THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND MAY ONLY BE OFFERED OR SOLD PURSUANT TO
REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
7.5% CONVERTIBLE DEBENTURE DUE JUNE 7, 1998
$1,000,000 June 7, 1996
FOR VALUE RECEIVED, INTELECT COMMUNICATIONS SYSTEMS LIMITED, a Bermuda
company (the "Company"), hereby promises to pay to SECREST CAPITAL LIMITED, a
Nevis, West Indies corporation, or registered assigns (the "Holder") on June 7,
1998 (the "Maturity Date"), the principal amount of ONE MILLION DOLLARS
($1,000,000) and to pay interest in cash on the principal amount hereof, in such
amounts, at such times and on such terms and conditions as are specified herein.
This Debenture (this "Debenture") has been issued pursuant to that certain
Convertible Securities Agreement executed by the Holder, the Company and
Infinity Investors, Ltd. dated June 7, 1996 (the "Agreement").
ARTICLE 1. INTEREST.
The Company shall pay interest on the unpaid principal amount of this
Debenture at the rate of Seven and One-Half Percent (7.5%) per year, payable in
cash, payable quarterly in arrears until the principal hereof is paid in full or
has been converted. Interest on this Debenture shall accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from June
7, 1996. Interest shall be computed on the basis of a 360-day year of twelve
30-day months.
ARTICLE 2. METHOD OF PAYMENT.
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall pay
the principal of and interest on this Debenture in United States dollars.
Interest and principal payments shall be subject to withholding (if any) under
applicable United States Federal Internal Revenue Service Regulations.
ARTICLE 3. CONVERSION.
SECTION 3.1. CONVERSION PRIVILEGE
(a) The Holder of this Debenture shall have the right, exercisable at
one or more times, at its option, to convert all or a portion of this Debenture
into common shares, par value $.01 per share (U.S.), of the Company ("Common
Shares") at the times hereafter specified. The number of Common Shares issuable
upon the conversion of this Debenture is determined by dividing the
7.5% CONVERTIBLE DEBENTURE - PAGE 1
(SECREST CAPITAL LIMITED)
principal amount hereof to be converted by the Conversion Price (as defined in
paragraph (b) of this Section 3.1 below) in effect on the conversion date and
rounding the result to the nearest 1/100th of a share. Upon conversion, all
accrued and unpaid interest will be paid to the Holder in cash, as specified in
Article 1 above.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Shares if the portion converted is $10,000 or a whole
multiple of $10,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture also apply to the conversion of a portion of
it. All or any portion of the Debenture is convertible at any time, and from
time to time as follows: One-third (1/3) of the principal balance of all
Debentures issued to Holder as described in Section 7.1 hereafter shall be
convertible beginning sixty (60) days after the date of this Debenture; an
additional one-third (1/3) of the principal balance of all such Debentures
issued to the Holder shall be convertible beginning 90 days after the date of
such Debentures; and the final one-third (1/3) of the principal balance of all
such Debentures issued to the Holder shall be convertible beginning 120 days
after the date of such Debentures. The conversion price shall be the lesser of
(A) $17.50 per share of Common Stock or (B) the product of (i) the current
market price of the Common Stock on the conversion date multiplied by (ii)
eighty two and one-half percent (82.5%) (the "Formula Price"); provided, if the
conversion date is a date on or before the 90th day following the date of this
Debenture, the Conversion Price shall be the greater of the Formula Price of the
Common Stock on the conversion date or $4.95 per share of Common Stock (such
applicable price being hereafter referred to as the "Conversion Price").
(c) In the event any Debenture remains outstanding on the second
anniversary of the date hereof, the unconverted portion of such Debenture will
automatically be converted into Common Shares on such date in the manner set
forth in this Section 3.1; provided (i) an Event of Default does not then exist
under this Debenture and (ii) a registration statement as contemplated by
Section 4 of the Agreement is effective with respect to the sale by the Holder
of shares of Common Stock issuable upon conversion of this Debenture.
(d) At any time, and from time to time, the Company, at its option (the
"Redemption Option"), may redeem this Debenture at the Agreed Redemption Amount
(which shall mean the product of the remaining principal amount of the Debenture
multiplied by 117.5%, plus accrued and unpaid interest thereon). Any notice of
exercise of the Redemption Option (a "Redemption Notice") shall be delivered in
writing to Holder and shall be irrevocable when delivered. The Company shall
not, however, be entitled to issue a Redemption Notice with respect to any
portion of the Debenture for which Holder has previously delivered a Notice of
Conversion as contemplated by this Debenture. The Company shall repay in full
the Agreed Redemption Amount upon exercise of the Redemption Option within
thirty (30) days of the delivery of such Redemption Notice. During the
Redemption Period, the Company shall comply with all terms, conditions and
covenants of this Debenture (including, without limitation timely payment of
accrued and unpaid interest). Subject to the foregoing, Holder's option to
convert this Debenture into shares of Common Stock shall be abated during the
Redemption Period.
7.5% CONVERTIBLE DEBENTURE - PAGE 2
(SECREST CAPITAL LIMITED)
SECTION 3.2. CONVERSION PROCEDURE. To convert this Debenture into
Common Shares, the Holder must (a) complete and sign the Notice of Conversion
attached hereto and (b) surrender the Debenture to the Company. The date upon
which the Company receives the completed Notice of Conversion (by recognized
overnight courier, hand-delivery, facsimile or otherwise) is the conversion
date, provided that the Company shall not be required to deliver a certificate
for Common Shares unless and until the Company receives the Debenture. Within
two (2) business days after receipt of the Notice of Conversion as aforesaid,
providing the Company has received the Debenture from the Holder, the Company
shall deliver a certificate with restrictive legend as specified in the
Agreement for the number of full Common Shares issuable upon the conversion and
a check for any fraction of a share. The person in whose name the certificate
representing Common Shares is to be registered shall be treated as a shareholder
of record on and after the conversion date. Upon conversion, unpaid interest on
the converted portion of the Debenture shall be paid in cash by the Company. If
one person converts more than one Debenture at the same time, the number of full
shares issuable upon the conversion shall be based on the total principal amount
of Debentures converted. Upon surrender of a Debenture that is to be converted
in part, the Company shall issue to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture surrendered.
Notwithstanding the foregoing, the conversion right of the Holder set forth
herein shall be limited, solely to the extent required, from time to time, such
that in no instance shall the maximum number of Common Shares into which the
Holder may convert this Debenture exceed, at any one time, an amount equal to
the remainder of (i) 4.99% of the then issued and outstanding shares of Common
Stock of the Company following such conversion, minus (ii) the number of shares
of Common Stock of the Company then held by the Holder.
SECTION 3.3. FRACTIONAL SHARES. The Company shall not issue a
fractional share of Common Stock upon the conversion of this Debenture. Instead,
the Company shall pay in lieu of any fractional share the cash value thereof at
the then current market price of the Common Shares as determined under Section
3.7 below.
SECTION 3.4. TAXES ON CONVERSION. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of Common
Shares upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because such shares are issued in a name other than its
name.
SECTION 3.5. COMPANY TO RESERVE STOCK. The Company shall reserve out of
its authorized but unissued Common Shares enough Common Shares to permit the
conversion in full of this Debenture. All Common Shares which may be issued upon
the conversion hereof shall be fully paid and nonassessable.
SECTION 3.6. RESTRICTIONS ON TRANSFER. This Debenture and the Common
Shares issuable upon the conversion hereof have not been registered under the
Securities Act of 1933 (the "Act") and have been sold pursuant to an exemption
under the Act. The Debenture may not be transferred or resold except pursuant to
registration under or an exemption from the Act.
7.5% CONVERTIBLE DEBENTURE - PAGE 3
(SECREST CAPITAL LIMITED)
SECTION 3.7 CURRENT MARKET PRICE
(a) As used herin, the current market price per share of Common Shares
on any date is the average of the quoted bid prices of the Common Shares for
five (5) consecutive trading days ending on the trading day before the date in
question.
(b) As used in this Section 3.7, the term quoted bid price shall mean
(i) the closing bid prices thereof on any such trading date, as reported by
Bloomberg, L.P. or (ii) in the event the Common Shares is not reported on such
system, the fair market value of the Common Stock as determined by the Board of
Directors of the Company in its good faith judgment.
ARTICLE 4. MERGERS.
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes the
obligations of the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to the Company
shall refer to such surviving or transferee corporation and the obligations of
the Company shall terminate upon such assumption. If the Company merges or
consolidates with another corporation or sells or transfers all or substantially
all of its assets to another person and the holders of the Common Shares are
entitled to receive stock, securities or property in respect of or in exchange
for Common Shares, then as a condition of such merger, consolidation, sale or
transfer, either (i) the Company and any such successor, purchaser or transferee
shall amend this Debenture to provide that it may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, or (ii) if the Company is not the surviving
entity in such merger, consolidation, sale or transfer, the Company shall give
the Holder at least 30 days prior written notice of the expected closing date of
such transaction, and if any portion of this Debenture has not been converted
into Common Stock at the election of the Holder prior to such closing, then the
remaining principal amount of this Debenture may, at the option of the
Purchaser, be converted into shares of Common Stock at the closing of such
transaction. The Conversion Price shall be the same as the applicable Conversion
Price defined in Section 3 above.
ARTICLE 5. REPORTS.
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
7.5% CONVERTIBLE DEBENTURE - PAGE 4
(SECREST CAPITAL LIMITED)
ARTICLE 6. DEFAULTS AND REMEDIES.
SECTION 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment of interest when such interest become due and
payable and such default continues for a period of 10 days thereafter, (c) the
Company fails to issue Common Shares upon conversion, within the time period
specified in Section 3.2, (d) the Company fails to comply with any of its other
agreements in this Debenture and such failure continues for the period and after
the notice specified below, (e) from and after October 31, 1996, the Company
ceases to be eligible with respect to the use of Form S-3 for the filing of a
resale registration statement with the Securities and Exchange Commission, (f)
the Company's Common Shares ceases to be quoted on any of the New York Stock
Exchange, American Stock Exchange, the NASDAQ-National Market or NASDAQ-Small
Cap for a period in excess of 60 calendar days, or (g) the Company pursuant to
or within the meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the appointment of a
Custodian (as hereinafter defined) of it or for all or substantially all of its
property; (iv) makes a general assignment for the benefit of its creditors; or
(v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property or (C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 60 days. As used in this Section 6.1,
the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar Federal or State law for the relief of debtors or such other applicable
laws. The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
SECTION 6.2. ACCELERATION. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
principal of and accrued interest on this Debenture to be due and payable. Upon
such declaration, the principal and interest hereof shall be due and payable
immediately.
ARTICLE 7. REGISTERED DEBENTURES.
SECTION 7.1. SERIES. This Debenture is one of a numbered series of
Debentures issued to the Holder and Infinity Investors, Ltd. pursuant to the
Agreement having an aggregate principal amount of $5,000,000, which are
identical. Such Debentures are referred to herein collectively as the
"Debentures." Holder, at its option, may exchange this Debenture for a series of
Debentures of the Company in denominations of at least $100,000.
SECTION 7.2. RECORD OWNERSHIP. The Company shall maintain a register of
the holders of the Debentures (the "Register") showing their names and addresses
and the serial numbers and principal amounts of Debentures issues to or
transferred of record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company
7.5% CONVERTIBLE DEBENTURE - PAGE 5
(SECREST CAPITAL LIMITED)
may treat the person named as the Holder of this Debenture in the Register as
the sole owner of this Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this Debenture, receive
notifications with respect to this Debenture, convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute owner hereof.
SECTION 7.3. REGISTRATION OF TRANSFER. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are genuine and effective,
and the Company has received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including tax laws and
State and Federal securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new Debenture showing
the name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in the denominations requested by the Holder.
SECTION 7.4. WORN AND LOST DEBENTURES. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
ARTICLE 8. NOTICES.
Any notice which is required or convenient under the terms of this
Debentures shall be duly given if it is in writing and delivered in person, by
telecopy, by recognized overnight courier or mailed by first class mail, postage
prepaid and directed to the Holder of the Debenture at its address as it appears
on the Register or if to the Company to its principal executive offices. The
time when such notice is sent shall be the time of the giving of the notice.
7.5% CONVERTIBLE DEBENTURE - PAGE 6
(SECREST CAPITAL LIMITED)
All notices to Holders are to be mailed to:
27 Wellington Road
Cork, Ireland
Attn: James G. O'Brien
Telephone: 353 21 501 109
Fax: 353 21 501 255
All notices to the Company are to be mailed to:
Intelect Communications Systems Limited
Reid House 31 Church Street
Hamilton, Bermuda
Attn: Chief Executive Officer
Telephone: 441/295-8639
Fax: 441/292-5560
ARTICLE 9. TIMES.
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. Where time is extended
by virtue of the provisions of this Article 9, such extended time shall not be
included in the computation of interest.
ARTICLE 10. RULES OF CONSTRUCTION.
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in this Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
7.5% CONVERTIBLE DEBENTURE - PAGE 7
(SECREST CAPITAL LIMITED)
ARTICLE 11. GOVERNING LAW.
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of Bermuda.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ Peter G. Leighton
---------------------
Name Peter G. Leighton
Title President
[Corporate Seal]
7.5% CONVERTIBLE DEBENTURE - PAGE 8
(SECREST CAPITAL LIMITED)
EXHIBIT A
FORM OF DEBENTURE
(The attached form applies to Secrest)
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of Debenture]
The undersigned, the Holder of this Debenture, hereby irrevocably
elects to exercise the right to convert it into common shares, par value $10 per
share, of Intelect Communications Systems Limited as follows:
[Complete if less than all of Dollars ($ )*
principal amount is to be ---------------------------------------------
converted] ($10,000 or integral multiples of $10,000)
[Signature must be guaranteed ---------------------------------------------
if registered holder of stock (Name of Holder of shares if different than
differs from registered Holder registered Holder of Debenture]
of Debenture)
---------------------------------------------
(Address of Holder if different than address
of registered Holder of Debenture)
---------------------------------------------
(Social Security or EIN of Holder of shares
if different than Holder of Debenture)
*If the principal amount of the Debenture to be converted is less than
the entire principal amount thereof, a new Debenture for the balance of
the principal amount shall be returned to the Holder of the Debenture.
All notices to be transmitted by hand delivery, facsimile or overnight
courier.
Date:_______ Sign:________________________________________________________
(Signature must conform in all respects to name of
Holder shown on face of this Debenture)
NOTICE OF CONVERSION
ASSIGNMENT OF NOTE
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
Dollars ($ )
________________________________________________________________________________
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued interest hereon.
Date:_________ Sign:______________________________________________
(Signature must conform in all respects to name
of Holder shown on face of Debenture)
ASSIGNMENT OF NOTE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER (THE "1933 ACT"), AND MAY ONLY BE OFFERED OR SOLD PURSUANT TO
REGISTRATION UNDER OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
1933 ACT.
7.5% CONVERTIBLE DEBENTURE DUE JUNE 7, 1998
$4,000,000 June 7, 1996
FOR VALUE RECEIVED, INTELECT COMMUNICATIONS SYSTEMS LIMITED, a Bermuda
company (the "Company"), hereby promises to pay to INFINITY INVESTORS, LTD., a
Nevis, West Indies corporation, or registered assigns (the "Holder") on June 7,
1998 (the "Maturity Date"), the principal amount of FOUR MILLION DOLLARS
($4,000,000) and to pay interest in cash on the principal amount hereof, in such
amounts, at such times and on such terms and conditions as are specified herein.
This Debenture (this "Debenture") has been issued pursuant to that certain
Convertible Securities Agreement executed by the Holder, the Company and Secrest
Capital Limited dated June 7, 1996 (the "Agreement").
ARTICLE 1. INTEREST.
The Company shall pay interest on the unpaid principal amount of this
Debenture at the rate of Seven and One-Half Percent (7.5%) per year, payable in
cash, payable quarterly in arrears until the principal hereof is paid in full or
has been converted. Interest on this Debenture shall accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from June
7, 1996. Interest shall be computed on the basis of a 360-day year of twelve
30-day months.
ARTICLE 2. METHOD OF PAYMENT.
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall pay
the principal of and interest on this Debenture in United States dollars.
Interest and principal payments shall be subject to withholding (if any) under
applicable United States Federal Internal Revenue Service Regulations.
ARTICLE 3. CONVERSION.
SECTION 3.1. CONVERSION PRIVILEGE
(a) The Holder of this Debenture shall have the right, exercisable at
one or more times, at its option, to convert all or a portion of this Debenture
into common shares, par value $.01 per share (U.S.), of the Company ("Common
Shares") at the times hereafter specified. The number of Common Shares issuable
upon the conversion of this Debenture is determined by dividing the
NOTICE OF CONVERSION
principal amount hereof to be converted by the Conversion Price (as defined in
paragraph (b) of this Section 3.1 below) in effect on the conversion date and
rounding the result to the nearest 1/100th of a share. Upon conversion, all
accrued and unpaid interest will be paid to the Holder in cash, as specified in
Article 1 above.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Shares if the portion converted is $10,000 or a whole
multiple of $10,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture also apply to the conversion of a portion of
it. All or any portion of the Debenture is convertible at any time, and from
time to time as follows: One-third (1/3) of the principal balance of all
Debentures issued to Holder as described in Section 7.1 hereafter shall be
convertible beginning sixty (60) days after the date of this Debenture; an
additional one-third (1/3) of the principal balance of all such Debentures
issued to the Holder shall be convertible beginning 90 days after the date of
such Debentures; and the final one-third (1/3) of the principal balance of all
such Debentures issued to the Holder shall be convertible beginning 120 days
after the date of such Debentures. The conversion price shall be the lesser of
(A) $17.50 per share of Common Stock or (B) the product of (i) the current
market price of the Common Stock on the conversion date multiplied by (ii)
eighty two and one-half percent (82.5%) (the "Formula Price"); provided, if the
conversion date is a date on or before the 90th day following the date of this
Debenture, the Conversion Price shall be the greater of the Formula Price of the
Common Stock on the conversion date or $4.95 per share of Common Stock (such
applicable price being hereafter referred to as the "Conversion Price").
(c) In the event any Debenture remains outstanding on the second
anniversary of the date hereof, the unconverted portion of such Debenture will
automatically be converted into Common Shares on such date in the manner set
forth in this Section 3.1; provided (i) an Event of Default does not then exist
under this Debenture and (ii) a registration statement as contemplated by
Section 4 of the Agreement is effective with respect to the sale by the Holder
of shares of Common Stock issuable upon conversion of this Debenture.
(d) At any time, and from time to time, the Company, at its option (the
"Redemption Option"), may redeem this Debenture at the Agreed Redemption Amount
(which shall mean the product of the remaining principal amount of the Debenture
multiplied by 117.5%, plus accrued and unpaid interest thereon). Any notice of
exercise of the Redemption Option (a "Redemption Notice") shall be delivered in
writing to Holder and shall be irrevocable when delivered. The Company shall
not, however, be entitled to issue a Redemption Notice with respect to any
portion of the Debenture for which Holder has previously delivered a Notice of
Conversion as contemplated by this Debenture. The Company shall repay in full
the Agreed Redemption Amount upon exercise of the Redemption Option within
thirty (30) days of the delivery of such Redemption Notice. During the
Redemption Period, the Company shall comply with all terms, conditions and
covenants of this Debenture (including, without limitation timely payment of
accrued and unpaid interest). Subject to the foregoing, Holder's option to
convert this Debenture into shares of Common Stock shall be abated during the
Redemption Period.
NOTICE OF CONVERSION
SECTION 3.2. CONVERSION PROCEDURE. To convert this Debenture into
Common Shares, the Holder must (a) complete and sign the Notice of Conversion
attached hereto and (b) surrender the Debenture to the Company. The date upon
which the Company receives the completed Notice of Conversion (by recognized
overnight courier, hand-delivery, facsimile or otherwise) is the conversion
date, provided that the Company shall not be required to deliver a certificate
for Common Shares unless and until the Company receives the Debenture. Within
two (2) business days after receipt of the Notice of Conversion as aforesaid,
providing the Company has received the Debenture from the Holder, the Company
shall deliver a certificate with restrictive legend as specified in the
Agreement for the number of full Common Shares issuable upon the conversion and
a check for any fraction of a share. The person in whose name the certificate
representing Common Shares is to be registered shall be treated as a shareholder
of record on and after the conversion date. Upon conversion, unpaid interest on
the converted portion of the Debenture shall be paid in cash by the Company. If
one person converts more than one Debenture at the same time, the number of full
shares issuable upon the conversion shall be based on the total principal amount
of Debentures converted. Upon surrender of a Debenture that is to be converted
in part, the Company shall issue to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture surrendered.
Notwithstanding the foregoing, the conversion right of the Holder set forth
herein shall be limited, solely to the extent required, from time to time, such
that in no instance shall the maximum number of Common Shares into which the
Holder may convert this Debenture exceed, at any one time, an amount equal to
the remainder of (i) 4.99% of the then issued and outstanding shares of Common
Stock of the Company following such conversion, minus (ii) the number of shares
of Common Stock of the Company then held by the Holder.
SECTION 3.3. FRACTIONAL SHARES. The Company shall not issue a
fractional share of Common Stock upon the conversion of this Debenture. Instead,
the Company shall pay in lieu of any fractional share the cash value thereof at
the then current market price of the Common Shares as determined under Section
3.7 below.
SECTION 3.4. TAXES ON CONVERSION. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of Common
Shares upon the conversion of this Debenture. However, the Holder shall pay any
such tax which is due because such shares are issued in a name other than its
name.
SECTION 3.5. COMPANY TO RESERVE STOCK. The Company shall reserve out of
its authorized but unissued Common Shares enough Common Shares to permit the
conversion in full of this Debenture. All Common Shares which may be issued upon
the conversion hereof shall be fully paid and nonassessable.
SECTION 3.6. RESTRICTIONS ON TRANSFER. This Debenture and the Common
Shares issuable upon the conversion hereof have not been registered under the
Securities Act of 1933 (the "Act") and have been sold pursuant to an exemption
under the Act. The Debenture may not be transferred or resold except pursuant to
registration under or an exemption from the Act.
NOTICE OF CONVERSION
SECTION 3.7. CURRENT MARKET PRICE.
(a) As used herein, the current market price per share of Common Shares
on any date is the average of the quoted bid prices of the Common Shares for
five (5) consecutive trading days ending on the trading day before the date in
question.
(b) As used in this Section 3.7, the term quoted bid price shall mean
(i) the closing bid prices thereof on any such trading date, as reported by
Bloomberg, L.P. or (ii) in the event the Common Shares is not reported on such
system, the fair market value of the Common Stock as determined by the Board of
Directors of the Company in its good faith judgment.
ARTICLE 4. MERGERS.
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes the
obligations of the Company under this Debenture and immediately after such
transaction no Event of Default exists. Any reference herein to the Company
shall refer to such surviving or transferee corporation and the obligations of
the Company shall terminate upon such assumption. If the Company merges or
consolidates with another corporation or sells or transfers all or substantially
all of its assets to another person and the holders of the Common Shares are
entitled to receive stock, securities or property in respect of or in exchange
for Common Shares, then as a condition of such merger, consolidation, sale or
transfer, either (i) the Company and any such successor, purchaser or transferee
shall amend this Debenture to provide that it may thereafter be converted on the
terms and subject to the conditions set forth above into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, or (ii) if the Company is not the surviving
entity in such merger, consolidation, sale or transfer, the Company shall give
the Holder at least 30 days prior written notice of the expected closing date of
such transaction, and if any portion of this Debenture has not been converted
into Common Stock at the election of the Holder prior to such closing, then the
remaining principal amount of this Debenture may, at the option of the
Purchaser, be converted into shares of Common Stock at the closing of such
transaction. The Conversion Price shall be the same as the applicable Conversion
Price defined in Section 3 above.
ARTICLE 5. REPORTS.
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
NOTICE OF CONVERSION
ARTICLE 6. DEFAULTS AND REMEDIES.
SECTION 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment of interest when such interest becomes due and
payable and such default continues for a period of 10 days thereafter, (c) the
Company fails to issue Common Shares upon conversion, within the time period
specified in Section 3.2, (d) the Company fails to comply with any of its other
agreements in this Debenture and such failure continues for the period and after
the notice specified below, (e) from and after October 31, 1996, the Company
ceases to be eligible with respect to the use of Form S-3 for the filing of a
resale registration statement with the Securities and Exchange Commission, (f)
the Company's Common Shares ceases to be quoted on any of the New York Stock
Exchange, American Stock Exchange, the NASDAQ-National Market or NASDAQ-Small
Cap for a period in excess of 60 calendar days, or (g) the Company pursuant to
or within the meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the appointment of a
Custodian (as hereinafter defined) of it or for all or substantially all of its
property; (iv) makes a general assignment for the benefit of its creditors; or
(v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property or (C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for 60 days. As used in this Section 6.1,
the term "Bankruptcy Law" means Title 11 of the United States Code or any
similar Federal or State law for the relief of debtors or such other applicable
laws. The term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
SECTION 6.2. ACCELERATION. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
principal of and accrued interest on this Debenture to be due and payable. Upon
such declaration, the principal and interest hereof shall be due and payable
immediately.
ARTICLE 7. REGISTERED DEBENTURES.
SECTION 7.1. SERIES. This Debenture is one of a numbered series of
Debentures issued to the Holder and Secrest Capital Limited pursuant to the
Agreement having an aggregate principal amount of $5,000,000, which are
identical. Such Debentures are referred to herein collectively as the
"Debentures." Holder, at its option, may exchange this Debenture for a series of
Debentures of the Company in denominations of at least $100,000.
SECTION 7.2. RECORD OWNERSHIP. The Company shall maintain a register of
the holders of the Debentures (the "Register") showing their names and addresses
and the serial numbers and principal amounts of Debentures issues to or
transferred of record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company
NOTICE OF CONVERSION
may treat the person named as the Holder of this Debenture in the Register as
the sole owner of this Debenture. The Holder of this Debenture is the person
exclusively entitled to receive payments of interest on this Debenture, receive
notifications with respect to this Debenture, convert it into Common Stock and
otherwise exercise all of the rights and powers as the absolute owner hereof.
SECTION 7.3. REGISTRATION OF TRANSFER. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are genuine and effective,
and the Company has received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including tax laws and
State and Federal securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new Debenture showing
the name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in the denominations requested by the Holder.
SECTION 7.4. WORN AND LOST DEBENTURES. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
ARTICLE 8. NOTICES.
Any notice which is required or convenient under the terms of this
Debentures shall be duly given if it is in writing and delivered in person, by
telecopy, by recognized overnight courier or mailed by first class mail, postage
prepaid and directed to the Holder of the Debenture at its address as it appears
on the Register or if to the Company to its principal executive offices. The
time when such notice is sent shall be the time of the giving of the notice.
NOTICE OF CONVERSION
All notices to Holders are to be mailed to:
27 Wellington Road
Cork, Ireland
Attn: James G. O'Brien
Telephone: 353 21 501 109
Fax: 353 21 501 255
All notices to the Company are to be mailed to:
Intelect Communications Systems Limited
Reid House 31 Church Street
Hamilton, Bermuda
Attn: Chief Executive Officer
Telephone: 441/295-8639
Fax: 441/292-5560
ARTICLE 9. TIMES.
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. Where time is extended
by virtue of the provisions of this Article 9, such extended time shall not be
included in the computation of interest.
ARTICLE 10. RULES OF CONSTRUCTION.
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in this Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
NOTICE OF CONVERSION
ARTICLE 11. GOVERNING LAW.
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of Bermuda.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
By: /s/ Peter G. Leighton
------------------------------
Name Peter G. Leighton
Title President
[Corporate Seal]
NOTICE OF CONVERSION
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of Debenture]
The undersigned, the Holder of this Debenture, hereby irrevocably
elects to exercise the right to convert it into common shares, par value $10 per
share, of Intelect Communications Systems Limited as follows:
[Complete if less than all of Dollars ($ )*
principal amount is to be ---------------------------------------------
converted] ($10,000 or integral multiples of $10,000)
[Signature must be guaranteed ---------------------------------------------
if registered holder of stock (Name of Holder of shares if different than
differs from registered Holder registered Holder of Debenture)
of Debenture]
---------------------------------------------
(Address of Holder if different than address
of registered Holder of Debenture)
---------------------------------------------
(Social Security or EIN of Holder of shares
if different than Holder of Debenture)
*If the principal amount of the Debenture to be converted is less than
the entire principal amount thereof, a new Debenture for the balance of
the principal amount shall be returned to the Holder of the Debenture.
All notices to be transmitted by hand delivery, facsimile or overnight
courier.
Date:_________ Sign:__________________________________________________
(Signature must conform in all respects to name of
Holder shown on face of this Debenture)
NOTICE OF CONVERSION
ASSIGNMENT OF NOTE
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
- --------------------------------------------------------------------------------
(name, address and SSN or EIN of assignee)
Dollars ($ )
- --------------------------------------------------------------------------------
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued interest hereon.
Date:________ Sign:_____________________________________________
(Signature must conform in all respects to name of
Holder shown on face of Debenture)