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) February 24, 1999
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") announced that it has
entered into an agreement with certain funds managed by the Citadel Investment
Group, L.L.C. ("Citadel"), Promethean Investment Group, L.L.C. ("Promethean"),
and Angelo, Gordon & Co., L.P. ("Angelo Gordon") to issue in a private placement
a new series of its preferred stock designated as the Series E Convertible
Preferred Stock (the "Series E Preferred Stock"). The Company will authorize the
issuance of up to 9,600 shares of the Series E Preferred Stock at a Stated Value
per share of $1,000. The Series E Preferred Stock will have a five year term,
pay no dividends, have no-voting rights, have an annual premium of 8% payable
upon conversion in common stock, par value $0.01 of the Company ("Common Stock")
(or cash at the Company's option on prior notice), and convert into Common Stock
at the lesser of a fixed conversion price or a variable conversion price.
SUMMARY OF TRANSACTION TERMS
The following is a summary of the material terms of the Series E Preferred
Stock, which terms are qualified by reference to the full text of the underlying
documents which are filed as exhibits to this Form 8-K. The underlying documents
for the Series E Preferred Stock are a Securities Purchase Agreement,
Registration Rights Agreement and a Certificate of Designations, Preferences and
Rights, all filed as exhibits to this Form 8-K. In addition, a Form of Warrant
is also filed as an exhibit to this Form 8-K.
THE CLOSINGS. The transaction is divided into several separate closings. At the
initial closing of the transaction (the "Initial Closing"), Citadel will
purchase from the Company an aggregate of 3,000 shares of Series E Preferred
Stock for total gross proceeds to the Company of $3,000,000. The Company will
issue to Citadel warrants to purchase 100 shares of Common Stock for each share
of Series E Preferred Stock purchased at the Initial Closing. The Initial
Closing is subject to various conditions, including a) that the Company's
stockholders approve at its special meeting of stockholders on March 3, 1999 the
proposals to approve the amendment to the Company's Amended and Restated
Certificate of Incorporation increasing its authorized shares of Common Stock to
100,000,000 shares, and the issuance of the shares of Common Stock issuable upon
conversion of the Company's outstanding Series C and Series D Convertible
Preferred Stock, b) that the representations, warranties and agreements of the
Company set forth in the transaction documents are true and correct as of the
Initial Closing, c) the Company file the Certificate of Designations for the
Series E Preferred Stock with the Delaware Secretary of State, d) that the
Company deliver all required certificates, opinions, and documents required
under the Securities Purchase Agreement, and e) certain other terms and
conditions, all as more fully set forth in the Securities Purchase Agreement.
The Initial Closing is scheduled to occur on or about March 5, 1999, subject to
the satisfaction of the conditions to closing. After the Initial Closing, at a
future date, Promethean and Angelo Gordon are to purchase from the Company an
additional 3,000 shares of the Series E Preferred Stock for an additional
$3,000,000 (the "Mandatory Closing"). Each of these purchasers will receive
warrants to purchase 100 shares of Common Stock for each share of
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Series E Preferred Stock purchased at the Mandatory Closing. The conditions to
the Mandatory Closing include a) the effectiveness of a registration statement
with the Securities and Exchange Commission ("SEC") covering the resale of the
shares of Common Stock issuable upon conversion of the Series E Preferred Stock
issued at the Inital Closing and to be issued at the Mandatory Closing, and
shares of Common Stock issuable upon exercise of the related warrants, b) that
the representations, warranties and agreements of the Company as set forth in
the transaction documents are true and correct as of the date of the Mandatory
Closing, c) the Company's Common Stock is listed with The Nasdaq Stock Market
("Nasdaq"), d) the Company delivers all required certificates, opinions, and
documents required under the Securities Purchase Agreement, and e) the
satisfaction of certain other terms and conditions, all as more fully set forth
in the Securities Purchase Agreement. The Company has also granted each of the
Purchasers of the Series E Preferred Stock the right to purchase up to an
additional 3,600 shares of Series E Preferred Stock beginning six months after
the Initial Closing and ending eighteen months after the Initial Closing. These
additional closings are to occur only if the Purchasers provide five days prior
written notice to the Company of their intention to purchase, and are subject to
the satisfaction or waiver of certain conditions to closing. Should such
additional closings occur, the holders will be entitled to receive warrants to
purchase 100 shares of Common Stock for each share of Series E Preferred Stock
purchased at the additional closing. The proceeds from the offering, including
the Initial Closing and the Mandatory Closing, will be used by the Company for
working capital and general corporate purposes.
CONVERSION. Each share of Preferred Stock is convertible into that number of
shares of Common Stock equal to (i) $1,000 (the "Stated Value"), plus any
accrued premium of 8% per annum, divided by (ii) the applicable conversion
price. The applicable conversion price is the lesser of (i) a "fixed conversion
price", or (ii) a "variable conversion price". The fixed conversion price for
the 3,000 shares of Series E Preferred Stock to be purchased at the Initial
Closing is $1.80. The fixed conversion price for the 3,000 shares of Series E
Preferred Stock to be purchased at the Mandatory Closing will be the lesser of
$1.80 or the lowest closing bid price for the ten (10) consecutive trading days
before the date of the filing of the registration statement with the SEC
covering the resale of the shares of Common Stock issuable upon conversion of
the Series E Preferred Stock. The fixed conversion price at the additional
closings, if any, would be $3.00. The variable conversion price is 83.5% of the
average of the two lowest closing bid prices of the Common Stock as reported on
Bloomberg for the forty (40) consecutive trading days before the date of
conversion (the "Variable Conversion Price"). In the event that the Company or
the transfer agent do not timely effect a conversion or reissuance of the
remaining shares of Series E Preferred Stock, the Company is subject to certain
liquidated damage penalties, adjustments to the applicable fixed conversion
price and certain other penalties as more fully described in the Certificate of
Designations.
In addition, if the holders of the Series E Preferred Stock submit a conversion
request and the Company is not able to issue the required amount of shares of
Common Stock due to the Company's inability to comply with the rules of Nasdaq,
under the Certificate of Designations, a Triggering Event would occur. In such
event, the Company could be required by the holders to redeem all of the
remaining shares of Series E Preferred Stock at a price equal to 120% of the
Stated Value. In addition, upon the Triggering Event, the holders of the Series
E Preferred Stock
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could attempt to require the Company to delist its Common Stock from Nasdaq and
begin trading on the electronic bulletin board or pink sheets.
The shares of Series E Preferred Stock are presently convertible. The holders of
the Series E Preferred Stock are prohibited in the Certificate of Designations
from converting their respective holdings of the Series E Preferred Stock if
after giving effect to such conversion the holder would beneficially own in
excess of 4.99% of the outstanding shares of Common Stock of the Company
following such conversion. The Series E Preferred Stock will convert
automatically into Common Stock at the applicable Conversion Price then in
effect on the fifth anniversary date of issuance, to the extent any shares of
the applicable issuance of Series E Preferred Stock remain outstanding.
In connection with the Series E Preferred Stock, the following risks are
associated with Series E Preferred Stock conversions:
o because the Variable Conversion Price of the Series E Preferred Stock is a
function of the market price of the Common Stock upon conversion, the
lower the price of the Common Stock at the time the holder converts, the
greater number of shares of Common Stock received upon conversion;
o to the extent that Common Stock received upon conversion is sold into the
market, and disregarding the manner in which such shares are sold as well
as any other factors such as reactions to the Company's operating results
and general market conditions which may be operative in the market at such
time, such sales may cause a decrease in the market price of the Common
Stock, which in turn relative to additional conversions of the Series E
Preferred Stock would reduce the Variable Conversion Price and increase
the number of shares of Common Stock issued upon conversion and available
for sale into the market for the Common Stock;
o short sales of the Common Stock may be attracted by or accompany
conversions and sales of Common Stock from conversions, which sales in the
aggregate could cause downward pressure upon the price of the Common
Stock, excluding the effect of other market factors possibly operative at
the time; and
o conversions of the Series E Preferred Stock may result in substantial
dilution of the interests of the other holders of Common Stock. In this
regard, the ownership limitation which prohibits the purchasers from
owning more than 4.99% of the Common Stock of the Company only applies to
shares of Common Stock held at one time and does not prevent purchasers
from converting and selling some of their holdings and then later
converting the rest of the holdings.
In addition, the Company's Common Stock could be delisted by Nasdaq in the
event that the Company's stock price decreases below the $1 minimum bid price as
required by Nasdaq or the Company otherwise fails to satisfy the minimum listing
requirements of Nasdaq. In such an event, should such a delisting extend for
five or more consecutive trading days, a Triggering Event would occur and the
holders of the Series E Preferred Stock could require the Company to redeem the
outstanding shares of Series E Preferred Stock. See "Redemption - Triggering
Event".
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DIVIDENDS. The holders of the Series E Preferred Stock are not entitled to
receive dividends. The holders are entitled to receive upon conversion, payable
in cash or Common Stock at the election of the Company, an annual premium of 8%
on the aggregate "Stated Value" (i.e., $1,000 per share) (the "Additional
Amount"). The Company does not presently intend to pay such Additional Amount in
cash.
VOTING RIGHTS. The holders of the Series E Preferred Stock have no voting rights
except as provided by law, except to the extent such holders own shares of
Common Stock.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the Series
E Preferred Stock shall be entitled to receive in cash out of the assets of the
Company, whether from capital or from earnings available for distribution to its
stockholders ("Liquidation Funds") before any amount shall be paid to any class
junior in rank to the Series E Preferred Stock an amount per share of Series E
Preferred Stock equal to $1,000 plus any Additional Amount (the "Liquidation
Preference"). In addition to the Liquidation Preference, in the event of any
involuntary liquidation, dissolution or winding up, the holders will also be
entitled to receive any Liquidation Funds distributed to the holders of the
Common Stock, after the Liquidation Preference has been paid, to the same extent
as if such holders of the Series E Preferred Stock has converted their shares
into Common Stock (without regard to any limitations on conversion) and had held
such shares of Common Stock on the record date for the distribution of the
remaining Liquidation Funds.
REDEMPTION. The holders of the Series E Preferred Stock may require the Company
to redeem the Series E Preferred Stock upon the consummation of a "Major
Transaction" or a "Triggering Event".
MAJOR TRANSACTIONS
o certain mergers, consolidations, tender offers, or the sale
of substantially all the assets of
the Company
TRIGGERING EVENTS
o failure of the registration statement covering the resale of the
conversion shares and the shares issuable upon exercise of the warrants to
be declared effective within 120 days after the Initial Closing Date;
o the effectiveness of the registration statement lapses for five or more
consecutive days (subject to applicable grace periods);
o the registration statement is unavailable for the sale of all of the
"Registrable Securities" (as defined) for five or more consecutive days in
accordance with the terms of the applicable registration rights agreement;
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o the delisting of the Company's Common Stock by Nasdaq for five consecutive
trading days or for more than an aggregate of 10 trading days per year;
o certain failures of the Company or its transfer agent to comply with
conversions of the Series E Preferred Stock within 10 business days after
a conversion notice is submitted;
o the inability of the Company to issue conversion shares due to limitations
imposed by the requirements of Nasdaq; and
o certain breaches of representations, warranties, covenants or terms of the
transaction documents which would have a Material Adverse Effect (as
defined).
REDEMPTION AND OTHER REMEDIES
o The holders can send a notice of redemption upon the occurrence of such a
Triggering Event or Major Transaction, and require the Company to redeem
the Series E Preferred Stock at (a) 120% of the Stated Value of the Series
E Preferred Stock, or (b) the product of the applicable conversion rate in
effect on the date of the "Major Transaction" or the date a notice of
redemption is delivered in the case of a "Triggering Event", and the
closing sales price of the Common Stock on the trading date immediately
preceding such date on which the "Major Transaction" or "Triggering Event"
occurred.
o If the Company is unable to effect a redemption, interest will accumulate
on the value of the shares the Company is unable to redeem at the rate of
2.5% per month.
o If the Company is unable to effect a redemption, the holders are also
entitled to void their redemption notices and receive a reset of their
applicable Conversion Price. The fixed conversion price on the Series E
Preferred Stock would be reset to the lesser of (A) the Fixed Conversion
Price as in effect on the date the void optional redemption notice is sent
to the Company and (B) the lowest Closing Bid Price (as defined) during
the period beginning on the date on which the date of notice of redemption
is sent and the date on which the void optional redemption notice is
received. In addition, the holders would also be entitled to have the
formula for the Variable Conversion Price to be reduced by a number of
percentage points equal to the product of (A) .25 and (B) the number of
days in the period beginning on the date which is five business days after
the date on which the notice of redemption is delivered to the Company and
ending on the date on which the void optional redemption notice is
received.
The Company presently does not have the funds available to pay the redemption
price for all or any significant portion of the Series E Preferred Stock or the
required interest payments. Accordingly, if the purchasers of the Series E
Preferred Stock were to enforce their rights in connection with a Triggering
Event, there could be material adverse financial consequences to the Company
which could severely impair the Company's ability to continue as a going
concern.
REGISTRATION OF SHARES; POSSIBLE ADJUSTMENT OF CONVERSION PRICE AND EXERCISE
PRICE. The Company is required by agreement to initially register with the SEC
the resale of at least 200% of the number of shares of Common Stock issuable
upon conversion of the Series E Preferred Stock issued in the
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Initial Closing and to be issued in the Mandatory Closing, which is based on the
Conversion Price of the Series E Preferred Stock at the time of the filing of
the registration statement. Further, the Company has agreed to register the
resale of at least 125% of the number of shares of Common Stock which may be
issued upon exercise of the warrants issued to the purchasers in the Initial
Closing and to be issued in the Mandatory Closing. The Company has agreed to use
its best efforts to file the registration statement as soon as possible but no
later than April 2, 1999 (the "Scheduled Filing Date") and have the registration
statement declared effective by the SEC no later than 90 days after the Initial
Closing (the "Scheduled Effective Date"). In addition, after the registration
statement is filed and during the period the registration statement is
effective, the Company has agreed that the resale of at least 150% of the shares
issuable upon conversion of the remaining shares of Series E Preferred Stock
will remain registered (which is based on the conversion price in effect at that
time), and the resale of at least 100% of the shares of Common Stock issuable
upon exercise of the warrants will remain registered.
If the Company is unable to have the registration statement filed or declared
effective in the time required, the conversion percentage applicable to the
Variable Conversion Price in effect at such time shall be reduced by a number of
percentage points equal to the sum of (a) 2.0, if the registration statement is
not filed by the Scheduled Filing Date, PLUS (b) 2.0, if the registration
statement is not declared effective by the Scheduled Effective Date, PLUS (c)
the product of (I) .067 MULTIPLIED by (II) the sum of (x) the number of days
after the Scheduled Filing Date that the relevant Registration Statement has not
been filed with the SEC, (y) the number of days after the Scheduled Effective
Date that the relevant Registration Statement has not been declared effective by
the SEC and (z) the number of days that sales cannot be made pursuant to the
relevant Registration Statement in accordance with the Registration Rights
Agreement after such Registration Statement has been declared effective (the
"Registration Default Days"). The fixed conversion price in effect at such time
shall be reduced by an amount equal to the product of (y) the fixed conversion
price in effect as of the issuance date MULTIPLIED by (z) the sum of (I) .02, if
the registration statement is not filed by the Scheduled Filing Date, PLUS (II)
.02, if the Registration Statement is not declared effective by the Scheduled
Effective Date, PLUS (III) the product of (x) .00067 MULTIPLIED by (y) the sum
of the Registration Statement Default Days. If the Company is unable to have the
registration statement filed or declared effective within 20 days after the
Scheduled Filing Date or Scheduled Effective Date, the exercise price of the
warrants will be reduced using the same formula as applicable to the fixed
conversion price adjustment on the Series E Preferred Stock.
REDEMPTION AT COMPANY'S OPTION. As more fully set forth in the applicable
Certificate of Designations, the Company may redeem the shares of Series E
Preferred Stock submitted for conversion but only if the conversion price for
the shares submitted for conversion is less than or equal to 90% of the "Market
Price" (as defined) on the issuance date of such shares. If the Company elects
to redeem such shares, the redemption price is equal to the product of (A) 105%,
(B) the conversion rate of the Series E Preferred Stock on the date such shares
are submitted for conversion, and (C) the closing sales price of the Common
Stock on the date the applicable shares are submitted for conversion.
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OTHER TERMS. The transaction documents relating to the Series E Preferred Stock
also contain certain other representations, warranties, agreements, and
indemnification obligations of the Company. These include, among other things,
the obligation of the Company to hold a stockholders meeting on or before June
30, 1999 where it includes a proposal recommending the approval of the issuance
of the Series E Preferred Stock and the warrants. If the Company fails to hold
such meeting by the required deadline, it will be subject to certain liquidated
damages as set forth in the Securities Purchase Agreement. The operative
agreements also contain (i) a right of first refusal in favor of the investors
which applies to certain private equity financings of the Company and would
commence on the Initial Closing and ends one year thereafter, (ii) prohibit the
Company from redeeming any of its Common Stock, paying any cash dividends on its
Common Stock, and making certain distributions on its Common Stock, (iii) limit
the ability of the Company to issue any senior preferred stock, and (iv)
prohibit the Company from entering into certain related party transactions
except in accordance with Delaware law. The shares of Series E Preferred Stock
are also subject to antidilution provisions which are triggered in the event of
certain stock splits, recapitalizations, or other dilutive transactions, as well
as issuances of Common Stock at a price below the market price or the fixed
conversion price in effect, or the issuance of warrants, options, rights, or
convertible securities which have an exercise price or conversion price less
than the market price on the date of issuance or the fixed conversion price,
other than for certain previously outstanding securities and certain "excluded
securities" (as defined). In the event that the Company issues securities in the
future which have a conversion price or exercise price which varies with the
market price and the terms of such variable price are more favorable than the
Variable Conversion Price in the Series E Preferred Stock, the purchasers may
elect to substitute the more favorable variable price when making conversions of
the Series E Preferred Stock.
WARRANTS. In connection with the closings of the Series E Preferred Stock, the
Company will issue to the purchasers a warrant to purchase 100 shares of Common
Stock for each share of Series E Preferred Stock purchased. The warrant will
expire five years after the issuance date and will have an exercise price equal
to 110% of the Market Price (as defined) on the issuance date. The "Market
Price" is the average of the two lowest closing bid prices in the prior 40
trading days. In addition, the exercise price of the warrants is subject to
reset on the last day of July and January of each year in the event that 110% of
the Market Price of the Common Stock on any such date is less than the exercise
price then in effect. In such case, the warrant exercise price shall be reset to
110% of the Market Price on such reset date. The warrants are also subject to
certain antidilution provisions in the event the Company sells Common Stock or
securities convertible or exercisable into Common Stock at a price less than the
exercise price of such warrants or the market price of the Common Stock.
PLACEMENT AGENT COMPENSATION
The placement agent for the Series E Preferred Stock was Overlook
Consulting, L.L.C. ("Overlook"). Overlook will receive a placement fee equal to
3.5% of the funds raised.
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USE OF PROCEEDS
The net proceeds of the Series E Preferred Stock will be used for working
capital and general corporate purposes.
INTERESTS OF CERTAIN PERSONS
None of the investors in the Series E Preferred Stock transactions is a
director, executive officer or five percent or greater shareholder of the
Company or an affiliate of any such person or entity.
OTHER TRANSACTIONS
In connection with the Initial Closing, the Company has agreed to allow
Citadel to sell all of its remaining 1,843 shares of Series C Convertible
Preferred Stock of the Company (the "Series C Preferred Stock") and 1,144 shares
of Series D Convertible Preferred Stock of the Company (the "Series D Preferred
Stock") to Angelo Gordon and Promethean. In connection with the issuance of the
Series E Preferred Stock, the holders of the Series C and Series D Preferred
Stock have the right under the Certificates of Designations of such securities
to use the Variable Conversion Price of the Series E Preferred Stock as the
variable conversion price of such securities when they submit a conversion
notice. Thus, upon the Initial Closing, when the holders of the Series C and D
Preferred Stock submit a conversion notice, the holders will likely elect for
the variable conversion price of the Series C and D Preferred Stock (which is
presently 97% of the average of the three lowest closing bid prices in the ten
prior trading days) to become the Variable Conversion Price of the Series E
Preferred Stock. In addition, the Company has also agreed that Promethean and
Angelo Gordon are not required to limit their conversions of the Series C and
Series D Preferred Stock to 1,200,000 shares of Common Stock in any continuing
thirty (30) day period. Citadel will continue to be subject to contractually
agreed conversion restrictions.
B. Effective December 22, 1998, the Company issued in a private placement an
aggregate of 1 million shares of common stock and warrants to purchase 300,000
shares of common stock. During January 1999, the Company issued an additional
1.8 million shares and warrants to purchase 540,000 shares of common stock in
connection with the private placement. All of the warrants had an exercise price
of $2.998 and the offering was made solely to accredited investors. The total
gross proceeds to the Company was $2.8 million and the proceeds were used for
working capital and general corporate purposes. The Company granted to the
purchasers registration rights covering the resale of the common stock and the
warrant shares.
During December 1998, the Company issued warrants to purchase an aggregate of
600,000 shares of common stock to certain accredited investors, issued in the
connection with the exercise of certain previously outstanding warrants.
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C. The Company entered into a Loan Agreement for Inventory Backed Borrowing with
The Coastal Corporation Second Pension Trust ("Coastal") to borrow up to
$750,000 in aggregate principal amount. The loan bears interest at prime plus
3.5%. The loan, as amended, is payable in three installments of $250,000 plus
interest payable on March 1, April 1, and May 1, 1999. The loan is secured by
all of the inventory and related assets of the Company. The loan is subject to
customary covenants and restrictions, including a prohibition on incurring
additional indebtedness (as defined), prohibitions on liens on property, and
contains customary cross-default and acceleration provisions in the event of
defaults. In addition, effective January 13, 1999, Coastal agreed to extend the
maturity date of the Loan Agreement for Receivables Backed Borrowing which
previously matured on August 31, 1999 to February 12, 2000. The aggregate
principal amount outstanding under such loan is $5,000,000 and the loan bears
interest at the prime rate plus 3.5%.
Effective January 13, 1999, as permitted under the terms of the terms of the
Agreement of Purchase and Sale dated as of February 12, 1998 between the Company
and St. James Capital Partners, L.P. (the "Agreement"), the Company elected to
extend the maturity date of the Convertible Promissory Notes issued pursuant the
Agreement in favor of each of St. James Capital Partners, L.P. and SJMB, L.P.
(collectively "St. James") to February 12, 2000. The aggregate principal amount
outstanding under such notes is $10,000,000. The notes bear interest at 7% per
annum. In connection with such extension, the Company issued to St. James
warrants to purchase an aggregate of 535,000 shares of common stock of the
Company. The exercise price of such warrants is $1.50 over the volume weighted
average of the closing price of the common stock for the ten (10) day period
prior to January 13, 1999. Such warrants are subject to antidilution provisions
which are triggered in the event that the Company issues or sells common stock
or securities convertible or exercisable into common stock at a price less than
the exercise price then in effect. Such provisions would enable the holder to
obtain a reduction in the warrant exercise price as well as an increase in the
applicable number of warrant shares.
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
(c) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
3.1 Certificate of Designations establishing the rights and
preferences of the Series E Preferred Stock
4.1 Registration Rights Agreement among the Company and the
Buyers, dated February 24, 1999
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4.2 Form of Registration Rights Agreement between the Company and
the Buyers, dated as of December 22, 1998
4.3 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc., relating to the Series E Preferred Stock
4.4 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc. at an exercise price of $2.998
4.5 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc., issued as of December 2, 1998
4.6 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc. issued to St. James Capital Partners,
L.P. and SJMB, L.P., issued January 13, 1999
10.1 Securities Purchase Agreement among the Company and the
Buyers, dated February 24, 1999
10.2 Loan Agreement for Inventory Backed Borrowing dated November
24, 1998 by and between Intelect Communications, Inc. and The
Coastal Corporation Second Pension Trust, as amended by the
Addendum to Loan Agreement for Inventory Backed Borrowing
dated December 31, 1998
10.3 Security Agreement for Inventory Backed Borrowing dated
November 24, 1998 by and among Intelect Network Technologies
Company, DNA Enterprises, Inc., and Intelect Visual
Communications Corp., Intelect Communications, Inc., and The
Coastal Corporation Second Pension Trust
10.4 Promissory Note Amended and Restated as of December 31, 1998
in the original principal amount of $750,000 issued to The
Coastal Corporation Second Pension Trust
10.5 Addendum to Loan Agreement for Receivables Backed Borrowing
dated as of January 13, 1999 between The Coastal Corporation
Second Pension Trust and Intelect Communications, Inc.
10.6 Promissory Note Amended and Restated as of January 13, 1999 in
the original principal amount of $5,000,000 issued to The
Coastal Corporation Second Pension Trust
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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:March 1, 1999 By: /s/ HERMAN M. FRIETSCH
(Signature)
Herman M. Frietsch
Chairman of the Board
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EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
3.1 Certificate of Designations establishing the rights and
preferences of the Series E Preferred Stock
4.1 Registration Rights Agreement among the Company and the
Buyers, dated February 24, 1999
4.2 Form of Registration Rights Agreement between the Company and
the Buyers, dated as of December 22, 1998
4.3 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc., relating to the Series E Preferred Stock
4.4 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc. at an exercise price of $2.998
4.5 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc., issued as of December 2, 1998
4.6 Form of Warrant to Purchase Common Stock of Intelect
Communications, Inc. issued to St. James Capital Partners,
L.P. and SJMB, L.P., issued January 13, 1999
10.1 Securities Purchase Agreement among the Company and the
Buyers, dated February 24, 1999
10.2 Loan Agreement for Inventory Backed Borrowing dated November
24, 1998 by and between Intelect Communications, Inc. and The
Coastal Corporation Second Pension Trust, as amended by the
Addendum to Loan Agreement for Inventory Backed Borrowing
dated December 31, 1998
10.3 Security Agreement for Inventory Backed Borrowing dated
November 24, 1998 by and among Intelect Network Technologies
Company, DNA Enterprises, Inc., and Intelect Visual
Communications Corp., Intelect Communications, Inc., and The
Coastal Corporation Second Pension Trust
10.4 Promissory Note Amended and Restated as of December 31, 1998
in the original principal amount of $750,000 issued to The
Coastal Corporation Second Pension Trust
10.5 Addendum to Loan Agreement for Receivables Backed Borrowing
dated as of January 13, 1999 between The Coastal Corporation
Second Pension Trust and Intelect Communications, Inc.
10.6 Promissory Note Amended and Restated as of January 13, 1999 in
the original principal amount of $5,000,000 issued to The
Coastal Corporation Second Pension Trust
- ---------------------
13
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES E CONVERTIBLE PREFERRED STOCK
OF
INTELECT COMMUNICATIONS, INC.
Intelect Communications, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $0.01 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of nine thousand
six hundred (9,600) shares of Series E Convertible Preferred Stock of the
Company, as follows:
RESOLVED, that the Company is authorized to issue 9,600 shares of
Series E Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$0.01 per share, which shall have the following powers, designations,
preferences and other
special rights:
(1) DIVIDENDS. The Preferred Shares shall not bear any dividends.
(2) CONVERSION OF PREFERRED SHARES. Preferred Shares shall be convertible
into shares of the Company's common stock, par value $0.01 per share (the
"COMMON STOCK"), on the terms and conditions set forth in this Section 2.
(a) CERTAIN DEFINED TERMS. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any Conversion Date (as
defined below) or other date of determination, the lower of the Fixed Conversion
Price and the Floating Conversion Price, each in effect as of such date and
subject to adjustment as provided herein.
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(ii) "FIXED CONVERSION PRICE" means (I) with respect to the
Initial Preferred Shares (as defined in the Securities Purchase Agreement)
$1.80, (II) with respect to the Mandatory Preferred Shares (as defined in the
Securities Purchase Agreement), the lesser of (a) $1.80 or (b) lowest Closing
Bid Price (as defined below) of the Common Stock during the ten (10) consecutive
trading days immediately preceding the date the Initial Registration Statement
(as defined in the Registration Rights Agreement) is filed with the SEC and
(III) with respect to the Additional Preferred Shares (as defined in the
Securities Purchase Agreement), $3.00, in each case as subject to adjustment as
provided herein.
(iii) "FLOATING CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage in
effect as of such date by the Market Price for the Common Stock.
(iv) "CONVERSION PERCENTAGE" means eighty-three and one-half
percent (83.5%), subject to adjustment as provided herein.
(v) "MARKET PRICE" means, with respect to any security, that
price which shall be computed as the arithmetic average of the two (2) lowest
Closing Bid Prices for such security during the forty (40) consecutive trading
days immediately preceding such date of determination. (All such determinations
shall be appropriately adjusted for any stock dividend, stock split or other
similar transaction during such period).
(vi) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on the Principal Market (as
defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if
the Principal Market is not the principal securities exchange or trading market
for such security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(e)(iii) below with the term "Closing Bid Price" being substituted for the term
"Market Price." All such determinations shall be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period.
(vii) "CLOSING SALE PRICE" means, for any security as of any
date, the last closing trade price for such security on the Principal Market (as
defined below) as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
closing trade price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the
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<PAGE>
foregoing do not apply, the last closing trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the ask prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Sale Price of such security on such date shall
be the fair market value as mutually determined by the Company and the holders
of Preferred Shares. If the Company and the holders of Preferred Shares are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(e)(iii) below with the term
"Closing Sale Price" being substituted for the term "Market Price." All such
determinations shall be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
(viii) "N" means the number of days from, but excluding, the
Issuance Date through and including the Conversion Date (as defined below) for
the Preferred Shares for which conversion is being elected.
(ix) "ISSUANCE DATE" means, with respect to each Preferred
Share, the date of issuance of the applicable Preferred Share.
(x) "INITIAL ISSUANCE DATE" means the first Issuance Date on
which Preferred Shares are issued.
(xi) "MANDATORY CONVERSION DATE" means the date which is five
(5) years after the applicable Issuance Date, unless extended pursuant to
Section 3(u) of the Registration Rights Agreement (as defined below), which
extension shall be equal to one and one-half (1 1/2) times the aggregate number
of days of all Grace Periods (as defined in Section 3(u) of the Registration
Rights Agreement).
(xii) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii)"PRINCIPAL MARKET" means the Nasdaq National Market.
(xiv) "STATED VALUE" means $1,000.
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<PAGE>
(xv) "CONVERSION AMOUNT" means the sum of (A) the Additional
Amount (as defined below), provided that the Company has not elected to pay the
Additional Amount in cash as described in Section 2(b) below, and (B) the Stated
Value.
(xvi) "ADDITIONAL AMOUNT" means the result of the following
formula: (.08)(N/365)(Stated Value).
(xvii) "SECURITIES PURCHASE AGREEMENT" means the Securities
Purchase Agreement between the Company and the initial holders of the Preferred
Shares.
(xviii) "REGISTRATION RIGHTS AGREEMENT" means the Registration
Rights Agreement between the Company and the initial holders of the Preferred
Shares.
(b) HOLDER'S CONVERSION RIGHT; MANDATORY CONVERSION. Subject to the
provisions of Section 2(d) below, at any time or times on or after the
Issuance Date, any holder of Preferred Shares shall be entitled to convert
any whole number of Preferred Shares into fully paid and nonassessable
shares of Common Stock in accordance with Section 2(e), at the Conversion
Rate (as defined below). If any Preferred Shares remain outstanding on the
Mandatory Conversion Date (as defined below), then all such Preferred
Shares shall be converted at the Conversion Rate as of such date in
accordance with Section 2(e). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned
aggregation, the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up or down to the nearest whole share.
The Company shall have the right to elect to pay the Additional
Amount in cash, in lieu of conversion to Common Stock in accordance with
this Section 2. If the Company elects to pay the Additional Amount in
cash, such cash shall be paid simultaneously with the delivery to the
holder of the certificates representing the Common Stock issuable upon
conversion in accordance with Section 2(e) below. The Company shall advise
each holder of Preferred Shares in writing (the "CASH DIVIDEND NOTICE")
that (i) until such time as the Company shall terminate the Cash Dividend
Notice, by providing written notice (the "TERMINATION NOTICE"), the
Additional Amount shall be paid in cash and (ii) the effective date of
such Cash Dividend Notice, which date shall be at least 5 business days
after the date such Cash Dividend Notice is deemed to have been delivered
pursuant to Section 9(f) of the Securities Purchase Agreement (as defined
below). The Termination Notice shall be effective one (1) business day
after the date such Termination Notice is deemed to have been delivered
pursuant to Section 9(f) of the Securities Purchase Agreement unless a
later date shall be specified in such Termination Notice.
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<PAGE>
(c) CONVERSION RATE. The number of shares of Common Stock issuable
upon conversion of each Preferred Share pursuant to Section 2(b) shall be
determined according to the following formula (the "CONVERSION RATE"):
Conversion Amount
-----------------
Conversion Price
(d) LIMITATIONS ON BENEFICIAL OWNERSHIP. The Company shall not
effect any conversion of Preferred Shares and no holder of Preferred
Shares shall have the right to convert any Preferred Shares pursuant to
Section 2(b) in excess of that number of Preferred Shares which, upon
giving effect to such conversion, would cause the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates
to exceed 4.99% of the outstanding shares of the Common Stock following
such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable
upon conversion of the Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (i) conversion of
the remaining, nonconverted Preferred Shares beneficially owned by the
holder and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants or convertible preferred
stock) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the holder and its
affiliates. Except as set forth in the preceding sentence, for purposes of
this Section 2(d), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 2(d), in determining the number of outstanding
shares Common Stock a holder may rely on the number of outstanding shares
of Common Stock as reflected in (1) the Company's most recent Form 10-Q or
Form 10-K, as the case may be, (2) a more recent public announcement by
the Company or (3) any other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding. For any
reason at any time, upon the written or oral request of any a holder, the
Company shall immediately confirm orally and in writing to any such holder
the number of shares Common Stock then outstanding. In any case, the
number of outstanding shares Common Stock shall be determined after giving
effect to conversions of Preferred Shares by such holder since the date as
of which such number of outstanding shares of Common Stock was reported.
(e) MECHANICS OF CONVERSION. The conversion of Preferred Shares
shall be conducted in the following manner:
(i) HOLDER'S DELIVERY REQUIREMENTS. To convert Preferred
Shares into shares of Common Stock on any date (the "CONVERSION DATE"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m., Central Time
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<PAGE>
on such date, a copy of a fully executed notice of conversion in the form
attached hereto as EXHIBIT I (the "CONVERSION NOTICE") to the Company's
designated transfer agent (the "TRANSFER AGENT") with a copy thereof to the
Company and (B) surrender to a common carrier for delivery to the Transfer Agent
as soon as practicable following such date the original certificates
representing the Preferred Shares being converted (or an indemnification
undertaking with respect to such shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATES").
(ii) COMPANY'S RESPONSE. Upon receipt by the Company of a copy
of a Conversion Notice, the Company shall immediately send, via facsimile, a
confirmation of receipt of such Conversion Notice to such holder and the
Transfer Agent, which confirmation shall constitute an instruction to the
Transfer Agent to process such Conversion Notice in accordance with the terms
herein. Upon receipt by the Transfer Agent of the Preferred Stock Certificates
to be converted pursuant to a Conversion Notice, the Transfer Agent shall, on
the next business day following the date of receipt (or the second business day
following the date of receipt if received after 11:00 a.m. local time of the
Transfer Agent), (A) issue and surrender to a common carrier for overnight
delivery to the address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the number of shares
of Common Stock to which the holder shall be entitled, or (B) provided the
Transfer Agent is participating in The Depository Trust Company ("DTC") Fast
Automated Securities Transfer Program, upon the request of the holder, credit
such aggregate number of shares of Common Stock to which the holder shall be
entitled to the holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system. If the number of Preferred Shares
represented by the Preferred Stock Certificate(s) submitted for conversion is
greater than the number of Preferred Shares being converted, then the Transfer
Agent shall, as soon as practicable and in no event later than three business
days after receipt of the Preferred Stock Certificate(s) and at its own expense,
issue and deliver to the holder a new Preferred Stock Certificate representing
the number of Preferred Shares not converted.
(iii) DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall instruct the Transfer Agent to issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) business day of receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the Conversion
Rate within one (1) business day of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one (1)
business day submit via facsimile (A) the disputed determination of the Market
Price to an independent, reputable investment bank selected by the Company and
approved by the holders of a majority of the Preferred Shares then outstanding
or (B) the disputed arithmetic calculation of the Conversion Rate to the
Company's independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such
6
<PAGE>
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent manifest error.
(iv) RECORD HOLDER. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of Preferred Shares shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date.
(v) COMPANY'S FAILURE TO TIMELY CONVERT.
(A) CASH DAMAGES. If within three business days
after the Transfer Agent's receipt of the Preferred Stock Certificates to be
converted and a copy of the Conversion Notice (the "SHARE DELIVERY PERIOD") the
Transfer Agent shall fail to issue and deliver a certificate to a holder or
credit such holder's balance account with DTC for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion of
Preferred Shares or to issue and deliver a new Preferred Stock Certificate
representing the number of Preferred Shares to which such holder is entitled
pursuant to Section 2(e)(ii) (a "CONVERSION FAILURE"), in addition to all other
available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder on each date
after such third (3rd) business day such conversion is not timely effected
and/or such Preferred Stock Certificate is not delivered in an amount equal to
1.0% of the product of (I) the sum of the number of shares of Common Stock not
issued to the holder on a timely basis pursuant to Section 2(e)(ii) and to which
such holder is entitled and, in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on a timely basis pursuant to Section
2(e)(ii), the number of shares of Common Stock issuable upon conversion of the
Preferred Shares represented by such Preferred Stock Certificate, as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 2(e)(ii) and (II) the
Closing Sale Price of the Common Stock on the last possible date which the
Company could have issued such Common Stock or such Preferred Stock Certificate,
as the case may be, to such holder without violating Section 2(e)(ii). If the
Company fails to pay the additional damages set forth in this Section 2(e)(v)
within five business days of the date incurred, then the holder entitled to such
payments shall have the right at any time, so long as the Company continues to
fail to make such payments, to require the Company, upon written notice, to
immediately issue, in lieu of such cash damages, the number of shares of Common
Stock equal to the quotient of (X) the aggregate amount of the damages payments
described herein divided by (Y) the Conversion Price in effect on such
Conversion Date as specified by the holder in the Conversion Notice.
(B) VOID CONVERSION NOTICE; ADJUSTMENT TO CONVERSION Price. If
for any reason a holder has not received all of the shares of Common Stock prior
to the tenth (10th) business day after the expiration of the Share Delivery
Period with respect to a conversion of Preferred Shares, then the holder, upon
written notice to the Transfer Agent, with a copy to the Company, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such holder's
Conversion
7
<PAGE>
Notice; provided that the voiding of a holder's Conversion Notice shall not
effect the Company's obligations to make any payments which have accrued prior
to the date of such notice pursuant to Section 2(e)(v)(A) or otherwise.
Thereafter, the Fixed Conversion Price of any Preferred Shares returned or
retained by the holder for failure to timely convert shall be adjusted to the
lesser of (I) the Fixed Conversion Price as in effect on the date on which the
holder voided the Conversion Notice and (II) the lowest Closing Bid Price during
the period beginning on the Conversion Date and ending on the date such holder
voided the Conversion Notice.
(vi) PRO RATA CONVERSION AND REDEMPTION. In the event the
Company receives a Conversion Notice from more than one holder of Preferred
Shares for the same Conversion Date and the Company can convert some, but not
all, of such Preferred Shares, the Company shall convert from each holder of
Preferred Shares electing to have Preferred Shares converted at such time a pro
rata amount of such holder's Preferred Shares submitted for conversion based on
the number of Preferred Shares submitted for conversion on such date by such
holder relative to the number of Preferred Shares submitted for conversion on
such date.
(vii) MECHANICS OF MANDATORY CONVERSION. On the Mandatory
Conversion Date, all holders of Preferred Shares shall surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Transfer Agent and
all outstanding Preferred Shares shall be converted as of such date as if the
holders of such Preferred Shares had given the Conversion Notice for all such
shares on the Mandatory Conversion Date; provided that the Mandatory Conversion
Date shall be extended for any Preferred Shares for as long as (A) the
conversion of such Preferred Shares would violate the provisions of Section
2(d), (B) a Triggering Event shall have occurred and be continuing or (C) any
event shall have occurred and be continuing which with the passage of time and
the failure to cure would result in a Triggering Event. All holders of Preferred
Shares shall thereupon surrender all Preferred Stock Certificates, duly endorsed
for cancellation, to the Company or the Transfer Agent, provided that the
Company has complied with its obligations under this Section 2(e).
(f) TAXES. The Company shall pay any and all taxes that may be
payable with respect to the issuance and delivery of Common Stock upon the
conversion of Preferred Shares.
(g) ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price will be
subject to adjustment from time to time as provided in this Section 2(g).
(i) ADJUSTMENT OF FIXED CONVERSION PRICE UPON ISSUANCE OF
COMMON STOCK. If and whenever on or after the date of issuance of the Preferred
Shares, the Company issues or sells, or in accordance with this Section 2(g) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan (as defined below), the
conversion of the Preferred Shares or upon the exercise, exchange or conversion
of the Excluded
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<PAGE>
Securities (as defined below)) for a consideration per share less than a price
(the "APPLICABLE PRICE") equal to the Fixed Conversion Price in effect
immediately prior to such time, then immediately after such issue or sale, the
Fixed Conversion Price then in effect shall be reduced to an amount equal to
such consideration per share. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(g)(i), the following shall be applicable:
(A) ISSUANCE OF OPTIONS. If the Company in any
manner grants or sells any Options and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange of any Convertible Securities issuable upon exercise of
such Option is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the granting or sale of such Option for such price per
share. For purposes of this Section 2(g)(i)(A), the "lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange of any Convertible Securities issuable upon
exercise of such Option" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option, upon exercise of
the Option and upon conversion or exchange of any Convertible Security issuable
upon exercise of such Option. No further adjustment of the Fixed Conversion
Price shall be made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such Convertible
Securities.
(B) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this Section
2(g)(i)(B), the "price per share for which one share of Common Stock is issuable
upon such conversion or exchange" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Fixed Conversion Price shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Fixed Conversion Price had been or are to be made pursuant to other provisions
of this Section 2(g)(i), no further adjustment of the Fixed Conversion Price
shall be made by reason of such issue or sale. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 2(g)(i)(B) to the extent that
such adjustment is based solely on the fact that such Convertible Securities are
convertible into or exchangeable for Common Stock at a price which varies with
the market price of the Common Stock.
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(C) CHANGE IN OPTION PRICE OR RATE OF CONVERSION.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Fixed Conversion Price
in effect at the time of such change shall be adjusted to the Fixed Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 2(g)(i)(C), if
the terms of any Option or Convertible Security that was outstanding as of the
date of issuance of the Preferred Shares are changed in the manner described in
the immediately preceding sentence, then such Option or Convertible Security and
the Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such change. No adjustment
shall be made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect.
(D) CALCULATION OF CONSIDERATION RECEIVED. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company will be the Market Price of such securities on the date
of receipt. If any Common Stock, Options or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of a majority of the Preferred Shares then outstanding. If such parties
are unable to reach agreement within 10 days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five business days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holders of a majority of the Preferred
Shares then outstanding. The determination of such appraiser shall be deemed
binding upon all parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.
(E) RECORD DATE. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase
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Common Stock, Options or Convertible Securities, then such record date will be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(F) CERTAIN DEFINITIONS. For purposes of this
Section 2(g)(i), the following terms have the respective meanings set forth
below:
(I) "APPROVED STOCK PLAN" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer, director, consultant or other service provider for services
provided to the Company.
(II) "COMMON STOCK DEEMED OUTSTANDING" means,
at any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(g)(i)(A) and 2(g)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion of the Preferred Shares.
(III) "OPTIONS" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(IV) "CONVERTIBLE SECURITIES" means any stock
or securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(V) "EXCLUDED SECURITIES" means (a) any
Common Stock or securities convertible into or exercisable for Common Stock or
equity which may be issued upon the exercise or conversion of securities
outstanding on the Issuance Date, (b) any securities issued or to be issued
following the Issuance Date (and Common Stock issuable upon the exercise or
conversion of such securities) to placement agents and advisors in connection
with the transactions contemplated hereby, and (c) any securities to be issued
to the buyers of the Company's Series C Convertible Preferred Stock (the "SERIES
C PREFERRED") and the Company's Series D Convertible Preferred Stock (the
"SERIES D PREFERRED") in connection with that certain letter agreement, dated
January 8, 1999, between the Company and the buyers of the Series C Preferred
and the Series D Preferred, as amended on January 28, 1999.
(ii) ADJUSTMENT OF FIXED CONVERSION PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Fixed
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by
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combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(III) ADJUSTMENT OF FIXED CONVERSION PRICE UPON MAJOR
CORPORATE EVENT ANNOUNCEMENT. In the event of the public announcement of a Major
Transaction (as defined below) where the date of the announcement referred to
above is hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Fixed
Conversion Price shall, effective upon the Announcement Date and continuing
through and including the Adjusted Conversion Price Termination Date (as defined
below), be equal to the Conversion Price which would have been applicable for a
conversion by the holder on the Announcement Date. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in Section 2(c). For purposes hereof, "ADJUSTED CONVERSION PRICE
TERMINATION DATE" shall mean, with respect to any proposed Major Corporate Event
for which a public announcement as contemplated by this Section 2(g)(iii) has
been made, the date upon which the Company or other Person publicly announces
the consummation, termination or abandonment of the proposed Major Transaction
which was the subject of the previous public announcement.
(iv) HOLDER'S RIGHT OF ALTERNATIVE FLOATING CONVERSION PRICE
FOLLOWING ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any manner
issues or sells Convertible Securities that are convertible into or exchangeable
for Common Stock at a price which may vary with the market price of the Common
Stock (the formulation for such variable price being herein referred to as, the
"VARIABLE PRICE") and such Variable Price is not calculated using the same
formula used to calculate the Floating Conversion Price in effect immediately
prior to the time of such issue or sale, the Company shall provide written
notice thereof via facsimile and overnight courier to each holder of the
Preferred Shares ("VARIABLE NOTICE") on the date of issuance of such Convertible
Securities. From and after the date the Company issues any such Convertible
Securities with a Variable Price, a holder of Preferred Shares shall have the
right, but not the obligation, in its sole discretion to substitute the Variable
Price for the Floating Conversion Price upon conversion of any Preferred Shares
by designating in the Conversion Notice delivered upon conversion of such
Preferred Shares that solely for purposes of such conversion the holder is
relying on the Variable Price rather than the Floating Conversion Price then in
effect. A holder's election to rely on a Variable Price for a particular
conversion of Preferred Shares shall not obligate the holder to rely on a
Variable Price for any future conversions of Preferred Shares.
(v) ADJUSTMENT OF CONVERSION PRICE FOR FAILURE TO FILE OR TO
OBTAIN AND MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. If (i) the
Registration Statement covering the resale of all the applicable Registrable
Securities (as defined in the Registration Rights Agreement) and required to be
filed by the Company pursuant to the Registration Rights Agreement is not (A)
filed with the Securities and Exchange Commission (the "SEC") on or before the
applicable Scheduled Filing Date (as defined in the Registration Rights
Agreement) or (B) declared effective by the SEC on or before the applicable
Scheduled Effective Date (as defined in the Registration Rights Agreement) or
(ii) on any day after the Registration Statement has been
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declared effective by the SEC, sales of all the Registrable Securities required
to be included in a Registration Statement cannot be made pursuant to the
respective Registration Statement (whether because of a failure to keep the
Registration Statement effective, to disclose such information as is necessary
for sales to be made pursuant to the Registration Statement, to register
sufficient shares of Common Stock or otherwise), then, as partial relief for the
damages to any holder of Preferred Shares by reason of any such delay in or
reduction of its ability to sell the underlying shares of Common Stock (which
remedy shall not be exclusive of any other remedies available at law or in
equity), the Conversion Percentage and the Fixed Conversion Price shall be
adjusted as follows:
(A) CONVERSION PERCENTAGE. The Conversion
Percentage in effect at such time shall be reduced by a number of
percentage points equal to the sum of (a) 2.0, if the Registration
Statement is not filed by the Scheduled Filing Date, PLUS (b) 2.0, if the
Registration Statement is not declared effective by the Scheduled
Effective Date, PLUS (c) the product of (I) .067 MULTIPLIED by (II) the
sum of (x) the number of days after the Scheduled Filing Date that the
relevant Registration Statement has not been filed with the SEC, (y) the
number of days after the Scheduled Effective Date that the relevant
Registration Statement has not been declared effective by the SEC and (z)
the number of days that sales cannot be made pursuant to the relevant
Registration Statement in accordance with the Registration Rights
Agreement after such Registration Statement has been declared effective
(such number of days being collectively referred to as the "REGISTRATION
STATEMENT DEFAULT DAYS"); and
(B) FIXED CONVERSION PRICE. The Fixed
Conversion Price in effect at such time shall be reduced by an amount
equal to the product of (y) the Fixed Conversion Price in effect as of the
Issuance Date MULTIPLIED by (z) the sum of (I) .02, if the Registration
Statement is not filed by the Scheduled Filing Date, PLUS (II) .02, if the
Registration Statement is not declared effective by the Scheduled
Effective Date, PLUS (III) the product of (x) .00067 MULTIPLIED by (y) the
sum of the Registration Statement Default Days.
(vi) OTHER EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 2(g) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(g). Notwithstanding anything in
this Section 2 to the contrary, there shall be no adjustment of the Fixed
Conversion Price upon the issuance, exercise, exchange, or conversion into
Common Stock or equity of any of the Excluded Securities.
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(vii) NOTICES.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each holder of
Preferred Shares, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(B) The Company will give written notice to each
holder of Preferred Shares at least twenty (20) days prior to the date on which
the Company closes its books or takes a record (I) with respect to any dividend
or distribution upon the Common Stock, (II) with respect to any pro rata
subscription offer to holders of Common Stock or (III) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(C) The Company will also give written notice to
each holder of Preferred Shares at least twenty (20) days prior to the date on
which any Organic Change, dissolution or liquidation will take place, provided
that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(3) REDEMPTION AT OPTION OF HOLDERS.
(a) REDEMPTION OPTION UPON MAJOR TRANSACTION. In addition to all
other rights of the holders of Preferred Shares contained herein, upon the
consummation of a Major Transaction (as defined below), each holder of
Preferred Shares shall have the right, at such holder's option, to require
the Company to redeem all or a portion of such holder's Preferred Shares
at a price per Preferred Share equal to the greater of (i) 120% of the
Liquidation Preference (as defined in Section 8) of such share and (ii)
the product of (A) the Conversion Rate on such date and (B) the Closing
Sale Price of the Common Stock on the date immediately preceding such date
on which the Principal Market, or the market or exchange where the Common
Stock is then traded, is open for trading ("MAJOR TRANSACTION REDEMPTION
PRICE").
(b) REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to all
other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall
have the right, at such holder's option, to require the Company to redeem
all or a portion of such holder's Preferred Shares at a price per
Preferred Share equal to the greater of (i) 120% of the Liquidation
Preference of such share and (ii) the product of (A) the Conversion Rate
in effect at such time as such holder delivers a Notice of Redemption at
Option of Buyer Upon a Triggering Event (as defined below) and (B) the
Closing Sale Price of the Common Stock on the date immediately preceding
such Triggering Event on which the Principal Market, or the market or
exchange where the Common Stock is then traded, is open for trading
("TRIGGERING EVENT
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REDEMPTION PRICE" and, collectively with "MAJOR TRANSACTION REDEMPTION
PRICE," the "REDEMPTION PRICE").
(c) "MAJOR TRANSACTION". A "MAJOR TRANSACTION" shall be deemed to
have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Company with or into another Person (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company) involving the issuance, exchange or sale of more
than 40% of the shares of Common Stock then outstanding;
(ii) the sale or transfer of all or substantially all of the
Company's or any of its Subsidiaries' assets or the sale or transfer of greater
than 50% of the shares of any Subsidiary held by the Company; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 40% of the outstanding shares of Common
Stock.
(d) "TRIGGERING EVENT". A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the date that is 30 days after the Scheduled
Effective Date;
(ii) subject to Section 3(u) of the Registration Rights
Agreement, while the Registration Statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of the Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the
holder of the Preferred Shares for sale of all of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of five consecutive trading days, provided that the cause of such
lapse or unavailability is not due to factors solely within the control of such
holder of Preferred Shares;
(iii) the suspension from trading or failure of the Common
Stock to be listed on the Principal Market, New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five consecutive trading days or
for more than an aggregate of 10 trading days in any 365-day period (provided
that such failure shall not constitute a Triggering Event if caused by holders
of Preferred Shares pursuant to Section 4(c) below);
(iv) the Company's or the Transfer Agent's notice to any
holder of Preferred Shares, including by way of public announcement, at any
time, of its intention not to comply with a request for conversion of any
Preferred Shares into shares of Common Stock that
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is tendered in accordance with the provisions of this Certificate of
Designations, or the failure of the Transfer Agent to comply with a Conversion
Notice tendered in accordance with the provisions of this Certificate of
Designations within 10 business days after the receipt by the Transfer Agent of
the Conversion Notice;
(v) upon the Company's receipt of a Conversion Notice, the
Company shall not be obligated to issue the Conversion Shares due to the
provisions of Section 12;
(vi) the Company breaches any representation, warranty,
covenant or other term or condition of the Securities Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designations or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby and hereby, except to the extent that
such breach would not have a Material Adverse Effect (as defined in Section 3(a)
of the Securities Purchase Agreement) and except, in the case of a breach of a
covenant which is curable, only if such breach continues for a period of at
least 10 days.
(e) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, the Company shall deliver written
notice thereof via facsimile and overnight courier ("NOTICE OF MAJOR
TRANSACTION") to each holder of Preferred Shares, which notice shall
include the date by which a holder receiving a Notice of Major Transaction
must provide the Company with notice of its intent to exercise its
redemption rights hereunder (which date shall not be sooner than five
business days after the date of the Notice of Major Transaction (the
"MAJOR TRANSACTION RESPONSE DATE")). The Company shall publicly disclose
the material facts of such Major Transaction prior to or concurrently with
providing the Notice of Major Transaction, such public disclosure to be
made not later than 10 days prior to the consummation of such Major
Transaction. At any time after receipt of a Notice of Major Transaction
and prior to the Major Transaction Response Date (or, in the event a
Notice of Major Transaction is not delivered at least 10 days prior to a
Major Transaction, at any time prior to the consummation of a Major
Transaction) any holder of Preferred Shares then outstanding may require
the Company to redeem all of the holder's Preferred Shares then
outstanding by delivering written notice thereof via facsimile and
overnight courier ("NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR
TRANSACTION") to the Company, which Notice of Redemption at Option of
Buyer Upon Major Transaction shall indicate (i) the number of Preferred
Shares that such holder is electing to redeem and (ii) the applicable
Major Transaction Redemption Price, as calculated pursuant to Section
3(a).
(f) MECHANICS OF REDEMPTION AT OPTION OF BUYER UPON TRIGGERING
EVENT. Within one (1) day after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF TRIGGERING EVENT") to each holder of Preferred Shares.
At any time after the earlier of a holder's receipt of a Notice of
Triggering Event and such holder becoming aware of a Triggering Event, any
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holder of Preferred Shares then outstanding may require the Company to
redeem all of the Preferred Shares by delivering written notice thereof
via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF
BUYER UPON TRIGGERING EVENT") to the Company, which Notice of Redemption
at Option of Buyer Upon Triggering Event shall indicate (i) the number of
Preferred Shares that such holder is electing to redeem and (ii) the
applicable Triggering Event Redemption Price, as calculated pursuant to
Section 3(b) above.
(g) PAYMENT OF REDEMPTION PRICE. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the
case may be, from any holder of Preferred Shares, the Company shall
immediately notify each holder of Preferred Shares by facsimile of the
Company's receipt of such notices and each holder which has sent such a
notice shall promptly submit to the Transfer Agent such holder's Preferred
Stock Certificates which such holder has elected to have redeemed. The
Company shall deliver the applicable Redemption Price to such holder
within five business days after the Company's receipt of a Notice of
Redemption at Option of Buyer Upon Triggering Event or concurrently with
the consummation of a Major Transaction if the Company shall have received
a Notice of Redemption at Option of Buyer Upon Major Transaction; provided
that a holder's Preferred Stock Certificates shall have been so delivered
to the Transfer Agent. If the Company is unable to redeem all of the
Preferred Shares submitted for redemption, the Company shall (i) redeem a
pro rata amount from each holder of Preferred Shares based on the number
of Preferred Shares submitted for redemption by such holder relative to
the total number of Preferred Shares submitted for redemption by all
holders of Preferred Shares and (ii) in addition to any remedy such holder
of Preferred Shares may have under this Certificate of Designations and
the Securities Purchase Agreement, pay to each holder interest at the rate
of 2.0% per month (prorated for partial months) in respect of each
unredeemed Preferred Share until paid in full.
(h) VOID REDEMPTION. In the event that the Company does not pay the
Redemption Price within the time period set forth in Section 3(g), at any
time thereafter and until the Company pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the
option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption,
require the Company to promptly return to such holder any or all of the
Preferred Shares that were submitted for redemption by such holder under
this Section 3 and for which the applicable Redemption Price (together
with any interest thereon) has not been paid, by sending written notice
thereof to the Company via facsimile (the "VOID OPTIONAL REDEMPTION
NOTICE"). Upon the Company's receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering
Event or the Notice of Redemption at Option of Buyer Upon Major
Transaction, as the case may be, shall be null and void with respect to
those Preferred Shares subject to the Void Optional Redemption Notice,
(ii) the Company shall immediately return any Preferred Shares subject to
the Void Optional Redemption Notice, (iii) the Fixed
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Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on
which the Void Optional Redemption Notice is delivered to the Company and
(B) the lowest Closing Bid Price during the period beginning on the date
on which the Notice of Redemption at Option of Buyer Upon Major
Transaction or the Notice of Redemption at Option of Buyer Upon Triggering
event, as the case may be, is delivered to the Company and ending on the
date on which the Void Optional Redemption Notice is delivered to the
Company, and (iv) the Conversion Percentage in effect at such time shall
be reduced by a number of percentage points equal to the product of (A)
.25 and (B) the number of days in the period beginning on the date which
is five business days after the date on which the Notice of Redemption at
Option of Buyer Upon Major Transaction or the Notice of Redemption at
Option of Buyer Upon Triggering Event, as the case may be, is delivered to
the Company and ending on the date on which the Void Optional Redemption
Notice is delivered to the Company.
(i) DISPUTES; MISCELLANEOUS. In the event of a dispute as to the
determination of the Closing Bid Price, the Closing Sale Price or the
arithmetic calculation of the Redemption Price, such dispute shall be
resolved pursuant to Section 2(e)(iii) above with the term "Closing Bid
Price" and/or "Closing Sale Price", as the case may be, being substituted
for the term "Market Price" and the term "Redemption Price" being
substituted for the term "Conversion Rate". A holder's delivery of a Void
Optional Redemption Notice and exercise of its rights following such
notice shall not effect the Company's obligations to make any payments
which have accrued prior to the date of such notice. Payments provided for
in this Section 3 shall have priority to payments to holders of capital
stock which is ranked junior to the Preferred Stock in connection with a
Major Transaction and shall be PARI PASSU with any Pari Passu Shares (as
defined in Section 8) which have redemption rights in the event of a Major
Transaction similar to the Preferred Shares. In the event of a redemption
pursuant to this Section 3 of less than all of the Preferred Shares
represented by a particular Preferred Stock Certificate, the Company shall
promptly cause to be issued and delivered to the holder of such Preferred
Shares a preferred stock certificate representing the remaining Preferred
Shares which have not been redeemed.
(4) OTHER RIGHTS OF HOLDERS.
(a) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to
another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior
to the consummation of any (i) sale of all or substantially all of the
Company's assets to an acquiring Person or (ii) other Organic Change
following which the Company is not a surviving entity, the Company will
secure from the Person purchasing such assets or the
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successor resulting from such Organic Change (in each case, the "ACQUIRING
ENTITY") a written agreement (in form and substance satisfactory to the
holders of a majority of the Preferred Shares then outstanding) to deliver
to each holder of Preferred Shares in exchange for such shares, a security
of the Acquiring Entity evidenced by a written instrument substantially
similar in form and substance to the Preferred Shares, including, without
limitation, having a stated value and liquidation preference equal to the
Stated Value and the Liquidation Preference of the Preferred Shares held
by such holder, and satisfactory to the holders of a majority of the
Preferred Shares then outstanding. Prior to the consummation of any other
Organic Change, the Company shall make appropriate provision (in form and
substance satisfactory to the holders of a majority of the Preferred
Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of
such holder's Preferred Shares such shares of stock, securities or assets
that would have been issued or payable in such Organic Change with respect
to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the conversion of such holder's
Preferred Shares as of the date of such Organic Change (without taking
into account any limitations or restrictions on the convertibility of the
Preferred Shares).
(b) PURCHASE RIGHTS. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of
any class of Common Stock (the "PURCHASE RIGHTS"), then the holders of
Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder
could have acquired if such holder had held the number of shares of Common
Stock acquirable upon complete conversion of the Preferred Shares (without
taking into account any limitations or restrictions on the convertibility
of the Preferred Shares) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no
such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
(c) FORCED DELISTING. If a redemption voided pursuant to Section
3(h) was caused by a Triggering Event involving the Company's inability to
issue Conversion Shares because of the Exchange Cap (as defined in Section
12), and if so directed by the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding, including shares of Preferred Shares
submitted for redemption pursuant to Section 3 with respect to which the
applicable Redemption Price has not been paid, in a Void Optional
Redemption Notice, the Company shall immediately delist the Common Stock
from the exchange or automated quotation system on which the Common Stock
is traded and have the Common Stock, at such holders' option, traded on
the electronic bulletin board or the "pink sheets".
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(5) COMPANY'S RIGHT TO REDEEM IN LIEU OF CONVERSION.
(a) RIGHT TO REDEEM. Notwithstanding Section 2 but subject to the
terms and conditions of this Section 5, at any time after the Initial
Issuance Date, the Company may elect to redeem Preferred Shares submitted
for conversion in lieu of converting such Preferred Shares, provided that
the Conversion Price for such Preferred Shares submitted for conversion
(as reflected in the Conversion Notice) is less than or equal to 90% of
the Market Price on the Issuance Date (approximately adjusted for any
stock split, stock dividend, stock combination or similar transaction) of
such Preferred Shares (a "COMPANY REDEMPTION IN LIEU OF CONVERSION"). If
the Company elects to redeem some, but not all, of the Preferred Shares
submitted for conversion, the Company shall redeem a pro rata amount from
each holder of Preferred Shares submitted for conversion on the applicable
date based on the number of Preferred Shares submitted for conversion on
such date by such holder relative to the total number of Preferred Shares
submitted for conversion on such date.
(b) REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF Conversion.
The "REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION" shall
be an amount per Preferred Share equal to the product of (A) 105%, (B) the
Conversion Rate of the Preferred Shares on the date such Preferred Shares
are submitted for conversion and (C) the Closing Sale Price of the Common
Stock on the date the applicable Preferred Shares are submitted for
conversion.
(c) MECHANICS OF COMPANY REDEMPTION IN LIEU OF CONVERSION. The
Company shall exercise its right to redeem pursuant to this Section 5 by
delivering written notice by facsimile and overnight courier ("NOTICE OF
COMPANY REDEMPTION IN LIEU OF CONVERSION") to (A) each holder of the
Preferred Shares and (B) the Transfer Agent. Such Notice of Company
Redemption in Lieu of Conversion shall confirm the time period during
which the Company may effect Company Redemption in Lieu of conversion,
which period shall begin on and include the date which is five business
days after the date of receipt by all of the holders' of the Notice of
Redemption in Lieu of Conversion and shall end on and include the date
which is 30 calendar days after the fifth business day following the date
of receipt by all of the holders of the Notice of Redemption in Lieu of
Conversion (the "REDEMPTION IN LIEU OF CONVERSION PERIOD"). The Company
may terminate a Redemption in Lieu of Conversion Period at any time with
respect to Preferred Shares which have not been submitted for conversion
by delivering written notice of such termination to each holder of
Preferred Shares by facsimile and overnight courier at least five business
days prior to the effective date of such termination. Notwithstanding
anything to the contrary in this Section 6, the Company shall convert
Preferred Shares pursuant to Section 2 if such Preferred Shares are
submitted for conversion (i) before the beginning, or after the effective
date of the termination, of the Redemption in Lieu of Conversion Period,
(ii) for a Conversion Price greater than or equal to the Redemption in
Lieu of Conversion Trigger Price or (iii) are in excess of such holder's
pro rata allocation
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of the maximum number of Preferred Shares the Company indicated that it
would redeem in its Notice of Company Redemption in Lieu of Conversion.
(d) PAYMENT OF REDEMPTION PRICE. The Company shall pay the
Redemption Price of Company Redemption in Lieu of Conversion to the holder
of the Preferred Shares being redeemed in cash within three days after the
Conversion Date giving rise to such redemption. If the Company shall fail
to pay the applicable Redemption Price of Company Redemption in Lieu of
Conversion to such holder on a timely basis as described in this Section
5(d), in addition to any remedy such holder of Preferred Shares may have
under this Certificate of Designations and the Securities Purchase
Agreement, such unpaid amount shall bear interest at the rate of 2.0% per
month (pro rated daily) until paid in full. Until the Company pays such
unpaid applicable Redemption Price of Company Redemption in Lieu of
Conversion in full to a holder of Preferred Shares, such holder shall have
the option (the "VOID COMPANY REDEMPTION OPTION") to, in lieu of
redemption, (A) require the Company to promptly return to such holder all
of the Preferred Shares that were submitted for redemption by such holder
under this Section 5 and for which the applicable Redemption Price of
Company Redemption in Lieu of Conversion has not been paid or (B) to
convert those Preferred Shares for which the applicable Redemption Price
of the Company Redemption in Lieu of Conversion has not been paid at a
Conversion Price equal to the lesser of (I) the Conversion Price
applicable to such conversion on the date on which such Preferred Shares
were originally presented for conversion and (II) the Conversion Price
which would have been in effect if such Preferred Shares were presented
for conversion on the business day immediately following the last day on
which the Company could have effected a timely Company Redemption in Lieu
of Conversion, by sending written notice thereof via facsimile to the
Transfer Agent, with a copy to the Company (the "VOID COMPANY REDEMPTION
NOTICE"). Upon the Company's receipt of such Void Company Redemption
Notice prior to payment of the full Redemption Price of Company Redemption
in Lieu of Conversion, (x) the Company's Redemption in Lieu of Conversion
shall be null and void with respect to those Preferred Shares submitted
for conversion and for which cure has not been effected and the Redemption
Price of Company Redemption in lieu of Conversion has not been paid, (y)
the Transfer Agent shall immediately return any Preferred Shares submitted
to the Transfer Agent by such holder for conversion and for which cure has
not been effected and the Redemption Price of Company Redemption in Lieu
of Conversion has not been paid and (z) the Fixed Conversion Price of such
returned Preferred Shares shall be adjusted to the lesser of (1) the Fixed
Conversion Price as in effect on the date such holder delivered its Void
Company Redemption Notice and (2) the lowest Closing Bid Price during the
period beginning on the Conversion Date and ending on the date such holder
delivered its Void Company Redemption Notice. Notwithstanding the
foregoing, if the Company fails to pay the applicable Redemption Price of
Company Redemption in Lieu of Conversion to a holder within the time
period described in this Section 5(d) due to a dispute as to the
arithmetic calculation of the Redemption Price of Company Redemption in
Lieu of Conversion, such dispute shall be resolved pursuant to Section
2(e)(iii) above with the term
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"Redemption Price of Company Redemption in Lieu of Conversion" being
substituted for the term "Conversion Rate." If the Company fails to timely
effect a Company Redemption in Lieu of Conversion in accordance with this
Section 5, the Company shall not be allowed to submit another Notice of
Company Redemption in Lieu of Conversion without the prior written consent
of the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding.
(e) COMPANY MUST HAVE IMMEDIATELY AVAILABLE FUNDS OR CREDIT
FACILITIES. The Company shall not be entitled to send any Notice of
Company Redemption in Lieu of Conversion pursuant to Section 5(b) and
begin the redemption procedure under this Section 5, unless it has:
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price
of Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to
redeem any Preferred Shares that are not converted prior to a Company
Redemption in Lieu of Conversion; or
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the Redemption
Price of Company Redemption in Lieu of Conversion.
(6) RESERVATION OF SHARES. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Preferred Shares, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of
all of the Preferred Shares then outstanding; provided that the number of
shares of Common Stock so reserved shall at no time be less than 200% of
the number of shares of Common Stock for which the Preferred Shares are at
any time convertible. The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the
number of shares so reserved shall be allocated pro rata among the holders
of the Preferred Shares based on the number of Preferred Shares held by
each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder
shall sell or otherwise transfer any of such holder's Preferred Shares,
each transferee shall be allocated a pro rata portion of the number of
reserved shares of Common Stock reserved for such transferor.
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Any shares of Common Stock reserved and allocated to any Person which
ceases to hold any Preferred Shares shall be allocated to the remaining
holders of Preferred Shares, pro rata based on the number of Preferred
Shares then held by such holders.
(7) VOTING RIGHTS. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly
provided in this Certificate of Designations.
(8) LIQUIDATION, DISSOLUTION, WINDING-UP. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out
of the assets of the Company, whether from capital or from earnings
available for distribution to its stockholders (the "LIQUIDATION FUNDS"),
before any amount shall be paid to the holders of any of the capital stock
of the Company of any class junior in rank to the Preferred Shares in
respect of the preferences as to the distributions and payments on the
liquidation, dissolution and winding up of the Company, an amount per
Preferred Share equal to the Conversion Amount (the "LIQUIDATION
PREFERENCE"); provided that, if the Liquidation Funds are insufficient to
pay the full amount due to the holders of Preferred Shares and holders of
shares of other classes or series of preferred stock of the Company that
are of equal rank with the Preferred Shares as to payments of Liquidation
Funds (the "PARI PASSU SHARES"), then each holder of Preferred Shares and
Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full amount
of Liquidation Funds payable to all holders of Preferred Shares and Pari
Passu Shares. In addition to the receipt of the Liquidation Preference, in
the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Preferred Shares shall be
entitled to receive Liquidation Funds distributed to holders of Common
Stock, after the Liquidation Preference has been paid, to the same extent
as if such holders of Preferred Shares had converted the Preferred Shares
into Common Stock (without regard to any limitations on conversions herein
or elsewhere) and had held such shares of Common Stock on the record date
for such distribution of the remaining Liquidation Funds. The purchase or
redemption by the Company of stock of any class, in any manner permitted
by law, shall not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or
merger of the Company with or into any other Person, nor the sale or
transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution
or winding up of the Company. No holder of Preferred Shares shall be
entitled to receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts provided
for herein; provided that a holder of Preferred Shares shall be entitled
to all amounts previously accrued with respect to amounts owed hereunder.
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(9) PREFERRED RANK. All shares of Common Stock shall be of junior rank to
all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. The Preferred
Shares shall rank PARI PASSU with the Series C Convertible Preferred Stock
and the Series D Convertible Preferred Stock in respect to the preferences
as to distribution and payments upon the liquidation, dissolution and
winding up of the Company. Without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue
additional or other capital stock that is of senior rank to the Preferred
Shares in respect of the preferences as to distributions and payments upon
the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors
of the Company with the Delaware Secretary of State or enter into any
agreement containing any provisions, which would adversely affect or
otherwise impair the rights or relative priority of the holders of the
Preferred Shares relative to the holders of the Common Stock or the
holders of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation, the
Preferred Shares shall maintain their relative powers, designations and
preferences provided for herein and no merger shall result inconsistent
therewith.
(10) INTENTIONALLY OMITTED.
(11) RESTRICTION ON REDEMPTION AND DIVIDENDS. Until all of the Preferred
Shares have been converted or redeemed as provided herein, the Company
shall not, directly or indirectly, redeem, or declare or pay any dividend
or distribution on, its Common Stock without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, except that no such consent shall be
required for the Company to adopt, as approved by its directors, a
shareholder rights plan and to effect any dividend or distribution of a
right, junior preferred stock, or other similar security in connection
with such plan to the extent that the rights, stock or similar security
attach equally to all such Common Stock including any Common Stock issued
or issuable upon conversion of the Preferred Shares.
(12) LIMITATION ON NUMBER OF CONVERSION SHARES. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of the
Preferred Shares if the issuance of such shares of Common Stock would
exceed that number of shares of Common Stock which the Company may issue
upon conversion of the Preferred Shares (the "EXCHANGE CAP") without
breaching the Company's obligations under the rules or regulations of the
Principal Market, or the market or exchange where the Common Stock is then
traded, except that such limitation shall not apply in the event that the
Company
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(a) obtains the approval of its stockholders as required by the applicable
rules of the Principal Market, or the market or exchange where the Common
Stock is then traded, (or any successor rule or regulation) for issuances
of Common Stock in excess of such amount, (b) obtains a written opinion
from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the holders of a
majority of the Preferred Shares then outstanding or (c) the required
number of holders of Preferred Shares exercise their rights pursuant to
Section 4(c) to have the Common Stock delisted from the Principal Market.
Until such approval or written opinion is obtained or such action has been
taken by the required number of holders, no purchaser of Preferred Shares
pursuant to the Securities Purchase Agreement (the "PURCHASERS") shall be
issued, upon conversion of Preferred Shares, shares of Common Stock in an
amount greater than the product of (i) the Exchange Cap amount multiplied
by (ii) a fraction, the numerator of which is the number of Preferred
Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities
Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser's
Preferred Shares, the transferee shall be allocated a pro rata portion of
such Purchaser's Cap Allocation Amount. In the event that any holder of
Preferred Shares shall convert all of such holder's Preferred Shares into
a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such
holder's Cap Allocation Amount and the number of shares of Common Stock
actually issued to such holder shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of Preferred Shares on a pro
rata basis in proportion to the number of Preferred Shares then held by
each such holder.
(13) VOTE TO CHANGE THE TERMS OF OR ISSUE ADDITIONAL PREFERRED SHARES.
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, shall be
required for (a) any change to this Certificate of Designations or the
Company's Certificate of Incorporation which would amend, alter, change or
repeal any of the powers, designations, preferences and rights of the
Preferred Shares or (b) the issuance of Preferred Shares other than
pursuant to the Securities Purchase Agreement.
(14) LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of the
Preferred Stock Certificate(s), the Company shall execute and deliver new
preferred stock certificate(s) of like tenor and date; provided, however,
the Company shall not be obligated to re-issue preferred stock
certificates if the holder contemporaneously requests the Company to
convert such Preferred Shares into Common Stock.
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<PAGE>
(15) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies provided in this Certificate of
Designations shall be cumulative and in addition to all other remedies
available under this Certificate of Designations, at law or in equity
(including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance
with the provisions giving rise to such remedy and nothing herein shall
limit a holder's right to pursue actual damages for any failure by the
Company to comply with the terms of this Certificate of Designations. The
Company covenants to each holder of Preferred Shares that there shall be
no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be
the amounts to be received by the holder thereof and shall not, except as
expressly provided herein, be subject to any other obligation of the
Company (or the performance thereof). The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to
the holders of the Preferred Shares and that the remedy at law for any
such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holders of the
Preferred Shares shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity
of showing economic loss and without any bond or other security being
required.
(16) SPECIFIC SHALL NOT LIMIT GENERAL; CONSTRUCTION. No specific provision
contained in this Certificate of Designations shall limit or modify any
more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all Buyers and
shall not be construed against any person as the drafter hereof.
(17) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or
privilege.
*** REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ***
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Herman M. Frietsch its Chief Executive Officer, as
of the ____ day of March 1999.
INTELECT COMMUNICATIONS, INC.
By:
Name: Herman M. Frietsch
Its: Chief Executive Officer
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EXHIBIT I
ISSUER
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Intelect Communications, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In accordance
with and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of Series E Preferred Stock , par value
$0.01 per share (the "PREFERRED SHARES"), of Intelect Communications, Inc., a
Delaware corporation (the "COMPANY"), indicated below into shares of Common
Stock, par value $0.01 per share (the "COMMON STOCK"), of the Company, by
tendering the stock certificate(s) representing the share(s) of Preferred Shares
specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Is the alternative Floating Conversion Price being relied on pursuant to
Section 2(g)(iv) of the Certificate of Designations? (check one) YES ____
No ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of February 24,
1999, by and among Intelect Communications, Inc., a Delaware corporation, with
headquarters located at 1100 Executive Drive, Richardson, Texas 75081 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the
"BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to (i) issue and sell to the Buyers (a) 3,000
shares of the Company's Series E Convertible Preferred Stock (the "INITIAL
PREFERRED SHARES"), which will be convertible into shares (as converted, the
"INITIAL CONVERSION SHARES") of the Company's common stock, par value $.01 per
share (the "COMMON STOCK"), in accordance with the terms of the Company's
Certificate of Designations, Preferences and Rights of the Series E Convertible
Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"); and (b) issue Warrants (the
"INITIAL WARRANTS") which will be exercisable to purchase shares of Common Stock
(the "INITIAL WARRANT SHARES"); and (ii) issue and sell to the Buyers (a) 3,000
additional shares of the Company's Series E Convertible Preferred Stock (the
"MANDATORY PREFERRED SHARES"), which will be convertible into Common Stock (as
converted, the "MANDATORY CONVERSION SHARES") in accordance with the Certificate
of Designations; and (b) issue Warrants (the "MANDATORY WARRANTS") which will be
exercisable to purchase shares of Common Stock (the "MANDATORY WARRANT SHARES");
B. In connection with the Securities Purchase Agreement, the Buyers may
have the right, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to require the Company to (i) issue and sell additional
shares of the Company's Series E Convertible Preferred Stock (the "ADDITIONAL
PREFERRED SHARES"), which will be convertible into Common Stock (as converted,
the "ADDITIONAL CONVERSION SHARES") in accordance with the Certificate of
Designations and (ii) issue Warrants (the "ADDITIONAL WARRANTS") which will be
exercisable to purchase shares of Common Stock (the "ADDITIONAL WARRANT SHARES")
(the Initial Preferred Shares, the Mandatory Preferred Shares and the Additional
Preferred Shares collectively are referred to as the "PREFERRED SHARES"; the
Initial Conversion Shares, the Mandatory Conversion Shares and the Additional
Conversion Shares collectively are referred to as the "CONVERSION SHARES"; the
Initial Warrants, the Mandatory Warrants and the Additional Warrants
collectively are referred to as the "WARRANTS"; and the Initial Warrant Shares,
the Mandatory Warrant Shares and the Additional Warrant Shares collectively are
referred to as the "WARRANT SHARES").
C. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares and the
Warrant Shares issued or issuable upon conversion of the Preferred Shares and
exercise of the Warrants, respectively, and any shares of capital stock issued
or issuable with respect to the Conversion Shares, the Warrant Shares, the
Warrants or the Preferred Shares as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitations on conversions of Preferred Shares or exercises of the Warrants.
e. "INITIAL REGISTRATION STATEMENT" means a registration statement
or registration statements of the Company filed under the 1933 Act covering
Registrable Securities relating to the Initial Preferred Shares, the Mandatory
Preferred Shares, the Initial Warrants and the Mandatory Warrants.
f. "ADDITIONAL REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the 1933 Act
covering Registrable Securities relating to the Additional Preferred Shares and
the Additional Warrants.
g. "REGISTRATION STATEMENT" means the Initial Registration Statement
and the Additional Registration Statement, as applicable.
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<PAGE>
h. "SCHEDULED FILING DATE" means the Initial Scheduled Filing Date
or the Additional Scheduled Filing Date, as applicable.
o. "SCHEDULED EFFECTIVE DATE" means the Initial Scheduled Effective
Date or the Additional Scheduled Effective Date, as applicable.
2. REGISTRATION.
a. MANDATORY REGISTRATION.
(i) INITIAL MANDATORY REGISTRATION. The Company shall prepare,
and, as soon as practicable but in no event later than April 2, 1999 (the
"INITIAL SCHEDULED FILING DATE"), file with the SEC an Initial Registration
Statement or Initial Registration Statements (as necessary) on Form S-3 covering
the resale of all of the Registrable Securities relating to the Initial
Preferred Shares, the Mandatory Preferred Shares, the Initial Warrants and the
Mandatory Warrants (the "INITIAL REGISTRABLE SECURITIES"). In the event that
Form S-3 is unavailable for such a registration, the Company shall use such
other form as is available for such a registration, subject to the provisions of
Section 2(e). Any initial Registration Statement prepared pursuant hereto shall
register for resale at least that number of shares of Common Stock equal to the
sum of (I) product of (x) 2.0 and (y) the number of Initial Registrable
Securities relating to the Initial Preferred Shares and the Mandatory Preferred
Shares as of the date immediately preceding the date the Initial Registration
Statement is initially filed with the SEC (calculated as if the Mandatory
Preferred Shares were issued and outstanding on such date) and (II) the product
of (a) 1.25 and (b) the number of Initial Registrable Securities relating to the
Initial Warrants and Mandatory Warrants as of the date immediately preceding the
date the Initial Registration Statement is initially filed with the SEC, subject
to adjustment as provided in Section 3(b). The Company shall use its best
efforts to have the Initial Registration Statement declared effective by the SEC
as soon as practicable, but in no event later than 90 days after the Initial
Closing Date (the "INITIAL SCHEDULED EFFECTIVE DATE").
(ii) ADDITIONAL MANDATORY REGISTRATION. Subject to the
requirements of Rule 3-01 and 3-02 of Regulation S-X, the Company shall prepare,
and, as soon as practicable but in no event later than 30 days after each
Additional Closing Date (as defined in the Securities Purchase Agreement) (the
"ADDITIONAL SCHEDULED FILING DATE"), file with the SEC an Additional
Registration Statement or Additional Registration Statements (as necessary) on
Form S-3 covering the resale of all of the Registrable Securities relating to
the Additional Preferred Shares and the Additional Warrants which were issued on
such Additional Closing Date (collectively, the "ADDITIONAL REGISTRABLE
SECURITIES"). In the event that Form S-3 is unavailable for such a registration,
the Company shall use such other form as is available for such a registration,
subject to the provisions of Section 2(e). Any initial Registration Statement
prepared pursuant hereto shall register for resale at least that number of
shares of Common Stock equal to the sum of (I) the product of (x) 2.0 and (y)
the number of Additional Registrable Securities, relating to the Additional
Preferred Shares issued on such Additional Closing Date, as of the date
immediately preceding the date the Additional Registration Statement is
initially filed with the SEC and (II) the product of (a) 1.25 and (b) the number
of Additional Registrable Securities relating to the
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Additional Warrants issued on such Additional Closing Date, as of the date
immediately preceding the date the Additional Registration Statement is
initially filed with the SEC, subject to adjustment as provided in Section 3(b).
The Company shall use its best efforts to have such Additional Registration
Statement declared effective by the SEC as soon as practicable, but in no event
later than 90 days after such Additional Closing Date (the "ADDITIONAL SCHEDULED
EFFECTIVE DATE") (the Initial Scheduled Filing Date and the Additional Scheduled
Filing Date collectively are referred to as the "SCHEDULED FILING DATE" and the
Initial Scheduled Effective Date and the Additional Scheduled Effective Date
collectively are referred to as the "SCHEDULED EFFECTIVE DATE").
b. PIGGY-BACK REGISTRATIONS. Unless the Registrable Securities have
been registered pursuant to Section 2(a) and for so long as such registration is
effective, subject to the provisions of Section 3(u) hereof, and sufficient to
cover all Registrable Securities pursuant to Section 2(f), if at any time prior
to the date on which the Registration Period (as hereinafter defined) with
respect to all Registration Statements shall have expired, if any Preferred
Shares, Warrant Shares or Registrable Securities remain outstanding and the
Company proposes to file with the SEC a Registration Statement relating to an
offering for its own account or the account of others under the 1933 Act of any
of its securities (other than on Form S-4 or Form S-8 (or their equivalents at
such time) relating to securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
promptly send to each Investor written notice of the Company's intention to file
a Registration Statement and of such Investor's rights under this Section 2(b)
and, if within seven (7) business days after receipt of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth below in
this Section 2(b). No right to registration of Registrable Securities under this
Section 2(b) shall be construed to limit any registration required under Section
2(a). The obligations of the Company under this Section 2(b) may be waived by
Investors holding a majority of the Registrable Securities. If an offering in
connection with which an Investor is entitled to registration under this Section
2(b) is an underwritten offering, then each Investor whose Registrable
Securities are included in such Registration Statement shall, unless otherwise
agreed to by the Company, offer and sell such Registrable Securities in an
underwritten offering using the same underwriter or underwriters and, subject to
the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. If a registration
pursuant to this Section 2(b) is to be an underwritten public offering and the
managing underwriter(s) advise the Company in writing, that in their reasonable
good faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, and (3) third,
the securities requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
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<PAGE>
c. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
d. LEGAL COUNSEL. Subject to Section 5 hereof, the Buyers holding a
majority of the Registrable Securities shall have the right to select one legal
counsel to review and comment on any offering pursuant to this Section 2 ("LEGAL
COUNSEL"), which shall be Katten Muchin & Zavis or such other counsel as
thereafter designated by the holders of a majority of Registrable Securities.
The Company shall reasonably cooperate with Legal Counsel in performing the
Company's obligations under this Agreement.
e. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form reasonably acceptable to the holders of a majority of the Registrable
Securities and (ii) undertake to register the Registrable Securities on Form S-3
as soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
f. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities which such
Registration Statement is required to cover or an Investor's allocated portion
of the Registrable Securities pursuant to Section 2(c), the Company shall amend
the Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover at least 200%
of the Conversion Shares issuable upon conversion of the Preferred Shares
covered by such Registration Statement and 125% of the Warrant Shares issuable
upon exercise of the Warrants covered by such Registration Statement, without
regard to any limitations on conversion or exercises (based on the market price
of the Common Stock on the trading day immediately preceding the date of filing
of such amendment or new Registration Statement), in each case, as soon as
practicable, but in any event not later than fifteen (15) days after the
necessity therefor arises. The Company shall use it best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof. For purposes of the foregoing
provision, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time and continuing for a period of at least seven (7) consecutive trading days
the number of Registrable Securities issued or issuable upon conversion of the
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Preferred Shares and exercise of the Warrants covered by such Registration
Statement is greater than the sum of (i) the quotient determined by dividing (A)
the number of shares of Common Stock available for resale under such
Registration Statement with respect to the Preferred Shares by (B) 1.5, plus
(ii) the quotient determined by dividing (X) the number of shares of Common
Stock available for resale under such Registration Statement with respect to the
Warrants by (Y) 1.0. For purposes of the calculation set forth in the foregoing
sentence, any restrictions on the convertibility of the Preferred Shares or
exercisability of the Warrants shall be disregarded and such calculation shall
assume that the Preferred Shares and the Warrants are then convertible into or
exercisable for shares of Common Stock at the then prevailing Conversion Rate
(as defined in the Company's Certificate of Designations) and Warrant Exercise
Price (as defined in the Warrant), respectively, if applicable.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Sections 2(a) or 2(f),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the Scheduled Filing Date) and use its best efforts to cause such
Registration Statement relating to the Registrable Securities to become
effective as soon as possible after such filing (but in no event later than the
Scheduled Effective Date). The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until the earlier of (i) the date as
of which the Investors may sell all of the Registrable Securities covered by
such Registration Statement without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
the Investors shall have sold all the Registrable Securities covered by such
Registration Statement (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading. The term "best efforts" shall mean, among other things, that the
Company shall submit to the SEC, within three business days after the Company
learns that no review of a particular Registration Statement will be made by the
staff of the SEC or that the staff has no further comments on the Registration
Statement, as the case may be, a request for acceleration of effectiveness of
such Registration Statement to a time and date not later than 48 hours after the
submission of such request.
b. Subject to Section 3(u), the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period,
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and, during such period, comply with the provisions of the 1933 Act with respect
to the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section 3(b)) by reason of the Company filing a report on Form 10-K, Form
10-Q or Form 8-K or any analogous report under the Securities Exchange Act of
1934, as amended (the "1934 ACT"), the Company shall have incorporated such
report by reference into the Registration Statement, if applicable, or shall
file such amendments or supplements with the SEC on the same day on which the
1934 Act report is filed which created the requirement for the Company to amend
or supplement the Registration Statement.
c. The Company shall (a) permit Legal Counsel to review and comment
upon (i) the Initial Registration Statement and the Additional Registration
Statement at least five (5) business days prior to its filing with the SEC and
(ii) all other Registration Statements and all amendments and supplements to all
Registration Statements (except for Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K and any similar or
successor reports) within a reasonable number of days prior to the their filing
with the SEC and (b) not file any document in a form to which Legal Counsel
reasonably objects. In the event of a good faith disagreement as to the
reasonableness of the comments or objections of Legal Counsel, the deadline for
filing the Registration Statement or any amendments or supplements thereto shall
be extended for the period of such bona fide disagreement. The Company shall not
submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval of
Legal Counsel, which consent shall not be unreasonably withheld. The Company
shall furnish to Legal Counsel, without charge, (i) any correspondence from the
SEC or the staff of the SEC to the Company or its representatives relating to
any Registration Statement, (ii) promptly after the same is prepared and filed
with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits and (iii) upon the
effectiveness of any Registration Statement, one copy of the prospectus included
in such Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference, all
exhibits and each preliminary prospectus, (ii) upon the effectiveness of any
Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
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e. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
f. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the offering,
the Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
g. As promptly as practicable after becoming aware of such event or
development, the Company shall notify Legal Counsel and each Investor in writing
of the happening of any event as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and promptly prepare a supplement or
amendment to such Registration Statement to correct such untrue statement or
omission, and deliver ten (10) copies of such supplement or amendment to Legal
Counsel and each Investor (or such other number of copies as Legal Counsel or
such Investor may reasonably request). The Company shall also promptly notify
Legal Counsel and each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
h. Subject to Section 3(u), the Company shall use its best efforts
to prevent the issuance of any stop order or other suspension of effectiveness
of a Registration Statement, or the suspension of the qualification of any of
the Registrable Securities for sale in any jurisdiction and,
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if such an order or suspension is issued, to obtain the withdrawal of such order
or suspension at the earliest possible moment and to notify Legal Counsel and
each Investor who holds Registrable Securities being sold (and, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
(i) a letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
and (ii) an opinion, dated as of such date, of counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt written notice to
the Company and allow the Company, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, the
Records deemed confidential.
k. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental
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body of competent jurisdiction or through other means, give prompt written
notice to such Investor and allow such Investor, at the Investor's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market or, if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request.
n. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor, the
Company shall (i) immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters or the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters
or by the Investors, the purchase price being paid therefor by such underwriters
and any other terms of the underwritten (or best efforts underwritten) offering
of the Registrable Securities to be sold in such offering; (ii) as soon as
practicable make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and (iii) supplement
or make amendments to any Registration Statement if requested by an Investor or
any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other
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governmental agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
q. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
r. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
s. Within two (2) business days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that such Registration Statement has been declared
effective by the SEC in the form attached hereto as EXHIBIT A.
t. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
u. Notwithstanding anything to the contrary in Section 3(g), at any
time after the applicable Registration Statement has been declared effective by
the SEC, the Company may delay the disclosure of material non-public information
concerning the Company the disclosure of which at the time is not, in the good
faith opinion of the Board of Directors of the Company and its counsel, in the
best interest of the Company and, in the opinion of counsel to the Company,
otherwise required (a "GRACE PERIOD"); provided, that the Company shall promptly
(i) notify the Investors in writing of the existence of material non-public
information giving rise to a Grace Period (provided that in each notice the
Company will not disclose the content of such material non-public information to
the Investors) and the date on which the Grace Period will begin, and (ii)
notify the Investors in writing of the date on which the Grace Period ends; and,
provided further, that during any consecutive 365 day period, there shall be
only one Grace Period, such Grace Period not to exceed 30 days (an "ALLOWABLE
GRACE Period"). For purposes of determining the length of a Grace Period above,
the Grace Period shall begin on and include the date the holders receive the
notice referred to in clause (i) and shall end on and include the later of the
date the holders receive the notice referred to in clause (ii) and the date
referred to in such notice. The provisions of Section 3(h) hereof and Section
2(g)(v) of the Certificate of Designations shall not be applicable during the
period of any Allowable Grace Period. Upon expiration of the Grace Period, the
Company shall again be bound by the first sentence of Section 3(g) with respect
to the information giving rise thereto unless such material non-public
information is no longer applicable. In the event there is a Grace Period, the
Mandatory Conversion Date (as defined in the Certificate of Designations) shall
be delayed by one and one-half (1 1/2) days for each day in the Grace Period as
provided in Section 2(a)(xi) of the Certificate of Designations.
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v. For each calendar quarter beginning in the quarter in which the
initial Registration Statement required to be filed pursuant to Section 2(a) is
declared effective and thereafter so long as any Preferred Shares or Warrants
are outstanding, the Company shall deliver (or cause its transfer agent to
deliver) to each Buyer a written report notifying the Buyers of any occurrence
which prohibits the Company from issuing Common Stock upon conversion of the
Preferred Shares or exercise of the Warrants. The report shall also specify (i)
the total number of Preferred Shares and Warrants outstanding as of the end of
the quarter, (ii) the total number of shares of Common Stock issued upon all
conversions of Preferred Shares or exercise of the Warrants prior to the end of
the quarter, (iii) the total number of shares of Common Stock which are reserved
for issuance upon conversion of the Preferred Shares or upon exercise of the
Warrants as of the end of the quarter, and (iv) the total number of shares of
Common Stock which may thereafter be listed or issued by the Company upon
conversion of the Preferred Shares or exercise of the Warrants before the
Company would exceed the Exchange Cap (as defined in the Certificate of
Designations). The Company (or its transfer agent) shall deliver the report for
each quarter to each Buyer prior to the tenth day of the calendar month
following the quarter to which such report relates. In addition, the Company (or
its transfer agent) shall provide, within 15 days after delivery to the Company
of a written request by any holder, any of the information enumerated in clauses
(i) - (iv) of this Section 3(v) as of the date of such request.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of each Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
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d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(h), the
first sentence of 3(g) or 3(u), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(h) or the
first sentence of 3(g) or receipt of notice that no supplement or amendment is
required. Notwithstanding anything to the contrary, the Company shall cause its
transfer agent to deliver unlegended shares of Common Stock to a transferee of
an Investor in accordance with the terms of the Certificate of Designations in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor's receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(h) or the first sentence of 3(g) and for which the Investor has not
yet settled.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable fees and expenses, other than underwriting discounts
and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and reasonable fees and
disbursements of Legal Counsel (such fees and disbursements of Legal Counsel not
to exceed $5,000) shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement
under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT"), and any
underwriter (as defined in the 1933 Act) for the Investors, and the directors
and officers of, and each Person, if any, who controls, any such underwriter
within the meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, liabilities, judgments, fines,
penalties, charges, costs, attorneys' fees, amounts paid in settlement or
expenses, joint or several, (collectively, "CLAIMS") incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding,
investigation or appeal taken from the
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foregoing by or before any court or governmental, administrative or other
regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("INDEMNIFIED DAMAGES"),
to which any of them may become subject insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY Filing"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "VIOLATIONS"). The Company shall reimburse the Investors and each
such underwriter or controlling person, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim by an
Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
(ii) with respect to any preliminary prospectus, shall not inure to the benefit
of any such person from whom the person asserting any such Claim purchased the
Registrable Securities that are the subject thereof (or to the benefit of any
person controlling such person) if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected in the prospectus, as
then amended or supplemented, if such prospectus was timely made available by
the Company pursuant to Section 3(d), and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the prospectus
made available by the Company, if such prospectus was timely made available by
the Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
14
<PAGE>
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, each of
its employees, agents and representatives (each an "INDEMNIFIED PARTY"), against
any Claim or Indemnified Damages to which any of them may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages arise out of or are based upon any Violation, in each case to the
extent, and only to the extent, that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
15
<PAGE>
conflicting interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding. The Company
shall pay reasonable fees for only one separate legal counsel for the Investors,
and such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprised at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its prior written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the prior written consent of the Indemnified Party or Indemnified Person,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party or Indemnified Person of a
release from all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall be
subrogated to all rights of the Indemnified Party or Indemnified Person with
respect to all third parties, firms or corporations relating to the matter for
which indemnification has been made. The failure to deliver written notice to
the indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
16
<PAGE>
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall not be assignable by the
Investors without the prior written consent of the Company. Notwithstanding the
foregoing, the rights under this Agreement shall be assignable by the Investors,
without the consent of the Company, to any Permitted Transferee (as defined
below) upon the transfer of all or any portion of Registrable Securities if: (i)
the Investor agrees in writing with the Permitted Transferee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such Permitted Transferee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the Permitted Transferee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
Permitted Transferee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement. Any attempted assignment, other than to an Permitted Transferee shall
be void and without effect. A "PERMITTED TRANSFEREE" shall mean (i) Buyer, (ii)
an Affiliate (as such term is defined in the Securities Purchase Agreement) of
the Investor, (iii) any holder of Preferred Shares and (iv) any Affiliate of a
holder of Preferred Shares.
17
<PAGE>
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 75081
Telephone: (972) 367-2100
Facsimile: (972) 367-2271
Attention: Herman M. Frietsch
18
<PAGE>
With a copy to:
Ryan & Sudan, L.L.P.
Two Houston Center
909 Fannin Street, 39th Floor
Houston, Texas 77010
Telephone: (713) 652-0501
Facsimile: (713) 652-0503
Attention: Philip P. Sudan, Jr., Esq.
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: 312-902-5200
Facsimile: 312-902-1061
Attention: Robert J. Brantman, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of such transmission or (C)
provided by a nationally recognized courier or overnight delivery service shall
be rebuttable evidence of personal service, overnight or courier delivery or
transmission by facsimile in accordance with clause (i), (ii) or (iii) above,
respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver
thereof.
d. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and the Buyers as its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting the City of New York, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and
19
<PAGE>
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
e. This Agreement, the Securities Purchase Agreement and the
Certificate of Designations constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein and therein. This Agreement, the Securities Purchase
Agreement, the Warrants and the Certificate of Designations supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Preferred Shares and
20
<PAGE>
Warrants then outstanding, or in the case of the Warrants issuable, have been
converted into or exercised for Registrable Securities without regard to any
limitation on conversions of the Preferred Shares or the exercise of the
Warrants.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
21
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
INTELECT COMMUNICATIONS, INC. HFTP INVESTMENT LLC
By:Promethean Investment Group L.L.C.
Its: Investment Manager
By: By:
Name: Herman M. Frietsch Name:James F. O'Brien, Jr.
Its: Chief Executive Officer Its: President
WINGATE CAPITAL LTD.
By:
Name:
Its:
FISHER CAPITAL LTD.
By:
Name:
Its:
NP PARTNERS (FORMERLY KNOWN AS
NELSON PARTNERS)
By:
Name:
Its:
OLYMPUS SECURITIES, LTD.
By:
Name:
Its:
<PAGE>
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT - P. 2 OF 3]
CCG CAPITAL LTD.
By:
Name:
Its:
CCG INTERNATIONAL FUND LTD.
By:
Name:
Its:
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS,
INC.
By: ANGELO, GORDON & CO., L.P.
Its: Investment Advisor
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT - P. 3 OF 3]
RAPHAEL, L.P.
By:
Name: Michael L. Gordon
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG RAMIUS PARTNERS, L.L.C.
Its: Investment Advisor
By:
Name: Michael L. Gordon
Its: Managing Officer
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES'
INVESTOR NAME AND FACSIMILE NUMBER ADDRESS AND FACSIMILE NUMBER
- ------------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
HFTP Investment LLC c/o Promethean Investment Group, L.L.C. Katten Muchin & Zavis
750 Lexington Avenue, 22nd Floor 525 West Monroe, Suite 1600
New York, New York 10022 Chicago, Illinois 60661-3693
Attention: James F. O'Brien, Jr. Attention: Robert J. Brantman, Esq.
Facsimile: (212) 758-9334 Facsimile: (312) 902-1061
Telephone: (212) 702-5200 Telephone: (312) 902-5200
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
. 225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7803 Telephone: (312) 902-5200
Residence: Cayman Islands
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7803 Telephone: (312) 902-5200
Residence: Cayman Islands
NP Partners c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Residence: Bermuda
Olympus Securities, Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 West. Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Residence: Bermuda
CCG International Fund Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES'
INVESTOR NAME AND FACSIMILE NUMBER ADDRESS AND FACSIMILE NUMBER
- ------------------------------ --------------------------------------- -----------------------------------
<S> <C> <C>
CCG Capital Ltd. c/o Citadel Investment Group, L.L.C. Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Attention: Gary Wolf or Ari Facsimile: (212) 867-6449
Facsimile: (212) 867-6449 Telephone: (212) 692-2035
Telephone: (212) 692-2035
GAM Arbitrage Investments, Inc. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
AG Super Fund International c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
Partners, L.P. 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
</TABLE>
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:_____________
Re: INTELECT COMMUNICATIONS, INC.
Ladies and Gentlemen:
We are counsel to Intelect Communications, Inc., a Delaware
corporation (the "COMPANY"), and have represented the Company in connection with
that certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered
into by and among the Company and the buyers named therein (collectively, the
"HOLDERS") pursuant to which the Company issued and may issue to the Holders
shares of its Series E Preferred Stock, $.01 par value per share (the "PREFERRED
SHARES") convertible into shares of the Company's common stock, $.01 par value
per share (the "COMMON STOCK") and the Company's warrants (the "WARRANTS") to
acquire shares of Common Stock. Pursuant to the Purchase Agreement, the Company
also has entered into a Registration Rights Agreement with the Holders (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the shares of Common Stock issuable
upon conversion of the Preferred Shares and exercise of the Warrants, under the
Securities Act of 1933, as amended (the "1933 ACT"). In connection with the
Company's obligations under the Registration Rights Agreement, on February ___,
1999, the Company filed a Registration Statement on Form S-3 (File No.
333-_____________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the Registrable Securities which
names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at [ENTER TIME
OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:___________________
cc: [LIST NAMES OF HOLDERS]
EXHIBIT 4.2
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of December 22,
1998, by and among INTELECT COMMUNICATIONS, INC., a Delaware corporation, with
headquarters located at 1100 Executive Drive, Richardson, Texas, 75081 (the
"COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively, the
"BUYERS").
WHEREAS:
A. In connection with the Subscription Agreement by and among the parties
hereto of even date herewith (the "SUBSCRIPTION AGREEMENT"), the Company has
agreed, upon the terms and subject to the conditions of the Subscription
Agreement, to issue and sell to the Buyers shares (the "COMMON SHARES") of the
Company's common stock, par value $0.01 per share (the "COMMON STOCK"), as well
those certain Warrants (the "WARRANTS") to purchase Common Stock which will be
exercisable into [INSERT SHARES HERE] shares of Common Stock at an exercise
price of $2.998 (as exercised, the "WARRANT SHARES") in accordance with the
terms of those Warrants; and
B. To induce the Buyers to execute and deliver the Subscription Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations thereunder, or
any similar successor statute (collectively, the "1933 ACT"), and applicable
state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with
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the 1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous basis ("RULE 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Common Shares and the Warrant
Shares issued or issuable upon exercise of the Warrants and any shares of
capital stock issued or issuable with respect to the Common Shares or the
Warrant Shares as a result of any stock split, stock dividend, recapitalization,
exchange or similar event or otherwise.
e. "REGISTRATION STATEMENT" means a registration
statement of the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, as soon
as practicable but in no event later than 45 days after the date of issuance of
the relevant Common Shares, file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form S-3 covering the resale of all
the Registrable Securities as set forth herein. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(d).
The Company shall use its commercially reasonable best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than 90 days after the issuance of the relevant Common Shares.
b. PIGGY-BACK REGISTRATIONS. Unless the Registrable Securities have
been registered pursuant to Section 2(a) and for so long as such registration is
effective, subject to the provisions of Section 3(e) hereof, and sufficient to
cover all Registrable Securities, then, if at any time prior to the expiration
of the Registration Period (as hereinafter defined), the Company proposes to
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its securities
(other than on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans) the Company shall promptly send to each
Investor written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(b) and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(b) below. No right to
registration of Registrable Securities under this Section 2(b) shall be
construed to limit any
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registration required under Section 2(a). The obligations of the Company under
this Section 2(b) may be waived by Investors holding a majority of the
Registrable Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(b) is an underwritten offering,
then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering. If a registration pursuant to this Section 2(b) is to be
an underwritten public offering and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion, marketing or
other factors dictate that a limitation on the number of shares of Common Stock
which may be included in the Registration Statement is necessary to facilitate
and not adversely affect the proposed offering, then the Company shall include
in such registration: (1) first, all securities the Company proposes to sell for
its own account, (2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to inclusion of
their securities in the Registration Statement by reason of demand registration
rights, and (3) third, the securities requested to be registered by the
Investors and other holders of securities entitled to participate in the
registration, as of the date hereof, drawn from them pro rata based on the
number each has requested to be included in such registration.
c. ALLOCATION OF REGISTRABLE SECURITIES. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time the Registration Statement covering such initial
number of Registrable Securities or increase thereof is declared effective by
the SEC. In the event that an Investor sells or otherwise transfers any of such
Person's Registrable Securities, each transferee shall be allocated a pro rata
portion of the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.
d. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
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3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the forty-fifth (45th) day after the date of issuance of any Common Shares
for the registration of Registrable Securities pursuant to Section 2(a)) and use
its best efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as possible after such filing
(but in no event later than 90 days after the issuance of any Common Shares for
the registration of Registrable Securities pursuant to Section 2(a)), and keep
such Registration Statement effective pursuant to Rule 415 at all times until
the earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which (A) the
Investors shall have sold all the Registrable Securities and (B) none of the
Common Shares is outstanding (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
b. Subject to Section 3(e), the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits, and each preliminary prospectus, (ii) upon the effectiveness of
any Registration Statement, five (5) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final
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prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. The Company shall promptly notify each Investor who holds
Registrable Securities of the receipt by the Company of any notification
with respect to the suspension of the registration or qualification of any of
the Registrable Securities for sale under the securities or "blue sky" laws of
any jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any event
as a result of which the prospectus included in a Registration Statement, as
then in effect, includes an untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
five (5) copies of such supplement or amendment to each Investor. The Company
shall also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. Subject to Section 3(l) hereof, the Company shall use its best
efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify each Investor
who holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
h. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market System or, if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
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Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(h).
i. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the the Investors may
reasonably request and registered in such names as the Investors may reasonably
request.
j. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
k. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
l. Notwithstanding anything to the contrary in Section 3(g), at any
time after the Registration Statement has been declared effective, the Company
may delay the disclosure of material non-public information concerning the
Company the disclosure of which at the time is not, in the good faith opinion of
the Board of Directors of the Company and its counsel, in the best interest of
the Company and, in the opinion of counsel to the Company, otherwise required (a
"GRACE PERIOD"); provided, that the Company shall promptly (i) notify the
Investors in writing of the existence of material non-public information giving
rise to a Grace Period and the date on which the Grace Period will begin, and
(ii) notify the Investors in writing of the date on which the Grace Period ends;
and, provided further, that during any consecutive 365 day period, there shall
be only two allowable Grace Periods, such Grace Periods not to exceed 30 days
(an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace
Period above, the Grace Period shall begin on and include the date the holders
receive the notice referred to in clause (i) and shall end on and include the
date the holders receive the notice referred to in clause (ii). Upon expiration
of the Grace Period, the Company shall again be bound by the first sentence of
this Section 3(l) with respect to the information giving rise thereto.
4. OBLIGATIONS OF THE INVESTORS.
a. At least two (2) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor if such Investor elects
to have any of such Investor's Registrable Securities included in such
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to
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effect the registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may reasonably
request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2(b), each such Investor agrees
to enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to any Registration Statement(s) covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g).
e. No Investor may participate in any underwritten registration
under Section 2(b) hereof unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investors entitled hereunder to approve such
arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable fees and expenses, other than selling commissions,
transfer taxes, fees and costs attributable to counsel for the Investors, and
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company, shall be
paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included
in a Registration Statement under this Agreement:
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a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents of,
and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and any underwriter (as defined in the 1933 Act) for the Investors, and the
directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which the statements therein were made, not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any material
violation of this Agreement by the Company (the matters in the foregoing clauses
(i) through (iv) being, collectively, "VIOLATIONS"). The Company shall reimburse
the Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(d); (ii) with respect to any preliminary prospectus, shall not inure
to the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission
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of material fact contained in the preliminary prospectus was corrected in the
prospectus, as then amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 3(d), and the Indemnified Person
was promptly advised in writing not to use the incorrect prospectus prior to the
use giving rise to a violation and such Indemnified Person, notwithstanding such
advice, used it; (iii) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(d); and (iv) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any
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distribution, to the same extent as provided above, with respect to information
such persons so furnished in writing expressly for inclusion in the Registration
Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprized at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
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e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
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9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall not be assignable by the
Investors without the prior written consent of the Company. Notwithstanding the
foregoing, the rights under this Agreement shall be assignable by the Investors,
without the consent of the Company, to any Affiliated Transferee (as defined
below) upon the transfer of all or any portion of Registrable Securities if: (i)
the Investor agrees in writing with the Affiliated Transferee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such Affiliated Transferee, and (b) the securities with
respect to which such registration rights are being transferred or assigned;
(iii) immediately following such transfer or assignment the further disposition
of such securities by the Affiliated Transferee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
Affiliated Transferee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement. Any attempted assignment, other than to an Affiliated Transferee
shall be void and without effect. An "AFFILIATED TRANSFEREE" shall mean (i) an
Affiliate (as such term is defined in the Securities Purchase Agreement) of the
Investor, (ii) any holder of Common Shares and (iii) any Affiliate of a holder
of Common Shares.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed
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to have been delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile (provided a confirmation of transmission is
mechanically generated and kept on file by the sending party); or (iii) one (1)
day after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: (972) 367-2100
Facsimile: (972) 367-2271
Attention: Herman M. Frietsch
With a copy to:
RYAN & SUDAN, L.L.P.
Two Houston Center
909 Fannin Street, 39th Floor
Houston, Texas 77010
Telephone: (713) 652-0501
Facsimile: (713) 652-0503
Attention: Philip P. Sudan, Jr., Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) provided by a courier or
overnight service or (C) mechanically generated by the sender's facsimile
machine containing the time, date, recipient facsimile number and an image of
such transmission shall be rebuttable evidence of personal delivery, overnight
or courier delivery or transmission by facsimile in accordance with clause (i),
(iii) or (ii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
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<PAGE>
d. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of Texas, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Texas or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Texas. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting the City of Houston, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Subscription Agreement and the Warrants
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Subscription Agreement and the Warrant supersede
all prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the
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<PAGE>
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Common Shares then outstanding have been converted
into Registrable Securities without regard to any limitation on conversions of
Common Shares.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
INTELECT COMMUNICATIONS, INC.
By:______________________ By:__________________________
Herman M Frietsch Printed Name:________________
Chairman and CEO
ADDRESS FOR NOTICES:
_____________________________
_____________________________
EXHIBIT 4.3
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO
COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS.
INTELECT COMMUNICATIONS, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.:_________________ Number of Shares:______
Date of Issuance: _____________ __, 199_
Intelect Communications, Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ____________________, the registered holder hereof or its
permitted assigns, is entitled, subject to the terms set forth below, to
purchase from the Company upon surrender of this Warrant, at any time or times
on or after the date hereof, but not after 11:59 P.M. Central Time on the
Expiration Date (as defined herein) _____________________ (____________________)
[INSERT 100 SHARES FOR EACH PREFERRED SHARE] fully paid nonassessable shares of
Common Stock (as defined herein) of the Company (the "WARRANT SHARES") at the
purchase price per share provided in Section 1(b) below; provided, however, that
in no event shall the holder be entitled to exercise this Warrant for a number
of Warrant Shares in excess of that number of Warrant Shares which, upon giving
effect to such exercise, would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 5.00% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such proviso is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised Warrants beneficially owned by the holder and its affiliates and
(ii) exercise or conversion of the unexercised or unconverted portion of any
other
<PAGE>
securities of the Company beneficially owned by the holder and its affiliates
(including, without limitation, any convertible notes or preferred stock)
subject to a limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holders and its affiliates. Except as
set forth in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended. For purposes of this paragraph, in determining
the number of outstanding shares Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
For any reason at any time, upon the written or oral request of any a holder,
the Company shall immediately confirm orally and in writing to any such holder
the number of shares Common Stock then outstanding. In any case, the number of
outstanding shares Common Stock shall be determined after giving effect to
conversions of Preferred Shares by such holder since the date as of which such
number of outstanding shares of Common Stock was reported.
Section 1.
(a) SECURITIES PURCHASE AGREEMENT. This Warrant is one of the
Warrants (the "PREFERRED SHARE WARRANTS") issued concurrently with the issuance
of the Company's Series E Convertible Preferred par value $0.01 per share (the
"PREFERRED SHARES"), pursuant to the terms of that certain Securities Purchase
Agreement dated as of February __, 1999, among the Company and the Buyers
referred to therein (the "SECURITIES PURCHASE AGREEMENT").
(b) DEFINITIONS. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "APPROVED STOCK PLAN" shall mean any employee benefit
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee, officer or
director.
(ii) "CERTIFICATE OF DESIGNATIONS" means the Company's
Certificate of Designations, Preferences and Rights of the Preferred Shares.
(iii) "CLOSING BID PRICE" means, for any security as of
any date, the last closing bid price for such security on the Principal Market
(as defined below) as reported by Bloomberg Financial Markets ("BLOOMBERG"), or,
if the Principal Market is not the principal trading market for such security,
the last closing bid price of such security on the principal securities exchange
or trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is reported
for such security by Bloomberg, the last closing trade price for such security
as reported by Bloomberg, or, if no last closing trade price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price
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<PAGE>
cannot be calculated for such security on such date on any of the foregoing
bases, the Closing Bid Price of such security on such date shall be the fair
market value as mutually determined by the Company and the holders of the
Preferred Shares. If the Company and the holders of the Preferred Shares are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(a) of this Warrant with the term
"Closing Bid Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period.)
(iv) "CLOSING SALE PRICE" means, for any security as of
any date, the last closing trade price for such security on the Principal Market
(as defined below) as reported by Bloomberg, or, if the Principal Market is not
the principal securities exchange or trading market for such security, the last
closing trade price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the last closing trade price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the last closing ask price of such
security as reported by Bloomberg, or, if no last closing ask price is reported
for such security by Bloomberg, the average of the ask prices of any market
makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Sale Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the holders of Preferred Shares. If the Company and the
holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section 2(a)
below with the term "Closing Sale Price" being substituted for the term "Market
Price." (All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period).
(v) "COMMON STOCK" means (i) the Company's common stock,
par value $0.01 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(vi) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock
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<PAGE>
owned or held by or for the account of the Company or issuable upon exercise of
the Preferred Share Warrants.
(vii) "CONVERTIBLE SECURITIES" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(viii) "EXPIRATION DATE" means the date five (5) years
from the date of this Warrant or, if such date falls on a Saturday, Sunday or
other day on which banks are required or authorized to be closed in the City of
New York or the State of New York or on which trading does not take place on the
principal exchange or automated quotation system on which the Common Stock is
traded (a "HOLIDAY"), the next date that is not a Holiday, unless extended
pursuant to Section 3(u) of the Registration Rights Agreement (as defined
below), which extension shall be equal to one and one-half (1 1/2) times the
aggregate number of days of all Grace Periods (as defined in Section 3(u) of the
Registration Rights Agreement).
(ix) "MARKET PRICE" means, with respect to any security,
that price which shall be computed as the arithmetic average of the two (2)
lowest Closing Bid Prices (as defined below) for such security during the forty
(40) consecutive trading days immediately preceding such date of determination.
(All such determinations shall be appropriately adjusted for any stock dividend,
stock split or other similar transaction during such period.)
(x) "OPTIONS" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.
(xi) "OTHER SECURITIES" means (i) those rights, warrants,
options or convertible securities of the Company issued prior to, and
outstanding on, the date of issuance of this Warrant, (ii) the Preferred Shares
and the Preferred Share Warrants, (iii) the shares of Common Stock issued upon
conversion of the Preferred Shares or exercise of the Preferred Share Warrants
or (iv) the Excluded Securities (as defined in the Certificate of Designations).
(xii) "PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xiii) "PRINCIPAL MARKET" means the Nasdaq National
Market.
(xiv) "SECURITIES ACT" means the Securities Act of 1933,
as amended.
(xv) "WARRANT" means this Warrant and all Warrants issued
in exchange, transfer or replacement of any thereof.
(xvi) "WARRANT EXERCISE PRICE" shall equal 110% of the
Market Price on the Initial Issuance Date (as defined in the Securities Purchase
Agreement)
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(xvii) "RESET DATE" shall mean, during the period
beginning on the Issuance Date and ending on the Expiration Date, each of the
last day of July and the last day of January.
Section 2. EXERCISE OF WARRANT.
(a) Subject to the terms and conditions hereof, this Warrant may
be exercised by the holder hereof then registered on the books of the Company,
in whole or in part, at any time on any business day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as EXHIBIT A hereto (the "EXERCISE NOTICE"), of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or by check or wire
transfer or (B) if permitted pursuant to Section 2(f), by notifying the Company
that this Warrant is being exercised pursuant to a Cashless Exercise (as defined
in Section 2(f)) and (iii) the surrender to a common carrier for delivery to the
Company as soon as practicable following such date, this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable, and in no event later than two business days, after the
Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction). Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii)(A) above or notification
to the Company of a Cashless Exercise referred to in Section 2(f), the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares. In the
case of a dispute as to the determination of the Warrant Exercise Price, the
last reported sale price (as reported by Bloomberg) or the Market Price of a
security or the arithmetic calculation of the Warrant Shares, the Company shall
promptly issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic calculations
to the holder via facsimile within one business day of receipt of the holder's
subscription notice. If the holder and the Company are unable to agree upon the
determination of the Warrant Exercise Price, the last reported sale price (as
reported by Bloomberg) or Market Price or arithmetic calculation of the Warrant
Shares within one day of such disputed determination or arithmetic calculation
being submitted to the holder,
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<PAGE>
then the Company shall immediately submit via facsimile (i) the disputed
determination of the Warrant Exercise Price, the last reported sale price (as
reported by Bloomberg) or the Market Price to an independent, reputable
investment banking firm or (ii) the disputed arithmetic calculation of the
Warrant Shares to its independent, outside accountant. The Company shall cause
the investment banking firm or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than FIVE business days after any exercise and
at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common Stock
issued upon exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(d) If the Company shall fail for any reason or for no reason to
issue to the holder on a timely basis as described in this Section 2, a
certificate for the number of shares of Common Stock to which the holder is
entitled upon the holder's exercise of this Warrant or a new Warrant for the
number of shares of Common Stock to which such holder is entitled pursuant to
Section 2(b) hereof, the Company shall, in addition to any other remedies under
this Warrant or the Securities Purchase Agreement or otherwise available to such
holder, including any indemnification under Section 8 of the Securities Purchase
Agreement, pay as additional damages in cash to such holder on each day the
issuance of such Common Stock certificate or new Warrant, as the case may be, is
not timely effected an amount equal to 1.0% of the product of (A) the sum of the
number of shares of Common Stock not issued to the holder on a timely basis and
to which the holder is entitled and, in the event the Company has failed to
deliver a Warrant to the holder on a timely basis, the number of shares
represented by the portion of this Warrant which is not being converted as of
the last possible date which the Company could have issued such Warrant to such
holder without violating Section 2 and (B) the Closing Sale Price of the Common
Stock for last possible date which the Company could have issued such Common
Stock or Warrant, as the case may be, to such holder without violating Section
2. If the Company fails to pay the additional damages set forth in this Section
2 within five business days of the date incurred, then the holder entitled to
such payments shall have the right at any time, so long as the Company continues
to fail to make such payments, to require the Company, upon written notice, to
immediately issue, in lieu of such cash damages, the number of shares of Common
Stock equal to the quotient of (X) the aggregate amount of the damages payments
described herein divided by
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(Y) the Conversion Price in effect on such Conversion Date as specified by the
holder in the Conversion Notice (each as defined in the Certificate of
Designations).
(e) If the registration statement (the "REGISTRATION STATEMENT")
covering the resale of the Warrant Shares issuable upon conversion of this
Warrant required to be filed by the Company pursuant to the Registration Rights
Agreement between the Company and the original purchasers of this Warrant (the
"REGISTRATION RIGHTS AGREEMENT") is not (A) filed with the Securities and
Exchange Commission (the "SEC") by the date which is twenty days after the
Scheduled Filing Date (as defined in the Registration Rights Agreement), (B)
declared effective by the SEC on or before the date which is twenty days after
the Scheduled Effective Date (as defined in the Registration Rights Agreement),
or (C) if after the Registration Statement has been declared effective by the
SEC, sales cannot be made pursuant to the Registration Statement (whether
because of a failure to keep the Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock or
otherwise), then, as partial relief for the damages to any holder of Preferred
Shares by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Warrant Exercise Price shall
be adjusted as follows: the Warrant Exercise Price in effect at such time shall
be reduced by an amount equal to the product of (y) the Warrant Exercise Price
in effect as of the original issuance date of this Warrant multiplied by (z) the
sum of (I) .02, if the Registration Statement is not filed by the date which is
twenty days after the Scheduled Filing Date, plus (II) .02, if the Registration
Statement is not declared effective by the date which is twenty days after the
Scheduled Effective Date, plus (III) the product of (a) .00067 and (b) the
difference of (A) the sum of the Registration Statement Default Days (as defined
in the Certificate of Designation) minus (B) twenty.
(f) If, despite the Company's obligations provided in the
Securities Purchase Agreement and the Registration Rights Agreement, the Warrant
Shares to be issued are not registered for resale in accordance with the
Registration Rights Agreement or a Triggering Event (as defined in the
Certificate of Designations) shall have occurred, notwithstanding anything
contained herein to the contrary, the holder of this Warrant may, at its
election exercised in its sole discretion, exercise this Warrant in whole or in
part and, in lieu of making the cash payment otherwise contemplated to be made
to the Company upon such exercise in payment of the Aggregate Exercise Price,
elect instead to receive upon such exercise the "Net Number" of shares of Common
Stock determined according to the following formula (a "CASHLESS EXERCISE"):
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
A = the total number shares with respect to which
this Warrant is then being exercised.
B = the last reported sale price (as reported by
Bloomberg) of the Common Stock on the date
immediately preceding the date of the subscription
notice.
C = the Warrant Exercise Price then in effect at the
time of such exercise.
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(g) WARRANT EXERCISE PRICE ADJUSTMENTS. In the event that 110% of
the Market Price of the Common Stock on any Reset Date is less than the Warrant
Exercise Price in effect immediately prior to such Reset Date, than on and after
such Reset Date the Warrant Exercise Price shall equal 110% of the Market Price
of the Common Stock on such Reset Date, subject to adjustment pursuant to this
Section 2(g) and as provided elsewhere herein.
Section 3. COVENANTS AS TO COMMON STOCK. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Preferred Share Warrants issued in
substitution for or replacement of this Warrant will upon issuance be, duly
authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
(c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 125% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance
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of any of the terms to be observed or performed by it hereunder, but will at all
times in good faith assist in the carrying out of all the provisions of this
Warrant and in the taking of all such action as may reasonably be requested by
the holder of this Warrant in order to protect the exercise privilege of the
holder of this Warrant against dilution or other impairment, consistent with the
tenor and purpose of this Warrant. No impairment of the designations,
preferences and rights of the Preferred Shares contained in the Company's
Certificate of Designations or any waiver thereof which has an adverse effect on
the rights granted hereunder shall be given effect until the Company has taken
appropriate action (satisfactory to the holders of Preferred Share Warrants
representing a majority of the shares of Common Stock issuable upon the exercise
of such Preferred Share Warrants then outstanding) to avoid such adverse effect
with respect to this Warrant. Without limiting the generality of the foregoing,
the Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Warrant Exercise Price
then in effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. TAXES. The Company shall pay any and all taxes which may be
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
Section 5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.
Section 6. REPRESENTATIONS OF HOLDER. The holder of this Warrant, by the
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder
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does not agree to hold this Warrant or any of the Warrant Shares for any minimum
or other specific term and reserves the right to dispose of this Warrant and the
Warrant Shares at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act. The holder of this Warrant
further represents, by acceptance hereof, that, as of this date, such holder is
an "accredited investor" as such term is defined in Rule 501(a)(1) of Regulation
D promulgated by the Securities and Exchange Commission under the Securities Act
(an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the holder shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale and that such holder is an
Accredited Investor. If such holder cannot make such representations because
they would be factually incorrect, it shall be a condition to such holder's
exercise of this Warrant that the Company receive such other representations as
the Company considers reasonably necessary to assure the Company that the
issuance of its securities upon exercise of this Warrant shall not violate any
United States or state securities laws.
Section 7. OWNERSHIP AND TRANSFER.
(a) The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall
record the name and address of the person in whose name this Warrant has been
issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
(b) This Warrant and the rights granted hereunder shall not be
assignable by the holder hereof without the prior written consent of the
Company. Notwithstanding the foregoing, the Warrant and rights hereunder shall
be assignable by the holder hereof, without the consent of the Company, to any
Permitted Transferee (as defined below) upon the transfer of all or any portion
of this Warrant if: (i) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of the name and address of
such Affiliated Transferee; (ii) at or before the time the Company receives the
written notice contemplated by clause (i) of this sentence the Permitted
Transferee agrees in writing with the Company to be bound by all of the
provisions of Section 7(c); and (iii) the holder hereof shall deliver a properly
executed warrant power in the form of Exhibit B. Any attempted assignment
without the prior written consent of the Company, other than to an Permitted
Transferee shall be void and without effect. An "PERMITTED TRANSFEREE" shall
mean (i) a Buyer (as defined in the Securities Purchase Agreement), (ii) an
Affiliate (as such term is defined in the Securities Purchase Agreement) of a
Buyer, (iii) any holder of Preferred Shares and (iv) any Affiliate of a holder
of Preferred Shares.
(c) The holder of this Warrant understands that this Warrant has
not been and is not expected to be, registered under the Securities Act or any
state securities laws, and may not
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be offered for sale, sold, assigned or transferred unless (a) subsequently
registered thereunder, or (b) such holder shall have delivered to the Company an
opinion of counsel, in generally acceptable form, to the effect that the
securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; provided that (i)
any sale of such securities made in reliance on Rule 144 promulgated under the
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the Securities and Exchange Commission
thereunder; and (ii) neither the Company nor any other person is under any
obligation to register the Preferred Share Warrants under the Securities Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights Agreement
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the
Warrant Shares as set forth in the Registration Rights Agreement.
Section 8. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES
UPON ISSUANCE OF COMMON STOCK. If and whenever on or after the date of issuance
of this Warrant, the Company issues or sells, or in accordance with Section 8(b)
is deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
lesser of (i) the Market Price of the Common Stock for the ten (10) consecutive
trading days immediately preceding the date of such issue or sale and (ii) the
Warrant Exercise Price in effect immediately prior to such time (the "APPLICABLE
PRICE"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and (y)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such issue or sale, by (2)
the product derived by multiplying the (I) Applicable Price by (II) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale.
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(b) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be
applicable:
(i) ISSUANCE OF OPTIONS. If the Company in any manner
grants any Options and the lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 8(b)(i), the "lowest price per share for which one
share of Common Stock is issuable upon exercise of such Options or upon
conversion or exchange of such Convertible Securities" shall be equal to the sum
of the lowest amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Warrant Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 8(b)(i) to the extent that
such adjustment is based solely on the fact that the Convertible Securities
issuable upon exercise of such Option are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common Stock.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company
in any manner issues or sells any Convertible Securities and the lowest price
per share for which one share of Common Stock is issuable upon such conversion
or exchange thereof is less than the Applicable Price, then such share of Common
Stock shall be deemed to be outstanding and to have been issued and sold by the
Company at the time of the issuance or sale of such Convertible Securities for
such price per share. For the purposes of this Section 8(b)(ii), the "lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion or exchange of such Convertible Security. No further adjustment
of the Warrant Exercise Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Warrant Exercise Price had been or are
to be made pursuant to other provisions of this Section 8(b), no further
adjustment of the Warrant Exercise Price shall be made by reason of such issue
or sale. Notwithstanding the foregoing, no adjustment shall be made pursuant to
this Section 8(b)(ii) to the extent that such adjustment is based solely on the
fact that such Convertible Securities are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common Stock.
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(iii) CHANGE IN OPTION PRICE OR RATE OF CONVERSION. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted. For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change. No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.
(c) EFFECT ON WARRANT EXERCISE PRICE OF CERTAIN EVENTS. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) CALCULATION OF CONSIDERATION RECEIVED. In case any
Option is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of such consideration received by the Company will be the
fair value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price of such securities for the twenty (20) consecutive
trading days immediately preceding the date of receipt. If any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity, the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Preferred Share
Warrants representing a majority of the shares of Common Stock obtainable upon
exercise of the Preferred Share Warrants then outstanding. If such parties are
unable to reach agreement within ten (10) days after the occurrence of an event
requiring valuation (the "VALUATION EVENT"), the fair value of such
consideration will be determined within five business days after the tenth
(10th) day following the Valuation Event by an independent, reputable appraiser
jointly selected by the Company and the holders of Preferred Share Warrants
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representing a majority of the shares of Common Stock obtainable upon exercise
of the Preferred Share Warrants then outstanding. The determination of such
appraiser shall be final and binding upon all parties and the fees and expenses
of such appraiser shall be borne by the Company.
(ii) RECORD DATE. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(d) ADJUSTMENT OF WARRANT EXERCISE PRICE UPON SUBDIVISION OR
COMBINATION OF COMMON STOCK. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.
(e) DISTRIBUTION OF ASSETS. If the Company shall declare or make
any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other transaction) (a
"DISTRIBUTION"), at any time after the issuance of this Warrant, then, in each
such case:
(i) the Warrant Exercise Price in effect immediately prior
to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Bid Price on the trading day immediately
preceding such record date minus the value of the Distribution (as determined in
good faith by the Company's Board of Directors) applicable to one share of
Common Stock, and (B) the denominator shall be the Closing Bid Price on the
trading day immediately preceding such record date; and
(ii) either (A) the number of Warrant Shares obtainable
upon exercise of this Warrant shall be increased to a number of shares equal to
the number of shares of Common Stock obtainable immediately prior to the close
of business on the record date fixed for the
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determination of holders of Common Stock entitled to receive the Distribution
multiplied by the reciprocal of the fraction set forth in the immediately
preceding clause (i), or (B) in the event that the Distribution is of common
stock of a company whose common stock is traded on a national securities
exchange or a national automated quotation system, then the holder of this
Warrant shall receive an additional warrant to purchase Common Stock, the terms
of which shall be identical to those of this Warrant, except that such warrant
shall be exercisable into the amount of the assets that would have been payable
to the holder of this Warrant pursuant to the Distribution had the holder
exercised this Warrant immediately prior to such record date and with an
exercise price equal to the amount by which the exercise price of this Warrant
was decreased with respect to the Distribution pursuant to the terms of the
immediately preceding clause (i).
(f) CERTAIN EVENTS. If any event occurs of the type contemplated
by the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Preferred
Share Warrants; provided that no such adjustment will increase the Warrant
Exercise Price or decrease the number of shares of Common Stock obtainable as
otherwise determined pursuant to this Section 8.
(g) NOTICES.
(i) Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to the
holder of this Warrant at least twenty (20) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.
Section 9. PURCHASE RIGHTS; REORGANIZATION, RECLASSIFICATION,
CONSOLIDATION, MERGER OR SALE. (a) In addition to any adjustments pursuant to
Section 8 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock
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(the "PURCHASE RIGHTS"), then the holder of this Warrant will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete exercise of this
Warrant immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "ORGANIC CHANGE." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "ACQUIRING ENTITY") written agreement (in form and substance
satisfactory to the holders of Preferred Share Warrants representing a majority
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding) to deliver to each holder of Preferred Share Warrants
in exchange for such Warrants, a security of the Acquiring Entity evidenced by a
written instrument substantially similar in form and substance to this Warrant
and satisfactory to the holders of the Preferred Share Warrants (including, an
adjusted warrant exercise price equal to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and exercisable
for a corresponding number of shares of Common Stock acquirable and receivable
upon exercise of the Preferred Share Warrants, if the value so reflected is less
than the Warrant Exercise Price in effect immediately prior to such
consolidation, merger or sale). Prior to the consummation of any other Organic
Change, the Company shall make appropriate provision (in form and substance
satisfactory to the holders of Preferred Share Warrants representing a majority
of the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding) to insure that each of the holders of the Preferred
Share Warrants will thereafter have the right to acquire and receive in lieu of
or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's
Preferred Share Warrants, such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of shares of Common Stock which would have been
acquirable and receivable upon the exercise of such holder's Warrant as of the
date of such Organic Change (without taking into account any limitations or
restrictions on the exercisability of this Warrant).
Section 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking, issue a new Warrant of like denomination and
tenor as this Warrant so lost, stolen, mutilated or destroyed.
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Section 11. NOTICE. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one business day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 75081
Telephone: (972) 367-2100
Facsimile: (972) 367-2271
Attention: Herman M. Frietsch
With copy to:
Ryan & Sudan, L.L.P.
Two Houston Center
909 Fannin Street, 39th Floor
Houston, Texas 77010
Telephone: (713) 652-0501
Facsimile: (713) 652-0503
Attention: Philip P. Sudan, Jr., Esq.
If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant. Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
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Section 12. AMENDMENTS. This Warrant and any term hereof may be changed,
waived, discharged, or terminated only by an instrument in writing signed by the
party or holder hereof against which enforcement of such change, waiver,
discharge or termination is sought.
Section 13. LIMITATION ON NUMBER OF WARRANT SHARES. The Company shall
not be obligated to issue any Warrant Shares upon exercise of this Warrant if
the issuance of such shares of Common Stock would cause the Company to exceed
that number of shares of Common Stock which the Company may issue upon exercise
of this Warrant (the "EXCHANGE CAP") without breaching the Company's obligations
under the rules or regulations of Principal Market, except that such limitation
shall not apply in the event that the Company (a) obtains the approval of its
stockholders as required by the Principal Market (or any successor rule or
regulation) for issuances of Common Stock in excess of such amount or (b)
obtains a written opinion from outside counsel to the Company that such approval
is not required, which opinion shall be reasonably satisfactory to the holders
of Warrants representing a majority of the Warrant Shares then issuable upon
exercise of outstanding Warrants. Until such approval or written opinion is
obtained, the holder of this Warrant shall not be issued, upon exercise of this
Warrant, Warrant Shares in an amount greater than such holder's Cap Allocation
Amount (as defined in the Certificate of Designations). In the event the Company
is prohibited from issuing Warrant Shares as a result of the operation of this
Section 13, the Company shall redeem for cash those Warrant Shares which can not
be issued, at a price equal to the difference between the Market Price and the
Exercise Price of such Warrant Shares as of the date of the attempted exercise.
Section 14. DATE. The date of this Warrant is __________, 199__ (the
"ISSUANCE DATE"). This Warrant, in all events, shall be wholly void and of no
effect after the close of business on the Expiration Date, except that
notwithstanding any other provisions hereof, the provisions of Section 7 shall
continue in full force and effect after such date as to any Warrant Shares or
other securities issued upon the exercise of this Warrant.
Section 15. AMENDMENT AND WAIVER. Except as otherwise provided herein,
the provisions of the Preferred Share Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of Preferred Share Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of the Preferred Share
Warrants then outstanding; provided that no such action may increase the Warrant
Exercise Price of the Preferred Share Warrants or decrease the number of shares
or class of stock obtainable upon exercise of any Preferred Share Warrants
without the written consent of the holder of such Preferred Share Warrant.
Section 16. DESCRIPTIVE HEADINGS; GOVERNING LAW. The descriptive
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal laws of the State of New York, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State
of New York.
-18-
<PAGE>
INTELECT COMMUNICATIONS, INC.
By: ___________________________
Name: Herman M. Frietsch
Title: Chief Executive Officer
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE
THIS WARRANT INTELECT COMMUNICATIONS, INC.
The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("WARRANT SHARES") of Intelect
Communications, Inc., a Delaware corporation (the "COMPANY"), evidenced by the
attached Warrant (the "WARRANT"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the
Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as:
____________ a "CASH EXERCISE" with respect to
_______________________ Warrant Shares; and/or
____________ a "CASHLESS EXERCISE" with respect to
___________________ Warrant Shares (to the extent
permitted by the terms of the Warrant).
2. Payment of Warrant Exercise Price. In the event that the holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the holder shall pay the sum of $___________________ to
the Company in accordance with the terms of the
Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
________________________________
Name of Registered Holder
By: _________________________________
Name:
Title:
<PAGE>
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Intelect Communications, Inc., a
Delaware corporation, represented by warrant certificate no. _____, standing in
the name of the undersigned on the books of said corporation. The undersigned
does hereby irrevocably constitute and appoint ______________, attorney to
transfer the warrants of said corporation, with full power of substitution in
the premises.
Dated: _________, 199_
____________________________________
By: _____________________________
Its: _____________________________
EXHIBIT 4.4
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY 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.
FORM OF WARRANT
to Purchase Common Stock of
INTELECT COMMUNICATIONS, INC.
Expiring on December 31, 2003
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, [NAME OF SUBSCRIBER] (the "Holder") is entitled to subscribe for
and purchase from the Company (as hereinafter defined), in whole or in part,
[NUMBER OF SHARES] shares of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (as hereinafter defined) at the Exercise
Price (as hereinafter defined), subject, however, to the provisions and upon the
terms and conditions hereinafter set forth. This Warrant and all rights
hereunder shall expire at 5:00 p.m., Houston, Texas time, on December 31, 2003.
As used herein, the following terms shall have the meanings set forth
below:
"COMPANY" shall mean Intelect Communications, Inc., a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.
"COMMON STOCK" shall mean and include the Company's Common Stock, par
value $0.01 per share, authorized on the date of the original issue of this
Warrant.
"EXERCISE PRICE" shall mean $2.998.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrant.
ARTICLE I
EXERCISE OF WARRANT
1.1 METHOD OF EXERCISE. The Warrant represented hereby may be exercised
by the Holder hereof, in whole or in part, at any time and from time to time on
or after the later of March 3, 1999 or the
<PAGE>
date upon which the shareholders of the Company approve the proposal to amend
the Company's Amended and Restated Certificate of Incorporation to increase the
authorized shares of Common Stock to 100,000,000 shares (the "Charter Amendment
Proposal"), until 5:00 p.m., Houston, Texas time, on December 31, 2003. To
exercise the Warrant, the Holder hereof shall deliver to the Company (i) a
written notice in the form of the Subscription Notice attached as an exhibit
hereto, stating therein the election of such Holder to exercise the Warrant in
the manner provided in the Subscription Notice; and (ii) payment in full of the
Exercise Price in cash or by bank check for all Warrant Shares purchased
hereunder. The Warrant shall be deemed to be exercised on the date of receipt by
the Company of the Subscription Notice, accompanied by payment for the Warrant
Shares and surrender of this Warrant, as aforesaid, and such date is referred to
herein as the "Exercise Date". Upon such exercise, the Company shall, as
promptly as practicable and in any event within ten (10) business days, issue
and deliver to such Holder a certificate or certificates for the full number of
the Warrant Shares purchased by such Holder hereunder, and shall, unless the
Warrant has expired or has been redeemed, deliver to the Holder hereof a new
Warrant representing the portion, if any, that shall not have been exercised, in
all other respects identical to this Warrant. As permitted by applicable law,
the Person in whose name the certificates for Common Stock are to be issued
shall be deemed to have become a holder of record of such Common Stock on the
Exercise Date and shall be entitled to all of the benefits of such holder on the
Exercise Date, including without limitation the right to receive dividends and
other distributions for which the record date falls on or after the Exercise
Date and to exercise voting rights.
1.2 RESERVATION OF SHARES. Beginning at such time as this Warrant is
exercisable, the Company shall reserve at all times so long as the Warrant
remains outstanding, free from preemptive rights, out of its treasury Common
Stock or its authorized but unissued shares of Common Stock, or both, solely for
the purpose of effecting the exercise of the Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of the Warrant.
1.3 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof.
1.4 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise of this
Warrant, the Company shall pay an amount in cash calculated by it to be equal to
the Market Price of one share of Common Stock at the time of such exercise
multiplied by such fraction computed to the nearest whole cent.
ARTICLE II
TRANSFER
2.1 OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name the Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary unless agreed to in writing by the Company.
2
<PAGE>
2.2 RESTRICTIONS ON TRANSFER OF WARRANTS. The Holder of the Warrant
agrees that the Warrant is not transferrable without the prior written consent
of the Company and any such transfer without such consent shall be void and
without effect; PROVIDED, HOWEVER, the Holder may on prior written notice to the
Company, assign this Warrant to an "accredited investor" (as such term is
defined under Rule 501(a) of Regulation D as promulgated under the Securities
Act of 1933). Subject to the restrictions on transfer of the Warrant in this
Section 2.2, the Company, from time to time, shall register the transfer of the
Warrant in such books upon surrender of this Warrant at the Company's principal
office, properly endorsed or accompanied by appropriate instruments of transfer
and written instructions for transfer satisfactory to the Company. Upon any such
transfer and upon payment by the Holder or its transferee of any applicable
transfer taxes, a new Warrant shall be issued to the transferee and the
transferor (as their respective interests may appear) and the surrendered
Warrant shall be canceled by the Company. The Holder shall pay all taxes and all
other expenses and charges payable in connection with the transfer of the
Warrant pursuant to this Section 2.2.
2.3 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any other
provisions contained in this Warrant, the Holder hereof understands and agrees
that the following restrictions and limitations shall be applicable to all
Warrant Shares and to all resales or other transfers thereof pursuant to the
Securities Act, and that as a condition to the exercise of such warrant that the
following are and will be true and correct:
(A) The Holder hereof agrees that the Warrant Shares shall not be
sold or otherwise transferred unless the Warrant Shares are registered
under the Securities Act and applicable state securities or blue sky
laws or are exempt therefrom.
(B) A legend in substantially the following form will be placed
on the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS."
(C) Stop transfer instructions will be imposed with respect to
the Warrant Shares so as to restrict resale or other transfer thereof,
subject to this Section 2.3.
(D) The Holder is an "accredited investor" within the meaning of
Rule 501 of Regulation D as promulgated under the Securities Act of
1933, and will be so as a condition of purchasing any of the Warrant
Shares. The Holder will acquire the Warrant Shares for its own account
for investment purposes and not with a view towards distribution. The
Holder must bear the economic risk of the investment for an indefinite
period of time because the Warrant Shares have not been registered under
the Securities Act and therefore cannot be sold unless they are
subsequently registered under the Securities Act or an exemption from
such registration is
3
<PAGE>
available. The Holder has received and carefully reviewed copies of all
documents filed by the Company as of the time of each exercise with the
Securities and Exchange Commission. No representations or warranties
have been made to the Holder by the Company, the officers or directors
of the Company, or any agent, employee or affiliate of any of them. The
Holder is aware that the purchase of the Warrant Shares involves a high
degree of risk and that it may sustain, and has the financial ability to
sustain, the loss of its entire investment. The Holder has had the
opportunity to ask questions of, and receive answers, satisfactory to it
from the Company's management regarding the Company. The Holder
understands that no Federal or State governmental authority has made any
finding or determination relating to the fairness of an investment in
the Warrant Shares and that no Federal or State governmental authority
has recommended or endorsed, or will recommend or endorse, the
investment herein. The Holder, in making the decision to purchase the
Warrant Shares subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties. The Holder has significant
assets, and upon consummation of the purchase of the Warrant Shares,
will continue to have significant assets exclusive of the Warrant
Shares. The Holder understands that the Warrant Shares are being offered
and sold to it in reliance on specific provisions of Federal and State
securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgments
and understandings of the Holder set forth herein in order to determine
the applicability of such provisions. The Holder, in making the decision
to purchase the Warrant Shares subscribed for, has relied upon
independent investigations made by it and has not relied on any
information or representations made by third parties.
ARTICLE III
ANTI-DILUTION
3.1 ANTI-DILUTION PROVISIONS. If the outstanding shares of the Company's
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately in effect prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.
3.2 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Holder of this Warrant shall have
the right thereafter to receive upon
4
<PAGE>
exercise hereof the kind and amount of share of stock or other securities or
property which such holder would have been entitled to receive if, immediately
prior to any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, such holder had held the number of shares of Common
Stock which were the purchasable upon the exercise of this Warrant. In any such
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Holder of this Warrant, such that the provisions set forth herein
(including provisions with respect to adjustment of the Exercise Price) shall
thereafter be applicable, as nearly as is reasonably practicable, in relation to
any shares of stock or other securities or property thereafter deliverable upon
the exercise of this Warrant.
3.3 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrant shall be adjusted as
herein provided, or the rights of the Holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare a notice setting forth the adjusted Exercise
Price and the adjusted number of Warrant Shares issuable upon the exercise of
the Warrant or specifying the other shares of stock, securities or assets
receivable as a result of such change in rights, and showing in reasonable
detail the facts and calculations upon which such adjustments or other changes
are based. The Company shall cause to be mailed to the Holder hereof copies of
such notice stating that the Exercise Price and the number of Warrant Shares
purchasable upon exercise of the Warrant have been adjusted and setting forth
the adjusted Exercise Price and the adjusted number of Warrant Shares
purchasable upon the exercise of the Warrant.
ARTICLE IV
MISCELLANEOUS
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement, contain
the entire agreement between the Holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.
4.2 GOVERNING LAW; VENUE. This warrant shall be governed by and
construed in accordance with the laws of the State of Texas. Venue for any
dispute arising under this Warrant shall lie in the state or federal courts of
Harris County, Texas.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this
5
<PAGE>
Warrant shall not, at the election of the party for whom the benefit of the
provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be
given or delivered to the Holder or the Company hereof shall be in writing and
will deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be: any
notice or other document required or permitted to be given or delivered to the
Company shall be sent to the offices of the Company at 1100 Executive Drive,
Richardson, Texas 75081, Attn: Chief Executive Officer, Telecopy No. (972)
367-2271 or such other address as shall have been furnished in writing by the
Company to the Holder of this Warrant, with a copy to Philip P. Sudan, Jr.,
Esq., Ryan & Sudan, L.L.P., 909 Fannin, 39th Floor, Houston, Texas 77010,
Telecopy No. (713) 652-0503. Any notice sent or required to be sent hereunder to
the Holder shall be sent to the address of the Holder as contained in the
corporate records of the Company or such other address as shall have been
furnished in writing by the Holder to the Company.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 4.8.
4.9 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: December 22, 1998
INTELECT COMMUNICATIONS, INC.
By: ____________________________
Name: Herman M. Frietsch
Title: Chairman and Chief
Executive Officer
7
<PAGE>
SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
___________________________
Date: ________________________
8
<PAGE>
ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
___________________________
Date: ________________________
9
EXHIBIT 4.5
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY 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.
FORM OF WARRANT
to Purchase Common Stock of
INTELECT COMMUNICATIONS, INC.
Expiring on March 8, 2002
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, [NAME OF HOLDER] (the "Holder") is entitled to subscribe for and
purchase from the Company (as hereinafter defined), in whole or in part, 300,000
shares of duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock (as hereinafter defined) at the Exercise Price (as hereinafter
defined), subject, however, to the provisions and upon the terms and conditions
hereinafter set forth. This Warrant and all rights hereunder shall expire at
5:00 p.m., Houston, Texas time, on March 8, 2002.
As used herein, the following terms shall have the meanings set forth
below:
"COMPANY" shall mean Intelect Communications, Inc., a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.
"COMMON STOCK" shall mean and include the Company's Common Stock, par
value $0.01 per share, authorized on the date of the original issue of this
Warrant.
"EXERCISE PRICE" shall mean the lesser of (i) $2.00 per share of Common
Stock, or (ii) the price per share of Common Stock equal to the lowest Market
Price for five (5) consecutive trading days for the period beginning on December
2, 1998 and ending on February 1, 1999, provided that such price shall not be
less than $1.00 per share.
"MARKET PRICE" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market on such date, or,
if there shall have been no trading on such date or if the Common Stock shall
not be listed on such system, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any NASD
<PAGE>
member firm selected from time to time by the Company for such purpose; or (y)
if the Common Stock shall not be listed or admitted to trading as provided in
clause (x) above, the fair market value of the Common Stock as determined in
good faith by the Board of Directors of the Company.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrant.
ARTICLE I
EXERCISE OF WARRANT
1.1 METHOD OF EXERCISE. The Warrant represented hereby may be exercised by
the Holder hereof, in whole or in part, at any time and from time to time on or
after the later of March 3, 1999 or the date upon which the shareholders of the
Company approve the proposal to amend the Company's Amended and Restated
Certificate of Incorporation to increase the authorized shares of Common Stock
to 100,000,000 shares (the "Charter Amendment Proposal") until 5:00 p.m.,
Houston, Texas time, on March 8, 2002. To exercise the Warrant, the Holder
hereof shall deliver to the Company (i) a written notice in the form of the
Subscription Notice attached as an exhibit hereto, stating therein the election
of such Holder to exercise the Warrant in the manner provided in the
Subscription Notice; and (ii) payment in full of the Exercise Price in cash or
by bank check for all Warrant Shares purchased hereunder. The Warrant shall be
deemed to be exercised on the date of receipt by the Company of the Subscription
Notice, accompanied by payment for the Warrant Shares and surrender of this
Warrant, as aforesaid, and such date is referred to herein as the "Exercise
Date". Upon such exercise, the Company shall, as promptly as practicable and in
any event within ten (10) business days, issue and deliver to such Holder a
certificate or certificates for the full number of the Warrant Shares purchased
by such Holder hereunder, and shall, unless the Warrant has expired or has been
redeemed, deliver to the Holder hereof a new Warrant representing the portion,
if any, that shall not have been exercised, in all other respects identical to
this Warrant. As permitted by applicable law, the Person in whose name the
certificates for Common Stock are to be issued shall be deemed to have become a
holder of record of such Common Stock on the Exercise Date and shall be entitled
to all of the benefits of such holder on the Exercise Date, including without
limitation the right to receive dividends and other distributions for which the
record date falls on or after the Exercise Date and to exercise voting rights.
1.2 RESERVATION OF SHARES. Beginning at such time as this Warrant is
exercisable, the Company shall reserve at all times so long as the Warrant
remains outstanding, free from preemptive rights, out of its treasury Common
Stock or its authorized but unissued shares of Common Stock, or both, solely for
the purpose of effecting the exercise of the Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of the Warrant.
1.3 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof.
1.4 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise of this
Warrant, the Company shall pay an amount in cash calculated by it to be
2
<PAGE>
equal to the Market Price of one share of Common Stock at the time of such
exercise multiplied by such fraction computed to the nearest whole cent.
ARTICLE II
TRANSFER
2.1 OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name the Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary unless agreed to in writing by the Company.
2.2 RESTRICTIONS ON TRANSFER OF WARRANTS. The Holder of the Warrant agrees
that the Warrant is not transferrable without the prior written consent of the
Company and any such transfer without such consent shall be void and without
effect; PROVIDED, HOWEVER, the Holder may on prior written notice to the
Company, assign this Warrant to an "accredited investor" (as such term is
defined under Rule 501(a) of Regulation D as promulgated under the Securities
Act of 1933). Subject to the restrictions on transfer of the Warrant in this
Section 2.2, the Company, from time to time, shall register the transfer of the
Warrant in such books upon surrender of this Warrant at the Company's principal
office, properly endorsed or accompanied by appropriate instruments of transfer
and written instructions for transfer satisfactory to the Company. Upon any such
transfer and upon payment by the Holder or its transferee of any applicable
transfer taxes, a new Warrant shall be issued to the transferee and the
transferor (as their respective interests may appear) and the surrendered
Warrant shall be canceled by the Company. The Holder shall pay all taxes and all
other expenses and charges payable in connection with the transfer of the
Warrant pursuant to this Section 2.2.
2.3 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any other provisions
contained in this Warrant, the Holder hereof understands and agrees that the
following restrictions and limitations shall be applicable to all Warrant Shares
and to all resales or other transfers thereof pursuant to the Securities Act,
and that as a condition to the exercise of such warrant that the following are
and will be true and correct:
(A) The Holder hereof agrees that the Warrant Shares shall not be
sold or otherwise transferred unless the Warrant Shares are registered
under the Securities Act and applicable state securities or blue sky laws
or are exempt therefrom.
(B) A legend in substantially the following form will be placed on
the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE
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SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS."
(C) Stop transfer instructions will be imposed with respect to the
Warrant Shares so as to restrict resale or other transfer thereof, subject
to this Section 2.3.
(D) The Holder is an "accredited investor" within the meaning of
Rule 501 of Regulation D as promulgated under the Securities Act of 1933,
and will be so as a condition of purchasing any of the Warrant Shares. The
Holder will acquire the Warrant Shares for its own account for investment
purposes and not with a view towards distribution. The Holder must bear
the economic risk of the investment for an indefinite period of time
because the Warrant Shares have not been registered under the Securities
Act and therefore cannot be sold unless they are subsequently registered
under the Securities Act or an exemption from such registration is
available. The Holder has received and carefully reviewed copies of all
documents filed by the Company as of the time of each exercise with the
Securities and Exchange Commission. No representations or warranties have
been made to the Holder by the Company, the officers or directors of the
Company, or any agent, employee or affiliate of any of them. The Holder is
aware that the purchase of the Warrant Shares involves a high degree of
risk and that it may sustain, and has the financial ability to sustain,
the loss of its entire investment. The Holder has had the opportunity to
ask questions of, and receive answers, satisfactory to it from the
Company's management regarding the Company. The Holder understands that no
Federal or State governmental authority has made any finding or
determination relating to the fairness of an investment in the Warrant
Shares and that no Federal or State governmental authority has recommended
or endorsed, or will recommend or endorse, the investment herein. The
Holder, in making the decision to purchase the Warrant Shares subscribed
for, has relied upon independent investigations made by it and has not
relied on any information or representations made by third parties. The
Holder has significant assets, and upon consummation of the purchase of
the Warrant Shares, will continue to have significant assets exclusive of
the Warrant Shares. The Holder understands that the Warrant Shares are
being offered and sold to it in reliance on specific provisions of Federal
and State securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Holder set forth herein in order
to determine the applicability of such provisions. The Holder, in making
the decision to purchase the Warrant Shares subscribed for, has relied
upon independent investigations made by it and has not relied on any
information or representations made by third parties.
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ARTICLE III
ANTI-DILUTION
3.1 ANTI-DILUTION PROVISIONS. If the outstanding shares of the Company's
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately in effect prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.
3.2 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Holder of this Warrant shall have
the right thereafter to receive upon exercise hereof the kind and amount of
share of stock or other securities or property which such holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, such holder
had held the number of shares of Common Stock which were the purchasable upon
the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth herein with respect
to the rights and interests thereafter of the Holder of this Warrant, such that
the provisions set forth herein (including provisions with respect to adjustment
of the Exercise Price) shall thereafter be applicable, as nearly as is
reasonably practicable, in relation to any shares of stock or other securities
or property thereafter deliverable upon the exercise of this Warrant.
3.3 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrant shall be adjusted as
herein provided, or the rights of the Holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare a notice setting forth the adjusted Exercise
Price and the adjusted number of Warrant Shares issuable upon the exercise of
the Warrant or specifying the other shares of stock, securities or assets
receivable as a result of such change in rights, and showing in reasonable
detail the facts and calculations upon which such adjustments or other changes
are based. The Company shall cause to be mailed to the Holder hereof copies of
such notice stating that the Exercise Price and the number of Warrant Shares
purchasable upon exercise of the Warrant have been adjusted and setting forth
the adjusted Exercise Price and the adjusted number of Warrant Shares
purchasable upon the exercise of the Warrant.
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ARTICLE IV
MISCELLANEOUS
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement, contain
the entire agreement between the Holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.
4.2 GOVERNING LAW; VENUE. This warrant shall be governed by and construed
in accordance with the laws of the State of Texas. Venue for any dispute arising
under this Warrant shall lie in the state or federal courts of Harris County,
Texas.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be given
or delivered to the Holder or the Company hereof shall be in writing and will
deemed to have been delivered: (i) upon receipt, when delivered personally; (ii)
upon receipt, when sent by facsimile (provided a confirmation of transmission is
mechanically generated and kept on file by the sending party); or (iii) one (1)
day after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be: any notice or other document
required or permitted to be given or delivered to the Company shall be sent to
the offices of the Company at 1100 Executive Drive, Richardson, Texas 75081,
Attn: Chief Executive Officer, Telecopy No. (972) 367-2271 or such other address
as shall have been furnished in writing by the Company to the Holder of this
Warrant, with a copy to Philip P. Sudan, Jr., Esq., Ryan & Sudan, L.L.P., 909
Fannin, 39th Floor, Houston, Texas 77010, Telecopy No. (713) 652-0503. Any
notice sent or required to be sent hereunder to the Holder shall be sent to the
address of the Holder as contained in the corporate records of the Company or
such other address as shall have been furnished in writing by the Holder to the
Company.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notices (other
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than as herein expressly provided) in respect of meetings of stockholders for
the election of directors of the Company or any other matter whatsoever as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Holder hereof to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the purchase price of any shares of
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Warrant, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity or such other security in such form and amount
as shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new Warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company. This Warrant shall be promptly canceled
by the Company upon the surrender hereof in connection with any exchange or
replacement. The Company shall pay all taxes (other than securities transfer
taxes or income taxes) and all other expenses and charges payable in connection
with the preparation, execution and delivery of Warrants pursuant to this
Section 4.8.
4.9 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: December 2, 1998
INTELECT COMMUNICATIONS, INC.
By: __________________________________
Name: Herman M. Frietsch
Title: Chairman and Chief
Executive Officer
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SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
______________________________
Date: ___________________________
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ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
____________________________
Date: _____________________________
9
EXHIBIT 4.6
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
FORM OF WARRANT
to Purchase Common Stock of
INTELECT COMMUNICATIONS, INC.
Expiring on February 12, 2001
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, [INSERT ST. JAMES PARTNERS OR SJMB, L.P.], (the "Holder") or its
assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, [NUMBER OF SHARES] shares of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(as hereinafter defined) at an initial Exercise Price (as hereinafter defined)
per share of the LESSER of (1) $1.50 over the volume weighted average of the
closing price of the Common Stock for the ten (10) day period prior to January
13, 1999 and (2) $3.50, SUBJECT, HOWEVER, to the provisions and upon the terms
and conditions hereinafter set forth. The number of Warrants (as hereinafter
defined), the number of shares of Common Stock purchasable hereunder, and the
Exercise Price therefor are subject to adjustment as hereinafter set forth. This
Warrant and all rights hereunder shall expire at 5:00 p.m., Houston, Texas time,
on February 12, 2001.
As used herein, the following terms shall have the meanings set forth
below:
"COMPANY" shall mean Intelect Communications, Inc., a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.
"COMMON STOCK" shall mean and include the Company's Common Stock, par
value $0.01 per share, authorized on the date of the original issue of this
Warrant and shall also include (i) in case of any reorganization,
reclassification, consolidation, merger, share exchange or sale, transfer or
other disposition of assets of the character referred to in Section 3.5 hereof,
the stock, securities provided for in such Section 3.5, and (ii) any other
shares of common stock of the Company into which such shares of Common Stock may
be converted.
"EXERCISE PRICE" shall mean the LESSER of (1) $1.50 over the volume
weighted average of the closing price of the Common Stock for the ten (10) day
period prior to January 13, 1999 and (2) $3.50, as adjusted from time to time
pursuant to the provisions hereof.
<PAGE>
"MARKET PRICE" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market on such date, or,
if there shall have been no trading on such date or if the Common Stock shall
not be listed on such system, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any NASD member firm selected from
time to time by the Company for such purpose, in each such case, unless
otherwise provided herein, averaged over a period of ten (10) consecutive
Trading Days prior to the date as of which the determination is to be made; or
(y) if the Common Stock shall not be listed or admitted to trading as provided
in clause (x) above, the fair market value of the Common Stock as determined in
good faith by the Board of Directors of the Company.
"NOTE" shall mean the Convertible Promissory Note of the Company issued to
St. James Capital Partners, L.P. as of April 2, 1998 in the principal amount of
$2,000,000.
"OUTSTANDING," when used with reference to Common Stock, shall mean
(except as otherwise expressly provided herein) at any date as of which the
number of shares thereof is to be determined, all issued shares of Common Stock,
except shares then owned or held by or for the account of the Company.
"TRADING DAYS" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.
"WARRANT" shall mean the right upon exercise to purchase one
Warrant Share.
"WARRANT SHARES" shall mean the shares of Common Stock purchased or
purchasable by the holder hereof upon the exercise of the Warrants.
ARTICLE I
EXERCISE OF WARRANTS
1.1 METHOD OF EXERCISE. The Warrants represented hereby may be exercised
by the holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Houston, Texas time, on February 12,
2001. To exercise the Warrants, the holder hereof shall deliver to the Company,
at the Warrant Office designated in Section 2.1 hereof, (i) a written notice in
the form of the Subscription Notice attached as an exhibit hereto, stating
therein the election of such holder to exercise the Warrants in the manner
provided in the Subscription Notice; (ii) payment in full of the Exercise Price
(A) in cash or by bank check for all Warrant Shares purchased hereunder, or (B)
if the Company and the holder mutually elect, through a "cashless" or
"net-issue" exercise of each such Warrant ("Cashless Exercise"); the holder
shall exchange each Warrant subject to a Cashless Exercise for that number of
Warrant Shares determined by multiplying the number of Warrant Shares issuable
hereunder by a fraction, the numerator of which shall be the difference between
(x) the Market Price and (y) the Exercise Price for each such Warrant, and the
denominator of which shall be the Market Price; the Subscription Notice shall
set forth the calculation upon which the Cashless Exercise is based, or (C) a
combination of (A) and (B) above; and (iii) this Warrant. The Warrants shall be
deemed to be exercised on the date of receipt by the
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Company of the Subscription Notice, accompanied by payment for the Warrant
Shares and surrender of this Warrant, as aforesaid, and such date is referred to
herein as the "Exercise Date". Upon such exercise, the Company shall, as
promptly as practicable and in any event within ten (10) business days, issue
and deliver to such holder a certificate or certificates for the full number of
the Warrant Shares purchased by such holder hereunder, and shall, unless the
Warrants have expired, deliver to the holder hereof a new Warrant representing
the number of Warrants, if any, that shall not have been exercised, in all other
respects identical to this Warrant. As permitted by applicable law, the Person
in whose name the certificates for Common Stock are to be issued shall be deemed
to have become a holder of record of such Common Stock on the Exercise Date and
shall be entitled to all of the benefits of such holder on the Exercise Date,
including without limitation the right to receive dividends and other
distributions for which the record date falls on or after the Exercise Date and
to exercise voting rights.
1.2 EXPENSES AND TAXES. The Company shall pay all expenses, and taxes
(including, without limitation, all documentary, stamp, transfer or other
transactional taxes) other than income taxes attributable to the preparation,
issuance or delivery of the Warrants and of the shares of Common Stock issuable
upon exercise of the Warrants.
1.3 RESERVATION OF SHARES. The Company shall reserve at all times so long
as the Warrants remain outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrants, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrants.
1.4 VALID ISSUANCE. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof and, without limiting the generality of the
foregoing, the Company shall take no action or fail to take any action which
will cause a contrary result (including, without limitation, any action that
would cause the Exercise Price to be less than the par value, if any, of the
Common Stock).
1.5 PURCHASE AGREEMENT. In connection with the extension of the Maturity
Date (as defined in the Note) of the Note, the Warrants represented hereby are
part of a duly authorized issuance and sale of warrants to purchase Common Stock
as issued pursuant to Section 1.3(c) of that certain Agreement of Purchase and
Sale dated as of February 12, 1998 (the "Agreement"), between the Company and
the holder hereof. The holder hereof shall be entitled to registration under the
Securities Act and any applicable state securities or blue sky laws to the
extent set forth in the Registration Rights Agreement dated as of February 12,
1998 between the Company and the Holder (the "Registration Rights Agreement").
The terms of the Agreement are hereby incorporated herein for all purposes and
shall be considered a part of this Warrant as if they had been fully set forth
herein. Notwithstanding the previous sentence, in the event of any conflict
between the provisions of the Agreement and of this Warrant, the provisions of
this Warrant shall control.
1.6 ACKNOWLEDGMENT OF RIGHTS. At the time of the exercise of the Warrants
in accordance with the terms hereof and upon the written request of the holder
hereof, the Company will acknowledge in writing its continuing obligation to
afford to such holder any rights (including, without limitation, any right to
registration of the Warrant Shares) to which such holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant;
PROVIDED, HOWEVER, that if the holder hereof shall fail
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to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such holder any such rights.
1.7 NO FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If more than
one Warrant shall be presented for exercise at the same time by the same holder,
the number of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number of whole shares
of Common Stock purchasable on exercise of the Warrants so presented. If any
fraction of a share of Common Stock would, except for the provisions of this
Section 1.7, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash calculated by it to be equal to the Market Price of one share
of Common Stock at the time of such exercise multiplied by such fraction
computed to the nearest whole cent.
ARTICLE II
TRANSFER
2.1 WARRANT OFFICE. The Company shall maintain an office for certain
purposes specified herein (the "Warrant Office"), which office shall initially
be the Company's offices at 1100 Executive Drive, Richardson, Texas 75081, and
may subsequently be such other office of the Company or of any transfer agent of
the Common Stock in the continental United States as to which written notice has
previously been given to the holder hereof. The Company shall maintain, at the
Warrant Office, a register for the Warrants in which the Company shall record
the name and address of the Person in whose name this Warrant has been issued,
as well as the name and address of each permitted assignee of the rights of the
registered owner hereof.
2.2 OWNERSHIP OF WARRANTS. The Company may deem and treat the Person in
whose name the Warrants are registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Article II. Notwithstanding the foregoing, the Warrants
represented hereby, if properly assigned in compliance with this Article II, may
be exercised by an assignee for the purchase of Warrant Shares without having a
new Warrant issued.
2.3 RESTRICTIONS ON TRANSFER OF WARRANTS. The Company agrees to maintain
at the Warrant Office books for the registration and transfer of the Warrants.
Subject to the restrictions on transfer of the Warrants in this Section 2.3, the
Company, from time to time, shall register the transfer of the Warrants in such
books upon surrender of this Warrant at the Warrant Office properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer satisfactory to the Company. Upon any such transfer and upon payment by
the holder or its transferee of any applicable transfer taxes, new Warrants
shall be issued to the transferee and the transferor (as their respective
interests may appear) and the surrendered Warrants shall be canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes
or income taxes) and all other expenses and charges payable in connection with
the transfer of the Warrants pursuant to this Section 2.3.
2.3.1 RESTRICTIONS IN GENERAL. The holder of the Warrants agrees
that it will neither (i) transfer the Warrants prior to delivery to the Company
of written notice of such transfer, nor (ii) transfer such Warrant Shares prior
to delivery to the Company of written notice of such transfer, or
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until registration of such Warrant Shares under the Securities Act and any
applicable state securities or blue sky laws has become effective.
2.4 COMPLIANCE WITH SECURITIES LAWS. Subject to the terms of the
Registration Rights Agreement and notwithstanding any other provisions contained
in this Warrant, the holder hereof understands and agrees that the following
restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act:
2.4.1 The holder hereof agrees that the Warrant Shares shall not be
sold or otherwise transferred unless the Warrant Shares are registered under the
Securities Act and applicable state securities or blue sky laws or are exempt
therefrom.
2.4.2 A legend in substantially the following form will be placed on
the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH
ANY OTHER APPLICABLE SECURITIES LAWS."
2.4.3 Stop transfer instructions will be imposed with respect to the
Warrant Shares so as to restrict resale or other transfer thereof, subject to
this Section 2.4.
2.4.4 The holder understands that it must bear the economic risk of
the investment for an indefinite period of time because the Warrant Shares have
not been registered under the Securities Act and therefore cannot be sold unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. The holder acknowledges that the holder or the
holder's representative is familiar with the condition, financial and otherwise,
of the Company. The holder or the holder's representative has such knowledge and
experience in financial and business matters that the holder or the holder's
representative is able to weigh the information so received and to evaluate the
merits and risks of the holder's investment in the Warrant Shares.
ARTICLE III
ANTI-DILUTION
3.1 ANTI-DILUTION PROVISIONS. The Exercise Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Exercise Price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Exercise Price in effect
immediately prior to such
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adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
3.2 ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF COMMON STOCK.
3.2.1 (A) If and whenever after the date hereof the Company shall
issue or sell any Common Stock for no consideration or for a consideration per
share less than the Exercise Price, then, forthwith upon such issue or sale, the
Exercise Price shall be reduced (but not increased, except as otherwise
specifically provided in Section 3.2.2 (C) hereof), to the price (calculated to
the nearest one-ten thousandth of a cent) determined by dividing (x) an amount
equal to the sum of (i) the aggregate number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied by the
consideration received by the Company upon such issuance or sale on a per share
basis plus (ii) the consideration received by the Company upon such issue or
sale by (y) the aggregate number of shares of Common Stock outstanding
immediately after such issue or sale.
(B) Notwithstanding the provisions of this Section 3.2, no
adjustment shall be made in the Exercise Price in the event that the Company
issues, in one or more transactions, (i) Common Stock or convertible securities
upon exercise of any options issued to officers, directors or employees of the
Company pursuant to a stock option plan or an employment, severance or
consulting agreement as now or hereafter in effect, in each case approved by the
Board of Directors (provided that the aggregate number of shares of Common Stock
which may be issuable, including options issued prior to the date hereof, under
all such employee plans and agreements shall at no time exceed the number of
such shares of Common Stock that are issuable under currently effective employee
plans and agreements); (ii) Common Stock upon exercise of the Warrants or any
other warrant issued pursuant to the terms of the Agreement or otherwise issued
to the Holder; (iii) Common Stock upon exercise of any stock purchase warrant or
option (other than the options referred to in clause (i) above) or other
convertible security outstanding on the date hereof; (iv) any conversion to
equity by St. James Capital Corp. or its affiliates ("St. James") of all or part
of the existing debt in the principal amount of $6,500,000; (v) any conversion
to equity by The Coastal Corporation Second Pension Trust of all or part of the
existing debt to Coastal in the principal amount of $3,500,000 or in connection
with a refinancing of such existing indebtedness by Coastal; (vi) Common Stock
upon conversion of the Note; (vii) Common Stock issued as consideration in
acquisitions; or (viii) warrants issued in one or more transactions effected in
any year ending on the anniversary date hereof where not exercisable for more
than an aggregate of one percent (1%) of the total Common Stock issued and
outstanding during such year. In addition, for purposes of calculating any
adjustment of the Exercise Price as provided in this Section 3.2, all of the
shares of Common Stock issuable pursuant to any of the foregoing shall be
assumed to be outstanding prior to the event causing such adjustment to be made.
3.2.2 For purposes of this Section 3.2, the following Sections
3.3.3(A) to 3.2.2(E) inclusive, shall be applicable:
(A) ISSUANCE OF RIGHTS OR OPTIONS. In case at any time after the
date hereof the Company shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein called
"Convertible Securities"), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which shares of
Common Stock are issuable
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upon the exercise of such rights or options or upon conversion or exchange
of such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such rights or options, plus the minimum aggregate amount
of additional consideration, if any, payable to the Company upon the
exercise of such rights or options, or plus, in the case of such rights or
options that relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such rights or options) shall be less than the Exercise
Price in effect as of the date of granting such rights or options, then
the total maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon conversion or exchange of all
such Convertible Securities issuable upon the exercise of such rights or
options shall be deemed to be outstanding as of the date of the granting
of such rights or options and to have been issued for such price per
share, with the effect on the Exercise Price specified in Section 3.2.1
hereof. Except as provided in Section 3.2.2 hereof, no further adjustment
of the Exercise Price shall be made upon the actual issuance of such
Common Stock or of such Convertible Securities upon exercise of such
rights or options or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(B) CHANGE IN OPTION PRICE OR CONVERSION RATE. Upon the happening of
any of the following events, namely, if the purchase price provided for in
any right or option referred to in Section 3.2.2, the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Section 3.2.2, or the rate at which
any Convertible Securities referred to in Section 3.2.2, are convertible
into or exchangeable for Common Stock shall change (other than under or by
reason of provisions designed to protect against dilution), the Exercise
Price then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Exercise Price that would have been
in effect at such time had such rights, options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any such option or
right referred to in Section 3.2.2, or on the termination of any such
right to convert or exchange any such Convertible Securities referred to
in Section 3.2.2, the Exercise Price then in effect hereunder shall
forthwith be readjusted (increased or decreased, as the case may be) to
the Exercise Price that would have been in effect at the time of such
expiration or termination had such right, option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been granted, issued or sold, and the Common Stock
issuable thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in Section 3.2.2 or the rate at which any
Convertible Securities referred to in Section 3.2.2 reduced at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the
exercise of any such right or option or upon conversion or exchange of any
such Convertible Securities, the Exercise Price then in effect hereunder
shall, if not already adjusted, forthwith be adjusted to such amount as
would have obtained had such right, option or Convertible Securities never
been issued as to such Common Stock and had adjustments been made upon the
issuance of the Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Exercise Price then in effect hereunder is
thereby reduced.
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(C) CONSIDERATION FOR STOCK. In case at any time Common Stock or
Convertible Securities or any rights or options to purchase any such
Common Stock or Convertible Securities shall be issued or sold for cash,
the consideration therefor shall be deemed to be the amount received by
the Company therefor. In case at any time any Common Stock, Convertible
Securities or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be deemed to be the fair value of such consideration, as
determined reasonably and in good faith by the Board of Directors of the
Company. In case at any time any Common Stock, Convertible Securities or
any rights or options to purchase any Common Stock or Convertible
Securities shall be issued in connection with any merger or consolidation
in which the Company is the surviving corporation, the amount of
consideration received therefor shall be deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the nonsurviving
corporation as such Board of Directors may determine to be attributable to
such Common Stock, Convertible Securities, rights or options as the case
may be. In case at any time any rights or options to purchase any shares
of Common Stock or Convertible Securities shall be issued in connection
with the issuance and sale of other securities of the Company, together
consisting of one integral transaction in which no consideration is
allocated to such rights or options by the parties, such rights or options
shall be deemed to have been issued with consideration.
(D) RECORD DATE. In the case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock or
Convertible Securities, or (ii) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be deemed to be the
date of the issuance or sale of the Common Stock or Convertible Securities
deemed to have been issued or sold as a result of the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(E) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned directly by
the Company in treasury, and the disposition of any such shares shall be
considered an issuance or sale of Common Stock for the purpose of this
Section 3.2.
3.3 STOCK DIVIDENDS. In case the Company shall declare a dividend or make
any other distribution upon any shares of the Company, payable in Common Stock
or Convertible Securities, any Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
3.4 STOCK SPLITS AND REVERSE SPLITS. In the event that the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
purchasable pursuant to this Warrant immediately prior to such subdivision shall
be proportionately increased, and conversely, in the event that the outstanding
shares of Common stock shall at any time be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
be proportionately increased and the number of Warrant Shares purchasable upon
the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this Section 3.4, no adjustment
in the Exercise Price and no change in the number of
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Warrant Shares purchasable shall be made under this Article III as a result of
or by reason of any such subdivision or combination.
3.5 REORGANIZATIONS AND ASSET SALES. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then the following provisions
shall apply:
3.5.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this Section 3.5), lawful and adequate
provisions shall be made whereby the holder of Warrants shall thereafter have
the right to purchase and receive upon the terms and conditions specified in
this Warrant and in lieu of the Warrant Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, such shares of
capital stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of outstanding shares of such Common Stock equal to
the number of Warrant Shares immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger, share exchange or sale
not taken place, and in any such case appropriate provision reasonably
satisfactory to such holder shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares receivable upon the exercise) shall thereafter be
applicable, as nearly as possible, in relation to any shares of capital stock,
securities or assets thereafter deliverable upon the exercise of Warrants.
3.5.2 In the event of a merger, share exchange or consolidation of
the Company with or into another Person as a result of which a number of shares
of common stock or its equivalent of the successor Person greater or lesser than
the number of shares of Common Stock outstanding immediately prior to such
merger, share exchange or consolidation are issuable to holders of Common Stock,
then the Exercise Price in effect immediately prior to such merger, share
exchange or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock.
3.5.3 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if other than
the Company) resulting from such consolidation, share exchange or merger or the
Person purchasing or otherwise acquiring such assets shall have assumed by
written instrument executed and mailed or delivered to the holder hereof at the
last address of such holder appearing on the books of the Company the obligation
to deliver to such holder such shares of capital stock, securities or assets as,
in accordance with the foregoing provisions, such holder may be entitled to
receive, and all other liabilities and obligations of the Company hereunder.
Upon written request by the holder hereof, such successor Person will issue a
new Warrant revised to reflect the modifications in this Warrant effected
pursuant to this Section 3.5.
3.5.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger, share exchange or
sale, transfer or other disposition of all or substantially all of the Company's
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assets with the Person having made such offer or with any affiliate of such
Person, unless prior to the consummation of such consolidation, merger, share
exchange, sale, transfer or other disposition the holder hereof shall have been
given a reasonable opportunity to then elect to receive upon the exercise of the
Warrants either the capital stock, securities or assets then issuable with
respect to the Common Stock or the capital stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer.
3.6 ADJUSTMENT FOR ASSET DISTRIBUTION. If the Company declares a dividend
or other distribution payable to all holders of shares of Common Stock in
evidences of indebtedness of the Company or other assets of the Company
(including, cash (other than regular cash dividends declared by the Board of
Directors), capital stock (other than Common Stock, Convertible Securities or
options or rights thereto) or other property), the Exercise Price in effect
immediately prior to such declaration of such dividend or other distribution
shall be reduced by an amount equal to the amount of such dividend or
distribution payable per share of Common Stock, in the case of a cash dividend
or distribution, or by the fair value of such dividend or distribution per share
of Common Stock (as reasonably determined in good faith by the Board of
Directors of the Company), in the case of any other dividend or distribution.
Such reduction shall be made whenever any such dividend or distribution is made
and shall be effective as of the date as of which a record is taken for purpose
of such dividend or distribution or, if a record is not taken, the date as of
which holders of record of Common Stock entitled to such dividend or
distribution are determined.
3.7 DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock purchasable hereunder shall be required unless such adjustment
would require an increase or decrease of at least one share of Common Stock
purchasable upon an exercise of each Warrant and no adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least $0.01 in the Exercise Price; provided, however, that any
adjustments which by reason of this Section 3.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
3.8 NOTICE OF ADJUSTMENT. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrants shall be adjusted as
herein provided, or the rights of the holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock, securities
or assets receivable as a result of such change in rights, and showing in
reasonable detail the facts and calculations upon which such adjustments or
other changes are based. The Company shall cause to be mailed to the holder
hereof copies of such Officer's Certificate together with a notice stating that
the Exercise Price and the number of Warrant Shares purchasable upon exercise of
the Warrants have been adjusted and setting forth the adjusted Exercise Price
and the adjusted number of Warrant Shares purchasable upon the exercise of the
Warrants.
3.9 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:
(i) to declare any dividend upon its Common Stock payable in capital
stock or make any special dividend or other distribution (other than cash
dividends) to the holders of its Common Stock;
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(ii) to offer for subscription pro rata to all of the holders of its
Common Stock any additional shares of capital stock of any class or other
rights;
(iii) to effect any capital reorganization, or reclassification of
the capital stock of the Company, or consolidation, merger or share
exchange of the Company with another Person, or sale, transfer or other
disposition of all or substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution,
liquidation or winding up of the Company,
then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days' (but not more than 90 days') prior written notice of the
date of which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for determining rights
to vote in respect of such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days'
(but not more than 90 days') prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (a) shall
also specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (b) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock, as the case may be, for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
share exchange, sale, transfer, disposition, dissolution, liquidation or winding
up, as the case may be.
3.10 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article III are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
the Warrants evidenced hereby in accordance with the essential intent and
principles of such provisions, or that might materially and adversely affect the
exercise or purchase rights of the holder hereof under any provisions of this
Warrant, then the Company shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such exercise and purchase rights as aforesaid, and any adjustments
necessary with respect to the Exercise Price and the number of Warrant Shares
purchasable hereunder so as to preserve the rights of the holder hereunder. In
no event shall any such adjustment have the effect of increasing the Exercise
Price as otherwise determined pursuant to this Article III except in the event
of a combination of shares of the type contemplated in Section 3.4 hereof, and
then in no event to an amount greater than the Exercise Price as adjusted
pursuant to Section 3.4 hereof.
ARTICLE IV
MISCELLANEOUS
4.1 ENTIRE AGREEMENT. This Warrant, together with the Agreement, contain
the entire agreement between the holder hereof and the Company with respect to
the Warrant Shares purchasable upon exercise hereof and the related transactions
and supersedes all prior arrangements or understandings with respect thereto.
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4.2 GOVERNING LAW. This warrant shall be governed by and construed in
accordance with the laws of the State of Texas.
4.3 WAIVER AND AMENDMENT. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 ILLEGALITY. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
4.5 COPY OF WARRANT. A copy of this Warrant shall be filed among the
records of the Company.
4.6 NOTICE. Any notice or other document required or permitted to be given
or delivered to the holder hereof shall be in writing and delivered at, or sent
by certified or registered mail to such holder at, the last address shown on the
books of the Company maintained at the Warrant Office for the registration of
this Warrant or at any more recent address of which the holder hereof shall have
notified the Company in writing. Any notice or other document required or
permitted to be given or delivered to the Company, other than such notice or
documents required to be delivered to the Warrant Office, shall be delivered at,
or sent by certified or registered mail to, the offices of the Company at 1100
Executive Drive, Richardson, Texas 75081 or such other address within the
continental United States of America as shall have been furnished by the Company
to the holder of this Warrant, with a copy to Philip P. Sudan, Jr., Ryan &
Sudan, L.L.P., 909 Fannin, 39th Floor, Houston, Texas 77010.
4.7 LIMITATION OF LIABILITY; NOT STOCKHOLDERS. No provision of this
Warrant shall be construed as conferring upon the holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
4.8 EXCHANGE, LOSS, DESTRUCTION, ETC. OF WARRANT. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of
this Warrant, and in the case of any such loss, theft or destruction upon
delivery of a bond of indemnity or such other security in such form and amount
as shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of this Warrant, the Company will
make and deliver a new Warrant of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of this
Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or stolen, or
in lieu of any mutilated
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Warrant, shall constitute an original contractual obligation on the part of the
Company. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange or replacement. The Company
shall pay all taxes (other than securities transfer taxes or income taxes) and
all other expenses and charges payable in connection with the preparation,
execution and delivery of Warrants pursuant to this Section 4.8.
4.9 REGISTRATION RIGHTS. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.
4.10 HEADINGS. The Article and Section and other headings herein are for
convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: January 13, 1999
INTELECT COMMUNICATIONS, INC.
By: ________________________________
Name: Edwin J. Ducayet, Jr.
Title: Vice President and Chief Financial
Officer
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SUBSCRIPTION NOTICE
The undersigned, the holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
________ shares of the Common Stock covered by such Warrant, and herewith makes
payment in full for such shares pursuant to Section 1.1 of such Warrant, and
requests (a) that certificates for such shares (and any other securities or
other property issuable upon such exercise) be issued in the name of, and
delivered to _____________________________________ and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable thereunder
be delivered to the undersigned.
________________________________
Date: ____________________________
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ASSIGNMENT
For value received, _______________________, hereby sells, assigns, and
transfers unto _________________________ the within Warrant, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________________ attorney, to transfer such Warrant on the books
of the Company, with full power of substitution.
______________________________
Date: ______________________________
15
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of February 24,
1999, by and among Intelect Communications, Inc., a Delaware corporation, with
headquarters located at 1100 Executive Drive, Richardson, Texas 75081 (the
"COMPANY"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
of Regulation D ("REGULATION D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 ACT");
B. The Company has authorized the following new series of its preferred
stock, par value $.01 per share: the Company's Series E Convertible Preferred
Stock (the "PREFERRED STOCK"), which shall be convertible into shares of the
Company's Common Stock, par value $.01 per share (the "COMMON STOCK") (as
converted, the "CONVERSION SHARES"), in accordance with the terms of the
Company's Certificate of Designations, Preferences and Rights of Series E
Convertible Preferred Stock, substantially in the form attached hereto as
EXHIBIT A (the "CERTIFICATE OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of 3,000 shares of Preferred Stock (the
"INITIAL PREFERRED SHARES") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers and warrants, in substantially the form
attached hereto as Exhibit E (the "WARRANTS"), to acquire 100 shares of Common
Stock for each Preferred Share purchased (as exercised, collectively, the
"WARRANT SHARES");
D. Subject to the terms and conditions set forth in this Agreement, the
Buyers will be required to buy and the Company will be required to sell an
aggregate of an additional 3,000 shares of Preferred Stock in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers (the
"MANDATORY PREFERRED SHARES") and the related Warrants;
E. Subject to the terms and conditions set forth in this Agreement, each
Buyer shall have the right to purchase a number of additional shares of
Preferred Stock (along with the related Warrants thereto) equal to up to the
product of (A) 3/5 multiplied by (B) the sum of (i) the number of Initial
Preferred Shares purchased by such Buyer and (ii) the number of Mandatory
Preferred Shares purchased by such Buyer (the "ADDITIONAL PREFERRED SHARES")
(the Initial Preferred Shares, the Mandatory Preferred Shares and the Additional
Preferred Shares collectively are referred to in this Agreement as the
"PREFERRED SHARES");
F. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form
<PAGE>
attached hereto as EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT") pursuant to
which the Company has agreed to provide certain registration rights under the
1933 Act and the rules and regulations promulgated thereunder, and applicable
state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. PURCHASE OF PREFERRED SHARES. Subject to satisfaction (or waiver)
of the conditions set forth in Sections 6(a) and 7(a) below, the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company an aggregate of 3,000 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers, along
with Warrants to acquire 100 Warrant Shares for each Initial Preferred Share
purchased (the "INITIAL CLOSING"). Subject to the satisfaction (or waiver) of
the conditions set forth in Sections 1(c), 6(b) and 7(b) below, the Buyers shall
buy and the Company shall sell an aggregate of 3,000 Mandatory Preferred Shares,
in the respective amounts set forth opposite each Buyer's name on the Schedule
of Buyers, along with Warrants to acquire 100 Warrant Shares for each Mandatory
Preferred Share purchased (the "MANDATORY CLOSING"). Subject to the satisfaction
(or waiver) of the conditions set forth in Sections 1(d), 6(c) and 7(c) below,
at the option of each Buyer, the Company shall issue and sell to each such Buyer
and each such Buyer may purchase from the Company at multiple closings, if
applicable, an aggregate of up to that number of Additional Preferred Shares
(along with the related Warrants thereto) equal to the product of (A) 3/5
multiplied by (B) the sum of (i) the number of Initial Preferred Shares
purchased by such Buyer and (ii) the number of Mandatory Preferred Shares
purchased by such Buyer (the "ADDITIONAL CLOSINGS") (the Initial Closing, the
Mandatory Closing and the Additional Closings collectively are referred to in
this Agreement as the "CLOSINGS"). The purchase price (the "PURCHASE PRICE") of
each Preferred Share at each of the Closings shall be $1,000.
b. THE INITIAL CLOSING DATE. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time, on March
5, 1999 subject to the satisfaction (or waiver) of the conditions to the Initial
Closing set forth in Section 6(a) and 7(a) below (or such later date as is
mutually agreed to by the Company and the Buyers). The Initial Closing shall
occur on the Initial Closing Date at the offices of Katten Muchin & Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
c. THE MANDATORY CLOSING DATE. The date and time of the Mandatory
Closing (the "MANDATORY CLOSING DATE") shall be 10:00 a.m. Central Time, on the
third business day following the date of the receipt by each Buyer of the
Mandatory Share Notice (as defined below), subject to satisfaction (or waiver)
of the conditions to the Mandatory Closing set forth in Sections 6(b) and 7(b)
and the conditions set forth in this Section 1(c) (or such later date as is
mutually agreed to by the Company and the Buyers). The Company shall deliver
written notice (the "MANDATORY SHARE NOTICE") to each Buyer on a date (the
"MANDATORY SHARE NOTICE DATE") as soon as practicable, but in no event later
than the second business day, following the date that the Registration Statement
(as defined in the Registration Rights Agreement) registering the Registrable
Securities (as defined in the Registration Rights Agreement) has been declared
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effective in accordance with the terms of the Registration Rights Agreement.
Notwithstanding the foregoing, no Buyer shall be required to purchase the
Mandatory Preferred Shares unless each of the following conditions is satisfied:
(i) the Registration Statement shall have been declared effective and shall
remain effective at all times during the period beginning on the Mandatory Share
Notice Date and ending on and including the Mandatory Closing Date; (ii) the
registration statements registering the shares of Common Stock issuable upon
conversion of the Series C and the Series D Convertible Preferred Stock shall
have been effective at all times during the period beginning on the Initial
Issuance Date and ending on the Mandatory Closing Date; (iii) during the period
beginning on the date of this Agreement and ending on and including the
Mandatory Closing Date, there shall not have occurred either (A) the
consummation of a Major Transaction (as defined in Section 3(c) of the
Certificate of Designations) or a public announcement of a pending Major
Transaction which has not been abandoned or terminated or (B) a Triggering Event
(as defined in Section 3(d) of the Certificate of Designations); (iv) at all
times during the period beginning on the date of this Agreement and ending on
and including the Mandatory Closing Date, the Common Stock shall have been
designated for quotation on the Nasdaq National Market, The New York Stock
Exchange, Inc. ("NYSE") or The American Stock Exchange, Inc. ("AMEX") and shall
not have been suspended from trading on such exchanges (excluding suspensions of
not more than one day resulting from business announcements by the Company), nor
shall delisting or suspension by such exchange have been threatened either (A)
in writing by such exchange or (B) by falling below the minimum listing
maintenance requirements of such exchange, unless such failure to maintain the
minimum listing requirements shall have been cured for a period of at least 20
trading days prior to and including the Mandatory Closing Date; (v) during the
period beginning on the Initial Closing Date and ending on and including the
Mandatory Closing Date, the Company shall have delivered Conversion Shares upon
conversion of the Preferred Shares and shares of Common Stock upon conversion of
the Series C and Series D Convertible Preferred Stock on a timely basis as set
forth in Section 2(e)(ii) of the Certificate of Designations or the Certificate
of Designations, Preferences and Rights of the Series C or the Series D
Convertible Preferred Stock, as applicable, and otherwise shall have been in
compliance with and shall not have breached any provision of the Transaction
Documents (as defined below) and the Certificate of Designations; and (vi) the
Company shall not have previously delivered a Mandatory Share Notice. The
Mandatory Closing shall occur on the Mandatory Closing Date at the offices of
Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693.
d. THE ADDITIONAL CLOSING DATE. The date and time of each of the
Additional Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00 a.m. Central
Time, on the fifth business day after delivery by any Buyer to the Company of an
Additional Share Notice (as defined below), subject to satisfaction (or waiver)
of the conditions to the Additional Closing set forth in Sections 6(c) and 7(c)
and the conditions set forth in this paragraph (or such later date as is
mutually agreed to by the Company and such Buyer). During the period beginning
on and including the date which is 180 days after the Initial Closing Date and
ending on and including the date which is 546 days after the Initial Closing
Date (the "ADDITIONAL NOTICE PERIOD"), but subject to the requirements of
Sections 6(c) and 7(c), each Buyer may purchase on multiple occasions Additional
Preferred Shares by delivering written notice to the Company (an "ADDITIONAL
SHARE NOTICE") on any date during the Additional Notice Period (an "ADDITIONAL
SHARE NOTICE DATE"). Each Additional Share Notice shall set forth (i) the number
of Additional Preferred Shares to be purchased by such Buyer
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at such Additional Closing and (ii) the aggregate Purchase Price for such
Additional Preferred Shares. Notwithstanding the foregoing, no Buyer shall be
entitled to deliver an Additional Share Notice unless (x) on the Additional
Share Notice Date the Closing Bid Price (as defined in the Certificate of
Designations) of the Common Stock is greater than the Fixed Conversion Price of
the Initial Preferred Shares on the Additional Share Notice Date and (y) such
Buyer has purchased Additional Preferred Shares at not more than three previous
Additional Closing. Each Additional Closing shall occur on the Additional
Closing Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street,
Suite 1600, Chicago, Illinois 60661-3693. The Initial Closing Date, the
Mandatory Closing Date and the Additional Closing Dates collectively are
referred to in this Agreement as the "CLOSING DATES."
e. FORM OF PAYMENT. On each of the Closing Dates, (i) each Buyer
shall pay the Purchase Price to the Company for the Preferred Shares and
Warrants to be issued and sold to such Buyer at the respective Closing, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing (which, for the Initial Closing, shall be as indicated
opposite such Buyer's name on the Schedule of Buyers) along with the Warrants
such Buyer is purchasing (as indicated opposite such Buyer's name on the
Schedule of Buyers), duly executed on behalf of the Company and registered in
the name of such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself that:
a. INVESTMENT PURPOSE. Such Buyer (i) is acquiring the Preferred
Shares and the Warrants, (ii) upon conversion of the Preferred Shares, will
acquire the Conversion Shares then issuable and (iii) upon exercise of the
Warrants, will acquire the Warrant Shares issuable upon exercise thereof (the
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. ACCREDITED INVESTOR STATUS. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the 1933 Act.
c. RELIANCE ON EXEMPTIONS. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties,
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agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire the Securities.
d. INFORMATION. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company, including
the Company's management. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Sections 3 and 9(m) below.
Such Buyer understands that its investment in the Securities involves a high
degree of risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision with respect
to its acquisition of the Securities.
In addition to the foregoing, each Buyer, severally and not jointly
acknowledge that
(i) it has access to copies of (and acknowledges that the
Company has offered to provide, upon its request, copies of) the SEC
Documents (as defined in Section 3(f) hereof) of the Company and the
Registration Statement of the Company on Form S-3 as filed with the
SEC on April 3, 1998 (collectively, the "Public Documents");
(ii) it has not been furnished with any oral representation or
warranty in connection with the offering of the Preferred Shares and
the Warrants by the Company or any officer, employee, agent,
Affiliate or Subsidiary, which is not contained in or contemplated
by the Transaction Documents (as defined below) or the Certificate
of Designation;
(iii) understands that the purchase of the Preferred Shares
and the Warrants entails various risks including, but not limited
to, those outlined in the Public Documents and in this Agreement,
and has determined that the Preferred Shares and the Warrants are a
suitable investment and that at this time it could bear a complete
loss of its investment; and
(iv) any information which such Buyers has heretofore
represented or furnished to the Company with respect to its
financial position and business experience is correct and complete
as of the date of this Agreement.
e. NO GOVERNMENTAL REVIEW. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
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f. TRANSFER OR RESALE. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that the Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as
amended (or a successor rule thereto)("RULE 144"); (ii) any sale of the
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder. Notwithstanding the foregoing, the
Securities may be pledged in connection with a bona fide margin account.
g. LEGENDS. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and the Warrants and, until such
time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING
THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
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in a generally acceptable form, to the effect that a public sale, assignment or
transfer of such Securities may be made without registration under the 1933 Act,
or (iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144 without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold.
h. VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyers enforceable in accordance with its terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. RESIDENCY. Such Buyer is a resident of that country or
jurisdiction specified in the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. ORGANIZATION AND QUALIFICATION. The Company and its
"SUBSIDIARIES" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest, a complete list of which is set forth in SCHEDULE 3(A), except
for non-operating Subsidiaries or Subsidiaries in dissolution or winding up,
each as described in SCHEDULE 3(A), which do not have any material assets or
liabilities ("NONMATERIAL SUBSIDIARIES")), are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power and authorization
to own their properties and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership of property or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not have a Material Adverse Effect. As
used in this Agreement, "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the business, properties, assets, operations, results of operations or
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Certificate of Designations.
b. AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER INSTRUMENTS.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, the Irrevocable
Transfer Agent Instructions (as defined in Section 5), the Warrants and each of
the other agreements entered into by the parties hereto in connection with the
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS") and to issue the Securities in accordance with the terms hereof and
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<PAGE>
thereof, subject to the satisfaction of the condition set forth in Section
6(a)(v); (ii) the execution and delivery of the Transaction Documents and the
Certificate of Designations by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation the
issuance of the Preferred Shares and the Warrants and the reservation for
issuance and the issuance of the Conversion Shares and the Warrant Shares
issuable upon conversion or exercise thereof), have been duly authorized by the
Company's Board of Directors and no further consent or authorization is required
by the Company, its Board of Directors or its stockholders, subject to the
satisfaction of the condition set forth in Section 6(a)(v); (iii) this Agreement
has been, and on or prior to the Initial Closing, the other Transaction
Documents shall have been duly executed and delivered by the Company; (iv) this
Agreement constitutes, and upon execution and delivery of the other Transaction
Documents they shall constitute, the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies, subject to the satisfaction of the condition set forth in
Section 6(a)(v); and (v) prior to the Initial Closing Date, the Certificate of
Designations will have been filed with the Secretary of State of the State of
Delaware and, on each Closing Date, will be in full force and effect, without
any amendment or modification thereto from the form of Certificate of
Designations in effect on the Initial Closing Date, enforceable against the
Company in accordance with its terms.
c. CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Common Stock, of which
as of the date hereof, 34,586,331 shares were issued and outstanding, 4,931,876
shares were issuable and reserved for issuance pursuant to the Company's stock
option plans and 12,344,707 were issuable and reserved for issuance pursuant to
securities (other than the Preferred Shares, shares reserved for issuance
pursuant to the Company's stock option plans, or shares required to be reserved
for issuance upon conversion of the Series C and D Convertible Preferred Stock)
exercisable or exchangeable for, or convertible into, shares of Common Stock and
(ii) 50,000,000 shares of the preferred stock, par value $0.01 per share of
which, as of the date hereof, 4,219,409 shares have been designated Series A
Convertible Preferred Stock, of which 3,719,409 are issued and outstanding,
914,268 shares have been designated Series B Convertible Preferred Stock, of
which 0 are issued and outstanding, 10,000 shares have been designated Series C
Convertible Preferred Stock, of which 1,843 shares are issued and outstanding,
and 10,000 shares of Series D Convertible Preferred Stock of which 8,250 shares
are issued and outstanding. All of such outstanding shares of capital stock have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as disclosed in SCHEDULE 3(C), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company, (ii)
other than the stock option plans of the Company set forth in the SEC Documents
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character
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whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its Subsidiaries, (iii) there are no
outstanding debt securities, (iv) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of their securities under the 1933 Act (except the Registration Rights
Agreement), (v) there are no outstanding securities or instruments of the
Company or any of its Subsidiaries which contain any redemption or similar
provisions, and there are no contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to redeem a security of the Company or any of its Subsidiaries, (vi) there
are no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement; and (vii) the Company does not have any stock appreciation rights or
"phantom stock" plans or agreements or any similar plan or agreement. The
Company has furnished to the Buyers true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "CERTIFICATE OF INCORPORATION"), and the Company's By-laws, as amended and
as in effect on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. ISSUANCE OF SECURITIES. Subject to the satisfaction of the
condition set forth in Section 6(a)(v), the Preferred Shares are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i) validly
issued, fully paid and non-assessable, (ii) free from all taxes, liens and
charges with respect to the issue thereof and (iii) entitled to the rights and
preferences set forth in the Certificate of Designations. Subject to the
satisfaction of the condition set forth in Section 6(a)(v), prior to each of the
Closings the number of shares of Common Stock (subject to adjustment pursuant to
the Company's covenant set forth in Section 4(f) below) required to have been
reserved for issuance under the terms of this Agreement, the Certificate of
Designations and the Warrants shall have been duly authorized and reserved for
issuance upon conversion of the Preferred Shares and upon exercise of the
Warrants. Upon conversion or exercise in accordance with the Certificate of
Designations or the Warrants, as the case may be, the Conversion Shares and the
Warrant Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock,
subject to the approval by the shareholders of the proposal to increase the
number of authorized shares of Common Stock to 100,000,000 on March 3, 1999.
Assuming the accuracy of the representations made by the Buyers in Section 2
hereof, the issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
e. NO CONFLICTS. Subject to the satisfaction of the condition set
forth in Section 6(a)(v) and except as disclosed in SCHEDULE 3(E), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of the Certificate of Incorporation, any
Certificate of Designations, Preferences and Rights of any outstanding series of
preferred stock, par value $.01 per share, of the Company or the By-laws, (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment,
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acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations and the rules and regulations
of the principal market or exchange on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in SCHEDULE 3(E), neither the Company nor its
Subsidiaries is in violation of any term of or in default under (x) the
Certificate of Incorporation, any Certificate of Designation, Preferences and
Rights of any outstanding series of preferred stock, par value $.01 per share,
or the By-laws or their organizational charter or by-laws, respectively, or (y)
any material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation applicable to the
Company or its Subsidiaries. The business of the Company and its Subsidiaries is
not being conducted, and shall not be conducted, in violation of any law,
ordinance, regulation of any governmental entity, except where such violations
have not resulted or would not result, individually or in the aggregate, in a
Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act and subject to the satisfaction of the
condition set forth in Section 6(a)(v), the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self-regulatory agency in
order for it to execute, deliver or perform any of its obligations under or
contemplated by the Transaction Documents or to perform its obligations under
the Certificate of Designations in accordance with the terms hereof or thereof.
Except as disclosed in SCHEDULE 3(E), all consents, authorizations, orders,
filings and registrations which the Company is required to obtain pursuant to
the preceding sentence have been obtained or effected on or prior to the date
hereof. The Company and its Subsidiaries have no knowledge of any facts or
circumstances which might give rise to any of the foregoing. The Company is not
in violation of the listing requirements of the Nasdaq National Market as in
effect on the date hereof and on each of the Closing Dates and except as set
forth in SCHEDULE 3(E), is not aware of any facts which would reasonably lead to
delisting or suspension of the Common Stock by the Nasdaq National Market in the
foreseeable future.
f. SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1996, the
Company or its predecessor Intelect Communications Systems Limited, a Bermuda
Corporation, has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 ACT")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). Set forth on SCHEDULE 3(F) is a complete list of all the SEC
Documents as of the date thereof. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC or as amended prior to the date hereof, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates or as amended prior to the date hereof, the financial
statements of the Company
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included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof, or if amended prior to the date
hereof, as of the date of such amendment and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No other information provided
by or on behalf of the Company to the Buyers which is not included in the SEC
Documents, or if amended prior to the date hereof, as of the date of such
amendment, including, without limitation, information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Except as set forth in SCHEDULE 3(J), neither the Company nor any of
its Subsidiaries or any of their officers, directors, employees or agents have
provided the Buyers with any material, nonpublic information, except for the
knowledge of the existence of the transactions contemplated by the Transaction
Documents
g. ABSENCE OF CERTAIN CHANGES. Except as disclosed in SCHEDULE 3(G)
or the SEC Documents filed on EDGAR at least one (1) business day prior to the
date hereof, since December 31, 1997 there has been no material adverse change
and no material adverse development in the business, properties, operations,
financial condition, liabilities or results of operations, or prospects of the
Company or its Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings. Except as disclosed in Schedule 3(g), since December 31,
1997 the Company has not declared or paid any dividends, sold any assets in
excess of $50,000 outside of the ordinary course of business or had capital
expenditures in excess of $2,200,000.
h. ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
which if determined adversely would have a Material Adverse Effect, except as
expressly set forth in SCHEDULE 3(H) or the SEC Documents.
i. ACKNOWLEDGMENT REGARDING BUYERS' PURCHASE OF PREFERRED SHARES.
The Company acknowledges and agrees that each of the Buyers is acting solely in
the capacity of arm's length purchaser with respect to the Transaction
Documents, the Certificate of Designations and the transactions contemplated
thereby. The Company further acknowledges that each Buyer is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents, the Certificate of Designations and the
transactions contemplated
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thereby and any advice given by any of the Buyers or any of their respective
representatives or agents in connection with the Transaction Documents, the
Certificate of Designations and the transactions contemplated thereby is merely
incidental to such Buyer's purchase of the Securities. The Company further
represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
j. NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except as set forth on SCHEDULE 3(J) and excluding liabilities
incurred in the ordinary course of business consistent with past practices, no
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur, with respect to the Company or its Subsidiaries or their
respective business, properties, prospects, operations or financial condition
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement (including by way of incorporation
by reference) filed with the SEC, on the date this representation is made or
deemed to be made, relating to an issuance and sale by the Company of its Common
Stock and which has not been publicly disclosed.
k. NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require (i) registration of any
of the Securities under the 1933 Act, (ii) except as set forth on SCHEDULE 3(L),
cause this offering of Securities to be integrated with prior offerings by the
Company for purposes of the 1933 Act, or (iii) cause this offering of Securities
to be integrated with prior offerings by the Company for purposes of any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. Neither the
Company nor any of its Subsidiaries shall take any action or steps that would
require registration of the Securities under the 1933 Act or cause the offering
of the Securities to be integrated with other offerings.
m. EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. None of the
Company's or its Subsidiaries' employees is a member of a union. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company. No
executive officer, to the best knowledge of the Company and its Subsidiaries,
is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement, non-
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competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each such executive officer does not
subject the Company or any of its Subsidiaries to any liability with respect to
any of the foregoing matters.
n. INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on SCHEDULE 3(n), none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or are expected to
expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
mark registrations, trade secret or other similar rights of others, or of any
such development of similar or identical trade secrets or technical information
by others and, except as set forth on SCHEDULE 3(N) or in the SEC Documents,
there is no claim, action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its Subsidiaries
regarding trademark, trade name, patents, patent rights, invention, copyright,
license, service names, service marks, service mark registrations, trade secret
or other infringement; and the Company and its Subsidiaries are unaware of any
facts or circumstances which might reasonably be expected to give rise to any of
the foregoing. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
o. ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance in all material respects with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance in all material respects with all terms and conditions of any such
permit, license or approval.
p. TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in SCHEDULE 3(P) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
Subsidiaries. Any real property and facilities held under lease by the Company
or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
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q. INSURANCE. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for and neither the Company nor any such
Subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
r. REGULATORY PERMITS. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
s. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. TAX STATUS. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply, except as set forth in SCHEDULE 3(T). There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim, except as set forth in SCHEDULE 3(T).
u. DILUTIVE EFFECT. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations and
its obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants is, in each case, absolute and
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unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
v. NO OTHER AGREEMENTS. As of the date hereof and as of the Initial
Closing Date, the Company has not, directly or indirectly, made any agreements
with any Buyers relating to the terms or conditions of the transactions
contemplated by the Transaction Documents except as set forth in the Transaction
Documents.
w. TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE
3(W) or in the SEC Documents filed on Edgar at least ten days prior to the date
hereof and other than the grant of stock options disclosed on SCHEDULE 3(C),
none of the officers, directors, or employees of the Company is presently a
party to any transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
x. APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken all necessary action, if any should be required, in order
to render inapplicable any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or other
similar anti-takeover provision under the Certificate of Incorporation or the
laws of the state of its incorporation which is or would become applicable to
the Buyers as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and the
Buyer's ownership of the Securities.
y. NONMATERIAL SUBSIDIARIES. The Nonmaterial Subsidiaries have no
(i) liabilities, contingent or otherwise, whether known or unknown, which would
have a Material Adverse Effect or (ii) material assets.
z. FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
aa. NO MATERIALLY ADVERSE CONTRACTS. Except as specifically
disclosed in the SEC Documents, or as set forth in SCHEDULE 3(AA), neither the
Company nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company's officers has or is expected in the future
to
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have a Material Adverse Effect. Except as specifically disclosed in the SEC
Documents, or as set forth in SCHEDULE 3(AA), neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment of
the Company's officers has or is expected to have a Material Adverse Effect.
bb. RIGHTS AGREEMENT. As of the date hereof, the Company has not
adopted a shareholder rights plan or similar arrangement relating to
accumulation of beneficial ownership of Common Stock or a change in control of
the Company.
cc. ACCOUNTANTS. The Company has retained Grant Thornton LLP ("GRANT
THORNTON") as its accountants for the audit of fiscal 1998. Grant Thornton has
not stated to the Company that it will be unable to complete its review of the
Company's 1998 financial statements so as to cause delays in the filing of the
Company's year end financial statements on Form 10-K with the SEC by March 31,
1999, nor has Grant Thornton stated that as of their review through the date
hereof, that a restatement of prior financials will be necessary. Neither Arthur
Andersen LLP nor KPMG Peat Marwick have stated that they will be unable or
unwilling to provide their consent to the filing of their financial reports for
the applicable years prior to 1998 for which they acted as the Company's
accountants, assuming the filing of the Form 10-K for the 1998 financial
statements with the SEC and receipt of customary representations from Grant
Thornton regarding the Company upon completion of the audit for the 1998
financial statements. Neither Arthur Andersen LLP nor KPMG Peat Marwick have
stated that they will require any consideration in connection with providing
such consents other than for the payment of fees and expenses for which the
Company has previously accrued liabilities and for fees and expenses billed in
connection with the review required to provide the consents. The Company has
discussed each of the foregoing with Grant Thornton, Arthur Andersen LLP and
KPMG Peat Marwick, as applicable.
4. COVENANTS.
a. BEST EFFORTS. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. FORM D. Promptly after each of the Closing Dates, the Company
agrees to file a Form D with respect to the Securities as required under
Regulation D and to provide a copy thereof to each Buyer promptly after such
filing. The Company shall, on or before each of the Closing Dates, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for, or obtain exemption for the Securities for, sale to the Buyers
at each of the Closings pursuant to this Agreement under applicable securities
or "Blue Sky" laws of the states of the United States and shall provide evidence
of any such action so taken to the Buyers on or prior to such Closing Dates. The
Company shall make all filings and reports relating to the offer and sale of the
Securities required under applicable securities or "Blue Sky" laws of such
states of the United States following the Initial Closing Date.
c. REPORTING STATUS. Until the earlier of (i) the date which is one
year after the date as of which the Investors (as that term is defined in the
Registration Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule
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144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date
on which (A) the Investors shall have sold all the Conversion Shares and the
Warrant Shares and (B) none of the Preferred Shares or Warrants is outstanding
(the "REGISTRATION PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would otherwise permit such
termination.
d. USE OF PROCEEDS. The Company will use the net proceeds from the
sale of the Preferred Shares for working capital and general corporate purposes.
e. FINANCIAL INFORMATION. The Company agrees to send the following
to each Investor (as that term is defined in the Registration Rights Agreement)
during the Registration Period: (i) within two (2) days after the filing thereof
with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly Reports
on Form 10-Q, any Current Reports on Form 8-K and any registration statements
(other than on Form S-8) or amendments filed pursuant to the 1933 Act, provided
that if any such report is not filed with the SEC through EDGAR then the Company
shall deliver a copy of such report to each Investor by facsimile on the same
day it is filed with the SEC and (ii) copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders.
f. RESERVATION OF SHARES. On and after the Initial Closing Date, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 200% of the number of shares
of Common Stock needed to provide for the issuance of the Conversion Shares
(without regard to any limitations on conversions) and 125% of the number of
shares of Common Stock needed to provide for the issuance of the shares of
Common Stock upon exercise of all outstanding Warrants.
g. RIGHT OF FIRST REFUSAL. Subject to the exceptions described
below, the Company shall not contract with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or securities convertible or exchangeable into or for
equity securities of the Company (including debt securities with an equity
component) in any form ("FUTURE OFFERINGS") during the period beginning on the
Initial Closing Date and ending on and including the date which is 365 days
after the Initial Closing Date, provided, however, that on and after the date
that the Registration Statement is declared effective the Company may have a
Future Offering if it shall have first delivered to each Buyer or a designee
appointed by such Buyer written notice (the "FUTURE OFFERING NOTICE") describing
the proposed Future Offering, including the terms and conditions thereof, and
providing each Buyer an option to purchase up to its Aggregate Percentage (as
defined below), as of the date of delivery of the Future Offering Notice on the
same terms and conditions set forth in the Future Offering Notice (the
limitations referred to in this sentence are collectively referred to as the
"CAPITAL RAISING LIMITATION"). For purposes of this Section 4(g), "AGGREGATE
PERCENTAGE" at any time with respect to any Buyer shall mean the percentage
equal to the product of (A) 0.5 multiplied by (B) the quotient of (i) the number
of Preferred Shares purchased by such Buyer at the Initial Closing and the
Mandatory Closing and (ii) the aggregate number of Preferred Shares purchased
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by all the Buyers at the Initial Closing and the Mandatory Closing; provided,
however, for the purpose of this Section 4(g) only, that during the first 75
days the Mandatory Preferred Shares will be considered to have been purchased in
the respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers. A Buyer can exercise its option to participate in a Future Offering by
delivering written notice thereof to participate to the Company within three (3)
business days of receipt of a Future Offering Notice, which notice shall state
the quantity of securities being offered in the Future Offering that such Buyer
will purchase, up to its Aggregate Percentage, and that number of securities it
is willing to purchase in excess of its Aggregate Percentage. In the event that
one or more Buyers fail to elect to purchase up to each such Buyer's Aggregate
Percentage then each Buyer which has indicated that it is willing to purchase a
number of securities in excess of its Aggregate Percentage shall be entitled to
purchase its pro rata portion (determined in the same manner as described in the
preceding sentence) of the securities in the Future Offering which one or more
Buyers have not elected to purchase. In the event the Buyers fail to elect to
fully participate in the Future Offering within the periods described in this
Section 4(g), the Company shall have 45 days thereafter to sell the securities
of the Future Offering for which such Buyer's rights were not exercised, upon
the same terms and conditions (including the amount thereof) specified in the
Future Offering Notice. In the event the Company has not sold such securities of
the Future Offering within such 45-day period, the Company shall not thereafter
issue or sell such securities without first offering such securities to the
Buyers in the manner provided in this Section 4(g). The Capital Raising
Limitation shall not apply to (i) a bona-fide loan from a commercial lender
which does not have any equity feature, (ii) the issuance of securities upon
exercise or conversion of the Company's options, warrants or other convertible
securities or debt outstanding as of the date hereof (iii) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option plan, restricted stock plan or stock purchase plan for
the benefit of the Company's employees or directors, (iv) any registered firm
commitment underwritten public offering of securities of the Company, (v) any
transaction intended to be made in reliance upon Rule 144A under the Securities
Act or (vi) any equipment loans or financing which do not have an equity
feature.
h. LISTING. The Company shall secure in accordance with the
applicable rules and regulations, but in no event later than 30 days after the
date hereof, the listing of all of the Registrable Securities upon each national
securities exchange and automated quotation system (including the Nasdaq
National Market), upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Registrable Securities from
time to time issuable under the terms of the Transaction Documents and the
Certificate of Designations. The Company shall maintain the Common Stock's
authorization for listing on the Nasdaq National Market, NYSE or AMEX. Neither
the Company nor any of its Subsidiaries shall take any action which may result
in the delisting or suspension of the Common Stock on the Nasdaq National
Market, NYSE or AMEX (other than to switch listings from the Nasdaq National
Market, AMEX or NYSE). The Company shall promptly provide to each Buyer copies
of any notices it receives from the Nasdaq Stock Market, Inc., NYSE or AMEX
regarding the continued eligibility of the Common Stock for listing on such
automated quotation system or securities exchange. The Company shall pay all
fees and expenses in connection with satisfying its obligations under this
Section 4(h).
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i. EXPENSES. Subject to Section 9(l) below, within one (1) business
day of the Initial Closing the Company shall pay a non-accountable expense
allowance of $40,000 to the Buyers or their designees.
j. FILING OF FORM 8-K. On or before (i) the third (3rd ) business
day following the date hereof, (ii) the first (1st) business day following (a)
each of the Closing Dates and (b) the Mandatory Share Notice Date, and (iii) the
Second (2nd) business day following each Additional Share Notice Date, the
Company shall file a Form 8-K with the SEC describing the terms of the
transaction contemplated by the Transaction Documents and consummated at such
Closing, in each case in the form required by the 1934 Act. On or before the
third (3rd) business day following the date hereof, the Company shall file a
Form 8-K with the SEC describing the terms of the transactions disclosed in
SCHEDULE 3(J) hereto in the form required by the 1934 Act.
k. SHAREHOLDER APPROVAL/PROXY STATEMENT. The Company shall provide
each stockholder entitled to vote at the next meeting of stockholders of the
Company (other than the stockholder meeting scheduled to be held on March 3,
1999, or any adjournment thereof), which meeting shall not be later than June
30, 1999 (the "STOCKHOLDER MEETING DEADLINE"), a proxy statement, which has been
previously reviewed by the Buyers and a counsel of their choice, soliciting each
such stockholder's affirmative vote at such stockholder meeting for approval of
the Company's issuance of all of the Securities as described in this Agreement,
and the Company shall use its best efforts to solicit its stockholders' approval
of such issuance of the Securities and cause the Board of Directors of the
Company to recommend to the stockholders that they approve such proposal. If the
Company fails to hold a meeting of its stockholders by the Stockholder Meeting
Deadline, then, as partial relief (which remedy shall not be exclusive of any
other remedies available at law or in equity), the Company shall pay to each
holder of Preferred Shares an amount in cash per Preferred Share equal to the
product of (i) $1,000; multiplied by (ii) .02; multiplied by (iii) the quotient
of (x) the number of days after the Stockholder Meeting Deadline that a meeting
of the Company's stockholders is not held, divided by (y) 30. The Company shall
make the payments referred to in the immediately preceding sentence within five
days of the earlier of (I) the holding of the meeting of the Company's
stockholders, the failure of which resulted in the requirement to make such
payments, and (II) the last day of each 30-day period beginning on the
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate of
2.0% per month (pro rated for partial months) until paid in full.
l. TRANSACTIONS WITH AFFILIATES. So long as any Preferred Shares are
outstanding the Company shall not, and shall cause each of its Subsidiaries not
to, enter into, amend, modify or supplement, or permit any Subsidiary to enter
into, amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiaries' officers, directors, persons
who were officers or directors at any time during the previous two years,
stockholders who beneficially own 5% or more of the Common Stock, or affiliates
or with any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a 5%
or more beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arms-length
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basis on terms no less favorable than terms which would have been obtainable
from a person other than such Related Party, or (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company. "AFFILIATE" for purposes hereof means, with respect to
any person or entity, another person or entity that, directly or indirectly, (i)
has a 5% or more equity interest in that person or entity, (ii) has 5% or more
common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "CONTROL" or
"CONTROLS" for purposes of this Section 4(l) means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
m. CAPITAL AND SURPLUS; SPECIAL RESERVES. The Company agrees that
the capital of the Company (as such term is used in Section 154 of the General
Corporation Law of Delaware) in respect of the Preferred Shares shall be equal
to the aggregate par value of such Preferred Shares and that it shall not
increase the capital of the Company with respect to any shares of the Company's
capital stock at any time on or after the date of this Agreement. The Company
also agrees that it shall not create any special reserves under Section 171 of
the General Corporation Law of Delaware without the prior written consent of
each holder of Preferred Shares. So long as any Preferred Shares remain
outstanding, the Company shall not account for as surplus or transfer to or
otherwise allocate to the Company's surplus account for purposes of the Delaware
General Corporation Law any of the capital represented by the Preferred Shares,
including, without limitation, for the purpose of reducing any of its capital
stock as contemplated by Section 244 of the Delaware General Corporation Law.
The amount to be represented in the capital account for the Series E Convertible
Preferred Stock at all times for each outstanding Preferred Share shall be an
amount equal to the product of (i) the Liquidation Preference (as defined in the
Certificate of Designations) and (ii) 120%.
n. CORPORATE EXISTENCE. So long as a Buyer beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose common stock is listed for trading on the Nasdaq National
Market, NYSE or AMEX.
o. ADDITIONAL ISSUANCE OF PREFERRED STOCK. So long as a Buyers or
any of its Affiliates beneficially owns Preferred Shares or has the right to
acquire any Preferred Shares, the Company shall not issue or agree to issue any
additional shares of Preferred Stock other than in accordance with this
Agreement.
5. TRANSFER AGENT INSTRUCTIONS.
Prior to each applicable Closing, the Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of each Buyer or its
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by each Buyer to the Company upon
conversion of
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the Preferred Shares or exercise of the Warrants (the "IRREVOCABLE TRANSFER
AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and the
Warrant Shares, prior to registration of the Conversion Shares and the Warrant
Shares under the 1933 Act) will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section 5 shall affect in any way
each Buyer's obligations and agreements set forth in Section 2(g) to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel, in a
generally acceptable form, to the effect that a public sale, assignment or
transfer of the Securities may be made without registration under the 1933 Act
or the Buyer provides the Company with reasonable assurances that the Securities
can be sold pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be immediately sold,
the Company shall permit the transfer, and, in the case of the Conversion Shares
and the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by such
Buyer and without any restrictive legend. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section
5, that the Buyers shall be entitled, in addition to all other available
remedies, to an order and/or injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. INITIAL CLOSING DATE. The obligation of the Company hereunder to
issue and sell the Initial Preferred Shares to each Buyer at the Initial Closing
is subject to the satisfaction, at or before the Initial Closing Date, of each
of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the Purchase
Price for the Preferred Shares and the related Warrants being purchased by
such Buyer at the Initial
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Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of
the Initial Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Initial Closing Date.
(v) The stockholders of the Company shall have approved at the March
3, 1999 stockholder meeting the proposal to (a) approve the increase of
the number of authorized shares of Common Stock to 100,000,000 and (b)
approve the issuance of shares of Common Stock upon the conversion of the
Series C Convertible Preferred Stock and the Series D Convertible
Preferred Stock in excess of the Exchange Cap (as defined in the
Certificate of Designations, Preferences and Rights of the Series C
Convertible Preferred Stock).
b. MANDATORY CLOSING DATES. The obligation of the Company hereunder
to issue and sell the Mandatory Preferred Shares to each Buyer at the Mandatory
Closings is subject to the satisfaction, at or before the Mandatory Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the Purchase
Price for the Mandatory Preferred Shares being purchased by such Buyer at
the Mandatory Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of
the Mandatory Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Mandatory Closing Date.
c. ADDITIONAL CLOSING DATES. The obligation of the Company hereunder
to issue and sell the Additional Preferred Shares to each Buyer at each of the
Additional Closings is
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subject to the satisfaction, at or before the respective Additional Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have complied with the requirements of Section
1(d) and the other conditions of Section 1(d) shall have been satisfied.
(ii) Such Buyer shall have delivered to the Company the Purchase
Price for the Additional Preferred Shares being purchased by such Buyer at
the Additional Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of
the Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and such
Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such Buyer at or
prior to the Additional Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. INITIAL CLOSING DATE. The obligation of each Buyer hereunder to
purchase the Initial Preferred Shares at the Initial Closing is subject to the
satisfaction, at or before the Initial Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:
(i) The Company shall have executed each of the
Transaction Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware, and a copy of the Certificate
of Designations that has been certified by such Secretary of State shall
have been delivered to such Buyer.
(iii) The Common Stock shall be authorized for quotation on the
Nasdaq National Market, NYSE or AMEX, trading in the Common Stock issuable
upon conversion of the Initial Preferred Shares shall not have been
suspended by the SEC, The Nasdaq Stock Market, Inc., NYSE or AMEX during
the 10 trading days prior to and including the Initial Closing Date.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Initial Closing Date as
though made at that time (except for representations and warranties that
speak as of a specific date) and the
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Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents or the
Certificate of Designations to be performed, satisfied or complied with by
the Company at or prior to the Initial Closing Date. Such Buyer shall have
received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Initial Closing Date, to the foregoing effect and
an update as of the Initial Closing Date regarding the representations
contained in Section 3(c).
(v) Such Buyer shall have received the opinion of Ryan & Sudan dated
as of the Initial Closing Date in substantially the form of EXHIBIT C
attached hereto (the "RYAN & SUDAN OPINION").
(vi) The Company shall have executed and delivered to such Buyer the
Warrants and the Stock Certificates (in such denominations as such Buyer
shall request) for the Initial Preferred Shares and the Warrants being
purchased by such Buyer at the Initial Closing.
(vii) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to such Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the
exercise of the Warrants, at least 200% of the number of shares of Common
Stock which would be issuable upon conversion in full of the Initial
Preferred Shares to be issued at the Initial Closing and 125% of the
number of shares of Common Stock issuable upon exercise of the Warrants to
be issued at the Initial Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent with a copy forwarded to the
Buyers.
(x) The Company shall have delivered to such Buyer a copy of a
certificate evidencing the incorporation and good standing of the Company
and each subsidiary in such corporation's state of incorporation issued by
the Secretary of State of such state of incorporation as of a date within
ten days of the Initial Closing Date.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate or an assistant secretary's certificate (so long as the
assistant secretary is duly authorized to deliver such certificate)
certifying as to (a) the Resolutions, (b) the Certificate of Incorporation
and (c) Bylaws, each as in effect at the Initial Closing.
(xii) The Company shall have delivered to such Buyer a copy of its
Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware within ten days of the Initial Closing Date.
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(xiii) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Initial Closing
Date.
(xiv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as such Buyer or its counsel may reasonably request.
(xv) Each of Herman Frietsch, Peter Ianace and Philip Sudan shall
have executed and delivered copies thereof to such Buyer agreements which,
during the period beginning on the Initial Closing Date and ending on the
date the Initial Registration Statement (as defined in the Registration
Rights Agreement) is declared effective, prohibit them from (i) selling
the Company's securities for less than $3.25 per share, (ii) selling in
the aggregate (all three combined) in excess of $200,000 and (iii) making
demand on any promissory note or other debt instrument for which the
Company is liable.
(xvi) The stockholders of the Company shall have approved at the
March 3, 1999 stockholder meeting the proposal to (a) approve the increase
of the number of authorized shares of Common Stock to 100,000,000 and (b)
approve the issuance of shares of Common Stock upon the conversion of the
Series C Convertible Preferred Stock and the Series D Convertible
Preferred Stock in excess of the Exchange Cap (as defined in the
Certificate of Designations, Preferences and Rights of the Series C
Convertible Preferred Stock).
b. MANDATORY CLOSING DATES. The obligation of each Buyer hereunder
to purchase the Mandatory Preferred Shares at the Mandatory Closings is subject
to the satisfaction, at or before the Mandatory Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:
(i) The Company shall have complied with the requirements of Section
1(c) as of the Mandatory Closing Date.
(ii) The Certificate of Designations shall be in full force and
effect and shall not have been amended since the Initial Closing Date, and
a copy of the Certificate of Designations that has been certified by the
Secretary of State of the State of Delaware shall have been delivered to
such Buyer.
(iii) The Common Stock shall be authorized for quotation on the
Nasdaq National Market, NYSE or AMEX, trading in the Common Stock issuable
upon conversion of the Additional Preferred Shares shall not be suspended
by the SEC, The Nasdaq Stock Market, Inc., NYSE or AMEX on the Mandatory
Closing Date.
(iv) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Mandatory Closing Date
as though made at that
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time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and
complied with the covenants, agreements and conditions required by the
Transaction Documents or the Certificate of Designations to be performed,
satisfied or complied with by the Company at or prior to the Mandatory
Closing Date. Such Buyer shall have received a certificate, executed by
the Chief Executive Officer of the Company, dated as of the Mandatory
Closing Date, to the foregoing effect and an update as of such Mandatory
Closing Date regarding the representations contained in Section 3(c).
(v) Such Buyer shall have received the Ryan & Sudan Opinion, dated
as of such Mandatory Closing Date.
(vi) The Company shall have executed and delivered to such Buyer the
Warrants and the Stock Certificates (in such denominations as such Buyer
shall request) for the Mandatory Preferred Shares and the Warrants being
purchased by such Buyer at such Mandatory Closing.
(vii) The Board of Directors of the Company shall not have amended
the Resolutions.
(viii) As of such Mandatory Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to at
least 200% of the number of shares of Common Stock which would be issuable
upon conversion in full of the then outstanding Preferred Shares and 125%
of the number of shares of Common Stock which would be issuable upon the
exercise in full of the then outstanding Warrants, including for such
purposes any Mandatory Preferred Shares and Warrants to be issued at such
Mandatory Closing.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent and shall be in effect as of
the Mandatory Closing Date.
(x) The Company shall have delivered to such Buyer a copy of a
certificate evidencing the incorporation and good standing of the Company
and each Subsidiary in such corporation's state of incorporation issued by
the Secretary of State of such state of incorporation as of a date within
ten days of such Mandatory Closing Date.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate or an assistant secretary's certificate (so long as the
assistant secretary is duly authorized to deliver such certificate)
certifying as to (a) the Resolutions, (b) the Certificate of Incorporation
and (c) Bylaws, each as in effect at the Mandatory Closing.
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(xii) The Company shall have delivered to such Buyer a copy of its
Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware within ten days of the Mandatory Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Mandatory Closing
Date.
(xiv) The Registration Statement is declared effective on or before
the date that is 90 days after Initial Closing Date.
(xv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
c. ADDITIONAL CLOSING DATES. The obligation of each Buyer hereunder
to purchase the Additional Preferred Shares at each of the Additional Closings
is subject to the satisfaction, at or before the Additional Closing Dates, of
each of the following conditions, provided that these conditions are for each
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion by providing the Company with prior written consent thereof:
(i) The Certificate of Designations shall be in full force and
effect and shall not have been amended since the Initial Closing Date, and
a copy of the Certificate of Designations that has been certified by the
Secretary of State of the State of Delaware shall have been delivered to
such Buyer.
(ii) The Common Stock shall be authorized for quotation on the
Nasdaq National Market, NYSE or AMEX, trading in the Common Stock issuable
upon conversion of the Additional Preferred Shares shall not have been
suspended by the SEC, The Nasdaq Stock Market, Inc., NYSE or AMEX during
the 10 trading days prior to and including the applicable Additional
Closing Date.
(iii) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the respective
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents or the
Certificate of Designations to be performed, satisfied or complied with by
the Company at or prior to the respective Additional Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of such Additional Closing Date, to the
foregoing effect and an update as of such Additional Closing Date
regarding the representations contained in Section 3(c).
(iv) Such Buyer shall have received the Ryan & Sudan Opinion, dated
as of such Additional Closing Date.
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(v) The Company shall have executed and delivered to such Buyer the
Warrants and the Stock Certificates (in such denominations as such Buyer
shall request) for the Additional Preferred Shares and the Warrants being
purchased by such Buyer at such Additional Closing.
(vi) The Board of Directors of the Company shall not have amended
the Resolutions.
(vii) As of such Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares and the
exercise of the Warrants, a number of shares of Common Stock equal to at
least 200% of the number of shares of Common Stock which would be issuable
upon conversion in full of the then outstanding Preferred Shares and 125%
of the number of shares of Common Stock which would be issuable upon
exercise in full of the then outstanding Warrants, including for such
purposes any Additional Preferred Shares and Warrants to be issued at such
Additional Closing.
(viii) The Irrevocable Transfer Agent Instructions, in the form of
EXHIBIT D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent and shall be in effect as of
such Additional Closing Date.
(ix) The Company shall have delivered to such Buyer a copy of a
certificate evidencing the incorporation and good standing of the Company
and each Subsidiary in such corporation's state of incorporation issued by
the Secretary of State of such state of incorporation as of a date within
ten days of such Additional Closing Date.
(x) The Company shall have delivered to such Buyer a secretary's
certificate or an assistant secretary's certificate (so long as the
assistant secretary is duly authorized to deliver such certificate)
certifying as to (a) the Resolutions, (b) the Certificate of Incorporation
and (c) Bylaws, each as in effect at the Additional Closing.
(xi) During the period beginning on the Additional Share Notice Date
and ending on and including the respective Additional Closing Date, the
Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares on a timely basis as set forth in Section 2(e)(ii) of the
Certificate of Designations.
(xii) The Company shall have delivered to such Buyer a copy of its
Certificate of Incorporation as certified by the Secretary of State of the
State of Delaware within ten days of the Additional Closing Date.
(xiii) The Company shall have delivered to such Buyer a letter from
the Company's transfer agent certifying the number of shares of Common
Stock outstanding as of a date within five days of the Additional Closing
Date.
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(xiv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents, the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents, the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from (i) the execution, delivery, performance or
enforcement of the Transaction Documents or the Certificate of Designations,
(ii) any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities or (iii) solely
the status of such Buyer or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of
the State of Delaware shall govern all issues concerning the relative rights of
the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of New York, borough of Manhattan, for the adjudication
of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby
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irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
b. COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to each other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
e. ENTIRE AGREEMENT; AMENDMENTS. This Agreement supersedes all other
prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the Exhibits, Schedules and other
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least
two-thirds (2/3) of the Preferred Shares then outstanding, and no provision
hereof may be waived other than by an instrument in writing signed by the party
against whom enforcement of such waiver is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
Preferred Shares then outstanding. No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents or the Certificate of Designations unless the
same consideration also is offered to all of the parties to the Transaction
Documents or holders of Preferred Shares, as the case may be.
f. NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated
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and kept on file by the sending party); or (iii) one business day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: (972)367-2100
Facsimile: (972) 367-2271
Attention: Herman M. Frietsch
With a copy to:
RYAN & SUDAN, L.L.P.
Two Houston Center
909 Fannin Street, 39th Floor
Houston, Texas 77010
Telephone: (713) 652-0501
Facsimile: (713) 652-0503
Attention: Philip P. Sudan, Jr., Esq.
If to the Transfer Agent:
AMERICAN STOCK TRANSFER & TRUST COMPANY
6201 15th Avenue, 3rd Floor
Brooklyn, NY 11219
Telephone: (718) 921-8247
Facsimile: (718) 921-8323
Attention: Wilbert Myles
If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers, with copies to such Buyer's representatives as set forth on
the Schedule of Buyers, or at such other address and/or facsimile number and/or
to the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
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g. SUCCESSORS AND ASSIGNS. The rights under this Agreement shall not
be assignable by the holders of Preferred Shares without the prior written
consent of the Company. Notwithstanding the foregoing, the rights under this
Agreement shall be assignable by the holders of Preferred Shares, without the
consent of the Company, to any Permitted Transferee (as defined below) upon the
transfer of all or any portion of Preferred Shares if: (i) the holders of
Preferred Shares agrees in writing with the Permitted Transferee to assign such
rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of the
name and address of such Permitted Transferee; (iii) at or before the time the
Company receives the written notice contemplated by clause (ii) of this sentence
the Permitted Transferee agrees in writing with the Company to be bound by all
of the provisions contained herein; and (iv) such transfer shall have been made
in accordance with the applicable requirements of the Transaction Documents. Any
attempted assignment without the prior written consent of the Company, other
than to an Permitted Transferee shall be void and without effect. A "PERMITTED
TRANSFEREE" shall mean (i) a Buyer, (ii) an Affiliate (as such term is defined
in this Agreement) of a Buyer, (iii) any holder of Preferred Shares and (iv) any
Affiliate of a holder of Preferred Shares.
h. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. SURVIVAL. Unless this Agreement is terminated under Section 9(l),
the representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and 9,
and the indemnification provisions set forth in Section 8, shall survive each of
the Closings regardless of any investigation made by or on behalf of the such
Buyer or by or on behalf of the Company. Each Buyer shall be responsible only
for its own representations, warranties, agreements and covenants hereunder.
j. PUBLICITY. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. TERMINATION. In the event that the Initial Closing shall not have
occurred with respect to a Buyer on or before March 12, 1999 to the Company's or
such Buyer's failure
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<PAGE>
to satisfy the conditions set forth in Sections 6 and 7 above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)), the
nonbreaching party shall have the option to terminate this Agreement with
respect to such breaching party at the close of business on such date without
liability of any party to any other party; provided, however, that if this
Agreement is terminated pursuant to this Section 9(l), the Company shall remain
obligated to reimburse the non-breaching Buyers for the expenses described in
Section 4(i) above.
m. PLACEMENT AGENT. The Company acknowledges that it has engaged
Overlook Consulting, L.L.C. as placement agent in connection with the sale of
the Preferred Shares, which placement agent may have formally or informally
engaged other agents on its behalf. The Company shall be responsible for the
payment of any placement agent's fees or broker's commissions relating to or
arising out of the transactions contemplated hereby which agents or brokers have
been or are alleged to have been engaged by the Company. The Company shall pay,
and hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorneys' fees and out-of-pocket expenses) arising in
connection with any such claim. Each Buyer, severally and not jointly,
represents and warrants that it has not engaged any placement agent or broker in
connection with the acquisition of the Securities. Each Buyer, severally and not
jointly, shall pay and hold the Company harmless for any liability, loss or
expense (including, without limitation, attorneys' fees and out-of-pocket
expense) arising in connection with any clams for placement agent fees or broker
commissions which agents or brokers have been or are alleged to have been
engaged by such Buyer.
n. NO STRICT CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. REMEDIES. Each Buyer and each holder of the Securities shall have
all rights and remedies set forth in the Transaction Documents and the
Certificate of Designations and all rights and remedies which such holders have
been granted at any time under any other agreement or contract relating to the
subject matter hereof and all of the rights which such holders have under any
law. Any person or entity having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
p. PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or Warrants or the Buyers enforce or exercise their rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other Person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
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<PAGE>
*** REST OF PAGE INTENTIONALLY LEFT BLANK ***
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<PAGE>
IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
COMPANY: BUYERS:
INTELECT COMMUNICATIONS, INC. HFTP INVESTMENT LLC
By: Promethean Investment Group L.L.C.
Its: Investment Manager
By: _____________________________ By: _________________________________
Name: Herman M. Frietsch Name: James F. O'Brien, Jr.
Its: Chief Executive Officer Its: President
WINGATE CAPITAL LTD.
By: _________________________________
Name:
Its:
FISHER CAPITAL LTD.
By: _________________________________
Name:
Its:
NP PARTNERS (FORMERLY KNOWN AS NELSON
PARTNERS)
By: _________________________________
Name:
Its:
OLYMPUS SECURITIES, LTD.
By: _________________________________
Name:
Its:
<PAGE>
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT - P. 2 OF 3]
CCG CAPITAL LTD.
By: _________________________________
Name:
Its:
CCG INTERNATIONAL FUND LTD.
By: _________________________________
Name:
Its:
LEONARDO, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By: _________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: ANGELO, GORDON & CO., L.P.
Its: Investment Advisor
By: _________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: ANGELO, GORDON & CO., L.P.
Its: General Partner
By: _________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE>
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT - P. 3 OF 3]
RAPHAEL, L.P.
By: _______________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
RAMIUS FUND, LTD.
By: AG RAMIUS PARTNERS, L.L.C.
Its: Investment Advisor
By: _______________________________
Name: Michael L. Gordon
Its: Managing Officer
<PAGE>
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
INITIAL MANDATORY
INVESTOR ADDRESS PREFERRED PREFERRED INVESTOR'S REPRESENTATIVES'
INVESTOR NAME AND FACSIMILE NUMBER SHARES SHARES ADDRESS AND FACSIMILE NUMBER
- ------------------- -------------------------------------- --------- --------- -----------------------------
<S> <C> <C> <C> <C>
HFTP Investment LLC c/o Promethean Investment Group, L.L.C. 0 1,500 Katten Muchin & Zavis
750 Lexington Avenue, 22nd Floor 525 West Monroe, Suite 1600
New York, New York 10022 Chicago, Illinois 60661-3693
Attention: James F. O'Brien, Jr. Attention: Robert J. Brantman, Esq.
Facsimile: (212) 758-9334 Facsimile: (312) 902-1061
Telephone: (212) 702-5200 Telephone: (312) 902-5200
Residence: New York
Wingate Capital Ltd. c/o Citadel Investment Group, L.L.C. 342 0 Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Residence: Cayman Islands
Fisher Capital Ltd. c/o Citadel Investment Group, L.L.C. 664 0 Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Residence: Cayman Islands
NP Partners c/o Citadel Investment Group, L.L.C. 1,228 0 Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Residence: Bermuda
Olympus Securities, c/o Citadel Investment Group, L.L.C. 688 0 Katten Muchin & Zavis
Ltd. 225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Residence: Bermuda
CCG International c/o Citadel Investment Group, L.L.C. 39 0 Katten Muchin & Zavis
Fund Ltd. 225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
INITIAL MANDATORY
INVESTOR ADDRESS PREFERRED PREFERRED INVESTOR'S REPRESENTATIVES'
INVESTOR NAME AND FACSIMILE NUMBER SHARES SHARES ADDRESS AND FACSIMILE NUMBER
- ------------------- -------------------------------------- --------- --------- -----------------------------
<S> <C> <C> <C> <C>
CCG Capital Ltd. c/o Citadel Investment Group, L.L.C. 39 0 Katten Muchin & Zavis
225 West Washington Street 525 West Monroe Street
Chicago, Illinois 60606 Chicago, Illinois 60661-3693
Attention: Michael J. Hughes Attention: Robert J. Brantman, Esq.
Facsimile: (312) 338-0780 Facsimile: (312) 902-1061
Telephone: (312) 338-7800 Telephone: (312) 902-5200
Leonardo, L.P. c/o Angelo, Gordon & Co., L.P. 0 1,000 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
GAM Arbitrage c/o Angelo, Gordon & Co., L.P. 0 100 Angelo, Gordon & Co., L.P.
Investments, 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
Inc. New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: British Virgin Islands
AG Super Fund c/o Angelo, Gordon & Co., L.P. 0 100 Angelo, Gordon & Co., L.P.
International 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
Partners, L.P. New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
Raphael, L.P. c/o Angelo, Gordon & Co., L.P. 0 100 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Cayman Islands
Ramius Fund, Ltd. c/o Angelo, Gordon & Co., L.P. 0 200 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attention: Gary Wolf or Ari Storch Attention: Gary Wolf or Ari Storch
Facsimile: (212) 867-6449 Facsimile: (212) 867-6449
Telephone: (212) 692-2035 Telephone: (212) 692-2035
Residence: Bermuda
</TABLE>
<PAGE>
LIST OF SCHEDULES
SCHEDULE 3(a) Subsidiaries
SCHEDULE 3(c) Capitalization
SCHEDULE 3(e) Conflicts
SCHEDULE 3(f) SEC Documents; Financial Statements
SCHEDULE 3(g) Material Changes
SCHEDULE 3(h) Litigation
SCHEDULE 3(j) Undisclosed Liability
SCHEDULE 3(l) Integrated Offerings
SCHEDULE 3(n) Intellectual Property
SCHEDULE 3(p) Liens
SCHEDULE 3(t) Tax Status
SCHEDULE 3(aa) Materially Adverse Contracts
LIST OF EXHIBITS
EXHIBIT A Form of Certificate of Designations,
Preferences and Rights of the Preferred
Shares
EXHIBIT B Form of Registration Rights Agreement
EXHIBIT C Form of Company Counsel Opinion
EXHIBIT D Form of Irrevocable Transfer Agent
Instructions
EXHIBIT E Form of Warrant
EXHIBIT 10.2
LOAN AGREEMENT FOR
INVENTORY BACKED BORROWING
THIS LOAN AGREEMENT (this "AGREEMENT") made and entered into as of the
24th day of November 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 has an existing line of credit with Lender under a Loan
Agreement for Receivables Backed Borrowing dated September 14 1998, secured by
Accounts of the Designated Subsidiaries and 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 a
secured interest in the Inventory of the Pledgors as provided herein and in a
Security Agreement for Inventory 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 1.01 DEFINITIONS. As used in this Loan Agreement, the following
terms shall have the following meanings:
"ACCOUNTS" means the accounts or notes receivable arising from the sale of
Inventory in the ordinary course of business.
"ADVANCE" means an advance of funds under and subject to the terms and
conditions of this Agreement, in increments of $250,000, 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.
<PAGE>
"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.
"CAPITAL STOCK" shall mean all common and preferred stock of the Borrower,
but shall not include preferred stock subject to mandatory redemption
requirements.
"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.
"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.
"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, or any
other agreement between Borrower and Lender.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement between St.
James and Lender dated September 14, 1998.
-2-
<PAGE>
"INVENTORY" shall have the meaning given in Section 2.02 of this
Agreement.
"INVENTORY BACKED BORROWINGS" shall have the meaning given in Section 2.02
of this Agreement.
"INVENTORY LOAN BALANCE" shall have the meaning given in Section 2.02 of
this Agreement.
"LENDER" shall mean The Coastal Corporation Second Pension Trust.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN" shall mean any sum extended under the Agreement, as it may be
amended from time to time.
"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 $750,000.
"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.
"OPINION" means the Opinion of counsel to the Borrower in the form of
which is attached hereto as EXHIBIT B, dated of even date herewith.
-3-
<PAGE>
"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
in the Inventory which are subordinate to those of Lender, securing the
Borrower's indebtedness to St. James.
"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, dated September
14, 1998 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 Designated Subsidiaries, subject to the Intercreditor
Agreement, 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.
-4-
<PAGE>
"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.
"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 C, 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 Inventory 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 December 31, 1998.
"TRANSACTION DOCUMENTS" means this Loan Agreement, the Note, and the
Security 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;
(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;
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(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.
(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, and (iii) the
principal amount of such proposed Advance. 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.
Section 2.02 THE ADVANCES. Lender agrees, during the continuance of this
Agreement, to make Advances to Borrower, against that inventory of the
Designated Subsidiaries that Lender, in its reasonable discretion, deems
eligible for borrowing, including raw materials, parts, sub-assemblies and
completed products, together with any instruments, chattel paper, and general
intangibles relating thereto (collectively, "INVENTORY") and which is pledged as
security for such Advances under the terms of the Security Agreement ("INVENTORY
BACKED BORROWING"). 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 "INVENTORY LOAN BALANCE." If Borrower's
Inventory Loan Balance shall at any time exceed eighty percent (80%) the
aggregate value of the raw materials component of the Inventory, Lender may
demand, on one (1) 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.
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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. 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 Inventory together with any instruments,
chattel paper, and general intangibles relating thereto 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").
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.
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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 instruments and (ii) specimen signatures of the
officers so authorized.
(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) Schedules of Inventory Borrower's Requests for Advances.
(b) Statements of the Accounts of all Designated Subsidiaries, with
a weekly aged accounts receivable trial balance.
(c) 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 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
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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 of Borrower and the Consolidated Subsidiaries 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 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
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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
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
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normal year-end audit adjustments with respect to the unaudited quarterly
statements described in SUBSECTION 4.01(B) hereof.
(d) INFORMATION. All reports and information required by Section
2.10 hereof and under the Security Agreement, and such other information
regarding the Inventory 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 one (1) Business Day's notice 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.
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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 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
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(h) DISCONTINUANCE OF BUSINESS. The Borrower, Intelect Network
Technologies Company , DNA Enterprises, Inc., or Intelect Visual Communications
Corp. discontinues its business; or
(i) ERISA DEFAULT. A Plan fails to maintain the qualifications for
any Plan required by ERISA, and there shall result from any such event or events
either liability or a material risk of incurring liability to the PBGC or to a
Plan, which would have a Material Adverse Effect; or
(j) CROSS DEFAULT. Borrower is in Default under any of the
other Transaction Documents.
Section 6.02 REMEDIES. Upon the happening of any Event of Default
specified in SECTION 6.01 hereof, the Lender may by written notice to the
Borrower declare (i) all Loans then outstanding to be immediately due and
payable without presentment, demand, protest, notice of protest, or dishonor or
other notice of Default of any kind, all of which are hereby expressly waived by
the Borrower, and/or (ii) all obligations, if any, of the Lender hereunder to be
immediately terminated.
Section 6.03 RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Lender is hereby authorized at any time
and from time to time, without notice to the Borrower (any such notice being
expressly waived by the Borrower), to set-off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by the Lender to or for the credit or the
account of the Borrower against any and all of the Indebtedness of the Borrower,
irrespective of whether the Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured. The Lender
agrees promptly to notify the Borrower after any such set-off and application,
provided that the failure to give such notice shall not affect the validity of
such set-off and application. In addition, the Lender recognizes and agrees, and
any other holder of the Note by acceptance hereof shall be deemed to agree, that
any and all balances, credits, deposits, accounts or moneys of the Borrower now
or hereafter with the Lender or other holder shall, at the direction of the
Borrower, be applied to the payment and prepayment of any obligation of the
Borrower to the Lender or other holder hereunder.
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 M. Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr., Esq.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
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
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Telecopy:713-877-7071
Attention: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone713-877-6920
Telecopy:713-877-7132
Attention: Director, Financial Administration
Director, Corporate Law
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.
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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 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 - 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.
[Signature Page Follows]
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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
Chairman & CEO Senior Vice President
The Coastal Corporation
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<PAGE>
LOAN AGREEMENT
EXHIBIT A
PROMISSORY NOTE
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LOAN AGREEMENT
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
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LOAN AGREEMENT
EXHIBIT C
SECURITY AGREEMENT
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ADDENDUM TO THE
LOAN AGREEMENT FOR INVENTORY BACKED BORROWING
THIS ADDENDUM to the LOAN AGREEMENT FOR INVENTORY BACKED BORROWING among
THE COASTAL CORPORATION SECOND PENSION TRUST, (hereinafter "COASTAL"), and
INTELECT COMMUNICATIONS, INC., (hereinafter "ICI", collectively, the "PARTIES"),
is effective as of December 31, 1998.
WHEREAS, COASTAL has loaned Seven Hundred Fifty Thousand Dollars
($750,000) to ICI under the Loan Agreement for Inventory Backed Borrowing dated
November 24, 1998 ("Loan Agreement"), Note and Security Agreement of the same
date; and
WHEREAS, Maturity under the Loan Agreement, Note and Security Agreement of
December 31, 1998, was extended by letter dated December 31, 1998 to February 1,
1999; and
WHEREAS, the Parties desire to amend the Loan Agreement in accordance with
its terms, including the receipt of consents, to provide for a change in terms
or repayment and to extend the Maturity Date to May 1, 1999, at which time the
balance of principle and interest shall be immediately due and payable to
COASTAL;
NOW THEREFORE, in consideration for the mutual covenants set forth herein,
agree as follows:
1. TERMS DEFINED
A. The definitions used herein have the meaning attributed to
them in the Loan Agreement unless otherwise defined herein.
2. AMENDMENT
A. The terms "Maturity Date" and "Termination Date" are amended to
read "May 1, 1999". The Parties agree that all terms and conditions of the
Agreements, including accrual of interest, shall apply as if the Maturity Date
had been defined as May 1, 1999, AB INITIO.
B. Section 2.01(a) is amended to read as follows:
(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. Each
Advance shall be made in accordance with the procedures set forth in this
Section. All Advances shall be due and payable as specified in Section
2.01(e)
C. Section 2.01(e) is amended to read as follows:
(e) The Loan and all Advances hereunder shall be repaid as follows:
(i) March 1, 1999, $250,000 plus accrued interest.
(ii) April 1, 1999, $250,000 plus accrued interest.
(iii) May 1, 1999, $250,000, plus accrued interest, plus
all other unpaid Obligations under the
Note or the Loan Agreement.
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.
3. FURTHER AMENDMENTS
COASTAL and ICI agree that all other provisions of the Loan Agreement
shall remain unchanged and in full force and effect; provided that the Parties
may agree to further amendment or modification to the Loan Agreement but only if
evidenced by a writing signed by or on behalf of COASTAL and ICI, subject to
receipt of any consents or authorizations required by the Agreements.
<PAGE>
IN WITNESS WHEREOF the Parties have executed this Addendum as of the day
and year indicated above.
INTELECT COMMUNICATIONS, INC. THE COASTAL CORPORATION SECOND
PENSION TRUST
By: ______________________________ By: ______________________________
Herman M. Frietsch Donald H. Gullquist
Chairman and CEO Trustee
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EXHIBIT 10.3
SECURITY AGREEMENT FOR
INVENTORY BACKED BORROWING
THIS SECURITY AGREEMENT FOR INVENTORY BACKED BORROWING (this "AGREEMENT")
made and entered into as of the 24th day of November 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 Inventory 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 $750,000, 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 2.02 of this
Agreement.
"ACCOUNT DEBTOR" shall have the meaning given in Section 2.02 of this
Agreement.
"ADVANCE" means an advance of funds under and subject to the terms and
conditions of this Agreement, 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.
"CUSTODIAN" means Chase Bank of Texas, its successors and assigns.
"DEFAULT" has the meaning given in the Loan Agreement.
"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.
<PAGE>
"EFFECTIVE DATE" has the meaning given that term in the introduction to
this Security Agreement.
"EVENT OF DEFAULT" has the meaning given in the Loan Agreement.
"FRAUDULENT CONVEYANCE" has the meaning given in Section 2.08 hereof.
"INDEBTEDNESS" shall mean all principal, interest and fees owing by the
Borrower to the Lender in connection with the Note or the Loan Agreement ,or any
other agreement between Borrower and Lender.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement between St.
James and Lender dated September 14, 1998.
"INVENTORY" shall have the meaning given in Section 2.01.
"INVENTORY LOAN BALANCE" shall have the meaning given in 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 Inventory Backed
Borrowing between ICI and Secured Party 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.
"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.
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"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.
"SECURED PARTY" has the meaning given that term in the introduction to
this Security Agreement.
"SECURITY" has the meaning assigned in Section 2.02.
"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, 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
inventory of raw materials, parts, sub-assemblies and completed products,
together with any instruments, chattel paper, and general intangibles relating
thereto (collectively, "INVENTORY") 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. This continuing general lien and security interest shall
extend to all proceeds and collections arising from all Inventory, all
guaranties and other security given for all Inventory and all right, title, and
interest in the merchandise that is created from such Inventory. 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 arisen from any Inventory. The
Inventory, proceeds, collections, guaranties, other security, and all right,
title, and interest in the merchandise arising from the Inventory 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 books and records relating to the Security. The obligors on
Pledgor's accounts or notes receivable arising from the sale of Inventory in the
ordinary course of business ("ACCOUNTS") are sometimes called the "Account
Debtor" or the "Account Debtors" in this Agreement. Except for the sale of
Inventory to Pledgor's customers in the ordinary course of business or 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 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.
2.04 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.
2.05 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.
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2.06 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.
2.07 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.
2.08 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 AND RECORDS
3.01 ADVANCES. Secured Party agrees, during the continuance of this
Agreement, to make Advances to ICI, against the Inventory 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 Inventory 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 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.
3.04 INVENTORY RECORDS. Pledgor shall give Secured Party each month, a
statement of additions to and deliveries from Inventory. Pledgor and ICI shall
give Secured Party such other information regarding the Inventory 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. REPRESENTATIONS, WARRANTIES, AND COVENANTS
4.01 INVENTORY. Pledgor and ICI covenant and agree that:
(a) Pledgor will deliver to the Secured Party, as the Secured Party
requires, any document, lists, descriptions, certificates, and other information
necessary or proper to keep the Secured Party fully informed with respect to the
description of the Security, including, in the case of accounts, the name of
each account debtor and the amount and age of each account.
(b) Pledgor will fully cooperate with any inventory verification
service designated by Secured Party to make audits of the Security and Pledgor's
accounting and business procedures.
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(c) On notice from Secured Party, each person or entity obligated to
make any payments to Pledgor with respect to any Security is authorized and
directed by Pledgor to make payment directly to the Secured Party. However,
until and unless the Secured Party gives such notice, Pledgor is to:
(i) Promptly collect all sums payable as a result of the
sale of the Security;
(ii) Segregate all proceeds of the Security from any other
funds, holding them in trust for the Secured Party, with
proceeds becoming part of Security, immediately on
receipt by the Pledgor;
(iii) Deliver any payment received in respect of any Security
immediately to the Secured Party, properly endorsed, to
the extent of any payment due and owing to
the Secured Party.
4.02 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.
4.03 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.
4.04 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.
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
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sums advanced and all reasonable expenses incurred in such actions plus interest
in accordance with the Loan Agreement.
4.05 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,
interest payment or other distribution in respect of the Security or any part
thereof and to give full discharge for the same.
4.06 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.
4.07 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, and except for the lien in the Security claimed by St. James which is
subordinate to the lien of Secured Party.
SECTION 5. DEFAULT
5.01 EVENTS OF DEFAULT. Upon the occurrence and continuation of an Event
of Default beyond any applicable cure periods as provided in the Note and/or the
Loan Agreement, Secured Party may declare all Obligations immediately due and
payable.
5.02 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 and/or the Loan Agreement, 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.
5.03 ANCILLARY RIGHTS. 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.
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5.04 RECEIVERSHIP. 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.
5.05 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.
5.06 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.
5.07 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 6. FORECLOSURE ON SECURITY
6.01 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.
6.02 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.
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6.03 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.
6.04 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 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.
6.05 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.
6.06 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 hereunder; 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.
6.07 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.
6.08 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.
6.09 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.
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SECTION 7. MISCELLANEOUS
7.01 NOTICES. 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.
To ICI or PLEDGOR:INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman M. Frietsch, Chairman and CEO
with a copy to: Philip P. Sudan, Jr., Esq.
RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor,
Houston, Texas 77010;
Telephone: 713-652-0501
Telecopy: 713-652-0503
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6825
Telecopy: 713-877-7071
Attention: Corporate Secretary
with a copy to: THE COASTAL CORPORATION
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-6920
Telecopy: 713-877-7132
Attention: Director, Financial Administration, and
Director, Corporate Law
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
7.02 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 7.02,
shall inure to the benefit of the successors and permitted assigns of each of
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the parties. The provisions of this Security Agreement are intended to be
for the benefit of all Persons constituting Secured Party.
7.03 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.
(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.
7.04 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.
7.05 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.
7.06 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.
7.07 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.
7.08. 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.
*
Signature Page Follows
*
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<PAGE>
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 Chairman and CEO
The Coastal Corporation
PLEDGOR: INTELECT NETWORK TECHNOLOGIES COMPANY
By: _______________________________
Title: ____________________________
PLEDGOR: DNA ENTERPRISES, INC.
By: ______________________________
Title: ___________________________
PLEDGOR: INTELECT VISUAL COMMUNICATIONS CORP.
By: ______________________________
Title: ___________________________
-11-
EXHIBIT 10.4
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
AMENDED AND RESTATED AS OF DECEMBER 31, 1998
$750,000.00 NOVEMBER 24, 1998
For value received, INTELECT COMMUNICATIONS, INC., a Delaware corporation
("ICI" or the "MAKER"), promises and agrees to pay on or before May 1, 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 principal sum of SEVEN
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($750,000.00) together with all
outstanding interest and/or other obligations of Maker, all as set forth below
and in the Loan Agreement. Capitalized terms used herein shall have the meaning
attributed to them in the Loan Agreement between Maker and Holder of even date
herewith.
The principal sum of the Loan shall be due and payable as follows:
March 1, 1999, $250,000 plus accrued interest.
April 1, 1999, $250,000 plus accrued interest.
May 1, 1999, $250,000, plus accrued interest, plus all other unpaid
Obligations under the Note or the Loan
Agreement.
The Maker agrees to pay interest, in like money, on the unpaid principal
amount owing hereunder at the Prime Rate plus the Margin Percentage. Such
accrued interest shall be due and payable as aforesaid.
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. The Obligations of the Maker contained in this Note are secured by
the Security Agreement.
Each Maker and any and each co-maker, endorser, guarantor and surety 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 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 Security Agreement, between Maker and Holder,
each dated November 24, 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 November 24, 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
Chairman & CEO
-2-
EXHIBIT 10.5
ADDENDUM TO THE
LOAN AGREEMENT FOR RECEIVABLES BACKED BORROWING
THIS ADDENDUM to the LOAN AGREEMENT FOR RECEIVABLES BACKED BORROWING among
THE COASTAL CORPORATION SECOND PENSION TRUST, (hereinafter "COASTAL"), and
INTELECT COMMUNICATIONS, INC., (hereinafter "ICI", collectively, the "PARTIES"),
is effective as of January 13, 1999.
WHEREAS, COASTAL has loaned Five Million Dollars ($5,000,000) to ICI under
the Loan Agreement for Receivables Backed Borrowing dated September 14, 1998
("Loan Agreement"), Note and Security Agreement of the same date ("Coastal
Receivables Facility"); and
WHEREAS, the Loan Agreement, Note and Security Agreement mature on
August 31, 1999;
WHEREAS, St. James has provided a loan to ICI, as evidenced by those
certain Convertible Promissory Notes dated effective April 2, 1998 (the "St.
James Notes"), which Notes are secured by the Common Stock of DNA Enterprises,
Inc. ("DNA"), Intelect Visual Communications Corporation ("IVC"), and Intelect
Network Technologies Company ("INT"), pursuant to that certain Borrower Pledge
Agreement dated February 12, 1998, (as amended the "St. James Pledge
Agreement");
WHEREAS, it is a condition of the St. James Notes that the maturity date
of February 12, 1999, may be extended for a period of one year only if the
Maturity Date of the Coastal Receivables Facility is extended to the same date;
WHEREAS, the Parties desire to amend the Loan Agreement in accordance with
its terms, including the receipt of consents, to extend the Maturity Date to
February 12, 2000, at which time the balance of principal and interest shall be
immediately due and payable to COASTAL;
NOW THEREFORE, in consideration for the mutual covenants set forth herein,
agree as follows:
1. TERMS DEFINED
The definitions used herein have the meaning attributed to them
in the Loan Agreement unless otherwise defined herein.
2. AMENDMENT
The term "Termination Date" is amended to read "February 12, 2000".
The Parties agree that all terms and conditions of the Agreements, including
accrual of interest, shall apply as if the Maturity Date had been defined as
herein, AB INITIO.
3. FURTHER AMENDMENTS
COASTAL and ICI agree that all other provisions of the Loan Agreement
shall remain unchanged and in full force and effect; provided that the Parties
may agree to further amendment or modification to the Loan Agreement but only if
evidenced by a writing signed by or on behalf of COASTAL and ICI, subject to
receipt of any consents or authorizations required by the Agreements.
IN WITNESS WHEREOF the Parties have executed this Addendum as of the day
and year indicated above.
INTELECT COMMUNICATIONS, INC. THE COASTAL CORPORATION SECOND
PENSION TRUST
By: ___________________________ By: ________________________________
Herman M. Frietsch Donald H. Gullquist
Chairman and CEO Trustee
EXHIBIT 10.6
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
AMENDED AND RESTATED AS OF JANUARY 13, 1999
$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 February 12,
2000, (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 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.
<PAGE>
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, as amended from time to time.
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
Chairman & CEO
-2-
<PAGE>
PROMISSORY NOTE
SEPTEMBER 14, 1998
AMENDED AND RESTATED AS OF JANUARY 13, 1999
SCHEDULE OF PAYMENTS
NAME OF
AMOUNT OF UNPAID PERSON
ACCRUED PRINCIPAL PRINCIPAL MAKING
DATE INTEREST REPAYMENT BALANCE ADVANCES NOTATION
- -------------------------------------------------------------------------------
-3-
