CONVERTIBLE SECURITIES AGREEMENT
OF INTELECT COMMUNICATIONS SYSTEMS LIMITED
THIS CONVERTIBLE SECURITIES AGREEMENT (hereinafter the "Agreement") is
made and entered into as of this 15th day of October, 1996 by the undersigned in
connection with the sale by INTELECT COMMUNICATIONS SYSTEMS LIMITED, a company
organized under the laws of Bermuda (hereinafter "Seller") of certain debentures
convertible into common shares (hereinafter the "Shares") of Seller to (i)
INFINITY INVESTORS LTD. a corporation organized under the laws of Nevis, West
Indies, and (ii) SEACREST CAPITAL LIMITED, a corporation organized under the
laws of Nevis, West Indies (singularly a "Buyer" and collectively "Buyers").
Each of the Seller and the Buyers (hereinafter collectively the "Parties")
hereby represent, warrant and agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Buyers hereby subscribe for $5 million principal amount of
Series A Convertible Debentures (the "Series A Debentures") and $5
million principal amount of Series B Debentures (the "Series B
Debentures") (collectively, the "Debentures") convertible into Shares
in accordance with the terms set forth in the form of Debentures
attached as Exhibits A and B to this Agreement.
(ii) Buyers shall pay an aggregate of Ten Million Dollars ($10
million U.S.) (the "Purchase Price") for the Debentures by delivering
same day funds in United States dollars against counter-delivery of the
Debentures by Seller, in each case to American Stock Transfer & Trust
Company (the "Transfer Agent") pursuant to terms of that certain Book
Entry Transfer Agent Agreement in the form attached hereto as Exhibit
C, to be executed contemporaneously herewith (the "Transfer
Agreement").
(iii) Infinity Investors, Ltd. shall subscribe for $9 million
principal amount of the Debentures and Seacrest Capital Limited shall
subscribe for $1 million of the Debentures. Each such party shall pay
100% of the respective principal amount thereof.
2. BUYER'S REPRESENTATIONS AND COVENANTS.
Each Buyer severally represents, warrants and covenants to
Seller as follows:
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(i) This Agreement has been duly authorized, validly executed
and delivered on behalf of each Buyer and is a valid and binding
agreement of each Buyer in accordance with its terms, subject to
general principles of equity and to the effect of bankruptcy or other
similar laws affecting the enforcement of creditors' rights;
(ii) Each Buyer is purchasing the Debentures for its own
account for investment purposes and not with a view towards
distribution. Each Buyer understands and agrees that it must bear the
economic risks of its investment for an indefinite period of time. Each
Buyer has received and carefully reviewed copies of the Public
Documents (as defined below). Each Buyer understands that the offer and
sale of the Debentures are being made only by means of this Agreement.
No representations or warranties have been made to either Buyer by
Seller, the officers or directors of Seller, or any agent, employee or
affiliate of any of them except as set forth herein. Each Buyer is
aware that the purchase of the Debentures involves a high degree of
risk and that it may sustain, and has the financial ability to sustain,
the loss of its entire investment. Each Buyer has had the opportunity
to ask questions of and receive answers and satisfactory to it from,
Seller's management regarding Seller. Each Buyer understands that no
Federal or state governmental authority has made any finding or
determination relating to the fairness of an investment in the
Debentures and that no Federal or state governmental authority has
recommended or endorsed, or will recommend or endorse, the investment
herein. Each Buyer, in making the decision to purchase the Debentures
subscribed for, has relied upon independent investigations made by it
and has not relied on any information or representations made by third
parties other than pursuant to this Agreement. Each Buyer has
significant assets, and upon consummation of the purchase of the
Debentures, will continue to have significant assets exclusive of the
Debentures. Neither Buyer has been organized for the purpose of
acquiring the Debentures;
(iii) Each Buyer is an "accredited investor" within the
meaning of Rule 501 of the Securities Act of 1933, as amended (the
"Securities Act");
(iv) Each Buyer understands that the Debentures are being
offered and sold to it in reliance on specific provisions of Federal
and state securities laws and that Seller is relying in part upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of each Buyer set forth herein in
order to determine the applicability of such provisions;
(v) Each Buyer, in making the decision to purchase the
Debentures subscribed for, has relied upon independent investigations
made by it and has not
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relied on any information or representations made by third parties
other than pursuant to this Agreement; and
(vi) Each Buyer understands that neither the Debentures nor
the Shares have been registered under the Securities Act and therefore
it cannot dispose of any or all of the Debentures or the Shares unless
such Debentures or Shares are subsequently registered under the
Securities Act or exemptions from such registration are available. Each
Buyer acknowledges that a legend substantially as follows will be
placed on the certificates representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED 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 APPLICABLE STATE
SECURITIES LAWS. THE ISSUER OF THESE SHARES WILL NOT TRANSFER SUCH
SHARES EXCEPT UPON RECEIPT OF EVIDENCE 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.
3. SELLER'S REPRESENTATIONS AND COVENANTS.
Seller represents, warrants and covenants to Buyers as follows:
(i) Seller has been duly incorporated and is validly existing
and in good standing under the laws of Bermuda. Seller has registered
its common shares pursuant to Section 12(G) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), is in full compliance
with all reporting requirements of the Exchange Act, and Seller's
common shares traded on the Nasdaq National Market, Symbol ICOMF;
(ii) Seller has furnished each Buyer with copies of Seller's
most recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission ("SEC") and all Forms 10-Q and 8-K filed thereafter
(the "Public Documents"). The Public Documents at the time of their
filing complied in all material respects with the requirements of the
Exchange Act, and the rules and regulations thereunder, and, as of the
date of filing, did not include an untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements
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contained therein, in light of the circumstances under which they were
made, not misleading. Since the date of the Public Documents, Seller
has not made, or been required to make, any filings with the SEC in
order to ensure that the Public Documents do not, as of the date
hereof, include an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading. The Seller's financial statements contained in the Public
Documents (i) conform in all material respects with the rules and
regulations of the Exchange Act, (ii) were prepared in accordance with
generally accepted accounting principles, consistently applied, and
(iii) fairly state all known liabilities (contingent or otherwise) as
of the date of such financial statements that were required to be
reflected in such financial statements in accordance with generally
accepted accounting principles, consistently applied. Seller currently
has $10,000,000 principal amount of convertible debentures outstanding,
and 13,794,055 common shares, and no preferred shares, issued and
outstanding;
(iii) Seller has filed all materials required to be filed
pursuant to all applicable reporting obligations under either Section
13(a) or 15(d) of the Exchange Act for a period necessary to meet the
eligibility requirements of the SEC with respect to the use of a
Registration Statement on Form S-3 for the filing of a resale
registration statement with the SEC, and Seller currently meets such
eligibility requirements;
(iv) The Debentures, and the Shares when issued and delivered
upon conversion thereof, have been and will be duly and validly
authorized and issued, and with respect to the Shares, fully-paid and
nonassessable, free from all encumbrances and restrictions other than
restrictions on transfer imposed by applicable securities laws and/or
this Agreement, and will not subject the holders thereof to personal
liability by reason of being such holders. Except for preemptive rights
as to which Seller has received effective waivers, there are no
preemptive rights of any shareholder of Seller with respect to the
Debentures or the Shares;
(v) This Agreement has been and, when issued in accordance
with the terms hereof, the Debentures will be duly authorized, validly
executed and delivered on behalf of Seller and is a valid and binding
agreement of Seller in accordance with its respective terms, subject to
general principles of equity and to bankruptcy or other similar laws
affecting the enforcement of creditors' rights generally;
(vi) The execution and delivery of this Agreement and the
consummation of the issuance of the Debentures, and the Shares upon
conversion
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thereof, and the transactions contemplated by this Agreement do not and
will not conflict with or result in a breach by Seller of any of the
terms or provisions of, or constitute a default under, the articles of
association or By-laws of Seller, or any indenture, mortgage, deed of
trust or other material agreement or instrument to which Seller is a
party or by which it or any of its properties or assets are bound, or
any existing applicable decree, judgment or order of any court, Federal
or State regulatory body, administrative agency or other governmental
body having jurisdiction over Seller or any of its properties or
assets;
(vii) No authorization, approval, filing with or consent of
any governmental body is required for the issuance and sale of the
Debentures, or the Shares upon conversion thereof, as contemplated by
this Agreement;
(viii) Except for a fee which is payable by Seller as
contemplated in the Transfer Agent Agreement to Alpine Capital for
services rendered to Seller not to exceed 3% of the aggregate purchase
price of the Debentures, no other person, firm or corporation will be
entitled to receive any brokerage fee, commission or similar payment
from Seller in connection with the consummation of the transactions
contemplated hereby and Seller shall not make any such payment to any
other person, firm or corporation;
(ix) Seller will comply with all applicable securities laws
and regulations with respect to the sale and issuance of the Debentures
(and the Shares into which they are convertible) to each Buyer,
including but not limited to the filing of all reports required to be
filed in connection therewith with the SEC or any stock exchange or
NASDAQ or any other regulatory authority (with copies thereof provided
to Buyer so long as any of the Debentures are outstanding), and shall
maintain its eligibility to use Form S-3 for the filing of a resale
registration statement with respect to the Shares with the SEC;
(x) Except as disclosed in the Public Documents, there is no
action, suit or proceeding before or by any court or governmental
agency or body, domestic or foreign, now or pending or, to the
knowledge of Seller, threatened, against or affecting Seller, or any of
its properties, which could reasonably be expected to result in any
material adverse change in the business, properties, results of
operations or condition (financial or otherwise) of Seller, or which
could reasonably be expected to materially and adversely affect the
properties or assets of Seller or which could reasonably be expected to
interfere with Seller's ability to consummate the transactions
contemplated by this Agreement;
(xi) Seller is not, and is not an affiliate of, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended;
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(xii) Neither Seller nor any person acting on its behalf has
taken or will take any action (including, without limitation, any
offering of any securities of Seller under circumstances which would
require the integration of such offering with the offering of the
Debentures or Shares under the Securities Act) which might subject the
offering described in this Agreement, the issuance or sale of the
Debentures, or the Shares to the registration requirements of Section 5
of the Securities Act;
(xiii) Seller will maintain the listing of its Shares on the
NASDAQ Stock Market, and will reserve from its authorized shares of
common stock a sufficient number of shares to permit conversion in full
of all outstanding Debentures;
(xiv) Until such time as Buyers have converted one hundred
percent (100%) of the Debentures into Shares, Seller shall not
repurchase its common shares or otherwise enter into any transaction
which would cause a decrease in the number of its common shares issued
and outstanding (other than transactions that similarly decrease the
number of common shares into which the Debentures are convertible);
(xv) Seller agrees that it will not issue a press release or
other communication to the public containing either Buyer's name or
other identifying information without said Buyer's written consent,
except as required by law, including the Exchange Act, and in
fulfilling its obligations under the Registration Rights Agreement (as
hereafter defined);
(xvi) Seller will (i) retain the Transfer Agent as the stock
transfer agent of Seller and (ii) if the Transfer Agent voluntarily or
involuntarily fails to so serve, select an independent, unaffiliated
replacement stock transfer agent willing to perform the duties of
Transfer Agent under the Transfer Agent Agreement; and
(xvii) This Agreement, including the Exhibits hereto, does not
contain an untrue statement of material fact, or, when taken as a
whole, omit any material fact necessary in order to make the statements
contained herein or therein not misleading.
4. REGISTRATION. Immediately following the Closing, Seller shall be
required, at Seller's expense, to effect the registration of the Shares issuable
upon conversion of the Debentures held by both Buyers under the Securities Act
and relevant Blue Sky laws. Such registration shall be effected in accordance
with the terms of the Registration Rights Agreement attached hereto as Exhibit C
(the "Registration Rights Agreement"). In the event either the registration of
the Shares issuable upon conversion of the Debentures is not (A) effective with
the SEC within sixty (60) days of the Closing
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Date (the "Registration Date"), or (B) such effectiveness is not maintained for
a 365 consecutive day period after the SEC has declared effective the
registration of the Shares (such period after the SEC has declared effective the
registration of the Shares being referred to as the "Registration Period"), then
either such failure shall be a breach of the Debentures entitling Buyers to be
paid by Seller the "Damage Amount", as liquidated damages and not as a penalty.
The Damage Amount shall mean (A) $5,000 for each NASDAQ trading day following
the Registration Date in which the registration of the Shares has not been
declared effective by the SEC as provided herein, which amount shall increase to
(i) $6,666 for each NASDAQ trading day commencing thirty (30) days after the
Registration Date and (ii) $8,333 for each NASDAQ trading day commencing sixty
(60) days after the Registration Date, and (iii) $10,000 for each NASDAQ trading
day thereafter, in each case continuing until the registration of the Shares has
been declared effective by the SEC; and (B) without duplication for the amounts
paid pursuant to (A) above, $5,000 for each NASDAQ trading day during the
Registration Period in which the effectiveness of the registration of the Shares
is not maintained with the SEC. The Damage Amount shall be payable in cash as of
the end of each calendar week following the Delivery Date, and shall be payable
whether or not an Event of Default (as defined in the Debenture) has occurred.
5. CLOSING. The Debentures shall be dated and delivered, and the
Purchase Price shall be paid on, October 15, 1996 (the "Closing Date").
6. ADDITIONAL AGREEMENTS.
Right of First Refusal. Seller hereby grants to Buyers the right of
first refusal to purchase all (or any part) of New Securities (as defined in
this Section) that Seller may, from time to time, propose to sell and issue.
"New Securities" shall mean any capital stock of Seller, whether now authorized
or not, and rights, options or warrants to purchase said capital stock, and debt
or equity securities of any type whatsoever that are, or may become, convertible
into said capital stock; provided, however, that the term "New Securities" does
not include securities issued in Excluded Financings. "Excluded Financings" mean
(i) non-convertible debt or non-convertible preferred stock financings of any
type, (ii) underwritten public offerings of the Shares, (iii) private financings
(taking into account all material aspects thereof such as conversion price,
issuance price and any warrants issued in connection therewith) which are
consummated at a price at least equal to the then-current market price of the
Shares (determined as set forth in the Debentures), (iv) project financings, (v)
bank financings and (vi) any capital stock of Seller issued pursuant to the
warrants or other rights set forth in a disclosure letter previously issued by
Seller to Buyers, (vii) the issuance, sale, exercise or conversion or grant of
options to purchase Shares pursuant to any of Seller's employee stock option,
compensation, bonus or incentive plans or otherwise, or pursuant to any existing
options and warrants disclosed in the Public Documents, and (viii) the issuance
or sale of any
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equity or debt securities used for acquisition by Seller of operating assets or
stock of entities to be owned and operated by Seller or a subsidiary of Seller.
Seller shall not, however, consummate any Excluded Financings, other than
pursuant to (vi), (vii) and (viii) above, on or before December 31, 1996. In the
event that Seller proposes to undertake an issuance of New Securities, it shall
give Buyers written notice of its intention, describing the type of New
Securities, the price and the general terms upon which Seller proposes to issue
the same. Each Subscriber shall have fifteen (15) days from the date of receipt
of any such notice to agree to purchase all or less than all of the New
Securities for the price and upon the general terms specified in the notice by
giving written notice to Seller and stating therein the quantity of New
Securities to be purchased. If Buyers fail to exercise in full the right of
first refusal within such fifteen (15) day period, then Seller shall have sixty
(60) days thereafter to sell the New Securities with respect to which the
Buyers' rights were not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in Seller's notice. In the
event that Seller has not sold the New Securities within such sixty (60) day
period, Seller shall not thereafter issue or sell any New Securities without
first offering such securities to the Buyers in the manner provided above. The
right of first refusal granted under this Section shall terminate upon the
earlier of: (i) 180 days following the Closing Date; or (ii) the date upon which
Buyers cease to own at least one-third of the Debentures or the Shares issuable
upon conversion thereof.
7. MISCELLANEOUS.
(i) This Agreement shall be governed by and interpreted in
accordance with the laws of Bermuda. Facsimile signatures of this
Agreement shall be binding on all parties hereto. All representations,
warranties, covenants and agreements of each party hereto shall survive
the Closing contemplated herein.
(ii) This Agreement may be executed by facsimile signature and
in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(iii) Seller shall pay to Buyers $4,000 at the Closing, in the
manner described in the Transfer Agent Agreement, to reimburse Buyers
for attorneys' fees and related costs of consummating the transactions
contemplated herein.
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IT WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Official Signatory of Buyer:
INFINITY INVESTORS LTD.
By:/s/ X. X. Xxxxxxxx
---------------------------
Title: Director
---------------------------
Address:
00 Xxxxxxxxxx Xxxx
Xxxx, Xxxxxxx
(Telephone) 000-00-000-0000
(Fax) 000-00-000-0000
Attn: Xx. X.X. Xxxxxxxx
With copy to:
x/x XX Xxxxxxx
0000 Xxxxxxxxxxxx Xxxxx
0000 Xxx Xxxxxx
Xxxxxx, Xxxxx 00000
(Telephone) 214/000-0000
(Fax) 214/000-0000
Attn: Xxxxxx X. Xxxxxxxxxx, Esq.
SEACREST CAPITAL LIMITED
By:/s/ Xxxxx X. Xxxxxx
---------------------------
Title: President
---------------------------
Address:
00 Xxxxxxxxxx Xxxx
Xxxx, Xxxxxxx
(Telephone) 000-00-000-0000
(Fax) 000-00-000-0000
Attn: Xx. X.X. Xxxxxxxx
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Official Signatory of Seller:
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By/s/ Xxxxx X. Xxxxxxxx
---------------------------
Xxxxx X. Xxxxxxxx, President
Address:
Xxxx Xxxxx, 00 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxx
(Telephone) 441/000-0000
(Fax) 441/000-0000
Attn: Xxxxx X. Xxxxxxxx
CONVERTIBLE SECURITIES AGREEMENT - Page 10
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