As filed with the Securities and Exchange Commission on September 17, 1997.
Registration No. 333 - _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-3
--------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
INTELECT COMMUNICATIONS SYSTEMS LIMITED
(Exact name of registrant as specified in its charter)
---------------------------
BERMUDA N/A
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1100 EXECUTIVE DRIVE
RICHARDSON, TEXAS 75081
(972) 367-2100
(Address, including zip code, and
telephone number, including area code,
of registrant's principal
executive offices)
---------------------------
HERMAN M. FRIETSCH
Chairman and Chief Executive Officer
INTELECT COMMUNICATIONS SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
(972) 367-2100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
with a copy to:
ROBERT C. BEASLEY
RYAN & SUDAN, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010
(713) 652-0501
---------------------------------------------------------------------------
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
<PAGE>
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==========================================================================================
Title of each
Class of Amount to be Proposed Maximum Proposed Amount of
Securities to Registered Offering Price Per Aggregate Price Registration Fee
be Registered Share (1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, $0.01
par value per share 5,813,633 shares $8.59 $49,939,107 $15,133.06
==========================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) and based upon the average of high and low prices of the
Company's Common Shares as quoted on the Nasdaq National Market on
September 10, 1997.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), SHALL
DETERMINE.
SUBJECT TO COMPLETION DATED SEPTEMBER 17, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
5,813,633 Shares
INTELECT COMMUNICATIONS SYSTEMS LIMITED
Common Shares
-----------
Of the 5,813,633 common shares, par value US $0.01 per share (the "Common
Shares"), of Intelect Communications Systems Limited ("Intelect Communications
Systems Limited" or the "Company") covered by this Prospectus for the account of
certain shareholders of the Company (the "Selling Shareholders"), 2,821,721
shares were issued to certain of the Selling Shareholders in private placements,
750,000 shares were issued upon exercise of warrants or conversion of
convertible preferred stock, 1,910,583 shares are issuable upon exercise of
warrants or conversion of convertible preferred stock, and 331,329 shares were
issued to the certain of the Selling Shareholders in connection with the
acquisition by the Company of Mosaic Information Technologies Inc. on March 29,
1996, all of which may be offered and sold from time to time for the account of
certain of the selling shareholders of the Company. See "Selling Shareholders."
The Common Shares covered by this Prospectus are issuable in connection with
certain financings and in satisfaction of certain registration rights
obligations of the Company to the Selling Shareholders. All of the shares
offered hereunder are to be sold by the Selling Shareholders. The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Shareholders.
The Selling Shareholders may from time to time sell the shares covered by
this Prospectus on the Nasdaq National Market in ordinary brokerage
transactions, in negotiated transactions, or otherwise, at market prices
prevailing at time of sale or at negotiated prices. See "Plan of Distribution."
The Common Shares are traded on the Nasdaq National Market under the symbol
ICOMF.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION (OR ANY STATE SECURITIES COMMISSION) PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
The date of this Prospectus is September 17, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements, information
statements, and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such materials may also be accessed electronically by means of
the Commission's home page on the Internet at HTTP://WWW.SEC.GOV. The Common
Shares of the Company are traded on the Nasdaq National Market.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Shares offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto, as certain items are omitted in accordance with the rules and
regulations of the Commission. For further information pertaining to the Company
and the Common Shares offered hereby, reference is made to such Registration
Statement and the exhibits and schedules thereto, which may be inspected without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
1. The Company's Annual Report on Form 10-K filed on April 15, 1997 and
the Form 10-K/A filed on April 30, 1997;
2. The Company's Quarterly Reports on Forms 10-Q filed on May 15, 1997
and August 14, 1997;
3. The Company's Current Report on Form 8-K filed on March 27, 1997;
4. The Company's Current Report on Form 8-K filed on May 8, 1997;
5. The Company's Current Report on Form 8-K filed on August 20, 1997;
and
6. The description of the Common Shares set forth in the Company's
Registration Statement filed pursuant to Section 12 of the Exchange
Act on Form 8-A on February 24, 1984, and any amendment or report
filed for the purpose of updating any such description.
The report of KPMG Peat Marwick on the aforementioned consolidated
financial statements contained in the Company's Annual Report on form 10-K filed
on April 15, 1997, contains an explanatory paragraph that states that the
Company has suffered recurring losses from continuing operations and is
dependent upon the successful development and commercialization of its products
and its ability to secure adequate sources of capital until the Company is
operating profitably. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Common Shares
registered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
2
<PAGE>
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE CONTAIN
CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. AS A RESULT OF ONE OR MORE
OF THE RISK FACTORS DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS PROSPECTUS,
ACTUAL EVENTS AND RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE
FORWARD-LOOKING STATEMENTS.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to THE ATTENTION OF EDWIN J. DUCAYET, JR., 1100 EXECUTIVE DRIVE,
RICHARDSON, TEXAS 75081, (972) 367-2100. Statements in documents incorporated by
reference shall be deemed modified by statements herein. Statements so modified
shall constitute part of this Prospectus only as so modified.
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
The Company conducts its business operations through direct and indirect
subsidiaries. The parent company is a Bermuda company. A majority of the
Company's directors and officers are residents of the United States. Certain of
the Company's assets and some of the assets of its directors and officers are
located outside the United States. As a result, it may be difficult for
investors in the Common Shares to (i) effect service of process within the
United States upon the Company or such persons, or (ii) realize in the United
States upon the judgments of courts of the United States against the Company or
such persons predicated upon the civil liability provisions of the United States
federal securities laws. The Company has been advised by Conyers Dill & Pearman,
its Bermuda counsel, that there is doubt as to whether the courts of Bermuda
would enforce (i) judgments of United States courts obtained in actions against
such persons or the Company predicated upon the civil liability provisions of
the United States federal securities laws and (ii) original actions brought in
Bermuda against such persons or the Company predicated solely upon United States
federal securities laws. There is no treaty in effect between the United States
and Bermuda providing for such enforcement, and there are grounds upon which
Bermuda courts may not enforce judgments of United States courts. Certain
remedies available under the laws of U.S. jurisdictions, including certain
remedies available under the U.S. federal securities laws, would not be allowed
in Bermuda courts as contrary to that nation's public policy.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
THE COMPANY
Intelect Communications Systems Limited ("Intelect Communications Systems
Limited" or the "Company") was incorporated under the laws of Bermuda in April
1980 and operated under the name of Coastal International, Ltd.
3
<PAGE>
until September 1985 and as Challenger International, Ltd. until December 1995.
The Company has several operating subsidiaries. Unless the context otherwise
indicates, the "Company" refers to Intelect Communications Systems Limited and
its subsidiaries.
The Company's executive offices are located at 1100 Executive Drive,
Richardson, Texas 75081; telephone (972) 367-2100.
RISK FACTORS
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE, SHOULD
BE CAREFULLY CONSIDERED BY AN INVESTOR CONSIDERING A PURCHASE OF THE COMMON
SHARES.
EFFECT OF SALES ON MARKET PRICE OF STOCK
Because it is possible that a significant number of Common Shares could be
sold at the same time hereunder, such sales, or the possibility thereof, could
have a significant depressive effect on the market price of the Company's Common
Shares.
RECENT OPERATING LOSSES
The Company had operating losses and net losses for the year ending
December 31, 1996 and for each of the first two quarters of 1997, as well as in
earlier periods. The losses in 1997 were due to below standard margins on new
products (which constituted the majority of sales) and proportionately high
costs and expenses to support near-term production and sales growth. The
Company's capital requirements in connection with the design, development, and
commercialization of its principal products have been and will continue to be
significant. Depending on the success of the Company's product development and
marketing efforts, substantial additional capital may be required. Any
additional funding the Company may require would be sought through public or
private equity or debt financings, collaborative arrangements, or from other
sources. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available, the Company
will have to reduce certain areas of product development, manufacturing or
marketing activity, or otherwise modify its business strategy, and its business,
results of operations, and financial condition will be materially adversely
affected.
FLUCTUATIONS IN OPERATING RESULTS; CUSTOMER CONCENTRATION
The Company expects that its quarterly operating results are likely to
vary significantly depending on factors such as the market acceptance of the
Company's recently introduced products, the size, timing and recognition of
revenue from significant orders, increased competition, the proportion of
revenues derived from distributors, Original Equipment Manufacturers ("OEMs")
and other channels, changes in the Company's pricing policies or those of its
competitors, the financial stability of major customers, new product
introductions or enhancements by competitors, delays in the introduction of
products or product enhancements by the Company or by competitors, customer
order deferrals in anticipation of upgrades and new products, market acceptance
of new products, customer concerns about the Company's financial condition, the
timing and nature of expenses, and general economic conditions. The Company's
expense levels are based, in part, on its expectations as to future orders and
sales, and the Company may be unable to adjust spending in a timely manner to
compensate for any sales shortfall. If sales are below expectations, operating
results are likely to be materially adversely affected. Net income may be
disproportionately affected by a reduction in sales because a significant
portion of the Company's expenses do not vary with revenues. The Company may
also choose to reduce price or increase spending in response to competition or
to pursue new market opportunities. In particular, if new competitors,
technological advances by existing competitors or other competitive factors
require the Company to invest significantly greater resources in research and
development efforts, the Company's operating margins in the future may be
materially adversely affected.
4
<PAGE>
The Company anticipates that, because its marketing strategy targets
relatively large potential customers, a small number of large orders may
comprise a significant portion of the Company's future product sales.
Historically, sales to a relatively small number of customers have accounted for
a significant portion of the Company's total revenues, particularly with respect
to its S4 and SONETLYNX products. Any significant deferral of purchases of the
Company's products or the reduction, delay or cancellation of orders from one or
more significant customers could materially and adversely affect the Company's
business, results of operations, and financial condition.
Because of all of the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Shares would likely be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS
The markets for the Company's current and planned products are
characterized by rapid technological change, evolving industry standards,
changing market conditions and frequent new product introductions and
enhancements. The introduction of products embodying new technologies or the
emergence of new industry standards can render existing products or products
under development obsolete or unmarketable. The Company's ability to anticipate
changes in such markets and to successfully develop and introduce new products
on a timely basis will be a significant factor in the Company's ability to grow
and remain competitive. New product development often requires long-term
forecasting of market trends, development and implementation of new technologies
and processes and a substantial capital commitment. In particular, the Company
has recently invested substantial resources toward the development of new
products such as its SONETLYNX product line and the CS4. The Company has not yet
completed the development of the CS4 or of planned future enhancements to the
SONETLYNX product line and has not completed beta testing of the LANscape 2.0
product. Development and customer acceptance of new products is inherently
uncertain, and there can be no assurance that the Company will successfully
complete developments on a timely basis or that products will be commercially
successful. The Company competes or will be competing with established companies
with greater financial resources and more developed channels of distribution. No
assurances can be given that the Company will be successful in completing the
CS4 on schedule, that the Company will be successful in competing in this
environment or that it will be able to sell sufficient quantities of the CS4 to
recover its investment or to realize profits. No assurance can be given that
SONETLYNX enhancements will be accepted by customers or that the LANscape 2.0
product will meet standards and expectations of the videoconferencing industry.
Any failure by the Company to anticipate or respond on a cost-effective and
timely basis to technological developments, changes in industry standards or
customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
Competition in the multimedia communications industry is intense, and the
Company believes that competition will increase substantially with the
development of multimedia communications products, rapid technological changes,
industry consolidations, new industry entrants, and potential regulatory
changes. Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition, and a larger installed customer base than
the Company. In addition, many of these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
and to devote greater resources to the development, promotion and sale of their
products than the Company. There can be no assurance that the Company's current
or potential competitors will not develop products and services comparable or
superior to those developed by the Company or adapt more quickly than the
Company to new technologies, evolving industry trends or changing customer
requirements. Increased competition could result in price reductions, reduced
margins, or loss of market share, any of which would materially and adversely
affect the Company's business, results of operations, or financial condition.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressures faced by
the Company will not have a material adverse effect on its business, results of
operations, and financial
5
<PAGE>
condition. If the Company is unable to compete successfully against current and
future competitors, the Company's business, results of operations, and financial
condition will be materially adversely affected.
The Company believes that the videoconferencing market may present lower
barriers to entry than its other markets and may therefore be subject to greater
competition in the future. Increased competition could result in price
reductions, reduced margins and loss of market share by the Company. There can
be no assurance that the Company will be able to compete successfully with its
existing or new competitors or that competitive pressures faced by the Company
will not materially and adversely affect its business, results of operations,
and financial condition.
MANAGEMENT OF GROWTH
The Company is faced with the risks typically associated with rapid
expansion. It has experienced growth in its corporate structure, in the number
of its employees, and the scope of its operating and financial systems. This
expansion has resulted in the need to hire a significant number of new
personnel. As a result of the level of technical and marketing expertise
necessary to support its existing and new customers, the Company must attract
and retain highly qualified and well-trained personnel. There may be only a
limited number of persons with the requisite skills to serve in these positions
and it may become increasingly difficult for the Company to attract and retain
such personnel. Failure to manage the Company's growth properly could have a
material adverse effect on the Company's business, results of operations, and
financial condition.
DEPENDENCE ON PRODUCT COMPONENTS; SINGLE SOURCES OF SUPPLY; DEPENDENCE ON A
SINGLE FACILITY
The manufacture of the Company's products requires the assembly of a
number of components, the majority of which the Company sources from
substantial, and sometimes multiple, vendors. However, the supply level of and
the lead time in delivering certain key components is dynamic and difficult to
predict with any certainty. Sporadic shortages of or significant increases in
the price of such components could materially and adversely affect the Company's
business, results of operations, and financial condition. Certain key components
are available from only one source. The Company has no supply commitments
relating to such components. While the Company has generally been able to obtain
an adequate supply of such components in a timely manner, the Company believes
that alternate sources of supply could be difficult to develop over a short
period of time. The Company buys components from vendors who extend credit. Any
failure to receive suitable credit terms from vendors could have a material
adverse effect upon the Company's business, results of operations, and financial
condition.
The Company buys a fiber optic interface card, for the SONETLYNX OC-3
product, from a small company which is the sole source for the component. The
Company also buys a video codec card, used in SONETLYNX video applications, from
another small company which is the sole source. Delays in delivery of either
component would restrict the Company's ability to increase sales. In the event
either vendor fails to meet commitments, the Company intends to rely on its
in-house manufacturing capabilities, the conversion, however, to in-house backup
supply would not be without some interruption and could have a material adverse
effect upon the Company's business, results of operations, and financial
condition.
The Company uses fiber optic connectors made by a single vendor in the
SONETLYNX OC-3 product. Equivalent components are available from other vendors,
but their use would require a redesign of the method of connecting to fiber.
Such a redesign would cause significant delays in delivery of the product and
could have a material adverse effect upon the Company's business, results of
operations, and financial condition. Accordingly, the Company's strategy is to
forecast requirements and build inventories which comprehend vendor lead times.
The Company has one manufacturing facility, and its revenues are dependent
upon the continued operation of the facility. There can be no assurance that the
occurrence of operational problems at the Company's facility would not
materially adversely affect the Company's business, results of operations, and
financial condition.
6
<PAGE>
DEPENDENCE UPON THIRD PARTIES TO MARKET AND SERVICE THE PRODUCTS
Although the Company expects to continue to market its products directly
to certain accounts, the Company intends to establish a network of resellers,
consisting primarily of value-added resellers ("VARs") and systems integrators
and OEMs with established distribution channels for multimedia communications
products, to market the Company's products and to educate potential end-users
and service providers with respect to the Company's products. The Company's
future prospects depend in large part on its ability to successfully develop
relationships with third parties and upon the marketing and product service
efforts of such third parties. There can be no assurance that the Company will
be able, for financial or other reasons, to finalize third-party distribution or
marketing agreements or that such arrangements, if finalized, will result in the
successful commercialization of any of the Company's products. In such event,
the Company's business, operating results and financial condition could be
materially affected.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain
patents, maintain trade secret protection and operate without infringing the
proprietary rights of third parties or having third parties circumvent the
Company's intellectual property rights. The Company has three issued U.S.
patents. Two relate to key technologies in the S4 communications switch product
and one relates to an interactive voice communication terminal not presently
incorporated in any product. Three additional patents are pending. They relate
to (i) video distribution within the SONETLYNX product line, (ii) certain
features of the CS4 programmable digital switch, and (iii) architecture and
features of the LANscape 2.0 videoconferencing product. There can be no
assurance that any patents issued to the Company will provide the Company with
any competitive advantages or will not be challenged by any third parties, that
the patents of others will not impede the ability of the Company to do business
or that third parties will not be able to circumvent the Company's patents, that
any of the Company's patent applications will result in the issuance of patents
or that the Company will develop additional proprietary products that are
patentable. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate any of the Company's products,
or, if patents are issued to the Company, design around the patented products
developed by the Company.
The Company may be required to obtain licenses from third parties to avoid
infringing patents or other proprietary rights. No assurance can be given that
any licenses required under any such patents or proprietary rights would be made
available, if at all, on terms acceptable to the Company. If the Company does
not obtain such licenses, it could encounter delays in product introductions, or
could find that the development, manufacture or sale of products requiring such
licenses could be prohibited. In addition, the Company could incur substantial
costs in defending itself in suits brought against the Company on patents or
other proprietary rights it might infringe or in filing suits against others to
have such patents or other proprietary rights declared invalid. Parties making
such claims may be able to obtain injunctive or other equitable relief which
could effectively block the Company's ability to sell its products in the United
States and abroad, and could obtain an award of substantial damage either of
which could have a material adverse effect upon the Company's business, results
of operations, and financial condition
Much of the Company's know-how and technology may not be patentable. To
protect its rights, the Company requires many employees, consultants, advisors
and collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure. Furthermore, the Company's business
may be adversely affected by competitors who independently develop competing
technologies, especially if the Company obtains no, or only narrow, patent
protection.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
While most of the Company's operations are not directly regulated, the
telecommunications service providers that constitute certain of the Company's
customers (particularly for the CS4) are heavily regulated at both the federal
and state levels. Such regulation may limit the number of potential customers
for the Company's services or impede the Company's ability to offer competitive
services to the market, or otherwise have a material adverse effect on the
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Company's business, results of operations, and financial condition. At the same
time, recently enacted legislation deregulating the telecommunications industry
may cause changes in the industry, which are difficult to predict at this time,
including entrance of new competitors and industry consolidation, which could in
turn subject the Company to additional competitors, increased pricing pressures,
decrease the demand for the Company's products or services, increase the
Company's cost of doing business or otherwise materially adversely affect the
Company's business, results of operations, and financial condition.
CONTINGENT LIABILITIES
In connection with the sale of its former operations in November 1995, the
Company agreed to certain customary obligations to indemnify the purchases in
such sale for potential losses associated with product liability, environmental
matters, employee matters and other similar items. Certain of these indemnity
obligations survive indefinitely. In the event that a loss associated with the
former operations of the Company is determined to be subject to such indemnity
obligations, the Company's business, results of operations, and financial
condition could be materially adversely affected. Furthermore, the Company could
incur substantial costs (including the diversion of the attention of management)
in defending itself in lawsuits relating to such indemnity obligations.
DEPENDENCE ON KEY PERSONNEL; RETENTION OF EMPLOYEES
The Company's success depends in large part on the continued service of
its key creative, technical, marketing, sales and management personnel and its
ability to continue to attract, motivate and retain highly qualified employees.
Because of the multifaceted nature of interactive media, key personnel often
require a unique combination of creative and technical talents. Such personnel
are in short supply, and the competition for their services is intense. The
process of recruiting key creative, technical and management personnel with the
requisite combination of skills and other attributes necessary to execute the
Company's strategy is often lengthy. The Company has at-will employment
arrangements with its management and other personnel, who may generally
terminate their employment at any time. The loss of the services of key
personnel or the Company's failure to attract additional qualified employees
could have a material adverse effect on the Company's results of operations and
new product development efforts.
VALUE OF SHARES OF STOCK; MARKET FOR COMMON STOCK; STOCK PRICE VOLATILITY
The Company's Common Shares are quoted on the Nasdaq National Market.
Based upon historical trends in the market for the Company's stock and for other
similar technology company stocks, the Company anticipates that the trading
price of its Common Stock may be subject to wide fluctuations in response to
quarterly variations in operating results, changes in actual earnings or in
earnings estimates by analysts, announcements of technological developments by
the Company or its competitors, general market conditions or other events
largely outside the Company's control. In addition, the stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market prices of "high technology" stocks. These fluctuations have
often been disproportionate or unrelated to the operating performance of these
companies. These broad market fluctuations, general economic conditions or other
factors outside the Company's control may adversely affect the market price for
the Company's stock.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Shares
offered hereby. However, with respect to those Common Shares registered hereby
that are issuable upon the exercise of warrants, the Company will receive
$3,235,000, assuming the full exercise of all of such warrants at their stated
exercise prices.
8
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders were issued the Common Shares covered by this
Prospectus in a series of unrelated private placements as summarized below:
Of the 5,813,633 Common Shares being registered:
(i) 993,023 Common Shares were issued to Infinity Investors, Ltd.
("Infinity"), 160,116 Common Shares were issued to Seacrest Capital
Limited ("Seacrest"), and 430,000 Common Shares were issued to Zug
Investments, each in settlement of a dispute arising under and in
conversion of those certain Series A and Series B Convertible
Debentures issued by the Company to Infinity and Seacrest dated
October 15, 1996, such Common Shares being registerable pursuant to
that certain Settlement Agreement dated August 22, 1997;
(ii) 30,000 Common Shares were issued to Isaac Arnold, Jr., 10,000 Common
Shares were issued to Arnold Corporation, and 20,000 Common Shares
were issued Meridian Fund, Ltd., such Common Shares being
registerable pursuant to certain Subscription Agreements dated
August 22, 1997;
(iii) 750,000 Common Shares were issued to The Coastal Corporation Second
Pension Trust (the "Coastal Trust") upon exercise of a warrant dated
May 7, 1997 which was issued pursuant to that certain Loan Agreement
dated May 8, 1997 among the Company, the Coastal Trust, and Intelect
Systems Corp., a wholly-owned subsidiary of the Company (the "Loan
Agreement"); 780,583 Common Share are issuable upon the conversion
of Company Series A Preferred Stock, which was issued to the Coastal
Trust upon conversion of debt to equity pursuant to the Loan
Agreement, all such Common Shares being registerable pursuant to
those certain Registration Rights Agreements dated May 8 and May 30,
1997;
(iv) 800,000 Common Shares are issuable to St. James Capital Corp. ("St.
James") upon exercise of warrants issued to St. James pursuant to
St. James Credit Facility dated February 14, 1997, as amended, among
the Company and St. James, such Common Shares being registerable
pursuant to that certain Registration Rights Agreement dated
February 26, 1997, as amended on March 27, April 24, and May 8,
1997;
(v) 542,182 Common Shares were issued to John Shaunfield as part of a
settlement agreement dated April 25, 1997 in settlement of all
future royalties formerly owed by Intelect Network Technologies
Company, a wholly-owned subsidiary of the Company, under a
technology purchase agreement, such Common Shares being registerable
pursuant to that certain Agreement dated August 25, 1997;
(vi) 331,329 Common Shares were issued to former shareholders of Intelect
Visual Communications Corp. ("IVC"), formerly known as Mosaic
Information Technologies Inc. ("Mosaic") by the Company in a private
placement in connection with its acquisition of Mosaic, such Common
Shares being registerable pursuant to that certain Registration
Rights Agreement dated March 29, 1996;
(vii) 300,000 Common Shares are issuable to Gregory L. Mayhan and Edgar L.
Read as former shareholders of DNA Enterprises, Inc. ("DNA") upon
exercise of those two certain warrants each dated February 13, 1997
issued to Messrs. Mayhan and Read in connection with the Company's
acquisition of DNA, such Common Shares being registerable pursuant
to the terms of such warrants;
(viii) 636,400 Common Shares were issued to certain accredited investors,
615,000 of such Common Shares being registerable pursuant to certain
Subscription Agreements dated August 29, 1997, and 21,400 being
issued to the selling agent in such transaction as part of such
selling agent's fee; and
9
<PAGE>
(ix) 30,000 Common Shares are issuable to Lifeline Industries, Inc. upon
exercise of that certain warrant expiring on December 31, 2001
issued as compensation for consulting services, such Common Shares
being registerable pursuant to the terms of such warrant.
In each case, the issuance of Common Shares to the Selling Shareholders
was undertaken pursuant to Section 4(2) of the Securities Act and, in the case
of the issuances to the accredited investors referred to in item (viii) above,
under Regulation D promulgated thereunder.
The table below sets forth the number of Common Shares beneficially owned
by each of the Selling Shareholders as of September 10, 1997, the number of
shares to be offered by each of the Selling Shareholders pursuant to this
Prospectus, and the number of shares to be beneficially owned by each of the
Selling Shareholders if all of the shares offered hereby are sold as described
herein. Except as provided below, the Selling Shareholders have not held any
positions or offices with, been employed by, or otherwise had a material
relationship with, the Company or any of its predecessors or affiliates since
September 1, 1994.
Of the Selling Shareholders, Robert M. Bolder is the former president of
IVC, a wholly-owned subsidiary of the Company.
Of the Selling Shareholders, the following were employees of Mosaic: Eric
Bolder, Robert Bolder, Robert W. Davis, Matthew Feldman, Nigel Kilpatrick,
Wellner Anderson, Gerald Brangman, Raymond Carbone, and George Eagan. Matthew
Feldman was an officer of IVC. Robert Davis and Nigel Kilpatrick are currently
employees of IVC.
Of the Selling Shareholders, the following extended credit to IVC prior
to IVC's acquisition by the Company and certain of the following received Common
Shares of the Company in partial satisfaction of such obligations of IVC: Robert
Davis and Richard Kalin.
Of the Selling Shareholders, John Shaunfield is an employee of Intelect
Network Technologies Corp., a wholly-owned subsidiary of the Company.
Of the Selling Shareholders, Edgar L. Read and Gregory Mayhan are
employees of DNA Enterprises, Inc., a wholly-owned subsidiary of the Company.
<TABLE>
<CAPTION>
Number of Number of
Common Shares Common Shares
Beneficially Owned Number of Beneficially
as of September 10, Common Shares Owned After
Name of Selling Shareholder 1997 Offered Hereby Offering
- --------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
America First Associates Corp. 21,400 21,400 0
Wellner Anderson 5,593 5,593 0
Kimberly Arcoro 3,835 3,835 0
Robert Arcoro, Jr. 3,835 3,835 0
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Common Shares Common Shares
Beneficially Owned Number of Beneficially
as of September 10, Common Shares Owned After
Name of Selling Shareholder 1997 Offered Hereby Offering
- --------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
Arnold Corporation 10,000 10,000 0
Isaac Arnold, Jr. 99,000 30,000 69,000
Eric Bolder 7,989 7,989 0
Gwendolyn Bolder 3,196 3,196 0
Robert Bolder 94,102 94,102 0
Gerald Brangman 750 750 0
James and Mary Clay 2,557 2,557 0
The Coastal Corporation 6,685,135 1,530,583(1) 5,154,552(2)
Second Pension Trust
Chris Cutsogeorge 958 958 0
Blake C. Davenport 25,000 25,000 0
Robert W. Davis 15,979 15,979 0
George and Lisa Eagan 9,077 9,077 0
Arnold and Elaine Feldman 3,196 3,196 0
Matthew J. Feldman 98,895 98,895 0
Spencer G. Feldman 799 799 0
Fernhill Partners 40,000 40,000 0
Fiftieth & Grover Shopping Center 29,500 25,000 4,500
</TABLE>
- --------
1 Includes 780,583 Common Shares issuable upon conversion of Series A
Preferred Shares on a share-per- share basis.
2 Includes 450,000 Common Shares issuable upon exercise of a warrant
expiring August 26, 2002 at $6.00 per Common Share; includes 4,219,409 Common
Shares issuable upon conversion of the Company's 10% Cumulative Convertible
Preferred Shares, Series A (the "Series A Preferred Shares") on a
share-per-share basis; includes 485,143 Common Shares issuable upon conversion
of Series A Preferred Shares issuable upon conversion of $3,000,000 of debt to
equity at $6.18375 per share as set forth in that certain Amended and Restated
Loan Agreement dated August 27, 1997 among the Company and The Coastal
Corporation Second Pension Trust.
11
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Common Shares Common Shares
Beneficially Owned Number of Beneficially
as of September 10, Common Shares Owned After
Name of Selling Shareholder 1997 Offered Hereby Offering
- --------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
Carol Filler 25,000 25,000 0
Douglas Floren 25,000 25,000 0
Edward H. Gomez 5,273 5,273 0
Richard A. Gray 20,000 20,000 0
Alexander Greenberg 25,000 25,000 0
Barbara Hall 1,570 1,278 0
Philip Hempleman 75,000 75,000 0
Kevin T. Hoffman 4,794 4,794 0
Infinity Investors, Ltd.(3) 993,023 993,023 0
Joseph Kaidanow 5,593 5,593 0
Richard S. Kalin 34,967 27,517 7,450
Nigel Kilpatrick 6,392 6,392 0
Emanuel Kramer 29,721 29,721 0
Lifeline Industries, Inc. 30,000(4) 30,000(4) 0
David May 15,000 15,000 0
Gregory L. Mayhan 150,000(5) 150,000(5) 0
Timothy McCollum 40,000 40,000 0
</TABLE>
- --------
3 Party to a Settlement Agreement dated August 22, 1997 which limits the
Common Shares it and Seacrest Capital Limited, collectively, can sell to 125,000
per month until October 31, 1997, and 250,000 each month thereafter.
4 Includes 30,000 Common Shares issuable by the Company upon exercise of
that certain warrant expiring on December 31, 2001 at $4.50 per Common Share.
5 Includes 150,000 Common Shares issuable upon exercise of a warrant
expiring February 13, 1999 at $5.00 per Common Share.
12
<PAGE>
<TABLE>
<CAPTION>
Number of Number of
Common Shares Common Shares
Beneficially Owned Number of Beneficially
as of September 10, Common Shares Owned After
Name of Selling Shareholder 1997 Offered Hereby Offering
- --------------------------------- ------------------- --------------- ---------------
<S> <C> <C> <C>
Meridian Fund, Ltd. 467,000 20,000 447,000
Sanford Prater 40,000 40,000 0
Frank Lyon Polk III 37,500 37,500 0
Privet Row, Inc. 25,000 25,000 0
Leonard Rauner 25,000 25,000 0
Edgar L. Read 150,000(6) 150,000(6) 0
Marcus R. Rowan 15,000 15,000 0
Seacrest Capital Limited(7) 160,116 160,116 0
John Shaunfield 550,515 542,182 8,333
St. James Capital Corp. 800,000(8) 800,000(8) 0
TCM Partners, L.P. 365,000 150,000 215,000
Wayne Wilkey 7,500 7,500 0
Zug Investments 430,000 430,000 0
</TABLE>
The Selling Shareholders identified above may have sold, transferred or
otherwise disposed of all or a portion of their Common Shares since the date on
which they provided the information regarding their Common Shares in
transactions exempt from the registration requirements of the Securities Act.
Additional information concerning the above listed Selling Shareholders may be
set forth from time to time in prospectus supplements to this Prospectus.
See "Plan of Distribution."
PLAN OF DISTRIBUTION
Common Shares covered hereby may be offered and sold from time to time by
the Selling Shareholders. The Selling Shareholders will act independently of the
Company in making decisions with respect, among other things, to the timing,
manner and size of each sale. Such sales may be made in the over-the-counter
market or otherwise, at
- ----------------------
6 Includes 150,000 Common Shares issuable upon exercise of a warrant
expiring February 13, 1999 at $5.00 per Common Share.
7 Party to a Settlement Agreement dated August 22, 1997 which limits the
Common Shares it and Infinity Investors, Ltd., collectively, can sell to 125,000
per month until October 31, 1997, and 250,000 each month thereafter.
8 Includes 800,000 Common Shares issuable upon exercise of warrants
expiring February 26, March 27, April 24, and May 8, 2002 at $2.00 per Common
Share.
13
<PAGE>
prices related to the then current market price or in negotiated transactions,
including pursuant to an underwritten offering or one or more of the following
methods: (a) purchases by the broker-dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (b) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (c) block trades in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction. In effecting sales, broker-dealers
engaged by the Selling Shareholders may arrange for other broker-dealers to
participate. Broker-dealers will receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to the sale.
In offering the Common Shares covered hereby, the Selling Shareholders and
any broker-dealers and any other participating broker-dealers who execute sales
for the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profits
realized by the Selling Shareholders and the compensation of such broker-dealer
may be deemed to be underwriting discounts and commissions. In addition, any
shares covered by this Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus.
The Company has advised the Selling Shareholders that during such time as
they may be engaged in a distribution of the Common Shares included herein they
are required to comply with Regulation M promulgated under the Exchange Act.
With certain exceptions, Regulation M precludes any Selling Shareholder, any
affiliated purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the Common Shares.
Because it is possible that a significant number of Common Shares could be
sold at the same time hereunder, such sales, or the possibility thereof, may
have a significant depressive effect on the market price of the Company's Common
Shares.
This offering will terminate on the earlier of (a) the date on which the
shares are eligible for resale without restriction pursuant to Rule 144(k) under
the Securities Act or (b) the date on which all shares offered hereby have been
sold by the Selling Shareholders.
DESCRIPTION OF CAPITAL STOCK
The authorized share capital of the Company is 80,000,000 Common Shares of
US $0.01 par value each (the "Common Shares") and 15,000,000 Serial Preferred
Shares of US $0.01 par value each (the "Preferred Shares"). As of September 10,
1997, there were 22,097,115 Common Shares and 4,999,992 Preferred Shares issued
and outstanding.
COMMON SHARES
The holders of Common Shares shall each be entitled to rank pari passu in
all respects with each other holder of Common Shares. Any shareholder who is a
holder of Common Shares shall be entitled to one vote for each Common Share held
by such holder. Subject to the payment of preferential amounts to which the
holders of Preferred Shares, which may be issued from time to time, may be
entitled, holders of Common Shares shall be entitled, pro rata to their holding
of Common Shares, to participate in any assets or surplus of the Company
distributable in any liquidation, dissolution or winding-up of the Company.
14
<PAGE>
PREFERRED SHARES
The Preferred Shares may be issued from time to time in one or more series
and in such amount as may be established or designated from time to time by the
Board of Directors in accordance with the Bye-Laws of the Company. The Board of
Directors has the authority to establish and designate any unissued Preferred
Shares as a series of such shares.
10,000,000 of the serial Preferred Shares have been designated as shares
of $2.0145, 10% Cumulative Convertible Preferred Shares, Series A, (the "Series
A Preferred Shares") of which 4,219,409 shares have been issued. The Series A
Preferred Shares may be redeemed, at the Company's option, at 110%, 105%, and
100% of face value after June 1, 1999, 2000, and 2001, respectively. After
August 31, 1997, the Series A Preferred Shares are convertible into Common
Shares on a share-for-share basis, subject to anti-dilution provisions.
The holders of Series A Preferred Shares do not generally have any right
or power to vote on any question or in any proceeding at any meeting of
shareholders, provided that holders of the Series A Preferred Shares shall
receive notice of, and be entitled to representation at any such meeting. On any
matters on which the holders of the Series A Preferred Shares shall be entitled
to vote, they shall be entitled to one vote for each Series A Preferred Share
held.
Dividends are payable quarterly beginning September 30, 1997, in cash or
Common Shares, at the Company's option. Dividends payable in Common Shares shall
be paid in an amount equivalent to the accrued dividend, converted into Common
Shares at the average closing market bid price for the five (5) consecutive
trading days prior to the date the dividend is otherwise payable. In case at any
time the equivalent of three (3) or more full quarterly dividends (whether
consecutive or not) on any series of Preferred Shares shall be in arrears, then
during the period (hereinafter called the "Class Voting Period") commencing with
such time and ending with the time when all arrears in dividends on all
Preferred Shares shall have been paid and the full dividend on all Preferred
Shares for the then current quarterly dividend period shall have been paid or
declared and set apart for payment, at a meeting called by the holders of the
Series A Preferred Shares and held for the election of directors during the
Class Voting Period, the holders of a majority of the outstanding Series A
Preferred Shares represented in person or by proxy at said meeting shall be
entitled, as a class, to the exclusion of the holders of all other classes of
shares of the Company, to elect two directors of the Company (or such greater
number constituting not less than 35% of the number of Directors authorized),
each Series A Preferred Share entitling the holder thereof to one vote for each
Director.
In the event of any liquidation, dissolution, or winding up of the affairs
of the Company, whether voluntary or otherwise, after payment or provision for
payment of the debts and other liabilities of the Company, the holders of the
Series A Preferred Shares shall be entitled to receive, out of the remaining net
assets of the Company, the amount of Two and 1.45/100 dollars ($2.0145) in cash
for each Series A Preferred Share, plus an amount equal to all dividends accrued
and unpaid on each such Series A Preferred Share up to the date fixed for
distribution, before any distribution shall be made to the holders of the Common
Shares, or any other capital stock of the Company ranking (as to any such
distribution) junior to the Series A Preferred Shares.
In the event the Company issues any new securities, the holders of the
Series A Preferred Shares shall have preemption rights entitling such holders to
purchase such new securities from the Company in cash for the same per share
consideration at which such new securities are issued (or the per share price at
which a share of the new securities is acquirable upon exercise or conversion of
options, warrants or other rights to Common Shares), except such preemption
rights shall not be applicable to certain financings.
VARIATION OF RIGHTS
If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, whether or not the Company is being
wound up, be varied with the consent in writing of the holders of three-fourths
of the issued and outstanding shares
15
<PAGE>
of that class or with the sanction of a resolution passed by a majority of the
votes cast at a separate general meeting of the holders of the shares of the
class in accordance with the relevant provisions of the Companies Act 1981 of
Bermuda. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
LIMITATIONS ON OWNERSHIP OF SHARES BY RESIDENTS OF BERMUDA
Under the Exchange Control Act of 1972 of Bermuda, the issue and transfer
of shares of Bermuda companies such as the Company is subject to the prior
general approval of the Bermuda Monetary Authority (the "Authority"). The
Authority has approved the issue and subsequent unrestricted transfer of the
Common Shares offered by this Prospectus to and between persons and corporations
considered by the Authority to be nonresidents of Bermuda for foreign exchange
purposes for so long as such Common Shares remain listed on the Nasdaq National
Market. The issue or transfer of shares of the Company to persons or
corporations considered by the Authority to be residents of Bermuda for foreign
exchange purposes will require the specific approval of the Authority.
LEGAL MATTERS
The validity of the Common Shares offered by the Selling Shareholders
hereby will be passed upon by Conyers, Dill & Pearman, Hamilton, Bermuda.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company as of December 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1996, the two month period ended December 31, 1995 and the years
ended October 31, 1995 and 1994 have been incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick,
independent chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick covering the aforementioned consolidated financial statements and
financial statement schedule contains an explanatory paragraph that states that
the Company has suffered recurring losses from continuing operations and is
dependent upon the successful development and commercialization of its products
and its ability to secure adequate sources of capital until the Company is
operating profitably. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements
and financial statement schedule do not include any adjustments that might
result from the outcome of this uncertainty.
16
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
PAGE
Available Information .................................................. 2
Incorporation of Certain Documents
by Reference ........................................................ 2
Enforceability of Civil Liabilities
Under United States Federal
Securities Laws ..................................................... 3
The Company ............................................................ 3
Risk Factors ........................................................... 4
Use of Proceeds ........................................................ 8
Selling Shareholders ................................................... 9
Plan of Distribution ................................................... 13
Description of Capital Stock ........................................... 14
Limitations on Ownership of Shares
by Residents of Bermuda ............................................. 16
Legal Matters .......................................................... 16
Experts ................................................................ 16
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Nature of Expense
SEC Registration Fee ...................................... $ 15,133.06
Legal (including Blue Sky) and Accounting Fees and Expenses $ 45,000.00*
*Estimated TOTAL ..... $ 60,114.42*
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bye-Law 7.2 of the Registrant's Bye-Laws provides for indemnification by the
Registrant of directors and officers, or a person who acts or acted at the
Registrant's request as a director or officer of a body corporate of which the
Registrant is or was a Member or creditor, and his heirs and legal
representatives, against all costs, judgements, fines, taxes, penalties, charges
and expenses (including attorney's fees), including an amount paid to settle an
action or satisfy a judgement, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reason of being or having been a director or officer of the Registrant
or such body corporate; provided that the obligation of the Registrant to so
indemnify shall not extend to any liability in respect of any wilful negligence,
wilful default, fraud or dishonesty which may attach to any such person. The
Registrant shall also indemnify any such person in such other circumstances to
the fullest extent as the Companies Act of 1981 of Bermuda as amended from time
(the Act) or applicable law permits or requires. Further, nothing in said
Bye-Law shall limit the right of any person entitled to indemnity to claim
indemnity apart from the provisions of said Bye-Law.
Subject to the Act, the Registrant may purchase and maintain insurance for
the benefit of directors and officers covered by the indemnity provision of the
Bye-Laws.
The Companies Act of 1981 of Bermuda provides that (i) subject to
sub-paragraph (ii) below, a Company may in its bye-laws or in any contract or
arrangement between the Company and any officer, or any person employed by the
Company as auditor, exempt such officer or person from, or indemnify him in
respect of, any loss arising or liability attaching to him by virtue of any rule
of law in respect of any negligence, default, breach of duty or breach of trust
of which the officer or person may be guilty in relation to the Company or any
subsidiary thereof, and (ii) any provision, whether contained in the bye- laws
of a company or in a contract or arrangement between a company and any director
or officer, which purports to indemnify against liability in respect of fraud or
dishonesty of which he may be guilty, shall be void. Accordingly, if a director
or officer should be found guilty of fraud or dishonesty in relation to the
affairs of the Registrant, he would not be indemnified by the Registrant in such
circumstances.
The Company has a directors and officers liability policy that insures the
Company's directors and officers against certain liabilities.
II-1
<PAGE>
ITEM 16. EXHIBITS.
See Exhibit Index included immediately preceding the Exhibits to this
Registration Statement, which is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement;
provided, however, that paragraphs (1)(i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that are incorporated by reference in this
Registration Statement.
(2) That, for the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable,
each filing of any employer benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the indemnification provisions described herein, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceedings) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Richardson, Texas on the 17th day of September, 1997.
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By: /s/ HERMAN M. FRIETSCH
Herman M. Frietsch
Chairman and Chief Executive Officer
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Herman M.
Frietsch his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, and
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement on Form S-3 of
Intelect Communications Systems Limited, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ HERMAN M. FRIETSCH Chief Executive Officer and September 17, 1997
Herman M. Frietsch Director (Principal Executive
Officer)
/s/ EDWIN J. DUCAYET, JR. Vice President, Chief Financial September 17, 1997
Edwin J. Ducayet, Jr. Officer, Treasurer, and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
/s/ PHILIP P. SUDAN, JR. Director September 17, 1997
Philip P. Sudan, Jr.
/s/ ANTON LIECHTENSTEIN Director September 17, 1997
Anton Liechtenstein
/s/ ROBERT E. GARRISON II Director September 17, 1997
Robert E. Garrison II
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
4.1 Memorandum of Association of the Company, as amended (1)
4.2 Certificate of Incorporation of the Company, as amended (1)
4.3 Bye-Laws of the Company (1)
4.4 Certificate of Designation of Rights and Preferences dated May
30, 1997
5.1 Opinion of Conyers Dill & Pearman
10.1 Settlement Agreement dated August 22, 1997 among the Company,
Infinity Investors Ltd., and Seacrest Capital Limited
10.2 Subscription Agreements dated August 22, 1997 among the Company
and Isaac Arnold, Jr., Arnold Corporation, and Meridian Fund,
Ltd.
10.3 Loan Agreement dated May 8, 1997 among the Company, Intelect
Systems Corp, and The Coastal Corporation Second Pension Trust
(2)
10.4 Registration Rights Agreements dated May 8 and May 30, 1997
among the Company and The Coastal Corporation Second Pension
Trust (2)
10.5 Warrant to purchase Company Common Stock expiring May 7, 2002
issued to The Coastal Corporation Second Pension Trust (2)
10.6 Subscription Agreement dated May 30, 1997 among the Company and
The Coastal Corporation Second Pension Trust (2)
10.7 Amended and Restated Loan Agreement dated August 27, 1997 among
the Company, Intelect Systems Corp, and The Coastal Corporation
Second Pension Trust
10.8 Warrant to purchase Company Common Stock expiring August 26,
2002 issued to The Coastal Corporation Second Pension Trust
10.9 Registration Rights Agreement dated February 26, 1997 among the
Company and St. James Capital Corp. (3)
10.10 Amendments No. 1 to Registration Rights Agreements dated March
27, 1997 among the Company and St. James Capital Corp. (3)
10.11 Amendments Nos. 2 and 3 to Registration Rights Agreements dated
April 24 and May 8, 1997 among the Company and St. James Capital
Corp.
10.12 Warrants to purchase Company Common Stock dated February 26 and
March 27, 1997 issued to St. James Capital Corp. (3)
10.13 Warrants to purchase Company Common Stock dated April 24 and May
8, 1997 issued to St. James Capital Corp.
10.14 Floating Rate Promissory Note dated February 26, 1997 to St.
James Capital Corp. from the Company (3)
10.15 Amended and Restated Floating Rate Promissory Note dated
effective February 26, 1997 to St. James Capital Corp. from the
Company (3)
10.16 Second Amended and Restated Floating Rate Promissory Note dated
effective February 26, 1997 to St. James Capital Corp. from the
Company
10.17 Borrower's Pledge Agreement dated February 26, 1997 among
Intelect Systems Corp. and St. James Capital Corp. (3)
10.18 First Amendment to Borrower's Pledge Agreement dated March 27,
1997 among Intelect Systems Corp. and St. James Capital Corp.
(3)
10.19 Second and Third Amendments to Borrower's Pledge Agreement dated
April 24 and May 8, 1997 among Intelect Systems Corp. and St.
James Capital Corp.
II-5
<PAGE>
EXHIBIT DESCRIPTION OF EXHIBIT
10.20 Agreement dated April 25, 1997 among the Company, Intelect
Network Technologies Company, and John Shaunfield (2)
10.21 Registration Rights Agreement dated March 29, 1996 among the
Company and Robert Bolder, Matthew Feldman, Wellner Anderson,
Kimberly Arcoro, Robert Brangman, Ray Carbone, James Clay, Mary
Clay, Chris Cutsogeorge, Robert W. Davis, George Eagan, Lisa
Eagan, Arnold Feldman, Elaine Feldman, Matthew J. Feldman,
Spencer G. Feldman, Barbara Hall, Joseph Kaidanow, Richard
Kalin, Allen Kasey, Nigel Kilpatrick, Emanuel Kramer, and Chaim
Sieger (4)
10.22 Warrants dated February 13, 1996 issued to Edgar L. Read and
Gregory L. Mayhan (5)
10.23 Subscription Agreements dated August 1997 among the Company and
Blake C. Davenport, Fernhill Partners, Fiftieth & Grover
Shopping Center, Carol Filler (James), Douglas Floren, Richard
A. Gray, Alexander Greenberg, Philip Hempleman, David May,
Timothy McCollum, Frank Lyon Polk III, Sanford Prater, Privet
Row, Inc., Leonard Rauner, Marcus R. Rowan, TCM Partners, L.P.,
and Wayne Wilkey
10.24 Warrant expiring December 31, 2001 issued to Lifeline
Industries, Inc.
23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick (Hamilton, Bermuda)
24.1 Power of Attorney (Included in Part II of the Registration
Statement)
- --------------------------------
(1) Incorporated herein by reference to the Registrant's Form S-3 (File No.
333-9049).
(2) Incorporated herein by reference to the Registrant's Form 10-Q for the
fiscal quarter ended June 30, 1997.
(3) Incorporated herein by reference to the Registrant's Form 10-K for the
year ended December 31, 1996.
(4) Incorporated herein by reference to the Registrant's Form 8-K dated
April 12, 1996.
(5) Incorporated herein by reference to the Registrant's Form 8-K dated
February 20, 1996.
II-6
EXHIBIT 4.4
CERTIFICATE OF THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF THE $2.0145, 10% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES A, PAR VALUE $.01 PER SHARE, OF INTELECT COMMUNICATIONS
SYSTEMS LIMITED, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
WHICH HAVE NOT BEEN SET FORTH IN THE CERTIFICATE OF INCORPORATION OR THE
BYE-LAWS OF THE CORPORATION.
------------------------
Pursuant to the
Bye - Laws of the Corporation
------------------------
The undersigned, Herman M. Frietsch, Chief Executive Officer of
INTELECT COMMUNICATIONS SYSTEMS LIMITED, a company with limited liability
organized and existing under the laws of Bermuda (hereinafter called the
"Corporation"), DO HEREBY CERTIFY that the Board of Directors of the Corporation
duly adopted the following resolution on May 30, 1997:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation by the provisions
of the Memorandum of Association and the Bye-Laws of the Corporation, this
Board of Directors hereby creates a series of Preferred Stock, par value
US$.01 per share, of the Corporation, to consist of 10,000,000 shares of
such Preferred Stock, and this Board of Directors hereby fixes the
designations, preferences and relative, participating, optional or other
special rights of the shares of such series, and the qualifications,
limitations, or restrictions thereof (in addition to the designations,
preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof, set forth in
the Certificate of Incorporation of the Corporation which are applicable
to Preferred Stock of all series) as follows (the "Designation"):
I. DESIGNATION
1.01 The Designation of the series of Preferred Stock created by
this resolution shall be "$2.0145, 10% Cumulative Convertible Preferred Stock,
Series A" (hereinafter called the "Series A Preferred Stock").
II. CASH DIVIDENDS ON SERIES A PREFERRED STOCK
2.01 The holders of shares of the Series A Preferred Stock will be
entitled to receive, when, as and if declared by the Corporation's Board of
Directors out of funds of the Corporation legally available therefor, cumulative
cash dividends on the shares of the Series A Preferred Stock at the rate of
$0.20145 per annum per share, payable quarterly on December 31, March 31, June
30 and September 30, in each year, commencing September 30, 1997 (accrued from
the date of original issue). Such dividends shall be cumulative from the date of
original issue of such shares. Each such dividend shall be paid to the holders
of record of shares of the Series A Preferred Stock as they appear on the stock
register of the Corporation on such record date, not more than 30 days nor less
than 10 days preceding the dividend payment date thereof, as shall be fixed by
the Board of Directors of the Corporation or a duly authorized committee
thereof. Dividends in arrears on the Series A Preferred Stock shall accrue
interest at the dividend rate payable on the Preferred Stock.
2.02 If dividends are not paid in full or declared in full and sums
set apart for the payment thereof upon the Series A Preferred Stock and any
other Preferred Stock ranking on a parity as to dividends with the Series A
Preferred Stock, all dividends declared upon shares of Series A Preferred Stock
and any other Preferred Stock ranking on a parity as to dividends shall be
declared pro rata so that in all cases the amount of dividends declared per
share on the Series A Preferred Stock and such other Preferred Stock shall bear
to each other the same ratio that accumulated dividends per share, including
dividends accrued or in arrears, if any, on the shares of Series A Preferred
Stock and such other Preferred Stock bear to each other. Except as provided in
the preceding sentence, unless full cumulative dividends on the Series A
Preferred Stock have been paid or declared in full and sums set aside for the
payment thereof, no dividends shall be declared or paid or set aside for payment
or other distribution made upon the common stock, par
<PAGE>
value $.01 per share, of the Corporation (the "Common Stock"), or any other
capital stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Stock as to dividends or liquidation rights, nor shall any
Common Stock, or any other capital stock of the Corporation ranking junior to or
on a parity with the Series A Preferred Stock as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any payment made to or available for a sinking fund for the redemption of
any shares of such stock) by the Corporation or any subsidiary of the
Corporation (except by conversion into stock of the Corporation ranking junior
to the Series A Preferred Stock as to dividends and liquidation rights).
2.03 The terms "dividends accrued" or "dividends in arrears"
whenever used herein with reference to the Preferred Stock shall be deemed to
mean an amount which shall be equal to dividends thereon at the annual dividend
rates per share for the respective series from the date or dates on which such
dividends commence to accrue to the end of the then current quarterly dividend
period for such Preferred Stock (or, in the case of redemption, to the date of
redemption), less the amount of all dividends paid, or declared in full and sums
set aside for the payment thereof, upon such Preferred Stock.
2.04 Dividends payable on the Series A Preferred Stock for any
period less than a full quarterly dividend period shall be computed on the basis
of a 360-day year of twelve 30-day months and the actual number of days elapsed
in the period for which payable.
2.05 At the option of the Corporation, dividends payable on the
Series A Preferred Stock may be paid in Common Stock in an amount equivalent to
the accrued dividend, converted into shares of 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, provided that the Common Stock is, at
the dividend payment date, be listed with a national exchange, including the
NASDAQ National Market System.
III. OPTIONAL REDEMPTION OF SERIES A PREFERRED STOCK
3.01 The Series A Preferred Stock will be redeemable at the option
of the Corporation by a duly adopted resolution of its Board of Directors, at
any time in whole or from time to time in part, subject to the limitations set
forth below, at the following redemption prices per share plus, in each case,
all dividends accrued and unpaid on the Series A Preferred Stock up to the date
fixed for redemption, upon giving notice as provided hereinbelow; provided,
however, that the Corporation may not redeem any shares of Series A Preferred
Stock prior to June 1, 1999.
If redeemed during the twelve month
Period Beginning June 1, Price
- ------------------------ -----
1999 110% of the face amount, $2.0145
2000 105% "
thereafter 100% "
3.02 If less than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined PRO RATA.
3.03 At least 30 days but not more than 60 days prior to the date
fixed for the redemption of shares of the Series A Preferred Stock, a written
notice shall be mailed to each holder of record of shares of Series A Preferred
Stock to be redeemed in a postage prepaid envelope addressed to such holder at
his post office address as shown on the records of the Corporation, notifying
such holder of the election of the Corporation to redeem such shares, stating
the date fixed for redemption thereof (hereinafter referred to as the
"Redemption Date"), and calling upon such holder to surrender to the Corporation
on the Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Redemption Date each holder of shares of Series A
Preferred Stock to be redeemed shall present and surrender his certificate or
certificates for such shares to the Corporation at the place designated in such
notice and thereupon the redemption price of such shares shall be paid to or on
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be canceled. In case
less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. From and after
the Redemption Date (unless default shall be made by the Corporation in payment
of the redemption price) all dividends on the shares of
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<PAGE>
Series A Preferred Stock designated for redemption in such notice shall cease to
accrue, and all rights of the holders thereof as stockholders of the
Corporation, except the right to receive the redemption price thereof (including
all accrued and unpaid dividends up to the Redemption Date) upon the surrender
of certificates representing the same, shall cease and terminate and such shares
shall not thereafter be transferred (except with the consent of the Corporation)
on the books of the Corporation, and such shares shall not be deemed to be
outstanding for any purpose whatsoever. At its election the Corporation, prior
to the Redemption Date, may deposit the redemption price (including all accrued
and unpaid dividends up to the Redemption Date) of the shares of Series A
Preferred Stock so called for redemption in trust for the holders thereof with a
bank or trust company (having a capital, surplus and undivided profits
aggregating not less than $50,000,000) in the Borough of Manhattan, City and
State of New York, the City of Dallas, State of Texas, or in any other city in
which the Corporation at the time shall maintain a transfer agency with respect
to such stock, in which case such notice to holders of the Series A Preferred
Stock to be redeemed shall state the date of such deposit, shall specify the
office of such bank or trust company as the place of payment of the redemption
price, and shall call upon such holders to surrender the certificates
representing such shares at such price on or after the date fixed in such
redemption notice (which shall not be later than the Redemption Date) against
payment of the redemption price (including all accrued and unpaid dividends up
to the Redemption Date). From and after the making of such deposit, the shares
of Series A Preferred Stock so designated for redemption shall not be deemed to
be outstanding for any purpose whatsoever, and the rights of the holders of such
shares shall be limited to the right to receive the redemption price of such
shares (including all accrued and unpaid dividends up to the redemption date),
without interest, upon surrender of the certificates representing the same to
the Corporation at said office of such bank or trust company. Any interest
accrued on such funds shall be paid to the Corporation from time to time. Any
moneys so deposited which shall remain unclaimed by the holders of such Series A
Preferred Stock at the end of two years after the Redemption Date shall be
returned by such bank or trust company to the Corporation, after which the
holders of the Series A Preferred Stock shall have no further interest in such
moneys.
3.04 Shares of the Series A Preferred Stock retired pursuant to the
provisions of this ARTICLE III shall not be reissued.
IV. VOTING RIGHTS
4.01 The holders of the Series A Preferred Stock shall not, except
as required by law or as set forth herein, have any right or power to vote on
any question or in any proceeding at any meeting of stockholders, provided that
holders of the Series A Preferred Stock shall receive notice of, and be entitled
to representation at any such meeting. On any matters on which the holders of
the Series A Preferred Stock shall be entitled to vote, they shall be entitled
to one vote for each share held.
4.02 In case at any time the equivalent of three (3) or more full
quarterly dividends (whether consecutive or not) on any series of Preferred
Stock shall be in arrears, then during the period (hereinafter in this SECTION
4.02 called the "Class Voting Period") commencing with such time and ending with
the time when all arrears in dividends on all Preferred Stock shall have been
paid and the full dividend on all Preferred Stock for the then current quarterly
dividend period shall have been paid or declared and set apart for payment, at a
meeting called by the holders of the Series A Preferred Stock Corporation held
for the election of directors during the Class Voting Period, the holders of a
majority of the outstanding shares of Series A Preferred Stock represented in
person or by proxy at said meeting shall be entitled, as a class, to the
exclusion of the holders of all other classes of stock of the Corporation, to
elect two directors of the Corporation (or such greater number constituting not
less than 35% of the number of Directors authorized), each share of Series A
Preferred Stock entitling the holder thereof to one vote for each Director.
4.03 Any director who shall have been elected by holders of Series A
Preferred Stock or by any director so elected as herein contemplated, may be
removed at any time during a Class Voting Period, either for or without cause,
by, and only by, the affirmative votes of the holders of record of a majority of
the outstanding shares of Series A Preferred Stock given at a special meeting of
such stockholders called for the purpose, and any vacancy thereby created may be
filled during such Class Voting Period by the holders of Series A Preferred
Stock, present in person or represented by proxy at such meeting. Any director
to be elected by the Board of Directors of the Corporation to replace a director
elected by holders of Series A Preferred Stock, or elected by a director as in
this sentence provided, and who dies, resigns, or otherwise ceases to be a
director shall, except as otherwise provided in the preceding sentence, be
elected by the remaining director theretofore elected by the holders of Series A
Preferred Stock. At the end of the
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<PAGE>
Class Voting Period the holders of Series A Preferred Stock shall be
automatically divested of all voting power vested in them under this SECTION
4.03 but subject always to the subsequent vesting hereunder of voting power in
the holders of Series A Preferred Stock in the event of any similar cumulated
arrearage in payment of quarterly dividends occurring or defaults thereafter.
The term of all directors elected pursuant to the provisions of this SECTION
4.03 shall in all events expire at the end of the Class Voting Period.
4.04 The holders of the Series A Preferred Stock shall not, except
as required by law or as set forth herein, have any right or power to vote on
any question or in any proceeding at any meeting of stockholders, to:
(i) "solicit" proxies with respect to Voting Securities under
any circumstances or become a "participant" in any "election contest" relating
to the election of directors of the Corporation, as such terms are defined in
Regulation 14A under the 1934 Act, as amended or induce or attempt to induce any
other person to do any of the foregoing; or
(ii) assist any other person to acquire or affect control of
the Corporation.
V. PRIORITY OF SERIES A PREFERRED STOCK IN EVENT OF DISSOLUTION
5.01 In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the Series A Preferred Stock shall be entitled to receive, out of the
remaining net assets of the Corporation, the amount of Two and 1.45/100 dollars
($2.0145) in cash for each share of Series A Preferred Stock, plus an amount
equal to all dividends accrued and unpaid on each such share up to the date
fixed for distribution, before any distribution shall be made to the holders of
the Common Stock, or any other capital stock of the Corporation ranking (as to
any such distribution) junior to the Series A Preferred Stock. If upon any
liquidation, dissolution or winding up of the Corporation, the assets
distributable among the holders of any series of Preferred Stock ranking (as to
any such distribution) on a parity with the Series A Preferred Stock shall be
insufficient to permit the payment in full to the holders of all such series of
Preferred Stock of all preferential amounts payable to all such holders, then
the entire assets of the Corporation thus distributable shall be distributed
ratably among the holders of all series of the Preferred Stock ranking (as to
any such distribution) on a parity with the Series A Preferred Stock in
proportion to the respective amounts that would be payable per share if such
assets were sufficient to permit payment in full.
5.02 For purposes of this ARTICLE V, a distribution of assets in any
dissolution, winding up or liquidation shall not include (i) any consolidation
or merger of the Corporation with or into any other corporation, (ii) any
dissolution, liquidation, winding up, or reorganization of the Corporation
immediately followed by reincorporation of another successor corporation or
(iii) a sale or other disposition of all or substantially all of the
Corporation's assets to another corporation; PROVIDED, THAT in each case,
effective provision is made in the certificate of incorporation, memorandum of
association or by-laws of the resulting and surviving corporation or otherwise
for the protection and continuation of the rights of the holders of Series A
Preferred Stock.
VI. CONVERSION OF SERIES A PREFERRED STOCK
6.01 Holders of shares of Series A Preferred Stock will have the
right, exercisable at any time after August 31, 1997 , except in the case of
shares of Series A Preferred Stock called for redemption as provided above, to
convert such shares of Preferred Stock into shares of Common Stock (calculated
as to each conversion to the nearest 1/100th of a share) at the conversion rate
of One (1.00) share of Common Stock for each share of Series A Preferred Stock
so converted, subject to adjustment as described below. In the case of shares of
Series A Preferred Stock called for redemption, conversion rights will expire at
the close of business on the tenth day preceding the redemption date. No payment
or adjustment for accrued dividends on the Series A Preferred Stock is to be
made on conversion. However, if a share of Series A Preferred Stock (other than
a share of Series A Preferred Stock called for redemption within such period) is
converted between the record date with respect to any dividend payment and the
next succeeding dividend payment date, such share of Series A Preferred Stock
must be accompanied by funds equal to the dividend payable on such dividend
payment date on the Series A Preferred Stock so converted.
- 4 -
<PAGE>
6.02 Any holder of shares of the Series A Preferred Stock electing
to convert such shares or any portion thereof shall deliver the certificates
therefor to the principal office of any transfer agent for the Common Stock,
with the form of notice of election to convert endorsed on such certificates
fully completed and duly executed. The conversion right with respect to any such
shares of the Series A Preferred Stock shall be deemed to have been exercised at
the date upon which the certificates therefor with such notice of election duly
executed shall have been so delivered, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock upon said date.
6.03 No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series A
Preferred Stock. If more than one share of the Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder the number of full
shares of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of the Series A
Preferred Stock so surrendered. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion of any share or shares of the
Series A Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the last sales price
(or the quoted closing bid price if there were no sales) per share of Common
Stock on the principal exchange on which the Common Stock is listed on the
business day next preceding the date of conversion, or, if the Common Stock is
not then listed on an exchange, the closing sales price (or the quoted closing
bid price if there were no sales) as reported by the National Association of
Securities Dealers Automated Quotation System on the business day next preceding
the date of conversion. In the absence of one or more such quotations, the Board
of Directors shall in good faith determine the current market price on the basis
of such quotation as it considers appropriate.
6.04 If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion. The holder,
however, shall pay any such tax which is due because the shares are issued in a
name other than the name of such holder.
6.05 The Corporation shall reserve out of its authorized but
unissued Common Stock or its Common Stock held in treasury enough shares of
Common Stock to permit the conversion of all of the shares of Series A Preferred
Stock, and shall increase from time to time, the authorized amount of its Common
Stock if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all Series A
Preferred Stock at the time outstanding. All shares of Common Stock which may be
issued upon conversion of the shares of Series A Preferred Stock shall be
validly issued, fully paid and nonassessable. In order that the Corporation may
issue shares of Common Stock upon conversion of the shares of Series A Preferred
Stock, the Corporation will comply with all applicable Federal and State
securities laws and will list such shares on each securities exchange on which
the Common Stock is listed.
6.06 The conversion rate in effect at any time shall be subject to
adjustment as follows (no consent to the actions underlying such adjustment,
intended or implied):
(i) In case the Corporation shall (i) pay a dividend on Common
Stock in Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
conversion rate in effect immediately prior thereto shall be adjusted
retroactively as provided below so that the number of shares of Common Stock
into which each share of Series A Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of shares of Common
Stock into which such share of Series A Preferred Stock was theretofore
convertible by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately following such action and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior thereto. Such adjustment shall be made whenever any event
listed above shall occur and shall become effective retroactively immediately
after the record date in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(ii) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them (for a period expiring within 45
days after the record date therefor) to subscribe for or purchase shares of
Common Stock at a price per share less than the current market price per share
of Common Stock (as
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<PAGE>
determined in accordance with the provisions of sub-paragraph (iv) below) at the
record date therefor the number of shares of Common Stock into which each share
of Series A Preferred Stock shall thereafter be convertible shall be determined
by multiplying the number of shares of Common Stock into which such share of
Series A Preferred Stock was theretofore convertible by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding on the date
of issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase and of which the denominator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of
Common Stock which the aggregate offering price of the number of shares of
Common Stock so offered would purchase at the current market price per share of
Common Stock (as determined in accordance with the provisions of sub-paragraph
(iv) below). Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective retroactively immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants.
(iii) In case the Corporation shall distribute to all holders
of its Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Corporation is the continuing corporation)
shares of capital stock (other then Common Stock), evidences of its indebtedness
or assets (excluding cash dividends) or rights to subscribe (excluding those
referred to in paragraph (ii) above), then in each such case the number of
shares of Common Stock into which each share of Series A Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of Common Stock into which such share of Series A Preferred Stock was
theretofore convertible by a fraction of which the numerator shall be the number
of outstanding shares of Common Stock multiplied by the current market price per
share of Common Stock (as determined in accordance with the provisions of
sub-paragraph (iv) below) on the date of such distribution and of which the
denominator shall be the number of outstanding shares of Common Stock multiplied
by such current market price per share of Common Stock, less the fair market
value (as determined by the independent auditors of the Corporation, whose
determination shall be conclusive, and described in a statement filed with the
transfer agent for the Series A Preferred Stock) of the capital stock, assets or
evidences of indebtedness so distributed or of such subscription rights. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(iv) For the purpose of any computation under sub-paragraphs
(ii) and (iii) above, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days commencing 45 trading days before the day in question.
The closing price for each day shall be the reported last sale price or, in case
no such reported sale takes place on such day, the reported closing bid price,
in either case, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which the shares are listed or
admitted to trading, or if they are not listed or admitted to trading on any
such exchange, the closing bid price as furnished by any member of the National
Association of Securities Dealers, Inc. or any comparable organization selected
from time to time by the Corporation for that purpose.
(v) No adjustment in the conversion rate shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the rate then in effect; PROVIDED, HOWEVER, that any adjustments which by reason
of this sub-paragraph (v) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
(vi) In the event that, at any time as a result of an
adjustment made pursuant to subparagraph (i) or (iii) above, the holder of any
share of Series A Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than shares of
the Common Stock, thereafter the number of such other shares so receivable upon
conversion of any share of Series A Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
paragraphs (i) through (v) of this paragraph, and the other provisions of this
ARTICLE VI with respect to the Common Stock shall apply on like terms to any
such other shares.
(vii) Whenever the conversion rate is adjusted, as herein
provided, the Board of Directors of the Corporation shall certify the conversion
rate after such adjustment and setting forth a brief statement of the facts
requiring such adjustment and a computation thereof. The Corporation shall
promptly cause a notice of the adjusted conversion rate to be mailed to each
registered holder of Series A Preferred Stock. In the event any holders of the
Series A Preferred Stock challenge the determination of fair market price, such
value shall be determined by a firm of
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independent certified public accountants selected by the Board of Directors of
the Corporation (who may be the regular accountants employed by the Corporation)
for which the costs shall be divided between the Corporation and such holders.)
6.07 If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Series A Preferred Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger to
which the Corporation is a party (other than a consolidation or merger in which
the Company is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination) in, outstanding shares of Common Stock) or (iii) any
sale or conveyance of the properties and assets of the Corporation as, or
substantially as, an entirety to any other corporation; then the Corporation or
such successor or purchasing corporation, as the case may be, shall provide in
its Certificate of Incorporation (or analogous document) that each share of
Series A Preferred Stock shall be convertible into the kind and amount of shares
of stock and other securities or property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock issuable upon conversion of each such share of Series A
Preferred Stock immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such Certificate of Incorporation (or
analogous document) shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article. The Corporation shall cause notice of the execution of any such event
contemplated by this paragraph to be mailed to each holder of Series A Preferred
Stock as soon as practicable. The above provisions of this paragraph shall
similarly apply to successive reclassifications, consolidations, mergers and
sales.
6.08 The Corporation at any time may reduce the conversion price (or
increase the conversion rate), temporarily or otherwise, by any amount but in no
event shall such conversion price be less than the par value of the Common Stock
at the time such reduction is made. Whenever the conversion price is reduced
pursuant to this paragraph, the Corporation shall mail to the holders a notice
of the reduction. The Corporation shall mail the notice at least 15 days before
the date the reduced conversion price (or increased conversion rate) takes
effect. The notice shall state the reduced conversion price (or increased
conversion rate) and the period it will be in effect. A reduction of the
conversion price (or increase in conversion rate) does not change or adjust the
conversion price otherwise in effect for purposes of SECTION 6.06 PARAGRAPH (VI)
AND (VII).
VII. RANKING OF SERIES A PREFERRED STOCK
7.01 With regard to rights to receive dividends and distributions
upon dissolution of the Corporation, the Series A Preferred Stock shall rank
senior in rank and prior to all other stock of the Corporation outstanding at
the time of issuance of the Series A Preferred Stock.
VIII. PREEMPTION
8.01 The Series A Preferred Stock shall carry a right of preemption
for New Securities as follows: "New Securities" shall mean any Common Stock of
the Corporation, whether now authorized or not, and rights, options or warrants
to purchase said capital stock, and debt or equity securities of any type
whatsoever that are, or may become, convertible into said Common Stock;
provided, however, that for purposes of this SECTION 8.01, the term "New
Securities" does not include securities issued in Excluded Financings. "Excluded
Financings" mean (i) non-convertible debt or non-convertible preferred stock
financings of any type, (ii) underwritten public offerings of Common Stock,
(iii) private financings (taking into account all material aspects thereof such
as conversion price, issuance price and any warrants issued in connection
therewith) which are consummated at a price at least equal to the then-current
Market Price of the Common Stock (which for the purposes of this Section 8.01,
shall be the average closing market bid price for the Common Stock for the five
(5) consecutive trading days preceding the date in question), (iv) project
financings, (v) bank financings and (vi) any capital stock of the Corporation
issued pursuant to warrants or other rights issued prior to the date hereof,
(vii) 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 (viii) 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.
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8.02 In the event the Corporation issues any New Securities , then
the holders of the Series A Preferred Stock shall be entitled to purchase from
the Corporation in cash for the same per share consideration at which such New
Securities are issued in such financing (or the per share price at which a share
of the New Securities is acquirable upon exercise or conversion of options,
warrants or other rights to Common Stock ("Common Stock Equivalents") that are
issued in such financing) and the Corporation shall be obligated to issue to
such holders that additional number of shares of Common Stock which, when added
to the number of shares of Common Stock then held by the holders, plus the
number of shares of Common Stock issuable upon conversion of the Preferred
Shares held by holders thereof, will represent a percentage of the number of
Common Stock immediately after such issuance that is the same as the percentage
of the number of Common Stock outstanding immediately before such issuance
represented by the number of Common Stock held by Coastal, in each case
including Common Stock Equivalents, plus the number of Common Stock issuable
upon conversion of the Preferred Shares held by Coastal. The preemptive rights
granted under this SECTION VIII shall not include (i) non-convertible debt or
non-convertible preferred stock financings of any type; (ii) any capital stock
of the Corporation issued pursuant to warrants or other rights issued prior to
the date hereof, (iii) 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 (iv) 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.
8.03 For the purposes of this SECTION VIII, the per share
consideration with respect to the issuance of Common Stock will be the price per
share received by the Corporation, prior to the payment of any expenses,
commissions, discounts and other applicable costs. With respect to the issuance
of Common Stock Equivalents, the per share consideration will be determined by
dividing the maximum number of Common Stock issuable with respect to such Common
Stock Equivalents into the total aggregate consideration received by the
Corporation upon the sale or issuance of such Common Stock Equivalents plus the
minimum aggregate amount of additional consideration received by the Corporation
upon the conversion or exercise of such Common Stock Equivalents. In connection
with the sale or issuance of Common Stock for non-cash consideration, the amount
of consideration will be the fair market value of such consideration as
determined in good faith by the Board of Directors of the Corporation.
IX. REGISTRATION RIGHTS
9.01 DEMAND REGISTRATION (i) At any time and from time to time, but
in no event earlier than June 1, 1998, a holder or holders, holding in the
aggregate at least ten percent (10%) of the issued and outstanding Series A
Preferred Shares, may make a written demand upon the Corporation to file, within
sixty (60) days after such written demand is made, with the US Securities and
Exchange Commission a registration statement covering all of the authorized,
issued and outstanding Series A Preferred Stock (the "Registration Statement").
The Corporation shall cause such Registration Statement to become effective as
soon as practicable and to cause all of the (i) the Series A Preferred Stock and
(ii) any Preferred Stock issued or issuable at any time or from time to time in
respect of the Series A Preferred Stock upon a conversion, stock split, stock
dividend, recapitalization or other similar event involving the Corporation
(collectively "Registrable Securities" ) to be qualified in such state
jurisdictions as the holders may request.
(ii) The demand registration rights provided in this Section
shall be subject to the following limitations:
(a) If, upon receipt of any request for registration of
Registrable Securities the Corporation 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 unregistered
securities of the Corporation within ten (10) days of the date upon which the
Corporation received such holder's request and the Corporation 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 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 Corporation gives such notice to holders of the
Registrable Securities, the Corporation shall respond to the holder's request
for registration of Registrable Securities and, unless otherwise required by the
provisions of this Section, register such Registrable Securities, no later than
twenty (20) days after the expiration of such sixty (60) day period and as
provided herein;
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(b) The filing of a Registration Statement covering the
Registrable Securities shall be in compliance with all applicable statutes,
rules and regulations of all applicable government authorities and of every
exchange on which the Capital Stock of the Company is listed; and
(c) The Corporation shall only be required to file a
Registration Statement if the holders of the Registrable Securities are not
otherwise reasonably able to transfer the Registrable Securities pursuant to an
exemption from registration under applicable federal and state securities laws.
(d) The Corporation 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 for a period not to exceed
ninety (90) days if the board of directors of the Corporation reasonably
determines that such public sales or distributions would interfere in any
material respect with any transaction involving the Corporation and for which
the holder or holders has declined a right of first refusal or of preemption
granted by the Corporation. The Corporation shall be required to lift such
restrictions regarding effecting public sales or distributions of the
Registrable Securities as soon as reasonably practicable
9.02 PIGGYBACK REGISTRATION.
(i) Subject to the terms hereof, if at any time or from time
to time the Corporation or any shareholder of the Corporation 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 Corporation 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 Corporation within twenty (20)
days after the holders' receipt of written notice.
(ii) 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.
(iii) 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 Corporation
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 Corporation 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 Corporation. Notwithstanding any other
provision of this Section 9.02, 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 Preferred 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
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.
9.03 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.
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9.04 INDEMNIFICATION.
(i) To the extent permitted by law, the Corporation 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 Corporation of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Corporation in connection with any such registration,
qualification or compliance, and the Corporation 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 Corporation (which consent
shall not unreasonably be withheld); provided, further, that the Corporation
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 Corporation 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.
(ii) 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 Corporation, each of its
directors and officers, each underwriter, if any, of the Corporation's
securities covered by such a registration statement, each person who controls
the Corporation or such underwriter within the meaning of Section 15 of the
Securities Act, and each other person selling the Corporation'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 Corporation, 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 Corporation by such holder
of Registrable Securities specifically for use therein; provided, however, that
the
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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 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 Corporation 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.
(iii) Notwithstanding the foregoing SECTIONS (I) AND (II),
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 judgment or enter into any settlement without the
consent of each Indemnifying Party.
(iv) 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 Corporation on the one hand and all shareholders
offering securities in the offering (the "Selling Security Holders") on the
other from the offering of the Corporation'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 Corporation
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 Corporation 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 Corporation on the one hand and the
Selling Security Holders on the other. The relative fault of the Corporation 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 Corporation 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 Corporation 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
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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.
X. LIMITATIONS
10.01 So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or the
written consent as provided by law, of the holders of at least two-thirds (2/3)
of the outstanding shares of Series A Preferred Stock, voting as a class, (a)
create, authorize or issue any class or series of stock ranking either as to
payment of dividends or distribution of assets prior to the Series A Preferred
Stock; or (b) change the preferences, rights or powers with respect to the
Series A Preferred Stock so as to affect such stock adversely; but nothing
herein contained shall require such a class vote or consent (i) in connection
with any increase in the total number of authorized shares of common stock, or
(ii) in connection with the authorization or increase of any class or series of
stock ranking junior to or on a parity with the Series A Preferred Stock;
PROVIDED, HOWEVER, that no such vote or written consent of the holders of the
Series A Preferred Stock shall be required if, at or prior to the time when the
issuance of any such stock ranking prior to the Series A Preferred Stock is to
be made or any such change is to take effect, as the case may be, provision is
made for the redemption of all shares of Series A Preferred Stock at the time
outstanding, and further provided, that the provisions of this ARTICLE IX shall
not in any way limit the right and power of the Corporation to issue the
presently authorized but unissued shares of its capital stock, or bonds, notes,
mortgages, debentures, and other obligations, and to incur indebtedness to banks
and to other lenders.
IN WITNESS WHEREOF, INTELECT COMMUNICATIONS SYSTEMS LIMITED has
caused this certificate to be made under the seal of the Corporation, signed by
its Chairman and attested by its Assistant Secretary this 30 day of May 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
(Corporate Seal)
By: /s/ HERMAN M. FRIETSCH
Herman M. Frietsch
Chairman and Chief Executive Officer
Attest:
/s/ ROBERT C. BEASELY
Robert C. Beasely
Assistant Secretary
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THE STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
BE IT REMEMBERED, that on this 30 day of May 1997, personally came
before me, a Notary Public, Herman M. Frietsch and Robert C. Beasely, the Chief
Executive Officer and Secretary respectively, of INTELECT COMMUNICATIONS SYSTEMS
LIMITED a corporation organized under the laws of Bermuda, the corporation
described in and which executed the foregoing certificate, known to me
personally to be such, and they, the said as such Chief Executive Officer and
the Chief Financial Officer, duly executed said certificate before me and
acknowledged the said certificate to be their act and deed and the act and deed
of said corporation, and that the facts stated therein are true; that the
signatures of the said President and of the said Secretary of said corporation
to said foregoing certificate are in the handwriting of the said Chief Executive
Officer and the Chief Financial Officer, of said corporation, respectively, and
that the seal affixed to said certificate is the common or corporate seal of
said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office
the day and year aforesaid.
Notary Public,
State of Texas
[Notary Seal] My commission expires:
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EXHIBIT 5.1
[CONYERS DILL & PEARMAN LETTERHEAD]
17 September 1997
Intelect Communications Systems Limited
Clarendon House
2 Church Street
Hamilton HM CX
Dear Sirs,
INTELECT COMMUNICATIONS SYSTEMS LIMITED (THE "COMPANY")
We have acted as special legal counsel in Bermuda to Intelect Communications
Systems Limited (the "Company") in connection with the registration for resale
of a number of the Company's Common Shares of par value US$0.01 per share (the
"Sale Shares") as described in the Company's Prospectus contained in the Form
S-3 Registration Statement (the "Registration Statement"), filed with the United
States Securities and Exchange Commission. The number of Sale Shares to which
this opinion relates are set out at Appendix A.
For the purposes of giving this opinion, we have examined and relied upon a
facsimile copy of the Registration Statement dated 17 September 1997.
We also have reviewed a copy of the memorandum of association and the bye-laws
of the Company, resolutions of the Company's Board of Directors adopted on 22
August 1997 certified as a true copy thereof by the Assistant Secretary of the
Company on 29 August 1997 (the "Resolutions"), a facsimile copy of an Officer's
Certificate dated 12 September 1997 certifying the number of Common Shares of
the Company in issue as at September 10, 1997 and such other documents and made
such enquiries as to questions of law as we have deemed necessary in order to
render the opinions set forth below.
361903 Cont .../
<PAGE>
Page 2
17 September 1997
Intelect Communications Systems Limited
We have assumed:
(i) the genuineness and authenticity of all signatures and the conformity
to the originals of all copies (whether or not certified) of all
documents examined by us and the authenticity and completeness of the
originals from which such copies were taken;
(ii) the correctness, accuracy and completeness of all factual
representations made in the Registration Statement and in the other
documents which we have reviewed, and that all opinions expressed
therein (if any) are made in good faith and reached after due
consideration and we have relied on them without further enquiry; and
(iii) that there is no provision of the law of any jurisdiction, other than
Bermuda, which would have any implication in relation to the opinions
expressed herein.
Any provision providing that certain statements, calculations and/or
certificates will be conclusive and binding may not be effective if such
statements, calculations or certificates are incorrect on their face or
fraudulent and will not necessarily prevent judicial enquiry into the merits of
a claim of an aggrieved party.
All obligations of the Company:
(i) will be subject to the laws from time to time in effect relating to
bankruptcy, insolvency, liquidation, possessory liens, rights of
set-off, reorganisation, amalgamation, moratorium or any other laws or
legal procedures, whether of a similar nature or otherwise, generally
affecting the rights of creditors;
(ii) will be subject to statutory limitation of the time within which
proceedings may be brought;
(iii) will be subject to general principles of equity and, as such,
specific performance and injunctive relief, being equitable remedies,
may not be available; and
(iv) may not be given effect to by a Bermuda Court, whether or not it was
applying the Foreign Laws, if and to the extent they constitute the
payment of an amount which is in the nature of a penalty and not in
the nature of liquidated damages.
361903 Cont .../
<PAGE>
Page 3
17 September 1997
Intelect Communications Systems Limited
We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than Bermuda. This opinion is to be governed by and
construed in accordance with the laws of Bermuda and is limited to and is given
on the basis of the current law and practice in Bermuda. This opinion is issued
solely for your benefit with respect to the matters referred to herein and is
not to be relied upon by any other person, firm or entity or in respect of any
other matter without our express written consent.
The term "validly issued" for the purposes of this opinion means, with respect
to the holder of any shares of the Company, that the following information has
been entered into the register of members in accordance with section 65 of the
Companies Act 1981 of Bermuda:
(i) the date such holder was entered in the register as a member;
(ii) the number of shares held by such holder; and
(iii) the amount paid or agreed to be considered as paid on the shares of
such holder.
The term "Non-Assessable" is not a legal concept under Bermuda law, but when we
describe shares as being "Non-Assessable" (see paragraph 5 below) we mean with
respect to the shareholders of a company, in relation to fully paid shares of
the Company and subject to any contrary provision in any agreement in writing
between the Company and any one of its shareholders holding such shares but only
with respect to such shareholder, that such shareholder shall not be bound by an
alteration to the memorandum of association or the bye-laws of that company
after the date upon which they became such shareholders, if and insofar as the
alteration requires them to take, or subscribe for additional shares, or in any
way increases their liability to contribute to the share capital of, or
otherwise pay money to, such company.
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing under the
laws of Bermuda.
2. The Sale Shares have been duly authorised and validly issued by the Company,
are fully paid and Non-Assessable.
361903 Cont .../
<PAGE>
Page 4
17 September 1997
Intelect Communications Systems Limited
3. The statements set forth in the Prospectus contained in the Registration
Statement under the headings "Enforceability of Civil Liabilities under
United States Federal Securities Law" and "Description of Capital Stock" to
the extent that they constitute matters of Bermuda law, or legal conclusions
with respect thereto, have been reviewed by us and are accurate in all
material respects and fairly present the information disclosed therein in
all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Yours faithfully
/s/ CONYERS DILL & PEARMAN
CONYERS DILL & PEARMAN
<PAGE>
Page 5
17 September 1997
Intelect Communications Systems Limited
"Appendix A"
The number of Sale Shares is 5,813,633 of the Company's Common Shares.
EXHIBIT 10.1
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into effective this 22 day of
August, 1997, by and among Intelect Communications Systems Limited (the
"Company"), Infinity Investors Ltd., a Nevis, West Indies corporation
("Infinity") and Seacrest Capital Limited, a Nevis, West Indies corporation
("Seacrest") (Infinity and Seacrest are collectively referred to herein as the
"Holders").
WHEREAS, the parties hereto have entered into that certain Convertible
Securities Agreement (herein so called) dated as of October 15, 1996, pursuant
to which the Holders subscribed for an aggregate principal amount of $5 million
of Series A Convertible Debentures and an aggregate principal amount of $5
million of Series B Debentures (collectively the "Debentures");
WHEREAS, in connection with the execution of the Convertible Securities
Agreement and the Debentures, the parties entered into a Registration Rights
Agreement (herein so called) dated October 15, 1996, and also entered into a
Book Entry Transfer Agent Agreement (herein so called) dated October 15, 1996,
by and among the parties and American Stock Transfer and Trust Company
("Transfer Agent") (the Convertible Securities Agreement, the Debentures, the
Registration Rights Agreement, and the Book Entry Transfer Agent Agreement are
sometimes collectively referred to herein as the "Debenture Documents");
WHEREAS, the Holders have effected conversions of certain of the
Debentures pursuant to the terms of the Debentures;
WHEREAS, in May 1997, the Company declined to recognize certain notices of
conversion of the Debentures because, among other things, the Company believed
that further issuances of the Company's Common Stock, $.01 par value (the
"Common Stock"), upon conversion of the Debentures would violate Rule
4460(i)(1)(C)(ii) of the Nasdaq Marketplace Rules (the "20% Rule"), and, since
such time, the parties hereto have been in negotiations relating to, among other
things, the conversion ratio applicable to the remaining Debentures; and
WHEREAS, the parties desire to enter into this Agreement in full and final
settlement of all disputes between them;
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CONVERSION OF EXISTING DEBENTURES. All conversions of the Debentures
delivered to the Company by the Holders through May 6, 1997 and conversions in
respect of 20,583 shares of the Company's Common Stock (on behalf of Infinity)
and 2,287 shares of Common Stock (on behalf of Seacrest) of the May 7, 1997
conversions will be recognized at conversion prices therein stated. The balance
of the May 7, 1997 conversion notice delivered to the Company by the
<PAGE>
Holders and the entire amount of the May 8, 1997 conversion notice delivered to
the Company by the Holders will be converted at $2.00 per share. All such shares
of Common Stock will bear the restrictive legend described in Section 3 hereof
unless eligible for resale as described below. The exact amount of shares to be
issued pursuant to this Section 1 and the conversion prices are attached hereto
as Schedule 1 and incorporated herein by reference.
2. ISSUANCE OF UNLEGENDED SHARES OF COMMON STOCK. Any shares of Common
Stock issued to the Holders in respect of conversions delivered to the Company
prior to May 1, 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 2, 1997, will be issued without
restrictive legends upon receipt of brokers confirmations in accordance with
past practices.
3. CONVERSION OF BALANCE OF EXISTING DEBENTURE FOR COMMON STOCK.
(a) The remaining principal balance of the Debentures equaling $2,144,000
will be converted as of the date hereof for 428,800 shares of Common Stock at a
per share conversion price of $5.00. 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 REASONABLY
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.
(b) The Company represents and warrants that since October 15, 1996, the
Company has not (i) subdivided (by stock split, stock dividend, or otherwise)
its outstanding Common Stock into a great number of shares, or (ii) effected a
recapitalization or reclassification of its outstanding Common Stock.
4. RESALE LIMITATIONS. The Holders will be restricted from publicly
reselling more than 125,000 shares of Common Stock (whether such shares have
been issued to the Holders upon conversion of the Debentures, pursuant to the
terms of this Agreement, or otherwise held by such Holders on the date hereof)
during each calendar month commencing on the date hereof and ending October 31,
1997. Thereafter, such resale limit shall be increased to 250,000 shares of
Common Stock per month.
2
<PAGE>
5. REGISTRATION RIGHTS.
(a) The Company will file a registration statement on Form S-3 providing
for the resale of the shares of the Company's Common Stock issuable to Infinity
and Seacrest pursuant to this Agreement which are required to bear a restrictive
legend pursuant to this Agreement. Infinity and Seacrest represent and warrant
that they have sold certain of such shares issuable under this Agreement to Zug
Investments, and Infinity and Seacrest will promptly provide notice to the
Company of the number of such shares sold to Zug Investments. That number of
shares sold to Zug Investments shall also be included in such Form S-3
Registration Statement. The Company will use its best efforts to cause such
registration statement to be declared effective on or before the earlier of
September 30, 1997 or 2 business days following receipt of a "no-review" or
similar letter from the Securities and Exchange Commission.
(b) Except as set forth below, the Company shall take all reasonable steps
to keep the registration statement current and effective until the earlier of
(i) one year after the date hereof, (ii) the date on which the securities
included in such registration statement (the "Registrable Securities") are
transferable pursuant to Rule 144 of the Securities Act without the volume
limitations set forth in such rule, and (iii) the date on which all of the
Registrable Securities set forth in such registration statement have thereto
been sold.
(c) The Company may terminate or suspend the effectiveness of any
registration statement to be filed pursuant to Section 5(a) one time for a
period of not more than forty five (45) days if the Company shall deliver to the
Holders a certificate signed by a Senior Vice President or the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company the effectiveness of such a registration statement
would (i) be seriously detrimental to the Company at such time, (ii) interfere
with any proposed or pending material corporate transaction involving the
Company or any of its subsidiaries or (iii) require any premature disclosure
thereof.
(d) To the extent permitted by law, the Company will indemnify each holder
of Registrable Securities (as defined in the Registration Rights Agreement),
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
3
<PAGE>
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
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.
(e) 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) 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 a 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
4
<PAGE>
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 (e) 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 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.
(f) Notwithstanding the foregoing paragraphs (d) and (e) 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 judgment or enter into any settlement without the
consent of each Indemnifying Party.
5
<PAGE>
(g) 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.
6. WAIVER OF INTEREST. The holders hereby waive any and all unpaid
interest payments payable to the Holders under the Debentures, including without
limitation, the quarterly interest payments payable as of June 30, 1997.
7. OTHER TERMS. For so long as the Holders own any Common Stock of the
Company, unless such shall have been specifically invited in writing by the
Company, neither they nor any of their affiliates (as such term is defined under
the Securities Exchange Act of 1934, as amended (the "1934 Act") or
representatives will, directly or indirectly, (a) effect or seek, offer or
propose (whether publicly or otherwise) to effect, or cause or participate in or
assist any other person to effect or seek, offer or propose (whether publicly or
otherwise) to effect or participate
6
<PAGE>
in, (i) any tender or exchange offer, merger or other business combination
involving the Company or any of its subsidiaries; (ii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to the Company or any of its subsidiaries; or (iii) any "solicitation"
of "proxies" or become a "participant" or any "election contest" (as such terms
are used in the proxy rules of the Securities and Exchange Commission) or
consents to vote any voting securities of the Company; (b) form, join or in any
way participate in a "group" (as defined under the 1934 Act); (c) otherwise act,
alone or in concert with others, to seek to control or influence the management,
Board of Directors or policies of the Company; (d) take any action which might
force the Company to make a public announcement regarding any of the types of
matters set forth in (a) above; or (e) enter into any discussions or
arrangements with any third party with respect to any of the foregoing. For
purposes of this Section of Common Stock shall include any Common Stock issued
in exchange for Common Stock of the Company in connection with the proposed
change of domicile of the Company from Bermuda to Delaware.
8. FULL AND FINAL SETTLEMENT; MUTUAL RELEASES.
a. The parties are entering into this Agreement in full and final
settlement of all disputes between them arising under the Debenture
Documents. Accordingly, the parties covenant and agree that this Agreement
constitutes the full and final agreement between the parties relating to
the subject matter of the Debenture Documents and that this Agreement
supersedes the Debenture Documents. The Holders are accordingly
surrendering to the Company upon execution of this Agreement all
outstanding Debentures that they hold in exchange for delivery of the
shares of Common Stock specified in Sections 1 through 3 above.
b. The Holders, for and on behalf of themselves and their successors
and assigns, do hereby release and forever discharge the Company, its
affiliates and related entities, its successors, transferees, assigns,
officers, directors, employees, agents, representatives, attorneys, and/or
all other persons or entities in privity with it (the "Company 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
Company Released Parties, under the Debentures Documents or arising out
of, related to, or connected with the transactions contemplated thereby
(including, without limitation, any conversion or attempted conversion of
the Debentures or sale or attempted sale of shares as Common Stock
issuable in connection therewith).
c. The Company, for and on behalf of itself and its successors and
assigns, does hereby release and forever discharge the Holders, their
affiliates and related entities, their successors, transferees, assigns,
officers, directors, employees, agents, representatives, attorneys, and/or
all other persons or entities in privity with them (the "Holders Released
Parties") from and all claims, demands, causes of action of any kind or
nature, whether known or unknown, liquidated or contingent, against the
Holders Released Parties, under the Debenture Documents or arising out of,
related to or connected
7
<PAGE>
with the transactions contemplated thereby (including, without limitation,
any conversion or attempted conversion of the Debentures or sale or
attempted sale of shares as Common Stock issuable in connection
therewith).
d. The mutual releases set forth above shall not, however, alter or
release any party hereto from compliance with the covenants and agreements
set forth in this Agreement.
9. 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.
10. GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Texas.
11. 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
Holders.
12. 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 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: Philip P. Sudan, Jr.
Ryan & Sudan, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
8
<PAGE>
To Holders: c/o HW Finance, LLC
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Telephone: 214-720-1689
Telecopy: 214-720-1662
with a copy to: Victor B. Zanetti
Arter & Hadden
1717 Main Street, Suite 4100
Dallas, Texas 75201-4605
Telephone: 214-761-2100
Telecopy: 214-741-7139
13. 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.
14. COUNTERPARTS. This Agreement may be executed by facsimile signature
and 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.
15. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective upon the date first set forth above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Name: Edwin J. Ducayet, Jr.
Title: Vice President
9
<PAGE>
INFINITY INVESTORS, LTD.
By: /s/ CLARK K. HUNT
Name: Clark K. Hunt
Title: __________________________
SEACREST CAPITAL LIMITED
By: /s/ CLARK K. HUNT
Name: Clark K. Hunt
Title: __________________________
10
<PAGE>
SCHEDULE 1
INFINITY INVESTORS LTD.: NUMBER OF SHARES CONVERSION PRICE PER SHARE
- ------------------------ ---------------- --------------------------
May 5- 172,043 $1.2788
May 6- 232,728 $1.2891
May 7- 20,583 $1.3148
May 7- 286,469 $2.00
May 8- 325,000 $2.00
SEACREST CAPITAL LIMITED:
- -------------------------
May 5- 23,460 $1.2788
May 6- 23,273 $1.2891
May 7- 2,287 $1.3148
May 7- 28,496 $2.00
May 8- 40,000 $2.00
11
EXHIBIT 10.2
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is made by and between Intelect Communications
Systems Limited, a Bermuda corporation (the "Company") and Isaac Arnold, Jr.
("Arnold"). Each of the parties hereby agree as follows:
1. AGREEMENT TO SUBSCRIBE AND PURCHASE. Arnold hereby subscribes for
Thirty Thousand (30,000) of the Company's Common Shares (the "Shares") for a
purchase price of $5.00 per share. Arnold shall pay an aggregate of One Hundred
Fifty Thousand Dollars ($150,000) (the "Purchase Price") for the shares by
delivering same day funds in United States dollars. The Shares will be issued by
the Company's transfer agent, American Stock Transfer & Trust Company, within 15
days of the date of this Agreement.
2. REPRESENTATIONS AND COVENANTS.
(a) Arnold represents, warrants and covenants to the Company as follows:
(i) This Agreement has been duly authorized, validly executed and
delivered on behalf of Arnold and is a valid and binding agreement of
Arnold in accordance with its terms, subject to general principles of
equity and to the effect of bankruptcy or other similar laws affecting the
enforcement of creditors' rights;
(ii) Arnold is purchasing the shares for its own account for
investment purposes and not with a view towards distribution. Arnold
understands and agrees that it must bear the economic risks of its
investment for an indefinite period of time. Arnold has received and
carefully reviewed copies of the Company's Form 10-K for the fiscal year
ending December 31, 1997 and the Forms 10-Q for the first and second
quarterly periods of 1997 (the "Public Documents"). Arnold understands
that the offer and sale of the shares are being made only by means of this
Agreement. No representations or warranties have been made to Arnold by
Seller, the officers or directors of Seller, or any agent, employee or
affiliate of any of them except as set forth herein. Arnold is aware that
the purchase of the 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. Arnold has had the opportunity to ask questions of, and
receive answers and satisfactory to it from, the Company's management
regarding the Company. Arnold understands that no Federal or state
governmental authority has made any finding or determination relating to
the fairness of an investment in the shares and that no Federal or state
governmental authority has recommended or endorsed, or will recommend or
endorse, the investment herein. Arnold, in making the decision to purchase
the shares subscribed for, has relied upon independent investigations made
by it and has not relied on any information or representations made by
third parties other than pursuant to this Agreement. Arnold has
significant assets, and upon consummation of the purchase of the shares,
will continue to have significant assets
1
<PAGE>
exclusive of the shares. Arnold has not been organized for the purpose of
acquiring the shares;
(iii) Arnold is an "accredited investor" within the meaning of Rule
501 of the Securities Act of 1933, as amended (the "Securities Act");
(iv) Arnold understands that the 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 in part upon the truth and accuracy
of the representations, warranties, agreements acknowledgments and
understandings of Arnold set forth herein in order to determine the
applicability of such provisions;
(v) Arnold, in making the decision to purchase the shares subscribed
for, has relied upon independent investigations made by it and has not
relied on any information or representations made by third parties other
than pursuant to this Agreement; and
(vi) Arnold understands that the Shares have not been registered
under the Securities Act and therefore it cannot dispose of any or all of
the Shares unless such Shares are subsequently registered under the
Securities Act or exemptions from such registration are available. Arnold
acknowledges that a legend substantially as follows will be placed on the
certificates representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED 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 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.
(b) The Company represents, warrants and covenants that the Public
Documents do not contain any misstatement of material fact or omit to include
any material information necessary to make the statements contained therein not
misleading.
3. REGISTRATION RIGHTS.
(a) The Company contemplates filing a registration statement on Form S-3
(the "Form S-3 Registration Statement") providing for the resale of the Shares,
and the Company will use its best efforts to cause such Form S-3 Registration
Statement to be declared effective on or before
2
<PAGE>
the earlier of September 30, 1997 or two business days following receipt of a
"no-review" or similar letter from the Securities and Exchange Commission. In
the event such Form S-3 Registration Statement is not declared effective by
October 15, 1997, then if after October 15, 1997, 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 Arnold written notice thereof no less than 10 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 Shares as Arnold may request in a
writing delivered to the Company within 5 days after Arnold's receipt of
Company's written notice. Arnold may participate in any number of such
registrations until all of the Shares held by Arnold have been distributed
pursuant to a registration or until the Shares are transferable pursuant to Rule
144(k) under the Securities Act.
(b) The Company further agrees that in the event the Shares are not
registered with the SEC by October 15, 1997, then if, on the date the Shares are
eventually registered with the SEC, the average closing market bid price of the
Company's Common Stock for the five (5) consecutive trading days preceding such
date (the "Registration Date Average Trading Price") is below $5.00 per share,
then the Company will issue to Arnold an additional number of shares of the
Company's Common Stock which, taken together with the shares issued to Arnold
under Section 1 of this Agreement, would be equal to the quotient of $150,000.00
divided by the Registration Date Average Trading Price. Notwithstanding the
foregoing, for purposes of this Section 3(b), in no event will the Registration
Date Trading Price ever be deemed to be below $3.00 per share. As an example of
the foregoing, if the Registration Date Trading Price is $4.00 per share, then
the Company will be required to issue an additional 7,500 shares of its Common
Stock to Arnold ($150,000 divided by $4.00 = an aggregate of 37,500 shares;
37,500 shares minus 30,000 issued pursuant to Section 1 of this Agreement =
7,500 additional shares).
(c) If any registration statement described in this Section 3 is an
underwritten public offering, the right of Arnold 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. Arnold 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 Arnold) 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 Arnold as compared to the
number of shares proposed to be sold by all shareholders.
3
<PAGE>
(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 Arnold 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 Arnold.
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
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
4
<PAGE>
To Arnold: Isaac Arnold, Jr.
601 Jefferson, Suite 4000
Houston, Texas 77002
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.
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 and Arnold have executed this Agreement
this 22 day of August, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Name: Edwin J. Ducayet, Jr.
Title: Vice President/Chief Financial Officer
ISAAC ARNOLD, JR.
/s/ ISAAC ARNOLD, JR.
Isaac Arnold, Jr.
5
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is made by and between Intelect Communications
Systems Limited, a Bermuda corporation (the"Company") and Arnold Corporation, a
Texas corporation ("Arnold"). Each of the parties hereby agree as follows:
1. AGREEMENT TO SUBSCRIBE AND PURCHASE. Arnold hereby subscribes for Ten
Thousand (10,000) of the Company's Common Shares (the "Shares") for a purchase
price of $5.00 per share. Arnold shall pay an aggregate of Fifty Thousand
Dollars ($50,000) (the "Purchase Price") for the shares by delivering same day
funds in United States dollars. The Shares will be issued by the Company's
transfer agent, American Stock Transfer & Trust Company, within 15 days of the
date of this Agreement.
2. REPRESENTATIONS AND COVENANTS.
(a) Arnold represents, warrants and covenants to the Company as follows:
(i) This Agreement has been duly authorized, validly executed and
delivered on behalf of Arnold and is a valid and binding agreement of
Arnold in accordance with its terms, subject to general principles of
equity and to the effect of bankruptcy or other similar laws affecting the
enforcement of creditors' rights;
(ii) Arnold is purchasing the shares for its own account for
investment purposes and not with a view towards distribution. Arnold
understands and agrees that it must bear the economic risks of its
investment for an indefinite period of time. Arnold has received and
carefully reviewed copies of the Company's Form 10-K for the fiscal year
ending December 31, 1997 and the Forms 10-Q for the first and second
quarterly periods of 1997 (the "Public Documents"). Arnold understands
that the offer and sale of the shares are being made only by means of this
Agreement. No representations or warranties have been made to Arnold by
Seller, the officers or directors of Seller, or any agent, employee or
affiliate of any of them except as set forth herein. Arnold is aware that
the purchase of the 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. Arnold has had the opportunity to ask questions of, and
receive answers and satisfactory to it from, the Company's management
regarding the Company. Arnold understands that no Federal or state
governmental authority has made any finding or determination relating to
the fairness of an investment in the shares and that no Federal or state
governmental authority has recommended or endorsed, or will recommend or
endorse, the investment herein. Arnold, in making the decision to purchase
the shares subscribed for, has relied upon independent investigations made
by it and has not relied on any information or representations made by
third parties other than pursuant to this Agreement. Arnold has
significant assets, and upon consummation of the purchase of the shares,
will continue to have significant assets
1
<PAGE>
exclusive of the shares. Arnold has not been organized for the purpose of
acquiring the shares;
(iii) Arnold is an "accredited investor" within the meaning of Rule
501 of the Securities Act of 1933, as amended (the "Securities Act");
(iv) Arnold understands that the 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 in part upon the truth and accuracy
of the representations, warranties, agreements acknowledgments and
understandings of Arnold set forth herein in order to determine the
applicability of such provisions;
(v) Arnold, in making the decision to purchase the shares subscribed
for, has relied upon independent investigations made by it and has not
relied on any information or representations made by third parties other
than pursuant to this Agreement; and
(vi) Arnold understands that the Shares have not been registered
under the Securities Act and therefore it cannot dispose of any or all of
the Shares unless such Shares are subsequently registered under the
Securities Act or exemptions from such registration are available. Arnold
acknowledges that a legend substantially as follows will be placed on the
certificates representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED 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 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.
(b) The Company represents, warrants and covenants that the Public
Documents do not contain any misstatement of material fact or omit to include
any material information necessary to make the statements contained therein not
misleading.
3. REGISTRATION RIGHTS.
(a) The Company contemplates filing a registration statement on Form S-3
(the "Form S-3 Registration Statement") providing for the resale of the Shares,
and the Company will use its best efforts to cause such Form S-3 Registration
Statement to be declared effective on or before
2
<PAGE>
the earlier of September 30, 1997 or two business days following receipt of a
"no-review" or similar letter from the Securities and Exchange Commission. In
the event such Form S-3 Registration Statement is not declared effective by
October 15, 1997, then if after October 15, 1997, 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 Arnold written notice thereof no less than 10 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 Shares as Arnold may request in a
writing delivered to the Company within 5 days after Arnold's receipt of
Company's written notice. Arnold may participate in any number of such
registrations until all of the Shares held by Arnold have been distributed
pursuant to a registration or until the Shares are transferable pursuant to Rule
144(k) under the Securities Act.
(b) The Company further agrees that in the event the Shares are not
registered with the SEC by October 15, 1997, then if, on the date the Shares are
eventually registered with the SEC, the average closing market bid price of the
Company's Common Stock for the five (5) consecutive trading days preceding such
date (the "Registration Date Average Trading Price") is below $5.00 per share,
then the Company will issue to Arnold an additional number of shares of the
Company's Common Stock which, taken together with the shares issued to Arnold
under Section 1 of this Agreement, would be equal to the quotient of $50,000.00
divided by the Registration Date Average Trading Price. Notwithstanding the
foregoing, for purposes of this Section 3(b), in no event will the Registration
Date Trading Price ever be deemed to be below $3.00 per share. As an example of
the foregoing, if the Registration Date Trading Price is $4.00 per share, then
the Company will be required to issue an additional 2,500 shares of its Common
Stock to Arnold ($50,000 divided by $4.00 = an aggregate of 12,500 shares;
12,500 shares minus 10,000 issued pursuant to Section 1 of this Agreement =
2,500 additional shares).
(c) If any registration statement described in this Section 3 is an
underwritten public offering, the right of Arnold 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. Arnold 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 Arnold) 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 Arnold as compared to the
number of shares proposed to be sold by all shareholders.
3
<PAGE>
(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 Arnold 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 Arnold.
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
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
4
<PAGE>
To Arnold: Arnold Corporation
601 Jefferson, Suite 4000
Houston, Texas 77002
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.
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 and Arnold have executed this Agreement
this 22 day of August, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Name: Edwin J. Ducayet, Jr.
Title: Vice President/Chief Financial Officer
ARNOLD CORPORATION
By: ____________________________________________
Its: ___________________________________________
5
<PAGE>
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is made by and between Intelect Communications
Systems Limited, a Bermuda corporation (the"Company") and Meridian Fund, Ltd., a
Texas limited partnership ("Meridian"). Each of the parties hereby agree as
follows:
1. AGREEMENT TO SUBSCRIBE AND PURCHASE. Meridian hereby subscribes for
Twenty Thousand (20,000) of the Company's Common Shares (the "Shares") for a
purchase price of $5.00 per share. Meridian shall pay an aggregate of One
Hundred Thousand Dollars ($100,000) (the "Purchase Price") for the shares by
delivering same day funds in United States dollars. The Shares will be issued by
the Company's transfer agent, American Stock Transfer & Trust Company, within 15
days of the date of this Agreement.
2. REPRESENTATIONS AND COVENANTS.
(a) Meridian represents, warrants and covenants to the Company as follows:
(i) This Agreement has been duly authorized, validly executed and
delivered on behalf of Meridian and is a valid and binding agreement of
Meridian in accordance with its terms, subject to general principles of
equity and to the effect of bankruptcy or other similar laws affecting the
enforcement of creditors' rights;
(ii) Meridian is purchasing the shares for its own account for
investment purposes and not with a view towards distribution. Meridian
understands and agrees that it must bear the economic risks of its
investment for an indefinite period of time. Meridian has received and
carefully reviewed copies of the Company's Form 10-K for the fiscal year
ending December 31, 1997 and the Forms 10-Q for the first and second
quarterly periods of 1997 (the "Public Documents"). Meridian understands
that the offer and sale of the shares are being made only by means of this
Agreement. No representations or warranties have been made to Meridian by
Seller, the officers or directors of Seller, or any agent, employee or
affiliate of any of them except as set forth herein. Meridian is aware
that the purchase of the 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. Meridian has had the opportunity to ask questions of,
and receive answers and satisfactory to it from, the Company's management
regarding the Company. Meridian understands that no Federal or state
governmental authority has made any finding or determination relating to
the fairness of an investment in the shares and that no Federal or state
governmental authority has recommended or endorsed, or will recommend or
endorse, the investment herein. Meridian, in making the decision to
purchase the shares subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties other than pursuant to this
Agreement. Meridian has significant assets, and upon consummation of the
purchase of the shares, will continue to
1
<PAGE>
have significant assets exclusive of the shares. Meridian has not been
organized for the purpose of acquiring the shares;
(iii) Meridian is an "accredited investor" within the meaning of
Rule 501 of the Securities Act of 1933, as amended (the "Securities Act");
(iv) Meridian understands that the 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 in part upon the truth and accuracy
of the representations, warranties, agreements acknowledgments and
understandings of Meridian set forth herein in order to determine the
applicability of such provisions;
(v) Meridian, in making the decision to purchase the shares
subscribed for, has relied upon independent investigations made by it and
has not relied on any information or representations made by third parties
other than pursuant to this Agreement; and
(vi) Meridian understands that the Shares have not been registered
under the Securities Act and therefore it cannot dispose of any or all of
the Shares unless such Shares are subsequently registered under the
Securities Act or exemptions from such registration are available.
Meridian acknowledges that a legend substantially as follows will be
placed on the certificates representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED 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 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.
(b) The Company represents, warrants and covenants that the Public
Documents do not contain any misstatement of material fact or omit to include
any material information necessary to make the statements contained therein not
misleading.
3. REGISTRATION RIGHTS.
(a) The Company contemplates filing a registration statement on Form S-3
(the "Form S-3 Registration Statement") providing for the resale of the Shares,
and the Company will use its best efforts to cause such Form S-3 Registration
Statement to be declared effective on or before
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the earlier of September 30, 1997 or two business days following receipt of a
"no-review" or similar letter from the Securities and Exchange Commission. In
the event such Form S-3 Registration Statement is not declared effective by
October 15, 1997, then if after October 15, 1997, 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 Meridian written notice thereof no less than 10 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 Shares as Meridian may request in a
writing delivered to the Company within 5 days after Meridian's receipt of
Company's written notice. Meridian may participate in any number of such
registrations until all of the Shares held by Meridian have been distributed
pursuant to a registration or until the Shares are transferable pursuant to Rule
144(k) under the Securities Act.
(b) The Company further agrees that in the event the Shares are not
registered with the SEC by October 15, 1997, then if, on the date the Shares are
eventually registered with the SEC, the average closing market bid price of the
Company's Common Stock for the five (5) consecutive trading days preceding such
date (the "Registration Date Average Trading Price") is below $5.00 per share,
then the Company will issue to Meridian an additional number of shares of the
Company's Common Stock which, taken together with the shares issued to Meridian
under Section 1 of this Agreement, would be equal to the quotient of $100,000.00
divided by the Registration Date Average Trading Price. Notwithstanding the
foregoing, for purposes of this Section 3(b), in no event will the Registration
Date Trading Price ever be deemed to be below $3.00 per share. As an example of
the foregoing, if the Registration Date Trading Price is $4.00 per share, then
the Company will be required to issue an additional 5,000 shares of its Common
Stock to Meridian ($100,000 divided by $4.00 = an aggregate of 25,000 shares;
25,000 shares minus 20,000 issued pursuant to Section 1 of this Agreement =
5,000 additional shares).
(c) If any registration statement described in this Section 3 is an
underwritten public offering, the right of Meridian 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. Meridian 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 Meridian) 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 Meridian as compared to the
number of shares proposed to be sold by all shareholders.
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(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 Meridian 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 Meridian.
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
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr.
Ryan & Sudan, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
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To Meridian: Meridian Fund, Ltd.
601 Jefferson, Suite 4000
Houston, Texas 77002
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.
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 and Meridian have executed this Agreement
this 22 day of August, 1997.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Name: Edwin J. Ducayet, Jr.
Title: Vice President/Chief Financial Officer
MERIDIAN FUND, LTD.
By: ______________________________________
Its: _____________________________________
5
EXHIBIT 10.7
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (this "AGREEMENT") made and
entered into as of this 27th day of August 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 entered into a Loan Agreement dated May 8, 1997 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 agreed in conference as of May 2, 1997;
WHEREAS, the Parties desire to amend and restate the terms and conditions
of the Loan Agreement to convert the working capital Loan to a discretionary
revolving credit line, subject to 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 August 20, 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:
"ADVANCE" shall have the meaning given in SECTION 2.01(A).
"AGREEMENT" shall mean this Loan Agreement, as the same may from time to
time be amended or supplemented.
"BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978 as codified
under 11 U.S.C. ss.101, et seq. and Bankruptcy shall have the meaning given in
the Bankruptcy Code.
"BORROWER" shall mean Intelect Systems Corp. ("ISC"), and Intelect
Communications Systems Limited ("ICSL").
"BORROWER AND ITS CONSOLIDATED SUBSIDIARIES" shall mean the Borrower and
its Subsidiaries which are taken on a consolidated basis for financial reporting
purposes. The Consolidated Subsidiaries of the Borrower are: Intelect Systems
Corp.; Intelect Network Technologies Company (formerly Intelect, Inc.); DNA
Enterprises, Inc.; Intelect Visual Communications Corp.; and Intelect Network
Systems, Ltd.
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"BUSINESS DAY" shall mean a day (other than a Saturday, Sunday or legal
holiday) for commercial lenders pursuant to the laws of the State under which
the Lender is governed.
"CAPITAL STOCK" shall mean all common and preferred stock of the Borrower,
but shall not include preferred stock subject to mandatory redemption
requirements.
"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.
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"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN" shall mean any sum extended under the Agreement, as it may be
amended from time to time.
"LOAN DOCUMENTS" shall mean this Agreement and all Exhibits hereto,
including the Promissory Note, as they may be amended from time to time.
"MAKERS" means the makers of the Note.
"MARGIN PERCENTAGE" shall mean Two Percent (2%) which is added to the
Prime to determine the applicable interest rate on the Note.
"MATERIAL ADVERSE EFFECT" shall mean a material and adverse effect on the
operations or financial condition of the Borrower or its Subsidiaries.
"MATURITY DATE" shall mean the Termination Date.
"NOTE" shall mean the Promissory Note of the Borrower described in SECTION
2.01 hereof and being in the form of Note attached as EXHIBIT A hereto, together
with any and all renewals, extensions for any period, increases or
rearrangements thereof.
"PARI PASSU AGREEMENT" means the IN PARI PASSU Agreement between St. James
Capital Corp. and Lender of even date herewith.
"PARTIES" shall have the meaning given in the Preamble.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"PERMITTED LIENS" means (a) Liens now or hereafter securing the Note; (b)
pledges or deposits made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or benefits or
to participate in any fund in connection with workers' compensation,
unemployment insurance, pensions, or other social security programs; (c)
good-faith pledges or deposits made to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money), or leases, or to
secure statutory obligations, surety or appeal bonds, or indemnity, performance,
or other similar bonds in the ordinary course of business; (d) Liens for taxes
and Liens imposed by operation of law (including Liens of mechanics,
materialmen, warehousemen, carriers and landlords), if (i) no amounts are due
and payable and no Lien has been filed (or agreed to), or (ii) the validity or
amount secured thereof is being contested in good faith by lawful proceedings
diligently conducted, reserves required by GAAP have been made, and levy and
execution thereon have been (and continue to be) stayed or payment thereof is
covered in full (subject to the customary deductible) by insurance; (e) Liens
currently in existence; (f) Liens covering purchase money debt incurred to
finance equipment or inventory in the ordinary course of business; and (g) Liens
securing the indebtedness to St. James Capital Corp. as provided in SECTION
2.03(B).
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
"PLAN" shall mean any multi-employer plan or single employer plan, as
defined in Section 4001 and subject to Title IV of ERISA, which is maintained,
or at any time during the five (5) calendar years preceding the date of this
Agreement was maintained, for employees of the Borrower or a Subsidiary.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, the form of which
is attached hereto on EXHIBIT C, dated of even date herewith, executed by
Borrower in favor of the Lender pursuant to which Borrower grants to the
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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) Subject to the terms hereof, the Lender agrees to make advances
(collectively, the "ADVANCES") to the Borrower, at any time and from time to
time on and after the date of this Note to, but excluding, the Maturity Date, up
to a principal amount not to exceed $5,000,000. All Advances shall mature and be
due and payable in full on the Maturity Date. Each Advance shall be made in
accordance with the procedures set forth in this Section.
(b) To evidence the Loan made by the Lender pursuant to this
Section, the Borrower will execute and deliver the Amended and Restated 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.
(c) In order to effect an Advance, the Borrower shall submit a
Request for Advance in writing or by telecopy (or telephone notice promptly
confirmed in writing or by telecopy) to the Lender not later than 10:00 a.m.,
Houston, Texas time, on the borrowing date specified in the Request for Advance
for such proposed Advance. Such Request for Advance shall refer to the Note and
specify (x) in sufficient detail, the corporate use of the proceeds of such
proposed Advance, (y) the Business Day upon which the proceeds of such proposed
Advance are to be made available to the Borrower, and (z) the principal amount
of such proposed Advance. The decision of the Lender to make any Advance
pursuant to a Request for Advance is discretionary, and is subject to the
satisfaction that on the date such
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Advance is to be made no Default or Event of Default then exists (both before
and after giving effect to the making of such proposed Advance).
(d) Borrower shall have the right at any time and from time to time
to prepay the Advances, in whole or in part, without penalty or premium, upon at
least five (5) Business Day's prior written or telecopy notice or telephone
notice promptly confirmed in writing to the Lender.
(e) The Loan and all Advances 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.
(f) Subject to the limitations set forth herein, in Lender's sole
discretion, Borrower may borrow, repay and reborrow hereunder, without
limitation on the number of Advances made hereunder so long as the total unpaid
principal amount at anytime outstanding does not exceed $5,000,000.
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) Borrower has executed and delivered to Lender a certain Borrower
Pledge Agreement dated May 8, 1997, (the "Pledge Agreement") under which
Borrower pledged 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 May 8, 1997, (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 aggregate 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.
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Section 2.04 COMPUTATION.
(a) All interest fees shall be computed on the per annum basis of
the actual number of days elapsed in a year of 365 or 366 days, as the case may
be.
(b) In the event that at any time the sum of the applicable Margin
Percentage plus the Prime Rate exceeds the Highest Lawful Rate, the rate of
interest to accrue on the Note shall be limited to the Highest Lawful Rate, but
any subsequent reductions in the Prime Rate shall not reduce the rate of
interest to accrue on the Note below the Highest Lawful Rate until the total
amount of interest accrued on the Note equals the amount of interest that would
have accrued if a varying rate per annum equal to the applicable Margin
Percentage plus the Prime Rate had at all times been in effect.
(c) In the event that at maturity or final payment of the Note the
total amount of interest paid or accrued on the Note is less than the total
amount of interest which would have accrued if a varying rate per annum equal to
the applicable Margin Percentage plus the Prime Rate had at all times been in
effect, then the Borrower agrees to pay to the Lender an amount equal to the
difference between (i) the amount of interest which would have accrued on the
Note if the Highest Lawful Rate had at all times been in effect, and (ii) the
amount of interest otherwise accrued in accordance with the provisions of
SECTION 2.02 hereof and this SECTION 2.04.
Section 2.05 USE OF PROCEEDS.
(a) The proceeds of all Loans and Advances 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.
(b) No portion of the proceeds of any Loan or Advance 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, 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, or as the Parties may otherwise agree. 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(B).
(b) The Preferred Stock will 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
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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 plus
two percent (2%). The Parties stipulate that the average closing market bid
price for the five (5) consecutive trading days through May 8, 1997, is $1.975,
and the purchase price per share of the Preferred Stock shall be $2.0145, and
that the closing market bid price through August 20, 1997, is $6.0625 and the
purchase price per share of the Preferred Stock shall be $6.18375 for Advances
from and after August 27, 1997.
(c) The anti-dilution provisions applicable to the conversion of the
Preferred Stock to ICSL Common Stock shall be as provided in the CERTIFICATE OF
THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF THE $2.0145, 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK,
SERIES A, PAR VALUE $.01 PER SHARE, OF INTELECT COMMUNICATIONS SYSTEMS LIMITED,
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, dated May 30 1997.
(d) 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 the Subscription Agreement dated May 30, 1997, between Lender and
Borrower.
(e) For good and valuable consideration, the receipt of which is
hereby acknowledged, Borrower has sold to Lender, and Lender has acquired,
2,482,005 shares of the Preferred Stock on May 30, 1997.
(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 as
follows:
(a) For the acquisition of 750,000 shares of Common Stock of
Borrower at a price per share of Two Dollars ($2.00), issued on May 8, 1997.
(b) For the acquisition of 150,000 shares of Common Stock of
Borrower for each $1 million Advance made after August 20, 1997 at a price per
share of Six Dollars ($6.00). 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:
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Section 3.01 ORGANIZATION. ISC is a corporation duly existing and in good
standing under the laws of the State of Delaware and ICSL is a corporation duly
existing and in good standing under the laws of Bermuda. Each of the Borrower
and its Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, has all
requisite corporate power and authority to own its Property and to carry on its
business as now conducted, and is in good standing and authorized to do business
in each jurisdiction in which the Borrower or such Subsidiary owns real Property
or conducts such business, where the failure to maintain such good standing or
authorization is reasonably expected to have a Material Adverse Effect.
Section 3.02 AUTHORIZATION; NO CONFLICT. The execution and delivery of
this Agreement, the borrowing hereunder, the execution and delivery of the Note
and the performance by the Borrower of its obligations under this Agreement and
the Note are within the Borrower's corporate powers, have been duly authorized
by all necessary corporate action, have received all necessary governmental
approvals (if any shall be required) and do not and will not contravene or
conflict with any rule, regulation, decree or order or provision of law or of
the charter or by-laws of the Borrower or of any agreement binding upon the
Borrower or any of its properties, except to the extent any such consent or
approval has been obtained or waived, and delivered to Lender.
Section 3.03 BINDING OBLIGATIONS. This Agreement does, and the Note upon
its creation, execution and delivery will, constitute legal valid and binding
obligations of the Borrower, enforceable in accordance with their terms, except
to the extent that the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally or the
right to obtain the remedy of specific performance.
Section 3.04 FINANCIAL CONDITION. The audited annual consolidated
Financial Statements of the Borrower and its Consolidated Subsidiaries for its
most recently ended fiscal year (the "1996 FINANCIAL STATEMENTS"), and the
unaudited consolidated interim Financial Statements of the Borrower and its
Consolidated Subsidiaries for its most recently ended fiscal quarter (for which
such annual or quarterly Financial Statements are available), which have been
delivered to the Lender, are complete and correct in all material respects, have
been prepared in accordance with GAAP, consistently applied, and present fairly
the consolidated financial condition and results of the operations of the
Borrower and its Consolidated Subsidiaries as at the date or dates and for the
period or periods stated (subject only to normal year-end audit adjustments with
respect to such unaudited interim statements). No material adverse change has
since occurred in the consolidated financial condition or operations of the
Borrower and its Consolidated Subsidiaries except as otherwise disclosed to the
Lender.
Section 3.05 DEFAULTS. Except for defaults in payments required to be made
in connection with the acquisition of DNA Enterprises, Inc., as described in
"Note 24 (b)" of the 1996 Financial Statements, neither the Borrower nor any
Subsidiary is in Default (in any respect which materially and adversely affects
the consolidated business, Property, 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
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Subsidiary which involves the reasonable probability of a judgment not covered
by insurance and which would have a Material Adverse Effect on the Borrower and
its Consolidated Subsidiaries.
Section 3.09 COMPLIANCE WITH ERISA. To the best of the Borrower's
knowledge, the Borrower and each of its Subsidiaries are in compliance in all
material respects with ERISA. Neither the Borrower nor any of its Subsidiaries
has any material liability under any type of Plan. No reportable event, as set
forth in Section 4043(b) of ERISA, has occurred and is continuing with respect
to any Plan which results in any material liability to the PBGC.
Section 3.10 ENVIRONMENTAL MATTERS. To the best of the Borrower's
knowledge, neither the Borrower nor any Subsidiary (i) has received written
notice, nor has any officer of the Borrower otherwise learned, of any claim,
demand, action, event, condition, report or investigation indicating or
concerning any potential or actual liability which individually or in the
aggregate would have a Material Adverse Effect, arising in connection with: (x)
any noncompliance with or violation of the requirements of any applicable
federal, state or local environmental health and safety statutes and regulations
or (y) the release or threatened release of any toxic or hazardous waste,
substance or constituent, or other substance into the environment, (ii) has any
liability in connection with the release or threatened release of any toxic or
hazardous waste, substance or constituent, or other substance into the
environment which in the aggregate would have a Material Adverse Effect, (iii)
has received notice of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release or threatened release of any
toxic or hazardous waste, substance or constituent or other substance into the
environment for which the Borrower or any Subsidiary is or may be liable where
the taking or the failure to take such remedial action would have a Material
Adverse Effect, or (iv) has received notice that the Borrower or any Subsidiary
is or may be liable to any Person under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section
9601 ET SEQ. ("CERCLA"), or any analogous state law, the failure to comply with
which would have a Material Adverse Effect. To the best of the Borrower's
knowledge, the Borrower and each Subsidiary is in compliance in all material
respects with the financial responsibility requirements of federal and state
environmental laws to the extent applicable, including, without limitation,
those contained in 40 C.F.R., parts 264 and 265, subpart H, and any analogous
state law, the failure to comply with which would have a Material Adverse
Effect.
Section 3.11 COMPLIANCE WITH APPLICABLE LAWS. Neither the Borrower nor any
Subsidiary is in default with respect to any judgment, order, writ, injunction,
decree or decision of any governmental authority, which default would have a
Material Adverse Effect. To the best of the Borrower's knowledge, the Borrower
and each Subsidiary is in compliance with all applicable statutes and
regulations, including ERISA, of all governmental authorities, a violation of
which would have a Material Adverse Effect.
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
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Subsidiaries as at the end of such year, the audited statement of income of the
Borrower and its Consolidated Subsidiaries for such year, and the audited
statement of reconciliation of capital accounts of the Borrower and its
Consolidated Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year,
accompanied by the opinion of independent public accountants of national
standing; and
(b) QUARTERLY REPORTS. As soon as available and in any event within
sixty (60) days after the end of each of the first three quarterly periods in
each fiscal year of the Borrower, a copy of the Borrowers Form 10Q as filed with
the Securities and Exchange Commission.
(c) OTHER INFORMATION. Such other information regarding the
financial condition and operations of the Borrower and its Consolidated
Subsidiaries as the Lender may reasonably request. All such balance sheets and
other Financial Statements referred to in SUBSECTIONS 4.01(A) AND (B) above
shall conform to GAAP except for such changes in accounting principles or
practice with which the independent public accountants concur, and subject to
normal year-end audit adjustments with respect to the unaudited quarterly
statements described in SUBSECTION 4.01(B) hereof.
Section 4.02 LEGAL EXISTENCE. The Borrower will, and will cause each
Subsidiary to do, or cause to be done, all things necessary to preserve and keep
in full force and effect its legal existence, rights and franchises; PROVIDED,
HOWEVER, that nothing in this SECTION 4.02 shall prevent (i) the withdrawal by
the Borrower or any Subsidiary of its qualification as a foreign corporation in
any jurisdiction; (ii) a consolidation or merger permitted by other provisions
of this Agreement; or (iii) the redomicile of ICSL as to a jurisdiction within
the United States. The Borrower will use, and will cause each Subsidiary to use,
its best efforts to comply with all applicable statutes, regulations and orders
of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its Property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls).
Section 4.03 INSURANCE. The Borrower shall maintain, and cause each
Subsidiary to maintain, insurance on its Property against such risks and in
substantially the same amounts as are currently maintained, including, without
limitation, general liability and workers' compensation insurance.
Section 4.04 MAINTENANCE OF PROPERTY. The Borrower shall cause all
material Property owned by or leased to the Borrower or any Subsidiary and used
or useful in the conduct of the Borrower's business or the business of any
Subsidiary to be maintained and kept in normal condition, repair and working
order and supplied with all necessary 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
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for the conduct of its business, the termination of which would have a Material
Adverse Effect. With the exception of the matter in "Note 8" of the 1996
Financial Statements, Borrower shall pay all royalties, annuities and license
fees as they become due and shall not forfeit or allow to lapse any rights under
any patent, copyright or license.
Section 4.07 FURTHER ASSURANCES. The Borrower will promptly cure any
defects in the creation and execution of the Loan Documents. The Borrower, at
its expense, will promptly execute and deliver to the Lender all such further
documents, agreements and instruments as may reasonably be requested by the
Lender in order to effect any obligation of the Borrower under this Agreement.
Section 4.08 PERFORMANCE OF OBLIGATIONS. The Borrower will pay the Note
according to the reading, tenor and effect thereof, and the Borrower will do and
perform every act and discharge all of the obligations provided to be performed
and discharged by the Borrower under this Agreement at the time or times and in
the manner specified.
Section 4.09 REIMBURSEMENT OF EXPENSES. The Borrower will, upon request,
promptly reimburse the Lender for all amounts expended, advanced or incurred by
the Lender (including reasonable attorneys' fees and disbursements) to satisfy
any obligations of the Borrower under this Agreement or to enforce the rights of
the Lender under this Agreement.
Section 4.10 NOTICE OF CERTAIN EVENTS. The Borrower shall promptly notify
the Lender if the Borrower learns of any of the following if such occurs while
the Loan is outstanding: (i) any event which constitutes a continuing Default or
Event of Default, together with a detailed statement by a financial officer of
the Borrower of the steps being taken to cure the effect of such Default or
Event of Default; or (ii) the receipt of any notice from, or the taking of any
other action by, the holder of any promissory note, debenture or other evidence
of indebtedness for borrowed money of the Borrower or any Subsidiary with
respect to a claimed default, together with a detailed statement by a financial
officer of the Borrower specifying the notice given or other action taken by
such holder and the nature of the claimed default and what action the Borrower
or such Subsidiary is taking or proposes to take with respect thereto, or (iii)
the commencement of any legal, judicial, or regulatory proceedings affecting the
Borrower or any Subsidiary or any Property of the Borrower or such Subsidiary
not covered by insurance and which could reasonably be expected to be adversely
determined and which, if so determined, would have a Material Adverse Effect on
the business or the financial condition of the Borrower and its Consolidated
Subsidiaries; or (iv) any dispute between the Borrower or any Subsidiary and any
governmental or regulatory body or any other Person which, could reasonably be
expected to be adversely 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
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Borrower shall be permitted to repurchase its 7.5% Convertible Debentures dated
August 9, 1996 and 7% Convertible Debentures dated October 15, 1996.
Section 5.03 LIENS AND PLEDGES OF ASSETS AND STOCK. So long as the
Indebtedness is outstanding, Borrower shall not, nor permit any Subsidiary to,
create, incur, assume or suffer to exist, directly or indirectly, any Lien on
all or substantially all of the assets of the Borrower or any Subsidiary or the
capital stock of any Subsidiary without the consent of Lender which consent
shall not be unreasonably withheld; PROVIDED, HOWEVER, that this SECTION 5.05
shall not prohibit the Borrower or any Subsidiary from creating, assuming or
suffering to exist the following Liens: (i) Liens existing as of the date hereof
and renewals and replacements thereof or the repledging of assets pledged
thereunder; (ii) Liens created under existing mortgages and pledge agreements;
(iii) Liens incurred in the ordinary course of business not in connection with
the borrowing of money; or (iv) Permitted Liens.
Section 5.04 PATENTS, LICENSES, ETC. The Borrower shall not sell or
transfer any material licenses, copyrights, patents, permits, applications,
reports, authorizations, easements and other rights necessary for the conduct of
its business, the termination of which would have a Material Adverse Effect.
Borrower shall not forfeit or allow to lapse any rights under any patent,
copyright or license, the loss of which would have a Material Adverse Effect.
Section 5.05 CONSOLIDATION OR MERGER. Enter into or permit any Subsidiary
to enter into any merger or consolidation unless, in the case of the Borrower,
the surviving entity (i) is in compliance with the covenants contained in this
Agreement immediately after such merger, (ii) assumes all obligations of the
Borrower under this Agreement, and (iii) is organized under the laws of the
United States or any state thereof, provided that nothing herein shall prohibit
the merger of one or more Subsidiaries into the Borrower or any other
Subsidiary.
Section 5.06 SALE OF ASSETS. Sell or otherwise transfer all or
substantially all of its fixed assets or permit any Subsidiary to do so;
provided that nothing herein shall prohibit the sale or transfer of fixed assets
of a Subsidiary to the Borrower or to another Subsidiary.
Section 5.07 LIQUIDATION. The Borrower shall not adopt a plan of
liquidation which provides for, contemplates or the effectuation of which is
preceded by (i) the sale, lease, conveyance or other disposition of all or
substantially all 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
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of the sale of such Property or (y) the fair value (as determined in any manner
approved by the Board of Directors) of such Property. The provisions of this
Section shall not prevent a sale or transfer of any Property with a lease for a
period, including renewals, of not more than thirty-six (36) months.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS. Any of the following events shall be considered an
"Event of Default" as that term is used herein:
(a) DEFAULT ON OTHER DEBT. Other than the matters disclosed in
"Notes 8" and "24(b)" of the 1996 Financial Statements, the Borrower or any
Subsidiary fails to make payment when due on any indebtedness for borrowed money
in an aggregate principal amount in excess of One Hundred Thousand Dollars
($100,000) at the time outstanding (after giving effect to any applicable grace
periods); or any default shall occur with respect to any such indebtedness, or
under any agreement securing or relating to such indebtedness, the effect of
which is to cause or to permit any holder of such indebtedness or a trustee to
cause (whether or not such holder or trustee elects to cause) such indebtedness,
or portion thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment and such default remains uncured for a
period of thirty (30) days; or
(b) NON-PAYMENT OF INDEBTEDNESS. Default is made in the payment or
prepayment when due of any Indebtedness and such Default continues for a period
in excess of five (5) days; or
(c) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made by the Borrower in this Agreement proves to have been incorrect in any
material respect as of the date hereof; or any representation, statement
(including Financial Statements), certificate or data furnished or made by the
Borrower under this Agreement, proves to have been untrue in any material
respect, as of the date as of which the facts therein set forth were stated and
which in either such case may constitute a Material Adverse Effect; or
(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
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(i) ERISA DEFAULT - a Plan fails to maintain the qualifications for
any Plan required by ERISA, and there shall result from any such event or events
either liability or a material risk of incurring liability to the PBGC or to a
Plan, which would have a Material Adverse Effect; or
(j) CROSS DEFAULT. Borrower is in Default under any of the other
Transaction Documents.
Section 6.02 REMEDIES. Upon the happening of any Event of Default
specified in SECTION 6.01 hereof, the Lender may by written notice to the
Borrower declare (i) all Loans then outstanding to be immediately due and
payable without presentment, demand, protest, notice of protest, or dishonor or
other notice of Default of any kind, all of which are hereby expressly waived by
the Borrower, and/or (ii) all obligations, if any, of the Lender hereunder to be
immediately terminated.
Section 6.03 RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Indebtedness of the Borrower,
irrespective of whether the Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured. The Lender
agrees promptly to notify the Borrower after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. In addition, the Lender recognizes and agrees, and
any other holder of the Note by acceptance hereof shall be deemed to agree, that
any and all balances, credits, deposits, accounts or moneys of the Borrower now
or hereafter with the Lender or other holder shall, at the direction of the
Borrower, be applied to the payment and prepayment of any obligation of the
Borrower to the Lender or other holder hereunder.
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.
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<PAGE>
ARTICLE 8
MISCELLANEOUS
Section 8.01 NOTICES. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective Parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement or the Note, addressed to
such party at its address set forth below or at such other address as either of
the Parties hereto may hereafter notify the other in writing.
To Borrower: INTELECT COMMUNICATIONS SYSTEMS LIMITED INTELECT SYSTEMS
CORPORATION
1100 Executive Drive Richardson, Texas 75081
Telephone:972-367-2100
Telecopy:972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr., Esq.
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
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the Lender may not assign the Note or its interest hereunder without the prior
written consent of the Borrower, which consent of either party shall not be
withheld unreasonably.
Section 8.03 SURVIVAL OF AGREEMENTS. All representations and warranties of
the Borrower herein shall survive the effective date of this Agreement.
Section 8.04 RENEWAL, EXTENSION OR REARRANGEMENT. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereinafter executed which in whole or in part
represent a renewal, extension for any period, increase or rearrangement of the
Note.
Section 8.05 INVALIDITY. In the event that any one or more of the
provisions contained in the Note or this Agreement shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the Note
or this Agreement.
Section 8.06 AMENDMENT OR WAIVER. This Agreement may not be amended,
changed, waived, discharged or terminated without the written consent of the
Borrower and the Lender.
Section 8.07 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Borrower or the Lender in exercising any right, power or privilege
hereunder and no course of dealing between the Borrower and the Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder
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<PAGE>
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
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.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
duly executed as of the date first above written.
INTELECT SYSTEMS CORP. THE COASTAL CORPORATION SECOND
PENSION TRUST
By: /s/ HERMAN M. FRIETSCH By: /s/ DONALD H. GULLQUIST
Herman M. Frietsch Donald H. Gullquist
President & CEO Senior Vice President
The Coastal Corporation
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
Herman M. Frietsch
Chairman & CEO
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<PAGE>
LOAN AGREEMENT
EXHIBIT A
PROMISSORY NOTE
- 18 -
<PAGE>
LOAN AGREEMENT
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
- 19 -
<PAGE>
LOAN AGREEMENT
EXHIBIT C
PLEDGE AGREEMENT
- 20 -
<PAGE>
LOAN AGREEMENT
EXHIBIT D
WARRANT
- 21 -
<PAGE>
LOAN AGREEMENT
EXHIBIT E
REGISTRATION AGREEMENT
- 22 -
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
THE COASTAL CORPORATION SECOND PENSION TRUST
AND
INTELECT SYSTEMS CORP.
AND
INTELECT COMMUNICATIONS SYSTEMS LIMITED
AUGUST 27, 1997
<PAGE>
TABLE OF CONTENTS
(This Table of Contents attached to the Loan Agreement is provided for
convenience only, is not a part of such , and shall not in any way affect the
meaning or construction thereof.)
PAGE
ARTICLE 1 GENERAL TERMS............................................... 1
1.01 Definitions ................................................ 1
ARTICLE 2 AMOUNT AND TERMS OF LOAN ................................... 4
2.01 The Loan ................................................... 4
2.02 Interest Rate .............................................. 5
2.03 Security ................................................... 5
2.04 Computation ................................................ 6
2.05 Use of Proceeds ............................................ 6
2.06 Payment and Prepayment Procedure............................ 6
2.07 Issuance of Preferred Stock - Conversion to Equity.......... 6
2.08 Warrants.................................................... 8
2.09 Business Days .............................................. 8
ARTICLE 3 REPRESENTATIONS AND WARRANTIES ............................. 8
3.01 Organization ............................................... 8
3.02 Authorization; No Conflict ................................. 8
3.03 Binding Obligations ........................................ 8
3.04 Financial Condition ........................................ 8
3.05 Defaults ................................................... 9
3.06 Use of Proceeds; Margin Stock .............................. 9
3.07 Tax Returns and Payments ................................... 9
3.08 Litigation Representation .................................. 9
3.09 Compliance with ERISA ...................................... 9
3.10 Environmental Matters....................................... 9
3.11 Compliance with Applicable Laws............................. 10
3.12 Patents, Licenses, Etc...................................... 10
3.13 Outstanding Common Stock.................................... 10
3.14 Disclosure.................................................. 10
ARTICLE 4 AFFIRMATIVE COVENANTS ...................................... 10
4.01 Financial Statements and Reports ........................... 10
4.02 Legal Existence............................................. 10
4.03 Insurance .................................................. 11
4.04 Maintenance of Property .................................... 11
4.05 Inspection of Property; Books and Records; Discussions...... 11
4.06 Patents, Licenses, Etc. .................................... 11
4.07 Further Assurances.......................................... 11
4.08 Performance of Obligations.................................. 11
4.09 Reimbursement of Expenses................................... 11
4.10 Notice of Certain Events.................................... 11
ARTICLE 5 NEGATIVE COVENANTS ......................................... 12
5.01 Restrictions on Borrowing................................... 12
5.02 Payment of Dividends ....................................... 12
5.03 Liens and Pledges of Assets and Stock....................... 12
<PAGE>
5.04 Patents, Licenses, Etc. .................................... 12
5.05 Consolidation or Merger..................................... 12
5.06 Sale of Assets.............................................. 12
5.07 Liquidation................................................. 13
5.08 Restrictions on Sales and Leasebacks........................ 13
ARTICLE 6 EVENTS OF DEFAULT .......................................... 13
6.01 Events ..................................................... 13
6.02 Remedies ................................................... 14
6.03 Right of Set-Off ........................................... 14
ARTICLE 7 CONDITIONS ................................................. 15
7.01 Note ....................................................... 15
7.02 Officer's Certificates ..................................... 15
7.03 Consents.................................................... 15
7.04 No Default ................................................. 15
7.05 Good Standing............................................... 15
7.06 Opinion of Counsel ......................................... 15
ARTICLE 8 MISCELLANEOUS .............................................. 15
8.01 Notices..................................................... 15
8.02 Benefit of Agreement........................................ 16
8.03 Survival of Agreements ..................................... 16
8.04 Renewal, Extension or Rearrangement ........................ 16
8.05 Invalidity.................................................. 16
8.06 Amendment or Waiver ........................................ 16
8.07 No Waiver; Remedies Cumulative ............................. 16
8.08 Interest ................................................... 16
8.09 Headings.................................................... 17
8.10 Counterparts ............................................... 17
8.11 Governing Law .............................................. 17
8.12 Exhibits.................................................... 17
8.13 Entire Agreement............................................ 17
EXHIBIT A PROMISSORY NOTE
EXHIBIT B OPINION OF COUNSEL
EXHIBIT C PLEDGE AGREEMENT
EXHIBIT D WARRANT
EXHIBIT E REGISTRATION AGREEMENT
EXHIBIT 10.8
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 August 26, 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, FOUR HUNDRED FIFTY THOUSAND (450,000)
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 SIX DOLLARS (US $6.00), 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, five years from the date hereof, on
August 26, 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 SIX DOLLARS (US
$6.00) per share of Common Stock payable upon exercise of the Warrants, as
adjusted from time to time pursuant to the provisions hereof.
"HOLDER" means The Coastal Corporation Second Pension Trust.
"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 ("NASD") National Market on such
date, or, if there shall have been no trading on such date or if the Common
Stock shall not be listed on such system, the average of the closing bid and
asked prices in the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Company for such purpose, in each such case,
unless otherwise provided herein, averaged over a period of ten (10) consecutive
Trading Days prior to the date as of which the determination is to be made; or
(y) if the Common Stock shall not be listed or admitted to trading as provided
in clause "(x)" above, the fair market value of the Common Stock as determined
in good faith by the Board of Directors of the Company.
"NOTE" shall mean the Amended and Restated Promissory Note of the Company
issued to Holder in the principal amount of $5,000,000, of even date herewith.
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"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.
"REGISTRATION RIGHTS AGREEMENT" means the Agreement between Company and
Holder.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SUBSCRIPTION NOTICE" has the meaning given in SECTION 1.1.
"TRADING DAYS" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.
"WARRANT" shall mean the right upon exercise to purchase one Warrant
Share.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the Holder hereof upon the exercise of the Warrants.
ARTICLE I
EXERCISE OF WARRANTS
Section 1.1 METHOD OF EXERCISE. The Warrants represented hereby may be
exercised by the Holder hereof, in whole or in part, at any time and from time
to time on or after the date hereof until 5:00 p.m., Houston, Texas time, on
August 26, 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 immediately available funds for all
Warrant Shares purchased hereunder, or (B) if the Company and the Holder
mutually elect, through a "cashless" or "net-issue" exercise of each such
Warrant ("CASHLESS EXERCISE"); the Holder shall exchange each Warrant subject to
a Cashless Exercise for that number of Warrant Shares determined by multiplying
the number of Warrant Shares issuable hereunder by a fraction, the numerator of
which shall be the difference between (x) the Market Price and (y) the Exercise
Price for each such Warrant, and the denominator of which shall be the Market
Price; the Subscription Notice shall set forth the calculation upon which the
Cashless Exercise is based, or (C) a combination of (A) and (B) above; and (iii)
this Warrant. The Warrants shall be deemed to be exercised on the date of
receipt by the Company of the Subscription Notice, accompanied by payment for
the Warrant Shares and surrender of this Warrant, as aforesaid, and such date is
referred to herein as the "EXERCISE DATE". Upon such exercise, the Company
shall, as promptly as practicable and in any event within ten (10) business
days, issue and deliver to such holder a certificate or certificates for the
full number of the Warrant Shares purchased by such holder hereunder, and shall,
unless the Warrants have expired, deliver to the Holder hereof a new Warrant
representing the number of Warrants, if any, that shall not have been exercised,
in all other respects identical to this Warrant. As permitted by applicable law,
the person in whose name the certificates for Common Stock are to be issued
shall be deemed to have become a holder of record of such Common Stock on the
Exercise Date and shall be entitled to all of the benefits of such holder on the
Exercise Date, including without limitation the right to receive dividends and
other distributions for which the record date falls on or after the Exercise
Date and to exercise voting rights.
Section 1.2 EXPENSES AND TAXES. The Company shall pay all expenses, and
taxes (including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
Section 1.3 RESERVATION OF SHARES. The Company shall reserve at all times
so long as the Warrants remain outstanding, free from preemptive rights, out of
its treasury Common Stock or its authorized but unissued shares
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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.
Section 1.4 VALID ISSUANCE. All shares of Common Stock that may be issued
upon exercise of the Warrants will, upon issuance by the Company, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof and, without limiting the
generality of the foregoing, the Company shall take no action or fail to take
any action which will cause a contrary result (including, without limitation,
any action that would cause the Exercise Price to be less than the par value, if
any, of the Common Stock).
Section 1.5 PURCHASE AGREEMENT. The Warrants represented hereby are part
of a duly authorized issuance and sale of Warrants to purchase Common Stock
issued and sold pursuant to the Loan Agreement between Holder and Company of
even date herewith.
Section 1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the
Warrants in accordance with the terms hereof and upon the written request of the
Holder hereof, the Company will acknowledge in writing its continuing obligation
to afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the Holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
Section 1.7 NO FRACTIONAL SHARES. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of this Warrant. If more
than one Warrant shall be presented for exercise at the same time by the same
holder, the number of full shares of Common Stock which shall be issuable upon
such exercise shall be computed on the basis of the aggregate number of whole
shares of Common Stock purchasable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except for the provisions of this
SECTION 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
Section 2.1 WARRANT OFFICE. The Company shall maintain an office for
certain purposes specified herein (the "WARRANT OFFICE"), which office shall
initially be the Company's offices at 1100 Executive Drive, Richardson, Texas
75081 and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the Holder hereof. The Company shall
maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
Section 2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the
person in whose name the Warrants are registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.
Section 2.3 RESTRICTIONS ON TRANSFER OF WARRANTS.
(a) The Company agrees to maintain at the Warrant Office books for
the registration and transfer of the Warrants. Subject to the restrictions on
transfer of the Warrants in this SECTION 2.3, the Company, from time to time,
shall register the transfer of the Warrants in such books upon surrender of this
Warrant at the Warrant Office properly endorsed or accompanied by appropriate
instruments of transfer and written instructions for transfer satisfactory to
the Company. Upon any such transfer and upon payment by the Holder or its
transferee of any applicable transfer taxes, new Warrants shall be issued to the
transferee and the transferor (as their respective interests may appear) and the
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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.
(b) RESTRICTIONS IN GENERAL. The Holder of the Warrants agrees that
it will neither (i) transfer the Warrants prior to delivery to the Company of
written notice of such transfer, nor (ii) transfer such Warrant Shares prior to
delivery to the Company of written notice of such transfer, or until
registration of such Warrant Shares under the Securities Act and any applicable
state securities or Blue Sky laws has become effective.
Section 2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement between the Holder and the Company dated as of the
date hereof and notwithstanding any other provisions contained in this Warrant,
the Holder hereof understands and agrees that the following restrictions and
limitations shall be applicable to all Warrant Shares and to all resales or
other transfers thereof pursuant to the Securities Act:
(a) The Holder hereof agrees that the Warrant Shares shall not be
sold or otherwise transferred unless the Warrant Shares are registered under the
Securities Act and applicable state securities or Blue Sky laws or are exempt
therefrom.
(b) A legend in substantially the following form will be placed on
the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH
ANY OTHER APPLICABLE SECURITIES LAWS."
(c) Stop transfer instructions will be imposed with respect to the
Warrant Shares so as to restrict resale or other transfer thereof, subject to
this SECTION 2.4.
(d) The Holder understands that it must bear the economic risk of
the investment for an indefinite period of time because the Warrant Shares have
not been registered under the Securities Act and therefor cannot be sold unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. The Holder acknowledges that the Holder or the
Holder's representative is familiar with the condition, financial and otherwise,
of the Company. The Holder or the Holder's representative has such knowledge and
experience in financial and business matters that the Holder or the Holder's
representative is able to weigh the information so received and to evaluate the
merits and risks of the Holder's investment in the Warrant Shares.
ARTICLE III
ANTI-DILUTION
Section 3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject
to adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
Section 3.2 ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
(a) (i) If and whenever after the date hereof the Company shall
issue or sell any Common Stock for no consideration or for a consideration
per share less than the Exercise Price, then, forthwith upon
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such issue or sale, the Exercise Price shall be reduced (but not
increased, except as otherwise specifically provided in SECTION 3.2
hereof), to the price (calculated to the nearest one-ten thousandth of a
cent) determined by dividing (x) an amount equal to the sum of (i) the
aggregate number of shares of Common Stock Outstanding immediately prior
to such issue or sale multiplied by the consideration received by the
Company 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
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convertible into or exchangeable for Common Stock shall change (other than
under or by reason of provisions designed to protect against dilution),
the Exercise Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Exercise Price that
would have been in effect at such time had such rights, options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. On the expiration
of any such option or right referred to in SECTION 3.2(B), or on the
termination of any such right to convert or exchange any such Convertible
Securities referred to in SECTION 3.2(B), the Exercise Price then in
effect hereunder shall forthwith be readjusted (increased or decreased, as
the case may be) to the Exercise Price that would have been in effect at
the time of such expiration or termination had such right, option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been granted, issued or sold, and
the Common Stock issuable thereunder shall no longer be deemed to be
Outstanding. If the purchase price provided for in SECTION 3.2(B) or the
rate at which any Convertible Securities referred to in SECTION 3.2(B)
reduced at any time under or by reason of provisions with respect thereto
designed to protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any such right or option or upon
conversion or exchange of any such Convertible Securities, the Exercise
Price then in effect hereunder shall, if not already adjusted, forthwith
be adjusted to such amount as would have obtained had such right, option
or Convertible Securities never been issued as to such Common Stock and
had adjustments been made upon the issuance of the Common Stock delivered
as aforesaid, but only if as a result of such adjustment the Exercise
Price then in effect hereunder is thereby reduced.
(iii) CONSIDERATION FOR STOCK. In case at any time Common
Stock or Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be issued or sold for
cash, the consideration therefor shall be deemed to be the amount received
by the Company therefor. In case at any time any Common Stock, Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration, as
determined reasonably and in good faith by the Board of Directors of the
Company. In case at any time any Common Stock, Convertible Securities or
any rights or options to purchase any Common Stock or Convertible
Securities shall be issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of
consideration received therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as such Board of Directors may determine to be attributable to
such Common Stock, Convertible Securities, rights or options as the case
may be. In case at any time any rights or options to purchase any shares
of Common Stock or Convertible Securities shall be issued in connection
with the issuance and sale of other securities of the Company, together
consisting of one integral transaction in which no consideration is
allocated to such rights or options by the parties, such rights or options
shall be deemed to have been issued with consideration.
(iv) RECORD DATE. In the case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock or
Convertible Securities, or (ii) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be deemed to be the
date of the issuance or sale of the Common Stock or Convertible Securities
deemed to have been issued or sold as a result of the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(v) TREASURY SHARES. The number of shares of Common Stock
Outstanding at any given time shall not include shares owned directly by
the Company in treasury, and the disposition of any such shares shall be
considered an issuance or sale of Common Stock for the purpose of this
SECTION 3.2.
Section 3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend
or make any other distribution upon any shares of the Company, payable in Common
Stock or Convertible Securities, any Common Stock or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
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Section 3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company
shall at any time subdivide its Outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision shall
be proportionately increased, and conversely, in the event that the Outstanding
shares of Common Stock shall at any time be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares purchasable upon
the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this SECTION 3.4, no adjustment
in the Exercise Price and no change in the number of Warrant Shares purchasable
shall be made under this Article III as a result of or by reason of any such
subdivision or combination.
Section 3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization
or reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
(a) As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this SECTION 3.5), lawful and adequate
provisions shall be made whereby the holder of Warrants shall thereafter have
the right to purchase and receive upon the terms and conditions specified in
this Warrant and in lieu of the Warrant Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, such shares of
capital stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of Outstanding shares of such Common Stock equal to
the number of Warrant Shares immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger, share exchange or sale
not taken place, and in any such case appropriate provision reasonably
satisfactory to such holder shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares receivable upon the exercise) shall thereafter be
applicable, as nearly as possible, in relation to any shares of capital stock,
securities or assets thereafter deliverable upon the exercise of Warrants.
(b) In the event of a merger, share exchange or consolidation of the
Company with or into another person as a result of which a number of shares of
Common Stock or its equivalent of the successor person greater or lesser than
the number of shares of Common Stock Outstanding immediately prior to such
merger, share exchange or consolidation are issuable to holders of Common Stock,
then the Exercise Price in effect immediately prior to such merger, share
exchange or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the Outstanding shares of Common Stock.
(c) The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor person (if other than
the Company) resulting from such consolidation, share exchange or merger or the
person purchasing or otherwise acquiring such assets shall have assumed by
written instrument executed and mailed or delivered to the Holder hereof at the
last address of such holder appearing on the books of the Company the obligation
to deliver to such holder such shares of capital stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to
receive, and all other liabilities and obligations of the Company hereunder.
Upon written request by the Holder hereof, such successor person will issue a
new Warrant revised to reflect the modifications in this Warrant effected
pursuant to this SECTION 3.5.
(d) If a purchase, tender or exchange offer is made to and accepted
by the holders of 50% or more of the Outstanding shares of Common Stock, the
Company shall not effect any consolidation, merger, share exchange or sale,
transfer or other disposition of all or substantially all of the Company's
assets with the person having made such offer or with any affiliate of such
person, unless prior to the consummation of such consolidation, merger, share
exchange, sale, transfer or other disposition the Holder hereof shall have been
given a reasonable opportunity to then elect to receive upon the exercise of the
Warrants either the capital stock, securities or assets then issuable with
respect to the Common Stock or the capital stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer.
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<PAGE>
Section 3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a
dividend or other distribution payable to all holders of shares of Common Stock
in evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the date as of which a record is taken for purpose
of such dividend or distribution or, if a record is not taken, the date as of
which holders of record of Common Stock entitled to such dividend or
distribution are determined.
Section 3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares
of Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this SECTION 3.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest
one-hundredth of a dollar, as applicable.
Section 3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the
number of Warrant Shares issuable upon the exercise of the Warrants shall be
adjusted as herein provided, or the rights of the Holder hereof shall change by
reason of other events specified herein, the Company shall compute the adjusted
Exercise Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based. The Company shall cause to be mailed to the Holder
hereof copies of such Officer's Certificate together with a notice stating that
the Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
Section 3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company
proposes:
(a) to declare any dividend upon its Common Stock payable in capital
stock or make any special dividend or other distribution (other than cash
dividends) to the holders of its Common Stock;
(b) to offer for subscription pro rata to all of the holders of its
Common Stock any additional shares of capital stock of any class or other
rights;
(c) to effect any capital reorganization, or reclassification of the
capital stock of the Company, or consolidation, merger or share exchange of the
Company with another person, or sale, transfer or other disposition of all or
substantially all of its assets; or
(d) to effect a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in any one or more of such cases, the Company
shall give the Holder hereof (a) at least ten (10) days' (but not more than
ninety (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 ten (10) days' (but not more than ninety
(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
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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.
Section 3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs
as to which other provisions of this Article III are not strictly applicable or
if strictly applicable would not fairly protect the exercise or purchase rights
of the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the Holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Exercise Price and the number of Warrant Shares
purchasable hereunder so as to preserve the rights of the Holder hereunder. In
no event shall any such adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in SECTION 3.4 hereof, and
then in no event to an amount greater than the Exercise Price as adjusted
pursuant to SECTION 3.4 hereof.
ARTICLE IV
MISCELLANEOUS
Section 4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement,
contain the entire agreement between the Holder hereof and the Company with
respect to the Warrant Shares purchasable upon exercise hereof and the related
transactions and supersedes all prior arrangements or understandings with
respect thereto.
Section 4.2 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section 4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant
may be waived at any time by the party which is entitled to the benefits thereof
and any term or provision of this Warrant may be amended or supplemented at any
time by agreement of the Holder hereof and the Company, except that any waiver
of any term or condition, or any amendment or supplementation, of this Warrant
shall be in writing. A waiver of any breach or failure to enforce any of the
terms or conditions of this Warrant shall not in any way effect, limit or waive
a party's rights hereunder at any time to enforce strict compliance thereafter
with every term or condition of this Warrant.
Section 4.4 ILLEGALITY. In the event that any one or more of the
provisions contained in this Warrant shall be determined to be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
Section 4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among
the records of the Company.
Section 4.6 NOTICE. All notices, requests, demands or other communications
to or upon the respective parties hereto shall be deemed to have been duly given
or made when delivered to the party to which such notice, request, demand or
other communication is required or permitted to be given or made under this
Warrant addressed to such party at its address set forth below or at such other
address as either of the parties hereto may hereafter notify the other in
writing.
To Pledgor: INTELECT COMMUNICATIONS SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
Telephone:972-367-2100
Telecopy:972-367-2271
Attention: Herman Frietsch, Chairman and CEO
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<PAGE>
with a copy to:Philip P. Sudan, Jr., Esq.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone:713-652-0501
Telecopy:713-652-0503
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone:713-877-6825
Telecopy:713-877-7071
Attn: Corporate Secretary
with a copy to:THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone:713-877-6920
Telecopy:713-877-7132
Attn: Director, Financial Administration
For wire transfers of funds to Lender under all Transaction Documents:
Texas Commerce Bank
Houston, Texas
ABA #113000609
Trust Wires Clearing Account
DDA #00101606276
Cusip #
DESCRIPTION: Dividend Income
Intelect Communications
OBI# Attn: Trust Receipts
FFC: 5502001-1867300
THE COASTAL CORPORATION SECOND TRUST
Attn:Mary Grace Greenwood
(713) 216-4539
Section 4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of
this Warrant shall be construed as conferring upon the Holder hereof the right
to vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
Section 4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this SECTION 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this SECTION 4.8.
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Section 4.9 REGISTRATION RIGHTS. The Warrant Shares shall be entitled to
such registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.
Section 4.10 HEADINGS. The Article and Section and other headings herein
are for convenience only and are not a part of this Warrant and shall not affect
the interpretation thereof.
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
Herman M. Frietsch
Chairman & CEO
<PAGE>
SUBSCRIPTION NOTICE
The undersigned, the Holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
FOUR HUNDRED FIFTY THOUSAND (450,000) 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 THE COASTAL CORPORATION SECOND PENSION TRUST 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.
THE COASTAL CORPORATION SECOND PENSION TRUST
By: ___________________________
Donald H. Gullquist
Senior Vice President, The Coastal Corporation
Date: ______________________
<PAGE>
ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
_______________________________
Date: ______________________
EXHIBIT 10.11
AMENDMENT NO. 2
TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 2 TO REGISTRATION RIGHTS AGREEMENT (this "Amendment
Two") is made as of April 24, 1997, by and between Intelect Communications
Systems Limited, a Bermuda corporation (the "Company"), and St. James Capital
Corp., a Delaware corporation (the "Purchaser").
WHEREAS, on February 26, 1997, the Company and the Purchaser entered into
a Registration Rights Agreement (the "Original Registration Rights Agreement"),
pursuant to which the Company granted the Purchaser certain registration rights
in respect of the Shares (as such term is defined in the Original Registration
Rights Agreement);
WHEREAS, effective as of February 26, 1976, the Purchaser agreed to amend
and restate the Floating Rate Promissory Note from the Company to Purchaser
dated as of February 26,1997, in the original principal amount of $2,500,000
(the "Note"), such that, among other matters, the principal amount that may be
advanced under the Note was increased from $2,500,000 to up to $5,000,000, and
in connection therewith the Company and the Purchaser executed an "Amendment No.
1 to the Registration Rights Agreement" ("Amendment One") granting registration
rights with respect to warrants for 300,000 additional shares (the "Second
Warrant Shares") of the Company's Common Stock, par value $0.01 per share (the
"Common Stock") issued under a Warrant dated March 27, 1997 by the Company to
the Purchaser (the "Second Warrant");
WHEREAS, on the date hereof and effective as of February 26, 1997, the
Purchaser agreed to further amend and restate the Note by execution of a Second
Amended and Restated Floating Rate Promissory Note such that, among other
matters, the principal amount that may be advanced under the Note is increased
from $5,000,000 to up to $6,000,000;
WHEREAS, as of the date hereof and in connection with the execution of the
Second Amended and Restated Floating Rate Promissory Note, the Company issued
the Purchaser a Warrant (the "Third Warrant") which may be exercised to purchase
shares of the Company's Common Stock at $3.25 per share, subject to adjustment
(the "Third Warrant Shares");
WHEREAS, the Company wishes to grant the Purchaser certain registration
rights in respect of the New Warrant Shares, as set forth herein;
WHEREAS, the Company wishes to further amend the Original Registration
Rights Agreement, as amended by Amendment One, in the manner set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
1
<PAGE>
SECTION 1. The definition of "Registrable Securities" in the Original
Registration Rights Agreement, as amended by Amendment One, is hereby amended to
read in its entirety as follows:
REGISTRABLE SECURITIES shall mean (i) the Shares; (ii) the Second
Warrant Shares; (iii) the Third Warrant Shares; and (iv) any Common Stock
issued or issuable at any time or from time to time in respect of the
securities in (i), (ii) or (iii) of this sentence upon a stock split,
stock dividend, recapitalization or other similar event involving the
Company.
SECTION 2. All references to the term "Shares" in the Original
Registration Rights Agreement shall be amended and replaced by the term
"Registrable Securities", except as set forth in SECTION 1 of this Amendment.
SECTION 3. By their execution of this Amendment, both the Company and the
Purchaser agree to be a party to, and bound by, the terms of the Original
Registration Rights Agreement, as amended by Amendment One and this Amendment
Two.
SECTION 4. This Amendment Two shall be governed in all respects by the
laws of the State of Texas.
SECTION 5. All other terms and conditions of the Original Registration
Rights Agreement, as amended by Amendment One, shall be and remain the same and
in full force and effect.
SECTION 6. Each party hereto represents and warrants that this Amendment
Two has been duly authorized by it and has been duly executed and delivered on
its behalf, and the Original Registration Rights Agreement, after giving effect
to Amendment One and this Amendment Two, constitutes a valid and legally binding
agreement of such party enforceable against such party in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws of general application relating to or effecting the enforcement of
creditors' rights.
SECTION 7. This Amendment Two 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
<PAGE>
THE COMPANY'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has executed this Amendment Two effective
upon the date first set forth above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: President and CEO
3
<PAGE>
THE PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Purchaser has signed this Amendment Two as of the
date first written above.
ST. JAMES CAPITAL CORP.
By: /s/ ILLEGIBLE
Name:
Title:
4
<PAGE>
AMENDMENT NO. 3
TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 3 TO REGISTRATION RIGHTS AGREEMENT (this "Amendment
Three") is made as of May 8, 1997, by and between Intelect Communications
Systems Limited, a Bermuda corporation (the "Company"), and St. James Capital
Corp., a Delaware corporation (the "Purchaser").
WHEREAS, on February 26, 1997, the Company and the Purchaser entered into
a Registration Rights Agreement (the "Original Registration Rights Agreement"),
pursuant to which the Company granted the Purchaser certain registration rights
in respect of the Shares (as such term is defined in the Original Registration
Rights Agreement, as thereafter amended);
WHEREAS, the Original Registration Rights Agreement has been amended by
Amendment No. 1 to Registration Rights Agreement dated as of March 27, 1997
("Amendment One") and Amendment No. 2 to Registration Rights Agreement dated as
of April 24, 1997 ("Amendment Two");
WHEREAS, effective as of the date hereof, the Company has agreed to issue
a Warrant to Purchase 50,000 shares of Common Stock of the Company (the "Fourth
Warrant Shares") and grant registration rights with respect to such shares; and
WHEREAS, the Company wishes to further amend the Original Registration
Rights Agreement, as amended by Amendment One and Amendment Two, in the manner
as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
SECTION 1. The definition of "Registrable Securities" in the Original
Registration Rights Agreement, as amended by Amendment One and Amendment Two, is
hereby amended to read in its entirety as follows:
REGISTRABLE SECURITIES shall mean (i) the Shares; (ii) the Second
Warrant Shares; (iii) the Third Warrant Shares; (iv) the Fourth Warrant
Shares; and (v) any Common Stock issued or issuable at any time or from
time to time in respect of the securities in (i), (ii), (iii) or (iv) of
this sentence upon a stock split, stock dividend, recapitalization or
other similar event involving the Company.
SECTION 2. By their execution of this Amendment, both the Company and the
Purchaser agree to be a party to, and bound by, the terms of the Original
Registration Rights Agreement, as amended by Amendment One, Amendment Two and
this Amendment Three.
SECTION 3. This Amendment Three shall be governed in all respects by the
laws of the State of Texas.
SECTION 4. All other terms and conditions of the Original Registration
Rights Agreement, as amended by Amendment One and Amendment Two, shall be and
remain the same and in full force and effect.
<PAGE>
SECTION 5. Each party hereto represents and warrants that this Amendment
Three has been duly authorized by it and has been duly executed and delivered on
its behalf, and the Original Registration Rights Agreement, after giving effect
to Amendment One, Amendment Two and this Amendment Three, constitutes a valid
and legally binding agreement of such party enforceable against such party in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws of general application relating to or
effecting the enforcement of creditors' rights.
SECTION 6. This Amendment Three 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
<PAGE>
THE COMPANY'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has executed this Amendment Three
effective upon the date first set forth above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: President and CEO
3
<PAGE>
THE PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Purchaser has signed this Amendment Three as of
the date first writte above.
ST. JAMES CAPITAL CORP.
By: /s/ SIGNATURE ILLEGIBLE
Name:
Title:
4
EXHIBIT 10.13
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 April 24, 2002
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, St. James Capital Corp., a Delaware corporation (the "Holder")
or its assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, 150,000 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 $3.25, 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 April 24, 2002.
As used herein, the following terms shall have the meanings set forth
below:
"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.
"EXERCISE PRICE" shall mean the initial purchase price of $3.25 per share
of Common Stock payable upon exercise of the Warrants, as adjusted from time to
time pursuant to the provisions hereof.
<PAGE>
"MARKET PRICE" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market on such date, or,
if there shall have been no trading on such date or if the Common Stock shall
not be listed on such system, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any NASD member firm selected from
time to time by the Company for such purpose, in each such case, unless
otherwise provided herein, averaged over a period of ten (10) consecutive
Trading Days prior to the date as of which the determination is to be made; or
(y) if the Common Stock shall not be listed or admitted to trading as provided
in clause (x) above, the fair market value of the Common Stock as determined in
good faith by the Board of Directors of the Company.
"NOTE" shall mean the Second Amended and Restated Floating Rate Promissory
Note of the Company issued to St. James Capital Corp. as of February 26, 1997 in
the principal amount of $6,000,000, as hereafter amended, modified, restated or
substituted.
"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.
"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
1.1 METHOD OF EXERCISE. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Houston, Texas time, on April 24,
2002. 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
<PAGE>
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.
1.2 EXPENSES AND TAXES. The Company shall pay all expenses, and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
1.3 RESERVATION OF SHARES. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
1.4 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price to be less than the par value, if any, of the
Common Stock).
1.5 PURCHASE AGREEMENT. The Warrants represented hereby are part of a duly
authorized issuance and sale of warrants to purchase Common Stock issued and
sold pursuant to that certain Letter of Intent dated as of February 14, 1997, as
amended on March 27, 1997 and April 24, 1997 (the "Agreement"), between the
Company and the holder hereof. The holder hereof shall be entitled to
registration under the Securities Act and any applicable state securities or
blue sky laws to the extent set forth in the Registration Rights Agreement, as
amended. The
<PAGE>
terms of the Agreement are hereby incorporated herein for all purposes and shall
be considered a part of this Warrant as if they had been fully set forth herein.
Notwithstanding the previous sentence, in the event of any conflict between the
provisions of the Agreement and of this Warrant, the provisions of this Warrant
shall control.
1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.7 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 1100 Executive Drive, Richardson, Texas 75081, and
may subsequently be such other office of the Company or of any transfer agent of
the Common Stock in the continental United States as to which written notice has
previously been given to the holder hereof. The Company shall maintain, at the
Warrant Office, a register for the Warrants in which the Company shall record
the name and address of the Person in whose name this Warrant has been issued,
as well as the name and address of each permitted assignee of the rights of the
registered owner hereof.
2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be
<PAGE>
exercised by an assignee for the purchase of Warrant Shares without having a new
Warrant issued.
2.3 RESTRICTIONS ON TRANSFER OF WARRANTS. 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 cancelled 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.
2.3.1 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.
2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement between the Holder and the Company dated as of the
date hereof and notwithstanding any other provisions contained in this Warrant,
the holder hereof understands and agrees that the following restrictions and
limitations shall be applicable to all Warrant Shares and to all resales or
other transfers thereof pursuant to the Securities Act:
2.4.1 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.
2.4.2 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
<PAGE>
UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE
SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE
SECURITIES LAWS."
2.4.3 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.
2.4.4 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 therefore 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
3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.2 ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
3.2.1 (A) 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 3.2.2(C) hereof), to the price (calculated to
the nearest one-ten thousandth of a cent) determined by dividing (x) an amount
equal to the sum of (i) the aggregate number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the
consideration received by the Company 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.
<PAGE>
(B) 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, (i) 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); (ii) 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; (iii) Common Stock upon exercise of any stock purchase warrant or
option (other than the options referred to in clause (i) above) or other
convertible security outstanding on the date hereof; (iv) Common Stock upon
conversion of the Note; or (v) 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.
3.2.2 For purposes of this Section 3.2, the following Sections
3.2.2(A) to 3.2.2(E) inclusive, shall be applicable:
(A) 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 (i) 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 (ii) 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
<PAGE>
have been issued for such price per share, with the effect on the Exercise
Price specified in Section 3.2.1 hereof. Except as provided in Section
3.2.2 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.
(B) 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 3.2.2, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Section 3.2.2, or the rate at which
any Convertible Securities referred to in Section 3.2.2, are convertible
into or exchangeable for Common Stock shall change (other than under or by
reason of provisions designed to protect against dilution), the Exercise
Price then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Exercise Price that would have been
in effect at such time had such rights, options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any such option or
right referred to in Section 3.2.2, or on the termination of any such
right to convert or exchange any such Convertible Securities referred to
in Section 3.2.2, 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 3.2.2 or the rate at which any
Convertible Securities referred to in Section 3.2.2 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.
(C) 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
<PAGE>
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.
(D) 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.
(E) 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.
3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision shall
be proportionately increased, and conversely, in the event that the outstanding
shares of Common stock shall at any time be combined into a smaller number of
shares, the Exercise Price 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
<PAGE>
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.
3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
3.5.1 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.
3.5.2 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.
3.5.3 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
<PAGE>
successor Person will issue a new Warrant revised to reflect the modifications
in this Warrant effected pursuant to this Section 3.5.
3.5.4 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.
3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
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.
3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 3.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise
<PAGE>
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.
3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:
(i) 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;
(ii) 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;
(iii) 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
(iv) 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.
3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly
<PAGE>
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
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement, contain
the entire agreement between the holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.
4.2 GOVERNING LAW. This warrant shall be governed by and construed in
accordance with the laws of the State of Texas.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be given
or delivered to the holder hereof shall be in writing and delivered at, or sent
by certified or
<PAGE>
registered mail to such holder at, the last address shown on the books of the
Company maintained at the Warrant Office for the registration of this Warrant or
at any more recent address of which the holder hereof shall have notified the
Company in writing. Any notice or other document required or permitted to be
given or delivered to the Company, other than such notice or documents required
to be delivered to the Warrant Office, shall be delivered at, or sent by
certified or registered mail to, the offices of the Company at 1100 Executive
Drive, Richardson, Texas 75081 or such other address within the continental
United States of America as shall have been furnished by the Company to the
holder of this Warrant, with a copy to Philip P. Sudan, Jr., Ryan & Sudan,
L.L.P., 909 Fannin, 39th Floor, Houston, Texas 77010.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Warrant, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity or such other security in such form and amount
as shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new Warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company. This Warrant shall be promptly canceled
by the Company upon the surrender hereof in connection with any exchange or
replacement. The Company shall pay all taxes (other than securities transfer
taxes or income taxes) and all other expenses and charges payable in connection
with the preparation, execution and delivery of Warrants pursuant to this
Section 4.8.
4.9 REGISTRATION RIGHTS. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.
4.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
4.11 SUBSTITUTION AND REPLACEMENT. This Warrant is being issued in
substitution for and in replacement of that certain Warrant to Purchase Common
Stock of the Company dated April 24, 1997, for the purpose, among other matters,
of changing the initial Exercise Price.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: April 24, 1997
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: President and CEO
<PAGE>
SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
____________________________
Date: ___________________________
<PAGE>
ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
____________________________
Date: ___________________________
<PAGE>
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 8, 2002
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, St. James Capital Corp., a Delaware corporation (the "Holder")
or its assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, 50,000 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 $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 8, 2002.
As used herein, the following terms shall have the meanings set forth
below:
"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 hereof, the
stock, securities provided for in such Section , and (ii) any other shares of
common stock of the Company into which such shares of Common Stock may be
converted.
"EXERCISE PRICE" shall mean the initial purchase price of $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
<PAGE>
or if no such sale takes place on such date, the average of the closing bid and
asked prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market on such date, or,
if there shall have been no trading on such date or if the Common Stock shall
not be listed on such system, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any NASD member firm selected from
time to time by the Company for such purpose, in each such case, unless
otherwise provided herein, averaged over a period of ten (10) consecutive
Trading Days prior to the date as of which the determination is to be made; or
(y) if the Common Stock shall not be listed or admitted to trading as provided
in clause (x) above, the fair market value of the Common Stock as determined in
good faith by the Board of Directors of the Company.
"NOTE" shall mean the Second Amended and Restated Floating Rate Promissory
Note of the Company issued to St. James Capital Corp. as of February 26, 1997 in
the principal amount of $6,000,000.
"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.
"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
1.1 METHOD OF EXERCISE. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Houston, Texas time, on May 8, 2002.
To exercise the Warrants, the holder hereof shall deliver to the Company, at the
Warrant Office designated in Section 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)
2
<PAGE>
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.
1.2 EXPENSES AND TAXES. The Company shall pay all expenses, and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
1.3 RESERVATION OF SHARES. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
1.4 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price to be less than the par value, if any, of the
Common Stock).
1.5 PURCHASE AGREEMENT. The Warrants represented hereby are part of a duly
authorized issuance and sale of warrants to purchase Common Stock issued and
sold pursuant to that certain Letter of Intent dated as of February 14, 1997, as
amended on March 27, 1997 and May 8, 1997 (the "Agreement"), between the Company
and the holder hereof. The holder hereof shall be entitled to registration under
the Securities Act and any applicable state securities or blue sky laws to the
extent set forth in the Registration Rights Agreement, as amended. The terms of
the Agreement are hereby incorporated herein for all purposes and shall be
considered a part of this Warrant as if they had been fully set forth herein.
Notwithstanding the previous sentence, in the event of any conflict between the
provisions of the Agreement and of this Warrant, the provisions of this Warrant
shall control.
1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the holder hereof shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.7 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common
3
<PAGE>
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 , 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
2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 1100 Executive Drive, Richardson, Texas 75081, and
may subsequently be such other office of the Company or of any transfer agent of
the Common Stock in the continental United States as to which written notice has
previously been given to the holder hereof. The Company shall maintain, at the
Warrant Office, a register for the Warrants in which the Company shall record
the name and address of the Person in whose name this Warrant has been issued,
as well as the name and address of each permitted assignee of the rights of the
registered owner hereof.
2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.
2.3 RESTRICTIONS ON TRANSFER OF WARRANTS. 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 , 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 cancelled 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.
2.3.1 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.
2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement between the Holder and the Company dated as of the
date hereof and notwithstanding any other provisions contained in this Warrant,
the holder hereof understands and agrees that the following
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restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act:
2.4.1 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.
2.4.2 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."
2.4.3 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.
2.4.4 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 therefore 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
3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
3.2 ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
3.2.1 (A) 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,
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forthwith upon such issue or sale, the Exercise Price shall be reduced (but not
increased, except as otherwise specifically provided in Section hereof), to the
price (calculated to the nearest one-ten thousandth of a cent) determined by
dividing (x) an amount equal to the sum of (i) the aggregate number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied by
the consideration received by the Company 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.
(B) Notwithstanding the provisions of this Section , no
adjustment shall be made in the Exercise Price in the event that the Company
issues, in one or more transactions, (i) 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); (ii) 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; (iii) Common Stock upon exercise of any stock purchase warrant or
option (other than the options referred to in clause (i) above) or other
convertible security outstanding on the date hereof; (iv) Common Stock upon
conversion of the Note; or (v) Common Stock issued as consideration in
acquisitions. In addition, for purposes of calculating any adjustment of the
Exercise Price as provided in this Section , 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.
3.2.2 For purposes of this Section , the following Sections to
inclusive, shall be applicable:
(A) 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 (i) 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 (ii) 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
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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 hereof. Except as provided in Section
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.
(B) 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 , the additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in Section , or the rate at which any Convertible
Securities referred to in Section , are convertible into or exchangeable
for Common Stock shall change (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price then in effect
hereunder shall forthwith be readjusted (increased or decreased, as the
case may be) to the Exercise Price that would have been in effect at such
time had such rights, options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued
or sold. On the expiration of any such option or right referred to in
Section , or on the termination of any such right to convert or exchange
any such Convertible Securities referred to in Section , 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 or the
rate at which any Convertible Securities referred to in Section 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.
(C) 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
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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.
(D) 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.
(E) 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 3.4.
3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision shall
be proportionately increased, and conversely, in the event that the outstanding
shares of Common stock shall at any time be combined into a smaller number of
shares, the Exercise Price 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 , 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.
3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
3.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this Section ), lawful and adequate
provisions shall be made whereby the holder of Warrants shall
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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.
3.5.2 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.
3.5.3 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 .
3.5.4 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.
3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
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
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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.
3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 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.
3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based. The Company shall cause to be mailed to the holder
hereof copies of such Officer's Certificate together with a notice stating that
the Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:
(i) 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;
(ii) 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;
(iii) 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
(iv) 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
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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.
3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Exercise Price and the number of Warrant Shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in Section hereof, and then
in no event to an amount greater than the Exercise Price as adjusted pursuant to
Section hereof.
ARTICLE IV
MISCELLANEOUS
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement, contain
the entire agreement between the holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.
4.2 GOVERNING LAW. This warrant shall be governed by and construed in
accordance with the laws of the State of Texas.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this
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Warrant shall not, at the election of the party for whom the benefit of the
provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be given
or delivered to the holder hereof shall be in writing and delivered at, or sent
by certified or registered mail to such holder at, the last address shown on the
books of the Company maintained at the Warrant Office for the registration of
this Warrant or at any more recent address of which the holder hereof shall have
notified the Company in writing. Any notice or other document required or
permitted to be given or delivered to the Company, other than such notice or
documents required to be delivered to the Warrant Office, shall be delivered at,
or sent by certified or registered mail to, the offices of the Company at 1100
Executive Drive, Richardson, Texas 75081 or such other address within the
continental United States of America as shall have been furnished by the Company
to the holder of this Warrant, with a copy to Philip P. Sudan, Jr., Ryan &
Sudan, L.L.P., 909 Fannin, 39th Floor, Houston, Texas 77010.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Warrant, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity or such other security in such form and amount
as shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new Warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 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 .
4.9 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.
4.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: May 8, 1997
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: President and CEO
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SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
______________________________
Date: ________________________
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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: ________________________
15
EXHIBIT 10.16
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY,
THIS NOTE 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.
SECOND AMENDED AND RESTATED FLOATING RATE PROMISSORY NOTE
$6,000,000 February 26, 1997
For value received, INTELECT SYSTEMS CORP., a Delaware corporation
("ISC"), and INTELECT COMMUNICATIONS SYSTEMS LIMITED, a corporation organized
under the laws of Bermuda ("ICSL" and together with ISC called the "MAKERS,"),
jointly and severally promise and agree to pay on or before March 27, 1998 (the
"MATURITY DATE") to the order of ST. JAMES CAPITAL CORP., a Delaware corporation
(hereinafter called "HOLDER"), or its registered transferees and assigns, at the
office of First Bank National Association, Minneapolis, Minnesota, in coin or
currency of the United States of America which at the time of payment is legal
tender for the payment of public and private debts, the principal sum of SIX
MILLION AND NO/DOLLARS ($6,000,000), or so much as is advanced pursuant to this
Note.
The Makers further agree to pay interest, in like money, on the unpaid
principal amount owing hereunder from time to time from the date hereof at the
Floating Rate, as hereinafter defined. Such accrued interest shall be due and
payable on the Maturity Date.
Any holder of this Note is entitled to all of the rights, remedies,
benefits and privileges provided for herein and in the other Transaction
Documents, as hereinafter defined. The Obligations (as herein defined) of the
Makers contained in this Note are secured by the Pledge Agreement.
Each Maker and any and each co-maker, endorsers, guarantors and sureties
or each other Person liable for payment or collection of this Note expressly and
severally waives grace, demand, presentment for payment, notice of nonpayment,
notice of dishonor, notice of intent to accelerate the maturity, notice of
acceleration of the maturity, notice of default, protest and notice of protest,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder and in the handling of property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any Lien at any time had or
existing as security for any amount called for hereunder, and agrees to all
renewals, extensions
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or partial payments hereon and to any release or substitution of security
hereof, in whole or in part, with or without notice, before or after maturity.
In the event Default (as hereinafter defined) is made in the payment of
this Note in whatever manner its maturity may be brought about and if this Note
is thereupon placed in the hands of attorneys for collection, or if the same is
collected through probate, bankruptcy or other similar proceedings, the Makers,
jointly and severally, promise to pay all reasonable attorneys' fees and
expenses incurred by the Holder in connection with such default or collection
proceedings.
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 CERTAIN DEFINED TERMS. As used in this Note, the following terms shall
have the following meanings:
"ADVANCES" shall have the meaning assigned to that term in SECTION 2.1
hereof.
"BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978 as codified
under 11 U.S.C. ss.101, et seq.
"BUSINESS DAY" means any day (other than a day which is a Saturday, Sunday
or legal holiday) in the State of Texas on which banks are open for business in
Houston, Texas.
"COMMITMENT" means, at the time any determination thereof is to be made,
the commitment of the Holder to extend credit to the Makers by means of
Advances, which subject to SECTION 5.1, shall be an amount equal to $6,000,000.
"DEBT" means, for any Person, (a) all obligations required by GAAP to be
classified upon a balance sheet as liabilities, (b) liabilities secured by any
Lien existing on property owned or acquired by that Person, (c) obligations that
have been (or under GAAP should be) capitalized for financial reporting
purposes, (d) all accrued obligations of such Person in respect of any contract,
agreement or instrument imposing an obligation upon such Person to pay over
funds; (e) for all trade debt of such Person; (g) all guaranties, endorsements
and other contingent obligations with respect to Debt of others, and (h) for all
deferrals, renewals, extensions and refundings of, and amendments, modifications
and supplements to, any of the indebtedness referred to in (a) through (e)
above.
"DEBTOR RELIEF LAWS" shall mean the Bankruptcy Code and all other
applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of debt, compromise, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
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"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"DEFAULT RATE" means a rate per annum equal to the greater of (a) the
Prime Rate in effect on such day PLUS five percent (5%) and (b) the Highest
Lawful Rate.
"DNA" means DNA Enterprises, Inc., a Texas corporation and a wholly owned
Subsidiary of ISC.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EVENT OF DEFAULT" has the meaning specified in SECTION 5.1.
"FLOATING RATE" means a rate per annum equal to the lesser of (a) the
Prime Rate in effect on such day PLUS two percent (2%) and (b) the Highest
Lawful Rate.
"GAAP" means 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" means, as of a particular date, the maximum
nonusurious interest rate that may under applicable law then be contracted for,
charged or received by the Holder in connection with this Note.
"LIEN" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, production payment, deposit, lien, charge, pledge, security interest,
claim or encumbrance of any kind (whether voluntary or involuntary, affirmative
or negative, and whether imposed or created by operation of law or otherwise)
upon such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities but excluding any
right of offset which arises without agreement in the ordinary course of
business.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect on the
business, Properties, operations or condition (financial or otherwise) or
prospects of ISC and its Subsidiaries taken as a whole, (ii) a material adverse
effect on the business, Properties, operations or condition (financial or
otherwise) or prospects of ICSL and its Subsidiaries taken as a whole, (iii)
material impairment of the ability of any Maker to perform timely any of its
respective Obligations under this Note, (iv) material impairment of the ability
of ISC to perform timely any of its Obligations under any of the Transaction
Documents to which such Maker is a party, or (v) material impairment of the
rights of or benefits available to the Holder under this Note or any of the
other Transaction Documents.
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"MATURITY DATE" means March 27, 1998, or the earlier termination in whole
of the Commitment pursuant to SECTION 5.1.
"NOTE" means this Floating Rate Promissory Note, as hereafter amended,
modified, substituted or replaced.
"OBLIGATIONS" means all obligations, liabilities and indebtedness of every
nature of the Makers and their respective Subsidiaries from time to time owing
to the Holder under this Note and/or any of the other Transaction Documents,
including, without limitation, (i) the due and punctual payment of (x) the
principal of and interest on the Advances, when and as due, whether at maturity,
by acceleration, upon one or more dates set for prepayment or otherwise,
including, to the extent permitted by applicable law, interest that accrues
after the commencement of any proceeding by or against any Maker or any
Subsidiary of a Maker under the Bankruptcy Code and all other applicable Debtor
Relief Laws, (y) all other monetary obligations of the Makers and their
respective Subsidiaries to the Holder under this Note and/or any other
Transaction Document, including any and all fees, costs, expenses and
indemnities, and (ii) the due and punctual performance of all other obligations
of the Makers and their respective Subsidiaries under this Note and/or any other
Transaction Document. "OBLIGATION" shall mean any part of the Obligations.
"OUTSIDE FINANCING" means any transactions where any Maker or any
Subsidiary of any Maker, now or hereafter acquired, sells its equity or debt
securities for cash whether in public or private offerings or bond financings,
provided, however, that an Outside Financing shall not include any transactions
involving (i) purchase money debt incurred to finance equipment and inventory in
the ordinary course of business, (ii) the sale of any securities for the sole
purpose of financing acquisitions, (iii) the issuance of shares of common stock
of Maker or any Subsidiary of Maker pursuant to existing stock options to
employees, officers and directors or existing plans covering such persons and
(iv) the sale of any securities between ICSL and any of its Subsidiaries or
between Subsidiaries of ICSL.
"PERMITTED LIENS" means (a) Liens now or hereafter securing the
Obligations; (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
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in existence; and (f) liens covering purchase money debt incurred to finance
equipment or inventory in the ordinary course of business.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLEDGE AGREEMENT" means that certain Pledge Agreement dated of even date
herewith executed by ISC in favor of the Holder pursuant to which ISC grants to
the Holder a Lien on all of the issued and outstanding shares of capital stock
of DNA, as originally executed or as such agreement may from time to time be
supplemented, modified or amended, including but not limited to those amendments
effected by that First Amendment to Borrower's Pledge Agreement dated March 27,
1997, and that Second Amendment to Borrower's Pledge Agreement dated April 24,
1997.
"PRIME RATE" means, as of a particular date, the prime rate of interest
per annum most recently announced by First Bank National Association,
automatically fluctuating upward or downward with and at the time specified in
each such announcement without notice to the Makers or any other Person; each
change in the Prime Rate shall be effective on the date such change is
announced.
"PROPERTY" means any asset, whether real, personal or mixed, or tangible
or intangible, or any interest therein.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights
Agreement dated of even date herewith executed by ICSL in favor of the Holder,
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 such agreement may from time to time be supplemented, modified or amended.
"SEC" means the U.S. Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARY" means, with respect to any Person, any entity of which more
than 50% (in number of votes) of the stock (or equivalent interests) is owned of
record or beneficially, directly or indirectly, by such Person, provided
however, such term shall not include Intelect Europe Limited.
"TRANSACTION DOCUMENTS" means this Note, the Pledge Agreement, the
Warrants and the Registration Rights Agreement.
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"WARRANTS" means (i) that certain Warrant to purchase shares of ICSL's
common stock, par value $.01 per share, issued pursuant to the terms of that
certain Warrant dated as of the date hereof, executed by ICSL in favor of
Holder, as hereafter amended, modified, substituted or replaced, (ii) that
certain Warrant to purchase shares of ICSL's common stock, par value $.01 per
share, issued pursuant to the terms of that certain Warrant dated as of March
27, 1997, executed by ICSL in favor of Holder, as hereafter amended, modified,
substituted or replaced, and (iii) that certain Warrant to purchase shares of
ICSL's common stock, par value $.01 per share, issued pursuant to the terms of
that certain Warrant dated as of April 24, 1997, executed by ICSL in favor of
Holder, as hereinafter amended, modified, substituted or replaced.
1.2. ACCOUNTING TERMS. All terms of an accounting or financial nature
shall be construed in accordance with GAAP, as in effect from time to time;
PROVIDED, HOWEVER, that, for purposes of determining compliance with any
covenant set forth in ARTICLE IV, such terms shall be construed in accordance
with GAAP as in effect on the date of this Note, consistently applied.
1.3. INTERPRETATION.
(a) In this Note, unless a clear contrary intention appears:
(i) the singular number includes the plural number and vice versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Note as a whole and not to any particular
Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Note, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually, PROVIDED that
nothing in this subclause (iv) is intended to authorize any assignment not
otherwise permitted by this Note;
(v) reference to any agreement, document or instrument means such
agreement, document or instrument as amended, supplemented or modified and
in effect from time to time in accordance with the terms thereof and, if
applicable, the terms hereof, and reference to the Note includes any Note
issued pursuant hereto in extension or renewal hereof and in substitution
or replacement herefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section hereof
or such Schedule or Exhibit hereto;
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(vii) the words "including" (and with correlative meaning "include")
means including, without limiting the generality of any description
preceding such term;
(viii) with respect to the determination of any period of time, the
word "from" means "from and including" and the word "to" means "to but
excluding;"
(ix) reference to any law means such as amended, modified, codified
or reenacted, in whole or in part, and in effect from time to time; and
(b) No provision of this Note shall be interpreted or construed against
any Person solely because that Person or its legal representative drafted such
provision.
ARTICLE II
COMMITMENT AND ADVANCES
2.1 ADVANCES. Subject to the terms and conditions and relying on the
representations and warranties set forth herein and in the other Transaction
Documents, the Holder agrees to make advances (collectively, the "ADVANCES") to
the Makers, at any time and from time to time on and after the date of this Note
to, but excluding, the Maturity Date up to a principal amount not to exceed
$6,000,000. All Advances shall mature and be due and payable in full on the
Maturity Date. Once repaid, Advances may not be reborrowed. Each Advance shall
be made in accordance with the procedures set forth in SECTION 2.2. Advances in
an aggregate principal amount of $5,000,000 were effected pusuant to the terms
hereto between the dates of February 26, 1997 and April 23, 1997, and it is
specifically contemplated by Makers and Holder that an Advance of the remaining
principal constituting the Commitment hereunder shall be advanced on April 24,
1997, immediately following execution of this Second Amended and Restated
Floating Rate Promissory Note by Makers.
2.2 BORROWING PROCEDURES OF ADVANCES. In order to effect an Advance, the
Makers shall submit a Request for Advance in writing or by telecopy (or
telephone notice promptly confirmed in writing or by telecopy) to the Holder not
later than 10:00 a.m., Houston, Texas time, on the borrowing date specified in
the Request for Advance for such proposed Advance. Such Request for Advance
shall refer to this Note and specify (x) in sufficient detail, the corporate use
of the proceeds of such proposed Advance, (y) the Business Day upon which the
proceeds of such proposed Advance are to be made available to the Makers, and
(z) the principal amount of such proposed Advance. The obligation of the Holder
to make any Advance pursuant to a Request for Advance is subject to the
satisfaction that on the date such Advance is to be made no Default or Event of
Default then exists (both before and after giving effect to the making of such
proposed Advance).
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2.3 INTEREST ON ADVANCES AND PAYMENT DATES.
(a) Subject to the provisions of SECTION 2.4, the Advances shall bear
interest at the Floating Rate, computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be.
(b) Interest on each Advance shall be payable by the Makers (i) in respect
of each Advance accruing interest at the Floating Rate, on the Maturity Date,
(ii) in respect of each Advance accruing interest at the Default Rate, on
demand, and (iii) in respect of all Advances, on any prepayment (on the amount
prepaid), at maturity (whether by acceleration or otherwise) and, after
maturity, on demand.
2.4 INTEREST ON OVERDUE AMOUNTS. If Makers shall fail to pay the principal
of or interest on any Advance or any other amount when due hereunder, Makers
shall on demand from time to time pay interest, to the extent permitted by law,
on such defaulted amount from the date of such Event of Default up to (but not
including) the date of actual payment (after as well as before judgment) at a
rate per annum equal to the Default Rate, computed on the basis of the actual
number of days elapsed over a year of 365 or 366 days, as the case may be.
2.5 VOLUNTARY PREPAYMENT OF ADVANCES. Makers shall have the right at any
time and from time to time to prepay the Advances, in whole or in part, without
penalty or premium, upon at least five (5) Business Day's prior written or
telecopy notice or telephone notice promptly confirmed in writing to the Holder.
2.6 MANDATORY PAYMENT OF ADVANCES.
(a) Makers shall repay all outstanding Advances on the Maturity
Date; and
(b) Makers shall prepay this Note in full on or before the close of
business (Houston, Texas time) on the second Business Day following the
occurrence of an Outside Financing, such prepayment to be in an amount
equal to the net proceeds received by such Maker or any Subsidiary of the
Makers from such Outside Financing, but not to exceed the then outstanding
principal and accrued and unpaid interest on this Note. All payments made
under this Note shall be applied first to accrued interest, and the
balance, if any, to principal; provided, however, that interest shall
accrue on any remaining principal balance and shall be payable at the rate
provided above.
2.7 MANNER OF PAYMENT. Both principal and interest are payable in
immediately available funds in lawful money in the United States of America (in
freely transferable Dollars) to the Holder at the office of First Bank National
Association, Minneapolis, Minnesota. If the date upon which the payment of
principal and interest is required to be made pursuant to this Note occurs other
than on a Business Day, then such payment of principal and interest shall be
made
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on the next occurring Business Day following said payment date and shall include
interest through said next occurring Business Day.
2.8 USE OF PROCEEDS. (a) The proceeds of all Advances be used to redeem
warrants issued to certain former shareholders of DNA and to fund certain
obligations incurred by the Makers in connection with the acquisition of DNA;
and other proper corporate requirements of the Makers.
(b) No portion of the proceeds of any Advance under this Note shall be
used by the Makers, 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 Exchange Act, in each case as in effect on the date or dates
of such borrowing and such use of proceeds.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MAKERS
Each of the Makers, as to itself and its Subsidiaries, hereby warrants and
represents to the Holder that:
3.1 ORGANIZATION, STANDING AND QUALIFICATION. (a) ISC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted. ISC is licensed and qualified to do business as a foreign corporation
in each jurisdiction in which the character of ISC's properties, owned or
leased, or the nature of its activities makes such qualification or license
necessary, except where failure to be so licensed and qualified would not result
in a Material Adverse Effect.
(b) ICSL is a corporation duly organized, validly existing and in good
standing under the laws of Bermuda and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. ICSL is licensed and qualified to do business as a
foreign corporation in each jurisdiction in which the character of the ICSL's
properties, owned or leased, or the nature of its activities makes such
qualification or license necessary, except where failure to be so licensed and
qualified would not result in a Material Adverse Effect.
3.2 AUTHORITY; NO DEFAULTS. Each Maker has all requisite corporate power
and authority to enter into this Note and to consummate the transactions
contemplated hereby. ISC has all requisite corporate power and authority to
enter into the Pledge Agreement and to consummate the transactions contemplated
thereby. ICSL has all requisite corporate power and authority to issue the
Warrants and to enter into the Registration Rights Agreement and to consummate
the transactions contemplated thereby. The execution and delivery of this Note
by the Makers (and with respect to ISC, the Pledge Agreement by ISC; and with
respect to ICSL, the Warrants and the Registration Rights Agreement) the
consummation of the transactions contemplated hereby or
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thereby have been duly authorized by all necessary corporate action on the part
of such Maker. This Note has been duly executed and delivered by each Maker and
constitutes the valid and binding obligation of such Maker, enforceable in
accordance with its terms, except as enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws relating to creditors' rights generally and by general principles
of equity which may limit the right to obtain equitable remedies (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
The execution and delivery of this Note by the Makers do not, and the
consummation of the transactions contemplated hereby will not, conflict with or
result in a breach of or the acceleration of any obligation under, or constitute
a default or event of default (or event which, with notice or lapse of time or
both, would constitute a default) under, any provision of any charter, bylaw,
indenture, mortgage, lien, lease, agreement, contract, instrument, order,
judgment, decree, ordinance or regulation, or any restriction to which any
property of such Maker or any of its Subsidiaries is subject or by which such
Maker or any of its Subsidiaries is bound, which could reasonably be expected to
result in a Material Adverse Effect.
3.3 APPROVALS. There is no legal impediment to the valid offer, issue,
sale, delivery and performance by each of the Makers of this Note.
ARTICLE IV
COVENANTS
Each of the Makers covenants and agrees with the Holder, so long as this
Note is outstanding or any fee, expense, compensation or any other amount
payable by the Makers shall remain unpaid or outstanding, as follows:
4.1. NEGATIVE PLEDGE. No Maker shall, nor shall ICSL permit any of its
Subsidiaries to, create, incur, assume or suffer to exist, any Lien on any asset
of such Person other than Permitted Liens. No Maker will enter into or become
subject to, and no Maker will 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 Maker or its Subsidiaries to create,
incur, assume or suffer to exist any Lien in favor of the Holder on any of such
Maker's or any of its Subsidiaries' assets.
4.2 MARGIN REGULATION. No Maker shall use or permit any other Person to
use any portion of the proceeds of this Note in any manner which might cause the
extension of credit or the application of such proceeds to violate the
Securities Act or the Exchange Act or to violate Regulation G, Regulation U, or
Regulation X, or any other regulation of the Federal Reserve Board.
4.3 COMPLIANCE WITH LAWS. Each Maker shall use its best efforts to, and
shall cause each of its Subsidiaries to use its best efforts, to conduct its
business and affairs and
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maintain its Properties in compliance with all applicable laws, rules,
regulations, judgments, orders and decrees.
4.4 PAYMENT AND PERFORMANCE. Each Maker will pay all amounts due under
this Note and the other Transaction Documents in accordance with the terms
thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied therein.
(a) ICSL will furnish to the Holder within 20 days after the Holder
requests, copies of all information, documents, and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which ICSL is required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act. ICSL will use its best efforts to timely comply with
its reporting and filing obligations under the applicable federal securities
laws.
(b) ICSL will promptly furnish upon request, any information which the
Holder may from time to time reasonably request concerning any covenant,
provision or condition of this Note or the other Transaction Documents or any
matter in connection with such Persons' businesses and operations.
4.5. MAINTENANCE OF EXISTENCE, QUALIFICATIONS AND ASSETS. Each Maker shall
use its best efforts to, and shall cause each of its Subsidiaries to use its
best efforts, to (i) maintain its corporate existence and good standing and its
authority to transact business in all states where necessary; and (ii) maintain
all licenses, permits and franchises necessary for its business.
4.6 COSTS, EXPENSES AND TAXES. (a) Each Maker, jointly and severally,
agrees to pay within thirty (30) Business Days after presentation of an invoice:
all reasonable out-of-pocket costs and expenses of the Holder in connection with
(i) the negotiation, preparation, distribution, execution and delivery of this
Note, the Pledge Agreement, the Warrants, the Registration Rights Agreement and
the other documents and instruments referred to therein, (ii) the management and
monitoring of the Advances, (iii) the Holder's review and due diligence and (iv)
the negotiation, preparation, distribution, execution and delivery of any
amendment, supplement, modification, waiver or consent relating to this Note or
the other Transaction Documents (including, without limitation, as to each of
the foregoing, the reasonable fees and disbursements of legal counsel).
(b) Each Maker, jointly and severally, agrees to pay all reasonable
out-of-pocket costs and expenses of the Holder in connection with (i) the
preservation of its rights under, and enforcement of, this Note and the other
Transaction Documents and the documents and instruments referred to therein
(including, without limitation, all filing fees and the reasonable fees and
disbursements of legal counsel), and (ii) any workout, restructuring or
rescheduling of the Obligations or any proceeding under any Debtor Relief Law
with respect to any Maker or any Subsidiary of a Maker (including, without
limitation, the reasonable fees and disbursements of counsel for the Holder).
(c) Each Maker, jointly and severally, shall pay, and hold the Holder
harmless from and against, any and all present and future stamp, excise, and
other similar taxes and fees with
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respect to the foregoing matters and hold the Holder harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to the Holder) to pay such taxes.
(d) Without prejudice to the survival of any other Obligations of the
Makers hereunder or under the other Transaction Documents, the obligations of
Borrower under this SECTION 4.6(D) shall survive the termination of this Note
and the payment in full of the Obligations for a period of six (6) months.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.1 EVENTS OF DEFAULT. Each of the following events, acts, occurrences or
conditions constitutes an "EVENT OF DEFAULT" under this Note:
(a) the Makers default in the payment of the principal or interest
on this Note when such principal or interest becomes due and payable and
such default remains uncured for a period of five days; or
(b) any Maker defaults in the performance of any covenant in this
Note, the default of which may have a Material Adverse Effect, and such
default remains uncured for a period of 30 days following receipt of
written notice of such default from Holder, contained in this Note or any
of the other Transaction Documents (other than a default in the
performance of a covenant specifically addressed elsewhere in this SECTION
5.1); or
(c) any representation or warranty made by any Maker in this Note or
any of the other Transaction Documents or in any certificate furnished by
such Maker in connection with the consummation of the transaction
contemplated thereby or hereby, is untrue as of the date of making thereof
and such untruth may constitute a Material Adverse Effect; or
(d) Any Maker, or any of such Maker's Subsidiaries, defaults in the
payment when due (whether by lapse of time, by declaration, by call for
redemption or otherwise) of the principal of or interest on any Debt of
such Person secured by a Lien (other than the Debt evidenced by this Note
and the obligations incurred by the Makers in connection with the
acquisition of DNA) having an aggregate principal amount in excess of
$100,000 and such default remains uncured for a period of 30 days; or
(e) a court of competent jurisdiction enters a judgment or judgments
against any Maker or any Subsidiary of a Maker, or any property or assets
of such Maker or such Subsidiary of a Maker, for the payment of money
aggregating in excess of $500,000 in excess of applicable insurance
coverage and such judgment is not discharged or stayed within 30 days; or
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(f) a court of competent jurisdiction enters (i) a decree or order
for relief in respect of any Maker or any Subsidiary of a Maker in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (ii) a
decree or order adjudging any Maker or any Subsidiary of a Maker a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
such Maker or such Subsidiary of a Maker under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of any Maker or a
Subsidiary of any Maker or of any substantial part of the property of such
Maker or such Subsidiary of a Maker or ordering the winding up or
liquidation of the affairs of any Maker or a Subsidiary of any Maker and
any such decree or order of relief or any such other decree or order
remains unstayed for a period of 60 days from its date of entry; or
(g) A Maker or any Subsidiary of a Maker commences a voluntary case
or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or any other case or
proceeding to be adjudicated a bankrupt or insolvent, or a Maker or any
Subsidiary of a Maker files a petition, answer or consent seeking
reorganization or relief under any applicable federal or state law, or a
Maker or any Subsidiary of a Maker makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts generally
as they become due; or
(h) (1) any person or group (within the meaning of Section 13(d) of
the Exchange Act) becomes the beneficial owner of 40% or more of the total
voting power of ICSL; (2) any Maker, or any of such Maker's Subsidiaries,
merges or consolidates with or into any other Person (unless the Maker or
it's Subsidiary is the surviving entity), (3) any Maker, or any of such
Maker's Subsidiaries, sells all or substantially all of its assets (unless
the purchaser is a Subsidiary of a Maker) or (4) any Maker, or any of such
Maker's Subsidiaries, dissolves or liquidates.
5.2 ACCELERATION OF MATURITY. Upon the occurrence of any Event of Default
described in SECTIONS 5.1(F), 5.1(G) OR 5.1(H) above, THEN (a) the Commitment
shall automatically terminate and (b) the entire unpaid amount of all
Obligations shall automatically become immediately due and payable, without
presentment for payment, demand, protest, notice of intent to accelerate, notice
of acceleration or further notice of any kind, all of which are hereby expressly
waived by each Maker and each of its Subsidiaries and the obligation of the
Holder to make any Advance hereunder shall thereupon terminate. Upon the
occurrence of any other Event of Default, the Holder may (i) declare the
Commitment to be terminated, whereupon the Commitment and the obligations of the
Holder to make any Advance hereunder shall forthwith terminate, and (ii) declare
the entire unpaid amount of all Obligations to be forthwith due and payable,
whereupon all Obligations shall become and be forthwith due and payable, without
presentment for payment, demand, protest, notice of intent to accelerate, notice
of acceleration or further notice of any kind, all of which are hereby expressly
waived by each Maker and each of its Subsidiaries.
5.3 REMEDIES. If any Event of Default shall occur, the Holder may protect
and enforce the Holder's rights and remedies under this Note and any of the
other Transaction Documents by
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<PAGE>
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in this Note or any of the other Transaction
Documents and the Holder may enforce the payment of any Obligations due or
enforce any other legal or equitable right. All rights and remedies and powers
conferred upon the Holder under this Note and any of the other Transaction
Documents shall be deemed cumulative and not exclusive of any other rights,
remedies or powers available under this Note, any of the other Transaction
Documents or at law or in equity.
ARTICLE VI
MISCELLANEOUS
6.1 CONSENT TO AMENDMENTS. This Note may be amended, and the Makers may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if and only if the Makers shall obtain the written consent
to such amendment, action or omission to act from the Holder.
6.2 BENEFITS OF NOTE. Nothing in this Note, express or implied, shall give
to any Person, other than the Makers, Holder, and their successors any benefit
or any legal or equitable right, remedy or claim under or in respect of this
Note.
6.3 SUCCESSORS AND ASSIGNS. Neither Maker nor the Holder may transfer or
assign this Note or their respective rights, titles and interests in this Note
without the prior written consent of the other parties hereto. All covenants and
agreements in this Note contained by or on behalf of the Makers and the Holder
shall bind and inure to the benefit of the respective successors and assigns of
the Makers and the Holder.
6.4 RESTRICTIONS ON TRANSFER. Subject to the provisions of SECTION 6.3
requiring prior written consent, this Note is transferable in the same manner
and with the same effect as in the case of a negotiable instrument payable to a
specified person. Prior to any transfer as provided herein, the transferor shall
provide written notice to the Makers. The Makers, however, may treat Holder as
the owner hereof for all purposes until this Note shall have been surrendered
for transfer as hereinafter provided. Upon surrender of this Note duly executed
by Holder or his agent or attorney, the Makers shall execute and deliver a new
Note in the name of the assignee or assignees and in the denominations specified
in such instrument of assignment, and this Note shall promptly be canceled.
6.5 NOTICE; ADDRESS OF PARTIES. Except as otherwise provided, all
communications to the Makers or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, to the following addresses: if to ICSL: 1100
Executive Drive, Richardson, Texas 75081 or at any other address designated by
the ICSL in writing to Holder with a copy to Philip P. Sudan, Jr., Ryan & Sudan,
L.L.P., 909 Fannin, 39th Floor, Houston, Texas 77010; if to ISC: ISC, 1100
Executive Drive, Richardson, Texas 75081,
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<PAGE>
or at any other address designated by ISC to the Holder in writing with a copy
to Philip P. Sudan, Jr., Ryan & Sudan, L.L.P., 909 Fannin, 39th Floor, Houston,
Texas 77010; if to Holder: St. James Capital Corp., 1980 Post Oak Boulevard,
Suite 2030, Houston, Texas 77056, Attn: John L. Thompson, or at any other
address designated by Holder to the Makers in writing.
6.6 SEPARABILITY CLAUSE. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
6.7 GOVERNING LAW. This Note shall be governed by, and construed in
accordance with, the internal laws of the State of Texas (without regard to
principles of choice of law) and the laws of the United States and for all
purposes shall be construed in accordance with, and governed by, the laws of
said State and of the United States. The Makers and the Holder further agree
that the provisions of Article 1.04, Subtitle 1, Title 79, of the Revised Civil
Statutes of Texas, 1925, as amended, are applicable to the determination of the
Highest Lawful Rate with respect to this Not, the indicated rate ceiling
computed from time to time pursuant to Section (a) of such Article shall apply
to this Note; PROVIDED, HOWEVER, that to the extent permitted by such Article,
the Holder may from time to time by notice from the Holder revise the election
of such interest rate ceiling as such ceiling affects then current or future
balances of the Advances outstanding under this Note. The provisions of Chapter
15 of Subtitle 3 of the said Title 79 do not apply to this Note issued
hereunder.
6.8 INTEREST. Each provision in this Note and the other Transaction
Documents is expressly limited so that in no event whatsoever shall the amount
paid, or otherwise agreed to be paid, to the Holder for the use, forbearance or
detention of the money to be loaned under this Note or any Transaction Document
or otherwise (including any sums paid as required by any covenant or obligation
contained herein or in any other Transaction Document which is for the use,
forbearance or detention of such money), exceed that amount of money which would
cause the effective rate of interest to exceed the Highest Lawful Rate, and all
amounts owed under this Note and each other Transaction Document shall be held
to be subject to reduction to the effect that such amounts so paid or agreed to
be paid which are for the use, forbearance or detention of money under this Note
or such Transaction Document shall in no event exceed that amount of money which
would cause the effective rate of interest to exceed the Highest Lawful Rate.
Anything in this Note or any other Transaction Document to the contrary
notwithstanding, the Makers shall never be required to pay unearned interest on
this Note or ever be required to pay interest on this Note at a rate in excess
of the Highest Lawful Rate, and if the effective rate of interest which would
otherwise be payable with respect to this Note would exceed the Highest Lawful
Rate, or if the Holder shall receive any unearned interest or shall receive
monies that are deemed to constitute interest which would increase the effective
rate of interest payable by the Makers with respect to this Note to a rate in
excess of the Highest Lawful Rate, then (i) the amount of interest which would
otherwise be payable by the Makers with respect to this Note shall be reduced to
the amount allowed under applicable law and (ii) any unearned interest paid by
the Makers or any interest paid by the Makers in excess of the Highest Lawful
Rate shall be in the
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<PAGE>
first instance credited on the principal of this Note with the excess thereof,
if any, refunded to the Makers. It is further agreed that, without limitation of
the foregoing, all calculations of the rate of interest contracted for, charged
or received by the Holder under this Note or the other Transaction Documents,
are made for the purpose of determining whether such rate exceeds the Highest
Lawful Rate applicable to the Holder (such Highest Lawful Rate being the
Holder's "MAXIMUM PERMISSIBLE RATE"), shall be made, to the extent permitted by
usury laws applicable to the Holder (now or hereafter enacted), by (a)
characterizing any non-principal payment as an expense, fee or premium rather
than as interest and (b) amortizing, prorating and spreading in equal parts
during the period of the full stated term of the Advances evidenced by the Note
all interest at any time contracted for, charged or received by the Holder in
connection therewith.
6.9 ACKNOWLEDGEMENT OF LETTER OF INTENT. The parties hereby acknowledge
that they have heretofore entered into that certain Letter of Intent dated as of
February 14, 1997, as may be amended from time to time (the "Letter of Intent"),
which Letter of Intent contemplates that the parties will enter into a credit
facility in favor of the Makers, or certain of them, in an aggregate principal
amount of up to $15,000,000, the proceeds of which will be used, in part, to
refinance the indebtedness evidenced by this Note. The obligations of the Holder
to enter into said credit facility are subject to the satisfaction, among other
things, of the items and requirements set forth in Section 3 of the Letter of
Intent and the execution and delivery by the Makers of definitive loan documents
satisfactory in form and substance to the Holder, including legal opinions from
independent legal counsel to the Makers. Notwithstanding anything contained in
the Letter of Intent, all outstanding principal together with all accrued and
unpaid interest shall be due and payable in full on the Maturity Date.
6.10. RESTATEMENT OF PRIOR NOTE. This Note is issued in part in
substitution for, and in exchange, replacement, modification, and restatement
of, but not in extinguishment of $5,000,000 principal indebtedness evidenced by
that certain "Amended and Restated Floating Rate Promissory Note" executed 27
March 1997 and dated effective February 26, 1997, in the original principal sum
of $5,000,000 payable to the order of Lender. As such, this Note is issued in
part in substitution for, and in exchange, replacement, modification, and
restatement of, but not in extinguishment of $2,500,000 principal indebtedness
evidenced by that certain promissory note of the Makers dated February 26, 1997,
in the original principal sum of $2,500,000 payable to the order of the Lender
(the "INITIAL NOTE"), it being acknowledged that the indebtedness evidenced by
this Note in part constitutes a modification and rearrangement of the $2,500,000
outstanding principal indebtedness evidenced by the Initial Note.
6.11. FINAL AGREEMENT OF THE PARTIES. THIS NOTE AND THE OTHER TRANSACTION
DOCUMENTS TO WHICH ANY OF 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.
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<PAGE>
IN WITNESS WHEREOF, each Maker has caused this instrument to be duly
executed on the date first above written.
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: President and CEO
INTELECT SYSTEMS CORP.
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: President and Chairman
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EXHIBIT 10.19
SECOND AMENDMENT TO BORROWER PLEDGE AGREEMENT
This Second Amendment to Borrower Pledge Agreement (this "SECOND
AMENDMENT") dated as of April 24, 1997, is made and entered into by and between
INTELECT SYSTEMS CORP., a Delaware corporation ("PLEDGOR"), and ST. JAMES
CAPITAL CORP., a Delaware corporation, ("SECURED PARTY").
W I T N E S S E T H:
WHEREAS, the Pledgor and the Secured Party executed that certain Floating
Rate Promissory Note dated as of February 26, 1997, issued by Pledgor and
Intelect Communications Systems Limited, a corporation organized under the laws
of Bermuda ("ICSL" and together with Pledgor, the "MAKERS") payable to the order
of Secured Party in the original principal sum of $2,500,000 (the "ORIGINAL
NOTE"); and
WHEREAS, as collateral for the indebtedness evidenced by the Original
Note, the Pledgor entered into that certain Borrower Pledge Agreement dated as
of February 26, 1997, in favor of the Secured Party (the "PLEDGE AGREEMENT"),
wherein the Pledgor granted to the Secured Party a security interest in, INTER
ALIA, 1,100 shares of the common capital stock of DNA Enterprises, Inc., a Texas
corporation and a wholly-owned Subsidiary of Pledgor ("DNA"), evidenced by
Certificate Number 8, and any other shares of the common capital stock of DNA
now owned or hereafter acquired by Pledgor (the "DNA SHARES"), and all proceeds
of any and all of the foregoing (as such terms are defined therein);
WHEREAS, on March 27, 1997, the Pledgor, ICSL and the Secured Party
entered that certain Amended and Restated Floating Rate Promissory Note dated as
of February 26, 1997, amending and, as so amended, restating the Original Note
to increase the Commitment from $2,500,000 to $5,000,000 (the "AMENDED AND
RESTATED NOTE") and contemporaneously Pledgor and Secured Party executed a First
Amendment to Borrower Pledge Agreement ("First Amendment") effecting certain
amendments to the Pledge Agreement; and
WHEREAS, on April 24, 1997, the Pledgor, ICSL and the Secured Party
entered that certain Second Amended and Restated Floating Rate Promissory Note
dated as of February 26, 1997, amending and, as so amended, restating the
Original Note to increase the Commitment from $5,000,000 to $6,000,000 (the
"SECOND AMENDED AND RESTATED NOTE"); and
WHEREAS, in connection with the entering into of the Second Amended and
Restated Note, the parties hereto wish to effect certain amendments to the
Pledge Agreement;
WHEREAS, it is a condition precedent to the effectiveness of the Second
Amended and Restated Note that this Second Amendment be executed and delivered
by the parties hereto; and
WHEREAS, the parties hereto desire to execute and deliver this Second
Amendment for the reasons described above and to satisfy the condition precedent
referenced in the immediately preceding paragraph.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, and of the representations and warranties herein set forth and for
other good and valuable consideration, the parties hereto do hereby agree as
follows:
SECTION 1. Capitalized terms used herein and not defined herein which are
defined in the Amended and Restated Note shall have the meanings therein
ascribed to them. The term "NOTE" as used in the Pledge Agreement or any other
documents executed in connection therewith or any other instrument, document or
writing furnished to the Secured Party in connection therewith shall mean the
Second Amended and Restated Note. From and after the date hereof, all references
in the Second Amended and Restated Note or in any other Transaction Document to
the Pledge Agreement shall be deemed to be references to the Pledge Agreement as
effected and amended hereby. The term "OBLIGATIONS" as used in the Pledge
Agreement or in any other Transaction Document shall include, without
limitation, all obligations, liabilities and indebtedness of every nature of the
Pledgor and ICSL from time to time owing to the Secured Party under the
$6,000,000 Second Amended and Restated Note and any other Transaction Document.
SECTION 2. In order to secure the prompt and unconditional payment and
performance of the Obligations, including without limitation, all obligations,
liabilities and indebtedness of every nature of the Pledgor and ICSL from time
to time owing to the Secured Party under the $6,000,000 Second Amended and
Restated Note, the Pledgor hereby grants to the Secured Party a continuing
security interest in and to all of the following properties (the "COLLATERAL"):
(a) 1,100 shares of the common capital stock of DNA, evidenced by
Certificate Number 8, and any other shares of the common capital stock of
DNA now owned or hereafter acquired by Pledgor (such shares of stock
referred to in this subsection 1.1(a) are hereinafter sometimes referred
to as the "DNA SHARES");
(b) (i) the certificates or instruments, if any, representing the
DNA Shares, (ii) all dividends (cash, stock or otherwise), cash,
instruments, rights to subscribe, purchase or sell and all other rights
and property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such
securities, (iii) all replacements, additions to and substitutions for any
of the property referred to in this definition, including, without
limitation, claims against third parties, (iv) the proceeds, interest,
profits and other income of or on any of the property referred to in this
definition, and (v) all books and records relating to any of the property
referred to in this definition; and
(c) all proceeds as such term is defined in Section 9.306(a) of the
Uniform Commercial Code and, in any event, shall include, without
limitation, all dividends or other income from the Collateral, collections
thereon or distributions, liquidation payments or redemption payments with
respect thereto, and any and all rights, titles, interests, privileges,
benefits and preferences appertaining or incidental to the Collateral.
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<PAGE>
SECTION 3. The representations and warranties of the Pledgor contained in
Section 3 of the Pledge Agreement are true and correct in all respects and as of
the date hereof as though made on and as of the date hereof.
SECTION 4. Each party hereto represents and warrants that this Second
Amendment has been duly authorized by it and has been duly executed and
delivered on its behalf, and the Pledge Agreement, after giving effect to the
First Amendment and this Second Amendment, constitutes a valid and legally
binding agreement of such party enforceable against such party in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws of general application relating to or affecting
the enforcement of creditors' rights.
SECTION 5. This Second Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provisions, of the
Pledge Agreement, except as expressly amended. The Pledge Agreement, as amended
by the First Amendment and hereby, and all rights and powers created thereby or
thereunder are in all respects ratified and confirmed and shall remain in full
force and effect.
SECTION 6. This Second Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Pledgor and the Secured Party.
SECTION 8. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 9. Section headings in this Second Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Second Amendment to be duly executed and delivered as of the date first
above written.
Pledgor: INTELECT SYSTEMS CORPORATION
Address:
1100 Executive Drive By: /s/ HERMAN M. FRIETSCH
Richardson, Texas 75081 Name: Herman M. Frietsch
Title: President and CEO
SECURED PARTY: ST. JAMES CAPITAL CORP.
Address:
1980 Post Oak Blvd By: /s/ Charles E. Underbrink
Suite 2030 Name: Charles E. Underbrink
Houston, Texas 77056 Title: CEO
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<PAGE>
THIRD AMENDMENT TO BORROWER PLEDGE AGREEMENT
This Third Amendment to Borrower Pledge Agreement (this "Third
Amendment") dated as of May 8, 1997, is made and entered into by and between
INTELECT SYSTEMS CORP., a Delaware corporation ("PLEDGOR"), and ST. JAMES
CAPITAL CORP., a Delaware corporation ("SECURED PARTY").
W I T N E S S E T H:
WHEREAS, the Pledgor and the Secured Party executed that certain Floating
Rate Promissory Note dated as of February 26, 1997, issued by Pledgor and
Intelect Communications Systems Limited, a corporation organized under the laws
of Bermuda ("ICSL" and together with Pledgor, the "MAKERS") payable to the order
of Secured Party in the original principal sum of $2,500,000 (the "ORIGINAL
NOTE");
WHEREAS, as collateral for the indebtedness evidenced by the Original
Note, the Pledgor entered into that certain Borrower Pledge Agreement dated as
of February 26, 1997, in favor of the Secured Party (the "Pledge Agreement"),
wherein Pledgor granted to the Secured Party a security interest in, INTER ALIA,
1,100 shares of the common capital stock of DNA Enterprises, Inc., a Texas
corporation and a wholly-owned Subsidiary of Pledgor ("DNA"), evidenced by
Certificate Number 8, and any other shares of the common capital stock of DNA
now owned or hereafter acquired by Pledgor or any of its affiliates (the "DNA
SHARES"), and all proceeds of any and all of the foregoing (as such terms are
defined therein);
WHEREAS, on March 27, 1997, the Makers and the Secured Party entered that
certain Amended and Restated Floating Rate Promissory Note dated as of February
26, 1997, amending and, as so amended, restating the Original Note to increase
the Commitment from $2,500,000 to $5,000,000 (the "Amended and Restated Note");
and contemporaneously Pledgor and Secured Party executed a First Amendment to
Borrower Pledge Agreement ("First Amendment") effecting certain amendments to
the Pledge Agreement;
WHEREAS, on April 24, 1997, the Pledgor, ICSL and the Secured Party
entered that certain Second Amended and Restated Floating Rate Promissory Note
dated as of February 26, 1997, amending and, as so amended, restating the
Original Note, as amended by the Amended and Restated Note, to increase the
Commitment from $5,000,000 to $6,000,000 (the "Second Amended and Restated
Note");
WHEREAS, in connection with the entering into of the Second Amended and
Restated Note, the parties hereto contemporaneously effected certain amendments
to the Pledge Agreement pursuant to that certain Second Amendment to Borrower
Pledge Agreement (the "Second Amendment");
WHEREAS, as of the date hereof, The Coastal Corporation Second Pension
Trust ("Coastal"), is loaning Makers $5,000,000 pursuant to that certain
Floating Rate Promissory Note (the "Coastal Note");
WHEREAS, Coastal desires to obtain as collateral for its loan to Makers a
security interest in, among other matters, the DNA Shares;
WHEREAS, the Secured Party is willing to share its security interest in
the DNA Shares, provided that Pledgor grants Secured Party a security interest
in INTER ALIA, 500 shares of the common
<PAGE>
capital stock of Intelect Visual Communications Corp., a Delaware corporation
and wholly-owned subsidiary of Pledgor ("IVC"), evidenced by Certificate Number
1, and any other shares of common capital stock of IVC now owned or hereafter
acquired by Pledgor or any of its affiliates (the "IVC Shares"), 1,000 shares of
common capital stock of Intelect Network Technologies Company, a Nevada
corporation and wholly-owned subsidiary of Pledgor ("INT"), represented by
Certificate Number 1, and any other shares of common capital stock of INT now
owned or hereafter acquired by Pledgor or any of its affiliates, and all
proceeds of any and all of the foregoing (as such terms are defined therein);
WHEREAS, it is a condition precedent to the execution, delivery and
performance of the Coastal Note that this Third Amendment be executed and
delivered by the parties hereto; and
WHEREAS, the parties hereto desire to execute and deliver this Third
Amendment for the reasons described above and to satisfy the condition precedent
referenced in the immediately preceding paragraph.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, and of the representations and warranties herein set forth and for
other good and valuable consideration, the parties hereto do hereby agree as
follows:
SECTION 1. Capitalized terms used herein and not defined herein which are
defined in the Second Amended and Restated Note shall have the meanings therein
ascribed to them. The term "Note" as used in the Pledge Agreement or any other
documents executed in connection therewith or any other instrument, document or
writing furnished to the Secured Party in connection therewith shall mean the
Second Amended and Restated Note. From and after the date hereof, all references
in the Second Amended and Restated Note or in any other Transaction Document to
the Pledge Agreement shall be deemed to be references to the Pledge Agreement as
previously amended and as effected and amended hereby. The term "Obligations" as
used in the Pledge Agreement or in any other Transaction Document shall include,
without limitation, all obligations, liabilities and indebtedness of every
nature of the Pledgor and ICSL from time to time owing to the Secured Party
under the Second Amended and Restated Note and any other Transaction Document.
SECTION 2. In order to secure the prompt and unconditional payment and
performance of the Obligations, including without limitation, all obligations,
liabilities and indebtedness of every nature of the Pledgor and ICSL from time
to time owing to the Secured Party under the Second Amended and Restated Note,
the Pledgor hereby grants to the Secured Party a continuing security interest in
and to all of the following properties by amending the definition of the term
"Collateral" set forth in the Pledge Agreement to read in its entirety as
follows:
(a) the DNA Shares, the IVC Shares and the INT Shares (such shares
of stock referred to in this subsection 1.1(a) are hereinafter sometimes
referred to as the "DNA SHARES", the "IVC SHARES" and the "INT SHARES",
respectively);
(b) (i) the certificates or instruments, if any, representing the
DNA Shares, the IVC Shares and the INT Shares, respectively, (ii) all
dividends (cash, stock or otherwise), cash, instruments, rights to
subscribe, purchase or sell and all other rights and property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such securities, (iii) all replacements,
additions to and substitutions for any of the property referred to in this
definition, including, without limitation, claims against third parties,
(iv) the
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proceeds, interest, profits and other income of or on any of the property
referred to in this definition, and (v) all books and records relating to
any of the property referred to in this definition; and
(c) all proceeds as such term is defined in Section 9.306(a) of the
Uniform Commercial Code and, in any event, shall include, without
limitation, all dividends or other income from the Collateral, collections
thereon or distributions, liquidation payments or redemption payments with
respect thereto, and any and all rights, titles, interests, privileges,
benefits and preferences appertaining or incidental to the Collateral.
SECTION 3. The definition of "Pledged Securities" in the Pledge Agreement
is hereby amended to read in its entirety as follows:
"PLEDGED SECURITIES" means all of the following securities and all
additional securities (as that term is defined in the UCC), if any,
constituting Collateral under this Pledge Agreement, including:
(1) All of the issued and outstanding shares of common capital
stock of DNA Enterprises, Inc., consisting of 1,100 shares,
evidenced by Certificate Number 8, and any other shares of
common stock of DNA now owned or hereafter acquired by Pledgor
or any of its affiliates (such shares of stock referred to in
this subsection 1.1(a) are hereinafter sometimes referred to
as the "DNA Shares".
(2) All of the issued and outstanding shares of common capital
stock of Intelect Visual Communications Corporation,
consisting of 500 shares, evidenced by Certificate Number 1,
and any other shares of the common capital stock of IVC now
owned or hereafter acquired by Pledgor or any of its
affiliates (such shares of stock referred to in this
subsection 1.1(a) are hereinafter sometimes referred to as the
"IVC Shares".
(3) All of the issued and outstanding shares of common capital
stock of Intelect Network Technologies, Inc., consisting of
1,000 shares of common capital stock, evidenced by Certificate
Number 1, and any other shares of the common capital stock of
INT now owned or hereafter acquired by Pledgor or any of its
affiliates (such shares of stock referred to in this
subsection 1.1(a) are hereinafter sometimes referred to as the
"INT Shares".
SECTION 4. The representations and warranties of the Pledgor contained in
Section 3 of the Pledge Agreement are true and correct in all respects and as of
the date hereof as though made on and as of the date hereof.
SECTION 5. Each party hereto represents and warrants that this Third
Amendment has been duly authorized by it and has been duly executed and
delivered on its behalf, and the Pledge Agreement, after giving effect to the
First Amendment, the Second Amendment and this Third Amendment, constitutes a
valid and legally binding agreement of such party enforceable against such party
in
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accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws of general application relating to
or affecting the enforcement of creditors' rights.
SECTION 6. This Third Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provisions, of the
Pledge Agreement, except as expressly amended. The Pledge Agreement, as amended
by the First Amendment, the Second Amendment and hereby, and all rights and
powers created thereby or thereunder are in all respects ratified and confirmed
and shall remain in full force and effect.
SECTION 7. This Third Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Pledgor and the Secured Party.
SECTION 8. THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SECTION 9. Section headings in this Third Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Third Amendment to be duly executed and delivered as of the date first
above written.
Pledgor: INTELECT SYSTEMS CORPORATION
Address:
1100 Executive Drive By: /s/ HERMAN M. FRIETSCH
Richardson, Texas 75081 Name: Herman M. Frietsch
Title: President and CEO
SECURED PARTY: ST. JAMES CAPITAL CORP.
Address:
1980 Post Oak Blvd By: /s/ SIGNATURE ILLEGIBLE
Suite 2030 Name:
Houston, Texas 77056 Title: CEO
-5-
EXHIBIT 10.23
CONFIDENTIAL
Name of Subscriber Davenport
Number of Shares _____________________
INTELECT COMMUNICATIONS SYSTEMS LIMITED
SUBSCRIPTION AGREEMENT
THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE (THE "SHARES"), OF
INTELECT COMMUNICATIONS SYSTEMS LIMITED HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THERE
ARE RESTRICTIONS ON THE TRANSFERABILITY OF THE SHARES DESCRIBED IN SECTION 3 OF
THIS SUBSCRIPTION AGREEMENT.
IT IS IMPOSSIBLE TO FORECAST ACCURATELY THE RESULTS TO A PURCHASER FROM AN
INVESTMENT IN THE SHARES. THE PURCHASE OF SHARES INVOLVES A HIGH DEGREE OF RISK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN BEAR THE RISK OF AN ENTIRE LOSS
OF THEIR INVESTMENT.
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered into as
of August 29, 1997, by and between INTELECT COMMUNICATIONS SYSTEMS LIMITED, a
company organized under the laws of Bermuda (the "Company") and the subscriber
whose name is set forth on the signature page hereof (the "Subscriber")
providing for the purchase and sale to the Subscriber of the amount of shares of
the Company's Common Shares, U.S. $.01 par value, as is indicated on the
signature page hereof. The Company and the Subscriber (collectively the
"Parties") hereby represent, warrant and agree as follows:
SECTION 1.
1.1. SUBSCRIPTION. The Subscriber, intending to be legally bound, hereby
irrevocably subscribes for and agrees to purchase the number of shares of Common
Shares of the Company (the "Shares") indicated on the signature page hereof, on
the terms and conditions described herein.
1.2. PURCHASE.
(a) The Subscriber delivers herewith the consideration ("Purchase
Price") required to purchase the number of Shares subscribed for
hereunder, calculated at the rate of $5.25 per Share. The Purchase Price
is being paid simultaneously herewith by delivery of same day funds in
United States dollars against counter delivery of the Shares in accordance
with the terms of the Escrow Agreement of even date herewith by and
between the Company and American Stock Transfer and Trust Company, as
Escrow Agent, substantially in the form attached as Exhibit A to this
Agreement. The Subscriber hereby
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agrees that this Subscription Agreement shall be irrevocable and shall
survive the death, dissolution, or legal incapacity of the Subscriber.
(b) Prior to the Closing Date (as hereinafter defined), the
Subscriber's funds delivered herewith will be held in escrow by the Escrow
Agent, in a segregated account ("Special Account"), pursuant to the terms
of the Escrow Agreement. The Subscriber may deliver such funds to the
Escrow Agent by wire transfer as follows:
Wire Instructions:Chase Manhattan Bank
55 Water Street
New York, New York
ABA Routing Number: 021 000 021
For Credit to: Intelect Communications Systems Limited
Account # 610 093 045
Interest, if any, earned on all cash payments held in the Special Account
prior to the Closing Date will be paid to Subscriber, if his subscription
is rejected or the Closing does not occur as set forth herein. The
subscription payment may not be withdrawn by or on behalf of the
Subscriber.
(c) The Shares are being sold as part of an offering (the
"Offering") of 615,000 shares of the Company's Common Stock to "accredited
investors" as that term is defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933. A minimum of 615,000 shares totalling
$3,228,750 must be received before the Offering will be consummated.
Accordingly, the sale of the Shares is subject to receipt by the Company
of payment in the minimum aggregate amount of $3,228,750 for the issuance
of 615,000 shares of its Common Stock. The Company also reserves the right
to issue additional Shares if the Shares are oversubscribed.
(d) Upon receipt by the Company of the requisite payment for all
Shares to be purchased by the Subscriber whose subscriptions are accepted,
or August 29, 1997 (unless extended at the sole discretion of the Company
until September 10, 1997), whichever is the earlier to occur, herein
referred to as the "Closing Date", the Escrow Agent will deliver to the
Company, on behalf of the Subscriber, all subscription payments held by
it. The Shares subscribed for herein shall not be deemed issued to, or
owned by, the Subscriber until the Escrow Agent delivers the funds and the
Shares are issued to the Subscriber. On the Closing Date, the Company will
issue written instructions to the Company's stock transfer agent, American
Stock Transfer and Trust Company, to register the Subscriber as the owner
of the Shares and to prepare and issue share certificates to the
Subscriber for the Shares and to send such certificates promptly to the
Subscriber at the address listed on the signature page hereof.
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SECTION 2.
2.1. ACCEPTANCE OR REJECTION.
(a) The Subscriber understands and acknowledges that (i) the Company
has the unconditional right, exercisable in its sole and absolute
discretion, to accept or reject this Agreement, in whole or in part, (ii)
subscriptions need not be accepted in the order received, (iii) all
subscriptions are subject to prior sale, withdrawal, modification or
cancellation of the Offering of the Shares by the Company, (iv) no
subscription shall be valid unless and until accepted by the Company, (v)
this Agreement shall be deemed to be accepted by the Company only when it
is signed by an authorized officer of the Company on behalf of the
Company, and (vi) notwithstanding anything in this Agreement to the
contrary, the Company shall have no obligation to issue the Shares to any
person to whom the issuance of the Shares would constitute a violation of
the Securities Act of 1933 (the "Securities Act") or any state securities
laws. At Closing, the Company will issue written instructions to the
Company's transfer agent, American Stock Transfer and Trust Co., to issue
and deliver certificates representing the Shares purchased by the
Subscriber to the Subscriber promptly after the Closing at the address
indicated on the signature page hereof. This subscription is subject to
allotment before or after acceptance, provided that the Subscriber will
not be allocated less than one Share (subject to the right of the Company
to sell partial Shares to one or more consenting investors who are
otherwise qualified). If subscription for Shares is oversubscribed, the
Company will determine which subscriptions shall be accepted.
(b) In the event of rejection of this subscription, or if the sale
of the Shares is not consummated for any reason (in which event this
Agreement shall be deemed to be rejected), the Company shall promptly
thereupon cause the return of the amount, if any, received by the Company
as set forth in Section 1.2 to the Subscriber and this Agreement shall
thereafter have no force or effect.
SECTION 3
3. INVESTOR REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
acknowledges, represents and warrants to, and agrees with, the Company, as
follows:
(a) GENERAL:
(i) This Agreement has been duly authorized, validly executed
and delivered on behalf of the Subscriber and is a valid and binding
agreement of the Subscriber in accordance with its terms, subject to
general principles of equity and of bankruptcy or other laws
affecting the enforcement of creditors' rights;
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<PAGE>
(ii) The Subscriber is acquiring the Share(s) for his own
account as principal, for investment purposes only, and not with a
view to, or for, resale, distribution or fractionalization thereof,
in whole or in part and no other person has a direct or indirect
beneficial interest in such Share(s);
(iii) The Subscriber acknowledges his understanding that the
offering and sale of the Shares is intended to be exempt from
registration under the Securities Act and, in furtherance thereof,
the Subscriber represents and warrants to and agrees with the
Company as follows:
(A) The Subscriber has the financial ability to bear the
economic risk of his investment, has adequate means for
providing for his current needs and personal contingencies and
has no need for liquidity with respect to his investment in
the Company;
(B) If the Subscriber has appointed a Purchaser
Representative (as such term is defined in regulations
promulgated under the Securities Act), the Subscriber has been
advised by his Purchaser Representative as to the merits and
risks of an investment in the Company in general and the
suitability of the investment for the Subscriber in
particular;
(C) The Subscriber (together with his Purchaser
Representative, if any) has such knowledge and experience in
financial and business matters as to be capable of evaluating
the merits and risks of the prospective investment; and
(D) Each Purchaser Representative of the Subscriber, if
any, has disclosed to the Subscriber in writing the specific
details of any and all past, present or future relationships,
actual or contemplated between himself and the Company or any
affiliate or subsidiary of the Company.
(b) INFORMATION CONCERNING THE COMPANY: The Subscriber and his
Purchaser Representative, if any:
(i) Acknowledge that they have access to copies of (and
acknowledge that the Company has offered to provide, upon their
request, copies of) the Company's most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission ("SEC"), all
Forms 10-Q and 8-K filed thereafter, and the Company's Proxy
Statement for its 1997 Annual General Meeting as filed with the SEC
(the "Public Documents"), and he and/or his Purchaser Representative
have carefully read the Public Documents and understand and have
evaluated the risks of a purchase of Shares and the considerations
described in the Public Documents;
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<PAGE>
and has relied solely (except as indicated in subsections (ii) and
(iii) below) on the information contained in the Public Documents;
(ii) Is familiar with the business and financial condition,
properties, operations, and prospects of the Company, all as
generally described in the Public Documents; has been given the
opportunity to ask questions of, and receive answers from, the
appropriate officers of the Company concerning the terms and
conditions of the Offering and other matters pertaining to this
investment and has asked such questions as it desires to ask and all
such questions have been answered to the full satisfaction of the
Subscriber; has been given the opportunity to obtain such additional
information (to the extent the Company possesses such information or
can acquire it without unreasonable effort or expense) necessary to
verify the accuracy of the information contained in the Public
Documents in order for him to evaluate the merits and risks of
purchase of the Shares;
(iii) Has not been furnished with any oral representation or
warranty in connection with the offering of the Shares by the
Company or any officer, employee, agent, affiliate or subsidiary,
which is not contained in this Agreement, and is relying solely on
the information contained in this Agreement and in the Public
Documents;
(iv) Understands that the purchase of the Shares involves
various risks including, but not limited to, those outlined in the
Public Documents and in this Agreement, and has determined that the
Shares are a suitable investment for him and that at this time he
could bear a complete loss of his investment;
(v) Is not relying on the Company with respect to the economic
considerations of the Subscriber related to this investment. The
Subscriber has relied on the advice of, or has consulted with, in
regard to the economic considerations related to this investment,
only his own advisors and/or those persons, if any, who served as
his Purchaser Representative;
(vi) If the Subscriber is a corporation, partnership, trust or
other entity, it is authorized and qualified to become a stockholder
in, and authorized to make its capital contributions to, the
Company, and the person signing this Agreement on behalf of such
entity has been duly authorized by such entity to do so;
(vii) Any information which the Subscriber has heretofore
represented or furnished to the Company with respect to his
financial position and business experience is correct and complete
as of the date of this Agreement and if there should be any material
change in such information he will immediately furnish such revised
or corrected information to the Company; and
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<PAGE>
(viii) The Subscriber understands that, unless the Subscriber
notifies the Company in writing to the contrary before the Closing,
all the representations and warranties contained in this Agreement
will be deemed to have been reaffirmed and confirmed as of the
Closing, taking into account all information received by the
Subscriber.
(c) RESTRICTIONS ON TRANSFER OR SALE OF THE SHARES:
(i) The Subscriber is acquiring the Shares subscribed solely
for the Subscriber's own beneficial account, for investment
purposes, and not with a view to, or for resale in connection with,
any distribution of the Shares. The Subscriber understands that the
offer and sale of the Shares has not been registered under the
Securities Act or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon
the investment intent of the Subscriber and of the other
representations made by the Subscriber in this Agreement. The
Subscriber understands that the Company is relying upon the
representations, covenants and agreements contained in this
Agreement (and any supplemental information) for the purpose of
determining whether this transaction meets the requirements for such
exemptions.
(ii) The Subscriber understands that the Shares are restricted
securities under applicable federal securities laws and that the
Securities Act and the rules of the SEC provide in substance that
the Subscriber may dispose of the Shares only pursuant to an
effective registration statement under the Act or an exemption
therefrom.
(iii) The Subscriber agrees: (A) that the Subscriber will not
sell, assign, pledge, give, transfer or otherwise dispose of the
Shares or any interest therein, or make any offer or attempt to do
any of the foregoing, except pursuant to a registration of the
Shares under the Securities Act and all applicable state securities
laws or in a transaction which is exempt from the registration
provisions of the Securities Act and all applicable state securities
laws; (B) that the Company and any transfer agent for the Shares
shall not be required to give effect to any purported transfer of
any of the Shares except upon compliance with the foregoing
restrictions; and (C) that a legend in substantially the following
form will be placed on the certificates representing the Shares:
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 DIS POSED OF EXCEPT IN ACCORDANCE WITH SUCH
ACT AND THE RULES AND REGULATIONS THEREUNDER AND IN ACCORDANCE WITH
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<PAGE>
APPLICABLE STATE SECURITIES LAWS. THE COMPANY WILL NOT TRANSFER SUCH
SHARES EXCEPT UPON RECEIPT OF A FAVORABLE OPINION OF ITS COUNSEL
AND/OR 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.
(iv) The Subscriber has not offered or sold any portion of the
subscribed for Shares and has no present intention of dividing such
Shares with others or of reselling or otherwise disposing of any
portion of such Shares either currently or after the passage of a
fixed or determinable period of time or upon the occurrence or
nonoccurrence of any predetermined event or circumstance.
SECTION 4.
4. COMPANY REPRESENTATIONS AND COVENANTS. The Company represents, warrants
and covenants to the Subscriber as follows:
(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of Bermuda, with full
corporate power and authority to own, lease and operate its
properties and to conduct its business as currently conducted, and
is duly registered and qualified to conduct its business and is in
good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration
or qualification, except where the failure so to register or qualify
does not have a material adverse effect on the condition (financial
or other), business, properties, net worth or results of operations
of the Company. The Company has registered its common shares
pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is in full compliance with all
reporting requirements of the Exchange Act, and the Company's common
shares are quoted on the Nasdaq National Market (trading symbol
ICOMF);
(ii) The Shares, when issued, paid for, and delivered pursuant
to this Agreement, will be duly and validly authorized and issued,
fully paid and nonassessable, free from all encumbrances and
restrictions other than restrictions on transfer imposed by
applicable securities laws and/or this Agreement, and will not
subject the Subscribers thereof to personal liability by reason of
being such Subscribers; and
(iii) This Agreement has been duly authorized, validly
executed and delivered on behalf of the Company and is a valid and
binding agreement of the Company in accordance with its terms,
subject to general principles of equity and
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to bankruptcy or other laws affecting the enforcement of creditors'
rights generally, and the Company has full power and authority to
execute and deliver this Agreement and the other agreements and
documents contemplated hereby and to perform its obligations
hereunder and thereunder.
SECTION 5.
5. REGISTRATION RIGHTS. (a) The Company covenants and agrees to file a
registration statement on Form S-3 (the "Form S-3 Registration Statement")
providing for the resale of the Shares, and the Company will use its best
efforts to cause such Form S-3 Registration Statement to be declared effective
on or before the earlier of September 30, 1997 or two business days following
receipt of a "no-review" or similar letter from the SEC. In the event such Form
S-3 Registration Statement is not declared effective by October 15, 1997, then
if after October 15, 1997, 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 10 days prior
to the filing of such registration statement or notification to the Subscriber
of its intention to do so. The Company agrees that, after receiving written
notice from the Subscriber of his desire to include his Shares in such proposed
registration statement or notification within five days after the Subscriber
receives the notice from the Company, the Company shall afford the Subscriber
the opportunity to have their Shares included therein. Notwithstanding the
provisions of this Section 5(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 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 Shares in any registration statement or
notification under this Section 5(a) if: (i) in the written opinion of the
underwriter, the inclusion of the 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 Subscriber
under this paragraph; or (ii) in the opinion of counsel for the Company,
concurred in by counsel for the Subscriber hereof, that the 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:
(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 Subscribers and any sales commissions on Shares
offered and sold;
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(ii) to take all necessary action which may reasonably be
required in qualifying or registering the 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 Subscribers; 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 Subscriber 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 Subscribers
or on the Subscribers' behalf expressly for use therein.
(ii) INDEMNIFICATION BY SUBSCRIBER. Each Subscriber 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 Subscriber, but only
with respect to information furnished in writing by such Subscriber
or on such Subscriber's behalf expressly for use in any such
registration statement or prospectus relating to the Shares, any
amendment or supplement thereto or any preliminary prospectus, and
only in an amount not to exceed the proceeds of any Shares sold by
any such Subscriber 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 Subscribers, the Subscribers 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 Subscribers, by the preceding
subsection hereof.
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(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 5(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 Subscriber on the other, in such
proportion as is appropriate to reflect the relative fault of the
Company on the one hand and each Subscriber 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
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of the Subscriber 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 Section 5(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 Shares.
SECTION 6.
6.1. PLACEMENT FEE. For its services in connection with the Offering, the
Company is paying a placement fee to America First Associates Corp. in the
amount of $225,000, $112,500 of which is payable in the form of cash from the
Offering proceeds and $112,500 of which is payable in the form of the issuance
of 21,400 shares of Company Common Shares issuable in the Offering.
6.2. MODIFICATION. Neither this Agreement nor any provisions hereof shall
be modified, discharged or terminated except by an instrument in writing signed
by the party against whom any waiver, change, discharge or termination is
sought.
6.3. NOTICES. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be sufficiently given if deposited, postage prepaid, in a United States
mail letter box, registered or certified mail, return receipt requested, or by
overnight courier, addressed to such address as may be given herein, or
delivered personally at such address, or by facsimile:
if to the Company:
Intelect Communications Systems Limited
1100 Executive Drive
Richardson, Texas 75081
Attention: Herman M. Frietsch, Chairman and CEO
Fax: (972) 367-2271
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with a copy to:
Ryan & Sudan, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010-1010
Fax: (713) 652-0503
if to Subscriber, at such address as is listed on the signature page
hereto.
6.4. COUNTERPARTS. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all pur poses, constitute one agreement binding on all
the parties, notwithstanding that all parties are not signatories to the same
counterpart.
6.5. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and assigns. If the
Subscriber is more than one person, the obligation of the Subscriber shall be
joint and several and the agreements, representations, warranties and
acknowledgments herein contained shall be deemed to be made by and be binding
upon each such person and his heirs, executors, administrators and successors.
6.6. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties, and there are no representations, covenants or other agreements
except as stated or referred to herein.
6.7. ASSIGNABILITY. This Agreement is not transferable or assignable by
the Subscriber except as may be provided herein.
6.8. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
6.9. STATE SECURITIES LAWS. The offering and sale of the Shares is
intended to be exempt from registration under the securities laws of certain
states. All subscribers must note that there are restrictions on transfer of all
Shares, as agreed upon in Section 3 of this Agreement.
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The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ BLAKE C. DAVENPORT
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
- ------------------------------ /s/ BLAKE C. DAVENPORT
(Print Name of Entity) (Signature)
Print Name: Blake C. Davenport
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:____________________ Print Name:___________________________
Title:_________________________
Residence Address:______________________________________
------------------------------------------------------
City State Zip Code
Mail Address: 1845 Woodall Rodgers - 12th Floor
Dallas TX 75201
------------------------------------------------------
City State Zip Code
Telephone: 214-954-8013
13
<PAGE>
Facsimile: 214-522-3242
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF TEXAS ss.
ss.:
COUNTY OF DALLAS ss.
On this 2nd day of September, 1997, before me personally appeared Blake C.
Davenport, to me known to be the individual(s) described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) (she) (they)
executed the same as (his) (her) (their) free act and deed.
/s/ Rebecca A. Martin
Notary Public
My Commission Expires:
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
--------------------------------------
Title
- -----------------------------------
Notary Public
My Commission Expires:
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: __________________________
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
Fernhill Partners ______________________________________
(Print Name of Entity) (Signature)
Print Name: __________________________
By:/s/ ROBERT CHOING ______________________________________
(Signature) (Signature)
Print Name: Robert Choing Print Name:___________________________
Title: Controller
Residence Address:____________________________________
______________________________________________________
City State Zip Code
Mail Address: ________________________________________
______________________________________________________
City State Zip Code
Telephone: ________________________
13
<PAGE>
Facsimile: 415-461-8491
Tax Identification or
Social Security Number 68-0241371
Number of Shares
to be Purchased: 40,000
Total Purchase Price $ 210,000
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CALIFORNIA ss.
ss.:
COUNTY OF MARIN ss.
On this 28 day of August, 1997, before me personally appeared Robert
Choing, to me known to be the individual(s) described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) (she) (they)
executed the same as (his) (her) (their) free act and deed.
[SEAL] /s/ Regina Baum
Notary Public
My Commission Expires: 1-28-2000
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER: FIFTIETH & GROVER SHOPPING CENTER
a Nebraska General Partnership
By: /s/ ALBERT L. FELDMAN
Title: Partner
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
FIFTIETH & GROVER SHOPPING CENTER, a ______________________________________
(Print Name of Entity) Nebraska General Partnership (Signature)
Print Name: __________________________
By: /s/ ALBERT L. FELDMAN ______________________________________
(Signature) (Signature)
Print Name: Albert L. Feldman Print Name:___________________________
Title:________________________
Residence Address:____________________________________
______________________________________________________
City State Zip Code
Mail Address: 10050 Regency Circle,
Suite 101 Regency One Bldg.
Omaha Nebraska 68114
City State Zip Code
Telephone: (402) 397-1200
13
<PAGE>
Facsimile: (402) 397-1201
Tax Identification or
Social Security Number 47-608-1630
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF NEBRASKA ss.
ss.:
COUNTY OF DOUGLAS ss.
On this 28th day of August, 1997, before me personally appeared Albert L.
Feldman, Partner, to me known to be the individual(s) described in and who
executed the foregoing instrument, and duly acknowledged to me that (he) (she)
(they) executed the same as (his) (her) (their) free act and deed.
/s/ ________________________
Notary Public
My Commission Expires: _________________
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ CAROL FILLER
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ CAROL FILLER
(Print Name of Entity) (Signature)
Print Name: Carol Filler
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: P.O. Box 131449
Birmingham Alabama 35213
City State Zip Code
Mail Address: Same
______________________________________________________
City State Zip Code
Telephone: 205 967-0347
13
<PAGE>
Facsimile: ________________________
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF ALABAMA ss.
ss.:
COUNTY OF JEFFERSON ss.
On this 2nd day of September, 1997, before me personally appeared Carol
Filler, to me known to be the individual(s) described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) (she) (they)
executed the same as (his) (her) (their) free act and deed.
/s/ HELEN NAPIER WALKER
Notary Public
My Commission Expires: 4/11/98
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ DOUGLAS C. FLOREN
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ DOUGLAS C. FLOREN
(Print Name of Entity) (Signature)
Print Name: Douglas C. Floren
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 210 Round Hill Road
Greenwich CT 06831
City State Zip Code
Mail Address: Ardsley Partners, 646 Steamboat Rd.
Greenwich CT 06831
City State Zip Code
Telephone: 203-863-1412
13
<PAGE>
Facsimile: 203-629-8768
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared Douglas
C. Floren, to me known to be the individual described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) executed the same as
(his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2-28-1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: Richard A. Gray Jr.
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ RICHARD A. GRAY JR.
(Print Name of Entity) (Signature)
Print Name: Richard A. Gray Jr.
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 5534 Nacoma
Dallas Texas 75209
City State Zip Code
Mail Address: 2611 Cedar Springs
Dallas Texas 75201
City State Zip Code
Telephone: (214) 220-0101
13
<PAGE>
Facsimile: (214) 220-0596
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 20,000
Total Purchase Price $ 105,000.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF DALLAS ss.
ss.:
COUNTY OF DALLAS ss.
On this 2 day of September, 1997, before me personally appeared Rich Gray,
to me known to be the individual(s) described in and who executed the foregoing
instrument, and duly acknowledged to me that (he) (she) (they) executed the same
as (his) (her) (their) free act and deed.
/s/ BRIA SMITH
Notary Public
My Commission Expires: 8/12/2001
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF DALLAS ss.
ss.:
COUNTY OF DALLAS ss.
On this 2 day of September, 1997, before me appeared
Rich Gray, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the President of
Gray & Co., that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] /s/ RICHARD A. GRAY JR.
Officer
President
Title
/s/ BRIA SMITH
Notary Public
My Commission Expires: 8-12-2001
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ ALEXANDER GREENBERG
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ ALEXANDER GREENBERG
(Print Name of Entity) (Signature)
Print Name: Alexander Greenberg
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 425 East 86th St, 12E
New York New York 10028
City State Zip Code
Mail Address: (same)
______________________________________________________
City State Zip Code
Telephone: 212-996-2888
13
<PAGE>
Facsimile: 203-629-0718
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared
Alexander Greenberg, to me known to be the individual described in and who
executed the foregoing instrument, and duly acknowledged to me that (he)
executed the same as (his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2-28-1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: Phillip J. Hempleman
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ PHILLIP J. HEMPLEMAN
(Print Name of Entity) (Signature)
Print Name: Phillip J. Hempleman
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: Two Dublin Hill Drive
Greenwich CT 06830
City State Zip Code
Mail Address: Ardley Partners, 646 Steamboat Rd
Greenwich CT 06830
City State Zip Code
Telephone: (203) 863-1410
13
<PAGE>
Facsimile: (203) 863-1488
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 75,000
Total Purchase Price $ 393,750.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared Phillip
J. Hempleman, to me known to be the individual described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) executed the same as
(his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2/28/1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: David D. May
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ DAVID D. MAY
(Print Name of Entity) (Signature)
Print Name: David D. May
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 28 Georgian Lane
Darien CT 06840
City State Zip Code
Mail Address: Ardsley Partners, 646 Steamboat Rd.
Greenwich CT 06840
City State Zip Code
Telephone: 203-863-1414
13
<PAGE>
Facsimile: 203-629-8768
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 15,000 shares
Total Purchase Price $ 78,750.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared David D.
May, to me known to be the individual described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) executed the same as
(his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2/28/1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ TIMOTHY MCCOLLUM
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ TIMOTHY MCCOLLUM
(Print Name of Entity) (Signature)
Print Name: Timothy McCollum
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 3 Whispering Meadow Dr.
Morristown NJ 07960
City State Zip Code
Mail Address: ________________________________________
______________________________________________________
City State Zip Code
Telephone: 201-538-1499
13
<PAGE>
Facsimile: 203-629-0718
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 40,000
Total Purchase Price $ 210,000.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared Timothy
McCollum, to me known to be the individual described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) executed the same as
(his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2/28/1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: __________________________
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ FRANK LYON POLK III
(Print Name of Entity) (Signature)
Print Name: Frank Lyon Polk Iii
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: Smith Barney as IRA Custodian
40 W. 57th Street, 19th Floor
New York New York 10019
City State Zip Code
Mail Address: ________________________________________
______________________________________________________
City State Zip Code
Telephone: ________________________
13
<PAGE>
Facsimile: 212-468-8694
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 37,500
Total Purchase Price $ 196,875
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF NEW YORK ss.
ss.:
COUNTY OF NEW YORK ss.
On this 29 day of August, 1997, before me personally appeared
___________________, to me known to be the individual(s) described in and who
executed the foregoing instrument, and duly acknowledged to me that (he) (she)
(they) executed the same as (his) (her) (their) free act and deed.
/s/ WILLIAM WONG
Notary Public
My Commission Expires: [SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: Sanford B. Prater
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ SANFORD B. PRATER
(Print Name of Entity) (Signature)
Print Name: Sanford B. Prater
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 29 Laurel Rd.
New Canaan CT 06840
City State Zip Code
Mail Address: Ardsley Partners, 646 Steamboat Rd.
Greenwich CT 06830
City State Zip Code
Telephone: (203) 863-1459
13
<PAGE>
Facsimile: (203) 863-1447
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 40,000
Total Purchase Price $ 210,000.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared Sanford
B. Prater, to me known to be the individual described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) executed the same as
(his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2/28/1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER: PRIVET ROW, INC.
By: /s/ GARY J. DAVIS
Gary J. Davis, President
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
PRIVET ROW, INC. ______________________________________
(Print Name of Entity) (Signature)
Print Name: __________________________
By: /s/ GARY J. DAVIS ______________________________________
(Signature) (Signature)
Print Name: Gary J. Davis Print Name:___________________________
Title: President
Residence Address:____________________________________
______________________________________________________
City State Zip Code
Mail Address: ________________________________________
______________________________________________________
City State Zip Code
Telephone: ________________________
13
<PAGE>
Facsimile: 512-328-7078
Tax Identification or
Social Security Number 74-281-5999
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF TEXAS ss.
ss.:
COUNTY OF TRAVIS ss.
On this 28 day of August, 1997, before me personally appeared Gary Davis,
to me known to be the individual(s) described in and who executed the foregoing
instrument, and duly acknowledged to me that (he) (she) (they) executed the same
as (his) (her) (their) free act and deed.
/s/ DIANNE L. PIERCE
Notary Public
[SEAL]
My Commission Expires: 10-25-97
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF TEXAS ss.
ss.:
COUNTY OF TRAVIS ss.
On this 28 day of August, 1997, before me appeared
Gary Davis, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the President of
Privet Row, Inc., that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] /s/ GARY J. DAVIS
Officer
President
Title
/s/ DIANNE L. PIERCE
Notary Public
My Commission Expires: 10-25-97
[SEAL]
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ LEONARD RAUNER
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ LEONARD RAUNER
(Print Name of Entity) (Signature)
Print Name: Leonard Rauner
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 317 E. Linden Ave
Englewood NJ 07631
City State Zip Code
Mail Address: ________________________________________
______________________________________________________
City State Zip Code
Telephone: (201) 816 9308
13
<PAGE>
Facsimile: 203 863 1450
Tax Identification or
Social Security Number 090 60 2704
Number of Shares
to be Purchased: 25,000
Total Purchase Price $ 131,250
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF CONNECTICUT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 2nd day of September, 1997, before me personally appeared Leonard
Rauner, to me known to be the individual described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) executed the same as
(his) free act and deed.
/s/ KEVIN M. MCCORMACK
Notary Public
My Commission Expires: 2/28/1998
[SEAL]
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: Marcus R. Rowan, Individual
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ MARCUS R. ROWAN
(Print Name of Entity) (Signature)
Print Name: Marcus R. Rowan
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 4401 Lomo Alot Dr. #6
Dallas Texas 75205
City State Zip Code
Mail Address: P.O. Box 12554
Dallas Texas 75225
City State Zip Code
Telephone: 214-207-5001
13
<PAGE>
Facsimile: 214-987-1956
Tax Identification or
Social Security Number ###-##-####
Number of Shares
to be Purchased: 15,000 shares
Total Purchase Price $ 78,750.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF TEXAS ss.
ss.:
COUNTY OF DALLAS ss.
On this 2nd day of September, 1997, before me personally appeared
___________________, to me known to be the individual(s) described in and who
executed the foregoing instrument, and duly acknowledged to me that (he) (she)
(they) executed the same as (his) (her) (their) free act and deed.
/s/ SHARON WASH????
Notary Public
My Commission Expires: 7-3-00
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: TCM Partners, L.P. et al
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
TCM Partners, L.P. ______________________________________
(Print Name of Entity) (Signature)
Print Name: __________________________
By: /s/ SCOTT J. TURKEL ______________________________________
(Signature) (Signature)
Print Name: SCOTT J. TURKEL Print Name:___________________________
Title: General Partner
Residence Address: 137 Rowayton Ave
Rowayton CT 06853
City State Zip Code
Mail Address: same
______________________________________________________
City State Zip Code
Telephone: 203-854-0505
13
<PAGE>
Facsimile: 203-854-6700
Tax Identification or
Social Security Number 13-3716210
Number of Shares
to be Purchased: 150,000
Total Purchase Price $ 787,500.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF _______________ ss.
ss.:
COUNTY OF ______________ ss.
On this ___ day of _________, 19__, before me personally appeared
___________________, to me known to be the individual(s) described in and who
executed the foregoing instrument, and duly acknowledged to me that (he) (she)
(they) executed the same as (his) (her) (their) free act and deed.
/s/ ________________________
Notary Public
My Commission Expires: _________________
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF CT ss.
ss.:
COUNTY OF FAIRFIELD ss.
On this 28 day of August, 1997, before me appeared
Scott Turkel, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the General Partner of
TCM Partners, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] /s/ SCOTT TURKEL
Officer
General Partner
Title
/s/ CHRIS FROELICH
Notary Public
My Commission Expires: 1/31/2000
[SEAL]
15
<PAGE>
The Company and Subscriber have executed this Subscription Agreement on
the date first above written.
THE COMPANY:
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ EDWIN J. DUCAYET, JR.
Edwin J. Ducayet, Jr., Vice President
SUBSCRIBER:
By: /s/ WAYNE C. WILKEY
(Corporation, Partnership or (Individual Signatures)
Trust Signature)
______________________________ /s/ WAYNE C. WILKEY
(Print Name of Entity) (Signature)
Print Name: Wayne C. Wilkey
By:___________________________ ______________________________________
(Signature) (Signature)
Print Name:___________________ Print Name:___________________________
Title:________________________
Residence Address: 670 West End Avenue
New York New York 10025
City State Zip Code
Mail Address: 670 West End Avenue
New York New York 10025
City State Zip Code
Telephone: (212) 787-0780
13
<PAGE>
Facsimile: 203 629 0718
Tax Identification or
Social Security Number 293564810
Number of Shares
to be Purchased: 7,500
Total Purchase Price $ 37,875.00
14
<PAGE>
(ACKNOWLEDGMENT FOR INDIVIDUAL SUBSCRIBER)
STATE OF NEW YORK ss.
ss.:
COUNTY OF NEW YORK ss.
On this 29th day of August, 1997, before me personally appeared Wayne C.
Wilkey, to me known to be the individual(s) described in and who executed the
foregoing instrument, and duly acknowledged to me that (he) (she) (they)
executed the same as (his) (her) (their) free act and deed.
/s/ MOHAN K. DANSINGHANI
Notary Public
[SEAL]
My Commission Expires: Feb 21, 1999
(ACKNOWLEDGMENT FOR CORPORATE SUBSCRIBER)
STATE OF ____________ ss.
ss.:
COUNTY OF __________ ss.
On this _____ day of ___________________, 19__, before me appeared
______________, to me personally known, who, being by me duly sworn (or
affirmed), did say and acknowledge that he is the ______________ of
________________________, that the seal affixed to said instrument is the
corporate seal of said corporation and that said instrument was signed and
sealed on behalf of said corporation by authority of its board of directors, and
that the execution of the said instrument is the free act and deed of said
corporation.
[SEAL] ______________________________________
Officer
______________________________________
Title
______________________________________
Notary Public
My Commission Expires: _______________
15
EXHIBIT 10.24
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
30,000 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 AUGUST 31, 1997, AND WILL BE VOID
AFTER 6:00 P.M. CENTRAL STANDARD TIME ON DECEMBER 31, 2001
This warrant (the "Warrant") certifies that, for value received, Lifeline
Industries, Inc., is entitled, at any time and from time to time on or after
August 31, 1997 (the "Beginning Date"), and at any time prior to 6:00 p.m.
Central Standard Time on December 31, 2001 (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.
1. The purchase price at which the Warrant Shares are purchasable (the
"Warrant Price") shall be $4.50 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.
<PAGE>
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 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
-2-
<PAGE>
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 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:
-3-
<PAGE>
(a) If, at any time after the date hereof 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 10 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:
(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.
-4-
<PAGE>
(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 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
-5-
<PAGE>
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 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
-6-
<PAGE>
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 follows:
If to Lifeline Industries, Inc., to:
160 Overlook Ave.
Suite 24E
Hackensack, New Jersey 07601
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.
-7-
<PAGE>
Dated effective this 2nd day of July, 1997.
INTELECT COMMUNICATIONS
SYSTEMS LIMITED
By: /s/ HERMAN M. FRIETSCH
Herman M. Frietsch,
Chairman of the Board, Chief
Executive Officer
-8-
<PAGE>
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__.
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Signature
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EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Intelect Communications Systems Limited
We consent to incorporation by reference in the registration statement on Form
S-3 relating to the registration of 5,813,633 common shares of Intelect
Communications Systems Limited of our report dated April 9, 1997, relating to
the consolidated balance sheets of Intelect Communications Systems Limited and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1996, the two months ended December 31, 1995 and the years ended
October 31, 1995 and 1994, and the related schedule, which report appears in the
December 31, 1996 annual report on Form 10-K of Intelect Communications Systems
Limited.
Our report dated April 9, 1997, contains an explanatory paragraph that states
that the Company has suffered recurring losses from continuing operations and is
dependent upon the successful development and commercialization of its products
and its ability to secure adequate sources of capital until the Company is
operating profitably. These matters raise substantial doubt about the company's
ability to continue as a going concern. Management's plans with regard to these
matters are described in note 1 to the consolidated financial statements. The
consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
September 17, 1997
