114,000 of the October Debentures
will be converted into an aggregate of 1,583,139 Common Shares of the Company.
The closing of the settlement with the Infinity Group is expressly conditioned
upon satisfactory evidence that Nasdaq has approved of, and will raise no
objection to, the issuance of the Common Shares so described in the Term Sheet.
On July 7, 1997, the Company signed an agreement with former
shareholders of DNA Enterprises, Inc. who had initiated a lawsuit against the
Company on May 21, 1997 in state district court in Dallas, Texas to collect
sums due under an agreement by which the Company had formerly acquired DNA
Enterprises, Inc. The Company is obligated under the terms of the settlement to
issue two promissory notes with an aggregate principal amount of $1,400,000,
with payment to be completed before June 1, 1998. The settlement also provided
for the dismissal of the parties' lawsuit against the Company and the Company's
reimbursement of a fixed sum representing the parties' legal expenses and court
costs connected with the enforcement of the agreement.
ITEM 6 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The Financial Statements and Financial Statement Schedules filed
as part of this report are listed and indexed on Page 1. Schedules other than
those listed in the index have been omitted because they are not applicable or
the required information has been included elsewhere in this report.
(b) Listed below are all Exhibits filed as part of this report.
Certain Exhibits are incorporated by reference to documents previously filed by
the Company with the Securities and Exchange Commission pursuant to Rule 12b-32
under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.43 July 8, 1997 Advisory Services Agreement with Renaissance Financial Securities
Corporation
10.44 Warrant issued to AJC, Inc. to Purchase Common Stock of the Company expiring on
December 31, 2002
10.45 Warrant issued to Amerix Electronics, Inc. to Purchase Common Stock of the Company
expiring on June 19, 2004
10.46 Loan Agreement dated as of May 8, 1997 between the Company and The Coastal
Corporation Second Pension Trust
10.47 Warrant issued to The Coastal Corporation Second Pension Trust to Purchase Common
Stock of the Company expiring on May 7, 2002
10.48 Registration Rights Agreement dated as of May 8, 1997 between the Company and The
Coastal Corporation Second Pension Trust
10.49 Subscription Agreement for Series A Cumulative Preferred Stock dated as of May 30, 1997
between the Company and The Coastal Corporation Second Pension Trust
10.50 Registration Rights Agreement dated as of May 30, 1997 between the Company and The
Coastal Corporation Second Pension Trust
10.51 Agreement dated April 25, 1997 between the Company and the beneficiary of a royalty
agreement
10.52 Irrevocable Option Agreement dated October 1, 1995 between the Company and owners of
certain intellectual property rights*
10.53 Agreement dated July 7, 1997 among Robert E. Nimon, Kim F. Nimon, Nimon Consulting,
Inc., Intelect Systems Corp. and the Company
</TABLE>
15
<PAGE> 17
<TABLE>
<Caption
Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.54 Promissory note dated July 7, 1997 to Robert E. Nimon and Kim F. Nimon from the
Company
10.55 Promissory note dated July 7, 1997 to Robert E. Nimon and Kim F. Nimon from the
Company
10.56 Term Sheet dated June 30, 1997, between the Company and Infinity Investors Ltd. and
Seacrest Capital Limited
11.0 Statement regarding computation of per share earnings
17.1 Letter of Resignation of Jeremy Posner as Director dated March 13, 1997(1)
27 Financial Data Schedule
</TABLE>
*Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Form 8-K filed May 6, 1997
(c) Reports on Form 8-K: The Company filed on May 6, 1997 a report on
Form 8-K, reporting the resignation of Jeremy Posner as a Director of the
Company.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
(Company)
Date: August 14, 1997 By: /s/ EDWIN J. DUCAYET, JR.
-----------------------------
Edwin J. Ducayet, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: August 14, 1997 /s/ HERMAN M. FRIETSCH
-----------------------------
Herman M. Frietsch
Chief Executive Officer and Director
(Principal Executive Officer)
17
<PAGE> 19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
10.43 July 8, 1997 Advisory Services Agreement with Renaissance Financial Securities
Corporation
10.44 Warrant issued to AJC, Inc. to Purchase Common Stock of the Company expiring on
December 31, 2002
10.45 Warrant issued to Amerix Electronics, Inc. to Purchase Common Stock of the Company
expiring on June 19, 2004
10.46 Loan Agreement dated as of May 8, 1997 between the Company and The Coastal
Corporation Second Pension Trust
10.47 Warrant issued to The Coastal Corporation Second Pension Trust to Purchase Common
Stock of the Company expiring on May 7, 2002
10.48 Registration Rights Agreement dated as of May 8, 1997 between the Company and The
Coastal Corporation Second Pension Trust
10.49 Subscription Agreement for Series A Cumulative Preferred Stock dated as of May 30, 1997
between the Company and The Coastal Corporation Second Pension Trust
10.50 Registration Rights Agreement dated as of May 30, 1997 between the Company and The
Coastal Corporation Second Pension Trust
10.51 Agreement dated April 25, 1997 between the Company and the beneficiary of a royalty
agreement
10.52 Irrevocable Option Agreement dated October 1, 1995 between the Company and owners of
certain intellectual property rights*
10.53 Agreement dated July 7, 1997 among Robert E. Nimon, Kim F. Nimon, Nimon Consulting,
Inc., Intelect Systems Corp. and the Company
10.54 Promissory note dated July 7, 1997 to Robert E. Nimon and Kim F. Nimon from the
Company
10.55 Promissory note dated July 7, 1997 to Robert E. Nimon and Kim F. Nimon from the
Company
10.56 Term Sheet dated June 30, 1997, between the Company and Infinity Investors Ltd. and
Seacrest Capital Limited
11.0 Statement regarding computation of per share earnings
17.1 Letter of Resignation of Jeremy Posner as Director dated March 13, 1997(1)
27 Financial Data Schedule
*Management contract or other compensatory plan or arrangement.
(1) Incorporated herein by reference to the Form 8-K filed May 6, 1997
</TABLE>
18
<PAGE> 1
EXHIBIT 10.43
ADVISORY SERVICES AGREEMENT
Advisory Services Agreement, effective May 1, 1997, entered into by
and between Intelect Communications Systems Limited (the "Company"), with
offices located at 1100 Executive Drive, Richardson, Texas 75081, and
Renaissance Financial Securities Corp., a New York corporation (the
"Consultant"), with offices located at 200 Old Country Road, Suite 400,
Mineola, New York 11501.
RECITALS
WHEREAS, the Consultant is in the business of providing advisory
services regarding financial markets, investment community relations and
corporate financing activities; and
WHEREAS, the Company wishes to retain Consultant to provide such
services;
NOW THEREFORE, in consideration of the premises and the mutual
covenants of this Agreement hereinafter set forth, the parties hereto covenant
and agree as follows:
1. Purposes. The Company hereby retains the Consultant to act in
an advisory capacity to the Company on the terms and conditions set forth
herein. The parties agree that the Consultant shall be engaged by the Company
as an independent contractor on a consulting basis and not as an employee of
the Company.
2. Term. The Consultant hereby agrees to provide services to the
Company commencing on the date hereto and ending on or about August 31, 1998
unless terminated earlier pursuant to Section 9 hereof. This Agreement can be
extended with the consent of both parties.
3. Duties of Consultant. During the term of this Agreement,
Consultant shall provide the Company with such regular and customary advisory
services as may be reasonably requested by the Company, provided that the
Consultant shall not be required to undertake duties not reasonably within the
scope of the services contemplated by this Agreement. It is understood and
acknowledged by the parties that the value of Consultant's advice is not
readily quantifiable, and that Consultant shall be obligated to render advice
upon the request of the Company, in good faith, but shall not be obligated to
spend a pre-designated amount of time in so doing and the Company shall not be
obligated to request or utilize such advice. Consultant's duties will include,
but will not necessarily be limited to, providing recommendations concerning
one or more of the following matters:
A. Assisting in the Company's investor relations;
<PAGE> 2
B. Assisting in the Company's financial public relations;
C. Assisting the Company in distribution of its public
information disclosures;
D. Assisting the Company in communicating with the broker/dealer
and investment banking communities, increasing the awareness
of the Company among institutional investors, business
analysts, money managers, retail stockbrokers, market makers
and security research analysts;
E. Assisting the Company in obtaining financial media coverage,
i.e., Wall Street Journal, NY Times, Business Week, Forbes,
technology publications;
F. Providing or arranging for written research reports with
respect to the Company; and
G. Assisting the Company in the soliciting of proxies for matters
voted upon by the Company's shareholders at General or Special
Meetings of shareholders.
4. Consultant and Company acknowledge that from time to time the
Company may need, and the Consultant may be in a position to provide, certain
transactional services such as locating a successful acquisition or merger
candidate or locating and raising private placement funding. The parties agree
that any such services shall be performed, and the payment for such services
shall be made, on a transaction-by-transaction basis pursuant to the terms of a
separate written agreement to be entered into by the parties. The parties do
agree, however, that in the event the parties do enter into such a separate
written agreement, such written agreement shall provide for compensation of
Consultant in substantially the following manner:
A. If the Consultant exclusively locates and presents the Company
with an acquisition and/or merger candidate that results in
the successful closing of such acquisition and/or merger, then
the Company shall pay the Consultant a finders fee at such
closing. This finders fee shall be paid in shares of the
Company's common stock (as listed on NASDAQ) in an amount
based on the Lehman formula (such shares being referred to
herein as the "Finders Fee Shares"). The value of the
transaction for which a finders fee shall be payable to
Consultant based on the Lehman formula, whether in connection
with a merger, acquisition and/or consolidation shall be the
consideration paid or received by the Company or its
shareholders as the case may be, or if such determination
cannot be readily ascertained then the value shall be that of
the transaction taken in its entirety. In the event of any
dispute as to the value of the transaction or the calculation
of the finders fee, the Consultant and the Company shall have
the right to mutually select a qualified third party to
determine such valuation and/or finders fee, which
determination shall be final and binding. The expenses of
such third party shall be shared equally between the parties.
The
<PAGE> 3
number of shares issuable to Consultant shall then be
determined by dividing the finders fee by the closing bid
price of the shares of the Company's common stock on NASDAQ on
the date of the closing of the merger or acquisition. If, at
any time during the period in which the Consultant owns the
Finder Fee Shares, the Company proposes to file a registration
statement or notification under the Securities Act for the
primary or secondary sale of any debt or equity security, it
will give written notice at least 30 days prior to the filing
of such registration statement or notification to the
Consultant of its intention to do so. The Company agrees
that, after receiving written notice from the Consultant of
its desire to include its Finder Fee Shares in such proposed
registration statement or notification, the Company shall
afford the Consultant the opportunity to have its Finder Fee
Shares included therein. Notwithstanding the provisions of
this paragraph, the Company shall have the right, at any time
after it shall have given written notice pursuant to this
paragraph (whether or not a written request for inclusion of
the Finder Fee Shares shall be made) to elect not to file any
such proposed registration statement or notification or to
withdraw the same after the filing but prior to the effective
date thereof. If the Company does not file a registration
statement within twelve (12) months from the date of issuance
of the Finders Fee Shares then the Consultant shall have the
right on one occasion only to demand that the Company file, at
the Company's expense, a registration for the Consultant's
Finders Fee Shares. In no event shall the Company be
obligated to include the Finder Fee Shares in any registration
statement under this paragraph if: (i) in the written opinion
of the Company's underwriter, the inclusion of the Finder Fee
Shares in such registration statement or notification would be
materially detrimental to the proposed offering of debt or
equity securities pursuant to which the Company gave notice to
the holders under this paragraph; (ii) year end audited
financial statements of a date within one-hundred twenty days
of the filing of the registration statement are not available;
or (iii) in the opinion of counsel for the Company that the
Finder Fee Shares are not considered "restricted securities"
within the meaning of Rule 144 promulgated under the
Securities Act and that registration under the Securities Act
is therefore not required.
If the Consultant is responsible for raising private placement
or debt funds, it will be entitled to a 10% fee in cash or in
common stock, at its election. If the Consultant raises money
with the assistance from another broker/dealer or source then
the Consultant and the Company will negotiate an additional
finders fee above the 10% fee but no greater than an
additional 3% fee.
5. Compensation. In consideration for the advisory services
pursuant to this Agreement by Consultant for the Company, the Company shall pay
to AJC, Inc., as assignee of Consultant, the warrants described in this Section
5. Consultant agrees and acknowledges
3
<PAGE> 4
that because of its affiliation with AJC, Inc., Consultant is receiving a
financial benefit from the warrants being issued to AJC, Inc., and Consultant
acknowledges the receipt and sufficiency of the consideration being paid for
its advisory services hereunder. Accordingly, the Company shall issue warrants
as follows:
A. 100,000 warrants to purchase the common stock of the Company
at $3.00 per share;
B. 100,000 warrants to purchase the of common stock of the
Company at $5.00 per share; and
C. 100,000 warrants to purchase the common stock of the Company
at $7.00 per share.
Such warrants are being issued pursuant to the Warrant Agreement
attached hereto as Exhibit "A" attached hereto and incorporated herein by
reference.
6. Expenses. The Company will promptly reimburse Consultant for
all pre-approved out-of-pocket expenses properly incurred by it in its
performance of this Agreement provided that a written accounting is made to the
Company by the Consultant. Such expenses shall include, but not be limited to,
travel expenses, printing costs and postage for bulk mailings of research
reports.
7. Further Agreements. Because of the nature of the services
being provided by Consultant hereunder, Consultant acknowledges that it may
receive access to Confidential Information (as defined in Section 8 hereof) and
that, as a consultant to the Company, it will attempt to provide advice that
serves the best interests of the Company. Because of the uniqueness of this
relationship, the Consultant covenants and agrees that, with respect to the
shares of common stock of the Company that it acquires upon the exercise of the
warrants granted to it in Section 5(a) and (b) hereof, Consultant shall, at all
times that it is the beneficial owner of such shares, vote such shares on all
matters coming before it as a stockholder of the Company in the same manner as
the majority of the Board of Directors of the Company shall recommend.
8. Confidentiality. Consultant acknowledges that as a
consequence of its relationship with the Company, it may be given access to
confidential information which may include the following types of information:
financial statements and related financial information with respect to the
Company and its subsidiaries (the "Confidential Financial Information"), trade
secrets, products, product development, product packaging, future marketing
materials, business plans, certain methods of operation, procedures,
improvements, systems, customer lists, supplier lists and specifications, and
other private and confidential materials concerning the Company's business
(collectively, "Confidential Information").
4
<PAGE> 5
Consultant covenants and agrees to hold such Confidential Information
strictly confidential and shall only use such information solely to perform its
duties under this Agreement, and Consultant shall refrain from allowing such
information to be used in any way for its own private or commercial purposes.
Consultant shall also refrain from disclosing any such Confidential Information
to any third parties and will disclose such Confidential Information only to
employees of Consultant who need to know in furtherance of performing the
obligations of Consultant hereunder. Consultant further agrees that upon
termination or expiration of this Agreement, it will return all Confidential
Information and copies thereof to the Company and will destroy all notes,
reports and other material prepared by or for it containing Confidential
Information. Consultant understands and agrees that the Company might be
irreparably harmed by violation of this Agreement and that monetary damages may
be inadequate to compensate the Company. Accordingly, the Consultant agrees
that, in addition to any other remedies available to it at law or in equity,
the Company shall be entitled to injunctive relief to enforce the terms of this
Agreement.
Notwithstanding the foregoing, nothing herein shall be construed as
prohibiting Consultant from disclosing any Confidential Information (a) which
at the time of disclosure, Consultant can demonstrate either was in the public
domain and generally available to the public or thereafter becomes a part of
the public domain and is generally available to the public by publication or
otherwise through no act of the Consultant; (b) which Consultant can establish
was independently developed by a third party who developed it without the use
of the Confidential Information and who did not acquire it directly or
indirectly from Consultant under an obligation of confidence; (c) which
Consultant can show was received by it after the termination of this Agreement
from a third party who did not acquire it directly or indirectly from the
Company under an obligation of confidence; or (d) to the extent that the
Consultant can reasonably demonstrate such disclosure is required by law or in
any legal proceeding, governmental investigation, or other similar proceeding.
9. Termination.
A. This Agreement shall terminate upon:
(i) Expiration of the term of this Agreement; or
(ii) Consultant's voluntary resignation to be effective
upon thirty (30) days prior written notice to the
Company; or
(iii) The Company's election, in its sole discretion, even
without "cause" (as such term is defined in Section
9(B) below), upon five (5) days written notice to
Consultant. It is agreed by the Company and
Consultant that the Company may terminate this
Agreement at any time for any reason
5
<PAGE> 6
without cause, and in such event, Consultant shall
not be entitled to provide any further services to
the Company under this Agreement and Consultant shall
be entitled only to receive the compensation
described in Section 5 hereof and reimbursement for
any expenses approved pursuant to Section 6 hereof
accrued through the date of termination.
B. This Agreement may be terminated by the Company "for cause",
meaning Consultant's gross default or refusal to provide the
services contemplated in Section 3 hereof; provided, however,
the Company shall notify Consultant in writing of its
intention to terminate this Agreement "for cause" and
Consultant shall have the right to cure such default within
thirty (30) days of receipt of such written notice. If
Consultant has not cured such default within the period
specified above, then this Agreement shall terminate as of the
date of expiration of such thirty (30) day period, and
Consultant shall only be entitled to that amount of accrued
compensation and reimbursement of expenses as described in
Sections 5 and 6 hereof which is accrued through such date of
termination.
10. Opinion of Counsel. Consultant has delivered to the Company
that certain opinion of counsel from Jamie K.C. Scher attached hereto as
Exhibit "B" and incorporated herein by reference.
11. No Waiver. The failure of any party to insist upon the strict
performance of any of the terms, conditions or provisions of this Agreement
shall not be construed as a waiver or relinquishment of future compliance
therewith, and said terms, conditions and provisions shall remain in full force
and effect. No interpretation, changes, modifications, terminations or waivers
of any of the provisions of this Agreement shall be binding upon the Company or
Consultant unless in writing and signed by the person to be bound.
12. Rights, Obligations and Assignment. The rights and
obligations of the Company and the Consultant under this Agreement shall inure
to the benefit of, and shall be binding upon, the successors and assigns of
each, as the case may be. An assignment by either party hereto may be made if
the Company or the Consultant shall at any time be merged into or consolidated
with any other corporation, or if substantially all of the assets of the
Company, including its business and good will, are transferred to another
corporation, association, individual or partnership. Except as specifically
provided herein, neither party shall make any assignment without the written
consent of the other party. The provisions of this Agreement shall be binding
upon and insure to the benefit of the corporation resulting from such merger or
consolidation, or the transferee to which such assets shall be transferred.
This paragraph shall also apply in the event of any subsequent merger,
consolidation or transfer. The duties of Consultant to any such successor
entity shall not be greater than duties performed for the Company prior to such
succession.
6
<PAGE> 7
13. Entire Agreement. This Agreement embodies the entire
understanding between the parties hereto pertaining to the subject matter
hereof and supersedes all prior agreements and understandings of the parties in
connection therewith.
14. Severability. If any of the provisions of this Agreement
shall for any reason be adjudged by any court of competent jurisdiction to be
invalid or unenforceable, such judgment shall not affect, impair or invalidate
the remainder of this Agreement, but shall be confined in its operation to the
provisions of this Agreement directly involved in the controversy in which such
judgment shall have been rendered.
15. Notices. Notices, other communications or deliveries required
or permitted under this Agreement shall be in writing directed as follows:
<TABLE>
<S> <C>
A. To the Company at:
Intelect Communications Systems Limited
1100 Executive Drive
Richardson, Texas 75081
Attention: Herman M. Frietsch
Title: Chairman and Chief Executive Officer
With copy to:
Philip P. Sudan, Jr.
Ryan & Sudan, LLP
909 Fannin, Suite 3900
Houston, Texas 77010-1010
B. To Consultant:
Renaissance Financial Securities Corp.
200 Old Country Road, Suite #400
Mineola, New York 11501
Attention: Todd M. Spehler
Title: President
</TABLE>
The parties may designate by notice to each other any new address for
the purpose of this Agreement. Unless otherwise specified in this Agreement,
all notices shall be effective when mailed postage prepaid by registered or
certified mail, return receipt requested.
16. Applicable Law. This Agreement shall be construed and
enforced in accordance with the internal substantive laws of the State of
Texas, as from time to time constituted and regard to the conflicts of laws
principles thereof.
17. Headings. The captions and headings contained in this
Agreement are for
7
<PAGE> 8
reference purposes only and shall not affect the interpretation or meaning of
this Agreement.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same instrument and
all parties agree that the reproduction of signatures by way of telecopying
device will be treated as though such reproductions were executed originals,
and each party under-takes to provide the others with an original (bearing
original signatures) as soon as reasonably practicable.
IN WITNESS WHEREOF, the parties have executed this Consulting
Agreement as of the date and year first above written.
Intelect Communications Systems Limited
Date: 7-7-97 By: /s/ HERMAN M. FRIETSCH
------------------------------------
Name: Herman M. Frietsch
Title Chairman and Chief
Executive Officer
Renaissance Financial Securities Corp.
Date: 7-3-97 By: /s/ TODD M. SPEHLER
------------------------------------
Name: Todd M. Spehler
Title: President
8
<PAGE> 1
EXHIBIT 10.44
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
WARRANT TO PURCHASE
Up to 300,000 SHARES
INTELECT COMMUNICATIONS SYSTEMS LIMITED
(a Bermuda corporation)
WARRANT FOR THE PURCHASE OF
Common Stock, $.01 Par Value per Share
THIS WARRANT MAY NOT BE EXERCISED
UNTIL DECEMBER 31, 1997, AND WILL BE VOID
AFTER 6:00 P.M. CENTRAL STANDARD TIME ON DECEMBER 31, 2002
This warrant (the "Warrant") certifies that, for value received, AJC,
Inc., is entitled, at any time and from time to time on or after December 31,
1997 (the "Beginning Date"), and at any time prior to 6:00 p.m. Central
Standard Time on December 31, 2002 (the "Expiration Time"), to purchase from
Intelect Communications Systems Limited, a Bermuda corporation (the "Company"),
up to the number of shares shown above (the "Warrant Shares") of common stock,
par value $.01, of the Company (the "Common Stock") by surrendering this
Warrant with the purchase form attached hereto, duly executed, at the principal
office of the Company at 1100 Executive Drive, Richardson, Texas 75081, and by
paying in full and in lawful money of the United States of America, by cash or
cashiers' check, the purchase price of the Warrant Shares as to which this
Warrant is exercised, on all the terms and conditions hereinafter set forth.
This Warrant is originally issued pursuant to that certain Advisory Services
Agreement dated effective May 1, 1997 (the "Agreement"), by and between the
Company and Renaissance Financial Services Corp.
1. The purchase price at which the Warrant Shares are purchasable
(the "Warrant Price") shall be as follows:
a. 100,000 shares at an exercise price of $3.00 per share;
b. 100,000 shares at an exercise price of $5.00 per share;
<PAGE> 2
c. 100,000 shares at an exercise price of $7.00 per share.
2. On the exercise of all or any portion of this Warrant in the
manner provided above, the person exercising the same shall be deemed to have
become a holder of record of Common Stock (or of the other securities or
properties to which he or it is entitled on such exercise) for all purposes,
and certificates for the securities so purchased shall be delivered to the
purchaser within a reasonable time after the Warrant shall have been exercised
as set forth above. If this Warrant shall be exercised with respect to only a
portion of the Warrant Shares covered hereby, the holder shall be entitled to
receive a similar warrant of like tenor and date covering the number of Warrant
Shares with respect to which this Warrant shall not have been exercised.
3. The Company covenants and agrees that the Warrant Shares which
may be issued on the exercise of the rights represented by this Warrant will,
upon receipt of the Warrant Price, be fully paid and nonassessable, and free
from all taxes, liens, and charges with respect to the issue thereof. The
Company further covenants and agrees that, during the period within which the
rights represented by this Warrant may be exercised, the Company will have
authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. The Warrant Price and number of Warrant Shares purchasable
pursuant to this Warrant may be subject to adjustment from time to time as
follows:
(a) If the Company issues any stock dividends, the
Warrant Price in effect immediately prior to the record date for such
stock dividend shall be proportionately decreased or, at the holder's
option, the number of Warrant Shares exercisable hereunder shall be
proportionately increased, such adjustment to become effective
immediately after the opening of business on the day following such
record date.
(b) If the Company shall subdivide the outstanding shares
of Common Stock into a greater number of shares, combine the
outstanding shares of Common Stock into a smaller number of shares, or
issue by reclassification any of its shares, the Warrant Price and the
number of Warrant Shares in effect immediately prior thereto shall be
adjusted so that the holder of this Warrant shall be entitled to
receive, after the occurrence of any of the events described, the
number of Warrant Shares to which the holder would have been entitled
had this Warrant been exercised immediately prior to the occurrence of
such event. Such adjustment shall become effective immediately after
the opening of business on the day following the date on which such
subdivision, combination, or reclassification, as the case may be,
becomes effective.
(c) If any capital reorganization or reclassification of
Common Stock, or consolidation or merger of the Company with another
corporation or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that
-2-
<PAGE> 3
holders of Common Stock shall be entitled to receive stock,
securities, or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful adequate provisions shall be
made whereby the holder of this Warrant shall thereafter have the
right to acquire and receive on exercise hereof such shares of stock,
securities, or assets as would have been issuable or payable (as part
of such reorganization, reclassification, consolidation, merger or
sale) with respect to or in exchange for such number of outstanding
shares of Common Stock as would have been received on exercise of this
Warrant immediately before such reorganization, reclassification,
consolidation, merger or sale. In any such case, appropriate
provision shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof shall
thereafter be applicable in relation to any shares of stock,
securities, or assets thereafter deliverable on the exercise of this
Warrant. In the event of a merger or consolidation of the Company
with or into another corporation or the sale of all or substantially
all of its assets as a result of which a number of shares of common
stock of the surviving or purchasing corporation greater or less than
the number of shares of Common Stock outstanding immediately prior to
such merger, consolidation, or purchase are issuable to holders of
Common Stock, then the Warrant Price in effect immediately prior to
such merger, consolidation, or purchase shall be adjusted in the same
manner as though there were a subdivision or combination of the
outstanding shares of Common Stock. The Company will not effect any
such consolidation, merger, or sale unless prior to the consummation
thereof the successor corporation resulting from such consolidation or
merger or the corporation purchasing such assets shall assume, by
written instrument mailed or delivered to the holder hereof at its
last address appearing on the books of the Company, the obligation to
deliver to such holder such shares of stock, securities, or assets as,
in accordance with the foregoing provisions, such holder may be
entitled to acquire on exercise of this Warrant.
(d) No fraction of a share shall be issued on exercise
hereof, but, in lieu thereof, the Company, notwithstanding any other
provision hereof, may pay therefor in cash at the fair value of any
such fractional share at the time of exercise.
(e) Neither the purchase or other acquisition by the
Company of any shares of Common Stock nor the sale or other
disposition by the Company of any shares of Common Stock shall affect
any adjustment of the Warrant Price or be taken into account in
computing any subsequent adjustment of the Warrant Price.
5. This Warrant shall not be transferable or assignable.
6. The shares issuable on exercise of this Warrant shall be
restricted securities
-3-
<PAGE> 4
within the meaning of Rule 144 promulgated under the Securities Act, and all
certificates for such shares shall contain a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING
OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT."
7. The Company agrees to register or qualify the Warrant Shares
(but not this Warrant) for sale as follows:
(a) If, at any time after October 31, 1997 and during the
period in which the rights represented by this Warrant are exercisable
or the holder hereof owns the Warrant Shares, the Company proposes to
file a registration statement or notification under the Securities Act
for the primary or secondary sale of any debt or equity security, it
will give written notice at least 30 days prior to the filing of such
registration statement or notification to the holders of this Warrant
and the Warrant Shares of its intention to do so. The Company agrees
that, after receiving written notice from the warrant holder of his
desire to include his Warrant Shares in such proposed registration
statement or notification, the Company shall afford the holders of
this Warrant and the Warrant Shares the opportunity to have their
Warrant Shares included therein. Notwithstanding the provisions of
this paragraph 7(a), the Company shall have the right, at any time
after it shall have given written notice pursuant to this paragraph
(whether or not a written request for inclusion of the Warrant Shares
shall be made) to elect not to file any such proposed registration
statement or notification or to withdraw the same after the filing but
prior to the effective date thereof. In no event shall the Company be
obligated to include the Warrant Shares in any registration statement
or notification under this paragraph 7(a) if: (i) in the written
opinion of the underwriter, the inclusion of the Warrant Shares in
such registration statement or notification would be materially
detrimental to the proposed offering of debt or equity securities
pursuant to which the Company gave notice to the holders under this
paragraph; or (ii) in the opinion of counsel for the Company,
concurred in by counsel for the holder hereof, that the Warrant Shares
are not considered "restricted securities" within the meaning of Rule
144 promulgated under the Securities Act and that registration under
the Securities Act is therefore not required.
(b) In connection with the filing of a registration
statement, notification, or post-effective amendment under this
section, the Company covenants and agrees:
-4-
<PAGE> 5
(i) to pay all expenses of such registration
statement, notification, or post-effective amendment,
including, without limitation, printing charges, legal fees
and disbursements of counsel for the Company, blue sky
expenses, accounting fees and filing fees, but not including
legal fees and disbursements of counsel to the holders and any
sales commissions on Warrant Shares offered and sold;
(ii) to take all necessary action which may
reasonably be required in qualifying or registering the
Warrant Shares included in a registration statement,
notification or post-effective amendment for the offer and
sale under the securities or blue sky laws of such states as
requested by the holders; provided that the Company shall not
be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction; and
(iii) to utilize its best efforts to keep the same
effective for a period of not less than 90 nor more than 120
days.
(c) Indemnification; Contribution.
(i) Indemnification by the Company. The Company
agrees to indemnify and hold harmless the holders from and
against any and all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any such
registration statement or prospectus contained therein or in
any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon 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, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation
thereof based upon information furnished in writing to the
Company by the holders or on the holders' behalf expressly for
use therein.
(ii) Indemnification by Holders. Each holder
agrees to indemnify and hold harmless, severally and not
jointly, the Company, its directors and officers and each
person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity
from the Company to the holders, but only with respect to
information furnished in writing by a holder or on a holder's
behalf expressly for use in any such registration statement or
prospectus relating to the Warrant Shares, any amendment or
supplement thereto or any preliminary prospectus, and only in
an amount not to exceed the
-5-
<PAGE> 6
proceeds of any Warrant Shares sold by any such holder
thereunder. In case any action or proceeding shall be brought
against the Company or its directors or officers, or any such
controlling person, in respect of which indemnity may be
sought against the holders, the holders shall have the rights
and duties given to the Company, and the Company or its
directors or officers or such controlling person shall have
the rights and duties given to the holders, by the preceding
subsection hereof.
(iii) Conduct of Indemnification Proceedings. If
any action or proceeding (including any governmental
investigation) shall be brought or asserted against any person
entitled to indemnification under subsections (i) or (ii)
above (an "Indemnified Party") in respect of which indemnity
may be sought from any party who has agreed to provide such
indemnification (an "Indemnifying Party"), the Indemnifying
Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such
Indemnified Party, and shall assume the payment of all
expenses. Such Indemnified Party shall have the right to
employ separate counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party
unless (A) the Indemnifying Party has agreed to pay such fees
and expenses or (B) the named parties to any such action or
proceeding (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that
there is a conflict of interest on the part of counsel
employed by the Indemnifying Party to represent such
Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to
assume the defense of such action or proceeding on behalf of
such Indemnified Party; it being understood, however, that the
Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel) at
any time for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties). The
Indemnifying Party shall not be liable for any settlement of
any such action or proceeding effected without its written
consent, but if settled with its written consent, or if there
be a final judgment for the plaintiff in any such action or
proceeding, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such
settlement or judgment.
(iv) Contribution. If the indemnification
provided for in this Section
-6-
<PAGE> 7
7(c) is unavailable to the Indemnified Parties in respect of
any losses, claims, damages, liabilities or judgments
referred to herein, 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, liabilities and judgments in
the following manner as between the Company on the one hand
and each holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company
on the one hand and each holder on the other in connection
with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the holder on the
other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material
fact relates to information supplied by such party, and the
party's relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation (within the
meaning of subsection 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(v) Survival. The indemnity and contribution
agreements contained in this 7(c) shall remain operative and
in full force and effect regardless of (A) any termination of
this Agreement, (B) any investigation made by or on behalf of
any Indemnified Party or by or on behalf of the Company and
(C) the consummation of the sale or successive resale of the
Warrant Shares.
8. As used herein, the term "Common Stock" shall mean and include
the Common Stock authorized on the date of the original issue of this Warrant,
and shall also include any capital stock of any class of the Company thereafter
authorized that shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets on the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; provided that the Warrant Shares
purchasable pursuant to this Warrant shall include only shares of the class
designated in the Company's Charter as Common Stock on the date of the original
issue of this Warrant or, in the case of any reorganization, reclassification,
consolidation, merger, or sale of assets of the character referred to in
paragraph 4(c) hereof, the stocks, securities, or assets provided for in such
paragraph.
9. This agreement shall be construed under and be governed by the
laws of the State of Texas.
10. Any notices required or permitted hereunder shall be
sufficiently given if delivered by hand or sent by registered or certified
mail, postage prepaid, addressed as
-7-
<PAGE> 8
follows:
If to AJC, Inc., to:
200 Old Country Road, Suite #400
Mineola, New York 11501
If to the Company, to:
Intelect Communications Systems Limited
1100 Executive Drive, Richardson, Texas 75081
Attention: Herman M. Frietsch, Chairman and
Chief Executive Officer
With copy to:
Philip P. Sudan, Jr.
Ryan & Sudan, LLP
909 Fannin, Suite 3900
Houston, Texas 77010-1010
or such other address as shall be furnished in writing by any party to the
other, and any such notice or communication shall be deemed to have been given
as of the date delivered by hand or three days after being so deposited in the
mails.
Dated effective this 1st day of May, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
-------------------------------------
Herman M. Frietsch,
Chairman of the Board, Chief
Executive Officer
-8-
<PAGE> 9
Form of Purchase
(to be signed only upon exercise of warrant)
TO: INTELECT COMMUNICATIONS SYSTEMS LIMITED
The undersigned, the owner of the attached warrant, hereby irrevocable
elects to exercise the purchase rights represented by the warrant for, and to
purchase thereunder, _____ shares of common stock of Intelect Communications
Systems Limited, and herewith makes payment of $______ therefor, and requests
that the certificate(s) for such shares be delivered to _____ _________, at
____________________________________________, and if such shall not be all of
the shares purchasable hereunder, that a new warrant of like tenor for the
balance of the shares purchasable under the attached warrant be delivered to
the undersigned.
Dated this _____ day of _____________, 199__.
_______________________________________
Signature
-9-
<PAGE> 1
EXHIBIT 10.45
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ARE
"RESTRICTED" SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
WARRANT TO PURCHASE
Up to a maximum of 270,000 Shares
INTELECT COMMUNICATIONS SYSTEMS LIMITED
(a Bermuda corporation)
WARRANT FOR THE PURCHASE OF
Common Stock, $.01 Par Value per Share
THIS WARRANT MAY BE EXERCISED ONLY PURSUANT TO ITS TERMS
(BUT IN ANY EVENT NOT BEFORE JUNE 19, 1997) AND WILL BE VOID
AFTER 6:00 P.M. CENTRAL DAYLIGHT SAVINGS TIME ON JUNE 19, 2004
This warrant (the "Warrant") certifies that, for value received,
Amerix Electronics, Inc., ("Purchaser") is entitled, at any time and from time
to time on or after June 19, 1997 (the "Beginning Date"), and at any time prior
to 6:00 p.m. Central Daylight Savings Time on June 19, 2004 (the "Expiration
Time"), to purchase from Intelect Communications Systems Limited, a Bermuda
corporation (the "Company"), but only in accordance with and subject to the
satisfaction of the terms and conditions of this Warrant, up to the number of
shares shown above (the "Warrant Shares") of common stock, par value $.01, of
the Company (the "Common Stock"). Purchaser's right to exercise this Warrant
shall be subject to the following terms and conditions:
1. The Purchaser shall have the right to purchase, pursuant to
the terms of this Warrant, 6,750 Warrant Shares for every One Million Dollars
($1,000,000) of the products (the "Products") sold by the Company (for purposes
of this Section 1, the Company shall include any of the Company's wholly-owned
subsidiaries) and purchased from the Company and paid for on or before June 19,
2001 by the Purchaser to the Company, up to an aggregate of 270,000 Warrant
Shares. For example, if Purchaser purchases from the Company Four Million
Dollars ($4,000,000) of the Company's Products and the Company receives payment
for such purchase, Purchaser shall be entitled to acquire, upon payment to the
Company of the Exercise Price (as stated below), 27,000 Warrant Shares.
Purchaser has projected that it will purchase $40,000,000 of the Company's
Products from the Company over the next four years, and in the event Purchaser
does so purchase and pay for $40,000,000 of Products on or before June 19,
2001, it would be entitled to purchase an aggregate of 270,000 Warrant Shares,
subject to the terms of this Warrant. Purchaser shall not be entitled to
exercise this Warrant as
<PAGE> 2
to any such Warrant Shares unless and until the Company has received full
payment for all of such Products as to which the exercise of the Warrant Shares
relates. If Purchaser is entitled to acquire Warrant Shares as described
above, then Purchaser shall exercise this Warrant as to the Warrant Shares to
which it is entitled by surrendering this Warrant and paying in full, by cash
or cashier's check, in lawful money of the United States, the Exercise Price.
The Exercise Price shall be a per share price equal to the average per share
closing trading price of the Company's Common Stock on Nasdaq (or any exchange
on which the Company's Common Stock is traded) for the five (5) consecutive
trading days prior to the Beginning Date. Notwithstanding the foregoing,
Purchaser shall not be entitled to exercise this Warrant for any orders for the
Company's Products unless such orders are received by the Company and paid for
by the Purchaser on or before June 19, 2001. For purposes of this Section 1,
all orders for the Company's products since January 10, 1997 shall be counted
for purposes of determining the amount of Warrant Shares to which Purchaser is
entitled, provided such orders have been fully paid for.
2. On the exercise of all or any portion of this Warrant in the
manner provided above, the person exercising the same shall be deemed to have
become a holder of record of Common Stock (or of the other securities or
properties to which he or it is entitled on such exercise) for all purposes,
and certificates for the securities so purchased shall be delivered to the
Purchaser within a reasonable time after the Warrant shall have been exercised
as set forth above. If this Warrant shall be exercised with respect to only a
portion of the Warrant Shares covered hereby, the Purchaser shall be entitled
to receive a similar warrant of like tenor and date covering the number of
Warrant Shares with respect to which this Warrant shall not have been
exercised.
3. The Company covenants and agrees that the Warrant Shares which
may be issued on the exercise of the rights represented by this Warrant will,
upon receipt of the Exercise Price, be fully paid and nonassessable, and free
from all taxes, liens, and charges with respect to the issue thereof. The
Company further covenants and agrees that, during the period within which the
rights represented by this Warrant may be exercised, the Company will have
authorized and reserved a sufficient number of shares of Common Stock to
provide for the exercise of the rights represented by this Warrant.
4. The number of Warrant Shares purchasable pursuant to this
Warrant may be subject to adjustment from time to time as follows:
(a) If the Company issues any stock dividends on its
Common Stock and such dividends are made available to all of its
holders of Common Stock, the number of Warrant Shares exercisable
hereunder shall be proportionately increased, such adjustment to
become effective immediately after the opening of business on the day
following such record date.
2
<PAGE> 3
(b) If the Company shall subdivide the outstanding shares
of Common Stock into a greater number of shares, combine the
outstanding shares of Common Stock into a smaller number of shares, or
issue by reclassification any of its shares, the number of Warrant
Shares in effect immediately prior thereto shall be adjusted so that
the holder of this Warrant shall be entitled to receive, after the
occurrence of any of the events described, the number of Warrant
Shares to which the holder would have been entitled had this Warrant
been exercised immediately prior to the occurrence of such event.
Such adjustment shall become effective immediately after the opening
of business on the day following the date on which such subdivision,
combination, or reclassification, as the case may be, becomes
effective.
(c) If any capital reorganization or reclassification of
Common Stock, or consolidation or merger of the Company with another
corporation or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets
with respect to or in exchange for Common Stock, then as a condition
of such reorganization, reclassification, consolidation, merger or
sale, lawful adequate provisions shall be made whereby the holder of
this Warrant shall thereafter have the right to acquire and receive on
exercise hereof such shares of stock, securities, or assets as would
have been issuable or payable (as part of such reorganization,
reclassification, consolidation, merger or sale) with respect to or in
exchange for such number of outstanding shares of Common Stock as
would have been received on exercise of this Warrant immediately
before such reorganization, reclassification, consolidation, merger or
sale. In any such case, appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to
the end that the provisions hereof shall thereafter be applicable in
relation to any shares of stock, securities, or assets thereafter
deliverable on the exercise of this Warrant. The Company will not
effect any such consolidation, merger, or sale unless prior to the
consummation thereof the successor corporation resulting from such
consolidation or merger or the corporation purchasing such assets
shall assume, by written instrument mailed or delivered to the holder
hereof at its last address appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities,
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to acquire on exercise of this Warrant.
(d) No fraction of a share shall be issued on exercise
hereof, but, in lieu thereof, the Company, notwithstanding any other
provision hereof, may pay therefor in cash at the Exercise Price of
any such fractional share at the time of exercise.
(e) Neither the purchase or other acquisition by the
Company of any shares of Common Stock nor the sale or other
disposition by the Company of any shares of Common Stock shall affect
any adjustment of the Exercise Price or be taken into
3
<PAGE> 4
account in computing any subsequent adjustment of the Exercise Price.
5. This Warrant shall not be transferable or assignable by the
Purchaser.
6. The Purchaser represents, warrants and covenants to the
Company as follows:
(i) The Purchaser will acquire the Warrant Shares for its
own account for investment purposes and not with a view towards
distribution. The Purchaser understands and agrees that it must bear
the economic risks of its investment for an indefinite period of time.
The Purchaser has received and carefully reviewed copies of all
documents filed by the Company as of the time of each exercise with
the Securities and Exchange Commission. The Purchaser understands
that the offer and sale of the Warrant Shares are being made only by
means of this Warrant. No representations or warranties have been
made to the Purchaser by the Company, the officers or directors of the
Company, or any agent, employee or affiliate of any of them. The
Purchaser is aware that the purchase of the Warrant Shares involves a
high degree of risk and that it may sustain, and has the financial
ability to sustain, the loss of its entire investment. The Purchaser
has had the opportunity to ask questions of, and receive answers,
satisfactory to it from the Company's management regarding the
Company. The Purchaser understands that no Federal or State
governmental authority has made any finding or determination relating
to the fairness of an investment in the Warrant Shares and that no
Federal or State governmental authority has recommended or endorsed,
or will recommend or endorse, the investment herein. The Purchaser,
in making the decision to purchase the Warrant Shares subscribed for,
has relied upon independent investigations made by it and has not
relied on any information or representations made by third parties.
The Purchaser has significant assets, and upon consummation of the
purchase of the Warrant Shares, will continue to have significant
assets exclusive of the Warrant Shares. The Purchase has not been
organized for the purpose of acquiring the Warrant Shares;
(ii) The Purchaser is an "accredited investor" within the
meaning of Rule 501 of the Securities Act of 1933, as amended (the
"Securities Act");
(iii) The Purchaser understands that the Warrant Shares are
being offered and sold to it in reliance on specific provisions of
Federal and State securities laws and that the Company is relying upon
the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein
in order to determine the applicability of such provisions;
(iv) The Purchaser, in making the decision to purchase the
Warrant Shares subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties.
4
<PAGE> 5
The Purchaser understands that neither this Warrant nor the Warrant
Shares have been registered under the Securities Act and therefore it cannot
dispose of any or all of this Warrant or the Warrant Shares unless or until
such Warrant or Warrant Shares are subsequently registered under the Securities
Act or exemptions from such registration are available. Accordingly, the
shares issuable on exercise of this Warrant shall be restricted securities
within the meaning of Rule 144 promulgated under the Securities Act, and all
certificates for such shares shall contain a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING
OF RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED
WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT."
7. As used herein, the term "Common Stock" shall mean and include
the Common Stock authorized on the date of the original issue of this Warrant,
and shall also include any capital stock of any class of the Company thereafter
authorized that shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets on the voluntary or involuntary liquidation,
dissolution, or winding up of the Company; provided that the Warrant Shares
purchasable pursuant to this Warrant shall include only shares of the class
designated in the Company's Charter as Common Stock on the date of the original
issue of this Warrant or, in the case of any reorganization, reclassification,
consolidation, merger, or sale of assets of the character referred to in
paragraph 4(c) hereof, the stocks, securities, or assets provided for in such
paragraph.
8. This agreement shall be construed under and be governed by the
laws of the State of Texas.
9. Any notices required or permitted hereunder shall be
sufficiently given if delivered by hand or sent by registered or certified
mail, postage prepaid, addressed as follows:
If to the Purchaser, to:
Amerix Electronics, Inc.
431 E. Grand Ave.
El Segundo, Calif. 90245
Attention: Tehan Oh
5
<PAGE> 6
If to the Company, to:
Intelect Communications Systems Limited
1100 Executive Drive
Richardson, Texas 75081
Attention: President
or such other address as shall be furnished in writing by any party to the
other, and any such notice or communication shall be deemed to have been given
as of the date delivered by hand or three days after being so deposited in the
mails.
Dated effective this 19th day of June, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
--------------------------------
Herman M. Frietsch
Chairman of the Board
AMERIX ELECTRONICS, INC.
By: /s/ TEHAN OH
--------------------------------
Its: President
6
<PAGE> 7
Form of Purchase
(to be signed only upon exercise of warrant)
TO: INTELECT COMMUNICATIONS SYSTEMS LIMITED
The undersigned, the owner of the attached warrant, hereby irrevocably
elects to exercise the purchase rights represented by the warrant for, and to
purchase thereunder, ___________________ shares of common stock of Intelect
Communications Systems Limited, and herewith makes payment of $______________
therefor, and requests that the certificate(s) for such shares be delivered to
___________________________________
___________________________________
___________________________________
___________________________________
and if such shall not be all of the shares purchasable hereunder, that a new
warrant of like tenor for the balance of the shares purchasable under the
attached warrant be delivered to the undersigned.
Dated this _____ day of _____________, ______.
____________________________________
Signature
7
<PAGE> 1
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. Section 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.
<PAGE> 2
"Capital Stock" shall mean all common and preferred stock of the
Borrower, but shall not include preferred stock subject to mandatory redemption
requirements.
"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).
2
<PAGE> 3
"Loan" shall mean any sum extended under the Agreement, as it may be
amended from time to time.
"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.
3
<PAGE> 4
"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.
"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.
4
<PAGE> 5
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").
(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.
5
<PAGE> 6
(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.
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
6
<PAGE> 7
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 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
7
<PAGE> 8
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, 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
8
<PAGE> 9
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.
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.
9
<PAGE> 10
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 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.
10
<PAGE> 11
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 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.
11
<PAGE> 12
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 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
12
<PAGE> 13
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
(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.
13
<PAGE> 14
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.
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.
14
<PAGE> 15
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
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.
15
<PAGE> 16
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.
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
16
<PAGE> 17
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: /s/ HERMAN M. FRIETSCH By: /s/ D. H. GULLQUIST
----------------------- ------------------------
Title: Chairman and CEO Title: Sr. Vice President
THE COASTAL CORPORATION
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
-----------------------
Title: Chairman & CEO
17
<PAGE> 18
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.
23
<PAGE> 1
EXHIBIT 10.47
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.
-1-
<PAGE> 2
"Note" shall mean the Promissory Note of the Company issued to Holder
in the principal amount of $5,000,000, of even date herewith.
"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 I.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 I.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 I.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.
-2-
<PAGE> 3
Section I.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 I.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 I.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 I.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 II.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 II.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 II.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.
-3-
<PAGE> 4
(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 II.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 III.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 III.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
-4-
<PAGE> 5
Outstanding immediately prior to such issue or sale multiplied by the
consideration received by the Company 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
-5-
<PAGE> 6
had such rights, options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted,
issued or sold. On the expiration of any such option or right
referred to inSection 3.2(b), or on the termination of any such right
to convert or exchange any such Convertible Securities referred to
inSection 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 III.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 III.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
-6-
<PAGE> 7
Outstanding shares of Common stock shall at any time be combined into a smaller
number of shares, the Exercise Price 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 III.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 III.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
-7-
<PAGE> 8
than Common Stock, Convertible Securities or options or rights thereto) or
other property), the Exercise Price in effect immediately prior to such
declaration of such dividend or other distribution shall be reduced by an
amount equal to the amount of such dividend or distribution payable per share
of Common Stock, in the case of a cash dividend or distribution, or by the fair
value of such dividend or distribution per share of Common Stock (as reasonably
determined in good faith by the Board of Directors of the Company), in the case
of any other dividend or distribution. Such reduction shall be made whenever
any such dividend or distribution is made and shall be effective as of the date
as of which a record is taken for purpose of such dividend or distribution or,
if a record is not taken, the date as of which holders of record of Common
Stock entitled to such dividend or distribution are determined.
Section III.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 III.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 III.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.
-8-
<PAGE> 9
Section III.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 IV.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 IV.2 Governing LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section IV.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 IV.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 IV.5 Copy of Warrant. A copy of this Warrant shall be
filed among the records of the Company.
Section IV.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
-9-
<PAGE> 10
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
Section IV.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 IV.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 IV.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 IV.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.
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued
as of the date above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
----------------------------------------
Name: Herman M. Frietsch
--------------------------------------
Title: Chairman and CEO
-------------------------------------
-10-
<PAGE> 11
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> 12
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:_________________________________
<PAGE> 1
EXHIBIT 10.48
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 Intelect 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> 2
"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> 3
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
-3-
<PAGE> 4
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
-4-
<PAGE> 5
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
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 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
-5-
<PAGE> 6
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");
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
- 6 -
<PAGE> 7
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
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
- 7 -
<PAGE> 8
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: /s/ D. H. GULLQUIST By: /s/ HERMAN M. FRIETSCH
------------------------- -------------------------
Title: Sr. Vice President Title: Chairman & CEO
------------------------- -------------------------
THE COASTAL CORPORATION
- 8 -
<PAGE> 1
EXHIBIT 10.49
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 $.01 per
share.
<PAGE> 2
"Company" shall mean ICSL, including all successors thereto, and
whether merged, consolidated, reincorporated or as its name, domicile or
jurisdiction may change from time to time.
"Company and its Consolidated Subsidiaries" shall mean the Company and
its Subsidiaries which are taken on a consolidated basis for financial
reporting purposes. The Consolidated Subsidiaries of the Company are: Intelect
Systems Corp.; Intelect Network Technologies Company (formerly Intelect,
Inc.); DNA Enterprises, Inc.; Intelect Visual Communications Corp.; and
Intelect Network Systems, Ltd.
"Default" shall mean the occurrence of any of the events specified in
Article 7 hereof, whether or not any requirement for notice or lapse of time or
other condition precedent has been satisfied.
"Designation of Rights and Preferences" and "Designation" shall have
the meaning given in Section 2.01(a).
"Dollar", "Dollars" and "$" 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
- 2 -
<PAGE> 3
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.
"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.
- 3 -
<PAGE> 4
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
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.
- 4 -
<PAGE> 5
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.
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:
- 5 -
<PAGE> 6
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
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
- 6 -
<PAGE> 7
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, 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 By-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
- 7 -
<PAGE> 8
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 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.
- 8 -
<PAGE> 9
(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.
(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.
- 9 -
<PAGE> 10
Section 4.02 By Coastal. Coastal represents and warrants to the Company
that:
(a) Binding Obligation. This 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.
(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.
- 10 -
<PAGE> 11
(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 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.
- 11 -
<PAGE> 12
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 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. Section
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.
- 12 -
<PAGE> 13
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.
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
- 13 -
<PAGE> 14
(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 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.
- 14 -
<PAGE> 15
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
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.
- 15 -
<PAGE> 16
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.
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]
- 16 -
<PAGE> 17
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 /s/ HERMAN M. FRIETSCH By /s/ D. H. GULLQUIST
---------------------------- -------------------------------
Herman M. Frietsch Donald H. Gullquist
Chairman & CEO Senior Vice President
The Coastal Corporation
<PAGE> 1
EXHIBIT 10.50
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.
<PAGE> 2
"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.
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
2
<PAGE> 3
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.
2.1.4 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
- 3 -
<PAGE> 4
Registrable Securities excluded by the managing underwriter or withdrawn from
such underwriting shall be withdrawn 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 person or such underwriter
specifically
- 4 -
<PAGE> 5
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 defenses, which defenses are inconsistent with the defenses of the
Indemnified Party. No Indemnifying Party, in the
- 5 -
<PAGE> 6
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");
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
- 6 -
<PAGE> 7
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
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
- 7 -
<PAGE> 8
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]
- 8 -
<PAGE> 9
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: /s/ DONALD H. GULLQUIST By: /s/ HERMAN M. FRIETSCH
---------------------------- ----------------------------
Donald H. Gullquist Herman M. Frietsch
Senior Vice President Chairman & CEO
The Coastal Corporation
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.51
AGREEMENT
THIS AGREEMENT is made by and between Intelect Communications Systems
Limited, a Bermuda corporation (the"Company"), Intelect Network Technologies
Company, formerly known as Intelect, Inc., a wholly-owned subsidiary of the
Company ("Intelect"), and John Shaunfield ("Shaunfield").
WHEREAS, Intelect, Shaunfield, and Electronic Communications Systems,
Inc., a corporation owned by Shaunfield and Richard Dzanski, entered into that
certain Irrevocable Option Agreement dated as of October 1, 1995, providing
for, among other things, the right and option of Intelect to purchase certain
technology concerning switching of digital data communications signals on
fiber-optic cable (as described in the Option Agreement, the "Technology"):
WHEREAS, Section 1.5 (b) of the Option Agreement provides in part that
Intelect will pay to Shaunfield a product royalty for a period of ten (10)
years commencing with the date of the exercise of the Option on all products
sold by Intelect (as further described in the Option Agreement, the "Product
Royalty");
WHEREAS, Intelect exercised the Option and purchased the Technology,
and the parties desire to enter into this Agreement to provide that Shaunfield
will release Intelect from all of its remaining obligations under the Option
Agreement, including specifically the obligation to pay the Product Royalty, in
exchange for the receipt of shares of Common Stock of the Company as set forth
in this Agreement:
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
1. Consideration. Shaunfield hereby acknowledges and agrees that
Intelect has fulfilled all of its obligations under the Option Agreement except
for the continuing obligation to pay the Product Royalty in accordance with the
provisions of Section 1.5 (b) of the Option Agreement. Accordingly, in
consideration of the agreement of the Company to issue to Shaunfield 542,182
shares of the Company's Common Stock (the "Shares") and pay Shaunfield a total
of $60,000 within the next 120 days, Shaunfield does hereby release,
extinguish and cancel all of his rights in and under the Option Agreement,
including without limitation, any and all rights that Shaunfield may have to
any Product Royalty under Section 1.5 (b) of the Option Agreement, whether
accrued and unpaid or to be paid in the future, and Shaunfield does hereby
release to Intelect all of his right, title and interest in and to the
Technology, whether arising under the Option Agreement or otherwise, and
Shaunfield does hereby further release and discharge Intelect, the Company, and
all of their affiliates and related entities, successors, transferees, assigns,
officers, directors, employees, and representatives (the "Released Parties")
from any and all claims, demands, causes of action of any kind or nature,
whether known or unknown, liquidated or contingent, against the Released
Parties under the Option Agreement, arising out of or related to or connected
with the
1
<PAGE> 2
transactions contemplated by the Option Agreement, and of or relating to the
Technology or any rights to the Technology. Shaunfield further agrees to
indemnify and hold harmless the Released Parties from and against any and all
losses or damages, including attorneys fees, arising from or relating to any
claims, demands, or causes of action of any kind or nature, made by any person
claiming any rights directly or indirectly to the Technology. Shaunfield
acknowledges and agrees that the Released Parties will suffer irreparable
damage in the event any such person asserts claims or rights to the Technology,
and accordingly, Shaunfield covenants and agrees that the Company shall have
the right to cancel the Shares issuable to Shaunfield pursuant to this
Agreement as a remedy to offset against the Company's rights to indemnification
by Shaunfield hereunder. To protect the Company's rights to indemnification
hereunder, Shaunfield further specifically authorizes the Company to instruct
the Company's transfer agent to notify the Company prior to effecting the
transfer of any of the Shares.
2. Investment Representation. Shaunfield agrees and acknowledges
that the Company, in issuing the Shares pursuant to this Agreement, is relying
upon the availability of an exemption from the registration requirements of
federal and state law, and that consequently the Shares may not be sold or
transferred unless the Shares are either registered or an available exemption
from registration is fully complied with with respect to such Shares.
Shaunfield accordingly represents to the Company that he is acquiring the
Shares for investment purposes only and that the Shares may not be sold except
upon receipt of evidence by the Company that the Shares have either been
registered under applicable federal and state law or an available exemption
from registration has been fully complied with. Shaunfield further agrees and
acknowledges that each certificate evidencing such Shares shall bear a
restrictive legend reading substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN WITHOUT A
VIEW TO THE DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES
AND REGULATIONS THEREUNDER AND IN ACCORDANCE WITH THE APPLICABLE STATE
SECURITIES LAWS. THE ISSUER OF THESE SHARES WILL NOT TRANSFER SUCH
SHARES EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE COMPANY
THAT THE REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH
OR THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL
NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.
3. Registration Rights.
(a) 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 Shaunfield written notice
thereof no less than 10 days prior to the filing of any registration
2
<PAGE> 3
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 Shares as Shaunfield may request in a writing delivered
to the Company within 5 days after Shaunfield's receipt of Company's written
notice.
(b) Shaunfield may participate in any number of registrations
until all of the Shares held by Shaunfield have been distributed pursuant to a
registration or until the Shares are transferable pursuant to Rule 144 under
the Securities Act.
(c) If any registration statement is an Underwritten Public
Offering, the right of Shaunfield 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 Shares in the underwriting shall be limited to the extent
provided herein. Shaunfield 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 Shaunfield) 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 Shaunfield as compared to the
number of shares proposed to be sold by all shareholders.
(d) 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 Shaunfield has elected to include securities
in such registration.
(e) 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.
4. Transferability. No party may assign this Agreement or the
rights and obligations hereunder without the express written consent of the
other parties. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of each of the parties hereto and its
respective successors and assigns, including any corporation with which, or
into which, a party hereto may be merged or which may succeed thereto.
5. Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Texas.
6. 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.
3
<PAGE> 4
7. 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, addressed to
such party at its address set forth below or at such other address as either of
the parties hereby may hereafter notify the other in writing.
To Corporation: INTELECT COMMUNICATIONS SYSTEMS LIMITED
INTELECT NETWORK TECHNOLOGIES COMPANY
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 Shaunfield: John Shaunfield
3225 Monette
Plano, Texas 75025
Telephone: 972-618-5047
8. 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.
9. 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.
10. 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.
4
<PAGE> 5
11. 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 Company, Intelect, and Shaunfield have
executed this Agreement this 25th day of April, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
-------------------------
Name: Edwin J. Ducayet, Jr.
Title: Vice President/Chief Financial Officer
INTELECT NETWORK TECHNOLOGIES COMPANY
By: /s/ PETE IANACE
---------------
Name: Pete Ianace
Title: President
JOHN SHAUNFIELD
/s/ JOHN SHAUNFIELD
-------------------
John Shaunfield
5
<PAGE> 1
EXHIBIT 10.52
IRREVOCABLE OPTION AGREEMENT
This Irrevocable Option Agreement ("Agreement"), is made and entered
in Dallas County, Texas by and between John Shaunfield ("Shaunfield") and
Electronic Communication Systems, Inc., a Texas corporation ("ECS") as Sellers,
and Intelect, Inc., a Hawaii corporation ("Intelect") as Purchaser, effective
as of the 1st day of October, 1995 ("Effective Date").
RECITALS
WHEREAS, ECS is the full and exclusive owner of certain technology
concerning switching of digital data communications signals on fiber-optic
cable; and
WHEREAS, ECS is currently owned in its entirety by Shaunfield and
Richard Dzanski; and
WHEREAS, Shaunfield has certain rights to additional technology as
described in a Compromise and Settlement Agreement entered into between
Shaunfield, OTX Corporation, Opcom, Inc. and Optek Technology, Inc. (the
"Settlement Agreement"), a copy of which is attached hereto as Exhibit "A" and
incorporated herein; and
WHEREAS, Intelect desires to purchase an irrevocable Option to
purchase the technology set forth above from ECS and the rights to such
additional technology owned by Shaunfield pursuant to the terms of this
Agreement; and
WHEREAS, ECS and Shaunfield desire to sell each parties' interest to
the technology owned by ECS and the additional rights to technology owned by
Shaunfield pursuant to the Settlement Agreement; and
WHEREAS, Richard Dzanski shall enter into a separate Option Agreement
to convey his interest he may have in the technology owned by ECS the subject
of this Agreement.
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE 1
TERMS OF SALE
1.1 Agreement to Sell. Subject to the terms and conditions
specified in this Agreement, ECS and Shaunfield shall sell and convey to
Intelect, and Intelect shall purchase and accept from ECS and Shaunfield, an
irrevocable option to purchase (the "Option") (1) the technology concerning the
switching of digital data communications from ECS; and (2) such other
technology the rights of which are owned by Shaunfield pursuant to the
Settlement Agreement (collectively referred to herein as the "Technology"),
each of which is set forth in more particularity on Exhibit "B" for a period of
ninety (90) days from the Effective Date of this Agreement. Once the Option
has been exercised by Intelect, the parties shall then conduct the Closing of
the transaction within ninety (90) days from the date of the Option being
exercised by Intelect.
1.2 Advances. For the purpose of securing the performance of
Intelect under the terms and provisions of this Agreement and as a condition
precedent to ECS's and its shareholders obligations hereunder, Intelect, upon
its exercise of the Option, shall pay to Shaunfield the sum of Twenty Thousand
Dollars ($20,000.00) as an advance on the transaction. Not more than ninety
(90) days following the date of the exercise of the Option, Intelect shall pay
to Shaunfield an additional Thirty Thousand Dollars ($30,000.00). These
monies, in the total sum of Fifty Thousand ($50,000.00)
1
<PAGE> 2
(the "Advances") shall be applied to any Royalty Payments payable to Shaunfield
pursuant to Article 1.7 of this Agreement as such Royalty Payments become due
and payable.
1.3 Definition of Technology. As used herein, the term
"Technology" shall mean all of the right, title and interest of ECS and
Shaunfield in and to the Technology including but not limited to:
(a) All right, title and interest of ECS and Shaunfield in and to
any and all applications relative to the Technology
(including, but not limited to any work in progress related to
the technology);
(b) All right, title and interest of ECS and Shaunfield in and to
any and all derivative works of the Technology, now created or
created in the future; and
(c) All right, title, and interest of ECS and Shaunfield in and to
any drawings, reports, compilations, notes, documents or
related written material concerning the creation and operation
of the Technology.
1.4 Exclusion of Liabilities. Intelect will not assume, and will
not discharge or otherwise be liable for any debts, liabilities or obligations
of ECS and Shaunfield, and the Technology purchased shall not be or become
obligated or subject to, any liability of ECS and Shaunfield, whether fixed or
contingent, recorded or unrecorded, known or unknown (collectively "Excluded
Liabilities"), and all Excluded Liabilities shall be and remain the sole
responsibility of ECS and Shaunfield including, without limitation, the
following:
(a) The liabilities or obligations of ECS and Shaunfield for
periods prior to the Closing;
(b) Federal, state or local tax liabilities or obligations of ECS
and Shaunfield, including, without limitation, any income tax,
any tax recapture, and any FICA, withholding tax, workers'
compensation and any and all other taxes accrued prior to the
Closing;
(c) Liabilities or obligations arising out of or in connection
with claims for alleged acts or omissions including, but not
limited to, misappropriation, relating to the ownership or
operation of the Technology which occurred on or prior to the
Closing;
(d) Any debt, obligation, expense or liability of ECS and
Shaunfield arising out of or incurred in respect to any
transaction of ECS and Shaunfield occurring on or after the
Closing or for any violation by ECS and Shaunfield of any
laws, regulations or ordinances.
Shaunfield will negotiate to settle all outstanding prior liabilities relating
to the Technology and ECS. In addition to the consideration described below,
Intelect will contribute a maximum of One Hundred and Fifty Thousand Dollars
($150,000.00) towards the settlement of these liabilities. Shaunfield hereby
acknowledges that the sum of $34,528.64 has been paid to satisfy the
liabilities owed to Outsourceing Networking, Inc., which is to be credited to
the amount of monies Intelect has offered to contribute pursuant to this
Agreement to reduce the liabilities.
1.5 Consideration. The value paid for the Technology (the
"Consideration") shall be $100.00 upon execution of the Agreement and as
follows:
(a) Intelect will retain the employment services of Shaunfield for
a period of three (3) years commencing with the date of the
exercise of the Option, with responsibility for the further
development of the Technology subject to the terms of an
Employment Agreement, a form of which is attached hereto as
Exhibit "C".
2
<PAGE> 3
(1) Shaunfield will be an employee of Intelect, receiving
the standard employment benefits and subject to the
standard employment policies in effect for all
Intelect employees.
(2) For the term of his employment, Intelect will pay to
Shaunfield a base annual salary of Eighty Thousand
Dollars ($80,000.00), payable in accordance with the
standard payment schedule for all employees of
Intelect.
(3) In addition, Intelect will pay to Shaunfield a bonus
as follows:
(i) In the first year of the term of his
employment, a bonus of Two Thousand Dollars
($2,000.00) per month, without condition.
(ii) In the second and third years of the term of
his employment, a bonus of Two Thousand
Dollars ($2,000.00) per month, conditional on
the delivery of specific improvements to the
Technology, as mutually agreed upon between
Shaunfield and the President of Intelect, at
the beginning of each fiscal year.
(4) All developments (including inventions, whether
patentable or otherwise, trade secrets, improvements,
ideas and writings) which either directly or
indirectly relate to Intelect or any of its
subsidiaries or affiliates (the "Developments") which
Shaunfield, either by himself or in conjunction with
any other person or persons, shall conceive, make,
develop, acquire or acquire knowledge of during the
term of employment, shall become and remain the sole
and exclusive property of Intelect or its designee.
Shaunfield hereby assigns, transfers and conveys, and
agrees to so assign, transfer and convey, all of his
right, title and interest in and to any and all such
Developments, and to disclose fully as soon as
practicable, in writing, all such Developments to the
Board of Directors of Intelect or its designee. At
any time and from time to time, upon the request and
at the expense of Intelect, Shaunfield will execute
and deliver any and all instruments, documents and
papers, give evidence and do any and all other acts
which, in the opinion of counsel for Intelect, are or
may be necessary or desirable to document such
transfer or to enable Intelect to file and prosecute
applications for and to acquire, maintain and enforce
any and all patents, trademark or tradename
registrations or copyrights with respect to any such
Development, or to obtain any extension, validation,
reissue, continuance or renewal of any such patent,
trademark or copyright. Intelect will be responsible
for the preparation of any such instruments,
documents and papers and for the prosecution of any
such proceedings and will reimburse Shaunfield for
all reasonable expenses incurred by him in compliance
with the provisions of this Section.
(b) Intelect will pay to Shaunfield a product royalty for a period
of ten (10) years commencing with the date of the exercise of
the Option (the "Product Royalty") on all products sold by
Intelect. "Product" is hereby defined to be any standard or
customized hardware or software sold by Intelect, the majority
of which consists of the Technology or any new designs,
improvements, or developments based primarily on the
Technology occurring during the term of Shaunfield's
employment by Intelect. The Product Royalty should be
calculated as follows:
(1) On the first Two Hundred Million Dollars
($200,000,000.00) of aggregate sales of the
Technology by Intelect, calculated on the net
Intelect invoice price, a royalty of Five Percent
(5%).
3
<PAGE> 4
(2) From Two Hundred Million and One Dollars
($200,000,001.00) to Five Hundred Million
($500,000,000.00) of aggregate sales of the
Technology by Intelect, calculated on the net
Intelect invoice price, a royalty of Four Percent
(4%).
(3) Over Five Hundred Million ($500,000,000.00) of
aggregate sales of the Technology by Intelect,
calculated on the net Intelect invoice price, a
royalty of Three Percent (3%).
The Product Royalty shall be calculated following the close of
each quarterly financial period of Intelect and paid within
ninety (90) days following the close of the financial period.
Payment shall be accompanied by a written statement issued by
the President of Intelect showing the basis of the calculation
of the Product Royalty. Said Product Royalty will be reduced
according to the amount of monies paid to Shaunfield as an
Advance according to Article 1.2. Payments are based upon the
amount invoiced for each Product transaction. In the event
Intelect does not receive payment for the full invoice amount
of the Product, Intelect shall withhold from any future
amounts paid to Shaunfield the amount of Product Royalty which
was attributable to the unpaid invoice amounts.
(c) In the event that Intelect sells the full product rights to
the Technology to a third party, Intelect shall request that
such third party assume responsibility for the payment of
Product Royalties as described in Article 1.5(b). However, in
the event that such third party does not agree to accept such
responsibility, Shaunfield will receive a portion of the sale
price received by Intelect for the sale of the full product
rights to the Technology (the "Sales Price") as follows:
(i) If such a sale occurs in the first year following the
exercise of the Option, Shaunfield will receive
Twenty Percent (20%) of the Sales Price.
(ii) If such a sale occurs in the second year following
the exercise of the Option, Shaunfield will receive
Fifteen Percent (15%) of the Sales Price.
(iii) If such a sale occurs in the third or fourth year
following the exercise of the Option, Shaunfield will
receive Ten Percent (10%) of the Sales Price.
(iv) If such a sale occurs in the fifth year following the
exercise of the Option, Shaunfield will receive Five
Percent (5%) of the Sales Price.
(v) If such a sale occurs in the sixth to tenth year
following the exercise of the Option, Shaunfield will
receive Three Percent (3%) of the Sales Price.
1.6 Inspection. Intelect and Intelect's agents and
representatives shall have reasonable access to the Technology until the
Closing hereof (the "Inspection Period") during normal business hours;
provided, however, that (a) any such access by Intelect shall be accomplished
without undue interference with the normal business operations of ECS and
Shaunfield; (b) Intelect shall give ECS and Shaunfield at least twenty-four
(24) hours prior written notice of Intelect's intention to inspect the
Technology; and (c) ECS and Shaunfield may require that Intelect be accompanied
by a representative of ECS and Shaunfield. The costs and expenses of
Intelect's investigation shall be borne solely by Intelect. All information
furnished by ECS and Shaunfield to Intelect in accordance with the provisions
of this Agreement or obtained by Intelect in the course of its investigations
shall be treated as confidential information by Intelect and shall not be
disclosed by Intelect to any third party, provided that Intelect may disclose
such information to the agents, consultants and attorneys representing Intelect
in connection with the subject transaction. Intelect hereby indemnifies and
holds harmless ECS
4
<PAGE> 5
and Shaunfield from and against any claims, causes of action, damages and
expenses (including attorney's fees) incident to, resulting from or in any way
arising out of Intelect's, or Intelect's agents or representatives, presence
in, on or about the Technology location. Intelect may, at any time during the
Inspection Period, terminate this Agreement upon written notice to ECS and
Shaunfield.
1.7 Brokerage Commission. ECS, Shaunfield and Intelect warrant
and represent to each other that no fees or commissions are or will be due in
connection with the sale of the Technology, from the execution of this
Agreement or the consummation of the transactions contemplated herein and each
party hereto hereby agrees to indemnify and hold harmless the other party from
and against any claims made by any person for any such fees, commissions or
like compensation, claiming to have dealt with the party so indemnifying the
other party in connection with this Agreement and the matters set forth herein.
1.8 Cost of Transaction. Whether or not the transactions
contemplated hereby shall be consummated, the parties agree that except as
otherwise specifically provided herein to the contrary:
(a) ECS and Shaunfield will pay the fees, expenses, and
disbursements of ECS and Shaunfield and such agents,
representatives, accountants, and counsel incurred in
connection with the subject matter hereof; and
(b) Intelect shall pay the fees, expenses and disbursements of
Intelect and its agents, representatives, accountants and
counsel incurred in connection with the subject matter hereof.
ARTICLE 2
COVENANTS, REPRESENTATIONS AND WARRANTIES
2.1 Covenants of ECS and Shaunfield. ECS and Shaunfield hereby
covenants with Intelect that from the date the Option is exercised to and
including the Closing, and with respect to Subsection (e), subsequent to the
Closing, as follows:
(a) Access to Records. ECS and Shaunfield shall to the fullest
extent permissible by law (i) accord Intelect and Intelect's
duly authorized agents, representatives or counsel full
access, during normal business hours, to all of the records,
files, reports, and other business documents of ECS and
Shaunfield pertaining to the Technology, (ii) furnish to
Intelect such relevant information with respect to the
Technology which are in ECS's and Shaunfield's possession,
provided that Intelect shall at all times relevant hereto
exercise due diligence to safeguard, maintain, and otherwise
secure the confidential nature of the information so furnished
to Intelect or its representative by ECS and Shaunfield, and
(iii) permit Intelect to examine all files and records which
ECS and Shaunfield may have with respect to the Technology and
(iv) use reasonable efforts to obtain all consents, including,
without limitation, consents of any governmental commission,
agency, or bureau, necessary to effectuate the purchase and
sale contemplated hereby.
(b) Consultation. ECS and Shaunfield will consult with Intelect
at all times up to and including the Closing with respect to
the Technology provided that neither party hereto shall incur
any liability to anyone as a result of the advice or
suggestions offered in this connection.
(c) Operations. With respect to the ownership of the Technology,
between the Effective Date and the Closing, ECS and
Shaunfield, except with the prior written consent of Intelect
to the contrary, will conduct its business operations relating
to the Technology subject to the following conditions:
5
<PAGE> 6
(1) Ordinary Course of Business. All business operations
shall be conducted diligently and only in the
ordinary course of business in substantially the same
manner as ECS and Shaunfield has heretofore conducted
such business, and ECS and Shaunfield shall not make
any material change in operations, finance,
accounting policies, or real or personal property
relating to the Technology.
(2) Maintenance of Technology. ECS and Shaunfield shall
not sell, lease or otherwise dispose of any of the
Technology. ECS and Shaunfield shall not make any
capital expenditures or capital additions or
betterments in connection with the Technology without
the express written consent of the Intelect.
(3) Contracts and Commitments. ECS and Shaunfield shall
not make or renew, extend, amend, modify, or waive
any material provisions of any contract or commitment
relating to the Technology. ECS and Shaunfield shall
use its best efforts to perform all of ECS's and
Shaunfield's obligations under agreements relating to
or affecting the Technology.
(4) Debts and Liabilities. ECS and Shaunfield shall not
create or incur any liabilities relative to the
Technology other than current liabilities incurred in
the ordinary course of business.
(5) Conflicts. ECS and Shaunfield shall not enter into
any transactions or take any acts which if perfected
or performed prior to the Closing, would constitute a
breach of the representations, warranties and
agreements of ECS and Shaunfield contained herein.
(d) Advice of Change. ECS and Shaunfield shall advise Intelect in
writing prior to the Closing of any material adverse change,
or the occurrence of any event which involves any substantial
possibility of a material adverse change in the condition,
financial or otherwise, of the Technology that has occurred
from the Effective Date until the Closing of which an
executive officer of ECS or Shaunfield has acquired knowledge.
(e) Cooperation. Subject to the terms and conditions herein
provided, ECS and Shaunfield will use reasonable efforts to
take, or cause to be taken, such action to execute and deliver
or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all
things necessary, proper or advisable under the provisions of
this Agreement and under applicable law to consummate and make
effective all the transactions contemplated by this Agreement.
(f) Authority. ECS and Shaunfield has full power and authority to
make, execute and deliver this Agreement and the transactions
contemplated hereby. This Agreement is a legal, valid and
binding obligation of ECS and Shaunfield and is enforceable
against ECS and Shaunfield in accordance with its terms.
(g) Absence of Conflicts. The execution and delivery of this
Agreement by ECS and Shaunfield do not, and the performance by
ECS and Shaunfield of ECS's and Shaunfield's obligations under
this Agreement will not:
(1) Violate any term or provision of any law or any
order, writ, or judgment applicable to ECS and
Shaunfield;
6
<PAGE> 7
(2) Result in the creation or imposition of any lien or
other encumbrance upon ECS and Shaunfield or any of
ECS's and Shaunfield's assets or properties that
individually or in the aggregate with any other liens
or encumbrances has or may reasonably be expected to
have a material adverse effect on the validity or
enforceability of this Agreement or on the ability of
ECS and Shaunfield to perform ECS's and Shaunfield's
obligations under this Agreement; or
(3) Conflict with or result in a violation or breach of,
or constitute (with or without notice or lapse of
time or both) a default under, or give to any person
or entity any right of termination, cancellation,
acceleration, or modification in or with respect to,
any contract to which ECS and Shaunfield is a party
or by which any of ECS's and Shaunfield's assets or
properties may be bound, and as to which any such
conflicts, violations, breaches, defaults, or rights
individually or in the aggregate have or may
reasonably be expected to have a material adverse
effect on the validity or enforceability of this
Agreement or on the ability of ECS and Shaunfield to
perform ECS's and Shaunfield's obligations under this
Agreement.
(h) Litigation. ECS and Shaunfield and each person executing this
Agreement on behalf of ECS and Shaunfield hereby represent and
warrant that there are no actions, suits, investigations, or
proceedings pending against ECS and Shaunfield, or (to the
best knowledge of ECS and Shaunfield) threatened against ECS
and Shaunfield, at law or in equity, before, in, or by any
person or entity, that individually or in the aggregate have
or may reasonably be expected to have a material adverse
effect on the validity or enforceability of this Agreement or
on the ability of ECS and Shaunfield to perform ECS's and
Shaunfield's obligations under this Agreement.
(i) Full Disclosure. This Agreement, and all other documents and
information furnished to Intelect and Intelect's
representatives by ECS and Shaunfield pursuant hereto do not
and will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the
statements made and to be made not misleading.
(j) Ownership. ECS and Shaunfield represents and warrants to
Intelect that he is the legal and beneficial owner of the
Technology along with Richard Dzanski. Richard Dzanski must
execute a separate agreement pertaining to the sale of the
Technology for this Agreement to be binding. At the Closing,
ECS and Shaunfield will own and hold good and valid title to
the Technology, free and clear of all liens, encumbrances,
security interests, pledges, options, charges, and assessments
less the interest owned by Richard Dzanski but to be purchased
simultaneously with the purchase under this Agreement.
(k) Indemnification. ECS and Shaunfield agree to indemnify and
hold harmless Intelect and Challenger International, Ltd. in
relation to any claim or action from any third party arising
from the ownership of the Technology.
(l) ECS and Shaunfield agrees that Intelect shall have a right to
offset against the Consideration any damages caused by
misrepresentations, if any, by ECS and Shaunfield with respect
to the above representations.
2.2 Intelect's Representations and Warranties. As a material
inducement to ECS and Shaunfield to enter into this Agreement and perform its
obligations hereunder, Intelect represents and warrants to ECS and Shaunfield
as follows:
7
<PAGE> 8
(a) Authority. Intelect is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Hawaii and has full corporate power and authority to enter
into this Agreement and to perform its obligations under this
Agreement. The execution, delivery and compliance with the
terms of this Agreement by Intelect and the performance by
Intelect of its obligations hereunder have been duly and
validly authorized by all necessary corporate action on the
part of Intelect. This Agreement constitutes a legal, valid
and binding obligation of Intelect and is enforceable against
Intelect in accordance with its terms. Each person executing
this Agreement on behalf of Intelect is authorized to do so.
(b) Absence of Conflicts. The execution and delivery of this
Agreement by Intelect do not, and the performance by Intelect
of Intelect's obligation under this Agreement will not:
(1) Violate any term or provision of any law or any
order, writ, or judgment applicable to Intelect;
(2) Conflict with or result in a violation or breach of,
or constitute (with or without notice or lapse of
time or both) a default under, any of the terms,
conditions, or provisions of the articles of
incorporation or bylaws of Intelect;
(3) Result in the creation or imposition of any lien or
other encumbrance upon Intelect or any of Intelect's
assets or properties that individually or in the
aggregate with any other liens or encumbrances has or
may reasonably be expected to have a material adverse
effect on the validity or enforceability of this
Agreement or on the ability of Intelect to perform
Intelect's obligations under this Agreement;
(4) Conflict with or result in a violation or breach of,
or constitute (with or without notice or lapse of
time or both) a default under, or give to any person
or entity any right of termination, cancellation,
acceleration, or modification in or with respect to,
any contract to which Intelect is a party or by which
any of Intelect's assets or properties may be bound,
and as to which any such conflicts, violations,
breaches, defaults, or rights individually or in the
aggregate have or may reasonably be expected to have
a material adverse effect on the validity or
enforceability of this Agreement or on the ability of
Intelect to perform Intelect's obligations under this
Agreement; or
(5) Require Intelect to obtain any consent, approval, or
action of or make any filing with or give any notice
to, any person or entity other than for the governing
board of Intelect or the shareholders, as applicable.
(c) Litigation. Intelect and each person executing this Agreement
on behalf of Intelect hereby represent and warrant that there
are no actions, suits, investigations, or proceedings pending
against Intelect, or (to the best knowledge of Intelect)
threatened against Intelect, at law or in equity, before, in,
or by any person or entity, that individually or in the
aggregate have or may reasonably be expected to have a
material adverse effect on the validity or enforceability of
this Agreement or on the ability of Intelect to perform
Intelect's obligations under this Agreement.
(d) Intelect Not A Nominee. Intelect represents and warrants that
Intelect is not acting as a nominee, agent, or trustee for any
person or entity who will be the true or beneficial owner of
the Technology; and Intelect further represents and warrants
that Intelect is purchasing the Technology for its own account
and not with the intent of selling the Technology to, or
exchanging the Technology with, any other person or entity who
has
8
<PAGE> 9
requested or arranged with Intelect to enter into this
Agreement with ECS and Shaunfield for such purpose.
(e) Intelect Not in Bankruptcy Proceeding. Intelect and each of
the persons executing this Agreement on behalf of Intelect
hereby represent and warrant that, unless previously disclosed
in writing to ECS and Shaunfield, there has not been filed by
or against Intelect or any corporation, partnership, or other
entity with respect to which Intelect, or any person or entity
which any of them represents is a principal shareholder,
controlling person or a general partner, as the case may be, a
petition in bankruptcy or insolvency proceedings or for
reorganization, or for the appointment of a receiver or
trustee, nor has any such entity made an assignment for the
benefit of creditors or filed a petition for an arrangement or
entered into an arrangement with creditors or admitted in
writing the inability to pay its debts as they become due,
which petition, proceeding, assignment or arrangement was not
dismissed or discontinued within sixty (60) days following the
date that such petition, proceeding, assignment, or
arrangement was filed, served or entered of record.
(f) Full Disclosure. This Agreement, and all other documents and
information furnished to ECS and Shaunfield and ECS's and
Shaunfield's representatives by Intelect pursuant hereto do
not and will not include any untrue statement of a material
fact or omit to state any material fact necessary to make the
statements made and to be made not misleading.
2.3 Covenants of Intelect. Intelect covenants and agrees with ECS
and Shaunfield as follows:
(a) Cooperation. Subject to the terms and conditions herein
provided, Intelect will use its best efforts to take, or cause
to be taken, such action to execute and deliver or cause to be
executed and delivered, such additional documents and
instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make
effective all the transactions contemplated by this Agreement.
(b) Confidentiality. In the event the Closing of the purchase of
the Technology does not occur, Intelect shall maintain and
shall use its best effort to require its accountants,
attorneys, and other representatives to maintain the
confidentiality of ECS's and Shaunfield's trade secrets,
books, and records.
This Section 2.3 shall survive any termination of the
Agreement.
ARTICLE 3
CLOSING
3.1 Closing. Intelect shall have ninety (90) days from the
Effective Date of this Agreement to exercise the Option to purchase the
Technology. The consummation of the sale and purchase of the Technology and
the other transactions contemplated by and described in this Agreement shall
take place at a closing ("Closing") to be held at the offices of Intelect's
legal counsel or at such other place as the parties hereto may agree on or
before the expiration of ninety (90) days from the exercise date of the Option.
To exercise the Option, Intelect must provide written notice to ECS and
Shaunfield of its intent to exercise the Option.
3.2 Actions of ECS and Shaunfield at Closing. At the Closing, ECS
and Shaunfield shall deliver or cause to be delivered to Intelect, the
following:
9
<PAGE> 10
(a) Possession of all Technology;
(b) The bill of sale that is attached hereto as Exhibit "C",
transferring all of ECS's and Shaunfield's right, title and
interest in and to the assets of the Technology listed on
Exhibit "B"; and
(c) Such other instruments and documents as Intelect reasonably
deems necessary to effect the transaction contemplated hereby.
(d) A copy of resolutions duly adopted by ECS and Shaunfield
authorizing and approving ECS's and Shaunfield's performance
of the transactions contemplated hereby and the execution and
delivery of the documents described herein, certified as true
and of full force as of the Closing by the Secretary or an
Assistant Secretary of ECS and Shaunfield;
(e) Certificates of incumbency for the officers of ECS and
Shaunfield making certifications for Closing dated as of
Closing;
(f) Such other evidence of the authority and capacity of ECS and
Shaunfield and their representatives, and of the existence,
good standing and qualification to do business of ECS and
Shaunfield as Intelect reasonably may require.
3.3 Actions of Intelect at Closing. At the Closing, Intelect
shall deliver to ECS and Shaunfield the following:
(a) An Employment Agreement for execution by both parties, in the
form as set forth in Exhibit C;
(b) A copy of resolutions duly adopted by Intelect authorizing and
approving Intelect's performance of the transactions
contemplated hereby and the execution and delivery of the
documents described herein, certified as true and of full
force as of the Closing by the Secretary or an Assistant
Secretary of Intelect;
(c) Certificates of incumbency for the officers of Intelect making
certifications for Closing dated as of Closing;
(d) Such other evidence of the authority and capacity of Intelect
and their representatives, and of the existence, good standing
and qualification to do business of Intelect as ECS and
Shaunfield reasonably may require;
(e) Such other instruments and documents as ECS and Shaunfield
reasonably deems necessary to effect the transactions
contemplated hereby.
ARTICLE 4
DEFAULT REMEDIES
4.1 Intelect's Default. If (i) Intelect refuses or fails to
consummate the purchase of the Technology pursuant to this Agreement for any
reason other than termination hereof pursuant to a right granted Intelect
hereunder to do so, (ii) any representation or warranty made by or on behalf of
Intelect herein shall have been materially incorrect when made or shall become
incorrect in any material respect, or (iii) Intelect otherwise wrongfully fails
to perform any of its obligations or agreements as and when required hereunder,
for any reason other than termination hereof pursuant to a right granted to
Intelect hereunder to do so, then ECS and Shaunfield, as its sole and exclusive
remedy, shall have the right to terminate this Agreement by giving Intelect
written notice thereof, in which event neither
10
<PAGE> 11
party hereto shall have any further rights, duties or obligations hereunder;
and ECS and Shaunfield shall be entitled to receive or retain, as liquidated
damages (ECS and Shaunfield and Intelect hereby acknowledging that the amount
of damages resulting from breach of this Agreement by Intelect would be
difficult or impossible to accurately ascertain), the Advances.
Notwithstanding the foregoing, in the event of any other default by Intelect
under this Agreement, including, without limitation, breach of any covenant,
representation or indemnity, which survives the Closing, ECS and Shaunfield
shall have any and all rights and remedies available at law or in equity by
reason of such default. However, if Intelect terminates this Agreement
pursuant to a right granted to Intelect hereunder to do so, then neither party
hereto shall have any further rights, duties or obligation hereunder, and the
Advances shall be returned to Intelect with all interest accrued thereon.
4.2 ECS's and Shaunfield's Default. If ECS and Shaunfield (i)
wrongfully refuses or fails to close the transaction contemplated by this
Agreement, or (ii) otherwise wrongfully fails to perform any of its obligations
or agreements hereunder, either prior to or at Closing, for any reason other
than termination hereof pursuant to a right granted to ECS and Shaunfield
hereunder to do so, then Intelect may either terminate this Agreement, at which
time the Advances together with any interest accrued thereon shall be returned
to Intelect or Intelect may pursue specific performance of this Agreement.
ARTICLE 5
GENERAL
5.1 CHOICE OF LAW AND VENUE. THE PARTIES AGREE THAT THIS
AGREEMENT IS MADE AND ENTERED INTO AND IS PERFORMABLE IN DALLAS COUNTY, TEXAS,
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS, AND THAT ANY LITIGATION, SPECIAL PROCEEDING OR OTHER PROCEEDING AS
BETWEEN THE PARTIES THAT MAY BE BROUGHT, OR ARISE OUT OF, IN CONNECTION WITH OR
BY REASON OF THIS AGREEMENT SHALL BE BROUGHT IN THE APPLICABLE FEDERAL OR STATE
COURT IN AND FOR DALLAS COUNTY, TEXAS WHICH COURTS SHALL BE THE EXCLUSIVE
COURTS OF JURISDICTION AND VENUE.
5.2 Severability. In the event any provision of this Agreement is
held to be invalid, illegal or unenforceable for any reason and in any respect
by a court of competent jurisdiction, such invalidity, illegality, or
unenforceability shall in no event affect, prejudice or disturb the validity of
the remainder of this Agreement, which shall be in full force and effect,
enforceable in accordance with its terms and the provision held to be void,
illegal or unenforceable shall be limited so that it shall remain in effect to
the extent permissible by law.
5.3 Entire Agreement/Amendment. This Agreement and the exhibits
hereto supersede all prior or contemporaneous agreements, oral or written, and
constitute the entire agreement of whatsoever kind or nature existing between
or among the parties respecting the subject matter hereof, and no party shall
be entitled to benefits other than those specified herein. As between or among
the parties, no oral statements or prior written material not specifically
incorporated herein shall be of any force and effect; the parties specifically
acknowledge that in entering into and executing this Agreement, the parties
relied solely upon the representations and agreements contained in this
Agreement and no others. All prior or contemporaneous representations or
agreements, whether written or verbal, not expressly incorporated herein are
superseded and no changes in or additions to this Agreement shall be recognized
unless and until made in writing by all parties hereto. No amendment,
modification, deletion, release, termination, extension of, alternative,
variance or change in, or supplement to the provisions of this Agreement shall
be valid and effective or otherwise binding on the parties hereto unless or
until such amendment, etc., shall have been reduced to writing and executed by
the parties hereto with the same formality as this Agreement.
11
<PAGE> 12
5.4 Notice. Any notice to be given or to be served upon any party
hereto in connection with this Agreement must be in writing, and may be given
by certified or registered mail and shall be deemed to have been given and
received three (3) days after a certified or registered letter containing such
notice, properly addressed, with postage prepaid, is deposited in the United
States Mail, and if given otherwise than by certified or registered mail, it
shall be deemed to have been given when delivered to and received by the party
to whom it is addressed. Such notice shall be given to Intelect at Intelect's
address set forth herein, and to ECS and Shaunfield at the address set forth
herein. Any party hereto may, at any time, by giving written notice to the
other party hereto, designate any other address in substitution of the
foregoing address to which such notice shall be given.
5.5 Nonwaiver. Unless otherwise expressly provided herein, no
waiver by ECS and Shaunfield or Intelect of any provision hereof shall be
deemed to have been made unless expressed in writing and signed by such party.
No delay or omission in the exercise of any right or remedy accruing to ECS and
Shaunfield or Intelect upon any breach under this Agreement shall impair such
right or remedy or be construed as a waiver of any such breach theretofore or
thereafter occurring. The waiver by ECS and Shaunfield or Intelect of any
breach of any term, covenant or condition herein stated shall not be deemed to
be a waiver of any other breach, or of a subsequent breach of the same or any
other term, covenant or condition herein contained. All rights, powers,
options or remedies afforded to ECS and Shaunfield or Intelect either hereunder
or by law shall be cumulative and not alternative, and the exercise of one
right, power, option or remedy shall not bar other rights, powers, options or
remedies allowed herein or by law, unless expressly provided to the contrary
herein.
5.6 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns; provided,
however, Intelect may not assign this Agreement without the express prior
written consent of ECS and Shaunfield, which consent may be withheld
absolutely, in ECS's and Shaunfield's sole discretion, or otherwise granted,
totally upon such terms and conditions as ECS and Shaunfield shall elect to
impose, in ECS's and Shaunfield's sole discretion, regardless of basis or
reason, if any, therefor. Intelect agrees to furnish ECS and Shaunfield such
information with respect to a proposed assignee and the proposed terms of the
assignment as ECS and Shaunfield shall request. In the event ECS and
Shaunfield consents to an assignment, Intelect shall not be relieved from any
liability under this Agreement by virtue of any such assignment. Any
assignment of this Agreement in violation of the foregoing provisions shall be
null and void.
5.7 Counterpart Execution. This Agreement may be executed in two
or more counterparts, each and all of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.
5.8 Time of Essence. Time is of the essence in the performance of
each party's obligations hereunder.
5.9 Survival. Except as otherwise provided herein, the
representations, warranties and covenants made by the parties pursuant to this
Agreement shall survive the Closing for a period of one (1) year from the
Closing (but not in excess thereof), unless actually discovered through
investigations, if any, either party shall have made prior to the Closing.
5.10 Further Assurances. Each party hereto agrees to execute any
and all documents and to perform such other acts as may be necessary or
expedient to further the purposes of this Agreement and the transactions
contemplated hereby.
5.11 Construction. The parties acknowledge that each party and its
counsel have reviewed and contributed to the contents of this Agreement, and
the parties hereby agree that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any Addendum or Exhibit
hereto. The headings
12
<PAGE> 13
used throughout this Agreement have been used for convenience only and do not
constitute matter to be considered in interpreting this Agreement. All
references in this Agreement to designated "Articles," "Sections," "Exhibits,"
"Addenda" and other subdivisions are to be designated Articles, Sections,
Exhibits, Addenda and other subdivisions of this Agreement as originally
executed. The words "herein," "hereof," "hereunder" and other words of similar
import refer to this Agreement as a whole (including all Exhibits and Addenda)
and not to any particular Article, Section, Exhibit, Addendum or other
subdivision. Whenever used herein, the singular number shall include the
plural and the plural the singular, and the use of any gender shall include all
genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in multiple originals, all as of the Effective Date.
ECS:
ELECTRONIC COMMUNICATIONS SYSTEMS, INC.
Date: 11-1-95 By: /s/ John Shaunfield
-------------------------
Name: John Shaunfield
Its: President
Address: ----------------------------------
----------------------------------
INTELECT:
INTELECT, INC.
Date: 11-1-95 By: /s/ Edwin Ducayet
------------------------------------
Name: Edwin Ducayet
Its: Vice President
Address: ----------------------------------
----------------------------------
13
<PAGE> 14
EXHIBIT "C"
EMPLOYMENT AGREEMENT
14
<PAGE> 15
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made effective and entered
into this 1st day of October, 1995 by and between Intelect, Inc., a Hawaii
corporation ("Intelect"), and John Shaunfield ("Shaunfield") and is based in
part on the existence of the following facts:
RECITALS
A. Intelect and Shaunfield have entered into an Irrevocable
Option Agreement which sets forth the terms for Intelect
purchasing certain technology from Shaunfield and Electronic
Communication Systems, Inc, a Texas corporation;
B. As part of the consideration for the Irrevocable Option
Agreement, Intelect and Shaunfield have agreed to certain
terms of employment;
C. This Agreement will set forth the terms of the employment
arrangement between Intelect and Shaunfield.
TERMS OF EMPLOYMENT
In consideration of the premises set forth above and the mutual
promises set forth below, Intelect and Shaunfield agree as follows:
1. Employment. Intelect hereby employs Shaunfield for and during
the term hereof subject to the reasonable direction of Intelect and its
officers Shaunfield hereby accepts such employment.
2. Duties of Shaunfield. Shaunfield shall have such duties,
responsibilities and authorities as are designated by the officers of Intelect,
and as may be reasonably assigned to Shaunfield from time to time. Shaunfield
agrees to devote his full time, best efforts, abilities, knowledge and
experience to the faithful performance of the duties, responsibilities and
authorities which reasonably may be assigned to Shaunfield.
3. Term. This Agreement shall be effective as of the 1st day of
November, 1995 (the "Effective Date") and shall continue in force and effect
for a period of thirty six (36) months until October 31, 1998 (the "Term")
unless terminated as provided in Section 6 hereof. The Base Salary shall
commence though as of October 1, 1995, but shall not effect the Term as set
forth herein.
4. Compensation. Intelect shall pay Shaunfield, as full
compensation for services rendered by Shaunfield under this Agreement, as
follows:
(a) Base Salary. Intelect initially shall pay Shaunfield a base
salary of Eighty Thousand and No/100 Dollars ($80,000.00) per
year. Such Salary for each year shall be paid by Intelect to
Shaunfield in accordance with the regular payroll policies of
Intelect.
(b) Bonus Compensation. Intelect also shall pay Shaunfield an
annual bonus ("Bonus Compensation") as follows:
(i) In the first year of the term of his employment, a
bonus of Two Thousand Dollars ($2,000.00) per month,
without condition.
(ii) In the second and third years of the term of his
employment, a bonus of Two Thousand Dollars
($2,000.00) per month, conditional on the delivery of
specific improvements to the Technology, as mutually
agreed upon between
15
<PAGE> 16
Shaunfield and the President of Intelect, which shall
be reviewed at the beginning of each fiscal year.
5. Employment Benefits. In addition to the compensation payable
to Shaunfield hereunder, Shaunfield shall be entitled to the benefits afforded
to the employees of Intelect.
6. Termination and Compensation Thereof. This Agreement and
Shaunfield's employment hereunder may be terminated without any breach of this
Agreement at any time during the Term without notice only by reason of and in
accordance with the following provisions:
(a) Death. Shaunfield's death.
(b) Disability. Shaunfield shall be prevented from performing his
duties hereunder by reason of becoming totally disabled as
hereinafter defined. For purposes of this Agreement,
Shaunfield shall be deemed to have become totally disabled
when (i) Shaunfield either receives "total disability
benefits" or (ii) the Board of Directors of Intelect, upon the
written report of a qualified physician designated by the
Board of Directors of Intelect or its insurers, shall have
determined that Shaunfield has become physically and/or
mentally incapable of performing his duties under this
Agreement on a permanent basis.
(c) Termination by Intelect for Cause. Intelect may discharge
Shaunfield for cause and terminate this Agreement immediately
upon written notice to Shaunfield. For purposes of this
Agreement, a "discharge for cause" shall mean termination of
Shaunfield upon written notice to Shaunfield for one or more
of the following reasons:
(1) Gross mismanagement or gross neglect of Shaunfield's
duties as determined by the affirmative vote of
Intelect's Board of Directors after notice to
Shaunfield of the particular details thereof and a
period of thirty (30) days thereafter within which to
cure such act or acts of gross mismanagement or gross
neglect, and the failure of Shaunfield to cure such
act or acts within such thirty (30) day period;
(2) Conviction of Shaunfield by a court of competent
jurisdiction of a felony or a crime involving moral
turpitude; or
(3) Shaunfield's failure to comply with any material
provision of this Agreement that has not been cured
within ten (10) days after notice of such
noncompliance has been given by Intelect to
Shaunfield.
(d) Termination by Intelect with Notice. Intelect may terminate
this Agreement, for a reason other than as set forth herein or
without reason at any time upon thirty (30) days written
notice to Shaunfield.
(e) Termination by Shaunfield for Good Reason. Shaunfield may
terminate this Agreement at any time for Good Reason. For
purposes of this Agreement, the term "Good Reason" shall mean,
without Shaunfield's express written consent, the occurrence
of any of the following circumstances ("Change"):
(1) Any failure by Intelect to comply with any of the
provisions of Sections 4 or 5 of this Agreement;
(2) Any failure by Intelect to comply with any material
provision of this Agreement that has not been cured
within thirty (30) days after notice of such
noncompliance has been given by Shaunfield to
Intelect.
16
<PAGE> 17
7. Compensation on Termination.
(a) In the event this Agreement is terminated pursuant to Section
6, Shaunfield shall be entitled only to such Compensation as
accrued but unpaid including any unused paid time off and
Bonus Compensation, if any.
8. Confidentiality.
(a) Shaunfield recognizes and acknowledges that, by reason of his
past employment by Intelect and his continued employment by
and service to Intelect, he has had, and will continue to
have, access to confidential information of Intelect and its
parent and its subsidiaries, including, without limitation,
information and knowledge pertaining to products, inventions
innovations, designs, ideas, plans, trade secrets information,
manufacturing, packaging, advertising, distribution and sales
methods and systems (unique or proprietary to Intelect), sales
and profit figures, customer and client lists, and
relationships between Intelect and its affiliates and dealers,
distributors, wholesalers, customers, clients, suppliers and
others who have had or will have business dealings with
Intelect and its parent and its subsidiaries ("Confidential
Information"). Shaunfield acknowledges that such Confidential
Information is a valuable and unique asset and covenants that
he will not disclose any such Confidential Information to any
person for any reason whatsoever without the prior written
authorization of Intelect, unless such information is in the
public domain through no fault of Shaunfield or except as may
be required by law.
(b) Upon termination of his employment, Shaunfield will surrender
to Intelect any and all originals and copies of Confidential
Information, in whatever form. Shaunfield acknowledges that
all such materials are the sole property of Intelect and that
he has no right, title or other interest in or to such
materials.
9. Competition. Shaunfield agrees that during the term of his
employment and for a period of two (2) years thereafter, Shaunfield shall not
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director, or in any other individual
or representative capacity, perform for a Competitor of Intelect the same or
similar services as those performed for Intelect, its parent or subsidiaries or
attempt to interfere with, or obtain the services of, any employee of Intelect,
its parent or subsidiaries. For the purpose of the immediately preceding
sentence, the term "Competitor" means any natural person or entity engaged in
the design, development, production, sale or installation of products, services
or software substantially similar to the "Developments" (as defined in Section
10(a) below). Intelect will consider and promptly respond to written requests
by Shaunfield for waiver of the foregoing restrictions.
10. Ownership of Work Product.
(a) All developments (including inventions, whether patentable or
otherwise, trade secrets, discoveries, improvements, ideas and
writings) which either directly or indirectly related to
Intelect or any of its subsidiaries or affiliates (the
"Developments") which Shaunfield, either by himself or in
conjunction with any other person or persons, has conceived,
made developed, acquired or acquired knowledge of during his
employment by Intelect or which Shaunfield, either by himself
or in conjunction with any other person or persons, shall
conceive, make, develop, acquire or acquire knowledge of
during the course of his employment, shall become and remain
the sole and exclusive property of Intelect or its designee.
Developments also shall include the "Technology" and "Product"
as defined in the above- referenced Irrevocable Option
Agreement.
17
<PAGE> 18
(b) Shaunfield hereby assigns, transfers and conveys, and agrees
to so assign, transfer and convey, all of his right, title and
interest in and to any and all such Developments, and to
disclose fully as soon as practicable, in writing, all such
Developments to Intelect or its designee. At any time and
from time to time, during or after Shaunfield's employment
with Intelect, upon the request and at the expense of
Intelect, Shaunfield will execute and deliver any and all
instruments, documents and papers, give evidence and do any
and all other acts which, in the opinion of counsel for
Intelect, are or may be necessary or desirable to document
such transfer or to enable Intelect to file and prosecute
applications for and to acquire, maintain and enforce any and
all patents, trademark or tradename registrations or
copyrights with respect to any such Development, or to obtain
any extension, validation, reissue, continuance or renewal of
any such patent, trademark or copyright. Intelect will be
responsible for the preparation of any such instruments,
documents and papers and for the prosecution of any such
proceedings and will reimburse Shaunfield for all reasonable
expenses incurred by him in compliance with the provisions of
this Paragraph 3.
11. General Provisions.
(a) Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction to be void,
illegal or unenforceable, in whole or in part, then the other
provisions contained herein shall remain in full force and
effect as if the provision which was determined to be void,
illegal, or unenforceable had not been contained herein.
(b) Waiver, Modification, and Integration. The waiver by any
party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any
subsequent breach by any party. This instrument contains the
entire agreement of the parties concerning employment and
supersedes all prior and contemporaneous representations,
understandings and agreements, either oral or in writing,
between the parties hereto with respect to the employment of
Shaunfield by Intelect and all such prior or contemporaneous
representations, understandings and agreements, both oral and
written, are hereby terminated. This Agreement may not be
modified, altered or amended except by written agreement of
all the parties hereto.
(c) Binding Effect. This Agreement shall be binding and effective
upon Intelect and its successors and permitted assigns, and
upon Shaunfield and Shaunfield's heirs and representatives;
provided, however, that Intelect shall not assign this
Agreement without the written consent of Shaunfield.
(d) Governing Law. The parties intend that the laws of the State
of Texas should govern the validity of this Agreement, the
construction of its terms, and the interpretation of the
rights and duties of the parties hereto.
(e) Counterpart Execution. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute but one
and the same instrument.
18
<PAGE> 19
(f) Confidentiality. This Agreement is confidential, and the
substance may be disclosed only as mutually agreed by the
Parties or as may be required by law.
INTELECT, INC.:
By: /s/ Edwin Ducayet
---------------------------
Name: Edwin Ducayet
Title: Vice President
JOHN SHAUNFIELD:
/s/ John Shaunfield
--------------------------------
19
<PAGE> 1
EXHIBIT 10.53
AGREEMENT
This agreement ("Agreement") is executed by and among INTELECT COMMUNICATIONS
SYSTEMS, LTD. ("ICSL"), INTELECT SYSTEMS CORP. ("ISC", and ISC and ICSL
referenced jointly in this agreement as "Intelect"), ROBERT E. NIMON and KIM F.
NIMON (collectively, "Nimon") and NIMON CONSULTING, INC. ("Nimon Consulting").
WHEREAS Intelect and the Nimons desire that the obligations of Intelect to the
Nimons under Section 12(d) of the Stock Purchase Agreement dated as of January
13, 1996 shall be satisfied in the manner set forth herein; and
WHEREAS the all of the parties hereto desire to document the terms of a
settlement of Robert E. Nimon, Kim F. Nimon and Nimon Consulting, Inc. v.
Intelect Systems Corp. and Intelect Communications Systems , Ltd., No.
97-04692-I in the District Court of Dallas County, Texas, 162nd Judicial
District, originally filed 21 May 1997 (the "Lawsuit"),
NOW THEREFORE, the parties hereto agree, for good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, as follows:
1. At Closing, ICSL shall deliver to Nimon by cashier's check or wire
transfer the amount of $200,000.
2. Intelect shall deliver to Nimon at the Closing hereof two executed
promissory notes in form substantially identical to (1) that certain promissory
note in the original principal amount of $1,000,000 attached hereto as Exhibit
1, bearing interest at the rate of six percent (6%) per annum from February 14,
1997 through maturity and payable in installments set forth on the Attachment A
thereto ("Note One"), and (2) that certain promissory note in the original
principal amount of $400,000 attached hereto as Exhibit 2, bearing interest at
the rate of eight percent (8%) per annum from February 14, 1998 through
maturity, and payable in installments as set forth on the Attachment A thereto
("Note Two"). Nimon hereby acknowledges prior receipt of ICSL's payments of
March 5, 1997 and May 16, 1997 in the amounts of $200,000 and $100,000,
respectively, and receipt of the payment referenced in Paragraph 1 above,
constituting and referenced as installment payments on Note One.
1
<PAGE> 2
3. At Closing, ICSL shall deliver to Nimon by cashier's check or wire
transfer the amount of $15,000 to compensate Nimon for their legal expenses and
court costs in connection with the Lawsuit and the completion of this
agreement, and in full settlement and satisfaction of any and all of Intelect's
obligations to reimburse or compensate Nimon thereon.
4. Upon the parties' signature hereto at Closing Nimon and Nimon
Consulting shall cause the Lawsuit to be dismissed without prejudice by filing
of the motion agreed among the parties, in form substantially identical to
Exhibit 3 hereto.
5. The "Closing" hereof shall take place at the location or locations
agreed among the parties on the date stated immediately above the signatures
hereto.
6. The parties deny any liability to one another related to the
allegations set forth in the Lawsuit, and nothing in this Agreement is, or
shall be construed to be, an admission of liability.
7. Each party warrants and represents that at the time of executing this
Agreement it has not made any assignment, in whole or in part, of any claims
made the subject of this Agreement.
8. This Agreement shall inure to the benefit of, and shall bind, the
parties, their heirs, successors, and assigns.
9. Each of the parties executes this Agreement of his, her or its own
free will after having discussed its provisions with legal counsel. Each of
the parties warrants that as of the date of execution, no representations as to
the final terms of settlement have been made other than those stated in this
Agreement. Each of the undersigned persons warrants that he or she is
authorized to execute this Agreement in the capacity stated, and that he or she
is legally competent to execute this Agreement, and each of the respective
corporate entities does warrant the same with respect to its executing officer
or agent.
10. This Agreement shall not be modified except in a writing signed by
both parties.
11. This Agreement bears a reasonable and substantial relation to Texas
and the parties do hereby agree that Texas law shall apply to determine the
parties' rights hereunder.
12. This Agreement may be executed in two or more counterparts. Each
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
2
<PAGE> 3
EXECUTED on this 7th day of July, 1997.
INTELECT COMMUNICATIONS SYSTEMS, LTD.
By: /s/ Herman M. Frietsch
------------------------------
Herman M. Frietsch
Chairman and CEO
INTELECT SYSTEMS CORP.
By: /s/ Herman M. Frietsch
------------------------------
Herman M. Frietsch
President and CEO
/s/ Robert E. Nimon
----------------------------------
/s/ Kim F. Nimon
----------------------------------
NIMON CONSULTING, INC.
By: /s/ Robert E. Nimon
------------------------------
Robert E. Nimon
Vice President
<PAGE> 1
EXHIBIT 10.54
PROMISSORY NOTE
$1,000,000 July 7, 1997
FOR VALUE RECEIVED, the undersigned, Intelect Communications Systems
Limited, a Bermuda company ("ICSL") and Intelect Systems Corp., a Delaware
corporation ("ISC" and together with ICSL called "Maker") jointly and severally
promise to pay to Robert E. Nimon and Kim E. Nimon, jointly, together (the
"Holder"), the principal amount of ONE MILLION DOLLARS ($1,000,000) together
with interest on the principal amount of this Note outstanding from time to
time, calculated from February 14, 1997 on the basis of a 360 day year,
accruing at the rate of six percent (6%) per annum. All payments by the Maker
under this Note shall be in immediately available funds.
Payments of principal and interest hereunder shall conform to the
periodic installments specified on the amortization schedule set forth as
Attachment A hereto, which Attachment A is made a part hereof for all purposes.
All unpaid principal and accrued interest hereunder shall be paid no later than
February 14, 1998.
This Note shall be earlier due and payable upon the occurrence at any
time of any of the following events of default (individually, "an Event of
Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal or interest
under this Note;
(2) the liquidation, termination of existence, dissolution,
insolvency or business failure of the Maker,
(3) Maker shall become insolvent, voluntarily or involuntarily be
made the subject of any proceeding provided for by any
bankruptcy or similar debtor relief law, be subject to the
appointment of any receiver or custodian, or make any
assignment or trust mortgage for the benefit to creditors.
Upon the occurrence of an Event of Default referenced by subparagraph
(1) above and holder's written notice thereof to Maker, Maker shall be given
ten days from receipt of such notice to cure such Event of Default.
Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate
which is two (2) percentage points above the rate per year specified in the
first paragraph of this Note. Such interest on overdue amounts under this Note
shall be payable on demand and shall accrue and be compounded monthly until the
obligation of the Maker with respect to the payment of such interest has been
discharged (whether before or after judgement).
<PAGE> 2
In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by the Maker, then such excess sum shall be credited by
the holder as a payment of principal.
This Note may be prepaid in part or in full at any time without
penalty.
All payments by the Maker under this Note shall be made without
set-off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever.
Any amounts paid under this Note shall apply first to accrued
interest, and then to principal due hereunder.
No reference in this Note to any guaranty or other document shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
of such holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion.
Except as specifically provided for herein, Maker waives presentment
and demand for payment, protest, notice of protest and nonpayment, and notice
of the intention to accelerate. Maker agrees that its liability on this Note
shall not be affected by any renewal or extension in the time of payment
hereof, by any indulgences, and hereby consents to any and all renewals,
extensions, indulgences, releases or changes, regardless of the number of such
renewals, extensions, releases, or changes.
This Note shall be governed in all respects, including construction,
validity, terms, performance, and waiver by the laws of the State of Texas.
All of the covenants, stipulations, promises, and agreements in this
Note contained by or on behalf of Maker shall bind its successors and assigns,
jointly and severally, whether so expressed or not. Maker may not assign its
rights or obligations hereunder without the prior written consent of the
holder. This Note may be transferred or assigned by the holder only upon the
prior written consent of Maker, which shall not be unreasonably withheld.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
<PAGE> 3
IN WITNESS WHEREOF, each of the corporations named as Maker hereof has
duly caused this Note to be signed on its behalf, in its corporate name and by
its duly authorized officer this 7th day of July, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
--------------------------------
Name: Herman M. Frietsch
Title: Chairman and CEO
INTELECT SYSTEMS CORP.
By: /s/ HERMAN M. FRIETSCH
--------------------------------
Name: Herman M. Frietsch
Title: President and CEO
<PAGE> 1
EXHIBIT 10.55
PROMISSORY NOTE
$400,000 July 7, 1997
FOR VALUE RECEIVED, the undersigned, Intelect Communications Systems
Limited, a Bermuda company ("ICSL") and Intelect Systems Corp., a Delaware
corporation ("ISC" and together with ICSL called "Maker") jointly and severally
promise to pay to Robert E. Nimon and Kim E. Nimon, jointly, together (the
"Holder"), the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000)
together with interest on the principal amount of this Note outstanding from
time to time, calculated from the date hereof on the basis of a 360 day year,
accruing at the rate of eight percent (8%) per annum from February 14, 1998
through maturity. All payments by the Maker under this Note shall be in
immediately available funds.
Payments of principal and interest hereunder shall conform to the
periodic installments specified on the amortization schedule set forth as
Attachment A hereto, which Attachment A is made a part hereof for all purposes.
All unpaid principal and accrued interest hereunder shall be paid no later than
June 1, 1998.
This Note shall be earlier due and payable upon the occurrence at any
time of any of the following events of default (individually, "an Event of
Default" and collectively, "Events of Default"):
(1) default in the payment when due of any principal or interest
under this Note;
(2) the liquidation, termination of existence, dissolution,
insolvency or business failure of the Maker,
(3) Maker shall become insolvent, voluntarily or involuntarily be
made the subject of any proceeding provided for by any
bankruptcy or similar debtor relief law, be subject to the
appointment of any receiver or custodian, or make any
assignment or trust mortgage for the benefit to creditors.
Upon the occurrence of an Event of Default referenced by subparagraph
(1) above and holder's written notice thereof to Maker, Maker shall be given
ten days from receipt of such notice to cure any such Event of Default.
Every amount overdue under this Note shall bear interest from and
after the date on which such amount first became overdue at an annual rate
which is two (2) percentage points above the rate per year specified in the
first paragraph of this Note. Such interest on overdue amounts under this Note
shall be payable on demand and shall accrue and be compounded monthly until the
obligation of the Maker with respect to the payment of such interest has been
discharged (whether before or after judgement).
<PAGE> 2
In no event shall any interest charged, collected or reserved under
this Note exceed the maximum rate then permitted by applicable law and if any
such payment is paid by the Maker, then such excess sum shall be credited by
the holder as a payment of principal.
This Note may be prepaid in part or in full at any time without
penalty.
All payments by the Maker under this Note shall be made without
set-off or counterclaim and be free and clear and without any deduction or
withholding for any taxes or fees of any nature whatever.
Any amounts paid under this Note shall apply first to accrued
interest, and then to principal due hereunder.
No reference in this Note to any guaranty or other document shall
impair the obligation of the Maker, which is absolute and unconditional, to pay
all amounts under this Note strictly in accordance with the terms of this Note.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the holder in enforcing the obligations
of the Maker under this Note.
No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
of such holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion.
Except as specifically provided for herein, Maker waives presentment
and demand for payment, protest, notice of protest and nonpayment, and notice
of the intention to accelerate. Maker agrees that its liability on this Note
shall not be affected by any renewal or extension in the time of payment
hereof, by any indulgences, and hereby consents to any and all renewals,
extensions, indulgences, releases or changes, regardless of the number of such
renewals, extensions, releases, or changes.
This Note shall be governed in all respects, including construction,
validity, terms, performance, and waiver by the laws of the State of Texas.
All of the covenants, stipulations, promises, and agreements in this
Note contained by or on behalf of Maker shall bind its successors and assigns,
jointly and severally, whether so expressed or not. Maker may not assign its
rights or obligations hereunder without the prior written consent of the
holder. This Note may be transferred or assigned by the holder only upon the
prior written consent of Maker, which shall not be unreasonably withheld.
None of the terms or provisions of this Note may be excluded, modified
or amended except by a written instrument duly executed on behalf of the holder
expressly referring to this Note and setting forth the provision so excluded,
modified or amended.
<PAGE> 3
IN WITNESS WHEREOF, each of the corporations named as Maker hereof has
duly caused this Note to be signed on its behalf, in its corporate name and by
its duly authorized officer this 7th day of July, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
---------------------------------
Name: Herman M. Frietsch
Title: Chairman and CEO
INTELECT SYSTEMS CORP.
By: /s/ HERMAN M. FRIETSCH
---------------------------------
Name: Herman M. Frietsch
Title: President and CEO
<PAGE> 1
EXHIBIT 10.56
June 30, 1997
Mr. Barrett Wissman
HW Finance, L.L.C.
1601 Elm Street, Suite 4000
Dallas, Texas 75201
Dear Barrett:
The enclosed Term Sheet outlines a settlement of all currently disputed issues
between the parties. If you are in agreement with these settlement terms,
please sign in the space below and initial each page of the Term Sheet. We
will then immediately proceed to obtain the approval of the NASDAQ. If
approved by the NASDAQ, we will then prepare the definitive settlement
documents in accordance with the provisions of the Term Sheet.
Sincerely,
/s/ Herman M. Frietsch
Herman M. Frietsch
Chairman and CEO
HMF:jc
INFINITY INVESTORS LIMITED
by: HW Partners L.P., as Advisor
by: HW Finance L.L.C., General Partner
By: /s/ BARRETT H. WISSMAN
------------------------------------
Managing Director
SEACREST CAPITAL LIMITED
by: Sandera Capital Management, L.P.
by: Sandera Capital L.L.C., General Partner
By: /s/ CLARK K. HUNT
------------------------------------
Managing Director
1
<PAGE> 2
TERM SHEET FOR SETTLEMENT OF DISPUTES RELATING TO INTELECT COMMUNICATIONS
SYSTEMS LIMITED (THE "COMPANY") 7% CONVERTIBLE DEBENTURES DUE OCTOBER 15, 1998
(THE "EXISTING DEBENTURES")
<TABLE>
<S> <C>
Holders: Infinity Investors Limited ("Infinity")
Seacrest Capital Limited ("Seacrest")
Conversion of Existing Debentures: All conversions delivered through May 6th, 1997 and conversions
in respect of 20,583 shares of the Company's common stock (the
"Common Stock") (on behalf of Infinity) and 2,287 shares of
Common Stock (on behalf of Seacrest) of the May 7th, 1997
conversions will be honored at conversion prices therein
stated. The balance of the May 7th conversion notice and the
entire amount of the May 8th, 1997 conversion notice will be
converted at $2.00 per share. Such shares of Common Stock will
bear a restrictive legend unless eligible for resale as
described immediately below.
Issuance of Unlegended shares of Common Any shares of Common Stock issued in respect of conversions
Stock: delivered to the Company through May 1st, 1997, and conversions
in respect of 18,965 shares of Common Stock (on behalf of
Infinity) and 20,885 shares of Common Stock (on behalf of
Seacrest) delivered to the Company on May 2nd, 1997, will be
issued without restrictive legends upon receipt of broker's
confirmations per past practice.
Conversion of Balance of Existing Debentures The remaining principal balance of Existing Debentures of
for Common Stock: approximately $2,144,000 will be immediately converted for
Common Stock at a per share conversion price of $5.00.
Resale limitations: The Holders will be restricted from publicly reselling more
than 125,000 shares of Common Stock (whether issued upon
conversion of the Existing Debentures or otherwise held by such
holders at the closing) during any calendar month commencing on
the closing date and ending October 31, 1997; thereafter, such
resale limit shall be increased to 250,000 shares of Common
Stock per month.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
Registration Rights: The Company will file a registration statement on Form S-3
providing for the resale of (1) any shares of Common Stock then
held by either Seacrest, Infinity or Zug Investments and (2)
any shares of Common Stock issued upon conversion of the
Existing Debentures. Furthermore, the Company will use its
best efforts to cause such registration statement to be
declared effective the earlier of September 30, 1997 or two
days following receipt of a "no review" or similar letter from
the SEC.
Other Terms: Holders will agree not to (i) "solicit" proxies or become a
"participant" in any "election contest" as such terms are
defined in Regulation 14A under the 1934 Act, or (ii) assist
any other person to acquire or affect control of the Company.
Holders will waive any quarterly interest payable at June 30,
1997, in connection with the Existing Debentures.
The closing and effectiveness of the restructuring described in
this Term Sheet will be expressly conditioned upon, among other
things, satisfactory evidence that the NASDAQ shall have
approved of, and will raise no objection to, the issuance of
any shares of Common Stock, all as described herein.
All parties will execute full and mutual releases of any and
all claims related to the prior dispute and threats of
litigation.
</TABLE>
3
<PAGE> 1
EXHIBIT 11
INTELECT COMMUNICATIONS SYSTEMS LIMITED AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
----------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary and Fully Diluted Loss Per Share
Shares in issue beginning of period 17,439,604 12,459,487 15,027,728 11,385,117
Shares issued (weighted average) 2,370,415 290,554 3,182,640 799,876
----------- ---------- ---------- ----------
Weighted average shares in issue end of period 19,810,019 12,750,041 18,210,368 12,184,993
Dilutive common stock equivalents:
Stock options using treasury stock method
(weighted average) - 566,544 - 977,266
----------- ---------- ---------- ----------
Total weighted average common shares and common
stock equivalents 19,810,019 13,316,585 18,210,268 13,162,219
=========== ========== ========== ==========
Loss for period (thousands of US Dollars) $ (5,637) (4,865) (13,052) (6,860)
=========== ========== ========== ==========
Loss per share $ (0.28) (0.36) (0.72) (0.52)
=========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,009
<SECURITIES> 916
<RECEIVABLES> 8,584
<ALLOWANCES> 27
<INVENTORY> 3,598
<CURRENT-ASSETS> 16,721
<PP&E> 7,086
<DEPRECIATION> 1,507
<TOTAL-ASSETS> 44,257
<CURRENT-LIABILITIES> 21,916
<BONDS> 0
0
42
<COMMON> 212
<OTHER-SE> 21,448
<TOTAL-LIABILITY-AND-EQUITY> 44,257
<SALES> 6,802
<TOTAL-REVENUES> 9,007
<CGS> 6,042
<TOTAL-COSTS> 6,042
<OTHER-EXPENSES> 7,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 958
<INCOME-PRETAX> (5,578)
<INCOME-TAX> 39
<INCOME-CONTINUING> (5,617)
<DISCONTINUED> (20)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,637)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
