UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) September 16, 1998
INTELECT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-11630 76-0471342
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1100 Executive Drive, Richardson, Texas 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 367-2100
N/A
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
A. Intelect Communications, Inc. (the "Company") entered into a $5 million
revolving credit facility with The Coastal Corporation Second Pension Trust
("Coastal"). The credit facility has an interest rate of "prime" (as defined)
plus 3.5%, with interest being payable quarterly beginning on December 31, 1998.
The maturity date of the credit facility is August 31, 1999. Under the credit
facility, the Company may borrow up to $5 million in principal amount
outstanding at any one time. "Eligible accounts" serve as the borrowing base of
the credit facility. Eligible accounts represent the collectible domestic
accounts receivable from the customers of the material operating subsidiaries of
the Company (i.e., DNA Enterprises, Inc., Intelect Visual Communications Corp.
and Intelect Network Technologies Company). Coastal, in its reasonable
discretion, agrees to make advances to the Company against 80% of the eligible
accounts. If the Company's loan balance exceeds 80% of the face amount of the
eligible accounts, Coastal may demand that the Company pay such excess amount to
Coastal or deliver additional security to Coastal. In addition, if an eligible
account is more than 90 days past due, Coastal may require the Company to pay
down the balance of the outstanding loans by the amount past due or may require
the Company to deliver additional security to Coastal. As security for the loan,
the Company agreed to grant Coastal a first lien on all of the accounts
receivable of the Company and the material subsidiaries. In addition, subject to
an existing lien in favor of St. James Capital Partners, L.P. and SJMB, L.P.
(collectively "St. James"), the Company agreed to grant Coastal a lien on the
stock of the material operating subsidiaries. In connection with the consent of
St. James to the credit facility, the Company granted a second lien in favor of
St. James on the accounts receivable of the Company.
In the credit facility, the Company has agreed to certain covenants and
agreements which prohibit the Company from (i) incurring any additional
indebtedness, (ii) entering into agreements which restrict or prohibit the
ability of the Company to place certain liens on the Company's property in favor
of Coastal, (iii) declaring or paying any dividends or making any distributions
on its capital stock (other than dividends or distributions payable in capital
stock or dividends on its preferred stock) or from redeeming or repurchasing any
of its capital stock (other than its preferred stock), (iv) incurring certain
liens on the assets of the Company or its material subsidiaries, (v)
transferring its material patents, copyrights, licenses, permits, and other
rights necessary to conduct is business, (vi) entering into certain mergers or
consolidations unless the surviving entity is in compliance with the covenants
in the credit facility, assumes the obligations of the Company, and is organized
in the United States, (vii) selling or transferring all or substantially all of
its fixed assets (including those of its material subsidiaries), (viii) entering
into certain plans of liquidation, and (ix) entering into certain sale and
leaseback transactions. An event of default occurs in the event of certain
defaults on other indebtedness, failure to pay the required principal and
interest when due, the inaccuracy of any representations or warranties in the
loan agreement or in any information furnished by the Company to Coastal which
results in a material adverse effect, breaches of the covenants of the Company,
certain events of bankruptcy, receivership, or assignments for the benefits of
creditors, the discontinuation of the business of
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the Company's material subsidiaries, certain ERISA defaults, or defaults under
the other loan documents.
In connection with the consent of St. James to the Coastal credit
facility, the Company agreed with St. James that the Company would not elect to
extend the maturity date of the Convertible Promissory Notes issued in favor of
St. James (collectively, the "St. James Notes") unless it has obtained or
simultaneously obtains an extension of the Coastal credit facility to a date on
or after the maturity date of the St. James Notes. (The St. James Notes were
issued as of April 2, 1998, have an aggregate outstanding principal balance of
$10 million and have an initial maturity date of February 12, 1999. Under the
terms of the St. James Notes, the Company could elect to extend the maturity
date of such notes on 30 days prior written notice.) The Company also agreed
that in the event that it does elect to extend the maturity date of the St.
James Notes, that the exercise price of the warrants which the Company would be
obligated to issue to St. James upon the extension of such maturity dates would
be the LESSER of (i) $1.50 of the volume weighted average closing price of the
Common Stock for the ten (10) day period prior to the date of the Company's
election to extend the maturity date of the Note and (ii) $3.50.
B. As disclosed in the Company's annual report on Form 10-K for the fiscal
year 1997 and in the Form 10-Q for the quarter ended June 30, 1998, in December
1997, the Company entered into loan transactions with certain officers,
directors, employees of the Company and certain related persons, including Mr.
Herman M. Frietsch, Chairman and Chief Executive Officer, (original principal
amount of $100,000) and a corporation controlled by Philip P. Sudan, Jr., a
director of the Company (original principal amount of $133,000). The terms of
each of the promissory notes which evidence the transactions provide for the
Company to pay to each payee on demand the aggregate principal amount loaned to
the Company, together with accrued interest. The notes provided that the payee
could elect to have the promissory note paid in cash or shares of Common Stock
at the rate of $4.00 per share for each dollar of principal and interest
outstanding. Interest on the promissory notes accrues at the prime rate (as
defined in the promissory note) plus three percent. The aggregate principal and
interest outstanding for the loans to Messers. Frietsch, Sudan, and the other
employees and persons is $476,208 as of September 15, 1998. In forebearance for
demanding cash repayment of the loans, the Company has agreed to amend and
restate the outstanding promissory notes as of September 1, 1998 and to reduce
the conversion price on such loans to the rate of $2.00 for each dollar of
principal and interest outstanding. All other material terms and provisions of
such amended and restated notes shall remain the same as those originally
issued.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business to Be Acquired: N/A
(b) Pro Forma Financial Information of the Business to Be Acquired: N/A
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(c) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
10.1 Loan Agreement for Receivables Backed Borrowing dated as of
September 14, 1998 between the Company and Coastal
10.2 Promissory Note dated September 14, 1998 issued by the
Company to Coastal
10.3 Security Agreement for Receivables Backed Borrowing dated
September 14, 1998 among the Company, Intelect Visual
Communications Corp., Intelect Network Technologies Company,
DNA Enterprises, Inc., and Coastal.
10.4 Borrower Pledge Agreement dated September 14, 1998 between
the Company and Coastal
10.5 Security Agreement dated September 14, 1998 between the
Company and St. James
10.6 Letter Agreement dated September 14, 1998 among the Company,
St. James and Falcon Seaboard
10.7 Form of Amended and Restated Promissory Notes held by
various employees, directors, and related individuals of the
Company with face values totaling $440,000, convertible into
Common Stock of the Company at a rate of $2.00 per share
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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 hereunto duly authorized.
INTELECT COMMUNICATIONS, INC.
(Registrant)
Date:September 16, 1998 By: /s/ HERMAN M. FRIETSCH
(Signature)
Herman M. Frietsch
Chairman of the Board
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EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
10.1 Loan Agreement for Receivables Backed Borrowing dated as of
September 14, 1998 between the Company and Coastal
10.2 Promissory Note dated September 14, 1998 issued by the
Company to Coastal
10.3 Security Agreement for Receivables Backed Borrowing dated
September 14, 1998 among the Company, Intelect Visual
Communications Corp., Intelect Network Technologies Company,
DNA Enterprises, Inc., and Coastal.
10.4 Borrower Pledge Agreement dated September 14, 1998 between
the Company and Coastal
10.5 Security Agreement dated September 14, 1998 between the
Company and St. James
10.6 Letter Agreement dated September 14, 1998 among the Company,
St. James and Falcon Seaboard
10.7 Form of Amended and Restated Promissory Notes held by
various employees, directors, and related individuals of the
Company with face values totaling $440,000, convertible into
Common Stock of the Company at a rate of $2.00 per share
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EXHIBIT 10.1
LOAN AGREEMENT FOR
RECEIVABLES BACKED BORROWING
THIS LOAN AGREEMENT (this "AGREEMENT") made and entered into as of the
14th day of September 1998 by and between INTELECT COMMUNICATIONS, INC., a
Delaware corporation ("ICI" OR "BORROWER"); and THE COASTAL CORPORATION SECOND
PENSION TRUST, a trust organized under the laws of the state of Texas ("LENDER")
(the "PARTIES"):
W I T N E S S:
WHEREAS, Borrower has an existing line of credit with St. James Capital
Partners, L.P. and SJMB, L.P. (collectively, "St James") secured by the Pledged
Securities;
WHEREAS, Borrower seeks additional debt funding for its working capital
requirements from another source on a secured basis;
WHEREAS, Lender is willing to loan funds to Borrower to meet its current
working capital requirements on the terms and conditions herein, including (1)
the pledge of the Pledged Securities as security for the Loan as set forth in
the Borrower Pledge Agreement of even date herewith, subject to the rights of
St. James as set forth in the Intercreditor Agreement of even date herewith, and
(2) a collateral assignment of Accounts as provided herein and in a Security
Agreement for Receivables Backed Borrowing among Lender, Borrower and its
Designated Subsidiaries of even date herewith;
NOW, THEREFORE, for and in consideration of the premises, and the mutual
covenants and agreements herein contained and of the Loan hereinafter referred
to, the Borrower and the Lender agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01DEFINITIONS. As used in this Loan Agreement, the following
terms shall have the following meanings:
"ACCOUNTS" shall have the meaning given in Section 2.04 of this Agreement.
"ADVANCE" means an advance of funds under and subject to the terms and
conditions of this Agreement, in increments of $500,000, provided that the
principal balance outstanding under this Agreement and the Note shall never
exceed the Loan Maximum.
"AGREEMENT" shall mean this Loan Agreement, as the same may from time to
time be amended or supplemented.
"BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act of 1978 as codified
under 11 U.S.C. ss.101, et seq. and Bankruptcy shall have the meaning given in
the Bankruptcy Code.
"BORROWER" shall mean Intelect Communications, Inc. ("ICI").
"BORROWER AND ITS CONSOLIDATED SUBSIDIARIES" shall mean the Borrower and
its Subsidiaries which are taken on a consolidated basis for financial reporting
purposes. The Consolidated Subsidiaries of the Borrower are: Intelect
Communications Systems Limited; Intelect Network Technologies Company (formerly
Intelect, Inc.); DNA Enterprises, Inc.; Intelect Visual Communications Corp.;
and Intelect Network Systems, Ltd.
"BUSINESS DAY" shall mean any day (other than a Saturday, Sunday or legal
holiday) in the State of Texas on which banks are open for business in Houston,
Texas.
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"CAPITAL STOCK" shall mean all common and preferred stock of the Borrower,
but shall not include preferred stock subject to mandatory redemption
requirements.
"COLLATERAL" means (i) the aggregate of the Pledged Securities and (ii)
all dividends (cash, stock or otherwise), cash, instruments, rights to
subscribe, purchase or sell and all other rights and Property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such securities, (iii) all replacements, additions to and
substitutions for any of the Property referred to in this definition, including,
without limitation, claims against third parties, (iv) the proceeds, interest,
profits and other income of or on any of the Property referred to in this
definition, and (v) all books and records relating to any of the Property
referred to in this definition.
"COMMON STOCK" shall mean the Borrower's common stock, par value $0.01 per
share.
"CONSOLIDATED SUBSIDIARIES" means Intelect Network Technologies Company
(formerly, Intelect Inc.); DNA Enterprises, Inc.; Intelect Visual Communications
Corp.; and Intelect Network Systems, Ltd.
"CUSTODIAN" means Chase Bank of Texas, its successors and assigns.
"DEBT" means, for any Person, (a) all Obligations required by GAAP to be
classified upon a balance sheet as liabilities, (b) liabilities secured by any
Lien existing on Property owned or acquired by that Person, (c) Obligations that
have been (or under GAAP should be) capitalized for financial reporting
purposes, (d) all accrued Obligations of such Person in respect of any contract,
agreement or instrument imposing an Obligation upon such Person to pay over
funds; (e) all trade debt of such Person; (f) all guaranties, endorsements and
other contingent Obligations with respect to Debt of others, and (g) all
deferrals, renewals, extensions and refunding of, and amendments, modifications
and supplements to, any of the indebtedness referred to in (a) through (f)
above.
"DEBTOR RELIEF LAWS" shall mean the Bankruptcy Code and all other
applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of Debt, compromise, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
"DEFAULT" shall mean the occurrence of any of the events specified in
ARTICLE 6 hereof, whether or not any requirement for notice or lapse of time or
other condition precedent has been satisfied.
"DEFAULT RATE" means a rate per annum equal to the lesser of (a) the Prime
Rate in effect on such day PLUS five percent (5.0%) and (b) the Highest Lawful
Rate.
"DESIGNATED SUBSIDIARIES" means Intelect Network Technologies Company; DNA
Enterprises, Inc.; and Intelect Visual Communications Corp.
"ELIGIBLE ACCOUNTS" means accounts receivable of domestic commercial
customers of the Designated Subsidiaries created and deemed collectible in the
normal course of business on normal commercial terms.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and all current rules and regulations promulgated thereunder.
"EVENT OF DEFAULT" shall means the occurrence of any of the events
specified in ARTICLE 6 hereof, provided that any requirement for notice or lapse
of time or any other condition precedent has been satisfied.
"FINANCIAL STATEMENTS" shall mean the financial statements of the Borrower
described in SECTION 3.04 hereof.
"GAAP" shall mean generally accepted accounting principles of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board.
"HIGHEST LAWFUL RATE" shall mean the maximum nonusurious interest rate
from time to time allowed by applicable law as now, or to the extent allowed by
law as may hereafter be, in effect in any jurisdiction in which the interest
rate or laws are mandatorily applicable.
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"HOLDER" shall mean the holder of the Note.
"INDEBTEDNESS" shall mean all principal, interest and fees owing by the
Borrower to the Lender in connection with the Note or this Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement between St.
James and Lender dated September 14, 1998, attached hereto as EXHIBIT D.
"INTEREST PAYMENT DATE" shall mean, the last day of each March, June,
September and December.
"LENDER" shall mean The Coastal Corporation Second Pension Trust.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN" shall mean any sum extended under the Agreement, as it may be
amended from time to time.
"LOAN DOCUMENTS" shall mean this Agreement and all Exhibits hereto,
including the Note, as they may be amended from time to time.
"LOAN MAXIMUM" shall mean $5,000,000.
"MAKER" means the maker of the Note.
"MARGIN PERCENTAGE" shall mean Three and One-half Percent (3.5%) which is
added to the Prime to determine the applicable interest rate on the Note.
"MATERIAL ADVERSE EFFECT" means (i) a material and adverse effect on the
business, Properties, operations or condition (financial or otherwise) or
prospects of ICI and its Subsidiaries taken as a whole, (ii) material impairment
of the ability of Borrower to perform timely any of its Obligations under any of
the Transaction Documents to which such Maker is a party, or (iii) material
impairment of the rights of or benefits available to the Lender under this
Agreement or any of the other Transaction Documents.
"MATERIAL SUBSIDIARIES" means Intelect Network Technologies Company; DNA
Enterprises, Inc.; and Intelect Visual Communications Corp.
"MATURITY DATE" shall mean the Termination Date.
"NOTE" shall mean the Promissory Note of the Borrower described in SECTION
2.01 hereof and being in the form of Note attached as EXHIBIT A hereto, together
with any and all renewals, extensions for any period, increases or
rearrangements thereof.
"OBLIGATIONS" means all obligations, liabilities and indebtedness of every
nature of the Borrower from time to time owing to Lender under this Agreement
and/or any of the other Transaction Documents, including, without limitation,
(i) the due and punctual payment of (x) the principal of and interest on the
Advances, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, including, to the extent permitted
by applicable law, interest that accrues after the commencement of any
proceeding by or against Borrower or any Material Subsidiary of a Borrower under
the Bankruptcy Code and all other applicable Debtor Relief Laws, (y) all other
monetary obligations of the Borrower and their respective Subsidiaries to the
Lender under this Agreement and/or any other Transaction Document, including any
and all fees, costs, expenses and indemnities, and (ii) the due and punctual
performance of all other obligations of the Borrower under this Agreement and/or
any other Transaction Document.
"OBLIGATION" shall mean any part of the Obligations.
"OFFICER" shall mean the duly authorized Chief Executive Officer,
President, Treasurer, Controller, Secretary or any assistant Officer.
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"OVERDUE ACCOUNT" shall have the meaning given in Section 2.02(c).
"PARTIES" shall have the meaning given in the Preamble.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"PERMITTED LIENS" means (a) Liens now or hereafter securing the Note; (b)
pledges or deposits made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or benefits or
to participate in any fund in connection with workers' compensation,
unemployment insurance, pensions, or other social security programs; (c)
good-faith pledges or deposits made to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money), or leases, or to
secure statutory obligations, surety or appeal bonds, or indemnity, performance,
or other similar bonds in the ordinary course of business; (d) Liens for taxes
and Liens imposed by operation of law (including Liens of mechanics,
materialmen, warehousemen, carriers and landlords), if (i) no amounts are due
and payable and no Lien has been filed (or agreed to), or (ii) the validity or
amount secured thereof is being contested in good faith by lawful proceedings
diligently conducted, reserves required by GAAP have been made, and levy and
execution thereon have been (and continue to be) stayed or payment thereof is
covered in full (subject to the customary deductible) by insurance; (e) Liens
currently in existence; (f) Liens covering purchase money debt incurred to
finance equipment or inventory in the ordinary course of business; and (g) Liens
securing the indebtedness to St. James as provided in SECTION 2.04(B).
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
"PLAN" shall mean any multi-employer plan or single employer plan, as
defined in Section 4001 and subject to Title IV of ERISA, which is maintained,
or at any time during the five (5) calendar years preceding the date of this
Agreement was maintained, for employees of the Borrower or a Subsidiary.
"PLEDGE AGREEMENT" means that certain Pledge Agreement, the form of which
is attached hereto as EXHIBIT C, dated of even date herewith, executed by
Borrower in favor of the Lender pursuant to which Borrower grants to the Lender
a Lien on all of the issued and outstanding shares of Capital Stock of the named
Subsidiaries, as originally executed or as it may from time to time be
supplemented, modified or amended.
"PLEDGED SECURITIES" means all of the following securities and all
additional securities (as that term is defined in the UCC), if any, constituting
Collateral under the Pledge Agreement, including:
(1) all of the 1,100 outstanding shares of the common Capital Stock
of DNA Enterprises, Inc., and any other shares of the common Capital Stock of
DNA now owned or hereafter acquired by Pledgor (such shares of stock sometimes
referred to as the "DNA SHARES").
(2) all of the outstanding common Capital Stock of Intelect Visual
Communications Corporation.
(3) all of the outstanding common Capital Stock of Intelect Network
Technologies Company.
"PRIME RATE" means, as of a particular date, the prime rate of interest
per annum most recently announced by the WALL STREET JOURNAL for corporate
lending, automatically fluctuating upward or downward with and at the time
specified in each such announcement without notice to the Maker or any other
Person; each change in the Prime Rate shall be effective on the date such change
is announced.
"PROCEEDS" means whatever is received upon the sale, exchange, collection,
or other disposition of the Collateral or the Security and insurance payable or
damages or other payments by reason of loss or damage to the Collateral or the
Security.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, or any interest
therein.
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"PUBLIC FILINGS" means all documents filed by the Borrower with the
Securities and Exchange Commission including all filings made under the
Securities Exchange Act of 1934 and all registration statements filed under the
Securities Act of 1933.
"RECEIVABLES BACKED BORROWINGS" shall have the meaning given in Section
2.02 of this Agreement.
"RECEIVABLES LOAN BALANCE" shall have the meaning given in Section 2.02 of
this Agreement.
"REQUEST FOR ADVANCE" shall have the meaning given in Section 2.02 of this
Agreement.
"SECURITY" means the Accounts pledged under the Security Agreement.
"SECURITY AGREEMENT" means the Security Agreement the form of which is
attached hereto as EXHIBIT E, dated of even date herewith, executed by Borrower
in favor of the Lender pursuant to which Borrower and the Designated
Subsidiaries grant to the Lender a Lien on all of the Accounts of the Designated
Subsidiaries, as originally executed or as it may from time to time be
supplemented, modified or amended.
"SECURITY INTEREST" has the meaning assigned to that term in SECTION 2.04.
"SUBSIDIARY" shall mean any corporation of which more than fifty percent
(50%) of the issued and outstanding securities having ordinary voting power for
the election of directors is owned or controlled, directly or indirectly, by the
Borrower and/or one or more of its Subsidiaries.
"TERMINATION DATE" shall mean August 31, 1999.
"TRANSACTION DOCUMENTS" means this Loan Agreement, the Note, the Pledge
Agreement, the Security Agreement and the Intercreditor Agreement.
1.2. ACCOUNTING TERMS. All terms of an accounting or financial nature
shall be construed in accordance with GAAP, as in effect from time to time;
PROVIDED, HOWEVER, that, for purposes of determining compliance with any
covenant set forth herein such terms shall be construed in accordance with GAAP
as in effect on the date of this Agreement, consistently applied.
1.3 INTERPRETATION.
(a) In this Agreement, unless a clear contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not
to any particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns
are permitted by this Agreement, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually, PROVIDED that nothing in this subclause (iv) is
intended to authorize any assignment not otherwise permitted by this
Note;
(v) reference to any agreement, document or instrument means
such agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the
terms thereof and, if applicable, the terms hereof, and reference to
the Note includes any Note issued pursuant hereto in extension or
renewal hereof and in substitution or replacement herefor;
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(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section
hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii)with respect to the determination of any period of time,
the word "from" means "from and including" and the word "to" means
"to but excluding;"
(ix) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time
to time; and
(b) No provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal
representative drafted such provision.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
Section 2.01 THE LOAN. Subject to the terms and conditions and relying on
the representations and warranties contained in this Agreement, the Lender
agrees to make the following Loan to the Borrower:
(a) Subject to the terms hereof, the Lender agrees to make advances
(collectively, the "ADVANCES") to the Borrower, at any time and from time to
time on and after the date of the Note to, but excluding, the Maturity Date, up
to a principal amount not to exceed the Loan Maximum. All Advances shall mature
and be due and payable in full on the Maturity Date. Each Advance shall be made
in accordance with the procedures set forth in this Section.
(b) To evidence the Loan made by the Lender pursuant to this
Section, the Borrower will execute and deliver the Note dated as of the date of
this Agreement and payable on or before the Termination Date. Interest on the
Note shall be payable quarterly on each Interest Payment Date beginning December
31, 1998, and on the Termination Date, as it accrues on the principal amount
from time to time outstanding, at the rate provided in Section 2.03 hereof.
(c) In order to effect an Advance, the Borrower shall submit a
Request for Advance in writing or by telecopy (or telephone notice promptly
confirmed in writing or by telecopy) to the Lender not later than 10:00 a.m.,
Houston, Texas time, on the borrowing date specified in the Request for Advance
for such proposed Advance. Such Request for Advance shall refer to this
Agreement and specify (i) in sufficient detail, the corporate use of the
proceeds of such proposed Advance, (ii) the Business Day upon which the proceeds
of such proposed Advance are to be made available to the Borrower, (iii) the
principal amount of such proposed Advance, and (iv) the calculation of the
amount receivable under the Eligible Accounts required by Section 2.02. Each
Advance is discretionary, and is subject to the satisfaction of the Lender that
on the date such Advance is to be made, no Default or Event of Default then
exists (both before and after giving effect to the making of such proposed
Advance).
(d) Borrower shall have the right at any time and from time to time
to prepay the Advances, in whole or in part, without penalty or premium, upon at
least two (2) Business Day's prior written or telecopy notice or telephone
notice promptly confirmed in writing to the Lender.
(e) The Loan and all Advances hereunder shall be repaid on its
Maturity Date in a single installment together with any accrued but unpaid
interest then due and payable with respect to such Loan. On the Termination
Date, the aggregate unpaid principal amount then outstanding, together with
accrued interest thereon and any other amounts payable hereunder shall be due
and payable in full.
(f) Subject to the limitations set forth herein, in Lender's sole
discretion, Borrower may borrow, repay and reborrow hereunder, without
limitation on the number of Advances made hereunder so long as the total unpaid
principal amount at anytime outstanding does not exceed the Loan Maximum.
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Section 2.02 THE ADVANCES. Lender agrees, during the continuance of this
Agreement, to make Advances to Borrower, against those Accounts that Lender, in
its reasonable discretion, deems eligible for borrowing, as follows:
(a) Advances may be requested by Borrower as provided herein for up
to eighty percent (80%) of the face amount of the sum of the Eligible Accounts.
The remainder, being not less than twenty percent (20%) of the face amount of
each Eligible Account, and all other Accounts, shall be held as a reserve to
secure the collection and payment of the Advances and to secure the payment and
performance of all Obligations. Subject to the terms and conditions of this
Agreement, Lender shall disburse each Advance on the acceptance of the Accounts
by Lender.
(b) The aggregate amount of Borrower's Indebtedness and Obligations
to Lender incurred pursuant to this Agreement shall, from time to time, be
called in this Agreement the "RECEIVABLES LOAN BALANCE." If Borrower's
Receivables Loan Balance shall at any time exceed eighty percent (80%) of the
aggregate face amount of the Eligible Accounts, Lender may demand, on five (5)
Business Days prior written notice, that Borrower pay such excess to Lender or
may require Borrower to deliver immediately to Lender such additional security
as may be satisfactory to Lender.
(c) If an Eligible Account shall not be paid within 90 days of the
invoice due date ("OVERDUE ACCOUNT"), Lender may demand, on five (5) Business
Days prior written notice, that Borrower pay down the balance of outstanding
Loans by the amount of such Overdue Account (to the extent that Lender deems the
remaining Eligible Accounts inadequate security for the Receivables Loan
Balance) or may require Borrower to deliver immediately to Lender such
additional security as may be satisfactory to Lender.
Section 2.03 INTEREST RATE. All sums advanced under the Note shall bear
interest from the date advanced until the earlier of the date repaid at the
Prime Rate plus the Margin Percentage, but in no event to exceed the Highest
Lawful Rate. Adjustments in such interest rate shall be made on the same day as
each change announced in the Prime Rate, and to the extent allowed by law, on
the effective date of any change in the Highest Lawful Rate. Past due principal
and interest shall bear interest at the Default Rate and shall be payable on
demand.
Section 2.04 SECURITY.
(a) Borrower has executed and delivered to Lender the Security
Agreement under which Borrower grants a continuing general lien and security
interest in all of Borrower's accounts receivable together with any instruments,
chattel paper, and general intangibles relating thereto (collectively called
"ACCOUNTS") that now exist or are currently owned by Borrower or are later owned
or acquired by Borrower, including in all Proceeds thereof (the "SECURITY
INTEREST").
(b) Borrower has executed and delivered to Lender a certain Borrower
Pledge Agreement dated September 14, 1998, (the "PLEDGE AGREEMENT") under which
Borrower pledges its interest in the stock of Intelect Network Technologies
Company, DNA Enterprises, Inc. and Intelect Visual Communications Corp.
("COLLATERAL"), subject to the following terms and conditions:
(i) The Parties acknowledge and agree that, pursuant to a
certain Borrower Pledge Agreement (the "St. James Pledge Agreement") dated
February 12, 1998, executed by ICI in favor of St. James Capital Partners, L.P.
and SJMB, L.P. (collectively, St. James") Borrower has granted a security
interest to St. James in the Collateral to secure the payment of those certain
Convertible Promissory Notes issued by ICI to St. James and dated April 2, 1998.
(ii) The rights and obligations of each of St. James and the
Lender with respect to the Collateral are as provided in the Intercreditor
Agreement, it being the intent of Lender to share in such Collateral IN PARI
PASSU with St. James. It shall be a condition to this Agreement and the Loan
hereunder that Borrower obtain the consent of St. James to the Liens and
security interests granted under this Agreement for the benefit of Lender.
(iii) Borrower further acknowledges that the stock of the
Consolidated Subsidiaries has a current value in excess of the amount of the
initial Loan contemplated under this Agreement. Borrower agrees to grant a
security interest in the such Collateral under the terms of the Pledge Agreement
(a) to facilitate future borrowings
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under this Agreement as it may be amended from time to time; (b) in light of the
volatility of such Collateral; and (c) to permit Lender to elect remedies in the
event of a Default.
Section 2.05 COMPUTATION.
(a) All interest fees shall be computed on the per annum basis of
the actual number of days elapsed in a year of 365 or 366 days, as the case may
be.
(b) In the event that at any time the sum of the applicable Margin
Percentage plus the Prime Rate exceeds the Highest Lawful Rate, the rate of
interest to accrue on the Note shall be limited to the Highest Lawful Rate, but
any subsequent reductions in the Prime Rate shall not reduce the rate of
interest to accrue on the Note below the Highest Lawful Rate until the total
amount of interest accrued on the Note equals the amount of interest that would
have accrued if a varying rate per annum equal to the applicable Margin
Percentage plus the Prime Rate had at all times been in effect.
(c) In the event that at maturity or final payment of the Note the
total amount of interest paid or accrued on the Note is less than the total
amount of interest which would have accrued if a varying rate per annum equal to
the applicable Margin Percentage plus the Prime Rate had at all times been in
effect, then the Borrower agrees to pay to the Lender an amount equal to the
difference between (i) the amount of interest which would have accrued on the
Note if the Highest Lawful Rate had at all times been in effect, and (ii) the
amount of interest otherwise accrued in accordance with the provisions of
SECTION 2.03 hereof and this SECTION 2.05.
Section 2.06 USE OF PROCEEDS.
(a) The proceeds of all Loans and Advances hereunder are to be used
to meet the working capital requirements of Borrower and its Subsidiaries. No
part of the proceeds of any Loan may be used to prepay any loan or debt
obligation of the Borrower, to acquire the stock or assets of any unrelated
entity, or for any other purpose not in the ordinary course of business of
Borrower or its Subsidiaries, provided that the proceeds may be used to pay the
current obligations and other corporate requirements of Borrower.
(b) No portion of the proceeds of any Loan or Advance shall be used
by the Borrower, or any one of them, in any manner that might cause the
borrowing or the application of such proceeds to violate Regulation G,
Regulation U, Regulation T, or Regulation X or any other regulation of the Board
or to violate the Securities Exchange Act of 1934, in each case as in effect on
the date or dates of such borrowing and such use of proceeds.
Section 2.07 PAYMENT AND PREPAYMENT PROCEDURE. All payments and
prepayments made by the Borrower under the Note or this Agreement shall be made
to the Lender by wire transfer as specified in SECTION 7.01 on the date that
such payment is required to be made. The Borrower shall have the right to prepay
the Note in whole or in part from time to time. In such event, the Borrower
shall notify the Lender by 11:00 AM local time of the Lender, on the day that
such prepayment will be made, and such prepayment shall be made on such day
(without premium or penalty), together with any required payment of accrued
interest on the amount prepaid.
Section 2.08 BUSINESS DAYS. If the date for any payment due hereunder
falls on a day which is not a Business Day, then for all purposes of the Note
and this Agreement the same shall be deemed to have fallen on the next following
Business Day.
Section 2.09 CONDITIONS TO ADVANCES. The obligation of the Lender to make
an Advance under the Loan evidenced by the Note is subject to the satisfaction
of the following conditions:
(a) Note. The Borrower shall have duly and validly authorized,
executed and delivered the Note in the form attached hereto as EXHIBIT A to the
Lender.
(b) Officer's Certificates. The Lender shall have received
certificates of an Officer of the Borrower setting forth (i) resolutions of its
Board of Directors in form and substance satisfactory to the Lender with respect
to the authorization of the Note and this Agreement and the officers of the
Borrower authorized to sign such
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instruments, (ii) specimen signatures of the officers so authorized, and (iii) a
statement of the Eligible Accounts supporting prior period Advances and a
monthly aging thereof, together with a schedule of those Eligible Accounts which
support Borrower's Request for Advance.
(c) Consents. The Lender shall have received the consent of St.
James to the Liens and security interests granted under this Agreement for the
benefit of Lender.
(d) No Default. The Lender shall have received certificates of an
Officer of the Borrower stating no Default shall have occurred and be continuing
which in any respect could have a Material Adverse Effect on the Borrower and
there shall not have occurred and be continuing any condition, event or act
which constitutes an Event of Default under any instrument evidencing borrowed
money to which the Borrower is bound.
(e) Good Standing. As a condition to the making of the initial
Advance, Lender shall have received from Borrower a certificate of good standing
for Borrower and its Material Subsidiaries.
(f) Opinion of Counsel. As a condition to the making of the initial
Advance, Lender shall have received from counsel of the Borrower, an opinion
addressed to the Lender and dated the date of such Loan covering the matters set
forth in EXHIBIT B, hereto.
Section 2.10 REPORTS AND INFORMATION. Borrower shall provide Lender with
information and periodic reports, including the following:
(a) Statements of the Eligible Accounts supporting Borrower's
Requests for Advances.
(b) Statements of the Eligible Accounts supporting prior period
Advances and a monthly aging thereof.
(c) Statements of the Accounts of all Designated Subsidiaries, with
a weekly aged accounts receivable trial balance.
(d) Statements of accounts with each bank to which deposits of
accounts receivable are made.
(e) Statements reconciling payments of Accounts with bank deposits.
(f) Statements demonstrating compliance with the requirements of
section 2.02 hereof.
(g) Such other information as Lender may reasonably request.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into the Note and Agreement,
Borrower represents and warrants to the Lender (which representations and
warranties shall survive the delivery of the Note and the making of the Loan or
Loans hereunder) that:
Section 3.01 ORGANIZATION. Borrower is a corporation duly existing and in
good standing under the laws of the State of Delaware. Each of the Borrower and
its Material Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation,
has all requisite corporate power and authority to own its Property and to carry
on its business as now conducted, and is in good standing and authorized to do
business in each jurisdiction in which the Borrower or such Material Subsidiary
owns real Property or conducts such business, where the failure to maintain such
good standing or authorization is reasonably expected to have a Material Adverse
Effect.
Section 3.02 AUTHORIZATION; NO CONFLICT. The execution and delivery of
this Agreement, the borrowing hereunder, the execution and delivery of the Note
and the performance by the Borrower of its obligations under this
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Agreement and the Note are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, have received all necessary
governmental approvals (if any shall be required) and do not and will not
contravene or conflict with any rule, regulation, decree or order or provision
of law or of the charter or by-laws of the Borrower or of any material agreement
binding upon the Borrower or any of its properties, except to the extent any
such consent or approval has been obtained or waived, and delivered to Lender.
Section 3.03 BINDING OBLIGATIONS. This Agreement does, and the Note upon
its creation, execution and delivery will, constitute legal valid and binding
obligations of the Borrower, enforceable in accordance with their terms, except
to the extent that the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally or under
general principles of equity.
Section 3.04 FINANCIAL CONDITION. The audited annual consolidated
Financial Statements of the Borrower and its Consolidated Subsidiaries through
1997 fiscal year and the unaudited consolidated interim Financial Statements of
the Borrower and its Consolidated Subsidiaries for its most recently ended
fiscal quarter (for which such annual or quarterly Financial Statements are
available) (the "FINANCIAL STATEMENTS"), which have been delivered to the
Lender, are complete and correct in all material respects, have been prepared in
accordance with GAAP, consistently applied, and present fairly the consolidated
financial condition and results of the operations of the Borrower and its
Consolidated Subsidiaries as at the date or dates and for the period or periods
stated (subject only to normal year-end audit adjustments with respect to such
unaudited interim statements). No material adverse change has since occurred in
the consolidated financial condition or operations of the Borrower and its
Consolidated Subsidiaries except as otherwise disclosed to the Lender.
Section 3.05 DEFAULTS. Except as disclosed to the Lender, neither the
Borrower nor any Subsidiary is in Default in any respect which materially and
adversely affects the consolidated business, Property, operations or financial
condition of the Borrower and its Consolidated Subsidiaries under any instrument
evidencing borrowed money to which the Borrower or a Subsidiary is a party or by
which it is bound.
Section 3.06 USE OF PROCEEDS; MARGIN STOCK. None of the proceeds of the
Note will be used for the purpose of, and the Borrower is not engaged in the
business of extending credit for the purpose of, purchasing or carrying any
"margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System (12 C.F.R. Part 21), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry a
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation U.
Section 3.07 TAX RETURNS AND PAYMENTS. To the best of the Borrower's
knowledge, each has (i) filed all tax returns which it is required to file,
where the failure to file such returns would have a Material Adverse Effect on
the consolidated financial condition or operations of the Borrower and its
Consolidated Subsidiaries, and (ii) paid, or has provided adequate reserves for
the payment of all material federal and state income taxes applicable for all
prior fiscal years and for the current fiscal year down to the date hereof.
Section 3.08 LITIGATION REPRESENTATION. Except for those matters disclosed
in the Public Filings, there is no litigation (including without limitation,
derivative actions), arbitration proceedings or governmental proceedings pending
or, to the knowledge of the Borrower, threatened against it or any Subsidiary
which involves the reasonable probability of a judgment not covered by insurance
and which would have a Material Adverse Effect on the Borrower and its
Consolidated Subsidiaries.
Section 3.09 COMPLIANCE WITH ERISA. To the best of the Borrower's
knowledge, the Borrower and each of its Subsidiaries are in compliance in all
material respects with ERISA. Neither the Borrower nor any of its Subsidiaries
has any material liability under any type of Plan. No reportable event, as set
forth in Section 4043(b) of ERISA, has occurred and is continuing with respect
to any Plan which results in any material liability to the PBGC.
Section 3.10 ENVIRONMENTAL MATTERS. Except for those matters disclosed in
the Public Filings, to the best of the Borrower's knowledge, neither the
Borrower nor any Subsidiary: (i) has received written notice, nor has any
officer of the Borrower otherwise learned, of any claim, demand, action, event,
condition, report or investigation indicating or concerning any potential or
actual liability which individually or in the aggregate would have a Material
Adverse
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Effect, arising in connection with: (x) any noncompliance with or violation of
the requirements of any applicable federal, state or local environmental health
and safety statutes and regulations or (y) the release or threatened release of
any toxic or hazardous waste, substance or constituent, or other substance into
the environment; (ii) has any liability in connection with the release or
threatened release of any toxic or hazardous waste, substance or constituent, or
other substance into the environment which in the aggregate would have a
Material Adverse Effect; (iii) has received notice of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any toxic or hazardous waste, substance or
constituent or other substance into the environment for which the Borrower or
any Subsidiary is or may be liable where the taking or the failure to take such
remedial action would have a Material Adverse Effect; or (iv) has received
notice that the Borrower or any Subsidiary is or may be liable to any Person
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), or any analogous
state law, the failure to comply with which would have a Material Adverse
Effect. To the best of the Borrower's knowledge, the Borrower and each
Subsidiary is in compliance in all material respects with the financial
responsibility requirements of federal and state environmental laws to the
extent applicable, including, without limitation, those contained in 40 C.F.R.,
parts 264 and 265, subpart H, and any analogous state law, the failure to comply
with which would have a Material Adverse Effect.
Section 3.11 COMPLIANCE WITH APPLICABLE LAWS. Except for those matters
disclosed in the Public Filings, neither the Borrower nor any Subsidiary is in
default with respect to any judgment, order, writ, injunction, decree or
decision of any governmental authority, which default would have a Material
Adverse Effect. To the best of the Borrower's knowledge, the Borrower and each
Subsidiary is in compliance with all applicable statutes and regulations,
including ERISA, of all governmental authorities, a violation of which would
have a Material Adverse Effect.
Section 3.12 PATENTS, LICENSES, ETC. Except for those matters disclosed in
the Public Filings, the Borrower warrants that it has all right and title to,
and has maintained and caused each Subsidiary to maintain in full force and
effect, all material licenses, copyrights, patents, permits, applications,
reports, authorizations, easements and other rights as are necessary for the
conduct of the business of Borrower and its Consolidated Subsidiaries, where the
termination of such rights would have a Material Adverse Effect.
Section 3.13 DISCLOSURE. Each of Borrower's representations in the
Transaction Documents are true, complete and accurate in all material respects.
Borrower has disclosed all material facts of which it has knowledge and
regarding the transaction contemplated by this Agreement. Borrower has not
failed to disclose to Lender any material fact necessary in order to make any
statement made, in light of the circumstances under which made, not misleading.
ARTICLE 4
AFFIRMATIVE COVENANTS
Section 4.01 PAYMENT AND PERFORMANCE. Each Maker will pay all amounts due
under this Note and the other Transaction Documents in accordance with the terms
thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied therein.
Section 4.02 FINANCIAL STATEMENTS AND REPORTS. The Borrower will promptly
furnish to the Lender:
(a) ANNUAL REPORTS. As soon as available and in any event within one
hundred and twenty (120) days after the close of each fiscal year of the
Borrower, the audited balance sheet of the Borrower and its Consolidated
Subsidiaries as at the end of such year, the audited statement of income of the
Borrower and its Consolidated Subsidiaries for such year, and the audited
statement of reconciliation of capital accounts of the Borrower and its
Consolidated Subsidiaries for such year, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year,
accompanied by the opinion of independent public accountants of national
standing;
(b) QUARTERLY REPORTS. As soon as available and in any event within
sixty (60) days after the end of each of the first three quarterly periods in
each fiscal year of the Borrower, a copy of the Borrower's Form 10Q as filed
with the Securities and Exchange Commission; and
(c) OTHER INFORMATION. Such other information regarding the financial
condition and operations of the Borrower and its Consolidated Subsidiaries as
the Lender may reasonably request. All such balance sheets and
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other Financial Statements referred to in SUBSECTIONS 4.02(A) AND (B) above
shall conform to GAAP except for such changes in accounting principles or
practice with which the independent public accountants concur, and subject to
normal year-end audit adjustments with respect to the unaudited quarterly
statements described in SUBSECTION 4.01(B) hereof.
(d) ACCOUNT INFORMATION. All reports and information required by
Section 2.10 hereof and under the Security Agreement, and such other information
regarding the Accounts as Lender may reasonably request.
Section 4.03 LEGAL EXISTENCE. The Borrower will, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its legal existence, rights and franchises;
PROVIDED, HOWEVER, that nothing in this SECTION 4.03 shall prevent (i) the
withdrawal by the Borrower or any Material Subsidiary of its qualification as a
foreign corporation in any jurisdiction, or (ii) a consolidation or merger
permitted by other provisions of this Agreement. The Borrower will use, and will
cause each Material Subsidiary to use, its best efforts to comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its Property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls).
Section 4.04 INSURANCE. The Borrower shall maintain, and cause each
Material Subsidiary to maintain, insurance on its Property against such risks
and in substantially the same amounts as are currently maintained, including,
without limitation, general liability and workers' compensation insurance.
Section 4.05 MAINTENANCE OF PROPERTY. The Borrower shall cause all
material Property owned by or leased to the Borrower or any Material Subsidiary
and used or useful in the conduct of the Borrower's business or the business of
any Material Subsidiary to be maintained and kept in normal condition, repair
and working order and supplied with all necessary equipment and cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Borrower or such Material Subsidiary may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
nothing in this Section shall prevent the Borrower or any Material Subsidiary
from discontinuing the use, operation or maintenance of any such Property, or
disposing of any such Property, if such discontinuance or disposal is, in the
judgment of the board of directors, board of trustees or managing partners of
the Material Subsidiary concerned, or of any officer (or other agent employed by
the Borrower or any of its Material Subsidiaries) of the Borrower or such
Material Subsidiary having managerial responsibility for any such Property,
desirable in the conduct of the business of the Borrower or any Material
Subsidiary, and if such discontinuance or disposal is not disadvantageous in any
material respect to the Lender.
Section 4.06 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Upon
reasonable request by the Lender, the Borrower shall permit representatives of
the Lender, upon at least two (2) Business Days' prior written notice to a
financial officer of the Borrower and subject to assertions of attorney-client
privilege and to confidentiality obligations reasonably necessary to protect
proprietary information, to visit the offices of the Borrower and its
Subsidiaries, to inspect, under guidance of officers of the Borrower, any of its
Property and examine and make copies or abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired, and to
discuss the business, operations, prospects, licenses, Property and financial
condition of the Borrower and its Subsidiaries with the officers thereof.
Section 4.07 PATENTS, LICENSES, ETC. Except for those matters disclosed in
the Public Filings, the Borrower shall maintain and cause each Subsidiary to
maintain, in full force and effect, all material licenses, copyrights, patents,
permits, applications, reports, authorizations, easements and other rights as
are necessary for the conduct of its business, the termination of which would
have a Material Adverse Effect. Except for those matters disclosed in the Public
Filings, Borrower shall pay all royalties, annuities and license fees as they
become due and shall not forfeit or allow to lapse any rights under any patent,
copyright or license.
Section 4.08 FURTHER ASSURANCES. The Borrower will promptly cure any
defects in the creation and execution of the Loan Documents. The Borrower, at
its expense, will promptly execute and deliver to the Lender all such further
documents, agreements and instruments as may reasonably be requested by the
Lender in order to effect any obligation of the Borrower under this Agreement.
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Section 4.09 PERFORMANCE OF OBLIGATIONS. The Borrower will pay the Note
according to the reading, tenor and effect thereof, and the Borrower will do and
perform every act and discharge all of the obligations provided to be performed
and discharged by the Borrower under this Agreement at the time or times and in
the manner specified.
Section 4.10 REIMBURSEMENT OF EXPENSES. The Borrower will, upon request,
promptly reimburse the Lender for all amounts expended, advanced or incurred by
the Lender (including reasonable attorneys' fees and disbursements) to satisfy
any obligations of the Borrower under this Agreement or to enforce the rights of
the Lender under this Agreement.
Section 4.11 NOTICE OF CERTAIN EVENTS. The Borrower shall promptly notify
the Lender if the Borrower learns of any of the following if such occurs while
the Loan is outstanding: (i) any event which constitutes a continuing Default or
Event of Default, together with a detailed statement by a financial officer of
the Borrower of the steps being taken to cure the effect of such Default or
Event of Default; or (ii) the receipt of any notice from, or the taking of any
other action by, the holder of any promissory note, debenture or other evidence
of indebtedness for borrowed money of the Borrower or any Subsidiary with
respect to a claimed default, together with a detailed statement by a financial
officer of the Borrower specifying the notice given or other action taken by
such holder and the nature of the claimed default and what action the Borrower
or such Subsidiary is taking or proposes to take with respect thereto; or (iii)
the commencement of any legal, judicial, or regulatory proceedings affecting the
Borrower or any Subsidiary or any Property of the Borrower or such Subsidiary
not covered by insurance and which could reasonably be expected to be adversely
determined and which, if so determined, would have a Material Adverse Effect on
the business or the financial condition of the Borrower and its Consolidated
Subsidiaries; or (iv) any dispute between the Borrower or any Subsidiary and any
governmental or regulatory body or any other Person which, could reasonably be
expected to be adversely determined, and which, if so determined, could
reasonably be expected to materially interfere with the normal business
operations of the Borrower and its Consolidated Subsidiaries; or (v) the
occurrence of any material adverse changes in the financial condition or
operations of the Borrower and its Consolidated Subsidiaries from those
reflected in the latest Financial Statements.
ARTICLE 5
NEGATIVE COVENANTS
Until the expiration or termination of this Agreement and thereafter until
all obligations of the Borrower hereunder are paid in full, without the consent
of the Lender, the Borrower will not:
Section 5.01 RESTRICTIONS ON BORROWING. So long as the Indebtedness is
outstanding, except for obligations of the Borrower outstanding on the date
hereof, and extensions thereof, Borrower shall not, nor permit any Subsidiary
to, create, incur, assume or suffer to exist any liability for borrowed money
other than as permitted in SECTION 5.03, without the consent of Lender, which
consent shall not be unreasonably withheld. Borrower will not enter into or
become subject to, and will not permit any of its Material Subsidiaries to enter
into or become subject to, any agreement (other than this Agreement or other
agreements in existence on the date hereof disclosed to Lender) that prohibits
or otherwise restricts the right of such Borrower or its Material Subsidiaries
to create, incur, assume or suffer to exist any Lien in favor of the Lender on
any of such Borrower's, or any of its Material Subsidiaries', assets.
Section 5.02 PAYMENT OF DIVIDENDS. Declare or pay any dividend or make any
distribution on its Capital Stock or to the holders of its Capital Stock (other
than (i) dividends or distributions payable in its Capital Stock, (ii) dividends
or distributions of a right, junior preferred stock or other similar security in
connection with a shareholder rights plan, to the extent that such rights,
junior preferred stock or security attach equally to all shares of the
Borrower's Common Stock, and (iii) dividends on its Preferred Stock other than
mandatory redemption Preferred Stock of the Borrower) or purchase, redeem or
otherwise acquire or retire for value, or permit any Subsidiary to purchase or
otherwise acquire for value, any such Capital Stock if at the time of such
action any Loan under this Agreement is outstanding; PROVIDED, HOWEVER that
Borrower shall be permitted to repurchase or redeem any of its preferred stock
now or hereafter outstanding.
Section 5.03 LIENS AND PLEDGES OF ASSETS AND STOCK. So long as the
Indebtedness is outstanding, Borrower shall not, nor permit any Material
Subsidiary to, create, incur, assume or suffer to exist, directly or indirectly,
any Lien on all or substantially all of the assets of the Borrower or any
Material Subsidiary or the Capital Stock of any Material Subsidiary without the
consent of Lender which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that
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this SECTION 5.03 shall not prohibit the Borrower or any Material Subsidiary
from creating, assuming or suffering to exist the following Liens: (i) Liens
existing as of the date hereof and renewals and replacements thereof or the
repledging of assets pledged thereunder; (ii) Liens created under existing
mortgages and pledge agreements; (iii) Liens incurred in the ordinary course of
business not in connection with the borrowing of money; or (iv) Permitted Liens.
Section 5.04 PATENTS, LICENSES, ETC. The Borrower shall not sell or
transfer any material licenses, copyrights, patents, permits, applications,
reports, authorizations, easements and other rights necessary for the conduct of
its business, the termination of which would have a Material Adverse Effect.
Borrower shall not forfeit or allow to lapse any rights under any patent,
copyright or license, the loss of which would have a Material Adverse Effect.
Section 5.05 CONSOLIDATION OR MERGER. Enter into or permit any Material
Subsidiary to enter into any merger or consolidation unless, in the case of the
Borrower, the surviving entity (i) is in compliance with the covenants contained
in this Agreement immediately after such merger, (ii) assumes all obligations of
the Borrower under this Agreement, and (iii) is organized under the laws of the
United States or any state thereof, provided that nothing herein shall prohibit
the merger of one or more Material Subsidiaries into the Borrower or any other
Material Subsidiary.
Section 5.06 SALE OF ASSETS. Sell or otherwise transfer all or
substantially all of its fixed assets or permit any Material Subsidiary to do
so; provided that nothing herein shall prohibit the sale or transfer of fixed
assets of a Material Subsidiary to the Borrower or to another Material
Subsidiary.
Section 5.07 LIQUIDATION. The Borrower shall not adopt a plan of
liquidation which provides for, contemplates or the effectuation of which is
preceded by (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Borrower otherwise than substantially as
an entirety and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and of the
remaining assets of the Borrower to the holders of Capital Stock of the Borrower
unless the Borrower shall in connection with the adoption of such plan make
provision for, or agree that prior to making any liquidating distributions it
will make provision, reasonably satisfactory to the Lender, for the satisfaction
of the Borrower's obligations under the Loan Documents as to the payment of
principal and interest, including prepayment thereof in accordance with the
prepayment provisions hereof. Borrower shall be deemed to make provision for
such payments only if there is an express assumption of the due and punctual
payment of the Borrower's obligations hereunder and under the Note and the
performance and observance of all covenants and conditions to be performed by
the Borrower hereunder, by the execution and delivery of an agreement in form
and substance satisfactory to the Lender by a Person which acquires or will
acquire (otherwise than pursuant to a lease) a portion of the assets of the
Borrower, and which Person will have assets (immediately after the acquisition)
and aggregate net earnings (for such Person's four (4) full fiscal quarters
immediately preceding the acquisition) equal to not less than the assets of the
Borrower (immediately preceding the acquisition) and the aggregate net earnings
of the Borrower (for its four (4) full fiscal quarters immediately preceding
such acquisition), respectively, and which is organized and existing under the
laws of the United States, any state thereof or the District of Columbia;
PROVIDED, HOWEVER, that the Borrower shall not make any liquidating distribution
until after the Borrower shall have certified to the Lender with a certificate
of an Officer of the Borrower at least five (5) days prior to the making of any
liquidating distribution that it has complied with the provisions of this
Section.
Section 5.08 RESTRICTIONS ON SALES AND LEASEBACKS. The Borrower shall not
sell or transfer any Property of the Borrower with the Borrower taking back a
lease of such Property of the Borrower unless (i) such Property is sold within
three hundred sixty (360) days from the date of acquisition of such Property or
the date of the completion of construction or commencement of full operations on
such Property whichever is later, or (ii) the Borrower within one hundred twenty
(120) days after such sale, applies or causes to be applied to the retirement of
debt of the Borrower or any Subsidiary (other than Debt of the Borrower which,
by its terms or the terms of the instrument pursuant to which it was issued, is
subordinate in right of payment to the Note) an amount not less than the greater
of (x) the net proceeds of the sale of such Property or (y) the fair value (as
determined in any manner approved by the Board of Directors) of such Property.
The provisions of this Section shall not prevent a sale or transfer of any
Property with a lease for a period, including renewals, of not more than
thirty-six (36) months.
Section 5.08 MARGIN REGULATION. No Maker shall use or permit any other
Person to use any portion of the proceeds of a Loan under this Agreement in any
manner which might cause the extension of credit or the application
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<PAGE>
of such proceeds to violate the Securities Act or the Exchange Act or to violate
Regulation G, Regulation U, or Regulation X, or any other regulation of the
Federal Reserve Board.
ARTICLE 6
EVENTS OF DEFAULT
Section 6.01 EVENTS OF DEFAULT. Any of the following Default events shall
each be considered an "Event of Default" as that term is used herein:
(a) DEFAULT ON OTHER DEBT. The Borrower or any Subsidiary fails to
make payment when due on any indebtedness for borrowed money in an aggregate
principal amount in excess of One Hundred Thousand Dollars ($100,000) at the
time outstanding (after giving effect to any applicable grace periods); or any
default shall occur with respect to any such indebtedness, or under any
agreement securing or relating to such indebtedness, the effect of which is to
cause or to permit any holder of such indebtedness or a trustee to cause
(whether or not such holder or trustee elects to cause) such indebtedness, or
portion thereof, to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment and such default remains uncured for a
period of thirty (30) days; or
(b) NON-PAYMENT OF INDEBTEDNESS. Default is made in the payment or
prepayment when due of any Indebtedness and such Default continues for a period
in excess of five (5) days; or
(c) REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made by the Borrower in this Agreement proves to have been incorrect in any
material respect as of the date hereof; or any representation, statement
(including Financial Statements), certificate or data furnished or made by the
Borrower under this Agreement, proves to have been untrue in any material
respect, as of the date as of which the facts therein set forth were stated and
which in either such case may constitute a Material Adverse Effect; or
(d) COVENANTS. Default is made in the due observance or performance
of any of the covenants or agreements contained in this Agreement to be kept or
performed by the Borrower and such Default continues unremedied for a period of
thirty (30) days after the earlier of (i) notice thereof being given by the
Lender to the Borrower, or (ii) such Default otherwise becoming known to the
Borrower, where such Default would have a Material Adverse Effect; or
(e) INVOLUNTARY BANKRUPTCY OR RECEIVERSHIP PROCEEDINGS. A custodian,
receiver, conservator, liquidator or trustee of the Borrower or any Material
Subsidiary or of any Property thereof is appointed by the order or decree of any
court or agency or supervisory authority having jurisdiction, and such decree or
order remains unstayed for more than sixty (60) days; or the Borrower or any
Material Subsidiary is adjudicated bankrupt or insolvent and such order or
decree remains unstayed for more than sixty (60) days; or any Property of the
Borrower or any Material Subsidiary is sequestered by court order; or a petition
is filed against the Borrower or any Material Subsidiary under any state or
federal bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or receivership law of any jurisdiction, whether
now or hereafter in effect, and is not stayed or dismissed within sixty (60)
days after such filing; or
(f) VOLUNTARY PETITIONS. The Borrower or any Material Subsidiary
files a petition in voluntary bankruptcy or seeking relief under any provision
of any bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, or consents to the
filing of any such petition under any such law; or
(g) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. The Borrower or any
Material Subsidiary makes an assignment for the benefit of its creditors, or
admits its inability to pay its debts as they become due, or consents to the
appointment of a receiver, custodian, trustee or liquidator of the Borrower or
any Material Subsidiary or of all or any part of its respective Property; or
(h) DISCONTINUANCE OF BUSINESS. The Borrower, Intelect Network
Technologies Company , DNA Enterprises, Inc., or Intelect Visual Communications
Corp. discontinues its business; or
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<PAGE>
(i) ERISA DEFAULT. A Plan fails to maintain the qualifications for
any Plan required by ERISA, and there shall result from any such event or events
either liability or a material risk of incurring liability to the PBGC or to a
Plan, which would have a Material Adverse Effect; or
(j) CROSS DEFAULT. Borrower is in Default under any of the other
Transaction Documents.
Section 6.02 REMEDIES. Upon the happening of any Event of Default
specified in SECTION 6.01 hereof, the Lender may by written notice to the
Borrower declare (i) all Loans then outstanding to be immediately due and
payable without presentment, demand, protest, notice of protest, or dishonor or
other notice of Default of any kind, all of which are hereby expressly waived by
the Borrower, and/or (ii) all obligations, if any, of the Lender hereunder to be
immediately terminated.
Section 6.03 RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Indebtedness of the Borrower,
irrespective of whether the Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured. The Lender
agrees promptly to notify the Borrower after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. In addition, the Lender recognizes and agrees, and
any other holder of the Note by acceptance hereof shall be deemed to agree, that
any and all balances, credits, deposits, accounts or moneys of the Borrower now
or hereafter with the Lender or other holder shall, at the direction of the
Borrower, be applied to the payment and prepayment of any obligation of the
Borrower to the Lender or other holder hereunder.
ARTICLE 7
MISCELLANEOUS
Section 7.01 NOTICES. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective Parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement or the Note, addressed to
such party at its address set forth below or at such other address as either of
the Parties hereto may hereafter notify the other in writing.
To Borrower:INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone972-367-2100
Telecopy:972-367-2271
Attention: Herman Frietsch, President and CEO
with a copy Philip P. Sudan, Jr., Esq.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone713-652-0501
Telecopy:713-652-0503
To Lender: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone713-877-6825
Telecopy:713-877-7071
Attn: Corporate Secretary
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<PAGE>
with a copy THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone713-877-6920
Telecopy:713-877-7132
Attn: Director, Financial Administration
For wire transfers of funds to Lender under all Transaction Documents:
Custodian: Chase Bank of Texas - Houston, Texas
ABA #113000609
Trust Wires Clearing Account DDA #00101606276
Description: Intelect Communications Receipts
OBI# Attn: Trust Receipts FFC: 5502001-1867300
The Coastal Corporation Second Pension Trust
Attn: Mary Grace Greenwood - (713) 216-4539
For wire transfers of funds to Borrower:
Bank One Columbus
ABA #044000037
FBO: Intelect Communications
Account 980401787, Investments Clearing
Account 8340991500
Section 7.02 BENEFIT OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the Parties hereto; PROVIDED, HOWEVER, the Borrower may not assign or
transfer any of its interest hereunder without the prior written consent of the
Lender and provided further that the Lender may not assign the Note or its
interest hereunder without the prior written consent of the Borrower, which
consent of either party shall not be withheld unreasonably.
Section 7.03 SURVIVAL OF AGREEMENTS. All representations and warranties of
the Borrower herein shall survive the effective date of this Agreement.
Section 7.04 RENEWAL, EXTENSION OR REARRANGEMENT. All provisions of this
Agreement relating to the Note shall apply with equal force and effect to each
and all promissory notes hereinafter executed which in whole or in part
represent a renewal, extension for any period, increase or rearrangement of the
Note.
Section 7.05 INVALIDITY. In the event that any one or more of the
provisions contained in the Note or this Agreement shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the Note
or this Agreement.
Section 7.06 AMENDMENT OR WAIVER. This Agreement may not be amended,
changed, waived, discharged or terminated without the written consent of the
Borrower and the Lender.
Section 7.07 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Borrower or the Lender in exercising any right, power or privilege
hereunder and no course of dealing between the Borrower and the Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under the Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Borrower or the Lender would
otherwise have.
Section 7.08 INTEREST. It is the intention of the Parties hereto to
conform strictly to applicable usury laws as presently in effect. Accordingly,
if the transactions contemplated hereby would be usurious under applicable law
(including the laws of the United States of America and the law of any
jurisdiction whose laws are mandatorily
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<PAGE>
applicable), then, in that event, notwithstanding anything to the contrary in
the Note or this Agreement, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is contracted
for, charged or received under the Note or this Agreement or under any other
agreements or otherwise in connection with the Note shall under no circumstances
exceed the Highest Lawful Rate, and any excess shall be credited on the Note by
the holder thereof (or, if the Note shall have been paid in full, refunded to
the Borrower); and (ii) in the event that the maturity of the Note is
accelerated by reason of an election of the Holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest may never include more than otherwise would be calculated at the
Highest Lawful Rate, and excess interest, if any, provided for in this Agreement
or otherwise shall be canceled automatically as of the date of such acceleration
or prepayment and, if theretofore paid, shall be credited on the Note (or, if
the Note shall have been paid in full, refunded to the Borrower).
Section 7.09 HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and shall not in any way affect the meaning or
construction of any provision of this Agreement.
Section 7.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different Parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Lender.
Section 7.11 GOVERNING LAW. THIS AGREEMENT, AND THE APPLICATION OR
INTERPRETATION THEREOF, SHALL BE GOVERNED EXCLUSIVELY BY ITS TERMS AND BY THE
LOCAL, INTERNAL LAW OF THE STATE OF TEXAS, U.S.A., EXCEPT TO THE EXTENT THE
CONFLICTS OF LAWS RULES OF THE STATE OF TEXAS WOULD REQUIRE THE APPLICATION OF
THE LAW OF ANOTHER JURISDICTION IN WHICH CASE THE LAWS OF THE STATE OF TEXAS
SHALL NONETHELESS APPLY. THE PARTIES CONSENT TO JURISDICTION IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF HARRIS, STATE OF TEXAS, U.S.A.
Section 7.12 EXHIBITS. The following exhibits are attached hereto and
incorporated herein by reference thereto for all relevant purposes of this
Agreement:
Exhibit A - Promissory Note
Exhibit B - Opinion of Counsel
Exhibit C - Pledge Agreement
Exhibit D - Intercreditor Agreement
Exhibit E - Security Agreement
Section 8.13 ENTIRE AGREEMENT. This Agreement, including the Exhibits
attached hereto and the documents delivered pursuant hereto, constitutes the
entire agreement between the Parties with respect to the subject matter of this
Agreement and supersedes all previous communications, representations,
understandings, and agreements, either oral or written, between the Parties with
respect to the subject matter.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH ANY OF THE MAKERS OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
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<PAGE>
IN WITNESS WHEREOF, the Parties have caused this instrument to be executed
as of the date first above.
INTELECT COMMUNICATIONS, INC. THE COASTAL CORPORATION SECOND
PENSION TRUST
By: ___________________________ By:_____________________________
Herman M. Frietsch Donald H. Gullquist
President & CEO Senior Vice President
The Coastal Corporation
<PAGE>
LOAN AGREEMENT
EXHIBIT A
PROMISSORY NOTE
<PAGE>
LOAN AGREEMENT
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
<PAGE>
LOAN AGREEMENT
EXHIBIT C
PLEDGE AGREEMENT
<PAGE>
LOAN AGREEMENT
EXHIBIT D
INTERCREDITOR AGREEMENT
<PAGE>
LOAN AGREEMENT
EXHIBIT E
SECURITY AGREEMENT
EXHIBIT 10.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS AND, ACCORDINGLY,
THIS NOTE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
PROMISSORY NOTE
$5,000,000.00 SEPTEMBER 14, 1998
For value received, INTELECT COMMUNICATIONS, INC., a Delaware corporation
("ICI" or the "MAKER"), promises and agrees to pay on or before August 31, 1999
(the "MATURITY DATE") to the order of THE COASTAL CORPORATION SECOND PENSION
TRUST (hereinafter called "HOLDER"), or its registered transferees and assigns,
at the office of Custodian at Houston Texas, in currency of the United States of
America which at the time of payment is legal tender for the payment of public
and private debts, or as otherwise provided in that certain Loan Agreement
between Maker and Holder of even date herewith, the lesser of: (i) the principal
sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00); or (ii) the aggregate
unpaid principal amount of all Loans and Advances made by the Holder in its sole
discretion hereunder which may be outstanding on the Termination Date; and in
either case together with all outstanding interest and/or other obligations of
Maker. Each Loan shall be due and payable on the Maturity Date. In no event
shall any Maturity Date fall on a date after the Termination Date. Subject to
the limitations set forth herein, Maker may borrow, repay and reborrow hereunder
in Holder's discretion and there is no limitation on the number of Advances made
hereunder in Holder's discretion so long as the total unpaid principal amount at
anytime outstanding does not exceed $5,000,000.00.
Capitalized terms used herein shall have the meaning attributed to them in
the Loan Agreement between Maker and Holder of even date herewith.
The Maker further agree to pay interest, in like money, on the unpaid
principal amount owing hereunder from time to time from the later of the date
hereof or the date of the initial Advance, at the Prime Rate plus the Margin
Percentage. Such accrued interest shall be due and payable on the Interest
Payment Dates, with a final payment on the Maturity Date.
Any holder of this Note is entitled to all of the rights, remedies,
benefits and privileges provided for herein and in the other Transaction
Documents, as hereinafter defined. The Obligations (as herein defined) of the
Maker contained in this Note are secured by the Pledge Agreement and the
Security Agreement.
Each Maker and any and each co-maker, endorsers, guarantors and sureties
or each other Person liable for payment or collection of this Note expressly and
severally waives grace, demand, presentment for payment, notice of nonpayment,
notice of dishonor, notice of intent to accelerate the maturity, notice of
acceleration of the maturity, notice of default, protest and notice of protest,
bringing of suit, and diligence in taking any action to collect amounts called
for hereunder and in the handling of Property at any time existing as security
in connection herewith, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission as or with respect to the collection of any
amount called for hereunder or in connection with any Lien at any time had or
existing as security for any amount called for hereunder, and agrees to all
renewals, extensions or partial payments hereon and to any release or
substitution of security hereof, in whole or in part, with or without notice,
before or after maturity.
In the event of an Event of Default or a Default in the payment of this
Note in whatever manner, Holder may, by written notice to the Maker declare all
Loans then outstanding to be immediately due and payable without presentment,
demand, protest, notice of protest, or dishonor. If this Note is thereupon
placed in the hands of attorneys for collection, or if the same is collected
through probate, bankruptcy or other similar proceedings, the Maker, jointly and
severally, promise to pay all reasonable attorneys' fees and expenses incurred
by the Holder in connection with such Default or collection proceedings.
The Holder agrees to make Advances to the Maker at any time and from time
to time on and after the date of this Note to, but excluding, the Maturity Date,
up to a principal amount not to exceed the Loan Maximum, as more fully
<PAGE>
set forth in the Loan Agreement. All Advances shall mature and be due and
payable in full on the Maturity Date. Each Advance shall be made in accordance
with the procedures set forth in the Loan Agreement.
This Note is secured by the Borrower Pledge Agreement, and the Security
Agreement, between Maker and Holder, each dated September 14, 1998. This Note,
and each Advance, and all sums payable hereunder, are each subject to the terms
and conditions of that certain Loan Agreement between Maker and Holder, dated
September 14, 1998.
Each provision in this Note and the other Transaction Documents is
expressly limited so that in no event whatsoever shall the amount paid, or
otherwise agreed to be paid, to the Holder for the use, forbearance or detention
of the money to be loaned under this Note or any Transaction Document or
otherwise (including any sums paid as required by any covenant or obligation
contained herein or in any other Transaction Document which is for the use,
forbearance or detention of such money), exceed that amount of money which would
cause the effective rate of interest to exceed the Highest Lawful Rate, and all
amounts owed under this Note and each other Transaction Document shall be held
to be subject to reduction to the effect that such amounts so paid or agreed to
be paid which are for the use, forbearance or detention of money under this Note
or such Transaction Document shall in no event exceed that amount of money which
would cause the effective rate of interest to exceed the Highest Lawful Rate.
Anything in this Note or any other Transaction Document to the contrary
notwithstanding, the Maker shall never be required to pay unearned interest on
this Note or ever be required to pay interest on this Note at a rate in excess
of the Highest Lawful Rate, and if the effective rate of interest which would
otherwise be payable with respect to this Note would exceed the Highest Lawful
Rate, or if the Holder shall receive any unearned interest or shall receive
monies that are deemed to constitute interest which would increase the effective
rate of interest payable by the Maker with respect to this Note to a rate in
excess of the Highest Lawful Rate, then (i) the amount of interest which would
otherwise be payable by the Maker with respect to this Note shall be reduced to
the amount allowed under applicable law and (ii) any unearned interest paid by
the Maker or any interest paid by the Maker in excess of the Highest Lawful Rate
shall be in the first instance credited on the principal of this Note with the
excess thereof, if any, refunded to the Maker. It is further agreed that,
without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received by the Holder under this Note or the other
Transaction Documents, are made for the purpose of determining whether such rate
exceeds the Highest Lawful Rate applicable to the Holder (such Highest Lawful
Rate being the Holder's "MAXIMUM PERMISSIBLE RATE"), shall be made, to the
extent permitted by usury laws applicable to the Holder (now or hereafter
enacted), by (a) characterizing any non-principal payment as an expense, fee or
premium rather than as interest and (b) amortizing, prorating and spreading in
equal parts during the period of the full stated term of the Advances evidenced
by the Note all interest at any time contracted for, charged or received by the
Holder in connection therewith.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO PRINCIPLES OF CHOICE OF
LAW) AND THE LAWS OF THE UNITED STATES AND FOR ALL PURPOSES SHALL BE CONSTRUED
IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF SAID STATE AND OF THE UNITED
STATES.
THIS NOTE AND THE OTHER TRANSACTION DOCUMENTS TO WHICH ANY OF MAKER OR ANY
OF ITS SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN
SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES.
THIS NOTE EXECUTED AS OF THE EFFECTIVE DATE:
INTELECT COMMUNICATIONS, INC.
By:
Herman M. Frietsch
President & CEO
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<PAGE>
PROMISSORY NOTE
SEPTEMBER 14, 1998
SCHEDULE OF PAYMENTS
NAME OF
AMOUNT OF UNPAID PERSON
ACCRUED PRINCIPA PRINCIPAL MAKING
DATE INTEREST REPAYT BALANCE ADVANCES NOTATION
-3-
EXHIBIT 10.3
SECURITY AGREEMENT FOR
RECEIVABLES BACKED BORROWING
THIS SECURITY AGREEMENT FOR RECEIVABLES BACKED BORROWING (this
"AGREEMENT") made and entered into as of the 14th day of September 1998
("EFFECTIVE DATE"), by and among INTELECT NETWORK TECHNOLOGIES COMPANY, a Nevada
Corporation, DNA ENTERPRISES, INC. a Texas Corporation; and INTELECT VISUAL
COMMUNICATIONS CORP., a Delaware corporation (the foregoing are each and
collectively, the "PLEDGOR") INTELECT COMMUNICATIONS, INC. ("ICI"), and THE
COASTAL CORPORATION SECOND PENSION TRUST ("SECURED PARTY") (the "PARTIES"):
W I T N E S S:
WHEREAS, pursuant to the terms, and subject to the conditions, set forth
in that certain Loan Agreement for Receivables Backed Borrowing ("LOAN
AGREEMENT") between the ICI and Secured Party dated the Effective Date and in a
Promissory Note (the "NOTE"), dated the Effective Date issued by ICI and payable
to the order of Secured Party in the original principal sum of $5,000,000,
Secured Party has agreed to advance funds to ICI and
WHEREAS, it is a condition to the agreement of Secured Party to advance
such funds and to consummate the transactions contemplated by the Loan Agreement
that this Security Agreement granting a Security Interest in the Security shall
have been executed and delivered by ICI and Pledgor and shall be in full force
and effect;
WHEREAS, each of the Pledgors is a wholly owned subsidiary of ICI and in
consideration of the benefits received from the proceeds of the Note, and for
other good and valuable consideration, do hereby desire and agree to grant a
Security Interest in the Security;
NOW, THEREFORE, for and in consideration of the premises, and the mutual
covenants and agreements herein contained and of the Loan hereinafter referred
to, ICI, each Pledgor and the Secured Party agree as follows:
SECTION 1. DEFINITIONS
1.01 CERTAIN DEFINED TERMS. As used in this Security Agreement, the
following terms or phrases have the respective meanings set forth below or in
the Section following such term:
"ACCOUNTS" shall have the meaning given in Section 2.01 of this Agreement.
"ACCOUNT DEBTOR" shall have the meaning given in Section 2.03 of this
Agreement.
"ADVANCE" means an advance of funds under and subject to the terms and
conditions of this Agreement, in increments of $500,000, provided that the
balance outstanding under this Agreement and the Note shall never exceed the sum
of the Loan Maximum.
"AGREEMENT" shall mean this Security Agreement, as the same may from time
to time be amended or supplemented.
"COLLATERAL" means (i) the aggregate of the Pledged Securities, (ii) all
dividends (cash, stock or otherwise), cash, instruments, rights to subscribe,
purchase or sell and all other rights and property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such securities, (iii) all replacements, additions to and substitutions for
any of the property referred to in this definition, including, without
limitation, claims against third parties, (iv) the Proceeds, interest, profits
and other income of or on any of the property referred to in this definition,
and (v) all books and records relating to any of the property referred to in
this definition.
"CUSTODIAN" means Chase Bank of Texas, its successors and assigns.
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"DEFAULT" has the meaning given in Section 6.
"DEFAULT RATE" has the meaning given in the Loan Agreement.
"DESIGNATED SUBSIDIARIES" means Intelect Network Technologies Company; DNA
Enterprises, Inc.; and Intelect Visual Communications Corp.
"EFFECTIVE DATE" has the meaning given that term in the introduction to
this Security Agreement.
"ELIGIBLE ACCOUNTS" means accounts receivable of domestic commercial
customers of the Designated Subsidiaries created and deemed collectible in the
normal course of business on normal commercial terms.
"EVENT OF DEFAULT" has the meaning given in Section 6 hereof.
"FRAUDULENT CONVEYANCE" has the meaning given in Section 2.09 hereof.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement between St.
James and Lender dated September 14, 1998.
"INDEBTEDNESS" shall mean all principal, interest and fees owing by the
Borrower to the Lender in connection with the Note or the Loan Agreement.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN AGREEMENT" means the Loan Agreement for Receivables Backed Borrowing
between the Parties of even date herewith.
"LOAN MAXIMUM" has the meaning given in the Loan Agreement.
"MARGIN PERCENTAGE" shall have the meaning given in the Loan Agreement.
"NOTE" has the meaning given that term in the Recitals to this Security
Agreement.
"OBLIGATIONS" means the aggregate of:
(1) the indebtedness evidenced by the Note, including interest
accruing thereon;
(2) all sums advanced and costs and expenses incurred by Secured
Party in accordance with the Note, this Security Agreement and the other
Transaction Documents, including, without limitation, all reasonable legal,
accounting, consulting or like fees, made and incurred in connection with the
Obligations described in clause (1) above or any part thereof, any renewal,
extension, or modification of, or substitution for, the foregoing Obligations or
any part thereof, or the acquisition, perfection or maintenance and preservation
of the security for the Obligations, whether such advances, costs, or expenses
shall have been made and incurred at the request of ICI, Pledgor or Secured
Party,
(3) all other Obligations of ICI or Pledgor pursuant to the Note and
the other Transaction Documents; and
(4) any and all extensions and renewals of, substitutions for, or
modifications or amendments of any of the foregoing Obligations or any part
thereof.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
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"PLEDGED SECURITIES" shall have the meaning given in the Loan Agreement.
"PLEDGOR" has the meaning given that term in the introduction to this
Security Agreement.
"PRIME RATE" shall have the meaning given in the Loan Agreement.
"PROCEEDS" means whatever is received upon the sale, exchange, collection,
or other disposition of the Security and insurance payable or damages or other
payments by reason of loss or damage to the Security, whether cash or non-cash
and all securities and guaranties therefor.
"RECEIVABLES LOAN BALANCE" shall have the meaning given in the Loan
Agreement.
"SCHEDULES" has the meaning assigned to that term in SECTION 5.01.
"SECURED PARTY" has the meaning given that term in the introduction to
this Security Agreement.
"SECURITY" means the Accounts pledged under the Security Agreement.
"SECURITY AGREEMENT" means this Security Agreement dated as of the
Effective Date, among ICI, each Pledgor and Secured Party, as said agreement may
be amended, modified, supplemented, and/or extended from time to time.
"SECURITY INTEREST" has the meaning assigned to that term in SECTION 2.01.
"TRANSACTION DOCUMENTS" means the Loan Agreement, the Note, the Pledge
Agreement, the Intercreditor Agreement and the Security Agreement.
"UCC" means the Uniform Commercial Code as in effect in any jurisdiction
applicable.
1.02 OTHER DEFINITIONS. Other capitalized terms used herein have the
meanings given them herein or in the Loan Agreement.
SECTION 2. CREATION OF SECURITY INTEREST
2.01 CREATION OF SECURITY INTEREST. In consideration of Secured Party's
advancing or extending the funds or credit constituting the Obligations
(including the indebtedness evidenced by the Note), as a condition to such
Advances and extensions, in consideration of the mutual covenants contained
herein, and for the purpose of securing the prompt, unconditional and complete
payment and performance of the Obligations, Pledgor hereby grants to Secured
Party a continuing general lien and security interest in all of Pledgor's
accounts receivable, together with any instruments, chattel paper, and general
intangibles relating thereto (collectively, "ACCOUNTS") that now exist or are
currently owned by Pledgor or are later owned or acquired by Pledgor, including
in all Proceeds (the "SECURITY INTEREST").
2.02 PROCEEDS. Except as otherwise permitted herein, the Security Interest
of Secured Party hereunder in the Proceeds shall not be construed to mean that
Secured Party consents to the sale or other disposition of any part of the
Security.
2.03 SECURITY. This continuing general lien and security interest shall
extend to all proceeds and collections of all Accounts, all guaranties and other
security for all Accounts, and all right, title, and interest of Pledgor in the
merchandise that caused the creation of any such Account. All right, title, and
interest in the merchandise shall include the right of stoppage in transit of
goods; all returned, rejected, rerouted, or repossessed goods; and the sale or
lease of goods that shall have given rise to any Account. The Accounts,
proceeds, collections, guaranties, other security, and all right, title, and
interest in the Accounts-creating merchandise are collectively called the
"Security" in this Agreement. The granted continuing lien and security interest
also shall extend to the proceeds of all Security and to all of Pledgor's
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books and records relating to the Security. The obligors on Pledgor's Accounts
are sometimes called the "Account Debtor" or the "Account Debtors" in this
Agreement.
2.04 PARTIAL RELEASE. Except as expressly set forth therein, no release
from the Lien of this instrument of any part of the Security by Secured Party
shall in any way alter, vary, or diminish the force, effect or Lien of this
instrument on the balance or remainder of the Security.
2.05 SUBROGATION. This Security Agreement is made with full substitution
and subrogation of Secured Party in and to all covenants and warranties by
others heretofore given or made in respect of the Security or any part thereof.
2.06 SUCCESSOR SECURED PARTY. Any Person that succeeds to Secured Party as
Holder pursuant to, and as permitted by, the terms of the Note automatically
shall become Secured Party hereunder.
2.07 TERMINATION. If all the Obligations are paid and performed in full
and the covenants herein contained are performed in all respects, then Secured
Party shall, upon the request of Pledgor and at Pledgor's cost and expense,
deliver to Pledgor proper instruments executed by Secured Party evidencing the
release of this instrument. Until such delivery, this instrument shall remain
and continue in full force and effect.
2.08 NO ASSUMPTION. The Security Interest is given to secure the prompt,
unconditional and complete payment and performance of the Obligations when due,
and is given as security only. The Secured Party does not assure and shall not
be liable for any of Pledgor's liabilities, duties or obligations under or in
connection with the Security. The Secured Party's acceptance of this Security
Agreement, or its taking any action in carrying out this Security Agreement,
does not constitute the Secured Party's approval of the Security or the Secured
Party's assumption of any obligation under or in connection with the Security.
This Security Agreement does not affect or modify Pledgor's obligations with
respect to the Security.
2.09 FRAUDULENT CONVEYANCE. Notwithstanding anything contained in this
Agreement to the contrary, ICI agrees that if, but for the application of this
Section, the Obligation or any Security Interest would constitute a preferential
transfer under 11 U.S.C. ss.547, a fraudulent conveyance under 11 U.S.C. ss.548
(or any successor section of that Code) or a fraudulent conveyance or transfer
under any state law of similar effect (each a "FRAUDULENT CONVEYANCE"), then the
Obligation and each affected Security Interest will be enforceable to the
maximum extent possible without causing the Obligation or any Security Interest
to be a Fraudulent Conveyance, and shall be deemed to have been automatically
amended to carry out the intent of this Section.
SECTION 3. LOANS, COLLECTION, RECORDS, AND HANDLING OF ACCOUNTS
3.01 ADVANCES. Secured Party agrees, during the continuance of this
Agreement, to make Advances to ICI, against those Accounts that Secured Party,
in its sole discretion, deems eligible for borrowing, as provided in the Loan
Agreement.
3.02 NOTES. To evidence Secured Party's loans to ICI, ICI shall, at
Secured Party's request, execute and deliver to Secured Party the Note or Notes
payable to Secured Party. These Notes shall be in the amount of any portion or
portions of ICI's Receivables Loan Balance as at the time of Secured Party's
request, up to the full extent of the balance. These Notes shall provide for the
payment to Secured Party of interest at the rate provided in the Loan Agreement.
The execution and delivery of these Notes shall not constitute payment,
satisfaction, or release of any Obligation.
3.03 CHECKS. Checks received by Secured Party shall not constitute
payment, but rather credit on these Notes. Solely for the purpose of computing
interest earned by Secured Party and in order to allow for clearance of the
checks, credit on these Notes shall be given as of the third calendar day after
receipt of any checks by Secured Party.
3.04 INTEREST. Until all Obligations of ICI to Secured Party are fully
paid, ICI will pay interest computed on the daily Receivable Loan Balance, from
the date accrued until the date paid, at the Prime Rate plus the Margin Rate,
unless the Default Rate is applicable.
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3.05 BALANCE. Secured Party shall give Pledgor, each month, a statement of
Pledgor's balance prepared from Secured Party's records, which will conclusively
be deemed correct in the absence of manifest error, and accepted by Pledgor,
unless Pledgor gives Secured Party a written statement of exceptions within
thirty (30) days after receipt of the extract or statement.
3.06 ACCOUNT INFORMATION. Pledgor and ICI shall give Secured Party such
information regarding the Accounts as Secured Party may reasonably request,
including but not limited to information and periodic reports as required herein
and by the Loan Agreement.
SECTION 4. HANDLING OF GOODS AND DOCUMENTS CONCERNING ACCOUNTS
4.01 SEGREGATION. Pledgor will physically segregate all rejected,
rerouted, repossessed, or returned goods sold or delivered in respect of any
Account; will immediately notify Secured Party of any rerouted, repossessed, or
returned goods; will receive such goods in trust for Secured Party; will hold
the goods for such disposition as Secured Party may direct or at Secured Party's
option, will promptly refund all advances, loans, and extensions made on the
Accounts; and will post written notice that the Accounts and goods are subject
to Secured Party's lien and security interest.
4.02 TRANSFER. In the event of an Event of Default, in addition to any
other remedy provided herein or in the Loan Agreement, Pledgor will immediately
endorse to Secured Party and deliver to Secured Party all instruments, chattel
paper, guaranties, or other documents when received by Pledgor as evidence of,
as payment of, or as security for any of the Accounts and will immediately
transfer to Secured Party all security received for any of the Accounts.
SECTION 5. REPRESENTATIONS, WARRANTIES, AND COVENANTS
5.01 ACCOUNTS. At the time of assignment, each account receivable
represents and will represent an undisputed, bona fide sale and delivery of
goods or services rendered, or both (or in the case of a general intangible,
represents and will represent an undisputed, bona fide agreement), and is not
and will not be subject to any setoff, counterclaim, discount, or condition of
any nature, except as specified in writing on or before the delivery to Secured
Party of schedules of assignment of accounts receivable. Pledgor is, or at the
time of the assignment will be, the lawful owner of each Account and has
unqualified right to assign and grant liens and security interests of the
Accounts to Secured Party. Pledgor will, with respect to each Account:
(a) deliver to Secured Party such papers as Secured Party may
require, including, without limitation, the original delivery or other receipts
and duplicate invoices;
(b) furnish Secured Party a weekly aged accounts receivable trial
balance, as required by the Loan Agreement;
(c) furnish to Secured Party weekly, statements of Account with
Pledgor's customers. Pledgor agrees that Secured Party may from time to time
verify the validity, amount, and any other matters relating to the Accounts by
means of mail, telephone, or otherwise, in the name of Pledgor, Secured Party,
or such other name as Secured Party may choose;
(d) do all things required by Secured Party in its reasonable
judgment, in order more completely to vest in and assure to Secured Party its
rights under this Agreement. The Accounts shall be collaterally assigned to
Secured Party by written or printed instruments (called "Schedules" in this
Agreement) in form acceptable to Secured Party, executed in such quantities as
Secured Party may require, but the lien and security interest of Secured Party
shall not be limited in any way to or by the inclusion of the Accounts within
such Schedules, and to the extent the terms and provisions of this Agreement
shall conflict with the Schedules, this Agreement shall be controlling. In the
event the Texas Uniform Commercial Code (Chapters 1 through 13 of the Texas
Business and Commerce Code) applies to any of the Accounts, Pledgor need not
furnish the Schedules relating to those Accounts unless Secured Party shall so
request; but Pledgor's failure to execute and deliver the Schedules shall not
limit the security interest granted to Secured Party under this Agreement; and
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(e) keep and will continue to keep all of its books and records
concerning accounts receivable and general intangibles and all of its other
books and records at its chief place of business, unless written notice to the
contrary is given by Pledgor to Secured Party.
5.02 RECORDING AND FILING. Pledgor shall pay all costs of filing,
registering, and recording this and every other instrument in addition or
supplemental hereto and all financing statements Secured Party may reasonably
require, in such offices and places and at such times and as often as may be, in
the judgment of Secured Party, necessary to create, perfect, preserve, protect,
and renew the Lien hereof on and in the Security, and otherwise do and perform
all matters or things necessary or expedient to be done or observed by reason of
any law or regulation of any applicable jurisdiction or any other competent
authority for the purpose of effectively creating, perfecting, preserving,
protecting, maintaining, and renewing the Lien hereof in and on the Security and
the priority thereof. Pledgor shall also pay the costs of obtaining reports from
appropriate filing offices concerning Lien filings in respect of any of the
Security. A carbon, photographic, or other reproduction of this Security
Agreement or of any financing statement relating hereto shall be sufficient as a
financing statement.
5.03 SECURED PARTY'S RIGHT TO PERFORM PLEDGOR'S OBLIGATIONS; FURTHER
ASSURANCES. Pledgor agrees that, if Pledgor fails to perform any act that
Pledgor is required to perform under this instrument, Secured Party may, but
shall not be obligated to, perform or cause to be performed such an act.
Accordingly, to the extent permitted by law, Pledgor hereby authorizes Secured
Party to execute and file financing statements and continuation statements
without Pledgor's signature thereon. Any expense incurred by Secured Party in
taking action in accordance with this section shall be a demand obligation owing
by Pledgor to Secured Party, shall bear interest in accordance with the Loan
Agreement, and shall be a part of the Obligations, and Secured Party shall be
subrogated to all of the rights of the party receiving the benefit of such
performance. The undertaking of such performance by Secured Party as aforesaid
shall not obligate such Person to continue such performance or to engage in such
performance or performance of any other act in the future, shall not relieve
Pledgor from the observance or performance of any covenant, warranty, or
agreement contained in this instrument or constitute a waiver of default
hereunder, and shall not affect the right of Secured Party to accelerate the
payment of all indebtedness and other sums secured hereby or to resort to any
other of its rights, powers, or remedies hereunder or under applicable law. In
the event Secured Party undertakes any such action, it shall have liability to
Pledgor only upon a showing of its bad faith, gross negligence or willful
misconduct (BUT SPECIFICALLY EXCLUDING ITS ORDINARY OR PARTIAL NEGLIGENCE), and
in all events no party other than the acting party shall be liable to Pledgor.
Pledgor will from time to time (a) sign, execute, deliver, and file, alone or
with Secured Party, all further financing statements, security agreements, or
other documents that are reasonably necessary; (b) procure any instruments or
documents as may be reasonably requested by Secured Party, and (c) take all
further action that may be reasonably necessary, or that Secured Party may
reasonably request, to confirm, perfect, preserve, and protect the Security
Interests intended to be granted hereby.
5.04 DEFENSE OF CLAIMS. ICI will preserve, warrant, and defend the
Security Interest created hereby in the Security against the claims of all
Persons whomsoever; will maintain and preserve such Security Interest at all
times as contemplated by the Transaction Documents; and will not do or suffer
any matter or thing whereby such Security Interest might or could be impaired,
it being understood that the Secured Party's right in the Security is subject to
the rights of St. James in accordance with the Intercreditor Agreement. ICI
shall promptly notify Secured Party in writing of the commencement of any legal
proceedings affecting Secured Party's interest in the Security, or any part
thereof, and shall take such action, employing attorneys reasonably acceptable
to Secured Party, as may be necessary to preserve ICI's and Secured Party's
rights affected thereby, and should ICI fail or refuse to take any such action,
Secured Party may take the action on behalf of and in the name of ICI and at
ICI's expense. Moreover, Secured Party may take independent action in connection
therewith as it may in its sole discretion deem proper, and ICI hereby agrees to
make reimbursement for all reasonable sums advanced and all reasonable expenses
incurred in such actions plus interest in accordance with the Loan Agreement.
5.05 ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints Secured Party
as Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor or otherwise, from time to time in Secured
Party's discretion, but at Pledgor's cost and expense and without notice to
Pledgor, to take any action and to execute any assignment, certificate,
financing statement, stock power, notification, document or instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation, to receive, endorse and
collect all instruments made payable to Pledgor representing any dividend,
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interest payment or other distribution in respect of the Security or any part
thereof and to give full discharge for the same.
5.06 APPROVAL OF RIGHTS. After a default occurs, Pledgor will take all
actions the Secured Party requests to obtain the consent to or approval of the
Secured Party's rights under this Security Agreement, including without
limitation, the right to sell all or any part of the Security upon a Default
without the approval or consent of any judicial body. Pledgor and ICI agree that
the Secured Party's remedies at law for failure to comply with this provision
would be inadequate and that the harm to the Secured Party would not be
adequately compensable in damages. Pledgor and ICI agree that this provision may
be specifically enforced.
5.07 PLEDGOR'S OBLIGATIONS. This Security Agreement creates a legal ,
valid and binding lien in and to the Security in favor of Secured Party and
enforceable against ICI and Pledgor. Once perfected, the Security Interest will
constitute a first and prior lien on the Security. The creation of this Security
Interest does not require the consent of any third party, other than St. James,
which consent has been obtained. Debtor has not executed any prior transfer,
assignment, pledge, security interest or hypothecation covering the Security or
any interest in the Security, other than as acknowledged in the Intercreditor
Agreement.
SECTION 6. DEFAULT
6.01 EVENTS OF DEFAULT. Upon the occurrence and continuation of an Event
of Default beyond any applicable cure periods, as provided in the Note, Secured
Party may declare all Obligations immediately due and payable.
6.02 RIGHTS IN RESPECT OF SECURITY. Subject to the Intercreditor
Agreement, upon the occurrence and continuation of any Event of Default, in
addition to all other rights of Secured Party, Secured Party will have the right
and power, but will not be obligated, to enter upon and take possession of all
or any part of the Security, exclude Pledgor therefrom, and to hold, use,
administer, manage, and operate the same to the extent that Pledgor could do so.
After a Default under the Note, Secured Party may exercise every power, right,
and privilege of Pledgor with respect to the Security (including, without
limitation, the right of collection) without any liability (SPECIFICALLY
INCLUDING LIABILITY FOR ORDINARY OR PARTIAL NEGLIGENCE) to Pledgor in connection
therewith except with respect to bad faith, gross negligence or willful
misconduct; provided, however, that Secured Party may notify Account Debtors of
Pledgor to make payments directly to Secured Party only after all cure periods,
as provided in the Note, applicable to such Default have lapsed. Provided there
has been no foreclosure sale, when and if such expenses of operation have been
paid and the Obligations paid in full, the remaining Security shall be returned
to Pledgor.
6.03 ANCILLARY RIGHTS. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party hereunder, without notice, demand, or declaration of
default, all of which are hereby expressly waived by Pledgor, Secured Party may
proceed by a suit or suits in equity or at law (a) for the seizure and sale of
the Security or any part thereof, (b) for the specific performance of any
covenant or agreement contained in this Security Agreement, the Note or any of
the other Transaction Documents or in aid of the execution of any power herein
granted, (c) for the foreclosure or sale of the Security or any part thereof
under the judgment or decree of any court of competent jurisdiction, or (d) for
the enforcement of any other appropriate legal or equitable remedy.
6.04 RECEIVERSHIP. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party, Secured Party from time to time may apply to a court of
competent jurisdiction for the appointment of one or more receivers to take
possession of and to manage and administer the Security or any portion thereof
and to collect the Proceeds, all without demand or declaration of default, which
are hereby waived by Pledgor. Secured Party shall be entitled to the appointment
of such receiver(s) as a matter of right, without regard to the value of the
Security as security for the Obligations or the solvency of Pledgor or ICI or
any Person liable for the payment or performance of all or any part of the
Obligations. Such receiver(s) shall serve without bond and shall have all usual
and customary powers and authorities in addition to all other powers and
authorities permitted by the law of the jurisdiction where the Security is
situated and all powers and authorities granted to Secured Party herein.
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6.05 EXPENSES. ICI will pay to Secured Party all reasonable expenses,
including, without limitation, fees and expenses of any receiver(s), reasonable
attorneys' and consultants' fees and expenses, advanced by Secured Party and
incurred pursuant to the provisions contained in this Section, and all such
unpaid expenses shall be (a) a Lien against the Security; (b) added to the
Obligations, and (c) payable upon demand, with interest in accordance with the
Loan Agreement, provided, however, that the existence of said Lien shall in no
way waive, diminish, or prejudice any other rights, remedies, powers, and
privileges that Secured Party or any receiver(s) may have under the applicable
laws in the collection of such funds as loans or otherwise.
6.06 INJUNCTIVE RELIEF. Pledgor and ICI recognize that, in the event it
violates any of the warranties, covenants, terms, and conditions of this
Agreement, no remedy at law will provide adequate relief to Secured Party, and
Pledgor and ICI hereby agree that Secured Party shall be entitled to temporary
and permanent injunctive relief in case of any such breach without the necessity
of proving actual damages.
6.07 REMEDIES CUMULATIVE. No failure on the part of Secured Party or any
holder of the Note to exercise, and no delay in exercising, any right, power or
privilege hereunder, under the Note or under any other Transaction Document and
no course of dealing between ICI and Secured Party or any holder of the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or privilege, or any abandonment or discontinuance of any
steps to enforce such right, power or privilege, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
notice to or demand on ICI in any case shall entitle ICI to any other or further
notice or demand in similar or other circumstances. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.
SECTION 7. FORECLOSURE ON SECURITY
7.01 SALE. Upon the occurrence and continuation of an Event of Default,
Secured Party will have all rights and remedies granted by law, and particularly
by the UCC, including, without limitation, the right to take possession of the
Security, and for this purpose Secured Party may enter upon any premises on
which any or all of the Security is situated and take possession of and manage
the Security or remove it therefrom. Secured Party may require Pledgor to
assemble the Security and make it available to Secured Party at a place to be
designated by Secured Party that is reasonably convenient to all parties. Unless
the Security is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Secured Party will give Pledgor
and ICI reasonable notice of the time and place of any public sale or of the
time after which any private sale or other disposition of the Security is to be
made. This requirement of sending reasonable notice will be met if the notice is
sent to ICI as provided in the Note at least ten days before the time of the
sale or disposition.
7.02 PRIVATE SALE. If Secured Party in good faith believes that the
Securities Act of 1933 or any other state or federal law prohibits or restricts
the customary manner of sale or distribution of any of the Security, or if
Secured Party determines that there is any other restraint or restriction
limiting the timely sale or distribution of any such property in accordance with
the customary manner of sale or distribution, Secured Party may sell such
property privately or in any other manner and at such price or prices it deems,
in good faith, advisable, but otherwise without any liability whatsoever to
Pledgor or ICI in connection therewith. Pledgor and ICI recognize and agree that
such prohibition or restriction may cause such property to have less value than
it otherwise would have and that, consequently, such sale or disposition by
Secured Party may result in a lower sales price than if the sale were otherwise
held.
7.03 SECURED PARTY AS PURCHASER. Secured Party will have the right to
become the purchaser at any foreclosure sale, and it will have the right to
credit upon the amount of the bid the amount payable to it out of the net
Proceeds of sale.
7.04 RECITALS CONCLUSIVE; WARRANTY; RATIFICATION. Recitals contained in
any assignment or bill of sale to any purchaser at any sale made hereunder will
conclusively establish, as between the parties to such assignment or bill of
sale, the truth and accuracy of the matters therein stated, including, without
limitation, nonpayment of the unpaid principal sum of, and the interest accrued
on, the written instruments constituting part or all of the Obligations after
the same have become due and payable, nonpayment of any other of the
Obligations, or advertisement and conduct of the sale in the manner provided
herein. Secured Party will have authority to appoint an attorney-in-fact to act
in conducting any foreclosure sale and executing assignments and bills of sale.
All assignments and bills of sale may contain a general
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warranty of title from the grantor. Pledgor and ICI ratify and confirm all legal
acts that Secured Party may do in accordance with this Security Agreement.
7.05 EFFECT OF SALE. Any sale or sales of the Security or any part thereof
will operate to divest all right, title, interest, claim, and demand whatsoever,
either at law or in equity, of Pledgor in and to the property sold, and will be
a perpetual bar, both at law and in equity, against Pledgor, Pledgor's
successors or assigns and against any and all persons claiming or who shall
thereafter claim all or any of the property sold from, through, or under
Pledgor, or Pledgor's successors or assigns. The purchaser or purchasers at the
foreclosure sale will receive immediate possession of the property purchased.
7.06 APPLICATION OF PROCEEDS. Secured Party shall apply the Proceeds of
any sale or other disposition of the Security as follows: First, to the payment
of all its expenses incurred in retaking, holding, and preparing any of the
Security for sale(s) or other disposition, in arranging for such sale(s) or
other disposition, and in actually selling or disposing of the same (all of
which are part of the Obligations); second, toward repayment of amounts
reasonably expended by Secured Party under SECTION 5 hereof; and third, toward
payment of the balance of the Obligations in the order and manner determined by
Secured Party in its sole discretion. Any surplus remaining shall be delivered
to ICI or Pledgor or as a court of competent jurisdiction may direct.
7.07 DEFICIENCY. ICI shall remain liable for any deficiency owing to
Secured Party after application of the net Proceeds of any foreclosure sale.
Nothing herein contained shall be construed as limiting Secured Party to the
collection of any Obligations only out of the income, revenue, rents, issues,
and profits from the Security or as obligating Secured Party to delay or
withhold action upon any default that may be occasioned by failure of such
income or revenue to be sufficient to retire the principal or interest when due
on the indebtedness secured hereby. It is expressly understood between Secured
Party and ICI that any Obligation shall constitute an absolute, unconditional
obligation of ICI to pay as provided herein or in the Note in accordance with
the terms of the instrument evidencing such Obligations in the amount therein
specified at the maturity date or at the respective maturity dates of the
installments thereof, whether by acceleration or otherwise.
7.08 WAIVER OF APPRAISEMENT, MARSHALING, ETC. To the extent permitted by
applicable law, Pledgor and ICI agree that neither Pledgor nor ICI will at any
time insist upon or plead or in any manner whatsoever claim the benefit of any
appraisement, valuation, stay, extension, or redemption law, if any, now or
hereafter in force, to prevent or hinder the enforcement or foreclosure of this
instrument, the absolute sale of the Security or the possession thereof by any
purchaser at any sale made pursuant to this instrument or pursuant to the decree
of any court having jurisdiction. To the extent permitted by applicable law,
Pledgor and ICI, for Pledgor and all who may claim by, through, or under
Pledgor, hereby waives the benefit of all such laws, if any, and to the extent
that Pledgor may lawfully do so under applicable law, waives any and all right
to have any Security marshaled upon any foreclosure of the Lien hereof or sold
in inverse order of alienation, and Pledgor and ICI agree that Secured Party may
sell the Security as an entirety.
7.09 DISCHARGE OF PURCHASER. Upon any sale made under the powers of sale
herein granted and conferred, the sales receipt issued by Secured Party will be
sufficient discharge to the purchaser or purchasers at any sale for the purchase
money, and such purchaser or purchasers and the heirs, devisees, personal
representatives, successors, and assigns thereof will not, after paying such
purchase money and receiving such receipt of Secured Party, be obliged to see to
the application thereof or be in anywise answerable for any loss,
misapplication, or nonapplication thereof.
SECTION 8. MISCELLANEOUS
8.01 NOTICES. Subject to the provisions of SECTION 5.01, all
communications under this Security Agreement shall be given as provided in the
Note and shall be except as otherwise specified herein, all notices, requests,
demands or other communications to or upon the respective parties hereto shall
be deemed to have been duly given or made when delivered to the party to which
such notice, request, demand or other communication is required or permitted to
be given or made under this Agreement or the Note, addressed to such party at
its address set forth below or at such other address as either of the parties
hereto may hereafter notify the other in writing.
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To ICI or PLEDGOR:INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, President and CEO
with a copy to: Philip P. Sudan, Jr., Esq.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor,
Houston, Texas 77010;
Telephone: 713-652-0501
Telecopy: 713-652-0503
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attn..: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attn.: Director, Financial Administration
For wire transfers of funds to Secured Party under all Transaction Documents:
Custodian: Chase Bank of Texas - Houston, Texas
ABA #113000609
Trust Wires Clearing Account
DDA #00101606276
Description:Intelect Communication Receipts
OBI# Attn.: Trust Receipts
FFC: 5502001-1867300
THE COASTAL CORPORATION SECOND TRUST
Attn.: Mary Grace Greenwood
(713) 216-4539
8.02 SUCCESSORS AND ASSIGNS. No party may assign its rights or delegate
its duties hereunder to any Person without prior written consent of the other
party, which consent will not be unreasonably withheld. This Security Agreement
shall be binding upon the successors and permitted assigns of each of the
parties, and, except as expressly set forth in the Note and this SECTION 8.02,
shall inure to the benefit of the successors and permitted assigns of each of
the parties. The provisions of this Security Agreement are intended to be for
the benefit of all Persons constituting Secured Party.
8.03 AMENDMENT AND WAIVER.
(a) This Security Agreement may be amended, and the observance of
any term of this Security Agreement may be waived, with (and only with) the
written consent of the Parties.
(b) ICI and Pledgor shall not solicit, request, or negotiate for or
with respect to any proposed waiver or amendment hereof except in accordance
with the provisions of this Agreement and the Note.
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(c) Any such amendment or waiver shall apply equally to all persons
constituting Secured Party or ICI and shall be binding upon each future Secured
Party and upon each person constituting Pledgor or ICI regardless of whether
this Security Agreement, the Note or any other document shall have been marked
to indicate such amendment or waiver. No such amendment or waiver shall extend
to or affect any obligation not expressly amended or waived or impair any right
consequent thereon.
8.04 GOVERNING LAW. THIS SECURITY AGREEMENT, THE LEGAL RELATIONS AMONG THE
PARTIES HERETO, AND ALL RIGHTS AND OBLIGATIONS HEREUNDER, INCLUDING MATTERS OF
CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF
TEXAS WITHOUT REFERENCE TO THE LAW OF ANOTHER JURISDICTION AND THE LAWS OF THE
UNITED STATES OF AMERICA; PROVIDED, HOWEVER, THAT MATTERS RELATING TO THE
PERFECTION OF SECURITY INTERESTS UPON ANY PERSONAL PROPERTY SHALL BE GOVERNED BY
THE LAW OF ANOTHER JURISDICTION TO THE EXTENT REQUIRED BY THE NONWAIVABLE
PROVISIONS OF SUCH LAW OR THE LAW OF THE STATE OF TEXAS.
8.05 SEVERABILITY. If any provision in this Security Agreement is rendered
or declared illegal, invalid, or unenforceable by reason of any rule of law,
public policy, or final judicial decision, all other terms and provisions of
this Security Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions contemplated hereby
are not affected in any manner adverse to ICI, Pledgor or Secured Party. Upon
such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, ICI, Pledgor and Secured Party shall negotiate in
good faith to modify this Security Agreement so as to effect the original intent
of the Parties hereto as closely as possible to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
8.06 MULTIPLE COUNTERPARTS. The Parties may execute more than one
counterpart of this Security Agreement, each of which shall be an original but
all of which together shall constitute one and the same instrument.
8.07 REFERENCES. All references herein to one gender shall include the
other. Unless otherwise expressly provided, all references to "SECTIONS" are to
Sections of this Security Agreement and all references to "Exhibits" are to the
exhibits attached hereto, each of which is made a part hereof for all purposes.
8.08. FINAL AGREEMENT OF THE PARTIES. THIS SECURITY AGREEMENT (INCLUDING
THE EXHIBITS HERETO), THE NOTE AND THE OTHER TRANSACTION DOCUMENTS TO WHICH ICI
OR ANY OF ITS SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS DEFINED
IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Parties have caused this instrument to be executed
as of the Effective Date.
SECURED PARTY: ICI:
THE COASTAL CORPORATION SECOND INTELECT COMMUNICATIONS, INC.
PENSION TRUST
By: _____________________________ By:______________________________
Donald H. Gullquist Herman M. Frietsch
Senior Vice President President and CEO
The Coastal Corporation
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PLEDGOR: INTELECT NETWORK TECHNOLOGIES COMPANY
By:____________________________________
Title:_________________________________
PLEDGOR: DNA ENTERPRISES, INC.
By:____________________________________
Title:_________________________________
PLEDGOR: INTELECT VISUAL COMMUNICATIONS CORP.
By:____________________________________
Title:_________________________________
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EXHIBIT 10.4
BORROWER PLEDGE AGREEMENT
THIS BORROWER PLEDGE AGREEMENT (this "PLEDGE AGREEMENT"), is entered into
as of September 14, 1998 (the "EFFECTIVE DATE"), by and between INTELECT
COMMUNICATIONS, INC., a Delaware corporation ("ICI" or THE "PLEDGOR"), and THE
COASTAL CORPORATION SECOND PENSION TRUST, a trust organized under the laws of
the state of Texas ("SECURED PARTY").
W I T N E S S :
WHEREAS, pursuant to the terms, and subject to the conditions, set forth
in that certain Promissory Note (the "NOTE",) dated the Effective Date issued by
Pledgor and payable to the order of Secured Party in the original principal sum
of $5,000,000, Secured Party has agreed to advance funds to the Makers.
WHEREAS, it is a condition to the agreement of Secured Party to advance
such funds and to consummate the transactions contemplated by the Note that this
Pledge Agreement granting a Security Interest in the Collateral shall have been
executed and delivered by Pledgor and shall be in full force and effect.
NOW, THEREFORE, in order to induce, and in consideration of, the execution
and delivery of the Note, the advancement of funds under the Note by Secured
Party and the consummation of the transactions contemplated by the Note, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by Pledgor, Pledgor hereby covenants and agrees with Secured
Party as follows:
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS. As used in this Pledge Agreement, the following
terms or phrases have the respective meanings set forth below or in the Section
following such term:
"COLLATERAL" means (i) the aggregate of the Pledged Securities and (ii)
all dividends (cash, stock or otherwise), cash, instruments, rights to
subscribe, purchase or sell and all other rights and property from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such securities, (iii) all replacements, additions to and
substitutions for any of the property referred to in this definition, including,
without limitation, claims against third parties, (iv) the Proceeds, interest,
profits and other income of or on any of the property referred to in this
definition, and (v) all books and records relating to any of the property
referred to in this definition.
"CONSOLIDATED SUBSIDIARIES" means Intelect Network Technologies Company
(formerly Intelect, Inc.); DNA Enterprises, Inc.; Intelect Visual Communications
Corp. and Intelect Network Systems, Ltd.
"DESIGNATED SUBSIDIARIES" means Intelect Network Technologies Company; DNA
Enterprises, Inc.; and Intelect Visual Communications Corp.
"EFFECTIVE DATE" has the meaning given that term in the introduction to
this Pledge Agreement.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement between St.
James Capital Partners, L.P. and SJMB, L.P. (collectively, "St James") and
Secured Party dated September 14, 1998
"LIEN" shall mean any mortgage, pledge, Security Interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"MAKERS" has the meaning given that term in the Recitals to this Pledge
Agreement.
"NOTE" has the meaning given that term in the Recitals to this Pledge
Agreement.
<PAGE>
"OBLIGATIONS" means the aggregate of:
(1) the indebtedness evidenced by the Note;
(2) all sums advanced and costs and expenses incurred by Secured
Party in accordance with the Note, this Pledge Agreement and the other
Transaction Documents, including, without limitation, all reasonable legal,
accounting, consulting or like fees, made and incurred in connection with the
Obligations described in clause (1) above or any part thereof, any renewal,
extension, or modification of, or substitution for, the foregoing Obligations or
any part thereof, or the acquisition, perfection or maintenance and preservation
of the security for the Obligations, whether such advances, costs, or expenses
shall have been made and incurred at the request of Pledgor or Secured Party,
(3) all other Obligations of Pledgor pursuant to the Note and the
other Transaction Documents; and
(4) any and all extensions and renewals of, substitutions for, or
modifications or amendments of any of the foregoing Obligations or any part
thereof.
"PLEDGE AGREEMENT" means this Borrower Pledge Agreement dated as of the
Effective Date, between Pledgor, the Designated Subsidiaries and Secured Party,
as said agreement may be amended, modified, supplemented, and/or extended from
time to time.
"PLEDGED SECURITIES" means all of the following securities and all
additional securities (as that term is defined in the UCC), if any, constituting
Collateral under this Pledge Agreement, including:
(1) all of the 1,100 outstanding shares of the common capital stock
of DNA Enterprises, Inc., and any other shares of the common capital stock of
DNA now owned or hereafter acquired by Pledgor (such shares of stock referred to
in this SUBSECTION 1.1 are hereinafter sometimes referred to as the "DNA
SHARES").
(2) all of the outstanding common capital stock of Intelect Visual
Communications Corporation.
(3) all of the outstanding common capital stock of Intelect Network
Technologies Company.
"PLEDGOR" has the meaning given that term in the introduction to this
Pledge Agreement.
"PROCEEDS" means whatever is received upon the sale, exchange, collection,
or other disposition of the Collateral and insurance payable or damages or other
payments by reason of loss or damage to the Collateral.
"SECURED PARTY" has the meaning given that term in the introduction to
this Pledge Agreement.
"SECURITY INTEREST" has the meaning assigned to that term in SECTION 2.1.
"ST. JAMES" means St. James Capital Partners, L.P. and SJMB, L.P.
"ST. JAMES BORROWER PLEDGE AGREEMENT" means this Borrower Pledge Agreement
dated February 12, 1998 by and between ICI and St. James Capital Partners, L.P.,
as partially assigned to SJMB, L.P.
"TRANSACTION DOCUMENTS" means this Note, the Loan Agreement, the Pledge
Agreement, the Security Agreement and the Intercreditor Agreement.
"UCC" means the Uniform Commercial Code as in effect in any jurisdiction
applicable.
1.2 OTHER DEFINITIONS. Other capitalized terms used herein have the
meanings given them herein or in the Loan Agreement.
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<PAGE>
SECTION 2. CREATION OF SECURITY INTEREST
2.1 CREATION OF SECURITY INTEREST. In consideration of Secured Party's
advancing or extending the funds or credit constituting the Obligations
(including the indebtedness evidenced by the Note), as a condition to such
advances and extensions, in consideration of the mutual covenants contained
herein, and for the purpose of securing the payment and performance of the
Obligations, Pledgor hereby grants to Secured Party a continuing Security
Interest in and to all Collateral, including in all Proceeds, and subject to the
Intercreditor Agreement (the "SECURITY INTEREST").
2.2 PROCEEDS. Except as otherwise permitted herein and subject to the
Intercreditor Agreement, the Security Interest of Secured Party hereunder in the
Proceeds shall not be construed to mean that Secured Party consents to the sale
or other disposition of any part of the Collateral.
2.3 TRANSFER OF COLLATERAL. Subject to the Intercreditor Agreement, all
certificates or instruments representing or evidencing the Pledged Securities
shall be delivered to and held pursuant hereto by Secured Party or a person or
entity designated by Secured Party and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank.
SECTION 3. PLEDGOR'S REPRESENTATIONS, WARRANTIES, AND COVENANTS
3.1 RECORDING AND FILING. Pledgor shall pay all costs of filing,
registering, and recording this and every other instrument in addition or
supplemental hereto and all financing statements Secured Party may reasonably
require, in such offices and places and at such times and as often as may be, in
the reasonable judgment of Secured Party, necessary to create, perfect,
preserve, protect, and renew the Lien hereof on and in the Collateral, and
otherwise do and perform all matters or things necessary or expedient to be done
or observed by reason of any law or regulation of any applicable jurisdiction or
any other competent authority for the purpose of effectively creating,
perfecting, preserving, protecting, maintaining, and renewing the Lien hereof in
and on the Collateral and the priority thereof. Pledgor shall also pay the costs
of obtaining reports from appropriate filing offices concerning Lien filings in
respect of any of the Collateral. A carbon, photographic, or other reproduction
of this Pledge Agreement or of any financing statement relating hereto shall be
sufficient as a financing statement.
3.2 SECURED PARTY'S RIGHT TO PERFORM PLEDGOR'S OBLIGATIONS; FURTHER
ASSURANCES. Pledgor agrees that, if Pledgor fails to perform any act that
Pledgor is required to perform under this instrument, Secured Party may, but
shall not be obligated to, perform or cause to be performed such act.
Accordingly, to the extent permitted by law, Pledgor hereby authorizes Secured
Party to execute and file financing statements and continuation statements
without Pledgor's signature thereon. Any expense incurred by Secured Party in
taking action in accordance with the preceding two sentences shall be a demand
obligation owing by Pledgor to Secured Party, shall bear interest in accordance
with SECTION 6.14, and shall be a part of the Obligations, and Secured Party
shall be subrogated to all of the rights of the party receiving the benefit of
such performance. The undertaking of such performance by Secured Party as
aforesaid shall not obligate such Person to continue such performance or to
engage in such performance or performance of any other act in the future, shall
not relieve Pledgor from the observance or performance of any covenant,
warranty, or agreement contained in this instrument or constitute a waiver of
default hereunder, and shall not affect the right of Secured Party to accelerate
the payment of all indebtedness and other sums secured hereby or to resort to
any other of its rights, powers, or remedies hereunder or under applicable law.
In the event Secured Party undertakes any such action, it shall have liability
to Pledgor only upon a showing of its bad faith, gross negligence or willful
misconduct (BUT SPECIFICALLY EXCLUDING ITS ORDINARY OR PARTIAL NEGLIGENCE), and
in all events no party other than the acting party shall be liable to Pledgor.
Pledgor will from time to time (a) sign, execute, deliver, and file, alone or
with Secured Party, all further financing statements, security agreements, or
other documents that are reasonably necessary; (b) procure any instruments or
documents as may be reasonably requested by Secured Party, and (c) take all
further action that may be reasonably necessary, or that Secured Party may
reasonably request, to confirm, perfect, preserve, and protect the Security
Interests intended to be granted hereby.
3.3 DEFENSE OF CLAIMS. Pledgor will preserve, warrant, and defend the
Security Interest created hereby in the Collateral against the claims of all
Persons whomsoever; will maintain and preserve such Security Interest at all
times as contemplated by the Transaction Documents; and will not do or suffer
any matter or thing whereby such Security Interest might or could be impaired,
it being understood that the Secured Party's right in the Collateral is subject
to the
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<PAGE>
rights of St. James in accordance with the Intercreditor Agreement. Pledgor
shall promptly notify Secured Party in writing of the commencement of any legal
proceedings affecting Secured Party's interest in the Collateral, or any part
thereof, and shall take such action, employing attorneys reasonably acceptable
to Secured Party, as may be necessary to preserve Pledgor's and Secured Party's
rights affected thereby, and should Pledgor fail or refuse to take any such
action, Secured Party may take the action on behalf of and in the name of
Pledgor and at Pledgor's expense. Moreover, Secured Party may take independent
action in connection therewith as it may in its sole discretion deem proper, and
Pledgor hereby agrees to make reimbursement for all reasonable sums advanced and
all reasonable expenses incurred in such actions plus interest in accordance
with SECTION 6.14.
3.4 CORPORATE IDENTITY.
(a) Pledgor will maintain (i) the location of its places of business
and its primary corporate office and (ii) the locations where it keeps or holds
records relating to the Collateral at the locations at which the same are
located as of the date of this Pledge Agreement or at locations other than those
specified above if, prior to such relocation, Secured Party shall have given
Pledgor written notice thereof. Pledgor shall not in any event change the
location of any Collateral if such change would cause the Security Interest in
such Collateral to lapse or cease to be perfected.
(b) Pledgor, to the extent not otherwise restricted in the Note,
will not change its name, identity or form of organization in any manner unless
it shall have given prior written notice to Secured Party. On any such change,
Pledgor will execute and file such financing statements or other documents as
may be reasonably requested by Secured Party to maintain the perfection of its
Security Interest in the Collateral.
3.5 PLEDGED SECURITIES. The Pledged Securities have been duly authorized
and validly issued, and are fully paid and non-assessable. The Pledged
Securities constitute 100% of the issued and outstanding common stock of the
Consolidated Subsidiaries. No other person or entity has any interest in or
rights to acquire any interest in the Consolidated Subsidiaries, except as
provided in the St. James Borrower Pledge Agreement, and subject to the
Intercreditor Agreement.
3.6 FIRST PRIORITY SECURITY INTEREST. Except as provided in the
Intercreditor Agreement, the pledge of Pledged Securities pursuant to this
Pledge Agreement creates a valid and perfected first priority Security Interest
in the Collateral, enforceable against Pledgor and all third parties and
securing the payment and performance of the Obligations.
3.7 SALE, DISPOSITION OR ENCUMBRANCE OF COLLATERAL. Except as provided in
the Intercreditor Agreement, Pledgor will not in any way encumber any of the
Collateral (or permit or suffer any of the Collateral to be encumbered) or sell,
pledge, assign, lend or otherwise dispose of or transfer any of the Collateral
to or in favor of any person or entity other than Secured Party.
3.8 DIVIDENDS OR DISTRIBUTIONS. Subject to the Intercreditor Agreement,
any and all:
(a) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, or reclassification, and
(b) cash paid, payable or otherwise distributed in redemption of, or
in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Pledgor, and be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Secured Party as Collateral in the same
form as so received (with any necessary indorsement); provided, however, that
Secured Party shall have no duty to receive and hold such dividends and interest
payments and shall not be responsible for any failure to do so or delay in so
doing.
3.9 STOCK POWERS. Pledgor shall furnish to Secured Party such stock powers
and other instruments as may be required by Secured Party to assure the
transferability of the Collateral when and as often as may be requested by
Secured Party.
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<PAGE>
3.10 VOTING AND OTHER CONSENSUAL RIGHTS. Except to the extent otherwise
provided in SECTION 4.6(C), Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Collateral or any part
thereof for any purpose not inconsistent with the terms of this Pledge
Agreement, the Note or any other Transaction Document; provided however, that
Pledgor shall not exercise or refrain from exercising any such right if such
action would have a material adverse effect on the value of the Collateral or
any part thereof, and, provided, further, that upon request of Secured Party at
any time or from time to time, Pledgor shall give Secured Party prompt written
notice of the manner in which Pledgor has exercised, or the reasons for
refraining from exercising, any such right.
3.11 ATTORNEY-IN-FACT. Subject to the Intercreditor Agreement, Pledgor
hereby irrevocably appoints Secured Party as Pledgor's attorney-in-fact, with
full authority in the place and stead of Pledgor and in the name of Pledgor or
otherwise, from time to time in Secured Party's discretion, but at Pledgor's
cost and expense and without notice to Pledgor, to take any action and to
execute any assignment, certificate, financing statement, stock power,
notification, document or instrument which Secured Party may deem necessary or
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, to receive, endorse and collect all instruments made payable
to Pledgor representing any dividend, interest payment or other distribution in
respect of the Collateral or any part thereof and to give full discharge for the
same.
3.12 CUSTODY AND PRESERVATION OF THE COLLATERAL. Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which comparable secured parties accord comparable
Collateral, it being understood and agreed, however, that Secured Party shall
not have responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not Secured Party has or is deemed to have knowledge
of such matters, or (ii) taking any necessary steps to preserve rights against
persons or entities with respect to any Collateral.
SECTION 4. DEFAULT
4.1 EVENTS OF DEFAULT. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default beyond any applicable cure
periods, as provided in the Note, Secured Party may declare all Obligations
immediately due and payable.
4.2 RIGHTS IN RESPECT OF COLLATERAL. Subject to the Intercreditor
Agreement, upon the occurrence and continuation of any Event of Default, in
addition to all other rights of Secured Party, Secured Party will have the right
and power, but will not be obligated, to enter upon and take possession of all
or any part of the Collateral, exclude Pledgor therefrom, and to hold, use,
administer, manage, and operate the same to the extent that Pledgor could do so.
After a Default under the Note, Secured Party may exercise every power, right,
and privilege of Pledgor with respect to the Collateral (including, without
limitation, the right of collection) without any liability (SPECIFICALLY
INCLUDING LIABILITY FOR ORDINARY OR PARTIAL NEGLIGENCE) to Pledgor in connection
therewith except with respect to bad faith, gross negligence or willful
misconduct; provided, however, that Secured Party may notify account debtors of
Pledgor to make payments directly to Secured Party only after all cure periods,
as provided in the Note, applicable to such Default have lapsed. Provided there
has been no foreclosure sale, when and if such expenses of operation have been
paid and the Obligations paid in full, the remaining Collateral shall be
returned to Pledgor.
4.3 ANCILLARY RIGHTS. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party hereunder, without notice, demand, or declaration of
default, all of which are hereby expressly waived by Pledgor, Secured Party may
proceed by a suit or suits in equity or at law (a) for the seizure and sale of
the Collateral or any part thereof, (b) for the specific performance of any
covenant or agreement contained in this Pledge Agreement, the Note or any of the
other Transaction Documents or in aid of the execution of any power herein
granted, (c) for the foreclosure or sale of the Collateral or any part thereof
under the judgment or decree of any court of competent jurisdiction, or (d) for
the enforcement of any other appropriate legal or equitable remedy.
4.4 RECEIVERSHIP. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party, Secured Party from time to time may apply to a court of
competent jurisdiction for the appointment of one or more receivers to take
possession of and to manage and administer the Collateral or any portion thereof
and to collect the Proceeds, all without demand or declaration of default,
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<PAGE>
which are hereby waived by Pledgor. Secured Party shall be entitled to the
appointment of such receiver(s) as a matter of right, without regard to the
value of the Collateral as security for the Obligations or the solvency of
Pledgor or any Person liable for the payment or performance of all or any part
of the Obligations. Such receiver(s) shall serve without bond and shall have all
usual and customary powers and authorities in addition to all other powers and
authorities permitted by the law of the jurisdiction where the Collateral is
situated and all powers and authorities granted to Secured Party herein.
4.5 EXPENSES. Pledgor will pay to Secured Party all reasonable expenses,
including, without limitation, fees and expenses of any receiver(s), reasonable
attorneys' and consultants' fees and expenses, advanced by Secured Party and
incurred pursuant to the provisions contained in this SECTION 4, and all such
unpaid expenses shall be (a) a Lien against the Collateral; (b) added to the
Obligations, and (c) payable upon demand, with interest in accordance with
SECTION 6.14; provided, however, that the existence of said Lien shall in no way
waive, diminish, or prejudice any other rights, remedies, powers, and privileges
that Secured Party or any receiver(s) may have under the applicable laws in the
collection of such funds as loans or otherwise.
4.6 PLEDGED SECURITIES. Subject to the Intercreditor Agreement, upon the
occurrence and during the continuance of an Event of Default:
(a) All dividends and interest payments that are received by Pledgor
contrary to the provisions of this Pledge Agreement shall be received in trust
for the benefit of Secured Party, shall be segregated from other funds of
Pledgor and shall be forthwith paid over to Secured Party as Collateral in the
same form as so received (with any necessary indorsement).
(b) Secured Party may exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Securities as if it were the absolute owner thereof,
including without limitation, the right to exchange at its discretion, any and
all of the Pledged Securities upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any issuer of such Pledged Securities
or upon the exercise by any such issuer or Secured Party of any right, privilege
or option pertaining to any of the Pledged Securities, and in connection
therewith, to deposit and deliver any and all of the Pledged Securities with any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine, all without liability except to
account for property actually received by it, but Secured Party shall have no
duty to exercise any of the aforesaid rights, privileges or options and shall
not be responsible for any failure to do so or delay in so doing.
(c) At the option of Secured Party and upon written notification
thereof to Pledgor, all rights of Pledgor to exercise the voting and other
consensual rights which Pledgor would otherwise be entitled to exercise pursuant
to SECTION 3.10 with respect to the Pledged Securities shall cease, and all such
rights shall thereupon become vested in Secured Party who shall thereupon have
the sole right to exercise such voting and other consensual rights, but Secured
Party shall have no duty to exercise any such voting or other consensual rights
and shall not be responsible for any failure to do so or delay in so doing.
SECTION 5. FORECLOSURE ON COLLATERAL
5.1 SALE. Subject to the Intercreditor Agreement, upon the occurrence and
continuation of an Event of Default, Secured Party will have all rights and
remedies granted by law, and particularly by the UCC, including, without
limitation, the right to take possession of the Collateral, and for this purpose
Secured Party may enter upon any premises on which any or all of the Collateral
is situated and take possession of and manage the Collateral or remove it
therefrom. Secured Party may require Pledgor to assemble the Collateral and make
it available to Secured Party at a place to be designated by Secured Party that
is reasonably convenient to all parties. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Secured Party will give Pledgor reasonable notice of the time
and place of any public sale or of the time after which any private sale or
other disposition of the Collateral is to be made. This requirement of sending
reasonable notice will be met if the notice is sent to Pledgor as provided in
the Note at least ten days before the time of the sale or disposition.
5.2 PRIVATE SALE. If Secured Party in good faith believes that the
Securities Act of 1933 or any other state or federal law prohibits or restricts
the customary manner of sale or distribution of any of the Collateral, or if
Secured Party determines that there is any other restraint or restriction
limiting the timely sale or distribution of any such property
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<PAGE>
in accordance with the customary manner of sale or distribution, Secured Party
may sell such property privately or in any other manner and at such price or
prices it deems, in good faith, advisable, but otherwise without any liability
whatsoever to Pledgor in connection therewith. Pledgor recognizes and agrees
that such prohibition or restriction may cause such property to have less value
than it otherwise would have and that, consequently, such sale or disposition by
Secured Party may result in a lower sales price than if the sale were otherwise
held.
5.3 SECURED PARTY AS PURCHASER. Secured Party will have the right to
become the purchaser at any foreclosure sale, and it will have the right to
credit upon the amount of the bid the amount payable to it out of the net
Proceeds of sale.
5.4 RECITALS CONCLUSIVE; WARRANTY; RATIFICATION. Recitals contained in any
assignment or bill of sale to any purchaser at any sale made hereunder will
conclusively establish, as between the parties to such assignment or bill of
sale, the truth and accuracy of the matters therein stated, including, without
limitation, nonpayment of the unpaid principal sum of, and the interest accrued
on, the written instruments constituting part or all of the Obligations after
the same have become due and payable, nonpayment of any other of the
Obligations, or advertisement and conduct of the sale in the manner provided
herein. Secured Party will have authority to appoint an attorney-in-fact to act
in conducting any foreclosure sale and executing assignments and bills of sale.
All assignments and bills of sale may contain a general warranty of title from
the grantor. Pledgor ratifies and confirms all legal acts that Secured Party may
do in accordance with this Pledge Agreement.
5.5 EFFECT OF SALE. Any sale or sales of the Collateral or any part
thereof will operate to divest all right, title, interest, claim, and demand
whatsoever, either at law or in equity, of Pledgor in and to the property sold,
and will be a perpetual bar, both at law and in equity, against Pledgor,
Pledgor's successors or assigns and against any and all persons claiming or who
shall thereafter claim all or any of the property sold from, through, or under
Pledgor, or Pledgor's successors or assigns. The purchaser or purchasers at the
foreclosure sale will receive immediate possession of the property purchased.
5.6 APPLICATION OF PROCEEDS. Secured Party shall apply the Proceeds of any
sale or other disposition of the Collateral as follows: First, to the payment of
all its expenses incurred in retaking, holding, and preparing any of the
Collateral for sale(s) or other disposition, in arranging for such sale(s) or
other disposition, and in actually selling or disposing of the same (all of
which are part of the Obligations); second, toward repayment of amounts
reasonably expended by Secured Party under SECTION 5 hereof; and third, toward
payment of the balance of the Obligations in the order and manner determined by
Secured Party in its sole discretion. Any surplus remaining shall be delivered
to Pledgor or as a court of competent jurisdiction may direct.
5.7 DEFICIENCY. Pledgor shall remain liable for any deficiency owing to
Secured Party after application of the net Proceeds of any foreclosure sale.
Nothing herein contained shall be construed as limiting Secured Party to the
collection of any Obligations only out of the income, revenue, rents, issues,
and profits from the Collateral or as obligating Secured Party to delay or
withhold action upon any default that may be occasioned by failure of such
income or revenue to be sufficient to retire the principal or interest when due
on the indebtedness secured hereby. It is expressly understood between Secured
Party and Pledgor that any Obligations shall constitute an absolute,
unconditional obligation of Pledgor to pay as provided herein or in the Note in
accordance with the terms of the instrument evidencing such Obligations in the
amount therein specified at the maturity date or at the respective maturity
dates of the installments thereof, whether by acceleration or otherwise.
5.8 PLEDGOR'S WAIVER OF APPRAISEMENT, MARSHALING, ETC. To the extent
permitted by applicable law, Pledgor agrees that Pledgor will not at any time
insist upon or plead or in any manner whatsoever claim the benefit of any
appraisement, valuation, stay, extension, or redemption law, if any, now or
hereafter in force, to prevent or hinder the enforcement or foreclosure of this
instrument, the absolute sale of the Collateral or the possession thereof by any
purchaser at any sale made pursuant to this instrument or pursuant to the decree
of any court having jurisdiction. To the extent permitted by applicable law,
Pledgor, for Pledgor and all who may claim by, through, or under Pledgor, hereby
waives the benefit of all such laws, if any, and to the extent that Pledgor may
lawfully do so under applicable law, waives any and all right to have any
Collateral marshaled upon any foreclosure of the Lien hereof or sold in inverse
order of alienation, and Pledgor agrees that Secured Party may sell the
Collateral as an entirety.
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<PAGE>
5.9 DISCHARGE OF PURCHASER. Upon any sale made under the powers of sale
herein granted and conferred, the sales receipt issued by Secured Party will be
sufficient discharge to the purchaser or purchasers at any sale for the purchase
money, and such purchaser or purchasers and the heirs, devisees, personal
representatives, successors, and assigns thereof will not, after paying such
purchase money and receiving such receipt of Secured Party, be obliged to see to
the application thereof or be in anywise answerable for any loss,
misapplication, or nonapplication thereof.
SECTION 6. MISCELLANEOUS
6.1 TERMINATION. If all the Obligations are paid and performed in full and
the covenants herein contained are performed in all respects, then Secured Party
shall, upon the request of Pledgor and at Pledgor's cost and expense, deliver to
Pledgor proper instruments executed by Secured Party evidencing the release of
this instrument. Until such delivery, this instrument shall remain and continue
in full force and effect.
6.2 REMEDIES CUMULATIVE. No failure on the part of Secured Party or any
holder of the Note to exercise, and no delay in exercising, any right, power or
privilege hereunder, under the Note or under any other Transaction Document and
no course of dealing between Pledgor and Secured Party or any holder of the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or privilege, or any abandonment or discontinuance of any
steps to enforce such right, power or privilege, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. No
notice to or demand on Pledgor in any case shall entitle Pledgor to any other or
further notice or demand in similar or other circumstances. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
6.3 PARTIAL RELEASE. Except as expressly set forth therein, no release
from the Lien of this instrument of any part of the Collateral by Secured Party
shall in any way alter, vary, or diminish the force, effect or Lien of this
instrument on the balance or remainder of the Collateral.
6.4 SUBROGATION. This Pledge Agreement is made with full substitution and
subrogation of Secured Party in and to all covenants and warranties by others
heretofore given or made in respect of the Collateral or any part thereof.
6.5 SUCCESSOR LENDER. Any Person that succeeds to Secured Party as Holder
pursuant to, and as permitted by, the terms of the Note automatically shall
become Secured Party hereunder.
6.6 NOTICES. Subject to the provisions of SECTION 5.1, all communications
under this Pledge Agreement shall be given as provided in the Note and shall be
except as otherwise specified herein, all notices, requests, demands or other
communications to or upon the respective parties hereto shall be deemed to have
been duly given or made when delivered to the party to which such notice,
request, demand or other communication is required or permitted to be given or
made under this Agreement or the Note, addressed to such party at its address
set forth below or at such other address as either of the parties hereto may
hereafter notify the other in writing.
To Pledgor: INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone972-367-2100
Telecopy:972-367-2271
Attention: Herman Frietsch, President and CEO
with a copy to:Philip P. Sudan, Jr.,
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor,
Houston, Texas 77010;
Telephone713-652-0501
Telecopy:713-652-0503
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<PAGE>
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone713-877-6825
Telecopy:713-877-7071
Attn: Corporate Secretary
with a copy to:THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone713-877-6920
Telecopy:713-877-7132
Attn: Director, Financial Administration
For wire transfers of funds to Lender under all Transaction Documents:
Custodian: Chase Bank of Texas - Houston, Texas
ABA #113000609
Trust Wires Clearing Account
DDA #00101606276
DescriptiIntelect Communication Receipts
OBI# Attn: Trust Receipts
FFC: 5502001-1867300
THE COASTAL CORPORATION SECOND TRUST
Attn: Mary Grace Greenwood
(713) 216-4539
6.7 SUCCESSORS AND ASSIGNS. Neither party may assign its rights or
delegate its duties hereunder to any Person without prior written consent of the
other party, which consent will not be unreasonably withheld. This Pledge
Agreement shall be binding upon the successors and permitted assigns of each of
the parties, and, except as expressly set forth in the Note and this SECTION
6.7, shall inure to the benefit of the successors and permitted assigns of each
of the parties. The provisions of this Pledge Agreement are intended to be for
the benefit of all Persons constituting Secured Party.
6.8 AMENDMENT AND WAIVER.
(a) This Pledge Agreement may be amended, and the observance of any
term of this Pledge Agreement may be waived, with (and only with) the written
consent of Pledgor and Secured Party.
(b) Pledgor shall not solicit, request, or negotiate for or with
respect to any proposed waiver or amendment hereof except in accordance with the
provisions of this Agreement and the Note.
(c) Any such amendment or waiver shall apply equally to all persons
constituting Secured Party or Pledgor and shall be binding upon each future
Secured Party and upon each person constituting Pledgor regardless of whether
this Pledge Agreement, the Note or any other document shall have been marked to
indicate such amendment or waiver. No such amendment or waiver shall extend to
or affect any obligation not expressly amended or waived or impair any right
consequent thereon.
6.9 GOVERNING LAW. THIS PLEDGE AGREEMENT, THE LEGAL RELATIONS AMONG THE
PARTIES HERETO, AND ALL RIGHTS AND OBLIGATIONS HEREUNDER, INCLUDING MATTERS OF
CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF
TEXAS WITHOUT REFERENCE TO THE LAW OF ANOTHER JURISDICTION AND THE LAWS OF THE
UNITED STATES OF AMERICA; PROVIDED, HOWEVER, THAT MATTERS RELATING TO THE
PERFECTION OF SECURITY INTERESTS UPON ANY PERSONAL PROPERTY SHALL BE GOVERNED
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<PAGE>
BY THE LAW OF ANOTHER JURISDICTION TO THE EXTENT REQUIRED BY THE NONWAIVABLE
PROVISIONS OF SUCH LAW OR THE LAW OF THE STATE OF TEXAS.
6.10 SEVERABILITY. If any provision in this Pledge Agreement is rendered
or declared illegal, invalid, or unenforceable by reason of any rule of law,
public policy, or final judicial decision, all other terms and provisions of
this Pledge Agreement shall nevertheless remain in full force and effect so long
as the economic or legal substance of the transactions contemplated hereby are
not affected in any manner adverse to Pledgor or Secured Party. Upon such
determination that any term or other provision is invalid, illegal, or incapable
of being enforced, Pledgor and Secured Party shall negotiate in good faith to
modify this Pledge Agreement so as to effect the original intent of the parties
hereto as closely as possible to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
6.11 MULTIPLE COUNTERPARTS. The parties may execute more than one
counterpart of this Pledge Agreement, each of which shall be an original but all
of which together shall constitute one and the same instrument.
6.12 REFERENCES. All references herein to one gender shall include the
other. Unless otherwise expressly provided, all references to "SECTIONS" are to
Sections of this Pledge Agreement and all references to "Exhibits" are to the
exhibits attached hereto, each of which is made a part hereof for all purposes.
6.13 INTEREST. The Obligations of Pledgor pursuant to SECTIONS 3.2 AND 4.5
shall bear interest at an annual rate equal to the default rate set forth in the
Note from the date that is ten days after the date Secured Party notifies
Pledgor that Secured Party has paid amounts required to be paid by Pledgor
hereunder until such amounts are reimbursed to Secured Party. Secured Party
agrees to use all reasonable efforts to forward expense invoices to Pledgor for
direct payment by Pledgor before Secured Party advances amounts to be reimbursed
by Pledgor, and no interest shall accrue on amounts directly paid by Pledgor.
6.14. FINAL AGREEMENT OF THE PARTIES. THIS PLEDGE AGREEMENT (INCLUDING THE
EXHIBITS HERETO), THE NOTE AND THE OTHER TRANSACTION DOCUMENTS TO WHICH PLEDGOR
OR ANY OF ITS SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS DEFINED
IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the Effective Date.
SECURED PARTY: PLEDGOR:
THE COASTAL CORPORATION SECOND INTELECT COMMUNICATIONS, INC.
PENSION TRUST
By:_____________________________ By:_____________________________
Donald H. Gullquist Herman M. Frietsch
Senior Vice President President and CEO
The Coastal Corporation
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<PAGE>
IRREVOCABLE STOCK POWER
For Value Received, the undersigned hereby sells, assigns and transfers to
THE COASTAL CORPORATION SECOND PENSION TRUST, a Delaware corporation ("SECURED
PARTY"),_______________________________________ (______ ) shares of the common
stock of ____________________________ a corporation organized under the laws of
standing in the undersigned's name on the books of the corporation, represented
by Certificate No.____, and the undersigned does hereby irrevocably constitute
and appoint
__________________________ my true and lawful attorney-in-fact, with full power
of substitution, to transfer this stock on the books of the corporation.
Dated:________________________________
INTELECT COMMUNICATIONS, INC.
By:______________________________
Name:____________________________
Title:___________________________
In the presence of:
__________________________________
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EXHIBIT 10.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Security Agreement") is executed as of
September 14, 1998, by INTELECT COMMUNICATIONS, INC., a Delaware corporation
("Debtor"), and St. James Capital Partners, L.P., as agent for St. James Capital
Partners, L.P. and SJMB, L.P. and its successors and assigns (collectively, the
"Secured Party").
WHEREAS, Debtor entered into that certain Agreement for Purchase and Sale
dated as of February 12, 1998 between Debtor and Secured Party, pursuant to
which Debtor has executed one or more convertible promissory notes in an
aggregate principal amount of $15,000,000 (the "Notes");
WHEREAS, Debtor has agreed to the terms of a loan agreement dated the date
hereof (the "Coastal Loan Agreement") between Debtor as borrower and The Coastal
Corporation Second Pension Trust ("Coastal") as lender pursuant to which Coastal
has agreed to make up to $5,000,000 available to Debtor (the "Coastal Loan");
WHEREAS, the obligations of Debtor to repay the Coastal Loan are secured
by a security agreement of Debtor in favor of Coastal in respect of the accounts
receivable of Debtor; and
WHEREAS, as part of its consent to the Coastal Loan Agreement and Coastal
Loan, Secured Party has required that Debtor grant to Secured Party a second
priority security interest in the Accounts (defined below).
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and adequacy of which are acknowledged, Debtor
covenants and agrees with the Secured Party as follows:
1. CERTAIN DEFINITIONS. Unless otherwise defined in this Security
Agreement, each capitalized term used but not defined in this Security Agreement
will have the meaning given that term in the UCC as enacted in Texas (the
"UCC"). If the definition given in Chapter 9 of the UCC conflicts with the
definition given that term in any other chapter of the UCC, the Chapter 9
definition shall control. As used in this Security Agreement, the following
terms have the meanings indicated:
"ACCOUNTS" means all accounts receivable, together with any instruments,
chattel paper or general intangibles that arise from or relate to accounts
receivable, that now exist or are currently owned by Debtor or are later owned
or acquired by Debtor, including the cash or non-cash proceeds resulting
therefrom and all security and guaranties therefor.
"AFFILIATE" of a Person means any other individual or entity who directly
or indirectly controls, is controlled by, or is under common control with, that
Person.
"COLLATERAL" has the meaning given such term in Section 5 hereof.
<PAGE>
"DEFAULT" means an "EVENT OF DEFAULT" as defined in the Notes.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement dated as of
the date hereof among Debtor, Secured Party and Coastal.
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
"OBLIGATION" means (a) the amount due under the Notes, (b) all
indebtedness, liabilities and obligations of Debtor arising under this Security
Agreement, (c) interest accruing on, and attorneys' fees, court costs, and other
costs of collection reasonably incurred in the collection or enforcement of, any
of the indebtedness, liabilities, or obligations described in clauses (a) and
(b) above, and (d) any and all renewals and extensions of, or amendments to, any
of the indebtedness, liabilities, and obligations described in clauses (a)
through (c) above.
"SECURITY INTEREST" means the security interest granted and the pledge and
assignment made under the terms of this Security Agreement.
2. NOTES. This Security Agreement is being executed and delivered pursuant
to the terms and conditions of the Notes.
3. SECURITY INTEREST. Subject to the terms and conditions of this Security
Agreement, and to secure the prompt, unconditional and complete payment and
performance of the Obligation when due, Debtor grants to the Secured Party a
security interest in all of Debtor's right, title and interest in the
Collateral.
4. NO ASSUMPTION OR MODIFICATION. The Security Interest is given to secure
the prompt, unconditional, and complete payment and performance of the
Obligation when due, and is given as security only. The Secured Party does not
assume and shall not be liable for any of Debtor's liabilities, duties, or
obligations under or in connection with the Collateral. The Secured Party's
acceptance of this Security Agreement, or its taking any action in carrying out
this Security Agreement, does not constitute the Secured Party's approval of the
Collateral or the Secured Party's assumption of any obligation under or in
connection with the Collateral. This Security Agreement does not affect or
modify Debtor's obligations with respect to the Collateral. The Security
Interest is subordinate to the security interests granted by Debtor in favor of
The Coastal Corporation Second Pension Trust ("Coastal") pursuant to the
Security Agreement dated as of the date hereof in favor of Coastal and is
subject to the provisions of the Intercreditor and Subordination Agreement.
5. COLLATERAL. As used in this Agreement, the term "Collateral" means
Accounts, wherever located, whether now owned or hereafter acquired by Debtor.
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The description of Collateral contained in this Section includes after acquired
Collateral and proceeds of the Collateral. If at any time after the date of this
Agreement Debtor acquires any Pledged Shares, such Pledged Shares shall from and
after the date of issuance be included within the term "Collateral" and shall be
pledged pursuant to this Agreement.
6. FRAUDULENT CONVEYANCE. Notwithstanding anything contained in this
Agreement to the contrary, Debtor agrees that if, but for the application of
this Section, the Obligation or any Security Interest would constitute a
preferential transfer under 11 U.S.C. ss. 547, a fraudulent conveyance under 11
U.S.C. ss. 548 (or any successor section of that Code) or a fraudulent
conveyance or transfer under any state fraudulent conveyance or fraudulent
transfer law or similar Law in effect from time to time (each a "FRAUDULENT
CONVEYANCE"), then the Obligation and each affected Security Interest will be
enforceable to the maximum extent possible without causing the Obligation or any
Security Interest to be a Fraudulent Conveyance, and shall be deemed to have
been automatically amended to carry out the intent of this Section.
7. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to the
Secured Party as follows:
(a) BINDING OBLIGATION. This Security Agreement creates a legal,
valid and binding lien in and to the Collateral in favor of the Secured Party
and enforceable against Debtor. Once perfected, the Security Interest will
constitute a first and prior lien on the Collateral subject only to Liens in
favor of Coastal. The creation of the Security Interest does not require the
consent of any third party.
(b) PLACE OF BUSINESS; LOCATION OF RECORDS. Debtor's place of
business and chief executive office is at 1100 Executive Drive, Richardson,
Texas 75081.
(c) NO LIEN. Debtor has not executed any prior transfer, assignment,
pledge, security interest or hypothecation covering the Collateral or any
interest in the Collateral, other than in favor of Coastal.
(d) NO DEFENSES. The amounts due Debtor under the Collateral are not
subject to any material setoff, counterclaim, defense, allowance or adjustment
(other than discounts for prompt payment shown on the invoice) or to any
material dispute, objection or complaint by any Obligor.
8. COVENANTS. Debtor covenants and agrees with the Secured Party as
follows:
(a) APPROVAL OF RIGHTS. After a Default occurs, Debtor will take all
actions the Secured Party requests to obtain any Tribunal's consent to or
approval of the Secured Party's rights under this Security Agreement, including,
without limitation, the right to sell all or any part of the Collateral upon a
Default without the Tribunal's further consent or approval. Debtor agrees that
the Secured Party's remedies at law for Debtor's failure to comply with this
provision would be
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inadequate and that the harm to the Secured Party would not be adequately
compensable in damages. Debtor agrees that this provision may be specifically
enforced.
(b) PERFORM OBLIGATIONS. Debtor will: (i) perform all of its
obligations under or in connection with the Collateral in accordance with
customary business practices; (ii) promptly notify the Secured Party of any
change in any fact or circumstances represented by Debtor with respect to any of
the Collateral; and (iii) promptly notify the Secured Party of any claim, action
or proceeding affecting the Security Interest or title to all or any of the
Collateral and, at the request of the Secured Party, appear in and defend, at
Debtor's expense, any such action or proceeding.
(c) ASSURANCES. Debtor shall not change its name or address for
notices hereunder or relocate Debtor's principal place of business or chief
executive office unless prior thereto Debtor (i) gives the Secured Party ten
(10) days prior written notice thereof (such notice to include, without
limitation, the name of the county or parish and state into which any such
relocation is to be made) and (ii) executes and delivers all such additional
documents and performs all additional acts as the Secured Party, in its sole
discretion, may reasonably request in order to continue or maintain the
existence and priority of the Security Interest in such Collateral.
(d) FURTHER ASSURANCES. From time to time, Debtor will promptly
execute and deliver to the Secured Party all other assignments, certificates,
supplemental documents, financing statements and do all other acts the Secured
Party reasonably requests in order to create, evidence, perfect, continue or
maintain the existence and priority of the Security Interest and in order to
perfect the Security Interest in all future Collateral including, without
limitation, the execution and filing of such financing statements as the Secured
Party may reasonably require.
(g) MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Debtor will (i)
maintain its corporate existence and good standing and its authority to transact
business in all states where necessary; (ii) maintain all licenses, permits and
franchises necessary for its business; and (iii) keep all of its assets that are
useful in and necessary to its business in good working order and condition
(ordinary wear and tear excepted) and make all necessary repairs and
replacements.
9. DEFAULT; REMEDIES. Upon the occurrence of a Default, the Secured Party
has the following cumulative rights and remedies under this Security Agreement:
(a) RIGHTS. Subject to the terms of the Intercreditor Agreement, the
Secured Party may exercise any and all rights available to the Secured Party
under the UCC or any other applicable jurisdiction, as amended, in addition to
any and all other rights afforded by this Security Agreement, at law, in equity,
or otherwise, including, without limitation, applying by appropriate judicial
proceedings for appointment of a receiver for all or part of the Collateral (and
Debtor hereby consents to any such appointment).
(b) DEBTOR'S AGENT. Subject to the terms of the Intercreditor
Agreement, the Secured Party shall be deemed to be irrevocably appointed as
Debtor's agent and attorney-in-fact
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with all right and power to enforce all of Debtor's rights and remedies under or
in connection with the Collateral. All reasonable costs, expenses and
liabilities incurred and all payments made by the Secured Party as Debtor's
agent and attorney-in-fact, including, without limitation, reasonable attorney's
fees and expenses, shall be considered a loan by the Secured Party to Debtor
which shall be repayable on demand and shall accrue interest at the Default Rate
(as defined in the Note) and shall be part of the Obligation.
(c) NOTICE. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to be
made, shall be sent to Debtor and to any other Person entitled to notice under
the UCC; PROVIDED THAT, if any of the Collateral threatens to decline speedily
in value or is of the type customarily sold on a recognized market, the Secured
Party may sell or otherwise dispose of the Collateral without notification,
advertisement or other notice of any kind. It is agreed that notice sent or
given not less than five calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice for the purposes
of this subparagraph. It shall not be necessary that the Collateral be at the
location of the sale.
(d) APPLICATION OF PROCEEDS. The Secured Party shall apply the
proceeds of any sale or other disposition of the Collateral under this Section
as follows: First, to the payment of all its reasonable expenses incurred in
retaking, holding, and preparing any of the Collateral for sale(s) or other
disposition, in arranging for such sale(s) or other disposition, and in actually
selling or disposing of the same (all of which are part of the Obligation);
second, toward repayment of amounts reasonably expended by the Secured Party
under this Section; and third, toward payment of the balance of the Obligation
in the order and manner specified in the Notes. Any surplus remaining shall be
delivered to Debtor or as a court of competent jurisdiction may direct. If the
proceeds are insufficient to pay the Obligation in full, Debtor shall remain
liable for any deficiency.
10. OTHER RIGHTS OF THE SECURED PARTY.
(a) COLLECTION. Subject to the terms of the Intercreditor Agreement,
if a Default has occurred and is continuing, then the Secured Party shall have
the right in its own name or in the name of Debtor to (A) demand, collect,
receive, receipt for, and sue for any amounts due or to become due with respect
to Collateral; (B) take control of cash and other proceeds of the Collateral;
(C) endorse the name of Debtor on any notes, acceptances, checks, drafts, money
orders, or other evidences of payment on Collateral that may come into the
possession of the Secured Party; (D) take such action (in its own name or in the
name of Debtor) as the Secured Party shall deem appropriate for the collection
of any amounts owed with respect to Collateral or upon which a delinquency
exists, if any Debtor fails or refuses to make payment on the Collateral when
due; and (E) do all other acts and things necessary to carry out the intent of
this Security Agreement. Notwithstanding any other provision of this Security
Agreement to the contrary, the Secured Party shall not be liable for its failure
to collect, or for its failure to exercise diligence in the collection of, any
amounts owed with respect to the Collateral, nor shall it be under any duty to
anyone except Debtor to account for funds that it shall actually receive under
this Security Agreement. Without limiting the generality
5
<PAGE>
of the foregoing, the Secured Party shall have no responsibility for
ascertaining any maturities, calls, conversions, exchanges, offers, tenders or
similar matters relating to any Collateral, or for informing Debtor with respect
to any of such matters (regardless of whether the Secured Party actually has, or
may be deemed to have, knowledge of such matters). The receipt of the Secured
Party to any Debtor shall be a full and complete release, discharge, and
acquittance to any such issuer, to the extent of any amount so paid by such
issuer to the Secured Party.
(b) PERFORMANCE. Subject to the terms of the Intercreditor
Agreement, in the event Debtor fails to preserve the priority of the Security
Interest in any of the Collateral, then the Secured Party may (but is not
required to) prosecute or defend any suits in relation to the Collateral. Any
sum which may be expended or paid by the Secured Party under this subparagraph
(including, without limitation, court costs and reasonable attorneys' fees and
expenses) shall bear interest from the date of expenditure or payment at the
Default Rate (as defined in the Note) until paid and, together with such
interest, shall be payable by Debtor to the Secured Party upon demand and shall
be part of the Obligation.
(c) INDEMNIFICATION. Debtor hereby assumes all liability for the
Collateral, for the Security Interest, and for any use, possession, maintenance,
and management of, all or any of the Collateral, including, without limitation,
any taxes arising as a result of, or in connection with, the transactions
contemplated herein, and agrees to assume liability for, and to indemnify and
hold Secured Party harmless from and against, any and all claims, causes of
action, or liability, for injuries to or deaths of Persons and damage to
property, howsoever arising from or incident to such use, possession,
maintenance, management, whether such Persons be agents or employees of Debtor
or of third parties, or such damage to property of Debtor or of others. Unless
expressly prohibited by applicable Law, Debtor agrees to indemnify, save, and
hold Secured Party harmless from and against, and covenants to defend Secured
Party against, any and all losses, damages, claims, costs, penalties,
liabilities, and expenses, including, without limitation, court costs and
attorneys' fees, howsoever arising or incurred because of, incident to, or with
respect to Collateral or any use, possession, maintenance, or management
thereof.
11. MISCELLANEOUS.
(a) TERM. Upon full and final payment of the Obligation (or upon
conversion of the entire outstanding balance of principal of and interest on the
Notes pursuant to Article IV thereof) this Security Agreement shall terminate
upon receipt by the Secured Party of Debtor's written notice of such
termination; provided that no Debtor shall ever be obligated to make inquiry as
to the termination of this agreement, but shall be fully protected in making
payment directly to the Secured Party.
(b) ACTIONS NOT RELEASES. The Security Interest and Debtor's
obligation and the Secured Party's rights under this Security Agreement shall
not be released, diminished, impaired or adversely affected by the occurrence of
any one or more of the following events: (i) the taking or accepting of any
other security or assurance for any or all of the Obligation; (ii) any release,
6
<PAGE>
surrender, exchange, subordination or loss of any security or assurance at any
time existing in connection with any or all of the Obligation; (iii) the
modification of, amendment to or waiver of compliance with any terms of the
Notes; (iv) the insolvency, bankruptcy or lack of corporate or trust power of
any party at any time liable for the payment of any or all of the Obligation,
whether now existing or occurring in the future; (v) any renewal, extension or
rearrangement of the payment of any or all of the Obligation, either with or
without notice to or consent of Debtor or any adjustment, indulgence,
forbearance or compromise that may be granted or given by the Secured Party to
Debtor; (vi) any neglect, delay, omission, failure or refusal of the Secured
Party to take or prosecute any action in connection with the Notes; (vii) any
failure of the Secured Party to notify Debtor of any renewal, extension or
assignment of the Obligation or any part of the Obligation, or of any other
action taken or refrained from being taken by the Secured Party against Debtor
or any new agreement between the Secured Party and Debtor, it being understood
that, the Secured Party shall not be required to give Debtor any notice of any
kind under any circumstances whatsoever with respect to or in connection with
the Obligation, including, without limitation, notice of acceptance of this
Security Agreement or any Collateral ever delivered to or for the account of the
Secured Party under this Security Agreement; (viii) the illegality, invalidity
or unenforceability of all or any part of the Obligation against any third party
obligated with respect thereto by reason of the fact that the Obligation, or the
interest paid or payable with respect thereto, exceeds the amount permitted by
law, the act of creating the Obligation, or any part of the Obligation, is ULTRA
VIRES, or the officers, partners or trustees creating same acted in excess of
their authority, or for any other reason; or (ix) if any payment by any party
obligated with respect to such payment is held to constitute a preference under
applicable Laws or for any other reason the Secured Party is required to refund
such payment or pay the amount to someone else.
(c) WAIVERS. Except to the extent expressly otherwise provided in
this Security Agreement, Debtor waives (i) any right to require the Secured
Party to proceed against any other Person, to exhaust its rights in Collateral,
or to pursue any other right which the Secured Party may have; (ii) with respect
to the Obligation, presentment and demand for payment, protest, notice of
protest and nonpayment, notice of acceleration, and notice of the intention to
accelerate; and (iii) all rights of marshaling in respect of any and all of the
Collateral.
(d) FINANCING STATEMENT. The Secured Party shall be entitled at any
time to (i) file this Security Agreement or a carbon, photographic or other
reproduction of this Security Agreement, as a financing statement, but the
failure of the Secured Party to do so shall not impair the validity or
enforceability of this Security Agreement and (ii) sign a financing statement
covering the Collateral on behalf of Debtor.
(e) AMENDMENTS. Except as provided in Section 6 hereof, this
Security Agreement may only be amended by a writing jointly executed by Debtor
and the Secured Party, and supplemented only by documents delivered or to be
delivered in accordance with the express terms hereof.
7
<PAGE>
(f) MULTIPLE COUNTERPARTS. This Security Agreement may be executed
in any number of identical counterparts with the same effect as if all
signatories had signed the same document. In making proof of this Security
Agreement, it shall not be necessary to produce or account for more than one set
of counterpart signatures.
(g) PARTIES BOUND; ASSIGNMENT. Secured Party's rights hereunder
shall inure to the benefit of its successors and assigns, and in the event of
any assignment or transfer of any of the Obligation or the Collateral, Secured
Party thereafter shall be fully discharged from any responsibility with respect
to the Collateral so assigned or transferred, but Secured Party shall retain all
rights and powers hereby given with respect to any of the Obligation or
Collateral not so assigned or transferred. Debtor may not, without Secured
Party's prior written consent, assign any rights, duties, or obligations under
this Security Agreement. All representations, warranties and agreements of
Debtor shall be binding upon the successors and assigns of Debtor.
(h) NOTICE. Any required notice must be given to Debtor or the
Secured Party at the following addresses (or telecopier numbers):
DEBTOR
SECURED PARTY
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 75081
Attn: Herman Frietsch
St. James Capital Partners, L.P.
1980 Post Oak Boulevard, Suite 2030
Houston, Texas 77056
Attn: John L. Thompson
Notice shall be deemed to have been given (a) if by mail, on the third business
day after it is enclosed in an envelope and properly addressed, stamped, sealed,
certified return receipt requested, and deposited in the appropriate official
postal service, or (b) if by any other means when actually delivered. Either
party may change the address or telecopy number at which it receives notice by
giving five (5) day's advance written notice to the other party.
(i) ENTIRE AGREEMENT. This Security Agreement, the Notes and the
Intercreditor and Subordination Agreement constitute the entire agreement with
respect to the subject matter hereof, supersede any and all other agreements,
either oral or written, between the parties with respect to the subject matter
hereof and contain all of the covenants and agreements between the parties with
respect thereto.
(j) GOVERNING LAW. This agreement will be construed and its
performance enforced in accordance with the laws of the State of Texas and the
laws of the United States of America.
IN WITNESS WHEREOF, this Security Agreement is executed by Debtor as of
the date first set forth above.
8
<PAGE>
INTELECT COMMUNICATIONS, INC.
By:
Name:
Title:
9
<PAGE>
IN WITNESS WHEREOF, this Security Agreement is executed by the Secured
Party as of the date first set forth above.
ST. JAMES CAPITAL PARTNERS, L.P., as Agent
By: ST. JAMES CAPITAL CORP., its General Partner
By:_____________________________________
Name:
Title:
10
EXHIBIT 10.6
ST. JAMES CAPITAL CORP.
1980 POST OAK BLVD., SUITE 2030
HOUSTON, TEXAS 77056
September 14, 1998
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 77081
AGREEMENT FOR PURCHASE AND SALE DATED FEBRUARY 12, 1998
Gentlemen:
Reference is hereby made to the Agreement for Purchase and Sale dated as
of February12, 1998 (the "Agreement") between you as Seller and St. James
Capital Partners, L.P. as Purchaser ("SJCP"), as partially assigned to SJMB,
L.P. ("SJMB") and Falcon Seaboard Investment Co., LP ("Falcon", and together
with SJCP and SJMB, the "Purchasers"). Capitalized terms used herein but not
otherwise defined shall have the meaning given them in the Agreement. You have
informed us that Seller has agreed to enter into a loan agreement as borrower
with The Coastal Corporation Second Pension Trust as lender ("Coastal"),
pursuant to which Seller has agreed to borrow up to $5, 000,000 from Coastal.
You have also informed us that such loan shall be secured by the accounts
receivable of the Seller and by a second priority interest in the capital stock
of certain subsidiaries of the Seller. We write to confirm the agreement of the
Purchasers that, notwithstanding the provisions of the Agreement or the Borrower
Pledge, the Purchasers consent to the transactions with Coastal set forth above.
The foregoing consent is subject to the following conditions:
1. Seller shall provide, as of the date hereof, evidence to the
Purchasers that Coastal has executed and delivered an intercreditor
agreement in form and substance satisfactory to the Purchasers;
2. Seller shall commence providing, as soon as available, and in any
event within thirty (30) days after the end of each month,
consolidated financial statements of the Seller and its Subsidiaries
for such month, together with all notes thereto, prepared in a
manner consistent with Seller's internal reporting practices, and
certified by the chief financial officer of the Seller. These
financial statements shall contain a consolidated
<PAGE>
balance sheet as of the end of such month and consolidated
statements of earnings, and of cash flows.
3. Seller shall commence providing, as soon as available, and in any
event within forty- five (45) days after the end of each of the
first three quarters and within sixty (60) days after year-end,
consolidated financial statements of the Seller and its Subsidiaries
for such quarter, together with all notes thereto, prepared in
accordance with GAAP, and certified by the chief financial officer
of the Seller. These financial statements shall contain a
consolidated balance sheet as of the end of such quarter and
consolidated statements of earnings, of cash flows, and of changes
in owners' equity for such quarter, each setting forth in
comparative form the corresponding figures of the preceding quarter.
4. Seller acknowledges and confirms that:
(a) the ceiling of the fixed conversion price for the Seller's
Series D Preferred Stock was reset to the volume weighted average
trading price for the period between August 17, 1998 and August 21,
1998, which reset price is equal to $2.998 per share, subject to the
agreement of the holders of such securities to delay the effective
date of such reset to November 10, 1998;
(b) the reset described in 3(a) above triggered provisions of
Article III of the Warrants, and the resulting adjustments to the
Exercise Price of the Warrants and the number of shares of Common
Stock purchasable upon the exercise of the Warrants are accurately
set forth on Exhibit A attached hereto, subject to the terms of the
Letter Agreement with Citadel Limited Partnership dated August 23,
1998, the intention of Seller and Purchaser being to clarify the
operation of the provisions of Article III of the Warrants as a
condition to the consent granted hereunder; and
(c) Seller will keep Purchaser informed as to the terms and progress
of any discussions with Citadel Limited Partnership regarding the
restructuring of the preferred stock and will promptly disclose to
Purchaser the full and complete terms of any such restructuring.
5. Seller agrees that, if Seller elects to extend the maturity date of
the Notes, the exercise price per share for the Warrants referenced
in Section 1.3(c) of the Agreement shall be the LESSER of (1) $1.50
over the volume weighted average closing price of the Common Stock
for the ten (10) day period prior to the date of the Seller's
election to extend the maturity date of the Note and (2) $3.50.
Seller agrees that it shall not elect to extend the maturity of the
Notes unless it has obtained or simultaneously obtains an extension
of the maturity of the Coastal debt to a date on or after the
maturity date of the Notes. In the event any extension or amendment
of the Coastal Debt causes a change in the terms of the Coastal debt
which effects a change in the nature of Coastal's collateralization,
increases the Coastal debt or changes the priorities of Coastal's
security interests, Seller must first obtain the consent of
Purchaser to such revised terms.
<PAGE>
6. Seller shall pay to the Purchasers any outstanding fees or other
amounts due and owing as of the date hereof.
7. Seller hereby acknowledges and agrees that Section 3.1(d) of each of
the Notes shall be amended to read in its entirety as follows:
(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 (i) any
Indebtedness of the Company or such Subsidiary (other than the
Indebtedness evidenced by this Note or referenced in clause (ii) of
this Section 3.1(d)) 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 (ii) any Indebtedness of the Company or such subsidiary
owed to The Coastal Corporation Pension Trust, including any of its
affiliates and permitted assignees; or
Seller further acknowledges and agrees that this letter agreement
shall serve as an endorsement to each of the Notes.
<PAGE>
This letter shall not constitute a waiver of any other provision of the
Agreement nor be construed as an agreement by the Purchasers to agree to waive
any provisions of the Agreement in the future. To the extent this letter
agreement constitutes an amendment of the Agreement, the parties by their
signature hereon consent and agree to such amendment of the Agreement.
Very truly yours,
ST. JAMES CAPITAL PARTNERS, L.P.
By: St. James Capital Corp.
By: _____________________________
Name:
Title:
SJMB, L.P.
By: SJMB, L.L.C.
By: _____________________________
Name:
Title:
FALCON SEABOARD INVESTMENT CO., LP
By: _____________________________
Name:
Title:
AGREED AND ACKNOWLEDGED THIS
____ DAY OF SEPTEMBER, 1998.
INTELECT COMMUNICATIONS, INC.
By: _____________________________
Name:
Title:
EXHIBIT 10.7
AMENDED AND RESTATED PROMISSORY NOTE
$40,000.00 December 5, 1997
FOR VALUE RECEIVED, the undersigned, Intelect Communications, Inc.
("Maker"), a Delaware corporation, unconditionally hereby promises to pay to the
order of ________________________ ("Payee") at its business office in
Richardson, Dallas County, Texas, or at such other place as the holder of this
note may hereafter designate, the principal sum of _________________________
DOLLARS ($_____________) in lawful money of the United States of America for the
payment of private debts, together with interest (calculated on the basis of the
actual number of days elapsed but computed as if each year consisted of 365
days) on the unpaid principal balance from time to time owing hereon computed
from the date hereof until maturity at a per annum rate which from day to day
shall be, except as otherwise provided in this note, the lesser of (a) the Loan
Rate (as hereinafter defined) or (b) the Highest Lawful Rate (hereafter defined)
in effect from day to day. The term "Loan Rate" shall mean the sum of three
percent (3%) and the Prime Rate (hereinafter defined) in effect from day to day.
The term "Prime Rate" shall mean as to any day the "Prime Rate" as published in
THE WALL STREET JOURNAL for that day in the "Money Rates" table.
All past-due principal and interest, whether by acceleration or otherwise,
shall bear interest at the Highest Lawful Rate until paid.
The principal and all interest then accrued on this note shall be payable
on demand. At the election of the Payee of this note, at any time prior to the
note being repaid by the Maker, the Payee may send written notice to the Maker
electing to have the note repaid in the form of Common Stock of the Maker, upon
Payee's demand, at a price equal to $2 PER SHARE for every dollar of principal
and interest outstanding on the note as of the date of repayment; provided,
however, that the issuance of such Common Stock shall comply with one or more
applicable exemptions from registration under federal and state securities laws
and the Payee contemporaneously with the issuance of such Common Stock executes
such documentation as Maker's counsel shall deem necessary for compliance with
federal and state securities laws in the issuance of such Common Stock.
This note may be prepaid at any time, in whole or in part, without penalty
following three (3) days' advance written notice by Maker to Payee, unless Payee
shall deliver written notice to Maker within such three day period of Payee's
election to have the note repaid in the form of Common Stock of the Maker
pursuant to this note's terms. All payments will be applied first to accrued
interest and then to the reduction of principal.
Notwithstanding anything contained herein to the contrary, if at any time
during the term of this note the Highest Lawful Rate has been charged Maker in
lieu of the Loan Rate because the Loan Rate has exceeded the Highest Lawful Rate
on one or more days during the term of this note, and if, as a result, on any
date during the term of this note the aggregate amount of interest which has
accrued on this note up to, but not including, such date is less than the
aggregate amount of interest which otherwise would have accrued on this note up
to, but not including, such date had the Loan Rate been charged for every day
during the term of this note up to, but not including, such date, then on such
date the unpaid principal balance of this note shall bear interest at the
Highest Lawful Rate even though the Highest Lawful Rate is in excess of the Loan
Rate for such date.
It is expressly provided and stipulated that notwithstanding any provision
of this note or any other instrument evidencing or securing the loan herein set
forth, in no event shall the aggregate of all interest paid or contracted to be
paid to Payee by Maker (or any guarantors or endorsers) ever exceed the maximum
amount of interest which may lawfully be charged the undersigned by Payee on the
principal balance of this note from time to time advanced and remaining unpaid.
In this connection, it is expressly stipulated and agreed that it is the intent
of Payee and Maker in the execution and delivery of this note to contract in
strict compliance with applicable usury laws. In furtherance thereof, none of
the terms of this note or said other instruments shall ever be construed to
create a contract to pay interest at a rate in excess of the Highest Lawful Rate
for the use, forbearance or detention of money. The term "Highest Lawful Rate"
shall mean the maximum non-usurious rate of interest which may lawfully be
charged the undersigned by Payee according to the indicated rate ceiling as
defined in Tex. Rev. Civ. Stat. Ann. Art. 5069-1.04 in effect at such time and
which would be applicable to the indebtedness evidenced by this note (provided
that as permitted by law, Payee or other holder may, from time to time,
implement any applicable ceiling under such Article and revise the index formula
or provision of law used to compute the rate ceiling by notice to Maker as
provided by such Article) or under the laws of the United States. The parties
hereto acknowledge that the effective date of this instrument is the date on
which the indebtedness evidenced hereby has been contracted for. In determining
whether the loan evidenced by this note is usurious under applicable law, all
interest at any time contracted for, charged, or received from Maker in
connection with the loan shall be amortized, prorated, allocated, and spread in
equal parts during the period of the full stated term of the loan. However, in
the event that this note is paid in full by Maker (or any endorser or guarantor
hereof) prior to the end of the full stated term of this note and in the event
the interest received by the holder of this note for the actual period of the
existence of the loan exceeds the Highest Lawful Rate, the holder of this note
shall, at its option, either refund to Maker the amount of such excess or credit
the amount of such excess against any amounts owing by Maker under this note. In
addition, if, from any circumstances whatsoever, fulfillment of any provision
hereof or of any instrument securing this note or of any other agreement
referred to herein or executed pursuant to or in connection with this note, at
the time performance of such provision shall be due, shall involve transcending
the limit of validity prescribed by applicable law, then, IPSO FACTO, the
obligation to fulfill shall be reduced to the limit of such validity, and if
from any circumstance the holder there of shall ever receive as interest an
amount which would exceed the Highest Lawful Rate, such amount which would be
excessive interest shall, at the option of Payee, be refunded to Maker or be
applied to the reduction of the unpaid principal balance due hereunder and not
to the payment of interest. The provisions of this paragraph shall supersede all
other provisions of this note and all other instruments evidencing or securing
this loan, should such provisions be in apparent conflict herewith.
The undersigned Maker and all endorsers, sureties and guarantors hereof,
as well as all persons to become liable on this note, hereby jointly and
severally waive all notices of non-payment, demands for payment, presentments
for payment, notices of intention to accelerate maturity, notices of actual
acceleration of maturity, protests, notices of protest, and any other demands or
notices of any kind as to this note, diligence in collection hereof and in
bringing suit hereon, and any notice of, or defense on account of, the extension
of time of payments or change in the method of payments, and without further
notice hereby consent to any and all renewals and extensions in the time of
payment hereof either before or after maturity and the release of any party
primarily or secondarily liable hereon.
Maker agrees that Payee's acceptances of partial or delinquent payments,
or failure of Payee to exercise any right or remedy contained herein or in any
instrument given as security for the payment of this note shall not be a waiver
of any obligation of Maker to Payee or constitute waiver of any similar default
subsequently occurring.
In the event default is made in the prompt payment of this note upon
demand, or the same is placed in the hands of an attorney for collection, or
suit is brought on same, or the same is collected through any judicial
proceeding whatsoever, or if any action of foreclosure be had hereon, then Maker
agrees and promises to pay the Payee reasonable attorneys' fees in addition to
the other amounts due hereunder.
This note may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
Except to the extent that the laws of the United States may apply to the
terms hereof, this note shall be governed by and construed in accordance with
the laws of the State of Texas. This instrument is made and is performable in
Richardson, Dallas County, Texas and in the event of a dispute involving this
note or any other instruments executed in connection herewith, Maker irrevocably
agrees that venue for such dispute shall be in any court of competent
jurisdiction in Dallas County, Texas.
This note and all the covenants, promises and agreements contained herein
shall be binding upon and inure to the benefit of Payee's and Maker's heirs,
successors, legal representatives and assigns.
IN WITNESS WHEREOF, Maker has executed and delivered this note to Payee in
Richardson, Texas, effective December 5, 1997.
Intelect Communications, Inc.
By:
Edwin J. Ducayet, Jr.
Its: Vice President
