EXHIBIT 10.1
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into effective this 22 day of
August, 1997, by and among Intelect Communications Systems Limited (the
"Company"), Infinity Investors Ltd., a Nevis, West Indies corporation
("Infinity") and Seacrest Capital Limited, a Nevis, West Indies corporation
("Seacrest") (Infinity and Seacrest are collectively referred to herein as the
"Holders").
WHEREAS, the parties hereto have entered into that certain Convertible
Securities Agreement (herein so called) dated as of October 15, 1996, pursuant
to which the Holders subscribed for an aggregate principal amount of $5 million
of Series A Convertible Debentures and an aggregate principal amount of $5
million of Series B Debentures (collectively the "Debentures");
WHEREAS, in connection with the execution of the Convertible Securities
Agreement and the Debentures, the parties entered into a Registration Rights
Agreement (herein so called) dated October 15, 1996, and also entered into a
Book Entry Transfer Agent Agreement (herein so called) dated October 15, 1996,
by and among the parties and American Stock Transfer and Trust Company
("Transfer Agent") (the Convertible Securities Agreement, the Debentures, the
Registration Rights Agreement, and the Book Entry Transfer Agent Agreement are
sometimes collectively referred to herein as the "Debenture Documents");
WHEREAS, the Holders have effected conversions of certain of the
Debentures pursuant to the terms of the Debentures;
WHEREAS, in May 1997, the Company declined to recognize certain notices of
conversion of the Debentures because, among other things, the Company believed
that further issuances of the Company's Common Stock, $.01 par value (the
"Common Stock"), upon conversion of the Debentures would violate Rule
4460(i)(1)(C)(ii) of the Nasdaq Marketplace Rules (the "20% Rule"), and, since
such time, the parties hereto have been in negotiations relating to, among other
things, the conversion ratio applicable to the remaining Debentures; and
WHEREAS, the parties desire to enter into this Agreement in full and final
settlement of all disputes between them;
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CONVERSION OF EXISTING DEBENTURES. All conversions of the Debentures
delivered to the Company by the Holders through May 6, 1997 and conversions in
respect of 20,583 shares of the Company's Common Stock (on behalf of Infinity)
and 2,287 shares of Common Stock (on behalf of Seacrest) of the May 7, 1997
conversions will be recognized at conversion prices therein stated. The balance
of the May 7, 1997 conversion notice delivered to the Company by the
Holders and the entire amount of the May 8, 1997 conversion notice delivered to
the Company by the Holders will be converted at $2.00 per share. All such shares
of Common Stock will bear the restrictive legend described in Section 3 hereof
unless eligible for resale as described below. The exact amount of shares to be
issued pursuant to this Section 1 and the conversion prices are attached hereto
as Schedule 1 and incorporated herein by reference.
2. ISSUANCE OF UNLEGENDED SHARES OF COMMON STOCK. Any shares of Common
Stock issued to the Holders in respect of conversions delivered to the Company
prior to May 1, 1997, and conversions in respect of 18,965 shares of Common
Stock (on behalf of Infinity) and 20,885 shares of Common Stock (on behalf of
Seacrest) delivered to the Company on May 2, 1997, will be issued without
restrictive legends upon receipt of brokers confirmations in accordance with
past practices.
3. CONVERSION OF BALANCE OF EXISTING DEBENTURE FOR COMMON STOCK.
(a) The remaining principal balance of the Debentures equaling $2,144,000
will be converted as of the date hereof for 428,800 shares of Common Stock at a
per share conversion price of $5.00. Each certificate evidencing such shares
shall bear a restrictive legend reading substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN WITHOUT A VIEW TO THE
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER AND
IN ACCORDANCE WITH THE APPLICABLE STATE SECURITIES LAWS. THE ISSUER OF THESE
SHARES WILL NOT TRANSFER SUCH SHARES EXCEPT UPON RECEIPT OF EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY THAT THE REGISTRATION PROVISIONS OF SUCH ACT HAVE
BEEN COMPLIED WITH OR THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH
TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.
(b) The Company represents and warrants that since October 15, 1996, the
Company has not (i) subdivided (by stock split, stock dividend, or otherwise)
its outstanding Common Stock into a great number of shares, or (ii) effected a
recapitalization or reclassification of its outstanding Common Stock.
4. RESALE LIMITATIONS. The Holders will be restricted from publicly
reselling more than 125,000 shares of Common Stock (whether such shares have
been issued to the Holders upon conversion of the Debentures, pursuant to the
terms of this Agreement, or otherwise held by such Holders on the date hereof)
during each calendar month commencing on the date hereof and ending October 31,
1997. Thereafter, such resale limit shall be increased to 250,000 shares of
Common Stock per month.
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5. REGISTRATION RIGHTS.
(a) The Company will file a registration statement on Form S-3 providing
for the resale of the shares of the Company's Common Stock issuable to Infinity
and Seacrest pursuant to this Agreement which are required to bear a restrictive
legend pursuant to this Agreement. Infinity and Seacrest represent and warrant
that they have sold certain of such shares issuable under this Agreement to Zug
Investments, and Infinity and Seacrest will promptly provide notice to the
Company of the number of such shares sold to Zug Investments. That number of
shares sold to Zug Investments shall also be included in such Form S-3
Registration Statement. The Company will use its best efforts to cause such
registration statement to be declared effective on or before the earlier of
September 30, 1997 or 2 business days following receipt of a "no-review" or
similar letter from the Securities and Exchange Commission.
(b) Except as set forth below, the Company shall take all reasonable steps
to keep the registration statement current and effective until the earlier of
(i) one year after the date hereof, (ii) the date on which the securities
included in such registration statement (the "Registrable Securities") are
transferable pursuant to Rule 144 of the Securities Act without the volume
limitations set forth in such rule, and (iii) the date on which all of the
Registrable Securities set forth in such registration statement have thereto
been sold.
(c) The Company may terminate or suspend the effectiveness of any
registration statement to be filed pursuant to Section 5(a) one time for a
period of not more than forty five (45) days if the Company shall deliver to the
Holders a certificate signed by a Senior Vice President or the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company the effectiveness of such a registration statement
would (i) be seriously detrimental to the Company at such time, (ii) interfere
with any proposed or pending material corporate transaction involving the
Company or any of its subsidiaries or (iii) require any premature disclosure
thereof.
(d) To the extent permitted by law, the Company will indemnify each holder
of Registrable Securities (as defined in the Registration Rights Agreement),
each of its officers and directors and partners, and each person controlling
such holder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, to the extent such expenses, claims,
losses, damages or liabilities arise out of or are based on any untrue statement
(or alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other similar document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the
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Company of the Securities Act or any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
holder of Registrable Securities, each of its officers and directors and
partners, and each person controlling each holder of Registrable Securities,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action; provided, however, that the indemnity contained herein shall not apply
to amounts paid in settlement of any claim, loss, damage, liability or expense
if settlement is effected without the consent of the Company (which consent
shall not unreasonably be withheld); provided, further, that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by a holder of
Registrable Securities, such controlling person or such underwriter specifically
for use therein; provided, however, that the indemnity contained herein shall
not apply to amounts paid in settlement of any claim, loss, damage, liability,
or expense if settlement is effected without the consent of such holder of
Registrable Securities (which consent shall not be unreasonably withheld).
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to any
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the Commission
pursuant to the applicable rules of the Commission or in any supplement or
addendum thereto, the indemnity agreement herein shall not inure to the benefit
of any underwriter if a copy of the final prospectus filed pursuant to such
rules, together with all supplements and addenda thereto, was not furnished to
the person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
(e) To the extent permitted by law, each holder of Registrable Securities
will, if securities held by such holder are included in the securities as to
which such registration, qualification or compliance is being effected pursuant
to terms hereof, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other person selling the
Company's securities covered by such registration statement, each of such
person's officers and directors and each person controlling such persons within
the meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by a holder of Registrable Securities
of any rule or regulation promulgated under the Securities Act applicable to
holders of Registrable Securities and relating to action or inaction required of
holders of Registrable Securities in connection with any such registration,
qualification or compliance, and
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will reimburse the Company, such other persons, such directors, officers,
persons, underwriters or control persons for any legal or other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such holder of
Registrable Securities specifically for use therein; provided, however, that the
indemnity contained herein shall not apply to amounts paid in settlement of any
claim, loss, damage, liability or expense if settlement is effected without the
consent of such holder of Registrable Securities (which consent shall not be
unreasonably withheld). Notwithstanding the foregoing, the liability of such
holder of Registrable Securities under this subsection (e) shall be limited in
an amount equal to the net proceeds from the sale of the shares sold by such
holder of Registrable Securities, unless such liability arises out of or is
based on willful conduct by such holder of Registrable Securities. In addition,
insofar as the foregoing indemnity relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in the
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective or in the final prospectus filed pursuant to applicable rules of the
Commission or in any supplement or addendum thereto, the indemnity agreement
herein shall not inure to the benefit of any underwriter, if a copy of the final
prospectus filed pursuant to such rules, together with all supplements and
addenda thereto, was not furnished to the person or entity asserting the loss,
liability, claim or damage at or prior to the time such furnishing is required
by the Securities Act.
(f) Notwithstanding the foregoing paragraphs (d) and (e) of this Section,
each party entitled to indemnification under this Section (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different defenses, which defenses
are inconsistent with the defenses of the Indemnified Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. No Indemnified Party shall
consent to entry of any judgment or enter into any settlement without the
consent of each Indemnifying Party.
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(g) If the indemnification provided for in this Section is unavailable to
an Indemnified Party in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and all shareholders offering securities in the
offering (the "Selling Security Holders") on the other from the offering of the
Company's securities, or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and the Selling Security Holders
on the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Selling Security Holders on the other shall be the net proceeds
from the offering (before deducting expenses) received by the Company on the one
hand and the Selling Security Holders on the other. The relative fault of the
Company on the one hand and the Selling Security Holders on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Selling
Security Holders and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Security Holders agree that it would not be just and
equitable if contribution pursuant to this Section were based solely upon the
number of entities from whom contribution was requested or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages and liabilities referred to
above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim, subject to the provisions hereof.
Notwithstanding the provisions of this Section, no Selling Shareholder shall be
required to contribute any amount or make any other payments under this
Agreement which in the aggregate exceed the proceeds received by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
6. WAIVER OF INTEREST. The holders hereby waive any and all unpaid
interest payments payable to the Holders under the Debentures, including without
limitation, the quarterly interest payments payable as of June 30, 1997.
7. OTHER TERMS. For so long as the Holders own any Common Stock of the
Company, unless such shall have been specifically invited in writing by the
Company, neither they nor any of their affiliates (as such term is defined under
the Securities Exchange Act of 1934, as amended (the "1934 Act") or
representatives will, directly or indirectly, (a) effect or seek, offer or
propose (whether publicly or otherwise) to effect, or cause or participate in or
assist any other person to effect or seek, offer or propose (whether publicly or
otherwise) to effect or participate
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in, (i) any tender or exchange offer, merger or other business combination
involving the Company or any of its subsidiaries; (ii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to the Company or any of its subsidiaries; or (iii) any "solicitation"
of "proxies" or become a "participant" or any "election contest" (as such terms
are used in the proxy rules of the Securities and Exchange Commission) or
consents to vote any voting securities of the Company; (b) form, join or in any
way participate in a "group" (as defined under the 1934 Act); (c) otherwise act,
alone or in concert with others, to seek to control or influence the management,
Board of Directors or policies of the Company; (d) take any action which might
force the Company to make a public announcement regarding any of the types of
matters set forth in (a) above; or (e) enter into any discussions or
arrangements with any third party with respect to any of the foregoing. For
purposes of this Section of Common Stock shall include any Common Stock issued
in exchange for Common Stock of the Company in connection with the proposed
change of domicile of the Company from Bermuda to Delaware.
8. FULL AND FINAL SETTLEMENT; MUTUAL RELEASES.
a. The parties are entering into this Agreement in full and final
settlement of all disputes between them arising under the Debenture
Documents. Accordingly, the parties covenant and agree that this Agreement
constitutes the full and final agreement between the parties relating to
the subject matter of the Debenture Documents and that this Agreement
supersedes the Debenture Documents. The Holders are accordingly
surrendering to the Company upon execution of this Agreement all
outstanding Debentures that they hold in exchange for delivery of the
shares of Common Stock specified in Sections 1 through 3 above.
b. The Holders, for and on behalf of themselves and their successors
and assigns, do hereby release and forever discharge the Company, its
affiliates and related entities, its successors, transferees, assigns,
officers, directors, employees, agents, representatives, attorneys, and/or
all other persons or entities in privity with it (the "Company Released
Parties") from any and all claims, demands, causes of action of any kind
or nature, whether known or unknown, liquidated or contingent, against the
Company Released Parties, under the Debentures Documents or arising out
of, related to, or connected with the transactions contemplated thereby
(including, without limitation, any conversion or attempted conversion of
the Debentures or sale or attempted sale of shares as Common Stock
issuable in connection therewith).
c. The Company, for and on behalf of itself and its successors and
assigns, does hereby release and forever discharge the Holders, their
affiliates and related entities, their successors, transferees, assigns,
officers, directors, employees, agents, representatives, attorneys, and/or
all other persons or entities in privity with them (the "Holders Released
Parties") from and all claims, demands, causes of action of any kind or
nature, whether known or unknown, liquidated or contingent, against the
Holders Released Parties, under the Debenture Documents or arising out of,
related to or connected
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with the transactions contemplated thereby (including, without limitation,
any conversion or attempted conversion of the Debentures or sale or
attempted sale of shares as Common Stock issuable in connection
therewith).
d. The mutual releases set forth above shall not, however, alter or
release any party hereto from compliance with the covenants and agreements
set forth in this Agreement.
9. TRANSFERABILITY. No party may assign this Agreement or the rights and
obligations hereunder without the express written consent of the other parties.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of each of the parties hereto and its respective successors and
assigns, including any corporation with which, or into which, a party hereto may
be merged or which may succeed thereto.
10. GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Texas.
11. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the Company and the
Holders.
12. NOTICES, ETC. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be deemed to have been duly given or made when delivered to the
party to which such notice, request, demand or other communication is required
or permitted to be given or made under this Agreement, addressed to such party
at its address set forth below or at such other address as either of the parties
hereby may hereafter notify the other in writing.
To Company: INTELECT COMMUNICATIONS SYSTEMS LIMITED
0000 Xxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telecopy: 000-000-0000
Attention: Xxxxxx Xxxxxxxx, Chairman and CEO
with a copy to: Xxxxxx X. Sudan, Jr.
Xxxx & Sudan, L.L.P.
000 Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telecopy: 000-000-0000
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To Holders: c/o HW Finance, LLC
4000 Thanksgiving Tower
0000 Xxx Xxxxxx
Xxxxxx, Xxxxx 00000
Telephone: 000-000-0000
Telecopy: 000-000-0000
with a copy to: Xxxxxx X. Xxxxxxx
Xxxxx & Xxxxxx
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000-0000
Telephone: 000-000-0000
Telecopy: 000-000-0000
13. DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
14. COUNTERPARTS. This Agreement may be executed by facsimile signature
and in any number of counterparts, each of which shall be enforceable against
the parties actually executing such counterparts, and all of which together
shall constitute one instrument.
15. SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective upon the date first set forth above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ XXXXX X. XXXXXXX, XX.
Name: Xxxxx X. Xxxxxxx, Xx.
Title: Vice President
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INFINITY INVESTORS, LTD.
By: /s/ XXXXX X. XXXX
Name: Xxxxx X. Xxxx
Title: __________________________
SEACREST CAPITAL LIMITED
By: /s/ XXXXX X. XXXX
Name: Xxxxx X. Xxxx
Title: __________________________
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SCHEDULE 1
INFINITY INVESTORS LTD.: NUMBER OF SHARES CONVERSION PRICE PER SHARE
------------------------ ---------------- --------------------------
May 5- 172,043 $1.2788
May 6- 232,728 $1.2891
May 7- 20,583 $1.3148
May 7- 286,469 $2.00
May 8- 325,000 $2.00
SEACREST CAPITAL LIMITED:
-------------------------
May 5- 23,460 $1.2788
May 6- 23,273 $1.2891
May 7- 2,287 $1.3148
May 7- 28,496 $2.00
May 8- 40,000 $2.00
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