<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
--------------------
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________________ TO ___________________
COMMISSION FILE NUMBER 0-11630
INTELECT COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0471342
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS
75081
(Address of Principal Executive Offices, Zip Code)
972-367-2100
(Registrant's Telephone Number, Including Area Code)
-----------------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
There were 24,235,187 shares of Common Stock, par value $.01 per share,
outstanding on May 14, 1998.
================================================================================
<PAGE> 2
INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets of the Company 3
at March 31, 1998 (unaudited) and December 31, 1997
Consolidated Statements of Operations of the Company 5
(unaudited) for the three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows of the Company 6
(unaudited) for the three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10
CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
ITEM 3 CHANGES IN SECURITIES 15
ITEM 6 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 15
SIGNATURES
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,858 $ 2,094
Investments in marketable securities 888 942
Accounts receivable net of allowances of $541 in 1998 and 1997 12,711 15,569
Inventories 7,092 6,289
Prepaid expenses 1,145 658
--------- ---------
Total current assets 26,694 25,552
Property and equipment, net 6,432 6,041
Goodwill, net 12,469 13,249
Software development costs, net 2,190 2,229
Other intangible assets, net 1,096 1,168
Other assets 1,562 992
========= =========
$ 50,443 $ 49,231
========= =========
See accompanying notes to consolidated financial statements (Continued)
</TABLE>
3
<PAGE> 4
INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, net of unamortized discount of $874 in 1998
and $578 in 1997 $ 11,566 $ 9,132
Current maturities of long-term debt 1,398 2,527
Accounts payable 2,883 7,569
Accrued liabilities 3,076 3,173
Net liabilities of discontinued operations 400 400
Deferred income taxes 49 49
Current installments of obligations under capital leases 89 89
---------- ----------
Total current liabilities 19,461 22,939
Long-term obligations under capital leases, net of current installments 31 55
Deferred income taxes 88 88
---------- ----------
19,580 23,082
---------- ----------
Commitments and contingencies
Stockholders' equity:
$2.0145, 10% cumulative convertible preferred stock, series A, $.01 par
value (aggregate involuntary liquidation preference $20,145,000).
Authorized 10,000,000 shares; 4,219,409 shares issued and
outstanding. 42 42
$4.375, 10% cumulative convertible preferred stock, series B, $.01 par
value (aggregate involuntary liquidation preference $4,000,000).
Authorized 914,286 shares; 914,286 shares issued and outstanding 9 9
Series C convertible preferred stock, $.01 par value (aggregate
involuntary liquidation preference $10,000,000). Authorized 12,500
shares; 10,000 shares issued and outstanding in 1998 -- --
Common stock, $.01 par value. Authorized 50,000,000 shares;
24,177,190 and 23,954,978 shares issued and outstanding in 1998 and
1997 242 240
Additional paid-in capital 87,702 75,940
Unrealized gain on marketable securities - 2
Retained earnings (accumulated deficit) (57,132) (50,084)
---------- ----------
Total stockholders' equity 30,863 26,149
---------- ----------
$ 50,443 $ 49,231
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 5
INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Thousands of dollars, except per share)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Net revenue $ 5,514 $ 4,537
Cost of revenue 4,008 3,714
---------- ----------
Gross profit 1,506 823
---------- ----------
Expenses:
Engineering and development 2,845 2,470
Selling and administrative 3,630 4,332
Amortization of goodwill 331 396
---------- ----------
6,806 7,198
---------- ----------
Operating loss (5,300) (6,375)
---------- ----------
Other income (expense):
Interest expense (1,023) (945)
Interest income and other 109 36
---------- ----------
(914) (909)
---------- ----------
Loss from continuing operations before income taxes (6,214) (7,284)
Income tax expense - 38
---------- ----------
Loss from continuing operations (6,214) (7,322)
Loss on disposal of discontinued operations, net of tax (88) (93)
---------- ----------
Net loss $ (6,302) $ (7,415)
========== ==========
Dividends on preferred stock (746) -
---------- ----------
Loss available to common stockholders $ (7,048) $ (7,415)
========== ==========
Basic and diluted loss per share:
Continuing operations $ (0.29) $ (0.44)
Discontinued operations - (0.01)
---------- ----------
Net loss per share $ (0.29) $ (0.45)
========== ==========
Weighted average number of common shares outstanding 24,109 16,594
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 6
INTELECT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Thousands of dollars, except share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,302) $ (7,415)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 854 666
Amortization of loan discount 703 725
Deferred income taxes - 38
Loss on disposal of discontinued
operations 88 93
Stock option compensation 25 60
Noncash operating expenses 31 -
Other - 6
Change in operating assets and liabilities,
net of effects of acquired companies:
Accounts receivable 2,859 (1,309)
Inventories (803) (560)
Other assets (302) (273)
Accounts payable and accrued liabilities (4,783) 1,654
--------- ---------
Net cash used in operating activities (7,630) (6,315)
--------- ---------
Cash flows from investing activities:
Payments for disposal of discontinued operations (88) (93)
Purchase of other intangible assets (9) (16)
Capital expenditures (766) (970)
Purchase of marketable securities - (78)
Software development costs - (489)
Proceeds from sale of marketable securities 52 -
--------- ---------
Net cash used in investing activities (811) (1,646)
--------- ---------
Cash flows from financing activities:
Debt issuance costs (90) (160)
Proceeds from issuance of notes payable 3,020 3,833
Principal payments on notes payable (290) -
Payments under capital lease obligations (24) (15)
Principal payments on long-term debt (679) (200)
Proceeds from exercise of employee stock options 89 73
Proceeds from issuance of preferred shares 9,179 -
--------- ---------
Net cash provided by financing activities 11,205 3,531
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,764 (4,430)
Cash and cash equivalents, beginning of period 2,094 4,863
--------- ---------
Cash and cash equivalents, end of period $ 4,858 $ 433
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
6
<PAGE> 7
INTELECT COMMUNICATIONS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
by the Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.
The accompanying consolidated financial statements do not include
certain footnotes and financial presentations normally required under generally
accepted accounting principles and, therefore, should be read in conjunction
with the audited financial statements included in the Company's Annual Report on
Form 10-K as at December 31, 1997.
INVENTORIES
The components of inventories are as follows (thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 5,716 $ 5,209
Work in progress 289 630
Finished goods 2,717 2,050
-------- --------
8,722 7,889
Less: allowance for obsolescence (1,630) (1,600)
-------- --------
$ 7,092 $ 6,289
======== ========
</TABLE>
FINANCING MATTERS
Effective as of January 1, 1998, the Company authorized the issuance of
42,546 shares of common stock in lieu of a $212,000 cash dividend on Class A
preferred stock for the quarter ended December 31, 1997. The share price was the
average closing market bid price for the five consecutive trading days ending
December 31, 1997.
On January 27, 1998, in conjunction with a sales representative
agreement, the Company issued 150,000 shares of common stock in payment of
commissions on anticipated sales of $30,000,000 after January 1, 1998. The value
of the stock, totaling $816,000 was recorded as a prepayment and is being
charged to expense ratably as the sales are realized.
On February 9, 1998, the Company sold 10,000 shares of Series C
Convertible Preferred Stock, in a private placement, for $10,000,000. Dividends
accumulate at the rate of 4% per annum, are payable upon conversion, and may be
paid in cash or common stock, at the Company's option. The preferred stock will
automatically convert into common stock on February 9, 2000, and may be
converted prior to that date, at the holder's option, at the lesser of $9.082
per common share or at 97% of the market price. Market price is defined as the
arithmetic average of the three lowest closing bid prices in the ten consecutive
trading days immediately preceding the conversion date. The Company may fix the
conversion price at $9.082 if, for any 20 of 30 consecutive trading days, the
daily volume-weighted price of the common stock is $12.00 or greater. The
preferred stock may be redeemed, at the Company's option, at 110% of the stated
value if the daily weighted average trading price is below $3.00 per share for
ten consecutive trading days. Terms of the series, among other things, limit the
rate of conversion and the rate of sale of common stock acquired upon
conversion, and prohibit the Company from redeeming any common stock, or
declaring any dividends on common stock. Proceeds of the sale were used for
working capital and general corporate purposes.
7
<PAGE> 8
On February 12, 1998, the Company established a $15,000,000 credit facility (the
"Facility") with a private lender, and received an initial advance of
$3,000,000. On April 2, 1998, the Company received an additional advance of
$7,000,000. The Facility is due February 12, 1999, is secured by all outstanding
shares of the Company's wholly owned U.S. subsidiaries, which are shared in pari
passu with two existing lenders, and bears interest at the rate of 7% per annum,
payable at maturity. In conjunction with advances under the Facility, the lender
received warrants to purchase 1,500,000 shares of common stock, exercisable at
any time for a three year period at an exercise price of $7.50 per share. In
conjunction with future advances, the lender is to receive additional warrants
to purchase common stock, exercisable at any time for a three year period at the
rate of 15,000 warrant shares for each $100,000 advanced, at an exercise price
equal to $1.50 greater than the average closing bid price of the common stock
for the ten day period immediately prior to the date of each advance.
Outstanding advances and accrued interest are convertible into shares of common
stock at a price of $9.082, at the lender's option, provided the market price of
the common stock is less than $13.50, and at the Company's option if the market
price of the common stock is $13.50 or greater. Market price is defined as the
closing bid price for 15 of the 17 consecutive days immediately prior to the
conversion date. The Facility may be extended for an additional year in exchange
for warrants to purchase common stock, exercisable at any time for a three year
period, at the rate of 5,000 warrant shares for each $100,000 advanced, at the
same price as for future advances. All warrants are subject to certain
anti-dilution adjustments. The Facility, among other things, prohibits any
additional indebtedness and reserves the right to require that any future
advances be used to repay other indebtedness which shares the security in pari
passu. The obligation to make future advances expires on July 31, 1998. Such
advances are subject to certain conditions including satisfactory due diligence
review of the Company. The Company is prohibited from redeeming any capital
stock, declaring any dividends on common stock or making certain other
distributions, as defined. Proceeds of the initial advance were used for working
capital and general corporate purposes. Proceeds of the second advance were used
primarily to retire outstanding loans and accrued interest, totaling $6,630,000
from the previous Credit Facility. The fair value of the warrants at dates of
issue, totaling $909,000 and $2,071,000, evaluated using the Black-Scholes
option pricing model, were credited to additional paid-in capital and are being
charged to interest expense using the effective interest method over the loan
period.
On February 17, 1998, the Company renegotiated and settled the
remaining $2,100,000 of debt associated with the purchase of DNA for $1,650,000.
Note agreements were established with two former shareholders which provide for
initial payments, including imputed interest, of $125,000 followed by ten
monthly payments of $75,000 to each former shareholder. The $450,000 difference
between the carrying value and the settlement was recorded as a reduction of
goodwill associated with the acquisition of DNA.
On March 27, 1998, the Credit Facility was extended to April 2, 1998,
at which time it was retired as described above, and the Coastal Trust Revolving
Loan was extended to May 12, 1998, at which time all outstanding advances and
accrued interest, totaling $3,223,000, were retired.
On May 8, 1998, the Company sold 5,000 shares of Series D Convertible
Preferred Stock, in a private placement for $5,000,000. Dividends accumulate at
the rate of 4% per annum, are payable upon conversion, and may be paid in cash
or common stock, at the Company's option. The preferred stock will automatically
convert into common stock on May 8, 2000, and may be converted prior to that
date, at the holder's option, at the lesser of $9.082 (or reset to the five day
average volume-weighted average trading price of the common stock for the five
trading days following the filing of the Company's Form 10-Q for the quarter
ending June 30, 1998, if less) per common share or at 97% of the market price.
Market price is defined as the average of the three lowest closing bid prices
for the common stock within the ten trading days immediately preceding the
conversion date. The Company may fix the conversion price at $9.082 (or the
reset amount, if less) if, for any 20 of 30 consecutive trading days, the daily
volume-weighted price of the common stock is $12.00 or greater. The preferred
stock may be redeemed, at the Company's option, at 110% of the stated value if
the daily volume-weighted average trading price is below $3.00 per share for ten
consecutive trading days. Terms of the series, among other things, limit the
rate of conversion and the rate of sale of common stock acquired upon
conversion, prohibit the Company from entering into certain public or private
offerings of securities until the issuable common stock is registered, from
redeeming any common stock, or from declaring any dividends on common stock, and
allow the holders to purchase additional shares of preferred stock in lieu of
anticipated advances under the Facility, provided at least 25% of the preferred
stock is outstanding and required waivers are obtained from the Series A and
Series B preferred stockholders. Proceeds from the offering were used for
working capital and general corporate purposes. The series ranks in pari passu
with the Series A, Series B and Series C preferred stock.
8
<PAGE> 9
CONCENTRATION OF CREDIT RISK
The Company continues to be subject to credit risk through trade receivables.
The Company's distributor for Korea accounted for $6,100,000 (48%) and
$9,879,000 (63%) of the accounts receivable at March 31, 1998, and December 31,
1997, respectively. In connection with such receivables, the Company holds from
the distributor a promissory note and pledge of security interests in certain
collateral, including the distributor's accounts receivable. To date the Company
has collected amounts due as agreed with the distributor; however, in view of
the economic conditions and monetary environment in Korea, there is continuing
uncertainty of future sales to the distributor and corresponding risk of
collectability of the receivable. After assessing the financial condition of the
distributor, and with the experience of collections to date, the Company
believes the balance of the note will be collected in full.
SUBSEQUENT EVENTS
Effective as of April 1, 1998, the Company authorized the issuance of 31,308
shares of common stock in lieu of a $212,000 cash dividend on Class A preferred
stock for the quarter ended March 31, 1998, and 17,025 shares in lieu of a
$116,000 cash dividend on Class B preferred stock from issue date through March
31, 1998. The share price was the average closing market bid price for the five
consecutive trading days ending March 31, 1998.
RECENT PRONOUNCEMENTS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", as of
January 1, 1998. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the total of net income
and all other non-owner changes in equity. The Company does not believe that
SFAS No. 130 will have a significant impact on the Company's financial
statements.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1998
Comparison of First Quarter 1998 to First Quarter 1997
The following table shows the revenue and gross profit for the
Company's products:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1998 1997
---- ----
($ Thousands)
Revenue:
<S> <C> <C>
Fiber optic multiplexers $ 2,162 $ 2,023
Engineering services and DSP 2,851 1,543
Video conferencing 309 105
Voice switching and other 192 866
--------- ---------
$ 5,514 $ 4,537
--------- ---------
Gross profit:
Fiber optic multiplexers 556 274
Engineering services and DSP 871 317
Video conferencing 136 32
Voice switching and other (57) 200
--------- ----------
$ 1,506 $ 823
--------- ----------
</TABLE>
NET REVENUE
Net revenue for the three months ended March 31, 1998, increased 22%
over the prior year period. Revenue from engineering services grew 72%.
SONETLYNX(TM), LANscape(TM), and Digital Signal Processing (DSP) product lines
also contributed to the increase.
GROSS PROFIT
Gross profit increased 83% over the prior year period. SONETLYNX margin
was improved by direct cost reductions but constrained by $422,000 of
underabsorbed manufacturing overhead. (See Comparison to Fourth Quarter 1997.)
Engineering service margins improved as a result of the increased level of
revenue.
ENGINEERING AND DEVELOPMENT (E&D) EXPENSE
E&D expense for the three months ended March 31, 1998, increased to
$2,845,000 from $2,470,000 in the prior year period. In the prior year, $489,000
of SONETLYNX software development cost was capitalized. Overall total
development costs declined 4%. The total costs of development were distributed
by product line as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1998 1997
---- ----
($ Thousands)
<S> <C> <C>
Fiber optic multiplexers $ 1,421 $ 1,078
CS4 938 1,352
Video conferencing 323 238
DSP and other 163 291
--------- ---------
$ 2,845 $ 2,959
========= =========
</TABLE>
E&D results during the first quarter of 1998 included the following:
The SONETLYNX product line was enhanced and expanded by the release of a
multi-point voice module, an ethernet protocol for OC-3, a 100 watt internal
power supply, and release 3.0 of the network element management software. The
CS4 development activity included performance optimization, stress testing of
hardware components, and redesign for material cost reduction. The Windows NT
version of the LANscape product was completed. To enable interoperability with
existing video
10
<PAGE> 11
conferencing systems, an H.320 Gateway product was released. Including work
funded by a customer, the Company completed the development of these DSP
products: an evaluation platform for Texas Instruments' C6x products (EVM
module), PCI boards under a private label arrangement, and a proprietary
operating system for the C6x being offered for sale to third party C6x
developers.
SELLING AND ADMINISTRATIVE EXPENSE
Compared to the prior year, selling and administrative expenses in the
three months ended March 31, 1998, were lowered 16% to $3,630,000 from
$4,332,000 in the prior year period. The expense reduction was primarily
attributable to the removal of corporate headquarters from Bermuda, avoiding
extraordinary expenses incurred in 1997.
INTEREST EXPENSE
Interest expense increased to $1,023,000 from $945,000 in the prior
year period. Cash interest increased to $320,000 from $220,000. Non-cash costs
of various financings, reportable as interest, account for the remaining
amounts, as follows. In the three months ended March 31, 1998, the $703,000 of
non-cash interest expense was due to amortization of debt discount and deferred
financing costs attributable to valuation of warrants using the Black-Scholes
pricing model. In the prior year period the majority of the $725,000 non-cash
costs were attributed to a beneficial conversion feature of certain convertible
debentures issued in 1996.
DIVIDENDS ON PREFERRED STOCK
Preferred dividends include $369,000 which the Company has elected to
pay in common stock. Also included in the reported amount are non-cash financing
costs of $377,000 attributable to the value of beneficial conversion features of
Series B and C preferred stock.
Comparison of First Quarter 1998 to Fourth Quarter 1997
NOTE
References to financial results for the fourth quarter of 1997 are
unaudited and do not refer to financial statements contained elsewhere in this
report.
REVENUE AND GROSS PROFIT
The Company's distributor of SONETLYNX product in Korea was responsible
for revenue of $1,157,000 in the three months ended March 31, 1998, and
$9,046,000 in the fourth quarter of 1997. The reduction of almost $8,000,000 had
the effect of reducing overhead absorption and Gross Profit as a percentage of
Revenue (to 27% from 50%). Excluding the effects of volume, the margins derived
from direct costs of products improved in the first quarter compared to the
fourth quarter of 1997.
EXPENSES
E&D expense declined 18% to $2,845,000 from $3,469,000. Selling and
administrative expense declined 31% to $3,630,000 from $5,268,000.
11
<PAGE> 12
Liquidity and Capital Resources
For the three months ended March 31, 1998, cash balances were increased
by $2,764,000. During the three month period, cash used in operations,
($7,630,000), and in investing activities, ($811,000), was funded by securing
new financing, net of repayments, of $11,205,000.
OPERATING ACTIVITIES
Net cash used in operations consisted of the $6,301,000 net loss and
the $3,030,000 net decrease in current liabilities, offset by $1,701,000 of
non-cash charges. As previously discussed, the net loss primarily reflects the
effect of fixed costs in a period of lower revenue and the continuation of new
product development.
* Accounts receivable were a source of funding due to collections
from customers $2,858,000 in excess of new shipments and billings.
* Inventory increased $803,000 due to restocking and longer term
purchase commitments which could not be scaled back to coincide
with the production requirements of revenue in the period.
* Accounts payable were reduced $4,783,000 due to payments of
accumulated obligations in line with prior operating levels.
* The non-cash charges were primarily $854,000 depreciation and
amortization of intangible assets and $703,000 of amortization of
deferred financing costs.
INVESTING ACTIVITIES
Investment spending consisted primarily of capital expenditures of
$766,000 for fixed asset additions. These additions were concentrated in
computers, software, and test equipment to support engineering activities,
leasehold improvements, and manufacturing equipment to support new products.
FINANCING ACTIVITIES
Cash uses were financed by the following transactions during the three
month period ended March 31, 1998:
* $10,000,000 from the sale of Series C preferred stock to Citadel
Investment Group LLP
* $3,000,000 borrowed from St. James Capital LP
* A deferred payment arrangement converting $2,100,000 originally
due in February to monthly payments through December 1998
SUBSEQUENT FINANCING ACTIVITIES
Since March 31, 1998, the Company has secured financing from the
following transactions:
* $7,000,000 borrowed from St. James Capital LP on April 2, 1998
* $5,000,000 from the sale of Series D preferred stock to Citadel
Investment Group LLP on May 8, 1998
Proceeds from these financings were used to retire maturing obligations
of $6,630,000 and $3,223,000 to St. James Capital Corp. and the Coastal Trust,
respectively, and for additional working capital.
OUTLOOK
The St. James Capital LP credit facility may be available for
additional advances of up to $5,000,000 until July 31, 1998. Such advances are
subject to certain conditions including a due diligence review. Borrowings under
the facility are due February 12, 1999, but may be extended for one year at the
Company's option. In connection with the May 8 financing, the Company granted
the holders of Series D Preferred Stock the right to purchase additional shares
in lieu of anticipated advances under the facility.(See Notes to Consolidated
Financial Statements).
12
<PAGE> 13
The Company has continued to fund its program to complete development
and bring to market its CS4 intelligent, programmable, enhanced services
platform. The Company is also continuing its efforts to bring a third party
participant or participants into the CS4 program to provide funding, to
contribute to specification and development of selected applications, or to
augment marketing and distribution resources. The current focus of the CS4
program is to complete an initial application for a defined customer service
demonstration in beta form in the time frame of late 1998 or early 1999 and to
position the product for marketing in 1999. The results of the Company's efforts
to involve third party participants may be expected to impact directly the level
of expenditure, the technical and manufacturing scope of focus, and the ultimate
realization of value to the Company from the CS4 program.
The Company has begun to expand the scope of its contract manufacturing
and related services to new customers for the combined purposes of expanding its
core manufacturing competence and providing a new revenue source to support its
operations infrastructure.
The low level of first quarter sales included $1,157,000 or 21% to
Korea. Should sales in Korean markets not increase to previous levels, the
Company believes that prospects are good for achieving similar levels of sales
in markets other than Korea. If revenues do not recover in the near term, then
cost and expense reduction plans already undertaken can be continued to preserve
cash resources at lower levels of sales. In the contrary scenario, should
working capital additions be required by production and sales growth in excess
of current plans, the Company believes it has the experience and capability to
obtain necessary financing from external sources. There can be no assurance that
such financing would be available, or available on acceptable terms.
Considering the financial resources available and potentially
available, the outlook for cash available from customer collections, the outlook
for cash uses in operations and investing, and the options available to control
spending, the Company believes it has, or reasonably has access to, the
financial resources to meet its business requirements through the current year.
The Company cannot assure, however, that the business results assumed in this
outlook will be realized, especially considering the near term impact of reduced
revenues from Korea. The Company cannot assure that profitability and positive
cash flow will be achieved when expected. If the Company's sales plans are not
achieved, operating losses and negative cash flows exceed the Company's
estimates, or capital requirements in connection with the design, development,
and commercialization of its principal products are higher than estimated, the
Company will need to raise additional capital. Although the Company believes it
could raise additional capital through public or private equity or debt
financings, if necessary, there can be no assurance that such financings would
be available, or available on acceptable terms. If such financing were not
available, the Company has determined that a significant reduction of
engineering, development, selling, and administrative costs would allow the
Company to continue as a going concern through 1998.
CONTINGENT LIABILITIES
As discussed in "ITEM 3 - Legal Proceedings" in the Company's Annual Report on
Form 10-K, the Company is exposed to certain contingent liabilities which, if
resolved adversely to the Company, would adversely affect its liquidity, its
results of operations, and/or its financial position.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE LIQUIDITY AND OPERATING RESULTS
This Form 10-Q contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended. The forward looking
statements involve risks and uncertainties that could cause actual results to
differ materially from those expressed in, or implied by, the forward looking
statements. Factors that might cause such a difference include, but are not
limited to, those relating to: general economic conditions in the markets in
which the Company operates, including, in particular, the financial condition of
the Republic of Korea; success in the development and market acceptance of new
and existing products (particularly SONETLYNX, LANscape, and CS4); dependence on
suppliers, third party manufacturers and channels of distribution; customer and
product concentration; fluctuations in customer demand; maintaining access to
external sources of capital; ability to execute management's margin improvement
and cost control plans; overall management of the Company's expansion; and other
risk factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission, including without limitation those set forth
in the Section entitled "Risk factors" in the Form S-3 of the Company filed on
April 3, 1998.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 3 - CHANGES IN SECURITIES
(c) Recent sales of unregistered securities
Effective as of January 1, 1998, the Company authorized the issuance of
42,546 shares of common stock in lieu of a $212,000 cash dividend on its Class A
preferred stock for the quarter ended December 31, 1997.
Effective as of April 1, 1998, the Company authorized the issuance of
31,308 shares of common stock in lieu of a $212,000 cash dividend on its Class A
preferred stock for the quarter ended March 31, 1997, and 17,025 shares in lieu
of a $116,000 cash dividend on Class B preferred stock from issue date through
March 31, 1998.
As disclosed in the Form 8-K of the Company filed May 8, 1998, the
Company sold $5 million of Series D convertible preferred stock in a private
placement.
ITEM 6 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. The Financial Statements and Financial Statement Schedules filed as
part of this report are listed and indexed on Page 1. Schedules other than those
listed in the index have been omitted because they are not applicable or the
required information has been included elsewhere in this report.
B. Listed below are all Exhibits filed as part of this report. Certain
Exhibits are incorporated by reference to documents previously filed by the
Registrant with the Securities and Exchange Commission pursuant to Rule 12b-32
under the Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
- ------- -------
<S> <C>
3.1 Certificate of Designations establishing the rights and
preferences of the Series C Preferred Stock(1)
3.2 Certificate of Designations establishing the rights and
preferences of the Series D Preferred Stock(2)
4.1 Registration Rights Agreement between the Company and Citadel,
dated February 6, 1998(1)
4.2 Registration Rights Agreement dated February 12, 1998 between
the Company and St. James Partners, L.P(1)
4.3 Warrant to Purchase Common Stock of the Company dated February
12, 1998 issued to St. James Partners, L.P. expiring on February
12, 2001(1)
4.4 Registration Rights Agreements between the Company and the
Buyers, dated May 8, 1998(2)
10.1 Securities Purchase Agreement between the Company and Citadel,
dated February 6, 1998(1)
10.2 Agreement for Purchase and Sale dated February 12, 1998 between
the Company and St. James Partners L.P.(1)
10.3 Convertible Promissory Note dated February 12, 1998 by the
Company in favor of St. James Partners, L.P.(1)
10.4 Pledge Agreement dated February 12, 1998 between the Company and
St. James Partners L.P.(1)
10.5 Securities Purchase Agreement among the Company and the Buyers,
dated May 8, 1998(2)
10.6 Assignment and Acceptance executed by St. James Partners and
SJMB, L.P. ("SJMB") as to Agreement for Purchase and Sale dated
February 12, 1998 by the Company and St. James Capital Partners
10.7 $2,000,000 Convertible Promissory Note issued to St. James
Partners by the Company dated April 2, 1998
10.8 $13,000,000 Convertible Promissory Note issued to SJMB by the
Company dated April 2, 1998
10.9 Warrant issued to St. James Partners by the Company dated April
2, 1998, exercisable as to 300,000 shares of Common Stock
10.10 Warrant issued to SJMB by the Company dated April 2, 1998,
exercisable as to 1,200,000 shares of Common Stock
10.11 Amendment No. 1 to Registration Rights Agreement dated as of
April 2, 1998 between the Company and St. James Partners
27.0 Financial Data Schedule
</TABLE>
(1) Incorporated herein by reference to the Form 10-K for the fiscal year
ended December 31, 1997
(2) Incorporated herein by reference to the Registrant's Form 8-K dated May 8,
1998
C. The Company has not filed any report on Form 8-K during the period
covered by this Report, except as follows:
Form 8-K filed February 17, 1998
Form 8-K filed May 11, 1998
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELECT COMMUNICATIONS, INC.
(Registrant)
Date: May 14, 1998
By: /s/ EDWIN J. DUCAYET, JR.
--------------------------------------------
Edwin J. Ducayet, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 14, 1998 /s/ HERMAN M. FRIETSCH
--------------------------------------------
Herman M. Frietsch
Chief Executive Officer and Director
(Principal Executive Officer)
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.6 $2,000,000 Convertible Promissory Note issued to St.
James Partners by the Company dated April 2, 1998
10.7 $13,000,000 Convertible Promissory Note issued to SJMB
by the Company dated April 2, 1998
10.8 Warrant issued to St. James Partners by the Company
dated April 2, 1998, exercisable as to 300,000 shares
of Common Stock
10.9 Warrant issued to SJMB by the Company dated April 2,
1998, exercisable as to 1,200,000 shares of Common
Stock
10.10 Amendment No. 1 to Registration Rights Agreement dated
as of April 2, 1998 between the Company and St. James
Partners
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.6
THE SECURITIES REPRESENTED BY THIS NOTE 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 LAWS AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE 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.
THE SECURITY INTERESTS GRANTED TO SECURE AMOUNTS DUE UNDER THIS NOTE MAY RANK
PARI PASSU WITH CERTAIN OTHER SECURITY INTERESTS GRANTED BY OF INTELECT
COMMUNICATIONS, INC. AS AND TO THE EXTENT SET FORTH IN THAT CERTAIN AGREEMENT
FOR PURCHASE AND SALE DATED AS OF THE DATE HEREOF BETWEEN INTELECT
COMMUNICATIONS, INC. AND ST. JAMES CAPITAL PARTNERS, L.P.
INTELECT COMMUNICATIONS, INC.
$2,000,000 CONVERTIBLE PROMISSORY NOTE
$2,000,000 Houston, Texas April __, 1998
INTELECT COMMUNICATIONS, INC., a Delaware corporation (hereinafter
called the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to St. James Capital Partners, L.P., a Delaware limited partnership (hereinafter
called "Holder"), or its registered assigns, the principal sum of up to Two
Million Dollars ($2,000,000), together with interest on the amount of such
principal sum from time to time outstanding, payable in accordance with the
terms set forth below. It is the intention of the parties that the principal
sums of this Note shall be advanced in multiple Advances (as defined below),
subject to the satisfaction of the conditions precedent set forth in Section 1.5
of the Agreement of Purchase and Sale between the Company and Holder dated as of
the date hereof (the "Purchase Agreement"). No Advance shall be made under this
Note if an Event of Default (as defined below) exists or would exist but for the
passage of time. Interest under this Note shall accrue on amounts actually
advanced.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SECURED BY A
PLEDGE AGREEMENT BETWEEN THE COMPANY AND THE HOLDER DATED AS OF THE DATE HEREOF,
AS MAY BE AMENDED OR MODIFIED (THE "PLEDGE AGREEMENT").
<PAGE> 2
ARTICLE I
DEFINITIONS
1.1 Definitions. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular; (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as promulgated from time to time by the
Association of Independent Certified Public Accountants; and (c) 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.
"Advance" means a disbursement of proceeds of this Note.
"Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
"Common Stock" means shares of common stock, par value $0.01 per share,
of the Company.
"Conversion Price" means the price per share determined in accordance
with Articles IV and V (as adjusted in accordance with the terms of this Note)
at which shares of Common Stock shall be delivered to Holder upon conversion of
this Note.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Event of Default" has the meaning specified in Section 3.1.
"Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (a) for the principal of and premium, if any, and
interest on all debts of the Person whether outstanding on the date of this Note
or thereafter created (i) for money borrowed by such Person (including
capitalized lease obligations), (ii) for money borrowed by others (including
capitalized lease obligations) and guaranteed, directly or indirectly, by such
Person, or (iii) constituting purchase money indebtedness, or indebtedness
secured by property at the time of the acquisition of such property by such
Person, for the payment of which the Person is directly or contingently liable;
(b) for all
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<PAGE> 3
deferrals, renewals, extensions and refundings of, and amendments, modifications
and supplements to, any of the indebtedness referred to in (a) above.
"Maturity Date", when used with respect to this Note, means February 12,
1999 (or such earlier date upon which this Note becomes due and payable under
Section 3.2), or as extended pursuant to Section 2.2 hereof.
"Note" means this $2,000,000 7% Convertible Promissory Note, as
hereafter amended, modified, substituted or replaced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
other entity, unincorporated organization or government or any agency or
political subdivision thereof.
"Subsidiary" means a corporation or other entity more than 50% of the
outstanding voting stock of which, or more than 50% of the equity interest in
which, is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries of the Company, or by any combination of the Company and one or
more other Subsidiaries excepting that, for purposes thereof, "Subsidiary" shall
not be taken to include Intelect Network Systems Limited (U.K.), Intelect
Finance Limited (Bermuda), Intelect Communications Systems Limited (Bermuda),
Intelect Defense Technologies, Inc. (Delaware) or The Customer Premises
Equipment Corporation (Delaware).
ARTICLE II
PAYMENTS
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate equal to seven percent (7%) per annum calculated on the basis of
a 360-day year. All past due amounts of principal and interest shall bear
interest at fifteen percent (15%) per annum calculated on the basis of a 360-day
year until paid.
2.2 Payment of Principal and Interest; Extension. The principal and all
accrued interest under this Note shall be due and payable in full on the
Maturity Date. At any time, the Holder may, at its option and in lieu of cash,
elect to be paid all accrued and unpaid interest owed to Holder by the Company
in the form of Common Stock, based on a price per share equal to the Conversion
Price (the "Price Per Share"). The amount of all accrued and unpaid interest on
the Maturity Date shall be divided by the Price Per Share into a whole number of
shares of Common Stock, with the remainder, if any, being paid in cash. The
Company may extend the Maturity Date for an additional twelve (12) month period
upon written notice to the Holder no later than thirty (30) days prior to
February 12, 1999. The Company shall, together with such notice, issue Warrants
to the Holder as more fully set forth in Section 1.3(c) of the Purchase
Agreement.
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<PAGE> 4
2.3 Prepayments. Subject to Holder's right to convert, at any time
before the Maturity Date, the Company may prepay this Note, in whole or in part,
without penalty or discount, upon five days' prior written notice given to
Holder pursuant to Section 7.5. 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.
2.4 Manner of Payment. Cash payments of principal and interest on this
Note will be made by delivery of checks to Holder at its address as set forth in
this Note or wire transfers pursuant to instructions from Holder. 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 on the next occurring Business Day following said
payment date and shall include interest through said next occurring Business
Day.
2.5 Security. This Note is secured by the collateral defined in the
Pledge Agreement.
ARTICLE III
REMEDIES
3.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment or mandatory prepayment 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) the Company or any Subsidiary defaults in the performance of
any covenant made by the Company, and such default remains uncured for
a period of 45 days in any of (i) the Common Stock Purchase Warrants
issued by the Company to the Holder dated as of the date hereof, (ii)
that certain Registration Rights Agreement dated as of the date
hereof, as may be thereafter amended or modified, by and between the
Company and the Holder, pursuant to which the Company grants to the
Holder certain registration rights in respect of the shares of Common
Stock upon exercise of the Warrants (the "Registration Rights
Agreement"); (iii) the Pledge Agreement; (iv) this Note (other than a
default in the performance of a covenant specifically addressed
elsewhere in this Section 3.1); or
(c) any representation or warranty made by the Company or any
Subsidiary in the Purchase Agreement, the Warrants, the Registration
Rights Agreement, the Pledge Agreement, or this Note or in any
certificate furnished by the Company in connection with the
consummation of the transaction contemplated thereby or hereby, is
untrue in any material respect as of the date of making thereof and
such default remains uncured for a period of 45 days; or
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<PAGE> 5
(d) the Company or any Subsidiary 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 Indebtedness of
the Company or such Subsidiary (other than the Indebtedness evidenced
by this Note) having an aggregate principal amount in excess of
$200,000 or on any Indebtedness of the Company to any of its
stockholders and such default remains uncured for a period of 45 days;
or
(e) a court of competent jurisdiction enters a judgment or
judgments against the Company or any Subsidiary, or any property or
assets of the Company or any Subsidiary, for the payment of money
aggregating $200,000 or more in excess of applicable insurance
coverage, such default remains uncured for a period of 45 days; or
(f) a court of competent jurisdiction enters (i) a decree or
order for relief in respect of the Company or any Subsidiary 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 the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Subsidiary under any applicable federal or state
law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any
Subsidiary or of any substantial part of the property of the Company or
any Subsidiary or ordering the winding up or liquidation of the affairs
of the Company or any Subsidiary and any such decree or order of relief
or any such other decree or order remains unstayed for a period of 90
days from its date of entry; or
(g) the Company or any Subsidiary 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 the Company or
any Subsidiary files a petition, answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the Company or any Subsidiary 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) any person or group (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934) becomes the beneficial owner of
40% or more of the total voting power of the Company and was not the
beneficial owner of 40% or more of the total voting power of the
Company as of the date hereof; provided that the foregoing shall not
include any person or group who or which acquires the Warrants or
shares of the Company's Common Stock issuable upon exercise of the
Warrants or upon conversion of this Note; and further provided that
such default has not been cured or waived within ninety (90) days
following such change of beneficial ownership.
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<PAGE> 6
(i) the Company or any operating Subsidiary (1) merges or
consolidates with or into any other Person (unless the Company or any
of its operating Subsidiaries is the surviving or acquiring party); (2)
dissolves or liquidates; or (3) sells all or any substantial portion of
its assets (unless the purchaser is a Subsidiary of the Company) except
where such action by the Company or its Subsidiary would not have a
materially adverse effect on the financial condition or business
Company and its Subsidiaries taken as a whole.
3.2 Acceleration of Maturity. This Note and all accrued interest shall
automatically become immediately due and payable if an Event of Default
described in Sections 3.1(f), 3.1(g) or 3.1(i) occurs and, this Note shall, at
the option of the Holder in its sole discretion, become immediately due and
payable if any other Event of Default occurs, and in every such case the Holder
of the Note may declare the principal and interest on the Note to be due and
payable immediately.
ARTICLE IV
CONVERSION OF NOTE
4.1 Conversion by Holder. Subject to and upon compliance with the
provisions of this Article, at the option of Holder, all or any part of this
Note may be converted at any time, at the principal amount hereof together with
accrued and unpaid interest thereon, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock. Except as set forth in Article V, the Conversion Price shall initially be
$9.082 per share.
4.2 Conversion by Company. Upon written notice to Holder, the Company
may require that this Note be converted, at the principal amount hereof together
with accrued and unpaid interest thereon, into fully paid and nonassessable
shares (calculated as to such conversion to the nearest 1/100 of a share) of
Common Stock if (a) no Event of Default exists hereunder or under any other
Transaction Document, (b) the Common Stock has traded at a closing price equal
to or greater than $13.50 per share for the previous fifteen (15) out of
seventeen (17) consecutive days and at a price equal to or greater than $13.50
per share as of the date written notice of conversion is provided by the Company
to Holder, (c) the Company has filed a registration statement covering the
shares of Common Stock issuable upon conversion of this Note, (d) such
registration statement has been declared effective by the Securities and
Exchange Commission and (e) the Company pays on the date of conversion, all
other amounts due under the Transaction Documents to Holder.
ARTICLE V
ADJUSTMENT OF CONVERSION PRICE
5.1 Anti-Dilution Provisions. The Conversion Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Conversion Price, the holder of this Note shall thereafter be entitled to
purchase, at the Conversion Price resulting from such
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<PAGE> 7
adjustment, the number of shares of Common Stock obtained by multiplying the
Conversion 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 Conversion Price resulting from such
adjustment.
5.2 Stock Dividends. Except for distributions of Common Stock to
holders of the Company's preferred stock and distributions pursuant to a
shareholder rights plan duly adopted by the Company's Board of Directors and
disclosed in the Company's filings with the SEC, 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.
5.3 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 Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of Shares into
which this Note may be converted 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 Conversion Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares into which this Note
may be converted immediately prior to such combination shall be proportionately
reduced. Except as provided in this Section 5.4 no adjustment in the Conversion
Price and no change in the number of Shares shall be made under this Article V
as a result of or by reason of any such subdivision or combination.
5.4 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 holders of Common Stock
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:
5.4.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other
disposition (except as otherwise provided below in Section 5.5.3),
lawful and adequate provisions shall be made whereby the holder of this
Note shall thereafter have the right to purchase and receive upon the
terms and conditions specified in this Note and in lieu of the 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
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
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<PAGE> 8
the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of
the Conversion Price and of the number of 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 this Note.
5.4.2 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
Conversion 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.
5.4.3 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 Note revised to reflect the
modifications in this Note effected pursuant to this Section 5.5.
5.4.4 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 conversion of
this Note 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.
5.5 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 Conversion Price in effect
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<PAGE> 9
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.
5.6 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 conversion of the Note and no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.01 in the Conversion Price; provided, however, that any
adjustments which by reason of this Section 5.7 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.
5.7 Notice of Adjustment. Whenever the Conversion Price or the number
of Shares issuable upon the conversion of the Note 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 Conversion Price
and the adjusted number of Shares in accordance with the provisions hereof and
shall prepare an Officer's Certificate setting forth the adjusted Conversion
Price and the adjusted number of Shares issuable upon the conversion of this
Note 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 Conversion Price and the
number of Shares purchasable upon conversion of this Note have been adjusted and
setting forth the adjusted Conversion Price and the adjusted number of Shares
purchasable upon conversion of this Note.
5.8 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
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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 on 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 any 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.
5.9 Company to Prevent Dilution. If any event or condition occurs as to
which other provisions of this Article are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
this Note 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
Note, 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 Conversion Price and the number of 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 Conversion
Price as otherwise determined pursuant to this Article except in the event of a
combination of shares of the type contemplated in Section 5.4 hereof, and then
in no event to an amount greater than the Conversion Price as adjusted pursuant
to Section 5.4 hereof.
[Intentionally Blank]
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ARTICLE VI
COVENANTS
The Company covenants and agrees that, so long as this Note is
outstanding:
6.1 Payment of Principal and Accrued Interest. The Company will duly
and punctually pay or cause to be paid the principal sum of this Note, together
with interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof.
6.2 Corporate Existence. The Company will, and will cause each
Subsidiary to, do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the Company or a Subsidiary shall not be
required to preserve any such right or franchise if it shall reasonably
determine that the preservation thereof is no longer desirable in the conduct of
its business.
6.3 Taxes; Claims; etc. The Company will, and will cause each
Subsidiary to, promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any of its properties, real, personal, or mixed, before the same shall
become in default, as well as all lawful claims for labor, materials, and
supplies or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof, and which lien or charge will have a material
adverse effect on the business of the Company; provided, however, that neither
the Company nor any Subsidiary shall be required to pay or cause to be paid any
such tax, assessment, charge, levy, or claim prior to institution of foreclosure
proceedings if the validity thereof shall concurrently be contested in good
faith by appropriate proceedings and if the Company shall have established
reserves deemed by the Company adequate with respect to such tax, assessment,
charge, levy, or claim.
6.4 Maintenance of Existence and Properties. The Company will, and will
cause each Subsidiary to, keep its material properties in good repair, working
order, and condition, ordinary wear and tear excepted, so that the business
carried on may be properly conducted at all times in accordance with prudent
business management.
6.5 SEC Reports. The Company will maintain its Edgar filing status with
the SEC and will deliver to the Holder within 20 days after completing filings
with the SEC, copies of its annual and quarterly reports and of the 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 the Company is required
or elects to file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. The Company will timely comply in all material respects
with its reporting and filing obligations under the applicable federal
securities laws.
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6.6 Notice of Defaults. The Company will promptly notify the Holder in
writing of the occurrence of (i) any Event of Default under this Note, and (ii)
any event of default (or if any event of default would result upon any payment
with respect to this Note) with respect to any Indebtedness as such event of
default is defined therein or in the instrument under which it is outstanding,
permitting holders to accelerate the maturity of such Indebtedness.
6.7 Compliance with Laws. The Company will promptly comply with all
laws, ordinances and governmental rules and regulations to which it is subject,
the violation of which would materially and adversely affect the Company.
6.8 Amendments to Charter. The Company will not amend or modify its
charter in a manner modifying, amending or waiving any material right or
obligation of the Holder or rights of holders of the Company's Common Stock,
excepting such modifications, amendments or waivers which would not, singly or
in the aggregate, have a material adverse effect on such rights or obligations
without the prior written consent of Holder.
6.9 Mergers and Acquisitions. Without the consent of the Holder, the
Company or any operating Subsidiary will not consolidate or merge with any
Person unless the Company or its operating Subsidiary is the surviving
corporation in such transaction, nor dissolve, liquidate, or enter into a share
exchange with or sell or transfer all or a substantial portion of its assets to
any Person.
ARTICLE VII
MISCELLANEOUS
7.1 Consent to Amendments. This Note may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if and only if the Company shall obtain the
written consent to such amendment, action or omission to act from the holders of
a majority of the aggregate principal amount of this Note.
7.2 Benefits of Note; No Impairment of Rights of Holder of Senior
Indebtedness. Nothing in this Note, express or implied, shall give to any
Person, other than the Company, Holder, and their successors any benefit or any
legal or equitable right, remedy or claim under or in respect of this Note.
7.3 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
7.4 Restrictions on Transfer. Holder shall not transfer this Note
except (by the grant of a security interest) to its lender or lenders, and
except as provided in Section 7.7 of the Purchase Agreement. As between Holder
and its lender or lenders, this Note is transferable
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in the same manner and with the same effect as in the case of a negotiable
instrument payable to a specified person. Any lender to which Holder grants a
security interest in this Note shall be entitled to exercise all remedies to
which it is entitled by contract or by law, including (without limitation)
transferring this Note into its own name or into the name of any purchaser at
any sale undertaken in connection with enforcement by such lender of its
remedies.
7.5 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company 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 the
Company: Intelect Communications, Inc., 1100 Executive Drive, Richardson, Texas
75081, or at any other address designated by the Company in writing to Holder;
if to Holder: St. James Capital Partners, L.P., c/o 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 Company in
writing.
7.6 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.
7.7 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).
7.8 Usury. It is the intention of the parties hereto to conform
strictly to the applicable laws of the State of Texas and the United States of
America, and judicial or administrative interpretations or determinations
thereof regarding the contracting for, charging and receiving of interest for
the use, forbearance, and detention of money (hereinafter referred to in this
Section 7.8 as "Applicable Law"). The Holder shall have no right to claim, to
charge or to receive any interest in excess of the maximum rate of interest, if
any, permitted to be charged on that portion of the amount representing
principal which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 7.8 as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by
Applicable Law shall be deemed a result of a mathematical error and a mistake.
If this Note is paid in part prior to the end of the full stated term of this
Note and the Interest received for the actual period of existence of this Note
exceeds the maximum rate allowed by Applicable Law, Holder shall credit the
amount of the excess against any amount owing under this Note or, if this Note
has been paid in full, or in the event that it has been accelerated prior to
maturity, Holder shall refund to the Company the amount of such excess, and
shall not be subject to any of the penalties provided by
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Applicable Law for contracting for, charging or receiving Interest in excess of
the maximum rate allowed by Applicable Law. Any such excess which is unpaid
shall be canceled.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
INTELECT COMMUNICATIONS, INC..
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
[Signature Page -- SJCP Convertible Note]
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<PAGE> 1
EXHIBIT 10.7
THE SECURITIES REPRESENTED BY THIS NOTE 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 LAWS AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE 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.
THE SECURITY INTERESTS GRANTED TO SECURE AMOUNTS DUE UNDER THIS NOTE MAY RANK
PARI PASSU WITH CERTAIN OTHER SECURITY INTERESTS GRANTED BY OF INTELECT
COMMUNICATIONS, INC. AS AND TO THE EXTENT SET FORTH IN THAT CERTAIN AGREEMENT
FOR PURCHASE AND SALE DATED AS OF THE DATE HEREOF BETWEEN INTELECT
COMMUNICATIONS, INC. AND ST. JAMES CAPITAL PARTNERS, L.P.
INTELECT COMMUNICATIONS, INC.
$13,000,000 CONVERTIBLE PROMISSORY NOTE
$13,000,000 Houston, Texas April ___, 1998
INTELECT COMMUNICATIONS, INC., a Delaware corporation (hereinafter
called the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to SJMB, L.P., a Delaware limited partnership (hereinafter called "Holder"), or
its registered assigns, the principal sum of up to Thirteen Million Dollars
($13,000,000), together with interest on the amount of such principal sum from
time to time outstanding, payable in accordance with the terms set forth below.
It is the intention of the parties that the principal sums of this Note shall be
advanced in multiple Advances (as defined below), subject to the satisfaction of
the conditions precedent set forth in Section 1.5 of the Agreement of Purchase
and Sale between the Company and Holder dated as of the date hereof (the
"Purchase Agreement"). No Advance shall be made under this Note if an Event of
Default (as defined below) exists or would exist but for the passage of time.
Interest under this Note shall accrue on amounts actually advanced.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SECURED BY A
PLEDGE AGREEMENT BETWEEN THE COMPANY AND THE HOLDER DATED AS OF THE DATE HEREOF,
AS MAY BE AMENDED OR MODIFIED (THE "PLEDGE AGREEMENT").
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ARTICLE I
DEFINITIONS
1.1 Definitions. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular; (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as promulgated from time to time by the
Association of Independent Certified Public Accountants; and (c) 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.
"Advance" means a disbursement of proceeds of this Note.
"Board of Directors" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
"Common Stock" means shares of common stock, par value $0.01 per share,
of the Company.
"Conversion Price" means the price per share determined in accordance
with Articles IV and V (as adjusted in accordance with the terms of this Note)
at which shares of Common Stock shall be delivered to Holder upon conversion of
this Note.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Event of Default" has the meaning specified in Section 3.1.
"Indebtedness" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (a) for the principal of and premium, if any, and
interest on all debts of the Person whether outstanding on the date of this Note
or thereafter created (i) for money borrowed by such Person (including
capitalized lease obligations), (ii) for money borrowed by others (including
capitalized lease obligations) and guaranteed, directly or indirectly, by such
Person, or (iii) constituting purchase money indebtedness, or indebtedness
secured by property at the time of the acquisition of such property by such
Person, for the payment of which the Person is directly or contingently liable;
(b) for all
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deferrals, renewals, extensions and refundings of, and amendments, modifications
and supplements to, any of the indebtedness referred to in (a) above.
"Maturity Date", when used with respect to this Note, means February
12, 1999 (or such earlier date upon which this Note becomes due and payable
under Section 3.2), or as extended pursuant to Section 2.2 hereof.
"Note" means this $13,000,000 7% Convertible Promissory Note, as
hereafter amended, modified, substituted or replaced.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
other entity, unincorporated organization or government or any agency or
political subdivision thereof.
"Subsidiary" means a corporation or other entity more than 50% of the
outstanding voting stock of which, or more than 50% of the equity interest in
which, is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries of the Company, or by any combination of the Company and one or
more other Subsidiaries excepting that, for purposes thereof, "Subsidiary" shall
not be taken to include Intelect Network Systems Limited (U.K.), Intelect
Finance Limited (Bermuda), Intelect Communications Systems Limited (Bermuda),
Intelect Defense Technologies, Inc. (Delaware) or The Customer Premises
Equipment Corporation (Delaware).
ARTICLE II
PAYMENTS
2.1 Interest. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate equal to seven percent (7%) per annum calculated on the basis of
a 360-day year. All past due amounts of principal and interest shall bear
interest at fifteen percent (15%) per annum calculated on the basis of a 360-day
year until paid.
2.2 Payment of Principal and Interest; Extension. The principal and all
accrued interest under this Note shall be due and payable in full on the
Maturity Date. At any time, the Holder may, at its option and in lieu of cash,
elect to be paid all accrued and unpaid interest owed to Holder by the Company
in the form of Common Stock, based on a price per share equal to the Conversion
Price (the "Price Per Share"). The amount of all accrued and unpaid interest on
the Maturity Date shall be divided by the Price Per Share into a whole number of
shares of Common Stock, with the remainder, if any, being paid in cash. The
Company may extend the Maturity Date for an additional twelve (12) month period
upon written notice to the Holder no later than thirty (30) days prior to
February 12, 1999. The Company shall, together with such notice, issue Warrants
to the Holder as more fully set forth in Section 1.3(c) of the Purchase
Agreement.
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2.3 Prepayments. Subject to Holder's right to convert, at any time
before the Maturity Date, the Company may prepay this Note, in whole or in part,
without penalty or discount, upon five days' prior written notice given to
Holder pursuant to Section 7.5. 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.
2.4 Manner of Payment. Cash payments of principal and interest on this
Note will be made by delivery of checks to Holder at its address as set forth in
this Note or wire transfers pursuant to instructions from Holder. 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 on the next occurring Business Day following said
payment date and shall include interest through said next occurring Business
Day.
2.5 Security. This Note is secured by the collateral defined in the
Pledge Agreement.
ARTICLE III
REMEDIES
3.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment or mandatory
prepayment 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) the Company or any Subsidiary defaults in the performance
of any covenant made by the Company, and such default remains uncured
for a period of 45 days in any of (i) the Common Stock Purchase
Warrants issued by the Company to the Holder dated as of the date
hereof, (ii) that certain Registration Rights Agreement dated as of the
date hereof, as may be thereafter amended or modified, by and between
the Company and the Holder, pursuant to which the Company grants to the
Holder certain registration rights in respect of the shares of Common
Stock upon exercise of the Warrants (the "Registration Rights
Agreement"); (iii) the Pledge Agreement; (iv) this Note (other than a
default in the performance of a covenant specifically addressed
elsewhere in this Section 3.1); or
(c) any representation or warranty made by the Company or any
Subsidiary in the Purchase Agreement, the Warrants, the Registration
Rights Agreement, the Pledge Agreement, or this Note or in any
certificate furnished by the Company in connection with the
consummation of the transaction contemplated thereby or hereby, is
untrue in any material respect as of the date of making thereof and
such default remains uncured for a period of 45 days; or
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(d) the Company or any Subsidiary 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 Indebtedness of
the Company or such Subsidiary (other than the Indebtedness evidenced
by this Note) having an aggregate principal amount in excess of
$200,000 or on any Indebtedness of the Company to any of its
stockholders and such default remains uncured for a period of 45 days;
or
(e) a court of competent jurisdiction enters a judgment or
judgments against the Company or any Subsidiary, or any property or
assets of the Company or any Subsidiary, for the payment of money
aggregating $200,000 or more in excess of applicable insurance
coverage, such default remains uncured for a period of 45 days; or
(f) a court of competent jurisdiction enters (i) a decree or
order for relief in respect of the Company or any Subsidiary 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 the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Subsidiary under any applicable federal or state
law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any
Subsidiary or of any substantial part of the property of the Company or
any Subsidiary or ordering the winding up or liquidation of the affairs
of the Company or any Subsidiary and any such decree or order of relief
or any such other decree or order remains unstayed for a period of 90
days from its date of entry; or
(g) the Company or any Subsidiary 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 the Company or
any Subsidiary files a petition, answer or consent seeking
reorganization or relief under any applicable federal or state law, or
the Company or any Subsidiary 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) any person or group (within the meaning of Section 13(d)
of the Securities Exchange Act of 1934) becomes the beneficial owner of
40% or more of the total voting power of the Company and was not the
beneficial owner of 40% or more of the total voting power of the
Company as of the date hereof; provided that the foregoing shall not
include any person or group who or which acquires the Warrants or
shares of the Company's Common Stock issuable upon exercise of the
Warrants or upon conversion of this Note; and further provided that
such default has not been cured or waived within ninety (90) days
following such change of beneficial ownership.
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(i) the Company or any operating Subsidiary (1) merges or
consolidates with or into any other Person (unless the Company or any
of its operating Subsidiaries is the surviving or acquiring party); (2)
dissolves or liquidates; or (3) sells all or any substantial portion of
its assets (unless the purchaser is a Subsidiary of the Company) except
where such action by the Company or its Subsidiary would not have a
materially adverse effect on the financial condition or business
Company and its Subsidiaries taken as a whole.
3.2 Acceleration of Maturity. This Note and all accrued interest shall
automatically become immediately due and payable if an Event of Default
described in Sections 3.1(f), 3.1(g) or 3.1(i) occurs and, this Note shall, at
the option of the Holder in its sole discretion, become immediately due and
payable if any other Event of Default occurs, and in every such case the Holder
of the Note may declare the principal and interest on the Note to be due and
payable immediately.
ARTICLE IV
CONVERSION OF NOTE
4.1 Conversion by Holder. Subject to and upon compliance with the
provisions of this Article, at the option of Holder, all or any part of this
Note may be converted at any time, at the principal amount hereof together with
accrued and unpaid interest thereon, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock. Except as set forth in Article V, the Conversion Price shall initially be
$9.082 per share.
4.2 Conversion by Company. Upon written notice to Holder, the Company
may require that this Note be converted, at the principal amount hereof together
with accrued and unpaid interest thereon, into fully paid and nonassessable
shares (calculated as to such conversion to the nearest 1/100 of a share) of
Common Stock if (a) no Event of Default exists hereunder or under any other
Transaction Document, (b) the Common Stock has traded at a closing price equal
to or greater than $13.50 per share for the previous fifteen (15) out of
seventeen (17) consecutive days and at a price equal to or greater than $13.50
per share as of the date written notice of conversion is provided by the Company
to Holder, (c) the Company has filed a registration statement covering the
shares of Common Stock issuable upon conversion of this Note, (d) such
registration statement has been declared effective by the Securities and
Exchange Commission and (e) the Company pays on the date of conversion, all
other amounts due under the Transaction Documents to Holder.
ARTICLE V
ADJUSTMENT OF CONVERSION PRICE
5.1 Anti-Dilution Provisions. The Conversion Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Conversion Price, the holder of this Note shall thereafter be entitled to
purchase, at the Conversion Price resulting from such
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adjustment, the number of shares of Common Stock obtained by multiplying the
Conversion 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 Conversion Price resulting from such
adjustment.
5.2 Stock Dividends. Except for distributions of Common Stock to
holders of the Company's preferred stock and distributions pursuant to a
shareholder rights plan duly adopted by the Company's Board of Directors and
disclosed in the Company's filings with the SEC, 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.
5.3 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 Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of Shares into
which this Note may be converted 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 Conversion Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares into which this Note
may be converted immediately prior to such combination shall be proportionately
reduced. Except as provided in this Section 5.4 no adjustment in the Conversion
Price and no change in the number of Shares shall be made under this Article V
as a result of or by reason of any such subdivision or combination.
5.4 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 holders of Common Stock
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:
5.4.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other
disposition (except as otherwise provided below in Section 5.5.3),
lawful and adequate provisions shall be made whereby the holder of this
Note shall thereafter have the right to purchase and receive upon the
terms and conditions specified in this Note and in lieu of the 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
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
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the rights and interests of such holder to the end that the provisions
hereof (including, without limitation, provisions for adjustments of
the Conversion Price and of the number of 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 this Note.
5.4.2 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
Conversion 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.
5.4.3 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 Note revised to reflect the
modifications in this Note effected pursuant to this Section 5.5.
5.4.4 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 conversion of
this Note 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.
5.5 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 Conversion Price in effect
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<PAGE> 9
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.
5.6 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 conversion of the Note and no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.01 in the Conversion Price; provided, however, that any
adjustments which by reason of this Section 5.7 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.
5.7 Notice of Adjustment. Whenever the Conversion Price or the number
of Shares issuable upon the conversion of the Note 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 Conversion Price
and the adjusted number of Shares in accordance with the provisions hereof and
shall prepare an Officer's Certificate setting forth the adjusted Conversion
Price and the adjusted number of Shares issuable upon the conversion of this
Note 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 Conversion Price and the
number of Shares purchasable upon conversion of this Note have been adjusted and
setting forth the adjusted Conversion Price and the adjusted number of Shares
purchasable upon conversion of this Note.
5.8 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
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<PAGE> 10
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 on 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 any 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.
5.9 Company to Prevent Dilution. If any event or condition occurs as to
which other provisions of this Article are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
this Note 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
Note, 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 Conversion Price and the number of 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 Conversion
Price as otherwise determined pursuant to this Article except in the event of a
combination of shares of the type contemplated in Section 5.4 hereof, and then
in no event to an amount greater than the Conversion Price as adjusted pursuant
to Section 5.4 hereof.
[Intentionally Blank]
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ARTICLE VI
COVENANTS
The Company covenants and agrees that, so long as this Note is
outstanding:
6.1 Payment of Principal and Accrued Interest. The Company will duly
and punctually pay or cause to be paid the principal sum of this Note, together
with interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof.
6.2 Corporate Existence. The Company will, and will cause each
Subsidiary to, do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the Company or a Subsidiary shall not be
required to preserve any such right or franchise if it shall reasonably
determine that the preservation thereof is no longer desirable in the conduct of
its business.
6.3 Taxes; Claims; etc. The Company will, and will cause each
Subsidiary to, promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any of its properties, real, personal, or mixed, before the same shall
become in default, as well as all lawful claims for labor, materials, and
supplies or otherwise which, if unpaid, might become a lien or charge upon such
properties or any part thereof, and which lien or charge will have a material
adverse effect on the business of the Company; provided, however, that neither
the Company nor any Subsidiary shall be required to pay or cause to be paid any
such tax, assessment, charge, levy, or claim prior to institution of foreclosure
proceedings if the validity thereof shall concurrently be contested in good
faith by appropriate proceedings and if the Company shall have established
reserves deemed by the Company adequate with respect to such tax, assessment,
charge, levy, or claim.
6.4 Maintenance of Existence and Properties. The Company will, and will
cause each Subsidiary to, keep its material properties in good repair, working
order, and condition, ordinary wear and tear excepted, so that the business
carried on may be properly conducted at all times in accordance with prudent
business management.
6.5 SEC Reports. The Company will maintain its Edgar filing status with
the SEC and will deliver to the Holder within 20 days after completing filings
with the SEC, copies of its annual and quarterly reports and of the 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 the Company is required
or elects to file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. The Company will timely comply in all material respects
with its reporting and filing obligations under the applicable federal
securities laws.
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<PAGE> 12
6.6 Notice of Defaults. The Company will promptly notify the Holder in
writing of the occurrence of (i) any Event of Default under this Note, and (ii)
any event of default (or if any event of default would result upon any payment
with respect to this Note) with respect to any Indebtedness as such event of
default is defined therein or in the instrument under which it is outstanding,
permitting holders to accelerate the maturity of such Indebtedness.
6.7 Compliance with Laws. The Company will promptly comply with all
laws, ordinances and governmental rules and regulations to which it is subject,
the violation of which would materially and adversely affect the Company.
6.8 Amendments to Charter. The Company will not amend or modify its
charter in a manner modifying, amending or waiving any material right or
obligation of the Holder or rights of holders of the Company's Common Stock,
excepting such modifications, amendments or waivers which would not, singly or
in the aggregate, have a material adverse effect on such rights or obligations
without the prior written consent of Holder.
6.9 Mergers and Acquisitions. Without the consent of the Holder, the
Company or any operating Subsidiary will not consolidate or merge with any
Person unless the Company or its operating Subsidiary is the surviving
corporation in such transaction, nor dissolve, liquidate, or enter into a share
exchange with or sell or transfer all or a substantial portion of its assets to
any Person.
ARTICLE VII
MISCELLANEOUS
7.1 Consent to Amendments. This Note may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if and only if the Company shall obtain the
written consent to such amendment, action or omission to act from the holders of
a majority of the aggregate principal amount of this Note.
7.2 Benefits of Note; No Impairment of Rights of Holder of Senior
Indebtedness. Nothing in this Note, express or implied, shall give to any
Person, other than the Company, Holder, and their successors any benefit or any
legal or equitable right, remedy or claim under or in respect of this Note.
7.3 Successors and Assigns. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
7.4 Restrictions on Transfer. Holder shall not transfer this Note
except (by the grant of a security interest) to its lender or lenders, and
except as provided in Section 7.7 of the Purchase Agreement. As between Holder
and its lender or lenders, this Note is transferable in
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<PAGE> 13
the same manner and with the same effect as in the case of a negotiable
instrument payable to a specified person. Any lender to which Holder grants a
security interest in this Note shall be entitled to exercise all remedies to
which it is entitled by contract or by law, including (without limitation)
transferring this Note into its own name or into the name of any purchaser at
any sale undertaken in connection with enforcement by such lender of its
remedies.
7.5 Notice; Address of Parties. Except as otherwise provided, all
communications to the Company 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 the
Company: Intelect Communications, Inc., 1100 Executive Drive, Richardson, Texas
75081, or at any other address designated by the Company in writing to Holder;
if to Holder: SJMB, L.P., c/o 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 Company in writing.
7.6 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.
7.7 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).
7.8 Usury. It is the intention of the parties hereto to conform
strictly to the applicable laws of the State of Texas and the United States of
America, and judicial or administrative interpretations or determinations
thereof regarding the contracting for, charging and receiving of interest for
the use, forbearance, and detention of money (hereinafter referred to in this
Section 7.8 as "Applicable Law"). The Holder shall have no right to claim, to
charge or to receive any interest in excess of the maximum rate of interest, if
any, permitted to be charged on that portion of the amount representing
principal which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 7.8 as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by
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<PAGE> 14
Applicable Law for contracting for, charging or receiving Interest in excess of
the maximum rate allowed by Applicable Law. Any such excess which is unpaid
shall be canceled.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
INTELECT COMMUNICATIONS, INC.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
[Signature Page -- SJMB Convertible Note]
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<PAGE> 1
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, INC.
Expiring on February 12, 2001
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, St. James Capital Partners, L.P., a Delaware limited partnership
(the "Holder") or its assigns, is entitled to subscribe for and purchase from
the Company (as hereinafter defined), in whole or in part, 300,000 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 $7.50, 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 February 12, 2001.
As used herein, the following terms shall have the meanings set forth
below:
"Company" shall mean Intelect Communications, Inc., a Delaware
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 $7.50 per
share of Common Stock payable upon exercise of the Warrants, as adjusted from
time to time pursuant to the provisions hereof.
"Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if
<PAGE> 2
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 Convertible Promissory Note of the Company issued
to St. James Capital Partners, L.P. as of March 23, 1998 in the principal amount
of $2,000,000.
"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
February 12, 2001. To exercise the Warrants, the holder hereof shall deliver to
the Company, at the Warrant Office designated in Section 2.1 hereof, (i) a
written notice in the form of the Subscription Notice attached as an exhibit
hereto, stating therein the election of such holder to exercise the Warrants in
the manner provided in the Subscription Notice; (ii) payment in full of the
Exercise Price (A) in cash or by bank check for all Warrant Shares purchased
hereunder, or (B) if the Company and the holder mutually elect, through a
"cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise");
the holder shall exchange each Warrant subject to a Cashless Exercise for that
number of Warrant Shares determined by multiplying the number of Warrant Shares
issuable hereunder by a fraction, the numerator of which shall be the difference
between (x) the Market Price and (y) the Exercise Price for each such Warrant,
and the denominator of which shall be the Market Price; the Subscription Notice
shall set forth the calculation upon which the Cashless Exercise is based, or
(C) a combination of (A) and (B) above; and (iii) this Warrant. The Warrants
shall be deemed to be exercised on the date of receipt by the Company of the
Subscription Notice, accompanied by payment for the Warrant Shares and surrender
of this Warrant, as aforesaid, and such date is referred to herein as the
"Exercise Date". Upon such exercise, the Company shall, as promptly as
practicable and in any event within ten (10) business days, issue and
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<PAGE> 3
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 Agreement of Purchase and Sale dated as of
February 12, 1998 (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 dated as of February 12, 1998 between the Company
and the Holder (the "Registration Rights Agreement"). 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
3
<PAGE> 4
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 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 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.
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 and notwithstanding any other provisions contained
in this Warrant, the holder hereof
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<PAGE> 5
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 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.
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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.
(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) any conversion to equity by St. James Capital Corp. or its
affiliates ("St. James") of all or part of the existing debt in the principal
amount of $6,500,000; (v) any conversion to equity by The Coastal Corporation
Second Pension Trust of all or part of the existing debt to Coastal in the
principal amount of $3,500,000 or in connection with a refinancing of such
existing indebtedness by Coastal; (vi) Common Stock upon conversion of the Note;
(vii) Common Stock issued as consideration in acquisitions; or (viii) warrants
issued in one or more transactions effected in any year ending on the
anniversary date hereof where not exercisable for more than an aggregate of one
percent (1%) of the total Common Stock issued and outstanding during such year.
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
3.3.3(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
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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 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
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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.
(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 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.
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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 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
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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 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;
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(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 win ding 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 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.
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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 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
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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 Replacement and Substitution. These Warrants are given in
replacement and substitution of the Warrants to purchase 450,000 shares of
Common Stock, issued by the Company to the Holder and dated February 12, 1998.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: March __, 1998
INTELECT COMMUNICATIONS, INC.
By:
Name: Herman M. Frietsch
Title: Chairman and CEO
[Signature Page -- SJCP Warrants (3/98)]
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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:
-------------------------------
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EXHIBIT 10.9
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, INC.
Expiring on February 12, 2001
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, SJMB, L.P., a Delaware limited partnership (the "Holder") or its
assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, 1,200,000 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 $7.50, 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 February 12, 2001.
As used herein, the following terms shall have the meanings set forth
below:
"Company" shall mean Intelect Communications, Inc., a Delaware
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 $7.50 per
share of Common Stock payable upon exercise of the Warrants, as adjusted from
time to time pursuant to the provisions hereof.
<PAGE> 2
"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 Convertible Promissory Note of the Company issued
to SJMB, L.P. as of March 27, 1998 in the principal amount of $13,000,000.
"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
February 12, 2001. To exercise the Warrants, the holder hereof shall deliver to
the Company, at the Warrant Office designated in Section 2.1 hereof, (i) a
written notice in the form of the Subscription Notice attached as an exhibit
hereto, stating therein the election of such holder to exercise the Warrants in
the manner provided in the Subscription Notice; (ii) payment in full of the
Exercise Price (A) in cash or by bank check for all Warrant Shares purchased
hereunder, or (B) if the Company and the holder mutually elect, through a
"cashless" or "net-issue" exercise of each such Warrant ("Cashless Exercise");
the holder shall exchange each Warrant subject to a Cashless Exercise for that
number of Warrant Shares determined by multiplying the number of Warrant Shares
issuable hereunder by a fraction, the numerator of which shall be the
difference between (x) the Market Price and (y) the Exercise Price for each
such Warrant, and the denominator of which shall be the Market Price; the
Subscription Notice shall set forth the calculation upon which the Cashless
Exercise is based, or (C) a combination of (A) and (B) above; and (iii) this
Warrant. The Warrants shall be deemed to be exercised on the date of receipt by
the
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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 Agreement of Purchase and Sale dated as of
February 12, 1998 (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 dated as of February 12, 1998 between the Company
and the Holder (the "Registration Rights Agreement"). 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.
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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 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 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.
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.
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2.4 Compliance with Securities Laws. Subject to the terms of the
Registration Rights Agreement 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 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.
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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.
(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) any conversion
to equity by St. James Capital Corp. or its affiliates ("St. James") of all or
part of the existing debt in the principal amount of $6,500,000; (v) any
conversion to equity by The Coastal Corporation Second Pension Trust of all or
part of the existing debt to Coastal in the principal amount of $3,500,000 or
in connection with a refinancing of such existing indebtedness by Coastal; (vi)
Common Stock upon conversion of the Note; (vii) Common Stock issued as
consideration in acquisitions; or (viii) warrants issued in one or more
transactions effected in any year ending on the anniversary date hereof where
not exercisable for more than an aggregate of one percent (1%) of the total
Common Stock issued and outstanding during such year. 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
3.3.3(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
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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 have been issued for such price per share, with the
effect on the Exercise Price specified in Section 3.2.2 hereof. Except
as provided in Section 3.2.1 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
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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.
(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
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.
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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 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
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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 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;
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(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 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.
IV ARTICLE
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.
11
<PAGE> 12
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 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
12
<PAGE> 13
all other expenses and charges payable in connection with the preparation,
execution and delivery of Warrants pursuant to this Section 3.4.
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.
13
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: _____ __, 1998
INTELECT COMMUNICATIONS, INC.
By:
Name: Herman M. Frietsch
Title: Chairman and CEO
14
<PAGE> 15
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:__________________________________
15
<PAGE> 16
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: ____________________________________
16
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 1
TO
REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO REGISTRATION RIGHTS AGREEMENT (this
"Amendment") is made as of April 2, 1998, by and between Intelect
Communications Inc., a Delaware corporation (the "Company"), and St. James
Capital Partners, L.P., a Delaware limited partnership (the "Purchaser").
WHEREAS, on February 12, 1998, the Company and the Purchaser entered
into a Registration Rights Agreement (the "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 Registration Rights
Agreement);
WHEREAS, the Company and the Purchaser wish to amend the Registration
Rights Agreement, as set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
1. Section 2.1.1 of the Original Registration Rights Agreement
shall be revised to read in its entirety as follows:
"2.1.1 At any time and from time to time (but in no event
before May 1, 1998), a holder or holders of Registrable Securities
holding in the aggregate at least 10% of the then existing Registrable
Securities may make a one-time written demand upon the Company, to
file, within 20 days after such written demand is made, with the
Securities and Exchange Commission a shelf registration statement
covering the resale of all of the Registrable Securities on Form S-1,
S-2 or S-3 (the "Registration Statement"). The Company shall use its
reasonable best efforts to cause such Registration Statement to become
effective as soon as practicable and to cause all of the Registrable
Securities to be qualified in such state jurisdictions as the holders
may request."
2. 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 Registration
Rights Agreement, as amended by this Amendment.
3. This Amendment shall be governed in all respects by the laws
of the State of Delaware.
4. All other terms and conditions of the Registration Rights
Agreement shall be and remain the same and in full force and effect.
5. Capitalized terms used but not otherwise defined herein shall
have the meaning given them in the Registration Rights Agreement.
6. This Amendment 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.
<PAGE> 2
THE COMPANY'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has executed this Amendment effective
upon the date first set forth above.
INTELECT COMMUNICATIONS, INC.
By:
Herman M. Frietsch, Chairman and CEO
2
<PAGE> 3
THE PURCHASER'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Purchaser has signed this Amendment as of the
date first written above.
ST. JAMES CAPITAL PARTNERS, L.P.
By: St. James Capital Corp., its General Partner
By:
---------------------------------------------
Charles E. Underbrink, CEO
3
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,858
<SECURITIES> 888
<RECEIVABLES> 13,252
<ALLOWANCES> 541
<INVENTORY> 7,092
<CURRENT-ASSETS> 26,694
<PP&E> 9,036
<DEPRECIATION> 2,604
<TOTAL-ASSETS> 50,443
<CURRENT-LIABILITIES> 19,461
<BONDS> 0
0
51
<COMMON> 242
<OTHER-SE> 30,570
<TOTAL-LIABILITY-AND-EQUITY> 50,443
<SALES> 5,514
<TOTAL-REVENUES> 5,514
<CGS> 4,008
<TOTAL-COSTS> 4,008
<OTHER-EXPENSES> 6,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,023)
<INCOME-PRETAX> (6,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,214)
<DISCONTINUED> (88)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,302)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
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