THE SECURITIES REPRESENTED BY THIS NOTE 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 LAWS AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS NOTE MAY NOT BE 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.
THE SECURITY INTERESTS GRANTED TO SECURE AMOUNTS DUE UNDER THIS NOTE MAY RANK
PARI PASSU WITH CERTAIN OTHER SECURITY INTERESTS GRANTED BY OF INTELECT
COMMUNICATIONS, INC. AS AND TO THE EXTENT SET FORTH IN THAT CERTAIN AGREEMENT
FOR PURCHASE AND SALE DATED AS OF THE DATE HEREOF BETWEEN INTELECT
COMMUNICATIONS, INC. AND ST. JAMES CAPITAL PARTNERS, L.P.
INTELECT COMMUNICATIONS, INC.
$15,000,000 CONVERTIBLE PROMISSORY NOTE
$15,000,000 Houston, Texas February __, 1998
INTELECT COMMUNICATIONS, INC., a Delaware corporation (hereinafter called
the "Company," which term includes any directly or indirectly controlled
subsidiaries or successor entities), for value received, hereby promises to pay
to St. James Capital Partners, L.P., a Delaware limited partnership (hereinafter
called "Holder"), or its registered assigns, the principal sum of up to Fifteen
Million Dollars ($15,000,000), together with interest on the amount of such
principal sum from time to time outstanding, payable in accordance with the
terms set forth below. It is the intention of the parties that the principal
sums of this Note shall be advanced in multiple Advances (as defined below),
subject to the satisfaction of the conditions precedent set forth in Section 1.5
of the Agreement of Purchase and Sale between the Company and Holder dated as of
the date hereof (the "Purchase Agreement"). No Advance shall be made under this
Note if an Event of Default (as defined below) exists or would exist but for the
passage of time. Interest under this Note shall accrue on amounts actually
advanced.
THE OBLIGATIONS OF THE COMPANY CONTAINED IN THIS NOTE ARE SECURED BY A
PLEDGE AGREEMENT BETWEEN THE COMPANY AND THE HOLDER DATED AS OF THE DATE HEREOF,
AS MAY BE AMENDED OR MODIFIED (THE "PLEDGE AGREEMENT").
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ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. For all purposes of this Note, except as otherwise
expressly provided or unless the context otherwise requires: (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular; (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as promulgated from time to time by the
Association of Independent Certified Public Accountants; and (c) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Note as a whole and not to any particular Article, Section or other
subdivision.
"ADVANCE" means a disbursement of proceeds of this Note.
"BOARD OF DIRECTORS" means the board of directors of the Company as
elected from time to time or any duly authorized committee of that board.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in Houston, Texas are
authorized or obligated by law or executive order to be closed.
"COMMON STOCK" means shares of common stock, par value $0.01 per share, of
the Company.
"CONVERSION PRICE" means the price per share determined in accordance with
Articles IV and V (as adjusted in accordance with the terms of this Note) at
which shares of Common Stock shall be delivered to Holder upon conversion of
this Note.
"DEFAULT" means any event which is, or after notice or passage of time
would be, an Event of Default.
"EVENT OF DEFAULT" has the meaning specified in Section 3.1.
"INDEBTEDNESS" of any Person means all indebtedness of such Person,
whether outstanding on the date of this Note or hereafter created, incurred,
assumed or guaranteed, (a) for the principal of and premium, if any, and
interest on all debts of the Person whether outstanding on the date of this Note
or thereafter created (i) for money borrowed by such Person (including
capitalized lease obligations), (ii) for money borrowed by others (including
capitalized lease obligations) and guaranteed, directly or indirectly, by such
Person, or (iii) constituting purchase money indebtedness, or indebtedness
secured by property at the time of the acquisition of such property by such
Person, for the payment of which the Person is directly or contingently liable;
(b) for all
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deferrals, renewals, extensions and refundings of, and amendments, modifications
and supplements to, any of the indebtedness referred to in (a) above.
"MATURITY DATE", when used with respect to this Note, means February __,
1999 (or such earlier date upon which this Note becomes due and payable under
Section 3.2), or as extended pursuant to Section 2.2 hereof.
"NOTE" means this $15,000,000 7% Convertible Promissory Note, as hereafter
amended, modified, substituted or replaced.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, estate,
other entity, unincorporated organization or government or any agency or
political subdivision thereof.
"SUBSIDIARY" means a corporation or other entity more than 50% of the
outstanding voting stock of which, or more than 50% of the equity interest in
which, is owned, directly or indirectly, by the Company or by one or more other
Subsidiaries of the Company, or by any combination of the Company and one or
more other Subsidiaries excepting that, for purposes thereof, "Subsidiary" shall
not be taken to include Intelect Network Systems Limited (U.K.), Intelect
Finance Limited (Bermuda), Intelect Communications Systems Limited (Bermuda),
Intelect Defense Technologies, Inc. (Delaware) or The Customer Premises
Equipment Corporation (Delaware).
ARTICLE II
PAYMENTS
2.1 INTEREST. From the date of this Note through the Maturity Date,
interest shall accrue hereunder on the unpaid outstanding principal sum of this
Note at a rate equal to seven percent (7%) per annum calculated on the basis of
a 360-day year. All past due amounts of principal and interest shall bear
interest at fifteen percent (15%) per annum calculated on the basis of a 360-day
year until paid.
2.2 PAYMENT OF PRINCIPAL AND INTEREST; EXTENSION. The principal and all
accrued interest under this Note shall be due and payable in full on the
Maturity Date. At any time, the Holder may, at its option and in lieu of cash,
elect to be paid all accrued and unpaid interest owed to Holder by the Company
in the form of Common Stock, based on a price per share equal to the Conversion
Price (the "Price Per Share"). The amount of all accrued and unpaid interest on
the Maturity Date shall be divided by the Price Per Share into a whole number of
shares of Common Stock, with the remainder, if any, being paid in cash. The
Company may extend the Maturity Date for an additional twelve (12) month period
upon written notice to the Holder no later than thirty (30) days prior to
February __, 1999. The Company shall, together with such notice, issue Warrants
to the Holder as more fully set forth in Section 1.3(c) of the Purchase
Agreement.
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2.3 PREPAYMENTS. Subject to Holder's right to convert, at any time before
the Maturity Date, the Company may prepay this Note, in whole or in part,
without penalty or discount, upon five days' prior written notice given to
Holder pursuant to Section 7.5. All payments made under this Note shall be
applied first to accrued interest, and the balance, if any, to principal;
provided, however, that interest shall accrue on any remaining principal balance
and shall be payable at the rate provided above.
2.4 MANNER OF PAYMENT. Cash payments of principal and interest on this
Note will be made by delivery of checks to Holder at its address as set forth in
this Note or wire transfers pursuant to instructions from Holder. If the date
upon which the payment of principal and interest is required to be made pursuant
to this Note occurs other than on a Business Day, then such payment of principal
and interest shall be made on the next occurring Business Day following said
payment date and shall include interest through said next occurring Business
Day.
2.5 SECURITY. This Note is secured by the collateral defined in the Pledge
Agreement.
ARTICLE III
REMEDIES
3.1 EVENTS OF DEFAULT. An "Event of Default" occurs if:
(a) the Company defaults in the payment or mandatory prepayment of
the principal or interest on this Note when such principal or interest
becomes due and payable and such default remains uncured for a period of
five days; or
(b) the Company or any Subsidiary defaults in the performance of any
covenant made by the Company, and such default remains uncured for a
period of 45 days in any of (i) the Common Stock Purchase Warrants issued
by the Company to the Holder dated as of the date hereof, (ii) the Common
Stock Purchase Warrants dated as of December 4, 1997 collectively relating
to an aggregate of 650,000 shares of the Company's Common Stock, each to
St. James Capital Corp. (the "SJCC Warrants"); (iii) that certain
Registration Rights Agreement dated as of the date hereof, as may be
thereafter amended or modified, by and between the Company and the Holder,
pursuant to which the Company grants to the Holder certain registration
rights in respect of the shares of Common Stock upon exercise of the
Warrants (the "Registration Rights Agreement"); (iv) that certain
Registration Rights Agreement dated and effective February 26, 1997, as
amended and restated on May 8, 1997 and as may be thereafter amended or
modified, by and between the Company and St. James Capital Corp., pursuant
to which St. James Capital Corp. was granted certain registration rights
in respect of the shares of Common Stock upon exercise of the SJCC
Warrants (the "SJCC Registration Rights Agreement"); (v) the Pledge
Agreement; (vi) this Note (other than a default in the performance of a
covenant specifically addressed elsewhere in this Section 3.1); or
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(c) any representation or warranty made by the Company or any
Subsidiary in the Purchase Agreement, the Warrants, the Registration
Rights Agreement, the Pledge Agreement, or this Note or in any certificate
furnished by the Company in connection with the consummation of the
transaction contemplated thereby or hereby, is untrue in any material
respect as of the date of making thereof and such default remains uncured
for a period of 45 days; or
(d) the Company or any Subsidiary defaults in the payment when due
(whether by lapse of time, by declaration, by call for redemption or
otherwise) of the principal of or interest on any Indebtedness of the
Company or such Subsidiary (other than the Indebtedness evidenced by this
Note) having an aggregate principal amount in excess of $200,000 or on any
Indebtedness of the Company to any of its stockholders and such default
remains uncured for a period of 45 days; or
(e) a court of competent jurisdiction enters a judgment or judgments
against the Company or any Subsidiary, or any property or assets of the
Company or any Subsidiary, for the payment of money aggregating $200,000
or more in excess of applicable insurance coverage, such default remains
uncured for a period of 45 days; or
(f) a court of competent jurisdiction enters (i) a decree or order
for relief in respect of the Company or any Subsidiary in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or (ii) a decree or order
adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Subsidiary under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial
part of the property of the Company or any Subsidiary or ordering the
winding up or liquidation of the affairs of the Company or any Subsidiary
and any such decree or order of relief or any such other decree or order
remains unstayed for a period of 90 days from its date of entry; or
(g) the Company or any Subsidiary commences a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the Company or any Subsidiary
files a petition, answer or consent seeking reorganization or relief under
any applicable federal or state law, or the Company or any Subsidiary
makes an assignment for the benefit of creditors, or admits in writing its
inability to pay its debts generally as they become due; or
(h) any person or group (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) becomes the beneficial owner of 40% or
more of the total voting power of the Company and was not the beneficial
owner of 40% or more of the total
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voting power of the Company as of the date hereof; provided that the
foregoing shall not include any person or group who or which acquires the
Warrants or shares of the Company's Common Stock issuable upon exercise of
the Warrants or upon conversion of this Note; and further provided that
such default has not been cured or waived within ninety (90) days
following such change of beneficial ownership.
(i) the Company or any operating Subsidiary (1) merges or
consolidates with or into any other Person (unless the Company or any of
its operating Subsidiaries is the surviving or acquiring party); (2)
dissolves or liquidates; or (3) sells all or any substantial portion of
its assets (unless the purchaser is a Subsidiary of the Company) except
where such action by the Company or its Subsidiary would not have a
materially adverse effect on the financial condition or business Company
and its Subsidiaries taken as a whole.
3.2 ACCELERATION OF MATURITY. This Note and all accrued interest shall
automatically become immediately due and payable if an Event of Default
described in Sections 3.1(f), 3.1(g) or 3.1(i) occurs and, this Note shall, at
the option of the Holder in its sole discretion, become immediately due and
payable if any other Event of Default occurs, and in every such case the Holder
of the Note may declare the principal and interest on the Note to be due and
payable immediately.
ARTICLE IV
CONVERSION OF NOTE
4.1 CONVERSION BY HOLDER. Subject to and upon compliance with the
provisions of this Article, at the option of Holder, all or any part of this
Note may be converted at any time, at the principal amount hereof together with
accrued and unpaid interest thereon, into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100 of a share) of Common
Stock. Except as set forth in Article V, the Conversion Price shall initially be
$9.082 per share.
4.2 CONVERSION BY COMPANY. Upon written notice to Holder, the Company may
require that this Note be converted, at the principal amount hereof together
with accrued and unpaid interest thereon, into fully paid and nonassessable
shares (calculated as to such conversion to the nearest 1/100 of a share) of
Common Stock if (a) no Event of Default exists hereunder or under any other
Transaction Document, (b) the Common Stock has traded at a closing price equal
to or greater than $13.50 per share for the previous fifteen (15) out of
seventeen (17) consecutive days and at a price equal to or greater than $13.50
per share as of the date written notice of conversion is provided by the Company
to Holder, (c) the Company has filed a registration statement covering the
shares of Common Stock issuable upon conversion of this Note, (d) such
registration statement has been declared effective by the Securities and
Exchange Commission and (e) the Company pays on the date of conversion, all
other amounts due under the Transaction Documents to Holder.
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ARTICLE V
ADJUSTMENT OF CONVERSION PRICE
5.1 ANTI-DILUTION PROVISIONS. The Conversion Price shall be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the Conversion Price, the holder of this Note shall thereafter be entitled to
purchase, at the Conversion Price resulting from such adjustment, the number of
shares of Common Stock obtained by multiplying the Conversion 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 Conversion Price resulting from such adjustment.
5.2 STOCK DIVIDENDS. Except for distributions of Common Stock to holders
of the Company's preferred stock and distributions pursuant to a shareholder
rights plan duly adopted by the Company's Board of Directors and disclosed in
the Company's filings with the SEC, 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.
5.3 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 Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares into which
this Note may be converted 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 Conversion Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares into which this Note
may be converted immediately prior to such combination shall be proportionately
reduced. Except as provided in this Section 5.4 no adjustment in the Conversion
Price and no change in the number of Shares shall be made under this Article V
as a result of or by reason of any such subdivision or combination.
5.4 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 holders of Common Stock
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:
5.4.1 As a condition of such reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer or other disposition
(except as otherwise provided below in Section 5.5.3), lawful and adequate
provisions shall be made whereby the holder of this Note shall thereafter
have the right to purchase and receive upon the terms and
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conditions specified in this Note and in lieu of the 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 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 Conversion Price and of the number of 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 this Note.
5.4.2 In the event of a merger, share exchange or consolidation of
the Company with or into another Person as a result of which a number of
shares of common stock or its equivalent of the successor Person greater
or lesser than the number of shares of Common Stock outstanding
immediately prior to such merger, share exchange or consolidation are
issuable to holders of Common Stock, then the Conversion 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.
5.4.3 The Company shall not effect any such consolidation, merger,
share exchange, sale, transfer or other disposition unless prior to or
simultaneously with the consummation thereof the successor Person (if
other than the Company) resulting from such consolidation, share exchange
or merger or the Person purchasing or otherwise acquiring such assets
shall have assumed by written instrument executed and mailed or delivered
to the Holder hereof at the last address of such Holder appearing on the
books of the Company the obligation to deliver to such Holder such shares
of capital stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to receive, and all
other liabilities and obligations of the Company hereunder. Upon written
request by the Holder hereof, such Successor Person will issue a new Note
revised to reflect the modifications in this Note effected pursuant to
this Section 5.5.
5.4.4 If a purchase, tender or exchange offer is made to and
accepted by the holders of 50% or more of the outstanding shares of Common
Stock, the Company shall not effect any consolidation, merger, share
exchange or sale, transfer or other disposition of all or substantially
all of the Company's 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 conversion of this Note either the capital
stock, securities or assets then issuable with respect to the
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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.
5.5 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 Conversion 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.
5.6 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 conversion of the Note and no adjustment in the Conversion
Price shall be required unless such adjustment would require an increase or
decrease of at least $.01 in the Conversion Price; provided, however, that any
adjustments which by reason of this Section 5.7 are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest full share or nearest one
hundredth of a dollar, as applicable.
5.7 NOTICE OF ADJUSTMENT. Whenever the Conversion Price or the number of
Shares issuable upon the conversion of the Note 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 Conversion Price
and the adjusted number of Shares in accordance with the provisions hereof and
shall prepare an Officer's Certificate setting forth the adjusted Conversion
Price and the adjusted number of Shares issuable upon the conversion of this
Note 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 Conversion Price and the
number of Shares purchasable upon conversion of this Note have been adjusted and
setting forth the adjusted Conversion Price and the adjusted number of Shares
purchasable upon conversion of this Note.
5.8 NOTIFICATIONS TO HOLDERS. In case at any time the Company proposes:
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(i) to declare any dividend upon its Common Stock payable in
capital stock or make any special dividend or other distribution
(other than cash dividends) to the holders of its Common Stock;
(ii) to offer for subscription pro rata to all of the holders
of its Common Stock any additional shares of capital stock of any
class or other rights;
(iii) to effect any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation, merger or share exchange of the Company with another
Person, or sale, transfer or other disposition of all or
substantially all of its assets; or
(iv) to effect a voluntary or involuntary dissolution,
liquidation or winding up of the Company,
then, in any one or more of such cases, the Company shall give the holder hereof
(a) at least 10 days (but not more than 90 days) prior written notice of the
date on 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 any such issuance, reorganization, reclassification,
consolidation, merger, share exchange, sale, transfer, disposition, dissolution,
liquidation or winding up, and (b) in the case of any such issuance,
reorganization, reclassification, consolidation, merger, share exchange, sale,
transfer, disposition, dissolution, liquidation or winding up, at least 10 days
(but not more than 90 days) prior written notice of the date when the same shall
take place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription rights,
the date on which the holders of Common Stock shall be entitled thereto, and
such notice in accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock, as the case may be, for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, share
exchange, sale, transfer, disposition, dissolution, liquidation or winding up,
as the case may be.
5.9 COMPANY TO PREVENT DILUTION. If any event or condition occurs as to
which other provisions of this Article are not strictly applicable or if
strictly applicable would not fairly protect the exercise or purchase rights of
this Note 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
Note, 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 Conversion Price and the number of 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 Conversion
Price as otherwise determined pursuant to this Article except in the event of a
combination of shares of the type contemplated in Section
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5.4 hereof, and then in no event to an amount greater than the Conversion Price
as adjusted pursuant to Section 5.4 hereof.
ARTICLE VI
COVENANTS
The Company covenants and agrees that, so long as this Note is
outstanding:
6.1 PAYMENT OF PRINCIPAL AND ACCRUED INTEREST. The Company will duly and
punctually pay or cause to be paid the principal sum of this Note, together with
interest accrued thereon from the date hereof to the date of payment, in
accordance with the terms hereof.
6.2 CORPORATE EXISTENCE. The Company will, and will cause each Subsidiary
to, do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence, rights (charter and statutory) and
franchises; provided, however, that the Company or a Subsidiary shall not be
required to preserve any such right or franchise if it shall reasonably
determine that the preservation thereof is no longer desirable in the conduct of
its business.
6.3 TAXES; CLAIMS; ETC. The Company will, and will cause each Subsidiary
to, promptly pay and discharge all lawful taxes, assessments, and governmental
charges or levies imposed upon it or upon its income or profits, or upon any of
its properties, real, personal, or mixed, before the same shall become in
default, as well as all lawful claims for labor, materials, and supplies or
otherwise which, if unpaid, might become a lien or charge upon such properties
or any part thereof, and which lien or charge will have a material adverse
effect on the business of the Company; provided, however, that neither the
Company nor any Subsidiary shall be required to pay or cause to be paid any such
tax, assessment, charge, levy, or claim prior to institution of foreclosure
proceedings if the validity thereof shall concurrently be contested in good
faith by appropriate proceedings and if the Company shall have established
reserves deemed by the Company adequate with respect to such tax, assessment,
charge, levy, or claim.
6.4 MAINTENANCE OF EXISTENCE AND PROPERTIES. The Company will, and will
cause each Subsidiary to, keep its material properties in good repair, working
order, and condition, ordinary wear and tear excepted, so that the business
carried on may be properly conducted at all times in accordance with prudent
business management.
6.5 SEC REPORTS. The Company will maintain its Edgar filing status with
the SEC and will deliver to the Holder within 20 days after completing filings
with the SEC, copies of its annual and quarterly reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is required
or elects to file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. The Company will timely comply in all material respects
with its reporting and filing obligations under the applicable federal
securities laws.
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6.6 NOTICE OF DEFAULTS. The Company will promptly notify the Holder in
writing of the occurrence of (i) any Event of Default under this Note, and (ii)
any event of default (or if any event of default would result upon any payment
with respect to this Note) with respect to any Indebtedness as such event of
default is defined therein or in the instrument under which it is outstanding,
permitting holders to accelerate the maturity of such Indebtedness.
6.7 COMPLIANCE WITH LAWS. The Company will promptly comply with all laws,
ordinances and governmental rules and regulations to which it is subject, the
violation of which would materially and adversely affect the Company.
6.8 AMENDMENTS TO CHARTER. The Company will not amend or modify its
charter in a manner modifying, amending or waiving any material right or
obligation of the Holder or rights of holders of the Company's Common Stock,
excepting such modifications, amendments or waivers which would not, singly or
in the aggregate, have a material adverse effect on such rights or obligations
without the prior written consent of Holder.
6.9 MERGERS AND ACQUISITIONS. Without the consent of the Holder, the
Company or any operating Subsidiary will not consolidate or merge with any
Person unless the Company or its operating Subsidiary is the surviving
corporation in such transaction, nor dissolve, liquidate, or enter into a share
exchange with or sell or transfer all or a substantial portion of its assets to
any Person.
ARTICLE VII
MISCELLANEOUS
7.1 CONSENT TO AMENDMENTS. This Note may be amended, and the Company may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, if and only if the Company shall obtain the written consent
to such amendment, action or omission to act from the holders of a majority of
the aggregate principal amount of this Note.
7.2 BENEFITS OF NOTE; NO IMPAIRMENT OF RIGHTS OF HOLDER OF SENIOR
INDEBTEDNESS. Nothing in this Note, express or implied, shall give to any
Person, other than the Company, Holder, and their successors any benefit or any
legal or equitable right, remedy or claim under or in respect of this Note.
7.3 SUCCESSORS AND ASSIGNS. All covenants and agreements in this Note
contained by or on behalf of the Company and the Holder shall bind and inure to
the benefit of the respective successors and assigns of the Company and the
Holder.
7.4 RESTRICTIONS ON TRANSFER. Holder shall not transfer this Note except
(by the grant of a security interest) to its lender or lenders, and except as
provided in Section 7.7 of the Purchase Agreement. As between Holder and its
lender or lenders, this Note is transferable in
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the same manner and with the same effect as in the case of a negotiable
instrument payable to a specified person. Any lender to which Holder grants a
security interest in this Note shall be entitled to exercise all remedies to
which it is entitled by contract or by law, including (without limitation)
transferring this Note into its own name or into the name of any purchaser at
any sale undertaken in connection with enforcement by such lender of its
remedies.
7.5 NOTICE; ADDRESS OF PARTIES. Except as otherwise provided, all
communications to the Company or Holder provided for herein or with reference to
this Note shall be deemed to have been sufficiently given or served for all
purposes on the third business day after being sent as certified or registered
mail, postage and charges prepaid, to the following addresses: if to the
Company: Intelect Communications, Inc., 1100 Executive Drive, Richardson, Texas
75081, or at any other address designated by the Company in writing to Holder;
if to Holder: St. James Capital Partners, L.P., c/o St. James Capital Corp.,
1980 Post Oak Boulevard, Suite 2030, Houston, Texas 77056, Attn: John L.
Thompson, or at any other address designated by Holder to the Company in
writing.
7.6 SEPARABILITY CLAUSE. In case any provision in this Note shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions in such jurisdiction shall not in
any way be affected or impaired thereby; provided, however, such construction
does not destroy the essence of the bargain provided for hereunder.
7.7 GOVERNING LAW. 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).
7.8 USURY. It is the intention of the parties hereto to conform strictly
to the applicable laws of the State of Texas and the United States of America,
and judicial or administrative interpretations or determinations thereof
regarding the contracting for, charging and receiving of interest for the use,
forbearance, and detention of money (hereinafter referred to in this Section 7.8
as "Applicable Law"). The Holder shall have no right to claim, to charge or to
receive any interest in excess of the maximum rate of interest, if any,
permitted to be charged on that portion of the amount representing principal
which is outstanding and unpaid from time to time by Applicable Law.
Determination of the rate of interest for the purpose of determining whether
this Note is usurious under Applicable Law shall be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
actual time of this Note, all interest or other sums deemed to be interest
(hereinafter referred to in this Section 7.8 as "Interest") at any time
contracted for, charged or received from the Company in connection with this
Note. Any Interest contracted for, charged or received in excess of the maximum
rate allowed by Applicable Law shall be deemed a result of a mathematical error
and a mistake. If this Note is paid in part prior to the end of the full stated
term of this Note and the Interest received for the actual period of existence
of this Note exceeds the maximum rate allowed by Applicable Law, Holder shall
credit the amount of the excess against any amount owing under this Note or, if
this Note has been paid in full, or in the event that it has been accelerated
prior to maturity, Holder shall refund to the Company the amount of such excess,
and shall not be subject to any of the penalties provided by
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Applicable Law for contracting for, charging or receiving Interest in excess of
the maximum rate allowed by Applicable Law. Any such excess which is unpaid
shall be canceled.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed on the date first above written.
INTELECT COMMUNICATIONS, INC..
By:
Name:
Title:
[Signature Page -- Convertible Note]
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