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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) August 13, 1999
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INTELECT COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 0-11630 76-0471342
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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1100 Executive Drive, Richardson, Texas 75081
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 367-2100
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N/A
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
Intelect Communications, Inc. (the "Company") announced that effective
August 13, 1999, it completed the recapitalization of its outstanding
indebtedness and entered into an amended and restated credit facility to provide
an additional borrowing capacity to the Company to fund future operations and
provide working capital. The recapitalization involved the restructuring of
certain indebtedness owed by the Company to its primary lenders--The Coastal
Corporation Second Pension Trust ("Coastal"), and St. James Capital Partners,
L.P. ("SJCP") and SJMB, L.P.("SJMB"; SJCP and SJMB collectively "St. James").
Coastal converted $3 million of debt owed by the Company to Coastal
into 2,777,778 shares of Common Stock (the "Coastal Repayment Shares") at an
effective exchange price of $1.08. As part of the recapitalization, Coastal and
the Company amended the Company's credit facility to increase the borrowing
capacity under such facility to $12 million. The facility will continue to be
secured by the stock of the Company's material subsidiaries (i.e., DNA
Enterprises, Inc., Intelect Visual Communications Corp. and Intelect Network
Technologies Company), as well as the Company's and the subsidiaries' accounts
receivable and inventory. The borrowing base under the amended facility is 80%
of the Company's "Eligible Accounts" and "Inventory" (each as defined in the
credit facility), at the discretion of Coastal. The credit facility has an
interest rate of "prime" (as defined) plus 3.5%, with interest being payable
quarterly beginning on September 30, 1999. The maturity date of the credit
facility was extended to July 31, 2000. All principal and any accrued interest
on the facility is payable on the maturity date. If the Company's loan balance
exceeds the borrowing base, Coastal may demand that the Company pay such excess
amount to Coastal or deliver additional security to Coastal. In addition, if an
"Eligible Account" is more than 90 days past due, Coastal may require the
Company to pay down the balance of the outstanding loans by the amount past due
or deliver additional security to Coastal. In connection with the amendment, the
Company agreed to issue to Coastal a warrant (the "New Warrant") to purchase
1,073,077 shares of Common Stock at an exercise price of $1.30 and issued a
repriced warrant (the "Repriced Warrant") to purchase 450,000 shares of Common
Stock at an exercise price of $1.30 (the New Warrant and the Repriced Warrant
collectively the "Coastal Warrants"). The amended facility contains certain
covenants and agreements which prohibit the Company from (i) incurring any
additional indebtedness, (ii) entering into agreements which restrict or
prohibit the ability of the Company to place certain liens on the Company's
property in favor of Coastal, (iii) declaring or paying any dividends or making
any distributions on its capital stock (other than dividends or distributions
payable in capital stock or dividends on its preferred stock) or from redeeming
or repurchasing any of its capital stock (other than its preferred stock), (iv)
incurring certain liens on the assets of the Company or its material
subsidiaries, (v) transferring its material patents, copyrights, licenses,
permits, and other rights necessary to conduct its business, (vi) entering into
certain mergers or consolidations unless the surviving entity is in compliance
with the covenants in the credit facility, assumes the obligations of the
Company, and is organized in the United States, (vii) selling or
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transferring all or substantially all of its fixed assets (including those of
its material subsidiaries), (viii) entering into certain plans of liquidation,
and (ix) entering into certain sale and leaseback transactions. An event of
default occurs in the event of certain defaults on other indebtedness, failure
to pay the required principal and interest when due, the inaccuracy of any
representations or warranties in the loan agreement or in any information
furnished by the Company to Coastal which results in a material adverse effect,
breaches of the covenants of the Company, certain events of bankruptcy,
receivership, or assignments for the benefits of creditors, the discontinuation
of the business of the Company's material subsidiaries, certain ERISA defaults,
or defaults under the other loan documents.
St. James agreed to exchange certain of the outstanding indebtedness
which the Company owed to St. James for shares of Common Stock. SJCP agreed to
accept an aggregate of 2,364,346 shares of Common Stock in repayment for $2
million of indebtedness owed to SJCP (the "Initial Exchange Shares"). In
addition, upon the effectiveness of a registration statement on Form S-3
covering the resale of the shares of Common Stock, St. James will exchange an
additional $1 million of indebtedness for Common Stock at a price equal to the
lesser of $1.08 or 66 2/3% of the "Market Price" (defined as the average of the
Closing Bid Prices as reported by Nasdaq on the date of determination) on the
effective date of the S-3 (the "Mandatory Exchange Shares"). In addition, the
Company and St. James also agreed that St. James will be entitled to exchange
the remaining balance on the indebtedness owed to St. James into equity based on
a price equal to the greater of $1.08 or 66 2/3% of the Market Price on the date
of the exchange (the "Optional Exchange Shares"). The resale of the shares of
common stock issuable to St. James and Coastal are covered by separate
registration rights agreements which are attached as exhibits to this Form 8-K.
In the case of St. James, the maximum number of shares which the
Company is required to issue is subject to Nasdaq Rule 4406(i), which prohibits
the Company from issuing shares of common stock equal to 20% or more of the
outstanding common stock if the issuance price is less than book or market value
absent stockholder approval (the "Nasdaq 20% Rule"). If the Company were to
reach the maximum number of shares it could issue under the Nasdaq 20% Rule
without obtaining stockholder approval, it agrees to use its best efforts to
obtain such stockholder approval within 75 days after such occurrence.
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:
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Exhibit Description of Exhibit
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10.1 Agreement to Amend Receivables and Inventory Backed Credit
Lines
10.2 Amended and Restated Loan Agreement for Receivables and
Inventory Backed Borrowing dated as of August 13, 1999
between the Company and Coastal
10.3 Promissory Note as amended and restated as of August 13,
1999 issued by the Company to Coastal
10.4 Security and Pledge Agreement dated August 13, 1999 among
the Company, Intelect Visual Communications Corp.,
Intelect Network
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<TABLE>
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Technologies Company, DNA Enterprises, Inc., and Coastal.
10.5 Form of Warrant in favor of Coastal
10.6 Registration Rights Agreement between the Company and
Coastal
10.7 Repayment and Exchange Agreement between the Company and
St. James
10.8 Registration Right Agreement between the Company and St.
James
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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.
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(Registrant)
Date: August 17, 1999 By: /s/ HERMAN M. FRIETSCH
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(Signature)
Herman M. Frietsch
Chairman of the Board and CEO
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EXHIBIT INDEX
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Exhibit Description of Exhibit
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10.1 Agreement to Amend Receivables and Inventory Backed Credit
Lines
10.2 Amended and Restated Loan Agreement for Receivables and
Inventory Backed Borrowing dated as of August 13, 1999
between the Company and Coastal
10.3 Promissory Note as amended and restated as of August 13,
1999 issued by the Company to Coastal
10.4 Security and Pledge Agreement dated August 13, 1999 among
the Company, Intelect Visual Communications Corp.,
Intelect Network Technologies Company, DNA Enterprises,
Inc., and Coastal.
10.5 Form of Warrant in favor of Coastal
10.6 Registration Rights Agreement between the Company and
Coastal
10.7 Repayment and Exchange Agreement between the Company and
St. James
10.8 Registration Right Agreement between the Company and St.
James
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EXHIBIT 10.1
AGREEMENT TO AMEND
RECEIVABLES- AND INVENTORY-BACKED CREDIT LINES
THIS AGREEMENT TO AMEND RECEIVABLES- AND INVENTORY-BACKED CREDIT LINES
(this "Agreement") made and entered into as of August 13,1999 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, Lender and Borrower entered into a LOAN AGREEMENT FOR
RECEIVABLES BACKED BORROWING dated September 14, 1998 as amended by Addendum
dated January 13, 1999, and Second Addendum dated July 16, 1999 (the
"Receivables Facility"); and
WHEREAS, Lender and Borrower entered into a LOAN AGREEMENT FOR
INVENTORY BACKED BORROWING dated November 24, 1998 as amended by Addendum dated
December 31, 1998 (the "Inventory Facility"); and
WHEREAS, Borrower has an existing line of credit with St. James Capital
Partners, L.P. and SJMB, L.P. (collectively, "St James"); and
WHEREAS, Borrower seeks additional debt funding for its working capital
requirements and is willing to issue Warrants for the acquisition of the Common
Stock of Borrower as further inducement for the issuance of this facility;
WHEREAS, Lender is willing to accept Common Stock of the Borrower in
partial payment of the debt under the Receivables and Inventory Facilities, as
amended and restated (the "Loan Agreement"); and
WHEREAS, Lender is willing to continue to loan funds to Borrower to
meet its current working capital requirements on a secured basis, including
security for the loan in (1) the pledge of the Pledged Securities; (2) a
collateral assignment of Accounts of the Designated Subsidiaries; and (3) a
secured interest in the Inventory of the Designated Subsidiaries, all as
provided herein and in a Security, Assignment and Pledge Agreement among Lender,
Borrower and its Designated Subsidiaries of even date herewith, and subject to
the Intercreditor Agreement with St. James;
WHEREAS, Borrower and Lender desire to memorialize their intention to
combine and amend the Receivables Facility and the Inventory Facility, reduce
the current balance of the credit lines by the sale of Common Stock of the
Borrower to Lender and application of the proceeds to the loan balance, to
advance additional funds, and to issue and reprice warrants;
NOW, THEREFORE, for and in consideration of the premises, and the
mutual covenants and agreements herein contained, the Borrower and the Lender
agree as follows:
ARTICLE 1
GENERAL TERMS
Section 1.01 Definitions. The terms used herein shall have the meanings
given in the Loan Agreement.
ARTICLE 2
AMENDED TERMS OF TRANSACTION DOCUMENTS
Section 2.01 The Loan Agreement. Subject to the terms and conditions
and relying on the representations and warranties contained in this Agreement,
Borrower and Lender agree to the following:
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(a) Subject to the terms hereof, Borrower and Lender agree to
amend and restate the Receivables Facility and the Inventory Facility as a
single loan facility, to permit borrowing up to a total of eighty percent (80%)
of the Inventory and Eligible Accounts, to increase the credit line thereunder
to a total of Twelve Million Dollars ($12,000,000), based on the combined
lending base of Accounts and Inventory, and to extend the Maturity Date and
Termination Date to July 31, 2000. All other terms of the facilities shall
remain unchanged.
(b) The Notes currently outstanding shall be amended and
restated as a single instrument consistent with the Amended and Restated
Facility
Section 2.02 The Security Agreement.
(a) Subject to the terms hereof, Borrower and Lender agree to
amend and restate the Security Agreement for Receivables Backed Borrowing and
the Security Agreement for Inventory Backed Borrowing as a single agreement. The
Amended and Restated Security Agreement shall be an extension and renewal of the
existing recorded and perfected security interests of the Lender.
ARTICLE 3
REPAYMENT
Section 3.01 Debt Reduction. Borrower and Lender agree to convert Three
Million Dollars ($3,000,000) in Indebtedness under the Note and Loan Agreement
to Common Stock of the Borrower at the closing of this agreement, provided that
St. James converts at least Two Million Dollars ($2,000,000) of Borrower's debt
at the same time.
Section 3.02 Shares Issued. Borrower shall issue to Lender 2,777,778
shares of Common Stock in repayment of Three Million Dollars ($3,000,000) in
principal under the Advances (the "Repayment Shares").
ARTICLE 4
WARRANTS
Section 4.01 Warrants. As an inducement to enter this Agreement, but
for which Lender would not do, Borrower agrees to issue to Lender Warrants to
purchase 1,067,308 shares of Common Stock at a price per share of ONE AND 30/100
DOLLARS ($1.30). Borrower agrees to issue a Warrant in the form of Exhibit A.
Section 4.02 Reissued Warrants. As a further inducement, Borrower
agrees to reissue to Lender the Warrants issued on August 27, 1997 at an
exercise price per share of Six Dollars ($6.00). The exercise price shall be the
same as for the Warrants issued under section 4.01, and the number of Warrants
shall be adjusted for dilution as specified in the Warrant. (The Warrants issued
under section 4.01 and 4.02 are referred to herein collectively as the
"Warrants").
Section 4.03 Registration Rights. Borrower further agrees to register
the resale of the shares of Common Stock to be issued in accordance with Article
3 in accordance with the Registration Rights Agreement attached hereto as
Exhibit B, provided that the registration statement shall be filed with the
Securities and Exchange Commission not later than ten (10) days following the
Effective Date, and Borrower shall seek to make the registration effective
within sixty (60) days of filing.
ARTICLE 5
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 closing) that:
Section 5.01 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.
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Section 5.02 Authorization; No Conflict. The execution and delivery of
this Agreement, the execution and delivery of the Note and the performance by
the Borrower of its obligations under this Agreement, the Loan Agreement and the
Note are within the Borrower's corporate powers, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approvals (if any shall be required) and do not and will not contravene or
conflict with any rule, regulation, decree or order or provision of law or of
the charter or by-laws of the Borrower or of any material agreement binding upon
the Borrower or any of its properties, except to the extent any such consent or
approval has been obtained or waived, and delivered to Lender.
Section 5.03 Binding Obligations. This Agreement constitutes the legal
valid and binding obligation of the Borrower, enforceable in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally or under general principles of equity.
Section 5.04 Defaults. Except as disclosed to the Lender, neither the
Borrower nor any Subsidiary is in Default in any respect which has or would have
a Materially Adverse Effect on 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 5.05 Outstanding Common Stock. As of August 10, 1999, there
were 48,885,278 shares of Common Stock outstanding, including 191,435 shares in
treasury.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF LENDER
Section 6.01 Lender hereby represents and warrants to the Company as
follows:
(a) Organizational Status; Authority; Enforceability; No
conflicts; etc. Lender is a trust, duly formed under the laws of the State of
Texas, and has all requisite power and authority to enter into and perform its
obligations under this Agreement. The execution and delivery of this Agreement
and the consummation of the transactions hereunder have been duly authorized by
all required action. This Agreement has been duly executed and delivered on
behalf of Lender and is a legal, valid and binding obligation, enforceable in
accordance with its terms, subject to applicable bankruptcy and insolvency laws
and general principles of equity. This Agreement does not conflict with any of
Lender's organizational documents or partnership agreement, or any other
contract or agreement to which it is a party, or any law, rule or regulation
binding on or applicable to Lender.
(b) Investment Intent. Lender is acquiring the Repayment
Shares, the Warrants and the share of Common Stock issuable upon exercise of the
Warrants (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 thereof, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein, it
does not agree to hold any of the Repayment Shares or Warrant Shares for any
minimum or other specific term and reserves the right to dispose of the
Repayment Shares or Warrant Shares at any time in accordance with or pursuant to
a registration statement or an exemption under the Securities Act, except as
otherwise provided in this Agreement.
(c) Accredited Investor Status. Lender is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
(d) Reliance on Exemptions. Lender understands that the
Repayment Shares, the Warrants and the Warrant Shares are being issued 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 Lender's compliance with, the
representations and warranties of Lender in order to determine the availability
of such exemptions and the eligibility of Lender to acquire the Repayment
Shares, the Warrants and the Warrant Shares.
(e) Information. Lender and its advisors, if any, have been
afforded the opportunity to ask questions of the Company, including its
management. Lender 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 Repayment Shares, the Warrants and the Warrant Shares. Lender
acknowledges that:
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(i) it has access to copies of (and acknowledges that
the Company has offered to provide, upon its request, copies
of) the Company's filings with the Securities Exchange
Commission (collectively, the "Public Documents");
(ii) it understands that the acquisition of Common
Stock entails various risks including, but not limited to,
those outlined in the Public Documents and in this Agreement,
and has determined that the Repayment Shares and the Warrants
are a suitable investment and that at this time it could bear
a complete loss of its investment; and
(iii) any information which Lender has heretofore
represented or furnished to the Company with respect to its
financial sophistication is correct and complete as of the
date of this Agreement.
(g) No Governmental Review. Lender 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 Repayment Shares,
the Warrants or the Warrant Shares or the fairness or suitability of the
investment in the Repayment Shares, the Warrants or the Warrant Shares nor have
such authorities passed upon or endorsed the merits of the offering.
(h) Transfer or Resale. Lender understands that except as
provided herein: (i) the Repayment Shares, the Warrants and the Warrant Shares
have not been registered under the Securities Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered, (B) Lender shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that the
Repayment Shares, the Warrants and the Warrant Shares to be sold, assigned or
transferred may be sold, assigned or transferred pursuant to an exemption from
such registration, or (C) Lender provides the Company with reasonable assurance
that such Repayment Shares, the Warrants or the Warrant Shares can be sold,
assigned or transferred pursuant to Rule 144 promulgated under the Securities
Act, as amended (or a successor rule thereto)("Rule 144"); and (ii) any sale of
the Repayment Shares, the Warrants or the Warrant Shares 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 Repayment Shares, the Warrants
or the Warrant Shares 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 SEC
thereunder; and (iii) except as expressly provided in this Agreement or the
Registration Rights Agreement, neither the Company nor any other person is under
any obligation to register such shares under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
Section 6.02 Lender acknowledges that the Repayment Shares, the
Warrants and the Warrant Shares shall be issued with the following restrictive
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW (COLLECTIVELY, THE "ACTS"). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL (1) SUCH SECURITIES HAVE BEEN
REGISTERED UNDER THE ACTS OR (2) THE HOLDER OF SUCH SECURITIES PROVIDES
THE COMPANY WITH (a) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL,
WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION
UNDER THE ACTS OR (b) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE COMPANY THAT THE PROPOSED DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
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ARTICLE 7
COVENANTS
Until the expiration or termination of this Agreement and thereafter
until all obligations of the Borrower under the Transaction Documents are
performed or paid in full, without the consent of the Lender, the Borrower will
not:
Section 7.01 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
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 7.02 Payment of Dividends. Borrower shall not 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 7.03 Registration. Borrower shall file a registration statement
for the Common Stock issued in accordance with this Agreement, including the
Common Stock to be issued on exercise of the Warrants, with the Securities and
Exchange Commission not later than ten (10) days following the Effective Date,
and Borrower shall seek to make the registration effective within sixty (60)
days of filing.
ARTICLE 8
EVENTS OF DEFAULT
Section 8.01 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
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(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 bankruptcy or seeks relief under any provision of
any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, or consents to the filing of
any such petition under any such law; or
(g) Assignments for Benefit of Creditors, Etc. The Borrower or
any Material Subsidiary makes an assignment for the benefit of its creditors, or
admits its inability to pay its debts as they become due, or consents to the
appointment of a receiver, custodian, trustee or liquidator of the Borrower or
any Material Subsidiary or of all or any part of its respective Property; or
(h) Discontinuance of Business. The Borrower, Intelect Network
Technologies Company , DNA Enterprises, Inc., or Intelect Visual Communications
Corp. discontinues its business; or
(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 8.02 Remedies. Upon the happening of any Event of Default
specified in Section 7.01 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 8.03 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 9
MISCELLANEOUS
Section 9.01 Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
Parties hereto shall be deemed to have been duly given or made when delivered to
the party to which such notice, request, demand or other communication is
required or permitted to be given or made under this Agreement or the Note,
addressed to such party at its address set forth below or at such other address
as either of the Parties hereto may hereafter notify the other in writing.
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<PAGE> 7
To Borrower: INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr., Esq.
To Lender: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-7640
Telecopy: 713-297-1734
Attention: Donald H. Gullquist, Trustee
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
Section 9.02 Benefit of Agreement. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the Parties hereto; provided, however, the 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 9.03 Survival of Representations. All representations and
warranties of the Borrower herein shall survive the effective date of this
Agreement.
Section 9.04 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 9.05 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 9.06 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 9.07 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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<PAGE> 8
Section 9.08 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 9.09 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 9.10 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 9.11 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 9.12 Entire Agreement. This Agreement, including the Exhibits
attached hereto and the documents delivered pursuant hereto, constitutes the
entire agreement between the Parties with respect to the subject matter of this
Agreement and supersedes all previous communications, representations,
understandings, and agreements, either oral or written, between the Parties with
respect to the subject matter.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH ANY OF THE MAKERS OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Parties have caused this instrument to be
executed as of the date first above written.
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
-8-
<PAGE> 9
LOAN AGREEMENT
EXHIBIT A
WARRANT
<PAGE> 10
LOAN AGREEMENT
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED LOAN AGREEMENT FOR
RECEIVABLES- AND INVENTORY-BACKED BORROWING
THIS AMENDED AND RESTATED LOAN AGREEMENT FOR RECEIVABLES- AND
INVENTORY-BACKED BORROWING (this "Agreement") made and entered into as August
13, 1999 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, Lender and Borrower entered into a LOAN AGREEMENT FOR
RECEIVABLES BACKED BORROWING dated September 14, 1998 as amended by Addendum
dated January 13, 1999, and Second Addendum dated July 16, 1999 (the
"Receivables Facility"); and
WHEREAS, Lender and Borrower entered into a LOAN AGREEMENT FOR
INVENTORY BACKED BORROWING dated November 24, 1998 as amended by Addendum dated
December 31, 1998 (the "Inventory Facility"); and
WHEREAS, Borrower has an existing line of credit with St. James Capital
Partners, L.P. and SJMB, L.P. (collectively, "St James"); and
WHEREAS, Borrower seeks additional debt funding for its working capital
requirements and is willing to issue Warrants for the acquisition of the Common
Stock of Borrower as further inducement for the issuance of this facility;
WHEREAS, Lender is willing to loan funds to Borrower to meet its
current working capital requirements on the terms and conditions herein,
including security for the loan in (1) the pledge of the Pledged Securities; (2)
a collateral assignment of Accounts of the Borrower and the Designated
Subsidiaries; and (3) a secured interest in the Inventory of the Borrower and
the Designated Subsidiaries, all as provided herein and in a Security and Pledge
Agreement among Lender, Borrower and its Designated Subsidiaries of even date
herewith, and subject to the Intercreditor Agreement with St. James;
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" shall have the meaning given in Section 2.04(a) of this
Agreement.
"Advance" means an advance of funds under and subject to the terms and
conditions of this Agreement, in increments of $50,000, with a minimum advance
of $100,000, 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. Section 101, et seq. and Bankruptcy shall have the
meaning given in the Bankruptcy Code.
"Borrower" shall mean Intelect Communications, Inc. ("ICI").
<PAGE> 2
"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.; and Intelect Visual Communications Corp.
"Borrowing Base" shall have the meaning given in Section 2.02 of this
Agreement.
"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 Communications Systems
Limited; Intelect Network Technologies Company (formerly, Intelect Inc.); DNA
Enterprises, Inc.; and Intelect Visual Communications Corp.
"Custodian" means Chase Bank of Texas, its successors and assigns.
"Debt" means, for any Person, (a) all Obligations required by GAAP to
be classified upon a balance sheet as liabilities, (b) liabilities secured by
any Lien existing on Property owned or acquired by that Person, (c) Obligations
that have been (or under GAAP should be) capitalized for financial reporting
purposes, (d) all accrued Obligations of such Person in respect of any contract,
agreement or instrument imposing an Obligation upon such Person to pay over
funds; (e) all trade debt of such Person; (f) all guaranties, endorsements and
other contingent Obligations with respect to Debt of others, and (g) all
deferrals, renewals, extensions and refunding of, and amendments, modifications
and supplements to, any of the indebtedness referred to in (a) through (f)
above.
"Debtor Relief Laws" shall mean the Bankruptcy Code and all other
applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of Debt, compromise, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
"Default" shall mean the occurrence of any of the events specified in
Article 6 hereof, whether or not any requirement for notice or lapse of time or
other condition precedent has been satisfied.
"Default Rate" means a rate per annum equal to the lesser of (a) the
Prime Rate in effect on such day plus five percent ---- (5.0%) and (b) the
Highest Lawful Rate.
"Designated Subsidiaries" means Intelect Network Technologies Company;
DNA Enterprises, Inc.; and Intelect Visual Communications Corp.
"Eligible Accounts" means Accounts of commercial customers of the
Borrower and the Designated Subsidiaries created and deemed collectible in the
normal course of business on normal commercial terms in Lender's judgment.
"ERISA" means 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.
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<PAGE> 3
"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.
"Intercreditor Agreement" means the Amended and Restated Intercreditor
Agreement between St. James and Lender dated November 24, 1998
"Interest Payment Date" shall mean, the last day of each March, June,
September and December.
"Inventory" shall mean raw materials, parts, sub-assemblies and
completed products, together with any instruments, chattel paper, and general
intangibles relating thereto .
"Inventory Backed Borrowings" shall have the meaning given in Section
2.02(b)(ii) 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 Twelve Million Dollars ($12,000,000).
"Maker" means the maker of the Note.
"Margin Percentage" shall mean Three and One-half Percent (3.5%) which
is added to the Prime to determine the applicable interest rate on the Note.
"Material Adverse Effect" means (i) a material and adverse effect on
the business, Properties, operations or condition (financial or otherwise) or
prospects of Borrower 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, 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(b) 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.
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<PAGE> 4
"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.
"Overdue Account" shall have the meaning given in Section 2.02(a)(iii).
"Parties" shall have the meaning given in the Preamble.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens now or hereafter securing the Note;
(b) pledges or deposits made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or benefits or
to participate in any fund in connection with workers' compensation,
unemployment insurance, pensions, or other social security programs; (c)
good-faith pledges or deposits made to secure performance of bids, tenders,
contracts (other than for the repayment of borrowed money), or leases, or to
secure statutory obligations, surety or appeal bonds, or indemnity, performance,
or other similar bonds in the ordinary course of business; (d) Liens for taxes
and Liens imposed by operation of law (including Liens of mechanics,
materialmen, warehousemen, carriers and landlords), if (i) no amounts are due
and payable and no Lien has been filed (or agreed to), or (ii) the validity or
amount secured thereof is being contested in good faith by lawful proceedings
diligently conducted, reserves required by GAAP have been made, and levy and
execution thereon have been (and continue to be) stayed or payment thereof is
covered in full (subject to the customary deductible) by insurance; (e) Liens
currently in existence; (f) Liens covering purchase money debt incurred to
finance equipment or inventory in the ordinary course of business; and (g) Liens
securing the indebtedness to St. James as provided in Section 2.04(b).
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof, or any other form of
entity.
"Plan" shall mean any multi-employer plan or single employer plan, as
defined in Section 4001 and subject to Title IV of ERISA, which is maintained,
or at any time during the five (5) calendar years preceding the date of this
Agreement was maintained, for employees of the Borrower or a Subsidiary.
"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 Security 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 Designated Subsidiaries (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; and
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(4) (i) all dividends (cash, stock or otherwise), cash,
instruments, rights to subscribe, purchase or sell and all other rights and
Property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such securities, (ii) all
replacements, additions to and substitutions for any of the Property referred to
in this definition, including, without limitation, claims against third parties,
(iii) the proceeds, interest, profits and other income of or on any of the
Property referred to in this definition, and (iv) all books and records relating
to any of the Property referred to in this definition.
"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 Security and insurance payable or
damages or other payments by reason of loss or damage to 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.
"Public Filings" means all documents filed by the Borrower with the
Securities and Exchange Commission including all filings made under the
Securities Exchange Act of 1934 and all registration statements filed under the
Securities Act of 1933.
"Receivables Backed Borrowings" shall have the meaning given in Section
2.02(a)(i) of this Agreement.
"Receivables Loan Balance" shall have the meaning given in Section
2.02(a)(ii) of this Agreement.
"Repayment Shares" means the 2,777,778 shares of Common Stock issued to
Lende in repayment of Three Million Dollars ($3,000,000) in principal under the
Advances on the Effective Date.
"Request for Advance" shall have the meaning given in Section 2.01(c)
of this Agreement.
"Security" means the security granted, assigned and pledged under the
Security Agreement.
"Security Agreement" means the Security and Pledge Agreement, the form
of which is attached hereto as Exhibit E, dated of even date herewith, as
originally executed or as it may from time to time be supplemented, modified or
amended, executed by Borrower in favor of the Lender pursuant to which Borrower
and the Designated Subsidiaries grant to the Lender security interests in (1)
the Pledged Securities; (2) the Accounts of the Designated Subsidiaries; and (3)
the Inventory of the Designated Subsidiaries.
"Security Interest" has the meaning assigned to that term in Section
2.04.
"St James" means St. James Capital Partners, L.P. and SJMB, L.P. and
affiliates.
"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 July 31, 2000.
"Transaction Documents" means this Loan Agreement, the Note, the
Security Agreement, the Warrants and the Registration Rights Agreement.
Section 1.02 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
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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.
Section 1.03 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;
(viii) with respect to the determination of any period of
time, the word "from" means "from and including" and the word
"to" means "to, but excluding";
(ix) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from
time to time; and
(b) No provision of this Agreement shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
ARTICLE 2
AMOUNT AND TERMS OF LOAN
Section 2.01 The Loan. Subject to the terms and conditions and relying
on the representations and warranties contained in this Agreement, the Lender
agrees to make the following Loan to the Borrower:
(a) Subject to the terms hereof, the Lender agrees to make
advances (collectively, the "Advances") to the Borrower, at any time and from
time to time on and after the date of the Note to, but excluding, the Maturity
Date, up to a principal amount not to exceed the Loan Maximum. All Advances
shall mature and be due and payable in full on the Maturity Date.
Each Advance shall be made in accordance with the procedures set forth in this
Section.
(b) To evidence the Loan made by the Lender pursuant to this
Section, the Borrower will execute and deliver the Note dated as of the date of
this Agreement and payable on or before the Termination Date. Interest on the
Note shall be payable quarterly on each Interest Payment Date beginning
September 30, 1999, and on the Termination Date, as it accrues on the principal
amount from time to time outstanding, at the rate provided in Section 2.03
hereof.
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<PAGE> 7
(c) In order to effect an Advance, the Borrower shall submit a
"Request for Advance" in writing or by telecopy (or telephone notice promptly
confirmed in writing or by telecopy) to the Lender not later than 10:00 a.m.,
Houston, Texas time, on the borrowing date specified in the Request for Advance
for such proposed Advance. Such Request for Advance shall refer to this
Agreement and specify (i) in sufficient detail, the corporate use of the
proceeds of such proposed Advance, (ii) the Business Day upon which the proceeds
of such proposed Advance are to be made available to the Borrower, (iii) the
principal amount of such proposed Advance, and (iv) the calculation of the
amount receivable under the Eligible Accounts required by Section 2.02. Each
Advance is discretionary, and is subject to the satisfaction of the Lender that
on the date such Advance is to be made, no Default or Event of Default then
exists (both before and after giving effect to the making of such proposed
Advance).
(d) Borrower shall have the right at any time and from time to
time to prepay the Advances, in whole or in part, without penalty or premium,
upon at least two (2) Business Days prior written or telecopy notice or
telephone notice promptly confirmed in writing to the Lender.
(e) The Loan and all Advances hereunder shall be repaid on its
Maturity Date in a single installment together with any accrued but unpaid
interest then due and payable with respect to such Loan. On the Termination
Date, the aggregate unpaid principal amount then outstanding, together with
accrued interest thereon and any other amounts payable hereunder shall be due
and payable in full.
(f) Subject to the limitations set forth herein, in Lender's
sole discretion, Borrower may borrow, repay and reborrow hereunder, without
limitation on the number of Advances made hereunder so long as the total unpaid
principal amount at anytime outstanding does not exceed the Loan Maximum.
Section 2.02 The Advances. Lender agrees, during the continuance of
this Agreement, to make Advances to Borrower against that Inventory and those
Accounts that Lender, in its reasonable discretion, deems eligible for
borrowing, as follows:
(a) Advances may be requested by Borrower as provided herein
for up to eighty percent (80%) of the sum of the face amount of the Eligible
Accounts plus the book value of Inventory, not to exceed the Loan Maximum
(collectively, the "Borrowing Base"). The remainder, being not less than twenty
percent (20%) of the Eligible Accounts, and all other Accounts, and all
Inventory, shall be held as a reserve to secure the collection and payment of
the Advances and to secure the payment and performance of all Obligations.
Subject to the terms and conditions of this Agreement, Lender shall disburse
each Advance on the acceptance of the Accounts and Inventory by Lender, under
the terms of the Security Agreement ("Inventory Backed Borrowing").
(b) The aggregate amount of Borrower's Indebtedness and
Obligations to Lender incurred pursuant to this Section 2.02(a) shall, from time
to time, be called in this Agreement the "Loan Balance." If Borrower's Loan
Balance shall at any time exceed the Borrowing Base, Lender may demand, on five
(5) Business Days prior written notice, that Borrower pay such excess to Lender
or may require Borrower to deliver immediately to Lender such additional
security as may be satisfactory to Lender.
(c) If an Eligible Account shall not be paid within ninety
(90) days of the invoice due date ("Overdue Account"), Lender may demand, on
five (5) Business Days prior written notice, that Borrower pay down the balance
of outstanding Loans by the amount of such Overdue Account (to the extent that
Lender deems the remaining Eligible Accounts inadequate security for the
Receivables Loan Balance) or may require Borrower to deliver immediately to
Lender such additional security as may be satisfactory to Lender, and such
Account shall no longer be included in the Borrowing Base.
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 the following security
interests (the "Security Interest"):
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(a) a continuing general lien and security interest in all of
Borrower's accounts receivable together with any instruments, chattel paper, and
general intangibles (including without limitation contract rights) relating
thereto (collectively called "Accounts") that now exist or are currently owned
by Borrower or are later owned or acquired by Borrower, including in all
Proceeds thereof.
(b) a continuing general lien and security interest in all of
Borrower's inventory together with any instruments, chattel paper, and general
intangibles relating thereto (collectively called "Inventory") that now exist or
are currently owned by Borrower or are later owned or acquired by Borrower,
including in all Proceeds thereof .
(c) a continuing general lien and security interest in the
stock of Intelect Network Technologies Company, DNA Enterprises, Inc. and
Intelect Visual Communications Corp. ("Pledged Securities"). Borrower
acknowledges that the stock of the Consolidated Subsidiaries has a current value
in excess of the amount of the initial Loan contemplated under this Agreement.
Borrower agrees to grant a Security Interest in such collateral under the terms
of the Security Agreement (a) to facilitate future borrowings under this
Agreement as it may be amended from time to time; (b) in light of the volatility
of such collateral; and (c) to permit Lender to elect remedies in the event of a
Default.
Section 2.05 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 (other than loan obligations owed to the Lender), 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 Procedures. 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.
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Section 2.08 Business Days. If the date for any payment due hereunder
falls on a day which is not a Business Day, then for all purposes of the Note
and this Agreement the same shall be deemed to have fallen on the next following
Business Day.
Section 2.09 Conditions to Advances. The obligation of the Lender to
make an Advance under the Loan evidenced by the Note is subject to the
satisfaction of the following conditions:
(a) Note. The Borrower shall have duly and validly authorized,
executed and delivered the Note in the form attached hereto as Exhibit A to the
Lender.
(b) Officer's Certificates. The Lender shall have received
certificates of an Officer of the Borrower setting forth (i) resolutions of its
Board of Directors in form and substance satisfactory to the Lender with respect
to the authorization of the Note and this Agreement and the officers of the
Borrower authorized to sign such instruments, (ii) specimen signatures of the
officers so authorized, and (iii) a statement of the Eligible Accounts
supporting prior period Advances and a monthly aging thereof, together with a
schedule of those Eligible Accounts which support Borrower's Request for
Advance.
(c) Consents. The Lender shall have received the consent of
St. James to the Liens and security interests granted under this Agreement for
the benefit of Lender, and to the changes to the Loan Documents.
(d) No Default. The Lender shall have received certificates of
an Officer of the Borrower stating no Default shall have occurred and be
continuing which in any respect could have a Material Adverse Effect on the
Borrower and there shall not have occurred and be continuing any condition,
event or act which constitutes an Event of Default under any instrument
evidencing borrowed money to which the Borrower is bound.
(e) Good Standing. As a condition to the making of the initial
Advance, Lender shall have received from Borrower a certificate of good standing
for Borrower and its Material Subsidiaries.
(f) Opinion of Counsel. As a condition to the making of the
initial Advance, Lender shall have received from counsel of the Borrower, an
Opinion addressed to the Lender and dated the date of such Loan covering the
matters set forth in Exhibit B, hereto.
Section 2.10 Reports and Information. Borrower shall provide Lender
with information and periodic reports, including the following:
(a) Statements of the Eligible Accounts supporting Borrower's
Requests for Advances.
(b) Statements of the Eligible Accounts supporting prior
period Advances and a monthly aging thereof.
(c) Statements of the Accounts of all Designated Subsidiaries,
with a weekly aged accounts receivable trial balance.
(d) Statements of accounts with each bank to which deposits of
accounts receivable are made.
(e) Statements reconciling payments of Accounts with bank
deposits.
(f) Statements demonstrating compliance with the requirements
of Section 2.02 hereof.
(g) Such other information as Lender may reasonably request.
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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 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
1998 fiscal year and the unaudited consolidated interim Financial Statements of
the Borrower and its Consolidated Subsidiaries for its most recently ended
fiscal quarter (for which such annual or quarterly Financial Statements are
available) (the "Financial Statements"), which have been delivered to the
Lender, are complete and correct in all material respects, have been prepared in
accordance with GAAP, consistently applied, and present fairly the consolidated
financial condition and results of the operations of the Borrower and its
Consolidated Subsidiaries as at the date or dates and for the period or periods
stated (subject only to normal year-end audit adjustments with respect to such
unaudited interim statements). No material adverse change has since occurred in
the consolidated financial condition or operations of the Borrower and its
Consolidated Subsidiaries except as otherwise disclosed to the Lender.
Section 3.05 Defaults. Except as disclosed to the Lender, neither the
Borrower nor any Subsidiary is in Default in any respect which materially and
adversely affects the consolidated business, Property, operations or financial
condition of the Borrower and its Consolidated Subsidiaries under any instrument
evidencing borrowed money to which the Borrower or a Subsidiary is a party or by
which it is bound.
Section 3.06 Use of Proceeds; Margin Stock. None of the proceeds of the
Note will be used for the purpose of, and the Borrower is not engaged in the
business of extending credit for the purpose of, purchasing or carrying any
"margin stock" as defined in Regulation U of the Board of Governors of the
Federal Reserve System (12 C.F.R. Part 21), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry a
margin stock or for any other purpose which might constitute this transaction a
"purpose credit" within the meaning of said Regulation U.
Section 3.07 Tax Returns and Payments. To the best of the Borrower's
knowledge, each has (i) filed all tax returns which it is required to file,
where the failure to file such returns would have a Material Adverse Effect on
the consolidated financial condition or operations of the Borrower and its
Consolidated Subsidiaries, and (ii) paid, or has provided adequate reserves for
the payment of all material federal and state income taxes applicable for all
prior fiscal years and for the current fiscal year down to the date hereof.
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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 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.
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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
normal year-end audit adjustments with respect to the unaudited quarterly
statements described in Subsection 4.02 hereof.
(d) Account Information. All reports and information required
by Section 2.10 hereof and under the Security Agreement, and such other
information regarding the Accounts as Lender may reasonably request.
Section 4.03 Legal Existence. The Borrower will, and will cause each
Material Subsidiary to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its legal existence, rights and franchises;
provided, however, that nothing in this Section 4.03 shall prevent (i) the
withdrawal by the Borrower or any Material Subsidiary of its qualification as a
foreign corporation in any jurisdiction, or (ii) a consolidation or merger
permitted by other provisions of this Agreement. The Borrower will use, and will
cause each Material Subsidiary to use, its best efforts to comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its Property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls).
Section 4.04 Insurance. The Borrower shall maintain, and cause each
Material Subsidiary to maintain, insurance on its Property against such risks
and in substantially the same amounts as are currently maintained, including,
without limitation, general liability and workers' compensation insurance.
Section 4.05 Maintenance of Property. The Borrower shall cause all
material Property owned by or leased to the Borrower or any Material Subsidiary
and used or useful in the conduct of the Borrower's business or the business of
any Material Subsidiary to be maintained and kept in normal condition, repair
and working order and supplied with all necessary equipment and cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Borrower or such Material Subsidiary may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Borrower or any Material Subsidiary
from discontinuing the use, operation or maintenance of any such Property, or
disposing of any such Property, if such discontinuance or disposal is, in the
judgment of the board of directors, board of trustees or managing partners of
the Material Subsidiary concerned, or of any officer (or other agent employed by
the Borrower or any of its Material Subsidiaries) of the Borrower or such
Material Subsidiary having managerial responsibility for any such Property,
desirable in the conduct of the business of the Borrower or any Material
Subsidiary, and if such discontinuance or disposal is not disadvantageous in any
material respect to the Lender.
Section 4.06 Inspection of Property; Books and Records; Discussions.
Upon reasonable request by the Lender, the Borrower shall permit representatives
of the Lender, upon at least two (2) Business Days prior written notice to a
financial officer of the Borrower and subject to assertions of attorney-client
privilege and to confidentiality obligations reasonably necessary to protect
proprietary information, to visit the offices of the Borrower and its
Subsidiaries, to inspect, under guidance of officers of the Borrower, any of its
Property and examine and make copies or abstracts from any of its books and
records at any reasonable time and as often as may reasonably be desired, and to
discuss the business, operations, prospects, licenses, Property and financial
condition of the Borrower and its Subsidiaries with the officers thereof.
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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.
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
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<PAGE> 14
(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 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
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<PAGE> 15
(y) the fair value (as determined in any manner approved by the Board of
Directors) of such Property. The provisions of this Section shall not prevent a
sale or transfer of any Property with a lease for a period, including renewals,
of not more than thirty-six (36) months.
Section 5.09 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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<PAGE> 16
(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
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr., Esq.
To Lender: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-7640
Telecopy: 713-297-1734
Attention: Donald H. Gullquist, Trustee
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<PAGE> 17
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
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. All representations and warranties of the
Borrower herein shall survive the effective date of this Agreement.
Section 7.04 Renewal, Extension or Rearrangement. All provisions of
this Agreement relating to the Note shall apply with equal force and effect to
each and all promissory notes hereinafter executed which in whole or in part
represent a renewal, extension for any period, increase or rearrangement of the
Note.
Section 7.05 Invalidity. In the event that any one or more of the
provisions contained in the Note or this Agreement shall, for any reason, be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of the Note
or this Agreement.
Section 7.06 Amendment or Waiver. This Agreement may not be amended,
changed, waived, discharged or terminated without the written consent of the
Borrower and the Lender.
Section 7.07 No Waiver; Remedies Cumulative. No failure or delay on the
part of the Borrower or the Lender in exercising any right, power or privilege
hereunder and no course of dealing between the Borrower and the Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under the Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein expressly provided are cumulative and
not exclusive of any rights or remedies which the Borrower or the Lender would
otherwise have.
Section 7.08 Interest. It is the intention of the Parties hereto to
conform strictly to applicable usury laws as presently in effect. Accordingly,
if the transactions contemplated hereby would be usurious under applicable law
(including the laws of the United States of America and the law of any
jurisdiction whose laws are mandatorily 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
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<PAGE> 18
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 and Pledge Agreement
Section 7.13 Entire Agreement. This Agreement, including the Exhibits
attached hereto and the documents delivered pursuant hereto, constitutes the
entire agreement between the Parties with respect to the subject matter of this
Agreement and supersedes all previous communications, representations,
understandings, and agreements, either oral or written, between the Parties with
respect to the subject matter.
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH ANY OF THE MAKERS OR ANY OF
THEIR RESPECTIVE SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Parties 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> 19
LOAN AGREEMENT
EXHIBIT A
PROMISSORY NOTE
<PAGE> 20
LOAN AGREEMENT
EXHIBIT B
OPINION OF COUNSEL FOR THE BORROWER
<PAGE> 21
LOAN AGREEMENT
EXHIBIT C
SECURITY AND PLEDGE AGREEMENT
<PAGE> 1
EXHIBIT 10.3
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 AUGUST 13, 1999
$12,000,000.00 SEPTEMBER 14, 1998
For value received, INTELECT COMMUNICATIONS, INC., a Delaware
corporation ("ICI" or the "Maker"), promises and agrees to pay on or before July
31, 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 TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00); 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 $12,000,000.00.
Capitalized terms used herein shall have the meaning attributed to them in the
Loan Agreement between Maker and Holder of even date herewith. This Note is
given in amendment, restatement and renewal of the note dated September 14,
1998, and the note dated November 24, 1998, each by Maker to Holder.
The Maker further agrees 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 Security, Assignment, and Pledge
Agreement.
Each Maker and any and each co-maker, endorsers, guarantors and
sureties or each other Person liable for payment or collection of this Note
expressly and severally waives grace, demand, presentment for payment, notice of
nonpayment, notice of dishonor, notice of intent to accelerate the maturity,
notice of acceleration of the maturity, notice of default, protest and notice of
protest, bringing of suit, and diligence in taking any action to collect amounts
called for hereunder and in the handling of Property at any time existing as
security in connection herewith, and shall be directly and primarily liable for
the payment of all sums owing and to be owing hereon, regardless of and without
any notice, diligence, act or omission as or with respect to the collection of
any amount called for hereunder or in connection with any Lien at any time had
or existing as security for any amount called for hereunder, and agrees to all
renewals, extensions 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> 2
This Note is secured by the Security, Assignment and Pledge Agreement
between Maker and Holder, dated August 13 1999. This Note, and each Advance, and
all sums payable hereunder, are each subject to the terms and conditions of that
certain AMENDED AND RESTATED LOAN AGREEMENT FOR RECEIVABLES- AND
INVENTORY-BACKED BORROWING between Maker and Holder, dated August 13, 1999, 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
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<PAGE> 3
PROMISSORY NOTE
SCHEDULE OF PAYMENTS
<TABLE>
<CAPTION>
Name of
Amount of Unpaid Person
Accrued Principal Principal Making
Date Interest Repayment Balance Advances Notation
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
</TABLE>
-3-
<PAGE> 1
EXHIBIT 10.4
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT (this "Agreement") made and entered
into as of August 13, 1999 ("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. ("Borrower"), 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 Amended and Restated Loan Agreement For Receivables- And
Inventory-Backed Borrowing ("Loan Agreement") between the Borrower and Secured
Party dated the Effective Date and in a Promissory Note (the "Note"), amended
and restated as of the Effective Date issued by Borrower and payable to the
order of Secured Party in the original principal sum of Twelve Million and
no/100 Dollars ($12,000,000), Secured Party has agreed to advance funds to
Borrower; and
WHEREAS, as a condition to the agreement of Secured Party to advance
funds, Borrower and Pledgor granted a Security Interest to Secured Party under a
Security Agreement for Receivables Backed Borrowing dated September 14, 1998, a
Security Agreement for Inventory Backed Borrowing dated November 24, 1998, and a
Borrower Pledge Agreement dated September 14, 1998, all as in full force and
effect on the date of this Agreement; and
WHEREAS, Secured Party, Borrower and Pledgor desire to amend and
restate the Security Interest under the a Security Agreement for Receivables
Backed Borrowing, the Security Agreement for Inventory Backed Borrowing and the
Borrower Pledge Agreement in conjunction with the amendment and restatement of
the Loan Agreement; and
WHEREAS, each of the Pledgors is a wholly owned subsidiary of Borrower
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, Borrower, each Pledgor and the Secured Party agree as follows:
SECTION 1. DEFINITIONS
1.01 Certain Defined Terms. Unless otherwise defined, the terms used in
this Security Agreement have the meanings given in the Loan Agreement.
"Account Debtor" shall have the meaning given in Section 2.03(a) of
this Agreement.
"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 Section 6.
"Event of Default" has the meaning given in Section 6 hereof.
"Fraudulent Conveyance" has the meaning given in Section 2.09 hereof.
"Loan Agreement" means the Amended and Restated Loan Agreement For
Receivables- And Inventory-Backed Borrowing between the Parties of even date
herewith.
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"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 Borrower, Pledgor or Secured
Party,
(3) all other Obligations of Borrower 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.
"Pledgor" has the meaning given that term in the introduction to this
Security Agreement.
"Proceeds" means whatever is received upon the sale, exchange,
collection, or other disposition of the Security and insurance payable or
damages or other payments by reason of loss or damage to the Security, whether
cash or non-cash and all securities and guaranties therefor.
"Schedules" has the meaning assigned to that term in Section 4.01.
"Secured Party" has the meaning given that term in the introduction to
this Security Agreement.
"Security" has the meaning assigned to that term in Section 2.03(b).
"Security Agreement" means this Security Agreement dated as of the
Effective Date, among Borrower, 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.
"UCC" means the Uniform Commercial Code as in effect in any
jurisdiction applicable.
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), 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, Borrower and Pledgor hereby grant to Secured Party a continuing
general lien and security interest in the Security (the "Security Interest"),
including:
(a) All of the Pledgor's accounts receivable, together with
any instruments, chattel paper, and general intangibles relating thereto
(collectively, "Accounts") that now exist or are currently owned by Pledgor or
are later owned or acquired by Pledgor, including in all Proceeds;
(b) 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; and
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(c) The Pledged Securities. All certificates or instruments
representing or evidencing the Pledged Securities shall be delivered to and held
pursuant hereto by Secured Party or a person or entity designated by Secured
Party and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank.
2.02 Proceeds. Except as otherwise permitted herein, including the sale
of Inventory to Pledgor's customers in the ordinary course of business, the
Security Interest of Secured Party hereunder in the Proceeds shall not be
construed to mean that Secured Party consents to the sale or other disposition
of any part of the Security.
2.03 Security.
(a) This continuing general lien and security interest shall
extend to all proceeds and collections from all Inventory and of all Accounts,
all guaranties and other security for all Inventory and Accounts, and all right,
title, and interest of Pledgor in the merchandise that is created from such
Inventory or that caused the creation of any such Account. All right, title, and
interest in the merchandise shall include the right of stoppage in transit of
goods; all returned, rejected, rerouted, or repossessed goods; and the sale or
lease of goods that shall have arisen from any Inventory or that shall have
given rise to any Account. 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 are
sometimes called the "Account Debtor" or the "Account Debtors" in this
Agreement.
(b) The Inventory, Accounts, proceeds, collections,
guaranties, other security, and all right, title, and interest in the
merchandise arising from the Inventory , and the Pledged Securities and the
proceeds arising therefrom, collections, guaranties, other security, and all
other right, title, and interest thereto, are collectively included in the term
"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, including arising from the sale of Inventory in the ordinary
course of business are sometimes called the "Account Debtor" or the "Account
Debtors" in this Agreement.
2.04 Partial Release. Except as expressly set forth therein, no release
from the Lien of this instrument of any part of the Security by Secured Party
shall in any way alter, vary, or diminish the force, effect or Lien of this
instrument on the balance or remainder of the Security.
2.05 Subrogation. This Security Agreement is made with full
substitution and subrogation of Secured Party in and to all covenants and
warranties by others heretofore given or made in respect of the Security or any
part thereof.
2.06 Successor Secured Party. Any Person that succeeds to Secured Party
as Holder pursuant to, and as permitted by, the terms of the Note automatically
shall become Secured Party hereunder.
2.07 Termination. If all the Obligations are paid and performed in full
and the covenants herein contained are performed in all respects, then Secured
Party shall, upon the request of Pledgor and at Pledgor's cost and expense,
deliver to Pledgor proper instruments executed by Secured Party evidencing the
release of this instrument. Until such delivery, this instrument shall remain
and continue in full force and effect.
2.08 No Assumption. The Security Interest is given to secure the
prompt, unconditional and complete payment and performance of the Obligations
when due, and is given as security only. The Secured Party does not assure and
shall not be liable for any of Pledgor's liabilities, duties or obligations
under or in connection with the Security. The Secured Party's acceptance of this
Security Agreement, or its taking any action in carrying out this Security
Agreement, does not constitute the Secured Party's approval of the Security or
the Secured Party's assumption of any obligation under or in connection with the
Security. This Security Agreement does not affect or modify Pledgor's
obligations with respect to the Security.
2.09 Fraudulent Conveyance. Notwithstanding anything contained in this
Agreement to the contrary, Borrower 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. Section 547, a fraudulent conveyance under
11 U.S.C. Section 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
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Obligation or any Security Interest to be a Fraudulent Conveyance, and shall be
deemed to have been automatically amended to carry out the intent of this
Section.
SECTION 3. LOANS, COLLECTION AND RECORDS
3.01 Advances. Secured Party agrees, during the continuance of this
Agreement, to make Advances to Borrower, against those Accounts that Secured
Party, in its sole discretion, deems eligible for borrowing, as provided in the
Loan Agreement.
3.02 Notes. To evidence Secured Party's loans to Borrower, Borrower
shall, at Secured Party's request, execute and deliver to Secured Party the Note
or Notes payable to Secured Party. These Notes shall be subject to all the terms
and conditions of the Loan Agreement, including 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 Borrower to Secured Party are
fully paid, Borrower 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 Balance. Secured Party shall give Pledgor, each month, a statement
of Pledgor's balance prepared from Secured Party's records, which will
conclusively be deemed correct in the absence of manifest error, and accepted by
Pledgor, unless Pledgor gives Secured Party a written statement of exceptions
within thirty (30) days after receipt of the extract or statement.
3.05 Information.
(a) Information. Pledgor and Borrower shall give Secured Party
such information regarding the Accounts as Secured Party may reasonably request,
including but not limited to information and periodic reports as required herein
and by the Loan Agreement.
(b) Segregation. Pledgor will physically segregate all
rejected, rerouted, repossessed, or returned goods sold or delivered in respect
of any Account; will immediately notify Secured Party of any rerouted,
repossessed, or returned goods; will receive such goods in trust for Secured
Party; will hold the goods for such disposition as Secured Party may direct or
at Secured Party's option; will promptly refund all advances, loans, and
extensions made on the Accounts; and will post written notice that the Accounts
and goods are subject to Secured Party's lien and security interest.
(c) Transfer. In the event of an Event of Default, in addition
to any other remedy provided herein or in the Loan Agreement, Pledgor will
immediately endorse to Secured Party and deliver to Secured Party all
instruments, chattel paper, guaranties, or other documents when received by
Pledgor as evidence of, as payment of, or as security for any of the Accounts
and will immediately transfer to Secured Party all security received for any of
the Accounts.
(d) Inventory Records. Pledgor shall give Secured Party each
month, a statement of additions to and deliveries from Inventory. Pledgor and
Borrower 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 REGARDING THE SECURITY
4.01 Accounts. At the time of assignment, each account receivable
represents and will represent an undisputed, bona fide sale and delivery of
goods or services rendered, or both (or in the case of a general intangible,
represents and will represent an undisputed, bona fide agreement), and is not
and will not be subject to any setoff, counterclaim, discount, or condition of
any nature, except as specified in writing on or before the delivery to Secured
Party of schedules of assignment of accounts receivable. Pledgor is, or at the
time of the assignment will be, the lawful owner of each Account and has
unqualified right to assign and grant liens and security interests of the
Accounts to Secured Party. Pledgor will, with respect to each Account:
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<PAGE> 5
(a) deliver to Secured Party such papers as Secured Party may
require, including, without limitation, the original delivery or other receipts
and duplicate invoices;
(b) furnish Secured Party a weekly aged accounts receivable
trial balance, as required by the Loan Agreement;
(c) furnish to Secured Party weekly, statements of Account
with Pledgor's customers. Pledgor agrees that Secured Party may from time to
time verify the validity, amount, and any other matters relating to the Accounts
by means of mail, telephone, or otherwise, in the name of Pledgor, Secured
Party, or such other name as Secured Party may choose;
(d) do all things required by Secured Party in its reasonable
judgment, in order more completely to vest in and assure to Secured Party its
rights under this Agreement. The Accounts shall be collaterally assigned to
Secured Party by written or printed instruments (called "Schedules" in this
Agreement) in form acceptable to Secured Party, executed in such quantities as
Secured Party may require, but the lien and security interest of Secured Party
shall not be limited in any way to or by the inclusion of the Accounts within
such Schedules, and to the extent the terms and provisions of this Agreement
shall conflict with the Schedules, this Agreement shall be controlling. In the
event the Texas Uniform Commercial Code (Chapters 1 through 13 of the Texas
Business and Commerce Code) applies to any of the Accounts, Pledgor need not
furnish the Schedules relating to those Accounts unless Secured Party shall so
request; but Pledgor's failure to execute and deliver the Schedules shall not
limit the security interest granted to Secured Party under this Agreement; and
(e) keep and will continue to keep all of its books and
records concerning accounts receivable and general intangibles and all of its
other books and records at its chief place of business, unless written notice to
the contrary is given by Pledgor to Secured Party.
4.02 Inventory. Pledgor and Borrower 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.
(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; and
(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.
4.03 Pledged Securities.
(a) Corporate Identity.
(i) Pledgor will maintain the location of its
places of business and its primary corporate office and the locations where it
keeps or holds records relating to the Pledged Securities at the locations at
which the same are located as of the date of this Pledge Agreement or at
locations other than those specified above if, prior to such relocation,
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Secured Party shall have given Pledgor written notice thereof. Pledgor shall not
in any event change the location of any Pledged Securities if such change would
cause the Security Interest in such Collateral to lapse or cease to be
perfected.
(ii) Pledgor, to the extent not otherwise
restricted in the Note, will not change its name, identity or form of
organization in any manner unless it shall have given prior written notice to
Secured Party. On any such change, Pledgor will execute and file such financing
statements or other documents as may be reasonably requested by Secured Party to
maintain the perfection of its Security Interest in the Pledged Securities.
(b) Pledged Securities. The Pledged Securities have been duly
authorized and validly issued, and are fully paid and non-assessable. The
Pledged Securities constitute 100% of the issued and outstanding common stock of
the Consolidated Subsidiaries. Except for the lien of St. James, no other person
or entity has any interest in or rights to acquire any interest in the
Consolidated Subsidiaries.
(c) First Priority Security Interest. The pledge of Pledged
Securities pursuant to this Pledge Agreement creates a valid and perfected first
priority Security Interest in the Pledged Securities, enforceable against
Pledgor and all third parties and securing the payment and performance of the
Obligations, subject only to the lien of St. James in accordance with the
Intercreditor Agreement.
(d) Sale, Disposition or Encumbrance of Pledged Securities.
Except as provided in the Intercreditor Agreement, Pledgor will not in any way
encumber any of the Pledged Securities (or permit or suffer any of the Pledged
Securities to be encumbered) or sell, pledge, assign, lend or otherwise dispose
of or transfer any of the Pledged Securities to or in favor of any person or
entity other than Secured Party.
(e) Dividends or Distributions. Subject to the Intercreditor
Agreement, any and all dividends and other distributions paid or payable in cash
in respect of any Pledged Securities in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital, capital
surplus or paid-in surplus, or reclassification, and cash paid, payable or
otherwise distributed in redemption of, or in exchange for, any Pledged
Securities, shall be, and shall be forthwith delivered to Secured Party to hold
as, Pledged Securities and shall, if received by Pledgor, and be received in
trust for the benefit of Secured Party, be segregated from the other property or
funds of Pledgor, and be forthwith delivered to Secured Party as Pledged
Securities in the same form as so received (with any necessary indorsement);
provided, however, that Secured Party shall have no duty to receive and hold
such dividends and interest payments and shall not be responsible for any
failure to do so or delay in so doing.
(f) Stock Powers. Pledgor shall furnish to Secured Party such
stock powers and other instruments as may be required by Secured Party to assure
the transferability of the Pledged Securities when and as often as may be
requested by Secured Party.
(g) Voting and Other Consensual Rights. Except to the extent
otherwise provided in Section 6.08(c), Pledgor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the Pledged Securities
or any part thereof for any purpose not inconsistent with the terms of this
Pledge Agreement, the Note or any other Transaction Document; provided however,
that Pledgor shall not exercise or refrain from exercising any such right if
such action would have a material adverse effect on the value of the Pledged
Securities or any part thereof, and, provided, further, that upon request of
Secured Party at any time or from time to time, Pledgor shall give Secured Party
prompt written notice of the manner in which Pledgor has exercised, or the
reasons for refraining from exercising, any such right.
(h) Custody and Preservation of the Pledged Securities.
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of the Pledged Securities in its possession if the Pledged
Securities is accorded treatment substantially equal to that which comparable
secured parties accord comparable Pledged Securities, it being understood and
agreed, however, that Secured Party shall not have responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Securities, whether
or not Secured Party has or is deemed to have knowledge of such matters, or (ii)
taking any necessary steps to preserve rights against persons or entities with
respect to any Pledged Securities.
SECTION 5. GENERAL REPRESENTATIONS, WARRANTIES, AND COVENANTS
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5.01 Recording and Filing. Pledgor shall pay all costs of filing,
registering, and recording this and every other instrument in addition or
supplemental hereto and all financing statements Secured Party may reasonably
require, in such offices and places and at such times and as often as may be, in
the judgment of Secured Party, necessary to create, perfect, preserve, protect,
and renew the Lien hereof on and in the Security, and otherwise do and perform
all matters or things necessary or expedient to be done or observed by reason of
any law or regulation of any applicable jurisdiction or any other competent
authority for the purpose of effectively creating, perfecting, preserving,
protecting, maintaining, and renewing the Lien hereof in and on the Security and
the priority thereof. Pledgor shall also pay the costs of obtaining reports from
appropriate filing offices concerning Lien filings in respect of any of the
Security. A carbon, photographic, or other reproduction of this Security
Agreement or of any financing statement relating hereto shall be sufficient as a
financing statement.
5.02 Secured Party's Right to Perform Pledgor's Obligations; Further
Assurances. Pledgor agrees that, if Pledgor fails to perform any act that
Pledgor is required to perform under this instrument, Secured Party may, but
shall not be obligated to, perform or cause to be performed such an act.
Accordingly, to the extent permitted by law, Pledgor hereby authorizes Secured
Party to execute and file financing statements and continuation statements
without Pledgor's signature thereon. Any expense incurred by Secured Party in
taking action in accordance with this section shall be a demand obligation owing
by Pledgor to Secured Party, shall bear interest in accordance with the Loan
Agreement, and shall be a part of the Obligations, and Secured Party shall be
subrogated to all of the rights of the party receiving the benefit of such
performance. The undertaking of such performance by Secured Party as aforesaid
shall not obligate such Person to continue such performance or to engage in such
performance or performance of any other act in the future, shall not relieve
Pledgor from the observance or performance of any covenant, warranty, or
agreement contained in this instrument or constitute a waiver of default
hereunder, and shall not affect the right of Secured Party to accelerate the
payment of all indebtedness and other sums secured hereby or to resort to any
other of its rights, powers, or remedies hereunder or under applicable law. In
the event Secured Party undertakes any such action, it shall have liability to
Pledgor only upon a showing of its bad faith, gross negligence or willful
misconduct (BUT SPECIFICALLY EXCLUDING ITS ORDINARY OR PARTIAL NEGLIGENCE), and
in all events no party other than the acting party shall be liable to Pledgor.
Pledgor will from time to time (a) sign, execute, deliver, and file, alone or
with Secured Party, all further financing statements, security agreements, or
other documents that are reasonably necessary; (b) procure any instruments or
documents as may be reasonably requested by Secured Party, and (c) take all
further action that may be reasonably necessary, or that Secured Party may
reasonably request, to confirm, perfect, preserve, and protect the Security
Interests intended to be granted hereby.
5.03 Defense of Claims. Borrower will preserve, warrant, and defend the
Security Interest created hereby in the Security against the claims of all
Persons whomsoever; will maintain and preserve such Security Interest at all
times as contemplated by the Transaction Documents; and will not do or suffer
any matter or thing whereby such Security Interest might or could be impaired,
it being understood that the Secured Party's right in the Security is subject to
the rights of St. James in accordance with the Intercreditor Agreement. Borrower
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 Borrower's and Secured Party's
rights affected thereby, and should Borrower fail or refuse to take any such
action, Secured Party may take the action on behalf of and in the name of
Borrower and at Borrower's expense. Moreover, Secured Party may take independent
action in connection therewith as it may in its sole discretion deem proper, and
Borrower hereby agrees to make reimbursement for all reasonable sums advanced
and all reasonable expenses incurred in such actions plus interest in accordance
with the Loan Agreement.
5.04 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.
5.05 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 Borrower agree
that the Secured Party's remedies at law for failure to comply with this
provision would be inadequate
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and that the harm to the Secured Party would not be adequately compensable in
damages. Pledgor and Borrower agree that this provision may be specifically
enforced.
5.06 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 Borrower and Pledgor. Once perfected, the Security Interest
will constitute a first and prior lien on the Security. The creation of this
Security Interest does not require the consent of any third party, other than
St. James, which consent has been obtained. Debtor has not executed any prior
transfer, assignment, pledge, security interest or hypothecation covering the
Security or any interest in the Security, other than as acknowledged in the
Intercreditor Agreement.
SECTION 6. DEFAULT
6.01 Events of Default. Upon the occurrence and continuation of an
Event of Default beyond any applicable cure periods, as provided in the Note,
Secured Party may declare all Obligations immediately due and payable.
6.02 Rights in Respect of Security. Subject to the Intercreditor
Agreement, upon the occurrence and continuation of any Event of Default, in
addition to all other rights of Secured Party, Secured Party will have the right
and power, but will not be obligated, to enter upon and take possession of all
or any part of the Security, exclude Pledgor therefrom, and to hold, use,
administer, manage, and operate the same to the extent that Pledgor could do so.
After a Default under the Note, Secured Party may exercise every power, right,
and privilege of Pledgor with respect to the Security (including, without
limitation, the right of collection) without any liability (SPECIFICALLY
INCLUDING LIABILITY FOR ORDINARY OR PARTIAL NEGLIGENCE) to Pledgor in connection
therewith except with respect to bad faith, gross negligence or willful
misconduct; provided, however, that Secured Party may notify Account Debtors of
Pledgor to make payments directly to Secured Party only after all cure periods,
as provided in the Note, applicable to such Default have lapsed. Provided there
has been no foreclosure sale, when and if such expenses of operation have been
paid and the Obligations paid in full, the remaining Security shall be returned
to Pledgor.
6.03 Ancillary Rights. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party hereunder, without notice, demand, or declaration of
default, all of which are hereby expressly waived by Pledgor, Secured Party may
proceed by a suit or suits in equity or at law (a) for the seizure and sale of
the Security or any part thereof, (b) for the specific performance of any
covenant or agreement contained in this Security Agreement, the Note or any of
the other Transaction Documents or in aid of the execution of any power herein
granted, (c) for the foreclosure or sale of the Security or any part thereof
under the judgment or decree of any court of competent jurisdiction, or (d) for
the enforcement of any other appropriate legal or equitable remedy.
6.04 Receivership. Subject to the Intercreditor Agreement, upon the
occurrence and continuation of an Event of Default, in addition to all other
rights of Secured Party, Secured Party from time to time may apply to a court of
competent jurisdiction for the appointment of one or more receivers to take
possession of and to manage and administer the Security or any portion thereof
and to collect the Proceeds, all without demand or declaration of default, which
are hereby waived by Pledgor. Secured Party shall be entitled to the appointment
of such receiver(s) as a matter of right, without regard to the value of the
Security as security for the Obligations or the solvency of Pledgor or Borrower
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.
6.05 Expenses. Borrower will pay to Secured Party all reasonable
expenses, including, without limitation, fees and expenses of any receiver(s),
reasonable attorneys' and consultants' fees and expenses, advanced by Secured
Party and incurred pursuant to the provisions contained in this Section, and all
such unpaid expenses shall be: (a) a Lien against the Security, (b) added to the
Obligations, and (c) payable upon demand, with interest in accordance with the
Loan Agreement, provided, however, that the existence of said Lien shall in no
way waive, diminish, or prejudice any other rights, remedies, powers, and
privileges that Secured Party or any receiver(s) may have under the applicable
laws in the collection of such funds as loans or otherwise.
6.06 Injunctive Relief. Pledgor and Borrower 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
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Pledgor and Borrower hereby agree that Secured Party shall be entitled to
temporary and permanent injunctive relief in case of any such breach without the
necessity of proving actual damages.
6.07 Remedies Cumulative. No failure on the part of Secured Party or
any holder of the Note to exercise, and no delay in exercising, any right, power
or privilege hereunder, under the Note or under any other Transaction Document
and no course of dealing between Borrower 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 Borrower in any case shall entitle Borrower to any
other or further notice or demand in similar or other circumstances. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
6.08 Pledged Securities. Upon the occurrence and during the continuance
of an Event of Default:
(a) All dividends and interest payments that are received by
Pledgor contrary to the provisions of this Agreement shall be received in trust
for the benefit of Secured Party, shall be segregated from other funds of
Pledgor and shall be forthwith paid over to Secured Party in the same form as so
received (with any necessary indorsement).
(b) Secured Party may exercise any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to any of the Pledged Securities as if it were the absolute owner
thereof, including without limitation, the right to exchange at its discretion,
any and all of the Pledged Securities upon the merger, consolidation,
reorganization, recapitalization or other readjustment of any issuer of such
Pledged Securities or upon the exercise by any such issuer or Secured Party of
any right, privilege or option pertaining to any of the Pledged Securities, and
in connection therewith, to deposit and deliver any and all of the Pledged
Securities with any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine, all
without liability except to account for property actually received by it, but
Secured Party shall have no duty to exercise any of the aforesaid rights,
privileges or options and shall not be responsible for any failure to do so or
delay in so doing.
(c) At the option of Secured Party and upon written
notification thereof to Pledgor, all rights of Pledgor to exercise the voting
and other consensual rights which Pledgor would otherwise be entitled to
exercise pursuant to Section 4.03(g) with respect to the Pledged Securities
shall cease, and all such rights shall thereupon become vested in Secured Party
who shall thereupon have the sole right to exercise such voting and other
consensual rights, but Secured Party shall have no duty to exercise any such
voting or other consensual rights and shall not be responsible for any failure
to do so or delay in so doing.
SECTION 7. FORECLOSURE ON SECURITY
7.01 Sale. Upon the occurrence and continuation of an Event of Default,
Secured Party will have all rights and remedies granted by law, and particularly
by the UCC, including, without limitation, the right to take possession of the
Security, and for this purpose Secured Party may enter upon any premises on
which any or all of the Security is situated and take possession of and manage
the Security or remove it therefrom. Secured Party may require Pledgor to
assemble the Security and make it available to Secured Party at a place to be
designated by Secured Party that is reasonably convenient to all parties. Unless
the Security is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Secured Party will give Pledgor
and Borrower 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 Borrower as provided in the Note at least ten (10) days before the
time of the sale or disposition.
7.02 Private Sale. If Secured Party in good faith believes that the
Securities Act of 1933 or any other state or federal law prohibits or restricts
the customary manner of sale or distribution of any of the Security, or if
Secured Party determines that there is any other restraint or restriction
limiting the timely sale or distribution of any such property in accordance with
the customary manner of sale or distribution, Secured Party may sell such
property privately or in any other manner and at such price or prices it deems,
in good faith, advisable, but otherwise without any liability whatsoever to
Pledgor or Borrower in connection therewith. Pledgor and Borrower 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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<PAGE> 10
7.03 Secured Party as Purchaser. Secured Party will have the right to
become the purchaser at any foreclosure sale, and it will have the right to
credit upon the amount of the bid the amount payable to it out of the net
Proceeds of sale.
7.04 Recitals Conclusive; Warranty; Ratification. Recitals contained in
any assignment or bill of sale to any purchaser at any sale made hereunder will
conclusively establish, as between the parties to such assignment or bill of
sale, the truth and accuracy of the matters therein stated, including, without
limitation, nonpayment of the unpaid principal sum of, and the interest accrued
on, the written instruments constituting part or all of the Obligations after
the same have become due and payable, nonpayment of any other of the
Obligations, or advertisement and conduct of the sale in the manner provided
herein. Secured Party will have authority to appoint an attorney-in-fact to act
in conducting any foreclosure sale and executing assignments and bills of sale.
All assignments and bills of sale may contain a general warranty of title from
the grantor. Pledgor and Borrower ratify and confirm all legal acts that Secured
Party may do in accordance with this Security Agreement.
7.05 Effect of Sale. Any sale or sales of the Security or any part
thereof will operate to divest all right, title, interest, claim, and demand
whatsoever, either at law or in equity, of Pledgor in and to the property sold,
and will be a perpetual bar, both at law and in equity, against Pledgor,
Pledgor's successors or assigns and against any and all persons claiming or who
shall thereafter claim all or any of the property sold from, through, or under
Pledgor, or Pledgor's successors or assigns. The purchaser or purchasers at the
foreclosure sale will receive immediate possession of the property purchased.
7.06 Application of Proceeds. Secured Party shall apply the Proceeds of
any sale or other disposition of the Security as follows: First, to the payment
of all its expenses incurred in retaking, holding, and preparing any of the
Security for sale(s) or other disposition, in arranging for such sale(s) or
other disposition, and in actually selling or disposing of the same (all of
which are part of the Obligations); second, toward repayment of amounts
reasonably expended by Secured Party under Section 5 hereof; and third, toward
payment of the balance of the Obligations in the order and manner determined by
Secured Party in its sole discretion. Any surplus remaining shall be delivered
to Borrower or Pledgor or as a court of competent jurisdiction may direct.
7.07 Deficiency. Borrower 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 Borrower that any Obligation shall constitute an absolute,
unconditional obligation of Borrower to pay as provided herein or in the Note in
accordance with the terms of the instrument evidencing such Obligations in the
amount therein specified at the maturity date or at the respective maturity
dates of the installments thereof, whether by acceleration or otherwise.
7.08 Waiver of Appraisement, Marshaling, Etc. To the extent permitted
by applicable law, Pledgor and Borrower agree that neither Pledgor nor Borrower
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 Borrower, 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 Borrower
agree that Secured Party may sell the Security as an entirety.
7.09 Discharge of Purchaser. Upon any sale made under the powers of
sale herein granted and conferred, the sales receipt issued by Secured Party
will be sufficient discharge to the purchaser or purchasers at any sale for the
purchase money, and such purchaser or purchasers and the heirs, devisees,
personal representatives, successors, and assigns thereof will not, after paying
such purchase money and receiving such receipt of Secured Party, be obliged to
see to the application thereof or be in anywise answerable for any loss,
misapplication, or nonapplication thereof.
7.10 Right of Set-Off. Upon the occurrence and during the continuance
of any Event of Default the Secured Party is hereby authorized at any time and
from time to time, without notice to Borrower or Pledgor (any such notice being
expressly waived by the Borrower and Pledgor, to set-off and apply any and all
deposits (general or special, time or demand,
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<PAGE> 11
provisional or final) at any time held and other Indebtedness at any time owing
by the Secured Party to or for the credit or the account of Borrower or a
Pledgor against any and all of the Indebtedness of Borrower, irrespective of
whether the Secured Party shall have made any demand under this Agreement or the
Note and although such obligations may be unmatured. The Secured Party agrees
promptly to notify Borrower or the Pledgor 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.
SECTION 8. MISCELLANEOUS
8.01 Notices. Subject to the provisions of Section 5.01, all
communications under this Security Agreement shall be given as provided in the
Note and shall be except as otherwise specified herein, all notices, requests,
demands or other communications to or upon the respective Parties hereto shall
be deemed to have been duly given or made when delivered to the Party to which
such notice, request, demand or other communication is required or permitted to
be given or made under this Agreement or the Note, addressed to such Party at
its address set forth below or at such other address as either of the Parties
hereto may hereafter notify the other in writing.
To BORROWER INTELECT COMMUNICATIONS, INC.
or PLEDGOR: 1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr., Esq.
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-7640
Telecopy: 713-297-1734
Attention: Donald H. Gullquist, Trustee
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
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 Communications Receipts
OBI# Attn: Trust Receipts FFC: 5502001-1867300
The Coastal Corporation Second Pension Trust
Attn: Mary Grace Greenwood - (713) 216-4539
8.02 Successors and Assigns. No party may assign its rights or delegate
its duties hereunder to any Person without prior written consent of the other
party, which consent will not be unreasonably withheld. This Security Agreement
shall be binding upon the successors and permitted assigns of each of the
parties, and, except as expressly set forth in the
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<PAGE> 12
Note and this Section 8.02, shall inure to the benefit of the successors and
permitted assigns of each of the parties. The provisions of this Security
Agreement are intended to be for the benefit of all Persons constituting Secured
Party.
8.03 Amendment and Waiver.
(a) This Security Agreement may be amended, and the observance
of any term of this Security Agreement may be waived, with (and only with) the
written consent of the Parties.
(b) Borrower 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 Borrower and shall be binding upon each
future Secured Party and upon each person constituting Pledgor or Borrower
regardless of whether this Security Agreement, the Note or any other document
shall have been marked to indicate such amendment or waiver. No such amendment
or waiver shall extend to or affect any obligation not expressly amended or
waived or impair any right consequent thereon.
8.04 Governing Law. THIS SECURITY AGREEMENT, THE LEGAL RELATIONS AMONG
THE PARTIES HERETO, AND ALL RIGHTS AND OBLIGATIONS HEREUNDER, INCLUDING MATTERS
OF CONSTRUCTION, VALIDITY, AND PERFORMANCE, SHALL BE GOVERNED BY AND
INTERPRETED, CONSTRUED, APPLIED, AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE
STATE OF TEXAS WITHOUT REFERENCE TO THE LAW OF ANOTHER JURISDICTION AND THE LAWS
OF THE UNITED STATES OF AMERICA; PROVIDED, HOWEVER, THAT MATTERS RELATING TO THE
PERFECTION OF SECURITY INTERESTS UPON ANY PERSONAL PROPERTY SHALL BE GOVERNED BY
THE LAW OF ANOTHER JURISDICTION TO THE EXTENT REQUIRED BY THE NONWAIVABLE
PROVISIONS OF SUCH LAW OR THE LAW OF THE STATE OF TEXAS.
8.05 Severability. If any provision in this Security Agreement is
rendered or declared illegal, invalid, or unenforceable by reason of any rule of
law, public policy, or final judicial decision, all other terms and provisions
of this Security Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions contemplated hereby
are not affected in any manner adverse to Borrower, Pledgor or Secured Party.
Upon such determination that any term or other provision is invalid, illegal, or
incapable of being enforced, Borrower, Pledgor and Secured Party shall negotiate
in good faith to modify this Security Agreement so as to effect the original
intent of the Parties hereto as closely as possible to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
8.06 Multiple Counterparts. The Parties may execute more than one
counterpart of this Security Agreement, each of which shall be an original but
all of which together shall constitute one and the same instrument.
8.07 References. All references herein to one gender shall include the
other. Unless otherwise expressly provided, all references to "Sections" are to
Sections of this Security Agreement and all references to "Exhibits" are to the
exhibits attached hereto, each of which is made a part hereof for all purposes.
8.08. FINAL AGREEMENT OF THE PARTIES. THIS SECURITY AGREEMENT
(INCLUDING THE EXHIBITS HERETO), THE NOTE AND THE OTHER TRANSACTION DOCUMENTS TO
WHICH BORROWER 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.
*
*
*
*
*
*
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<PAGE> 13
*
*
*
IN WITNESS WHEREOF, the Parties have caused this instrument to be
executed as of the Effective Date.
SECURED PARTY: BORROWER:
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:
-------------------------------
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<PAGE> 14
IRREVOCABLE STOCK POWER
For Value Received, the undersigned hereby sells, assigns and transfers
to THE COASTAL CORPORATION SECOND PENSION TRUST, a Delaware corporation
("Secured Party"), ____________________________ (______) shares of the common
stock of ______________ a corporation organized under the laws of ____________
standing in the undersigned's name on the books of the corporation, represented
by Certificate No.______, and the undersigned does hereby irrevocably constitute
and appoint ___________________________ my true and lawful attorney-in-fact,
with full power of substitution, to transfer this stock on the books of the
corporation.
Dated:
---------------------------
INTELECT COMMUNICATIONS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
In the presence of:
- -------------------------
-14-
<PAGE> 1
Exhibit 10.5
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 MAY NOT BE RESOLD,
PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE
SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
WARRANT
to Purchase Common Stock of
INTELECT COMMUNICATIONS, INC.
Expiring on August 12, 2004
This Common Stock Purchase Warrant (the "Warrant"), certifies that for
value received, THE COASTAL CORPORATION SECOND PENSION TRUST (the "Holder") or
its assigns, is entitled to subscribe for and purchase from the Company (as
hereinafter defined), in whole or in part, ____________________________ shares
of duly authorized, validly issued, fully paid and nonassessable Common Stock
(as hereinafter defined) at an initial Exercise Price (as hereinafter defined)
per share of $________________, 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, _____________ from the date hereof, on
__________________.
As used herein, the following terms shall have the meanings set forth
below:
"Cashless Exercise" has the meaning given in Section 1.1.
"Company" shall mean Intelect Communications, 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.
"Convertible Securities" has the meaning given in Section 3.2 (b)(i).
"Exercise Date" has the meaning given in Section 1.1.
"Exercise Price" shall mean the initial purchase price of ONE AND
30/100 DOLLARS (US $1.30), per share of Common Stock payable upon exercise of
the Warrants, as adjusted from time to time pursuant to the provisions hereof.
"Holder" means The Coastal Corporation Second Pension Trust.
"Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal
securities exchange on which the Common Stock is listed or admitted to trading
or if no such sale takes place on such date, the average of the closing bid and
asked prices thereof as officially reported, or, if not so listed or admitted
to trading on any securities exchange, the last sale price for the Common Stock
on the National Association of Securities Dealers ("NASD") National Market on
such date, or, if there shall have been no trading on such date or if the
Common Stock shall not be listed on such system, the average of the closing bid
and asked prices in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Company for such purpose, in each such
case, unless otherwise provided herein, averaged over a period of five (5)
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 Note issued under the Amended and Restated Loan
Agreement For Receivables- And Inventory-backed Borrowing of the Company issued
to Holder in the principal amount of $_______________, of even date herewith.
<PAGE> 2
"Outstanding" when used with reference to Common Stock, shall mean
(except as otherwise expressly provided herein) at any date as of which the
number of shares thereof is to be determined, all issued shares of Common
Stock, except shares then owned or held by or for the account of the Company.
"Registration Rights Agreement" means the Agreement between Company
and Holder.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Subscription Notice" has the meaning given in Section 1.1.
"Trading Days" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted
to trading is open for the exchange of securities.
"Warrant" shall mean the right upon exercise to purchase one Warrant
Share.
"Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the Holder hereof upon the exercise of the Warrants.
ARTICLE I
EXERCISE OF WARRANTS
Section I.1 Method of Exercise. The Warrants represented hereby may be
exercised by the Holder hereof, in whole or in part, at any time and from time
to time on or after the date hereof until 5:00 p.m., Houston, Texas time, on
August 12, 2004 (the "Exercise Date"). To exercise the Warrants, the Holder
hereof shall deliver to the Company, at the Warrant Office designated in
Section 2.1 hereof, (i) a written notice in the form of the Subscription Notice
attached as an exhibit hereto, stating therein the election of such holder to
exercise the Warrants in the manner provided in the Subscription Notice; (ii)
payment in full of the Exercise Price (A) in cash or immediately available
funds for all Warrant Shares purchased hereunder, or (B) if the Company and the
Holder mutually elect, through a "cashless" or "net-issue" exercise of each
such Warrant ("Cashless Exercise"); the Holder shall exchange each Warrant
subject to a Cashless Exercise for that number of Warrant Shares determined by
multiplying the number of Warrant Shares issuable hereunder by a fraction, the
numerator of which shall be the difference between (x) the Market Price and (y)
the Exercise Price for each such Warrant, and the denominator of which shall be
the Market Price; the Subscription Notice shall set forth the calculation upon
which the Cashless Exercise is based, or (C) a combination of (A) and (B)
above; and (iii) this Warrant. The Warrants shall be deemed to be exercised on
the date of receipt by the Company of the Subscription Notice, accompanied by
payment for the Warrant Shares and surrender of this Warrant, as aforesaid, and
such date is referred to herein as the "Exercise Date". Upon such exercise, the
Company shall, as promptly as practicable and in any event within ten (10)
business days, issue and deliver to such holder a certificate or certificates
for the full number of the Warrant Shares purchased by such holder hereunder,
and shall, unless the Warrants have expired, deliver to the Holder hereof a new
Warrant representing the number of Warrants, if any, that shall not have been
exercised, in all other respects identical to this Warrant. As permitted by
applicable law, the person in whose name the certificates for Common Stock are
to be issued shall be deemed to have become a holder of record of such Common
Stock on the Exercise Date and shall be entitled to all of the benefits of such
holder on the Exercise Date, including without limitation the right to receive
dividends and other distributions for which the record date falls on or after
the Exercise Date and to exercise voting rights.
Section I.2 Expenses and Taxes. The Company shall pay all expenses,
and taxes (including, without limitation, all documentary, stamp, transfer or
other transactional taxes) other than income taxes attributable to the
preparation, issuance or delivery of the Warrants and of the shares of Common
Stock issuable upon exercise of the Warrants.
Section I.3 Reservation of Shares. The Company shall reserve at all
times so long as the Warrants remain outstanding, free from preemptive rights,
out of its treasury Common Stock or its authorized but unissued shares of
Common Stock, or both, solely for the purpose of effecting the exercise of the
Warrants, a sufficient number of shares of Common Stock to provide for the
exercise of the Warrants.
Section I.4 Valid Issuance. All shares of Common Stock that may be
issued upon exercise of the Warrants will, upon issuance by the Company, be
duly and validly issued, fully paid and nonassessable and free from all taxes,
liens
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<PAGE> 3
and charges with respect to the issuance thereof and, without limiting the
generality of the foregoing, the Company shall take no action or fail to take
any action which will cause a contrary result (including, without limitation,
any action that would cause the Exercise Price to be less than the par value,
if any, of the Common Stock).
Section I.5 Purchase Agreement. The Warrants represented hereby are
part of a duly authorized issuance and sale of Warrants to purchase Common
Stock issued and sold pursuant to the Loan Agreement between Holder and Company
of even date herewith.
Section I.6 Acknowledgment of Rights. At the time of the exercise of
the Warrants in accordance with the terms hereof and upon the written request
of the Holder hereof, the Company will acknowledge in writing its continuing
obligation to afford to such holder any rights (including, without limitation,
any right to registration of the Warrant Shares) to which such holder shall
continue to be entitled after such exercise in accordance with the provisions
of this Warrant; provided, however, that if the Holder hereof shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford to such holder any such rights.
Section I.7 No Fractional Shares. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of this Warrant. If
more than one Warrant shall be presented for exercise at the same time by the
same holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
whole shares of Common Stock purchasable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section 1.7, be issuable on the exercise of this Warrant,
the Company shall pay an amount in cash calculated by it to be equal to the
Market Price of one share of Common Stock at the time of such exercise
multiplied by such fraction computed to the nearest whole cent.
ARTICLE II
TRANSFER
Section II.1 Warrant Office. The Company shall maintain an office for
certain purposes specified herein (the "Warrant Office"), which office shall
initially be the Company's offices at 1100 Executive Drive, Richardson, Texas
75081 and may subsequently be such other office of the Company or of any
transfer agent of the Common Stock in the continental United States as to which
written notice has previously been given to the Holder hereof. The Company
shall maintain, at the Warrant Office, a register for the Warrants in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each permitted
assignee of the rights of the registered owner hereof.
Section II.2 Ownership of Warrants. The Company may deem and treat the
person in whose name the Warrants are registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary until presentation of this Warrant for registration of
transfer as provided in this Article II. Notwithstanding the foregoing, the
Warrants represented hereby, if properly assigned in compliance with this
Article II, may be exercised by an assignee for the purchase of Warrant Shares
without having a new Warrant issued.
Section II.3 Restrictions on Transfer of Warrants.
(a) The Company agrees to maintain at the Warrant Office
books for the registration and transfer of the Warrants. Subject to the
restrictions on transfer of the Warrants in this Section 2.3, the Company, from
time to time, shall register the transfer of the Warrants in such books upon
surrender of this Warrant at the Warrant Office properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer satisfactory to the Company. Upon any such transfer and upon payment
by the Holder or its transferee of any applicable transfer taxes, new Warrants
shall be issued to the transferee and the transferor (as their respective
interests may appear) and the surrendered Warrants shall be canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes
or income taxes) and all other expenses and charges payable in connection with
the transfer of the Warrants pursuant to this Section 2.3.
(b) Restrictions in General. The Holder of the Warrants
agrees that it will neither (i) transfer the Warrants prior to delivery to the
Company of written notice of such transfer, nor (ii) transfer such Warrant
Shares prior to delivery to the Company of written notice of such transfer, or
until registration of such Warrant Shares under the Securities Act and any
applicable state securities or Blue Sky laws has become effective.
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<PAGE> 4
Section II.4 Compliance with Securities Laws. Subject to the terms of
the Registration Rights Agreement between the Holder and the Company dated as
of the date hereof and notwithstanding any other provisions contained in this
Warrant, the Holder hereof understands and agrees that the following
restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act:
(a) The Holder hereof agrees that the Warrant Shares shall
not be sold or otherwise transferred unless the Warrant Shares are registered
under the Securities Act and applicable state securities or Blue Sky laws or
are exempt therefrom.
(b) A legend in substantially the following form will be
placed on the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS."
(c) Stop transfer instructions will be imposed with respect
to the Warrant Shares so as to restrict resale or other transfer thereof,
subject to this Section 2.4.
(d) The Holder understands that it must bear the economic
risk of the investment for an indefinite period of time because the Warrant
Shares have not been registered under the Securities Act and therefor cannot be
sold unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. The Holder acknowledges that the
Holder or the Holder's representative is familiar with the condition, financial
and otherwise, of the Company. The Holder or the Holder's representative has
such knowledge and experience in financial and business matters that the Holder
or the Holder's representative is able to weigh the information so received and
to evaluate the merits and risks of the Holder's investment in the Warrant
Shares.
ARTICLE III
ANTI-DILUTION
Section III.1 Anti-Dilution Provisions. The Exercise Price shall be
subject to adjustment from time to time as hereinafter provided. Upon each
adjustment of the Exercise Price, the Holder of this Warrant shall thereafter
be entitled to purchase, at the Exercise Price resulting from such adjustment,
the number of shares of Common Stock obtained by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
Section III.2 Adjustment of Exercise Price Upon Issuance of Common
Stock.
(a) (i) If and whenever after the date hereof the
Company shall issue or sell any Common Stock for no consideration or
for a consideration per share less than the Exercise Price, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced
(but not increased, except as otherwise specifically provided in
Section 3.2 hereof), to the price (calculated to the nearest one-ten
thousandth of a cent) determined by dividing (x) an amount equal to
the sum of (i) the aggregate number of shares of Common Stock
Outstanding immediately prior to such issue or sale multiplied by the
consideration received by the Company upon such issuance or sale on a
per share basis plus (ii) the consideration received by the Company
upon such issue or sale by (y) the aggregate number of shares of
Common Stock Outstanding immediately after such issue or sale.
(ii) Notwithstanding the provisions of this Section
3.2, no adjustment shall be made in the Exercise Price in the event
that the Company issues, in one or more transactions, (A) Common Stock
or Convertible Securities upon exercise of any options issued to
officers, directors or employees of the Company
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<PAGE> 5
pursuant to a stock option plan or an employment, severance or
consulting agreement as now or hereafter in effect, in each case
approved by the Board of Directors (provided that the aggregate number
of shares of Common Stock which may be issuable, including options
issued prior to the date hereof, under all such employee plans and
agreements shall at no time exceed the number of such shares of Common
Stock that are issuable under currently effective employee plans and
agreements); (B) Common Stock upon exercise of the Warrants or any
other Warrant issued pursuant to the terms of the Agreement or
otherwise issued to the Holder; (C) Common Stock upon exercise of any
stock purchase Warrant or option (other than the options referred to
in clause "(A)" above) or other convertible security outstanding on
the date hereof; (D) Common Stock upon conversion or redemption of the
Note; or (E) Common Stock issued as consideration in acquisitions. In
addition, for purposes of calculating any adjustment of the Exercise
Price as provided in this Section 3.2, all of the shares of Common
Stock issuable pursuant to any of the foregoing shall be assumed to be
Outstanding prior to the event causing such adjustment to be made.
(b) For purposes of this Section 3.2, the following Sections
3.2(b)(i) to 3.2(b)(v) inclusive, shall be applicable:
(i) Issuance of Rights or Options. In case at any
time after the date hereof the Company shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or securities convertible into
or exchangeable for Common Stock (such convertible or exchangeable
stock or securities being herein called "Convertible Securities"),
whether or not such rights or options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
and the price per share for which shares of Common Stock are issuable
upon the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities (determined by dividing (A)
the total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus the
minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of such rights or options, or plus,
in the case of such rights or options that relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (B) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the Exercise Price in effect as of the
date of granting such rights or options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options shall
be deemed to be outstanding as of the date of the granting of such
rights or options and to have been issued for such price per share,
with the effect on the Exercise Price specified in Section 3.2(a)
hereof. Except as provided in Section 3.2(b) hereof, no further
adjustment of the Exercise Price shall be made upon the actual
issuance of such Common Stock or of such Convertible Securities upon
exercise of such rights or options or upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) Change in Option Price or Conversion Rate. Upon
the happening of any of the following events, namely, if the purchase
price provided for in any right or option referred to in Section
3.2(b), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
Section 3.2(b), or the rate at which any Convertible Securities
referred to in Section 3.2(b), are convertible into or exchangeable
for Common Stock shall change (other than under or by reason of
provisions designed to protect against dilution), the Exercise Price
then in effect hereunder shall forthwith be readjusted (increased or
decreased, as the case may be) to the Exercise Price that would have
been in effect at such time had such rights, options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold. On the expiration of any
such option or right referred to in Section 3.2(b), or on the
termination of any such right to convert or exchange any such
Convertible Securities referred to in Section 3.2(b), the Exercise
Price then in effect hereunder shall forthwith be readjusted
(increased or decreased, as the case may be) to the Exercise Price
that would have been in effect at the time of such expiration or
termination had such right, option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been granted, issued or sold, and the Common Stock
issuable thereunder shall no longer be deemed to be Outstanding. If
the purchase price provided for in Section 3.2(b) or the rate at which
any Convertible Securities referred to in Section 3.2(b) reduced at
any time under or by reason of provisions with respect thereto
designed to protect against dilution, then in case of the
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<PAGE> 6
delivery of Common Stock upon the exercise of any such right or option
or upon conversion or exchange of any such Convertible Securities, the
Exercise Price then in effect hereunder shall, if not already
adjusted, forthwith be adjusted to such amount as would have obtained
had such right, option or Convertible Securities never been issued as
to such Common Stock and had adjustments been made upon the issuance
of the Common Stock delivered as aforesaid, but only if as a result of
such adjustment the Exercise Price then in effect hereunder is thereby
reduced.
(iii) Consideration for Stock. In case at any time
Common Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration therefor shall be deemed to
be the amount received by the Company therefor. In case at any time
any Common Stock, Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall be
issued or sold for consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed
to be the fair value of such consideration, as determined reasonably
and in good faith by the Board of Directors of the Company. In case at
any time any Common Stock, Convertible Securities or any rights or
options to purchase any Common Stock or Convertible Securities shall
be issued in connection with any merger or consolidation in which the
Company is the surviving corporation, the amount of consideration
received therefor shall be deemed to be the fair value, as determined
reasonably and in good faith by the Board of Directors of the Company,
of such portion of the assets and business of the nonsurviving
corporation as such Board of Directors may determine to be
attributable to such Common Stock, Convertible Securities, rights or
options as the case may be. In case at any time any rights or options
to purchase any shares of Common Stock or Convertible Securities shall
be issued in connection with the issuance and sale of other securities
of the Company, together consisting of one integral transaction in
which no consideration is allocated to such rights or options by the
parties, such rights or options shall be deemed to have been issued
with consideration.
(iv) Record Date. In the case the Company shall take
a record of the holders of its Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable
in Common Stock or Convertible Securities, or (ii) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issuance or sale of the Common
Stock or Convertible Securities deemed to have been issued or sold as
a result of the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(v) Treasury Shares. The number of shares of Common
Stock Outstanding at any given time shall not include shares owned
directly by the Company in treasury, and the disposition of any such
shares shall be considered an issuance or sale of Common Stock for the
purpose of this Section 3.2.
Section III.3 Stock Dividends. In case the Company shall declare a
dividend or make any other distribution upon any shares of the Company, payable
in Common Stock or Convertible Securities, any Common Stock or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without consideration.
Section III.4 Stock Splits and Reverse Splits. In the event that the
Company shall at any time subdivide its Outstanding shares of Common Stock into
a greater number of shares, the Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of Warrant
Shares purchasable pursuant to this Warrant immediately prior to such
subdivision shall be proportionately increased, and conversely, in the event
that the Outstanding shares of Common Stock shall at any time be combined into
a smaller number of shares, the Exercise Price in effect immediately prior to
such combination shall be proportionately increased and the number of Warrant
Shares purchasable upon the exercise of this Warrant immediately prior to such
combination shall be proportionately reduced. Except as provided in this
Section 3.4, no adjustment in the Exercise Price and no change in the number of
Warrant Shares purchasable shall be made under this Article III as a result of
or by reason of any such subdivision or combination.
Section III.5 Reorganizations and Asset Sales. If any capital
reorganization or reclassification of the capital stock of the Company, or any
consolidation, merger or share exchange of the Company with another person, or
the sale, transfer or other disposition of all or substantially all of its
assets to another person shall be effected in such a way that a holder of
Common Stock of the Company shall be entitled to receive capital stock,
securities or assets with respect to or in exchange for their shares, then the
following provisions shall apply:
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<PAGE> 7
(a) As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in this Section 3.5), lawful and adequate
provisions shall be made whereby the holder of Warrants shall thereafter have
the right to purchase and receive upon the terms and conditions specified in
this Warrant and in lieu of the Warrant Shares immediately theretofore
receivable upon the exercise of the rights represented hereby, such shares of
capital stock, securities or assets as may be issued or payable with respect to
or in exchange for a number of Outstanding shares of such Common Stock equal to
the number of Warrant Shares immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger, share exchange or sale
not taken place, and in any such case appropriate provision reasonably
satisfactory to such holder shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Exercise Price and of the
number of Warrant Shares receivable upon the exercise) shall thereafter be
applicable, as nearly as possible, in relation to any shares of capital stock,
securities or assets thereafter deliverable upon the exercise of Warrants.
(b) In the event of a merger, share exchange or consolidation
of the Company with or into another person as a result of which a number of
shares of Common Stock or its equivalent of the successor person greater or
lesser than the number of shares of Common Stock Outstanding immediately prior
to such merger, share exchange or consolidation are issuable to holders of
Common Stock, then the Exercise Price in effect immediately prior to such
merger, share exchange or consolidation shall be adjusted in the same manner as
though there were a subdivision or combination of the Outstanding shares of
Common Stock.
(c) The Company shall not effect any such consolidation,
merger, share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor person (if other
than the Company) resulting from such consolidation, share exchange or merger
or the person purchasing or otherwise acquiring such assets shall have assumed
by written instrument executed and mailed or delivered to the Holder hereof at
the last address of such holder appearing on the books of the Company the
obligation to deliver to such holder such shares of capital stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive, and all other liabilities and obligations of the Company
hereunder. Upon written request by the Holder hereof, such successor person
will issue a new Warrant revised to reflect the modifications in this Warrant
effected pursuant to this Section 3.5.
(d) If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the Outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger, share exchange
or sale, transfer or other disposition of all or substantially all of the
Company's assets with the person having made such offer or with any affiliate
of such person, unless prior to the consummation of such consolidation, merger,
share exchange, sale, transfer or other disposition the Holder hereof shall
have been given a reasonable opportunity to then elect to receive upon the
exercise of the Warrants either the capital stock, securities or assets then
issuable with respect to the Common Stock or the capital stock, securities or
assets, or the equivalent, issued to previous holders of the Common Stock in
accordance with such offer.
Section III.6 Adjustment for Asset Distribution. If the Company
declares a dividend or other distribution payable to all holders of shares of
Common Stock in evidences of indebtedness of the Company or other assets of the
Company (including, cash (other than regular cash dividends declared by the
Board of Directors), capital stock (other than Common Stock, Convertible
Securities or options or rights thereto) or other property), the Exercise Price
in effect immediately prior to such declaration of such dividend or other
distribution shall be reduced by an amount equal to the amount of such dividend
or distribution payable per share of Common Stock, in the case of a cash
dividend or distribution, or by the fair value of such dividend or distribution
per share of Common Stock (as reasonably determined in good faith by the Board
of Directors of the Company), in the case of any other dividend or
distribution. Such reduction shall be made whenever any such dividend or
distribution is made and shall be effective as of the date as of which a record
is taken for purpose of such dividend or distribution or, if a record is not
taken, the date as of which holders of record of Common Stock entitled to such
dividend or distribution are determined.
Section III.7 De Minimis Adjustments. No adjustment in the number of
shares of Common Stock purchasable hereunder shall be required unless such
adjustment would require an increase or decrease of at least one share of
Common Stock purchasable upon an exercise of each Warrant and no adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least $0.01 in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 3.7 are not
required to be made shall be carried forward and taken into account
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<PAGE> 8
in any subsequent adjustment. All calculations shall be made to the nearest
full share or nearest one-hundredth of a dollar, as applicable.
Section III.8 Notice of Adjustment. Whenever the Exercise Price or the
number of Warrant Shares issuable upon the exercise of the Warrants shall be
adjusted as herein provided, or the rights of the Holder hereof shall change by
reason of other events specified herein, the Company shall compute the adjusted
Exercise Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare an Officer's Certificate setting forth the
adjusted Exercise Price and the adjusted number of Warrant Shares issuable upon
the exercise of the Warrants or specifying the other shares of stock,
securities or assets receivable as a result of such change in rights, and
showing in reasonable detail the facts and calculations upon which such
adjustments or other changes are based. The Company shall cause to be mailed to
the Holder hereof copies of such Officer's Certificate together with a notice
stating that the Exercise Price and the number of Warrant Shares purchasable
upon exercise of the Warrants have been adjusted and setting forth the adjusted
Exercise Price and the adjusted number of Warrant Shares purchasable upon the
exercise of the Warrants.
Section III.9 Notifications to Holders. In case at any time the
Company proposes:
(a) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution (other than
cash dividends) to the holders of its Common Stock;
(b) to offer for subscription pro rata to all of the holders
of its Common Stock any additional shares of capital stock of any class or
other rights;
(c) to effect any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation, merger or share exchange
of the Company with another person, or sale, transfer or other disposition of
all or substantially all of its assets; or
(d) to effect a voluntary or involuntary dissolution,
liquidation or winding up of the Company, then, in any one or more of such
cases, the Company shall give the Holder hereof (a) at least ten (10) days'
(but not more than ninety (90) days') prior written notice of the date of which
the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining rights to vote
in respect of such issuance, reorganization, reclassification, consolidation,
merger, share exchange, sale, transfer, disposition, dissolution, liquidation
or winding up, and (b) in the case of any such issuance, reorganization,
reclassification, consolidation, merger, share exchange, sale, transfer,
disposition, dissolution, liquidation or winding up, at least ten (10) days'
(but not more than ninety (90) days') prior written notice of the date when the
same shall take place. Such notice in accordance with the foregoing clause
"(a)" shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause "(b)"
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock, as the case may be, for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition,
dissolution, liquidation or winding up, as the case may be.
Section III.10 Company to Prevent Dilution. If any event or condition
occurs as to which other provisions of this Article III are not strictly
applicable or if strictly applicable would not fairly protect the exercise or
purchase rights of the Warrants evidenced hereby in accordance with the
essential intent and principles of such provisions, or that might materially
and adversely affect the exercise or purchase rights of the Holder hereof under
any provisions of this Warrant, then the Company shall make such adjustments in
the application of such provisions, in accordance with such essential intent
and principles, so as to protect such exercise and purchase rights as
aforesaid, and any adjustments necessary with respect to the Exercise Price and
the number of Warrant Shares purchasable hereunder so as to preserve the rights
of the Holder hereunder. In no event shall any such adjustment have the effect
of increasing the Exercise Price as otherwise determined pursuant to this
Article III except in the event of a combination of shares of the type
contemplated in Section 3.4 hereof, and then in no event to an amount greater
than the Exercise Price as adjusted pursuant to Section 3.4 hereof.
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ARTICLE IV
MISCELLANEOUS
Section IV.1 Entire Agreement. This Warrant, together with the
Agreement, contain the entire agreement between the Holder hereof and the
Company with respect to the Warrant Shares purchasable upon exercise hereof and
the related transactions and supersedes all prior arrangements or
understandings with respect thereto.
Section IV.2 Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
Section IV.3 Waiver and Amendment. Any term or provision of this
Warrant may be waived at any time by the party which is entitled to the
benefits thereof and any term or provision of this Warrant may be amended or
supplemented at any time by agreement of the Holder hereof and the Company,
except that any waiver of any term or condition, or any amendment or
supplementation, of this Warrant shall be in writing. A waiver of any breach or
failure to enforce any of the terms or conditions of this Warrant shall not in
any way effect, limit or waive a party's rights hereunder at any time to
enforce strict compliance thereafter with every term or condition of this
Warrant.
Section IV.4 Illegality. In the event that any one or more of the
provisions contained in this Warrant shall be determined to be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
Section IV.5 Copy of Warrant. A copy of this Warrant shall be filed
among the records of the Company.
Section IV.6 Notice. All notices, requests, demands or other
communications to or upon the respective parties hereto shall be deemed to have
been duly given or made when delivered to the party to which such notice,
request, demand or other communication is required or permitted to be given or
made under this Warrant addressed to such party at its address set forth below
or at such other address as either of the parties hereto may hereafter notify
the other in writing.
To Pledgor: INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr., Esq.
Secured Party: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-7640
Telecopy: 713-297-1734
Attention: Donald H. Gullquist, Trustee
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
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For wire transfers of funds to Lender under all Transaction Documents:
Chase Bank of Texas - Houston, Texas
ABA #113000609
Trust Wires Clearing Account DDA #00101606276
Description: Intelect Communications Receipts
OBI# Att: Trust Receipts FFC: 5502001-1867300
The Coastal Corporation Second Pension Trust
Att: Mary Grace Greenwood - (713) 216-4539
Section IV.7 Limitation of Liability; Not Stockholders. No provision
of this Warrant shall be construed as conferring upon the Holder hereof the
right to vote, consent, receive dividends or receive notices (other than as
herein expressly provided) in respect of meetings of stockholders for the
election of directors of the Company or any other matter whatsoever as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Holder hereof to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such holder for the purchase price of any shares of
Common Stock or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
Section IV.8 Exchange, Loss, Destruction, etc. of Warrant. Upon
receipt of evidence satisfactory to the Company of the loss, theft, mutilation
or destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such
lost, stolen, destroyed or mutilated Warrant. Any Warrant issued under the
provisions of this Section 4.8 in lieu of any Warrant alleged to be lost,
destroyed or stolen, or in lieu of any mutilated Warrant, shall constitute an
original contractual obligation on the part of the Company. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection
with any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 4.8.
Section IV.9 Registration Rights. The Warrant Shares shall be entitled
to such registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.
Section IV.10 Headings. The Article and Section and other headings
herein are for convenience only and are not a part of this Warrant and shall
not affect the interpretation thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued
as August 13, 1999
INTELECT COMMUNICATIONS, INC.
By:
---------------------------------
Herman M. Frietsch
Chairman & CEO
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<PAGE> 11
SUBSCRIPTION NOTICE
The undersigned, the Holder of the foregoing Warrant, hereby elects to
exercise purchase rights represented thereby for and to purchase thereunder,
shares of the Common Stock covered by such Warrant, and herewith makes payment
in full for such shares pursuant to Section 1.1 of such Warrant, and requests
(a) that certificates for such shares (and any other securities or other
property issuable upon such exercise) be issued in the name of, and delivered
to THE COASTAL CORPORATION SECOND PENSION TRUST and (b), if such shares shall
not include all of the shares issuable as provided in such Warrant, that a new
Warrant of like tenor and date for the balance of the shares issuable
thereunder be delivered to the undersigned.
THE COASTAL CORPORATION SECOND PENSION TRUST
By:
-----------------------------------------
Date:
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<PAGE> 12
ASSIGNMENT
For value received, _______________________, hereby sells, assigns,
and transfers unto _________________________ the within Warrant, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint ________________________ attorney, to transfer such Warrant on the
books of the Company, with full power of substitution.
---------------------------
Date:
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<PAGE> 1
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Rights
Agreement") is made as of August 13, 1999, by and between INTELECT
COMMUNICATIONS, INC., a Delaware corporation ("ICI" or the "Company"), and THE
COASTAL CORPORATION SECOND PENSION TRUST ("Purchaser").
W I T N E S S :
WHEREAS, on the date hereof, Purchaser received from the Company
Warrants to purchase shares of the Company's common stock, $.01 par value (the
"Common Stock") which may be exercised to acquire a certain number of shares of
Common Stock, subject to adjustment (the "Shares");
WHEREAS, the Company wishes to grant Purchaser certain registration
rights in respect of the Shares, as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
The capitalized terms used herein shall have the meanings given in the
Loan Agreement or as set forth below:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall have the meaning given in the recitals.
"Company" shall have the meaning given in the Preamble.
"Exchange Act" means the Securities Exchange Act of 1934.
"Indemnified Party" shall have the meaning given in Section 2.5.3.
"Indemnifying Party" shall have the meaning given in Section 2.5.3.
"Loan Agreement" means the Amended and Restated Loan Agreement For
Receivables- And Inventory-backed Borrowing of even date as it may be amended,
renewed or restated.
"Maker" means Intelect Communications Inc.
"Note" shall mean the note issued under the Loan Agreement.
"Purchaser" shall have the meaning given in the Preamble.
The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"Registrable Securities" shall mean (i) the Shares; and (ii) any Common
Stock issued or issuable at any time or from time to time in respect of the
Shares upon a stock split, stock dividend, recapitalization or other similar
event involving the Company.
<PAGE> 2
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Registration Rights Agreement, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, Blue Sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
"Registration Statement" shall have the meaning given in Section 2.1.1.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the holders of the Registrable Securities and, except as set forth above, all
fees and disbursements of counsel for such holders.
"Selling Security Holder" shall have the meaning given in Section
2.5.4.
"Shares" shall mean Common Stock acquired by Purchaser by any means,
including Repayment Shares and through exercise of the Warrants.
"Underwritten Public Offering" shall mean a public offering in which
the Common Stock is offered and sold on a firm commitment basis through one or
more underwriters, all pursuant to (i) an effective registration statement under
the Securities Act and (ii) an underwriting agreement between the Company and
such underwriters.
"Warrants" means a Warrant to purchase shares of ICI's Common Stock,
par value $.01 per share, dated as of the date hereof, executed by ICI in favor
of Holder, as hereafter amended, modified, substituted, supplemented or
replaced.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration.
2.1.1 At any time and from time to time, a holder or holders of
Registrable Securities holding in the aggregate at least ONE HUNDRED THOUSAND
(100,000) Shares of the then existing Registrable Securities may make a one-time
written demand upon the Company, to file, within sixty (60) days after such
written demand is made, with the Securities and Exchange Commission a shelf
registration statement covering the resale of all of the Registrable Securities
on Form S-1, S-2 or S-3 (the "Registration Statement"). The Company shall use
its reasonable best efforts to cause such Registration Statement to become
effective as soon as practicable and to cause all of the Registrable Securities
to be qualified in such state jurisdictions as the holders may request.
2.1.2 Except as set forth herein, the Company shall take all
reasonable steps necessary to keep the Registration Statement current and
effective until the lesser of: (i) two years and (ii) until the Registrable
Securities are transferable pursuant to Rule 144 under the Securities Act
without the volume limitations set forth in such rule.
2.1.3 The Company shall be entitled to require that a holder or
holders of Registrable Securities refrain from effecting any public sales or
distributions of the Registrable Securities pursuant to a Registration Statement
that has been declared effective by the Commission or otherwise, if the board of
directors of the Company reasonably determines that such public sales or
distributions would interfere in any material respect with any transaction
involving the Company that the board of directors reasonably determines to be
material to the Company. The board of directors shall, as promptly as
practicable, give the holders of the Registrable Securities written notice of
any such development. In the event of a request by the board of directors of the
Company that the holders of Registrable Securities refrain from effecting any
public sales or distributions of the Registrable Securities, the Company shall
be required to lift such restrictions regarding effecting public sales or
distributions of the Registrable Securities as soon as reasonably practicable
after the board of directors shall
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<PAGE> 3
reasonably determine public sales or distributions by the holders of the
Registrable Securities shall not interfere with such transaction, provided, that
in no event shall any requirement that the holders of Registrable Securities
refrain from effecting public sales or distributions if the Registrable
Securities extend for more than ninety (90) days.
2.1.4 Notwithstanding the foregoing, the one-time demand
registration rights provided in this Section 2.1 shall be subject to the
following additional limitations:
(i) Company shall not be obligated to file such Registration
Statement on a Form S-2 or S-3 if it does not then meet the
requirements (including the financial statement requirements)
of such Form, and if the Company is required to file a Form
S-1, it should not be obligated to file the Form S-1 until it
shall have prepared current financial statements as required
by Form S-1;
(ii) If, upon receipt of any request for registration of
Registrable Securities pursuant to this Section 2.1, the
Company is then engaged by a reputable and nationally or
regionally recognized investment banking firm regarding a
good faith proposed registered public offering of Shares of
Common Stock, then the Company shall give notice of such
negotiations to all holders of Registrable Securities within
fifteen (15) days of the date upon which the Company received
such holder's request and the Company shall not, for sixty
(60) days after giving such notice to such holders, be
required to undertake a required registration of the
Registrable Securities pursuant to this Section 2.1 in
response to such holder's request; provided, however, that if
such registration statement of such proposed public offering
is not filed within sixty (60) days after the Company gives
such notice to holders of the Registrable Securities, the
Company shall respond to the holder's request for
registration of Registrable Securities and, unless otherwise
required by the provisions of this Section 2.1, register such
Registrable Securities, no later than twenty (20) days after
the expiration of such sixty (60) day period and as provided
herein.
2.2 Piggyback Registration.
2.2.1 Subject to the terms hereof, if at any time or from time to
time the Company or any shareholder of the Company shall determine to register
any of its securities (except for registration statements relating to employee
benefit plans or exchange offers), either for its own account or the account of
a security holder, the Company will promptly give to the holders of Registrable
Securities written notice thereof not less than 30 days prior to the filing of
any registration statement; and include in such registration (and any related
qualification under Blue Sky laws or other compliance), and in the underwriting
involved therein, if any, such Registrable Securities as such holders may
request in a writing delivered to the Company within twenty (20) days after the
holders' receipt of Company's written notice.
2.2.2 The holders of Registrable Securities may participate in any
number of registrations until all of the Shares held by holders of Registrable
Securities have been distributed pursuant to a registration or until the Shares
are transferable pursuant to Rule 144 under the Securities Act.
2.2.3 If any registration statement is an Underwritten Public
Offering, the right of holders of Registrable Securities to registration
pursuant to this Section shall be conditioned upon each such holder's
participation in such reasonable underwriting arrangements as the Company shall
make regarding the offering, and the inclusion of Registrable Securities in the
underwriting shall be limited to the extent provided herein. Holders of
Registrable Securities and all other shareholders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section, if the managing underwriter concludes in its
reasonable judgment that the number of Shares to be registered for selling
shareholders (including the holders of Registrable Securities) would materially
adversely effect such offering, the number of Shares to be registered, together
with the number of Shares of Common Stock or other securities held by other
shareholders proposed to be registered in such offering, shall be reduced on a
pro rata basis based on the number of Shares proposed to be sold by the holders
of Registrable Securities as compared to the number of Shares proposed to be
sold by all shareholders. If any holder of Registrable Securities disapproves of
the terms of any such underwriting,
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<PAGE> 4
it may elect to withdraw therefrom by written notice to the Company and the
managing underwriter, delivered not less than 10 days before the effective date.
The Registrable Securities excluded by the managing underwriter or withdrawn
from such underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to one hundred twenty (120) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
2.2.4 The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section prior to the effectiveness of
such registration whether or not the holders of Registrable Securities have
elected to include securities in such registration.
2.3 Expenses of Registration. All Registration Expenses shall be borne
by the Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of the holders of Registrable Securities shall
be borne by the holders of Registrable Securities.
2.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep the holders of Registrable
Securities advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company will:
2.4.1 Prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable efforts to
cause such registration statement to become and remain effective until the
distribution described in such registration statement has been completed;
2.4.2 Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such underwriter
may reasonably request in order to facilitate the public sale of the Shares by
such underwriter, and promptly furnish to each underwriter and the holders of
Registrable Securities notice of any stop-order or similar notice issued by the
Commission or any state agency charged with the regulation of securities, and
notice of any NASDAQ or securities exchange listing; and
2.4.3 Cause the Shares to be listed on the NASDAQ small-cap market
or a securities exchange on which the Common Stock is approved for listing.
2.5 Indemnification.
2.5.1 To the extent permitted by law, the Company will indemnify
each holder of Registrable Securities, each of its officers and directors and
partners, and each person controlling such holder within the meaning of Section
15 of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
or liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, to the extent
such expenses, claims, losses, damages or liabilities arise out of or are based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
similar document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each holder of
Registrable Securities, each of its officers and directors and partners, and
each person controlling each holder of Registrable Securities, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained herein shall not apply to
amounts paid in settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Company (which consent shall
not unreasonably be withheld); provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arising
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<PAGE> 5
out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by a holder of Registrable Securities, such
controlling person or such underwriter specifically for use therein; provided,
however, that the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability, or expense if settlement is
effected without the consent of such holder of Registrable Securities (which
consent shall not be unreasonably withheld). Notwithstanding the foregoing,
insofar as the foregoing indemnity relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in the
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective or in the final prospectus filed with the Commission pursuant to the
applicable rules of the Commission or in any supplement or addendum thereto, the
indemnity agreement herein shall not inure to the benefit of any underwriter if
a copy of the final prospectus filed pursuant to such rules, together with all
supplements and addenda thereto, was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act.
2.5.2 To the extent permitted by law, each holder of Registrable
Securities will, if securities held by such holder are included in the
securities as to which such registration, qualification or compliance is being
effected pursuant to terms hereof, indemnify the Company, each of its directors
and officers, each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other person selling the Company's securities covered by such registration
statement, each of such person's officers and directors and each person
controlling such persons within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) by such holder of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
such holder of Registrable Securities of any rule or regulation promulgated
under the Securities Act applicable to holders of Registrable Securities and
relating to action or inaction required of holders of Registrable Securities in
connection with any such registration, qualification or compliance, and will
reimburse the Company, such other persons, such directors, officers, persons,
underwriters or control persons for any legal or other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such holder of Registrable Securities specifically
for use therein; provided, however, that the indemnity contained herein shall
not apply to amounts paid in settlement of any claim, loss, damage, liability or
expense if settlement is effected without the consent of such holder of
Registrable Securities (which consent shall not be unreasonably withheld).
Notwithstanding the foregoing, the liability of such Holder of Registrable
Securities under this Subsection 2.5.2 shall be limited in an amount equal to
the net proceeds from the sale of the Shares sold by such holder of Registrable
Securities, unless such liability arises out of or is based on willful conduct
by such holder of Registrable Securities. In addition, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement becomes effective or in the final prospectus filed
pursuant to applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of the
Company or any underwriter, if a copy of the final prospectus filed pursuant to
such rules, together with all supplements and addenda thereto, was not furnished
to the person or entity asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act.
2.5.3 Notwithstanding Sections 2.5.1 and 2.5.2, each party entitled
to indemnification under this Section (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action and provided further, that the
Indemnifying
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<PAGE> 6
Party shall not assume the defense for matters as to which there is a conflict
of interest or as to which the Indemnifying Party is asserting separate or
different defenses, which defenses are inconsistent with the defenses of the
Indemnified Party. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnified Party shall consent to entry of any judgment or enter
into any settlement without the consent of each Indemnifying Party.
2.5.4 If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and all shareholders offering
securities in the offering (the "Selling Security Holders") on the other from
the offering of the Company's securities, or (ii) if the allocation provided by
clause "(i)" above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
"(i)" above but also the relative fault of the Company on the one hand and the
Selling Security Holders on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Selling Security Holders on the other
shall be the net proceeds from the offering (before deducting expenses) received
by the Company on the one hand and the Selling Security Holders on the other.
The relative fault of the Company on the one hand and the Selling Security
Holders on the other shall be determined by reference to, among other things,
whether the untrue (or alleged untrue) statement of material fact (or the
omission) or alleged omission to state a material fact relates to information
supplied by the Company or by the Selling Security Holders and the parties'
relevant intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Selling Security Holders
agree that it would not be just and equitable if contribution pursuant to this
Section were based solely upon the number of entities from whom contribution was
requested or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section. The amount paid
or payable by an Indemnified Party as a result of the losses, claims, damages
and liabilities referred to above in this Section shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim, subject to
the provisions hereof. Notwithstanding the provisions of this Section, no
Selling Shareholder shall be required to contribute any amount or make any other
payments under this Agreement which in the aggregate exceed the proceeds
received by such Selling Shareholder. No person guilty of fraudulent
misrepresentation (within the meaning of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
2.6 Certain Information.
2.6.1 The holders of Registrable Securities agree, with respect to
any Registrable Securities included in any registration, to furnish to the
Company such information regarding such holder, the Registrable Securities and
the distribution proposed by the such holder as the Company may reasonably
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to herein.
2.6.2 The failure of the holder of Registrable Securities to
furnish the information requested pursuant to Section 2.6.1 shall not affect the
obligation of the Company to the other Selling Security Holders who furnish such
information unless, in the reasonable opinion of counsel to the Company or the
underwriters, such failure impairs or may impair the legality of the
Registration Statement or the underlying offering.
2.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of Restricted Securities (used herein as defined in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to use
its best lawful efforts to:
2.7.1 Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
during which the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act");
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<PAGE> 7
2.7.2 File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at all times during which the Company is subject to such reporting
requirements); and
2.7.3 So long as any holder of Registrable Securities owns any
Restricted Securities (as defined in Rule 144 promulgated under the Securities
Act), to furnish to such holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 and with regard to the Securities Act and the Exchange Act (at all times
during which the Company is subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as such holder of Registrable Securities
may reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any such securities without
registration.
2.8 Transferability. The rights conferred by this Agreement shall be
freely transferable to a recipient of Registrable Securities, provided that such
recipient shall agree to be bound by the terms and conditions of this Agreement
and shall execute such documentation as the Company reasonably requests to
evidence such agreement.
2.9 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY
THE LAWS OF THE STATE OF TEXAS.
2.10 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the Company and the
Purchaser.
2.11 Notices, etc. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement or the Note, addressed to
such party at its address set forth below or at such other address as either of
the parties hereto may hereafter notify the other in writing:
To Company: INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: 972-367-2100
Telecopy: 972-367-2271
Attention: Herman Frietsch, Chairman and CEO
with a copy to: RYAN & SUDAN, L.L.P.
909 Fannin, 39th Floor
Houston, Texas 77010
Telephone: 713-652-0501
Telecopy: 713-652-0503
Attention: Philip P. Sudan, Jr., Esq.
To Holder: THE COASTAL CORPORATION SECOND PENSION TRUST
Nine Greenway Plaza
Houston, Texas 77046-0995
Telephone: 713-877-7640
Telecopy: 713-297-1734
Attention: Donald H. Gullquist, Trustee
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<PAGE> 8
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
For wire transfers of funds to Lender under all Transaction Documents:
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
2.12 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
2.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
2.14 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
2.15 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
IN WITNESS WHEREOF, the Parties have executed this agreement as of the
date first set forth above.
THE COASTAL CORPORATION INTELECT COMMUNICATIONS, INC.
SECOND PENSION TRUST
By: By:
-------------------------------- --------------------------------------
Donald H. Gullquist Herman M. Frietsch
Senior Vice President Chairman & CEO
The Coastal Corporation
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<PAGE> 1
EXHIBIT 10.7
REPAYMENT AND EXCHANGE AGREEMENT
REPAYMENT AND EXCHANGE AGREEMENT (this "Agreement"), dated as of August
13, 1999, by and among Intelect Communications, Inc., a Delaware corporation
(the "Company"), and St. James Capital Partners, L.P., a Delaware limited
partnership ("SJCP"), SJMB, L.P., a Delaware limited partnership ("SJMB") (SJCP
and SJMB, collectively the "St. James Parties").
WHEREAS, pursuant to that certain Agreement of Purchase and Sale (the
"Agreement of Purchase and Sale") dated as of February 12, 1998 among the
Company and SJCP, as partially assigned to SJMB, as of April 2, 1998 the Company
issued to SJMB that certain $13 million Convertible Promissory Note (the "SJMB
Note") and issued to SJCP that certain $2 million Convertible Promissory Note
(the "SJCP Note")(the SJMB Note and the SJCP Note collectively the "Notes");
WHEREAS, the terms of the Notes presently provide that the holders may
convert such Notes into common stock, par value $0.01 of the Company (the
"Common Stock") at a conversion price of $9.082;
WHEREAS, the Company and the St. James Parties desire that the Company
repay the accrued and unpaid interest and the principal balance on the SJCP Note
and a portion of the accrued interest and principal on the SJMB Note in exchange
for shares of Common Stock in partial repayment of the Notes;
WHEREAS, the Company desires to grant to SJMB and SJCP certain
registration rights in respect to the shares of the Company's Common Stock to be
issued in exchange for the repayment of the Notes, which registration rights
shall have the terms and be subject to the conditions set forth in the
Registration Rights Agreement attached hereto as Exhibit A (the "Registration
Rights Agreement"; this Agreement and the Registration Rights Agreement are
collectively referred to as the "Transaction Documents").
NOW, THEREFORE, in consideration of the foregoing and the mutual and
respective representations, warranties and agreements herein, the parties agree
as follows:
ARTICLE I
REPAYMENT OF THE NOTES.
1.1 Partial Repayment of the SJCP Note. Subject to the terms of this
Agreement, the Company and SJCP hereby agree, that on the Closing Date, in
partial repayment of the SJCP Note, the Company shall issue that number of
shares of Common Stock (the "SJCP Base Shares") equal to the "Initial SJCP
Exchange Amount" divided by the "Exchange Price" (the "Initial Exchange"). The
"Initial SJCP Exchange Amount" shall be the sum of $2,000,000, which shall
represent the accrued and unpaid interest on the SJCP Note as of the date hereof
with the remainder representing
<PAGE> 2
unpaid principal on the SJCP Note. Notwithstanding the foregoing, SJCP shall be
entitled to an additional amount of Common Stock equal to (A) the quotient
obtained by dividing (x) the sum of the outstanding principal amount under the
SJCP Note had such note not been exchanged pursuant to Section 1.1 hereof plus
accrued and unpaid interest on the Closing Date, by (y) 66_% of the Market Price
Per Share (as defined hereinafter) of the Common Stock of the Company on the
Closing Date minus (B) the SJCP Base Shares (the "SJCP Additional Shares")(the
"SJCP Base Shares and the SJCP Additional Shares collectively the "Initial SJCP
Exchange Shares").
As used in this Agreement, the following terms shall have the following
meanings:
"Closing Date" shall be the date hereof.
"Exchange Price" shall be $1.08.
"Market Price Per Share" shall mean the average closing bid price of
the Common Stock as reported on the Nasdaq Stock Market for the five consecutive
trading days prior to the date of determination.
1.2 Issuance of Common Stock in Repayment for Balance of SJCP
Replacement Note and as Partial Repayment of SJMB Note. Within two (2) business
days following the effectiveness of the Required Registration Statement under
the Registration Rights Agreement (the "Issuance Date"), subject to the terms
and conditions of this Agreement, the Company shall issue to SJCP and SJMB
shares of Common Stock in repayment (the "Mandatory Exchange") of an additional
$1 million of the Notes at the Mandatory Exchange Price (as hereafter defined)
to be applied as follows: (A) first, to the accrued interest and principal
balance of the SJCP Note after giving effect to Section 1.1 (the "Mandatory SJCP
Exchange Amount") and (B) second, to the accrued and unpaid interest on the SJMB
Notes and the balance to be applied to the reduction of principal on the SJMB
Note (the "Mandatory SJMB Exchange Amount"). The number of shares issuable to
SJCP on the Issuance Date shall equal a number of shares of the Common Stock of
the Company equal to the quotient obtained by dividing (I) the Mandatory SJCP
Exchange Amount, by (II) the Mandatory Exchange Price (the "Mandatory SJCP
Exchange Shares") . The number of shares issuable to SJMB under this section
shall be equal to a number of shares of the Common Stock of the Company equal to
the quotient obtained by dividing (I) the Mandatory SJMB Exchange Amount, by
(II) the Mandatory Exchange Price (the "Mandatory SJMB Exchange Shares"). The
Mandatory SJCP Exchange Shares and the Mandatory SJMB Exchange Shares
hereinafter collectively the "Mandatory Exchange Shares".
The "Mandatory Exchange Price" shall mean 66_% of the Market Price Per
Share of the Common Stock of the Company on the effective date of the Required
Registration Statement.
1.3 Optional Exchange of SJCP Replacement Note and Portion of SJMB
Note. Notwithstanding anything herein to the contrary, subject to the terms and
conditions hereof, SJCP or SJMB has the option, at any time following the
Mandatory Exchange by providing the Company
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<PAGE> 3
at least five (5) business days prior written notice (the "Optional Exchange
Notice"), to exchange in minimum increments of at least $1.5 million (the
"Minimum Amount") of outstanding principal and accrued interest in the SJCP
Note, if any, and the SJMB Note for the remaining term of the Notes (the
"Optional Exchange Shares") at the Optional Exchange Price. The Optional
Exchange Price shall be the greater of (A) $1.08 or (B) 66 2/3% of the Market
Price Per Share on the date of the receipt by the Company of the Optional
Exchange Notice. The Minimum Amount shall not apply to the SJCP Note or the SJMB
Note, as the case may be, in the event that the remaining principal and interest
on the SJCP Note, if any, or the SJMB Note is less than the Minimum Amount;
provided, that in such event the party exercising its rights under this Section
1.3 shall be required to convert all of the remaining amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 SJMB hereby represents and warrants to the Company as follows:
(a) Partnership Status; Authority; Enforceability; No
conflicts; etc. SJMB is a limited partnership, duly formed under the laws of the
State of Delaware, and has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions hereunder have been duly
authorized by all required partnership actions. This Agreement has been duly
executed and delivered on behalf of SJMB and is a legal, valid and binding
obligation, enforceable in accordance with its terms, subject to applicable
bankruptcy and insolvency laws and general principles of equity. This Agreement
does not conflict with any of SJMB's organizational documents or partnership
agreement, or any other contract or agreement to which it is a party, or any
law, rule or regulation binding on or applicable to SJMB.
(b) Ownership of SJMB Note. SJMB represents that SJMB is the
sole owner of the SJMB Note, and, except with respect to a security interest in
favor of U.S. Bank, National Association, a participation interest of Falcon
Seaboard Co., Inc. and the encumbrances described in the SJMB Note, such note is
held free and clear of all liens, claims, security interests, hypothecations,
encumbrances, adverse claims or other rights of third parties of any kind.
(c) Accredited Investor Status. SJMB is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
(d) Reliance on Exemptions. SJMB understands that the
Mandatory SJMB Exchange Shares which may be issued under this Agreement would be
issued 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 SJMB's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of SJMB in order to determine the availability of such
exemptions and the eligibility of SJMB to acquire the Mandatory SJMB Exchange
Shares.
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<PAGE> 4
(e) Information. SJMB and its advisors, if any, have been
afforded the opportunity to ask questions of the Company, including its
management. SJMB has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition, if any, of the Mandatory SJMB Exchange Shares or the Optional
Exchange Shares. SJMB acknowledges that:
(i) it has access to copies of (and acknowledges that
the Company has offered to provide, upon its request, copies
of) the Company's filings with the Securities Exchange
Commission (collectively, the "Public Documents");
(ii) it understands that the acquisition of the
Mandatory SJMB Exchange Shares or the Optional Exchange Shares
entails various risks including, but not limited to, those
outlined in the Public Documents and in this Agreement, and
has determined that the Mandatory SJMB Exchange Shares and the
Optional Exchange Shares are a suitable investment and that at
this time it could bear a complete loss of its investment; and
(iii) any information which SJMB has heretofore
represented or furnished to the Company with respect to its
financial sophistication is correct and complete as of the
date of this Agreement.
(g) No Governmental Review. SJMB 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 Mandatory SJMB
Exchange Shares or the Optional Exchange Shares or the fairness or suitability
of the investment in the Mandatory SJMB Exchange Shares or the Optional Exchange
Shares nor have such authorities passed upon or endorsed the merits of the
offering of the Mandatory SJMB Exchange Shares or the Optional Exchange Shares.
(h) Transfer or Resale. SJMB understands that except as
provided herein: (i) the Mandatory SJMB Exchange Shares and the Optional
Exchange Shares have not been registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered, (B) SJMB shall have delivered to the Company
an opinion of counsel, in a generally acceptable form, to the effect that the
Mandatory SJMB Repayment Shares or the Optional Exchange Shares to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (C) SJMB provides the Company with
reasonable assurance that the Mandatory SJMB Repayment Shares or the Optional
Exchange Shares can be sold, assigned or transferred pursuant to Rule 144
promulgated under the Securities Act, as amended (or a successor rule
thereto)("Rule 144"); and (ii) any sale of the Mandatory SJMB Repayment Shares
or the Optional Exchange Shares 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 shares 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 SEC
thereunder; and (iii) except as expressly provided in this Agreement or the
Registration Rights
4
<PAGE> 5
Agreement, neither the Company nor any other person is under any obligation to
register such shares under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
2.2 SJCP hereby represents and warrant to the Company as follows:
(a) Partnership Status; Authority; Enforceability; No
conflicts, etc. SJCP is a limited partnership, duly formed under the laws of the
State of Delaware, and has all requisite power and authority to enter into and
perform its obligations under this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions hereunder have been duly
authorized by all required partnership actions. This Agreement has been duly
executed and delivered on behalf of SJCP and is a legal, valid and binding
obligation, enforceable in accordance with its terms, subject to applicable
bankruptcy and insolvency laws and general principles of equity. This Agreement
does not conflict with any of SJCP's organizational documents or partnership
agreement, or any other contract or agreement to which it is a party, or any
law, rule or regulation binding on or applicable to SJCP.
(b) Ownership of SJCP Note. SJCP is the sole owner of the SJCP
Note, and, except with respect to a security interest in favor of U.S. Bank,
National Association and the encumbrances described in the SJCP Note, such note
is held free and clear of all liens, claims, security interests, hypothecations,
encumbrances and adverse claims of any kind.
(c) Accredited Investor Status. SJCP is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
(d) Reliance on Exemptions SJCP understands that the Initial
SJCP Exchange Shares, the Mandatory SJCP Shares and any Optional Exchange Shares
are being issued 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 SJCP's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of SJCP in order to determine the availability of such
exemptions and the eligibility of SJCP to acquire such shares.
(e) Information. SJCP and its advisors, if any, have been
afforded the opportunity to ask questions of the Company, including its
management. SJCP 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 Initial SJCP Exchange Shares, the Mandatory SJCP Shares and
any Optional Exchange Shares. SJCP acknowledges that:
(i) it has access to copies of (and acknowledges that
the Company has offered to provide, upon its request, copies
of) the Company's Public Documents;
(ii) it understands that the purchase of the Initial
SJCP Exchange Shares, the Mandatory SJCP Shares and any
Optional Exchange Shares entails various risks including, but
not limited to, those outlined in the Public Documents and in
this
5
<PAGE> 6
Agreement, and has determined that the Initial SJCP
Exchange Shares, the Mandatory SJCP Shares and any Optional
Exchange Shares are a suitable investment and that at this
time it could bear a complete loss of its investment; and
(iii) any information which SJCP has heretofore
represented or furnished to the Company with respect to its
financial sophistication is correct and complete as of the
date of this Agreement.
(g) No Governmental Review. SJCP 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 Initial SJCP
Exchange Shares, the Mandatory SJCP Shares and any Optional Exchange Shares or
the fairness or suitability of the investment in the Initial SJCP Exchange
Shares, the Mandatory SJCP Shares and any Optional Exchange Shares nor have such
authorities passed upon or endorsed the merits of the offering of the Initial
SJCP Exchange Shares, the Mandatory SJCP Shares and any Optional Exchange
Shares.
(h) Transfer or Resale. SJCP understands that except as
provided herein: (i) the Initial SJCP Exchange Shares, the Mandatory SJCP Shares
and any Optional Exchange Shares have not been registered under the Securities
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered, (B) SJCP shall have
delivered to the Company an opinion of counsel, in a generally acceptable form,
to the effect that the Initial SJCP Exchange Shares, the Mandatory SJCP Shares
and any Optional Exchange Shares to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such registration,
or (C) SJCP provides the Company with reasonable assurance that such SJCP
Initial SJCP Exchange Shares, the Mandatory SJCP Shares and any Optional
Exchange Shares can be sold, assigned or transferred pursuant to Rule 144; and
(ii) any sale of the Initial SJCP Exchange Shares, the Mandatory SJCP Shares and
any Optional Exchange Shares 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 such shares 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 SEC
thereunder; and (iii) except as expressly provided in this Agreement or the
Registration Rights Agreement, neither the Company nor any other person is under
any obligation to register such shares under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
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<PAGE> 7
2.3 Representations and Warranties of the Company.
The Company represents and warrants to SJCP and SJMB that:
(a) Corporate Status; Authority; Enforceability, etc. The
Company is a corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite power
and authority to enter into and perform its obligations under this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions hereunder have been duly authorized by all required corporate
action. This Agreement has been duly executed and delivered on behalf of the
Company and is a legal, valid and binding obligation, enforceable in accordance
with its terms, subject to applicable bankruptcy and insolvency laws and general
principals of equity. This Agreement does not conflict with any of the Company's
certificate of incorporation or by-laws, or any other contract or agreement to
which it is a party, or any law, rule or regulation applicable to the Company.
(b) Shares Fully Paid and Non-Assessable. When issued in
accordance with this Agreement, the shares issued hereunder will be validly
issued, fully paid and non-assessable 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.
(c) SEC Documents; Financial Statements. Since December 31,
1997, the Company 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 "Exchange
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"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange 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
included in the SEC Documents complied in all material respects with applicable
requirements of the Exchange Act 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
consolidated financial position of the Company and its subsidiaries as of the
dates thereof, or if amended prior to the date hereof, as of the date of such
amendment, and the consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
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<PAGE> 8
(d) Form S-3 Eligible. As of the date hereof, the Company
meets each of the conditions described in General Instruction I.A. to Form S-3
promulgated by the SEC for shares registered for re-sale.
(c) Nasdaq Stock Market, Inc. The Company hereby represents
and warrants that it does not fail to meet any quantitative maintenance criteria
applicable to a security listed on the SmallCap Market of the Nasdaq Stock
Market, Inc.
ARTICLE III
LEGENDED SHARES
The shares to be issued under this Agreement to SJMB and SJCP, as
applicable, shall be issued with the following restrictive legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAW (COLLECTIVELY, THE "ACTS"). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL (1) SUCH SECURITIES HAVE BEEN
REGISTERED UNDER THE ACTS OR (2) THE HOLDER OF SUCH SECURITIES PROVIDES
THE COMPANY WITH (A) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL,
WHICH COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE PROPOSED
DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION
UNDER THE ACTS OR (B) SUCH OTHER EVIDENCE AS MAY BE REASONABLY
SATISFACTORY TO THE COMPANY THAT THE PROPOSED DISPOSITION OF SUCH
SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS.
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<PAGE> 9
ARTICLE IV
REGISTRATION RIGHTS
Contemporaneously with the execution and delivery of this Agreement,
the Company, SJCP and SJMB are executing and delivering the Registration Rights
Agreement pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws. The Company
acknowledges that the term "Registrable Securities" as defined in the
Registration Rights Agreement between the Company and SJCP dated February 12,
1998 (the "1998 Registration Rights Agreement") shall be deemed to include
shares of Common Stock issuable upon operation of anti-dilution provisions in
the warrants (as defined therein) as agreed by the parties; provided the Company
shall not be required to comply with the provisions of Section 2.2.1 or 2.2.2 of
the 1998 Registration Rights Agreement by virtue of complying with its
obligation to file the Required Registration Statement, or any amendments
thereto, as defined under the Registration Rights Agreement. The Company agrees
to file the Registration Statement within ten (10) business days after the date
hereof covering the Initial SJCP Exchange Shares, the Mandatory Exchange Shares,
and the Optional Exchange Shares.
ARTICLE V
COVENANTS AND CONDITIONS
5.1 Filing of Form 8-K. On or before the fifth business day following
the Closing Date, the Company shall file a Form 8-K with the Securities and
Exchange Commission describing the terms of this Agreement and shall file this
Agreement as an Exhibit to such Form 8-K.
5.2 Issuance of Initial SJCP Shares; Nasdaq Listing. As soon as
pracitcable, but in no event more than three (3) business days after the date
hereof, the Company shall cause its transfer agent to issue the Initial SJCP
Exchange Shares and shall file with Nasdaq a Listing of Additional Shares
covering the Initial SJCP Exchange Shares, the Mandatory Exchange Shares, and
the Optional Exchange Shares.
5.3 Covenant to Notify SJMB and SJCP of Stockholders Meeting. The
Company hereby covenants and agrees, until the earlier of two years or the first
date on which neither SJMB or SJCP own any shares of the Common Stock of the
Company or any right to acquire shares of the Common Stock of the Company, the
Company will notify SJMB and SJCP in writing on or before 15 days prior to the
mailing of any proxy materials to its stockholders for any special or annual
meeting.
5.4 Conditions to the Obligations of SJCP. Notwithstanding any
provision of this Agreement, the following shall be conditions precedent to the
obligations of SJCP under Section 1.1 to accept the Initial SJCP Exchange Shares
on the Closing Date in partial satisfaction of the SJCP Note:
(a) except for representations and warranties that speak as of
a specified date, each of the representations and warranties made by
the Company in this Agreement shall be true and correct in all respects
on and as of the Closing Date as though such representation or warranty
was made on and as of the Closing Date;
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<PAGE> 10
(b) the Company shall have performed and complied with, in all
respects, each agreement, covenant and obligation required by this
Agreement and the Registration Rights Agreement to be so performed or
complied with by the Company at or before the Closing Date;
(c) the Company shall have caused the Initial SJCP Exchange
Shares to be approved for listing by the National Market System or the
SmallCap Market of the Nasdaq Stock Market, Inc. in accordance with
applicable rules of the Nasdaq Stock Market;
(d) the Company shall cause to be delivered to SJCP an opinion
of counsel to the Company, in form and substance reasonably
satisfactory to SJCP, to the effect that (i) the Initial SJCP Exchange
Shares, the Mandatory Exchange Shares, when issued, and the Optional
Exchange Shares will be duly and validly issued, fully paid and
non-assessable and free of any liens or encumbrances imposed by or
through the Company, (ii) the Company has taken all necessary corporate
action to approve the Transaction Documents and to authorize the
execution, delivery and performance of the Transaction Documents by the
Company, the issuance, sale and delivery by the Company of the Initial
SJCP Exchange Shares, the Mandatory Exchange Shares, when issued, and
the Optional Exchange Shares and the consummation of the transactions
contemplated hereby and thereby, (iii) neither the issuance nor the
delivery of the Initial SJCP Exchange Shares, the Mandatory Exchange
Shares, and Optional Exchange Shares will give rise to any contractual
or statutory preemptive rights or similar rights in favor of any
person, and (iv) the Initial SJCP Exchange Shares may be resold
pursuant to Rule 144, assuming compliance by SJCP with the volume
limitations of such rule and compliance by SJCP and its broker with the
relevant provisions of such rule.
5.5 Conditions to the Obligations of SJCP and SJMB to Accept Mandatory
Exchange Shares and Optional Exchange Shares. Notwithstanding any provision of
this Agreement, the following shall be conditions precedent to the obligations
of SJCP and SJMB under Section 1.2 and 1.3 to accept the Mandatory Exchange
Shares and the Optional Exchange Shares in partial satisfaction of the Notes:
(a) except for representations and warranties that speak as of
a specified date, each of the representations and warranties made by
the Company in this Agreement shall be true and correct in all respects
on and as of the issuance date as though such representation or
warranty was made on and as of the Closing Date;
(b) the Company shall have performed and complied with, in all
respects, each agreement, covenant and obligation required by this
Agreement and the Registration Rights Agreement to be so performed or
complied with by the Company at or before the issuance date; and
(c) the Company shall have caused the Mandatory Exchange
Shares and the Optional Exchange Shares to be approved for listing by
the National Market System or the SmallCap Market of the Nasdaq Stock
Market, Inc. in accordance with applicable rules of the Nasdaq Stock
Market.
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<PAGE> 11
5.5 No Short Selling, etc. From the date hereof until the period of
time all of the shares of Common Stock are issued pursuant to the terms of this
Agreement, the St. James Parties shall not, after date hereof, directly or
indirectly, engage in short sales, purchase puts, sell calls, enter into equity
swaps or otherwise take a market position through the selling of borrowed
shares, through a contractual arrangement or otherwise, by which the St. James
Parties would benefit from a decrease in the market price of the Company's
Common Stock.
5.6 Irrevocable Transfer Agent Instructions. Upon the issuance of the
shares of Common Stock under this Agreement, the Company shall issue irrevocable
instructions to the its transfer agent that, with no further action by the
Company, upon receipt by the transfer agent of certificates representing any of
the shares of Common Stock for transfer, together with a customary brokers'
confirmation letter or officer's certificate from SJMB or SJCP that all
prospectus delivery requirements under applicable securities laws (or
requirements under Rule 144, if applicable) have been complied with, the
transfer agent shall promptly effect transfer of such shares without the legend
referenced in Article III hereof and shall issue to SJMB or SJCP a new
certificate for the appropriate balance of the shares, containing the
appropriate legend, as soon as practicable, but in any event within five
business days after submission of the shares. In addition, upon the
effectiveness of any Subsequent Required Registration Statement (as that term is
defined in the Registration Rights Agreement), the Company shall issue
irrevocable instructions to the its transfer agent that, with no further action
by the Company, upon receipt by the transfer agent of certificates representing
any of the shares covered by such registration statement for transfer, together
with a customary brokers' confirmation letter or officer's certificate from any
seller of such shares that is described in the Subsequent Required Registration
Statement as a selling securityholder (a "Selling Securityholder") that all
prospectus delivery requirements under applicable securities laws (or
requirements under Rule 144, if applicable) have been complied with, the
transfer agent shall promptly effect transfer of such shares without the legend
referenced in Article III hereof and shall issue to such Selling Securityholder
a new certificate for the appropriate balance of the shares, containing the
appropriate legend, as soon as practicable, but in any event within five
business days after submission of the shares of Common Stock submitted for
transfer.
5.7 Nasdaq Limitations.
(A) The Company shall not be obligated to issue all of the any shares
of Common Stock under this Agreement if the issuance of such shares would exceed
that number of shares of Common Stock which the Company may issue (the "Exchange
Cap") without breaching the Company's obligations under the rules or regulations
of the Nasdaq Stock Market, or the market or exchange where the Common Stock is
then traded (the "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 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, 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 SJMB.
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<PAGE> 12
(B) In the event that the Company is unable to issue, the full amount
of shares because of the rules of the Principal Market, the Company shall issue
the minimum number of shares of Common Stock (the "Minimum Shares") that could
be issued without requiring the approval of the stockholders of the Company and
shall use its best efforts to obtain within 75 days, either (I) the written
waiver from the Principal Market of the requirements of its shareholder approval
requirements as it applies to the excess of the shares of Common Stock it is
required to issue over the Minimum Shares (the "Excess Shares") or (II) obtain
the approval of the Company's stockholders, in accordance with the requirements
of the applicable Principal Market, to allow for the issuance of the Excess
Shares and to recommend such proposal to its stockholders.
5.8 Payment of Expenses. The Company hereby agrees to be responsible
pay for all reasonable costs and expenses incurred by or on behalf of the St.
James Parties (including reasonable attorneys' fees and out-of-pocket expenses)
in connection with reviewing, negotiating, preparing, executing, delivering and
advising any of the St. James Parties on the effects of the Transaction
Documents or any other documents previously entered into between the Company and
either of the St. James Parties (collectively, the "Party Documents"), and any
and all consents, waivers or other documents or instruments relating thereto,
and any filing, recording, refiling and re-recording of any Party Documents and
any other documents or instruments or further assurances required to be filed or
re-recorded by the terms of any Party Documents. The Company shall wire transfer
to the same account identified in Section 1.1 hereof, all such reasonable costs
and expenses incurred by the St. James Parties through the date hereof promptly
following the Closing Date.
5.9 Conditions to the Company's Obligations. Notwithstanding any
provision of this Agreement, the following shall be conditions precedent to the
obligations of the Company to issue the shares of Common Stock it is required to
issue under this Agreement:
(a) except for representations and warranties which speak as
of a specific date, each of the representations and warranties made by
the St. James Parties in this Agreement shall be true and correct in
all respects on and as of such shares are issued as though such
representation or warranty was made on and as of the date hereof; and
(b) the St. James Parties shall have performed and complied
with, in all respects, each agreement, covenant and obligation required
by this Agreement and the Registration Rights Agreement to be so
performed or complied with by the St. James Parties at or before the
date such shares are issued.
12
<PAGE> 13
ARTICLE VI
INDEMNIFICATION
The Company shall indemnify SJMB and SJCP and each of their respective
affiliates, partners, members, directors, officers, employees, agents, attorneys
and professionals against any loss (including any diminution in value), claim,
assessment, obligation, liability, settlement payment, award, judgment, fine,
penalty, interest charge, cost, expense (including, without limitation,
reasonable fees and disbursements of counsel), damage or deficiency or other
charge incurred or required to be paid as a result of the Company's breach of
any representation, warranty, covenant or agreement in this Agreement. SJMB and
SJCP shall indemnify the Company and each of its affiliates, members, directors,
officers, employees, agents, attorneys and professionals against any loss
(including any diminution in value), claim, assessment, obligation, liability,
settlement payment, award, judgment, fine, penalty, interest charge, cost,
expense (including, without limitation, reasonable fees and disbursements of
counsel), damage or deficiency or other charge incurred or required to be paid
as a result of the SJMB's or SJCP's breach of any representation, warranty,
covenant or agreement in this Agreement.
ARTICLE VII
GENERAL PROVISIONS
6.1 Survival of Representations, Warranties and Agreements. All of the
parties' various representations, warranties, covenants and agreements in the
Transaction Documents shall survive the execution and delivery of this Agreement
and the other Transaction Documents and the performance hereof and thereof,
including the cancellation of the SJMB Note and the SJCP Note and issuance of
the shares of Common Stock issued hereunder.
6.2 Notices. All notices or other communications which are required or
may be given under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered in person, transmitted by telecopier (with
receipt confirmed) or mailed by registered or certified first class mail,
postage prepaid, return receipt requested to the parties hereto at the address
set forth below (as the same may be changed from time to time by notice
similarly given) or the last known business or residence address of such other
person as may be designated by either party hereto in writing.
If to the Company: Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 75081
Attn: Herman M. Frietsch
Telecopier No.: (972) 367-2271
with a copy to: Ryan & Sudan, L.L.P.
2 Houston Center, 909 Fannin
Suite 3900
Houston, Texas 77010
Attn: Philip P. Sudan, Jr.
Telecopier No.: (713) 652-0503
13
<PAGE> 14
If to any St. James Party c/o SJMB, L.P.
777 Post Oak Boulevard, Suite 950
Houston, Texas 77056
Attn: Charles E. Underbrink
Telecopier No.: (713) 871-1028
6.4 Professional Advice. Each party has received independent legal
advice from attorneys of its choice with respect to the advisability of making
this Agreement and entering into the representations, warranties, covenants and
undertakings provided herein.
6.5 Integrated Agreement; No Waiver. This Agreement contains the
entire, complete, and integrated statement of each and every term and provision
agreed to by and among the parties and is not subject to any condition not
provided for herein. This Agreement shall not be changed, modified, or
supplemented except by a writing executed by the parties hereto. No failure or
delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right,
power or privilege hereunder.
6.6 No Party Is the Drafter of this Agreement. None of the parties
hereto shall be considered to be the drafter of this Agreement or any provision
hereof for the purpose of any statute, case law or rule of interpretation or
construction that might cause any provision to be construed against the drafter
hereof.
6.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which constitutes an original execution and, in the
aggregate, constitute a single document.
6.8 Choice of Law and Forum. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Texas. Venue for any dispute arising hereunder shall lie in the state
or federal courts of Harris County, Texas.
6.9 Binding Effect. Each party is entering into this Agreement on
behalf of itself, and, to the extent not prohibited by applicable law, its
agents, affiliates, stockholders, partners, employees, directors,
representatives, successors and assigns. This Agreement shall be binding upon,
and inure to the benefit of, each party and, to the extent not prohibited by
applicable law, its agents, affiliates, stockholders, partners, employees,
directors, representatives, successors and assigns.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INTELECT COMMUNICATIONS, INC.
By: /s/Herman M. Frietsch
----------------------------------------------------
Herman Frietsch, its Chief Executive Officer
SJMB, L.P.
by: SJMB, L.L.C., its General Partner
By: /s/Jay Brown
-----------------------------------------------------
Jay Brown, Executive Vice President
ST. JAMES CAPITAL PARTNERS, L.P.
by: St. James Capital Corp., its General Partner
By: /s/Jay Brown
-----------------------------------------------------
Jay Brown, Executive Vice President
15
<PAGE> 1
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Registration Rights
Agreement") is made as of August 13, 1999, by and between Intelect
Communications, Inc., a Delaware corporation (the"Company"), and SJMB, L.P., a
Delaware limited partnership ("SJMB") and St. James Capital Partners, L.P., a
Delaware limited partnership ("SJCP"; SJMB and SJCP collectively "St. James").
WHEREAS, pursuant to that certain Agreement of Purchase and Sale dated
as of February 12, 1998 among the Company and SJCP, as partially assigned to
SJMB, as of April 2, 1998 the Company issued to SJMB that certain $13 million
Convertible Promissory Note (the "SJMB Note") and issued to SJCP that certain $2
million Convertible Promissory Note (the "SJCP Note") (the SJMB Note and the
SJCP Note collectively the "Notes");
WHEREAS, on the date hereof, the parties have entered into that certain
Repayment and Exchange Agreement by and among the Company, SJMB and SJCP (the
"Repayment Agreement"), pursuant to which the Company has repaid a portion of
the outstanding principal and interest on the SJCP Note and may repay the
balance of the SJCP Note and portion of the SJMB Note by delivering a certain
number of shares of the Company's common stock, $.01 par value (the "Common
Stock"), in exchange for the Notes;
WHEREAS, the Company wishes to grant St. James certain registration
rights in respect of the certain shares of the Common Stock issued or issuable
under the Repayment Agreement, as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Initial SJCP Exchange Shares" shall have the meaning ascribed to it in
the Repayment Agreement.
"Mandatory Exchange Shares" shall have the meaning assigned in the
Repayment Agreement.
"Optional Exchange Shares" shall have the meaning assigned in the
Repayment Agreement.
"Registrable Securities" shall mean (i) the Initial SJCP Exchange
Shares; (ii) the Mandatory Exchange Shares; (iii) the Optional Exchange Shares;
and (iv) any Common Stock or other capital stock of the Company issued or
issuable at any time or from time to time in respect of the Initial SJCP
Exchange Shares, the Mandatory Exchange Shares or the Optional Exchange Shares
upon a conversion stock split, stock dividend, recapitalization or other similar
event involving the Company.
<PAGE> 2
The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Registration Rights Agreement, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees and
expenses, the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the Company
which shall be paid in any event by the Company).
"Repayment Agreement" shall mean that certain Repayment and Exchange
Agreement of even date hereof between the Company, SJMB and SJCP.
"St. James" shall mean each of SJMB, L.P. a Delaware limited
partnership and St. James Capital Partners, L.P., a Delaware limited
partnership.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the holders of the Registrable Securities and, except as set forth above, all
fees and disbursements of counsel for such holders.
"Underwritten Public Offering" shall mean a public offering in which
the Common Stock is offered and sold on a firm commitment basis through one or
more underwriters, all pursuant to (i) an effective registration statement under
the Securities Act and (ii) an underwriting agreement between the Company and
such underwriters.
ARTICLE II
REGISTRATION RIGHTS
2.1 Required Registration of Registrable Securities.
2.1.1 As soon as practicable after the date hereof, but in no event
more than ten (10) business days after the date thereof, the Company
will file with the Commission a shelf registration statement covering
the resale of the Registrable Securities on Form S-3 (the "Required
Registration Statement"). The Company shall use its best efforts to
cause such Registration Statement to become effective as soon as
practicable but in no event later than September 30, 1999 (the "
Required Effective Date") and to cause all of the Registrable
Securities to be qualified in such state jurisdictions as the holders
may request. The number of Registrable Securities required to be
registered under this Section 2.1.1 shall register for resale at least
that number of shares of Common Stock equal to the sum of (A) the
Initial SJCP Exchange Shares; (B) the product of (x) 1.50 and (y) the
number of Mandatory Exchange Shares which St. James would be entitled
at 66 2/3% of the Market Price Per Share on the date immediately
preceding the filing of the Required Registration Statement with the
Commission; and (C) the Optional Conversion Shares, assuming conversion
of the balance of the SJCP
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<PAGE> 3
and SJMB Notes after giving effect to Sections 1.1 and 1.2 of the
Repayment Agreement, together with accrued interest on such amounts to
the maturity date of such notes divided by $1.08.
2.1.2 Except as set forth herein, the Company shall take all
reasonable steps necessary to keep the Registration Statement current
and effective until the lesser of: (i) two years and (ii) until the
Registrable Securities are transferable pursuant to Rule 144 under the
Securities Act without being subject to the volume limitations set
forth in such rule.
2.1.3 The Company shall be entitled to require that a holder or
holders of Registrable Securities refrain from effecting any public
sales or distributions of the Registrable Securities pursuant to a
Registration Statement that has been declared effective by the
Commission or otherwise, if the board of directors of the Company
reasonably determines in good faith that such public sales or
distributions would interfere in any material respect with any
transaction involving the Company that the board of directors
reasonably determines to be material to the Company. The board of
directors shall, as promptly as practicable, give the holders of the
Registrable Securities written notice of any such development. In the
event of a request by the board of directors of the Company that the
holders of Registrable Securities refrain from effecting any public
sales or distributions of the Registrable Securities, the Company shall
be required to lift such restrictions regarding effecting public sales
or distributions of the Registrable Securities as soon as reasonably
practicable after the board of directors shall reasonably determine
public sales or distributions by the holders of the Registrable
Securities shall not interfere with such transaction, provided, that in
no event shall any requirement that the holders of Registrable
Securities refrain from effecting public sales or distributions in the
Registrable Securities extend for more than 90 days.
2.1.4 Notwithstanding the foregoing, the required registration
rights provided in this Section 2.1 shall be subject to the following
additional limitations:
(i) Company shall not be obligated to file such Registration
Statement on a Form S-2 or S-3 if it does not then meet the
requirements (including the financial statement requirements) of
such Form, and if the Company is required to file a Form S-1, it
should not be obligated to file the Form S-1 until it shall have
prepared current financial statements as required by Form S-1;
2.2 Piggyback Registration.
2.2.1 Subject to the terms hereof, if at any time or from time to
time (but in no event before September 30, 1999) the Company or any
stockholder of the Company shall determine to register any of its
securities (except for registration statements relating to employee
benefit plans or exchange offers), either for its own account or the
account of a security holder, the Company will promptly give to the
holders of Registrable Securities written notice thereof no less the 30
days prior to the filing of any registration statement; and include in
such registration (and any related qualification under blue sky laws or
other compliance), and in the underwriting involved therein, if any,
such Registrable Securities as such holders may request in a writing
delivered to the Company within 20 days after the holders' receipt of
Company's written notice.
2.2.2 The holders of Registrable Securities may participate in any
number of registrations until all of the Registrable Securities have
been registered or until the Registrable Securities are transferable
pursuant to Rule 144(k) under the Securities Act.
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<PAGE> 4
2.2.3 If any registration statement is an Underwritten Public
Offering, the right of holders of Registrable Securities to
registration pursuant to this Section shall be conditioned upon each
such holder's participation in such reasonable underwriting
arrangements as the Company shall make regarding the offering, and the
inclusion of Registrable Securities in the underwriting shall be
limited to the extent provided herein. Holders of Registrable
Securities and all other stockholders proposing to distribute their
securities through such underwriting shall (together with the Company
and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form
with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section, if the
managing underwriter concludes in its reasonable judgment that the
number of shares to be registered for selling stockholders (including
the holders of Registrable Securities) would materially adversely
effect such offering, the number of shares of Registrable Securities to
be registered, together with the number of shares of Common Stock or
other securities held by other stockholders proposed to be registered
in such offering, shall be reduced on a pro rata basis based on the
number of shares of Registrable Securities proposed to be sold by the
holders of Registrable Securities as compared to the number of shares
proposed to be sold by all stockholders, except to the extent there may
be a conflict with the rights set forth in that certain Registration
Rights Agreement dated March 29, 1996 between the Company and those
certain purchasers therein. If any holder of Registrable Securities
disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter, delivered not less than 10 days before the effective date.
The Registrable Securities excluded by the managing underwriter or
withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution
prior to 120 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
2.2.4 The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section prior to the
effectiveness of such registration whether or not the holders of
Registrable Securities have elected to include securities in such
registration.
2.3 Expenses of Registration. All Registration Expenses shall be borne
by the Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of the holders of Registrable Securities shall
be borne by the holders of Registrable Securities.
2.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this
Registration Rights Agreement, the Company will keep the holders of Registrable
Securities advised in writing as to the initiation of each registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company will:
2.4.1 Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective until
the expiration of the period described in 2.1.2 with respect to the
Required Registration;
2.4.2 Provide St. James the reasonable opportunity to review the
Required Registration Statement before the filing of such Required
Registration Statement with the Commission;
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<PAGE> 5
2.4.3 With respect to any underwritten offering, furnish to each
underwriter such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such underwriter may
reasonably request in order to facilitate the public sale of the shares
by such underwriter;
2.4.4 Furnish, without charge, to each seller of Registrable
Securities covered by such registration statement, such number of
conformed copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration
statement (including each preliminary prospectus and, in each case,
including all exhibits thereto and documents incorporated by reference
therein) and such other documents as such seller may reasonably request
in order to facilitate the disposition of the Registrable Securities or
other shares of Common Stock owned by such seller;
2.4.5 Promptly furnish to each underwriter, if any, and the holders
of Registrable Securities notice of any stop-order or similar notice
issued by the Commission or any state agency charged with the
regulation of securities and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
2.4.6 Cause the Registrable Securities to be listed on the National
Market System or the SmallCap Market of the Nasdaq Stock Market, Inc.
and provide the holders of Registrable Securities notice of any Nasdaq
or securities exchange listing;
2.4.7 use its best efforts to register or qualify the Registrable
Securities or other shares of Common Stock covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions as SJMB or SJCP shall reasonably request, to keep such
registration or qualification in effect for so long as such
registration statement remains in effect and to do any and all other
acts and things which may be reasonably necessary or advisable to
enable SJMB or SJCP to consummate the disposition in such jurisdictions
of any such Registrable Securities or other shares of Common Stock
owned by SJMB or SJCP; provided, however, that the Company shall not be
required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
Section 2.6.6, (ii) subject itself to taxation in any such jurisdiction
or (iii) consent to general service of process in any such
jurisdiction;
2.4.8 notify each holder of Registrable Securities, at a time when
a prospectus relating to such Registrable Securities is required to be
delivered under the Securities Act, of the occurrence of any event
known to the Company as a result of which the prospectus included in
such registration statement, as then in effect, contains an untrue
statement of a material fact or omits to state any fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made;
and, at the request of any holder of Registrable Securities, the
Company shall prepare and furnish such holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an 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 not
misleading in the light of the circumstances under which they were
made;
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<PAGE> 6
2.4.10 during the period when the prospectus is required to be
delivered under the Securities Act, promptly file all documents
required to be filed with the Commission pursuant to Sections 12(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); and
2.4.11 on the prior written request of St. James, file such
prospectus supplements or post-effective amendments to the Required
Registration Statement or any Registration Statement filed pursuant to
Section 2.2 hereof as may be required in connection with any transfer
of the rights under this Registration Rights Agreement by St. James as
permitted under Section 2.8 hereof.
2.5 Indemnification.
2.5.1 To the extent permitted by law, the Company will indemnify
each holder of Registrable Securities, each of its officers and
directors and partners, and each person controlling such holder within
the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or
threatened, to the extent such expenses, claims, losses, damages or
liabilities arise out of or are based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other similar
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or any
violation by the Company of the Securities Act or any rule or
regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or
compliance, and the Company will reimburse each holder of Registrable
Securities, each of its officers and directors and partners, and each
person controlling each holder of Registrable Securities, each such
underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage,
liability or action; provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim,
loss, damage, liability or expense if settlement is effected without
the consent of the Company (which consent shall not unreasonably be
withheld); provided, further, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the
Company by a holder of Registrable Securities, such controlling person
or such underwriter specifically for use therein; provided, however,
that the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability, or expense if
settlement is effected without the consent of such holder of
Registrable Securities (which consent shall not be unreasonably
withheld). Notwithstanding the foregoing, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file
with the Commission at the time the registration statement becomes
effective or in the final prospectus filed with the Commission pursuant
to the applicable rules of the Commission or in any supplement or
addendum thereto, the indemnity agreement herein shall not inure to the
benefit of any underwriter if a copy of the final prospectus filed
pursuant to such rules, together with all supplements
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<PAGE> 7
and addenda thereto, was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time
such furnishing is required by the Securities Act.
2.5.2 To the extent permitted by law, each holder of Registrable
Securities will, if securities held by such holder are included in the
securities as to which such registration, qualification or compliance
is being effected pursuant to terms hereof, indemnify the Company, each
of its directors and officers, each underwriter, if any, of the
Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning
of Section 15 of the Securities Act, and each other person selling the
Company's securities covered by such registration statement, each of
such person's officers and directors and each person controlling such
persons within the meaning of Section 15 of the Securities Act, against
all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by a holder of Registrable
Securities of any rule or regulation promulgated under the Securities
Act applicable to holders of Registrable Securities and relating to
action or inaction required of holders of Registrable Securities in
connection with any such registration, qualification or compliance, and
will reimburse the Company, such other persons, such directors,
officers, persons, underwriters or control persons for any legal or
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each
case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made
in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by such holder of Registrable Securities
specifically for use therein; provided, however, that the indemnity
contained herein shall not apply to amounts paid in settlement of any
claim, loss, damage, liability or expense if settlement is effected
without the consent of such holder of Registrable Securities (which
consent shall not be unreasonably withheld). Notwithstanding the
foregoing, the liability of such holder of Registrable Securities under
this subsection (b) shall be limited in an amount equal to the net
proceeds actually received from the sale of the shares sold by such
holder of Registrable Securities, unless such liability arises out of
or is based on willful conduct by such holder of Registrable
Securities. In addition, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or
alleged omission) made in the preliminary prospectus but eliminated or
remedied in the amended prospectus on file with the Commission at the
time the registration statement becomes effective or in the final
prospectus filed pursuant to applicable rules of the Commission or in
any supplement or addendum thereto, the indemnity agreement herein
shall not inure to the benefit of the Company or any underwriter, if a
copy of the final prospectus filed pursuant to such rules, together
with all supplements and addenda thereto, was not furnished to the
person or entity asserting the loss, liability, claim or damage at or
prior to the time such furnishing is required by the Securities Act.
2.5.3 Notwithstanding the foregoing paragraphs (a) and (b) of this
Section, each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be
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<PAGE> 8
withheld), and the Indemnified Party may participate in such defense at
such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement unless
the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action and provided
further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different defenses, which
defenses are inconsistent with the defenses of the Indemnified Party.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. No Indemnified Party shall consent
to entry of any judgment or enter into any settlement without the
consent of each Indemnifying Party.
2.5.4 If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute
to the amount paid or payable by such Indemnified Party as a result of
such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company
on the one hand and all stockholders offering securities in the
offering (the "Selling Securityholders") on the other from the offering
of the Company's securities, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to
in clause (i) above but also the relative fault of the Company on the
one hand and the Selling Security Holders on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Selling Security Holders on the other shall be the net
proceeds from the offering (before deducting expenses) received by the
Company on the one hand and the Selling Security Holders on the other.
The relative fault of the Company on the one hand and the Selling
Security Holders on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the Selling
Security Holders and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Selling Securityholders agree that it
would not be just and equitable if contribution pursuant to this
Section were based solely upon the number of entities from whom
contribution was requested or by any other method of allocation which
does not take account of the equitable considerations referred to above
in this Section. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages and liabilities referred to
above in this Section shall be deemed to include any legal or other
expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim, subject to
the provisions hereof. Notwithstanding the provisions of this Section,
no Selling Securityholder shall be required to contribute any amount or
make any other payments under this Agreement which in the aggregate
exceed the net proceeds actually received by such Selling
Securityholder. No person guilty of fraudulent misrepresentation
(within the meaning of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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<PAGE> 9
2.6 Certain Information.
2.6.1 The holders of Registrable Securities agree, with respect to
any Registrable Securities included in any registration, to furnish to
the Company such information regarding such holder, the Registrable
Securities and the distribution proposed by the such holder as the
Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred
to herein.
2.6.2 The failure of the holder of Registrable Securities to
furnish the information requested pursuant to Section 2.8.1 shall not
affect the obligation of the Company to the other Selling Security
Holders who furnish such information unless, in the reasonable opinion
of counsel to the Company or the underwriters, such failure impairs or
may impair the legality of the Registration Statement or the underlying
offering.
2.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of Restricted Securities (used herein as defined in Rule 144 under the
Securities Act) to the public without registration, the Company agrees to use
its best efforts to:
2.7.1 Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all
times during which the Company is subject to the reporting requirements
of the Exchange Act;
2.7.2 File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act (at all times during which the Company is subject to
such reporting requirements); and
2.7.3 So long as any holder of Registrable Securities owns any
Restricted Securities (as defined in Rule 144 promulgated under the
Securities Act), to furnish to such holder forthwith upon request a
written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 and with regard to the
Securities Act and the Exchange Act (at all times during which the
Company is subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as such holder of
Registrable Securities may reasonably request in availing itself of any
rule or regulation of the Commission allowing such holder to sell any
such securities without registration.
2.8 Transferability. The rights conferred by this Agreement shall be
freely transferable to a recipient of Registrable Securities; provided, that any
transferee or assignee of such rights shall execute and deliver an agreement in
a form reasonably satisfactory to the Company that it assumes and agrees to be
bound by the provisions of this Agreement.
2.9 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Texas.
2.10 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the Company and the
Purchaser.
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<PAGE> 10
2.11 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier service, addressed (a) if to St.
James: St. James Capital Partners, L.P., 777 Post Oak Boulevard, Suite 950,
Houston, Texas 77056 or at such other address as the Purchaser shall have
furnished to the Company in writing, or (b) if to the Company: to Intelect
Communications, Inc., 1100 Executive Drive, Richardson, Texas 75081 or at such
other address as the Company shall have furnished to St. James with a copy to
Philip P. Sudan, Jr., Ryan & Sudan, L.L.P., 909 Fannin, 39th Floor, Houston,
Texas 77010. Each such notice or other communication shall for all purposes of
this Agreement be treated as effective upon receipt.
2.12 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
2.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
2.14 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
2.15 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
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<PAGE> 11
THE COMPANY'S SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has executed this agreement effective
upon the date first set forth above.
INTELECT COMMUNICATIONS, INC.
By: /s/ Herman M. Frietsch
----------------------------------------
Name: Herman M. Frietsch
--------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
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<PAGE> 12
ST. JAMES' SIGNATURE PAGE
IN WITNESS WHEREOF, SJCP and SJMB have signed this Agreement as of the
date first written above.
ST. JAMES CAPITAL PARTNERS, L.P.
By: St. James Capital Corp., its General Partner
By: /s/ Jay Brown
----------------------------------------
Name: Jay Brown
--------------------------------------
Title: Executive Vice President
-------------------------------------
SJMB, L.P.
By: SJMB, L.L.C., its General Partner
By: /s/ Jay Brown
----------------------------------------
Name: Jay Brown
--------------------------------------
Title: Executive Vice President
-------------------------------------
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