CONVERTIBLE SECURITIES AGREEMENT OF
INTELECT COMMUNICATIONS SYSTEMS LIMITED
THIS CONVERTIBLE SECURITIES SUBSCRIPTION AGREEMENT (the "Agreement") is
made and entered into as of this ___day of August, 1996 by and between INTELECT
COMMUNICATIONS SYSTEMS LIMITED, a company organized under the laws of Bermuda
(the "Seller") and_________________________________________(the "Buyer")
providing for the purchase and sale of up to an aggregate of $10 million of
certain debentures (the "Debentures"), convertible into common shares, U.S. $.01
par value per share (the "Shares"), of Seller to the Buyer. The Seller and the
Buyer (collectively the "Parties") hereby represent, warrant and agree as
follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Buyer hereby subscribes for the principal amount of
Dollars ($________________) of Debentures. The Debentures shall be
convertible into Shares in accordance with the terms set forth in the
form of Debenture attached as Exhibit A to this Agreement.
(ii) Buyer shall pay $____________ as the purchase price for
the Debentures by delivering same-day funds in United States dollars
against counter-delivery of Buyer's Debentures by Seller, each in
accordance with the terms of the Escrow Agreement of even date herewith
substantially in the form attached as Exhibit B to this Agreement.
2. BUYER'S REPRESENTATIONS AND COVENANTS.
Buyer represents, warrants and covenants to Seller as follows:
(i) This Agreement has been duly authorized, validly executed
and delivered on behalf of Buyer and is a valid and binding agreement
of Buyer in accordance with its terms, subject to general principles of
equity and of bankruptcy or other laws affecting the enforcement of
creditors' rights;
(ii) Buyer is purchasing the Debentures for its own account
for investment purposes and not with a view towards distribution. Buyer
understands and agrees that it must bear the economic risks of its
investment for an indefinite period of time. Buyer has received and
carefully reviewed copies of the Public Documents (as defined below).
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 Buyer by the Seller, the officers or directors of the
Seller, or any agent, employee or affiliate
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of any of them except as set forth herein. 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. Buyer has had the opportunity to ask questions of,
and receive answers satisfactory to it from, the Seller's management
regarding the Seller. 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. 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. Buyer has
significant assets, and upon consummation of the purchase of the
Debentures, will continue to have significant assets exclusive of the
Debentures. Buyer has not been organized for the purpose of acquiring
the Debentures;
(iii) Buyer is an "accredited investor" within the meaning of
Rule 501 of the Securities Act of 1933, as amended (the "Securities
Act");
(iv) 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 the Seller is relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments and understandings of Buyer set forth herein in order
to determine the applicability of such provisions;
(v) 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; and
(vi) Buyer represents and covenants that all of its trading in
the securities of the Seller will be in compliance with all applicable
requirements of federal and state securities laws;
(vii) 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.
Buyer acknowledges that, until an effective registration statement
relating to the Shares is in place, a legend substantially as follows
will be placed on the certificates representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN WITHOUT A VIEW TO THE
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER OF THESE SHARES
WILL NOT TRANSFER SUCH SHARES EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO
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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.
(viii) Neither Buyer nor any of its affiliates shall directly or
indirectly maintain any short position in the Shares of the Seller until after
the ninetieth (90th) day following the Closing.
3. SELLER'S REPRESENTATIONS AND COVENANTS.
Seller represents, warrants and covenants to the Buyer as follows:
(i) Seller has been duly incorporated and is validly existing
and in good standing under the laws of Bermuda, with full corporate
power and authority to own, lease and operate its properties and to
conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except
where the failure so to register or qualify does not have a material
adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Seller. Seller
has registered its common shares pursuant to Section 12 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 are quoted on the Nasdaq National Market
(trading symbol ICOMF);
(ii) Seller has furnished Buyer with copies of Seller's most
recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission ("SEC"), all Forms 10-Q and 8-K filed thereafter
and the registration statement on Form S-3 filed with the SEC on July
29, 1996 (collectively, the "Public Documents"). The Public Documents
at the time of their filing do not 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
under which they were made, not misleading. Seller currently has
12,910,537 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;
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(iv) The Debentures shall be enforceable in accordance with
their respective terms, and the Shares when issued and delivered upon
conversion thereof, have been and will be duly and validly authorized
and issued, 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 duly authorized, validly executed
and delivered on behalf of Seller and is a valid and binding agreement
of Seller in accordance with its terms, subject to general principles
of equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally, and Seller has full power and authority to
execute and deliver this Agreement and the other agreements and
documents contemplated hereby and to perform its obligations hereunder
and thereunder;
(vi) The Company is not, and upon the execution and delivery
of this Agreement, the issuance of the Debentures, the issuance of
Shares upon conversion thereof, and the transactions contemplated by
this Agreement will not be in conflict with or in breach of any of the
terms or provisions of, or in default under, the Seller's Memorandum of
Association or Byelaws, 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, any law,
statute, rule, regulation, 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 or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Seller or any of its subsidiaries pursuant to the terms
of any agreement or instrument to which any of them is a party or by
which any of them may be bound or to which any of the property or
assets of any of them is subject;
(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) Seller will issue one or more Debentures in the name of
Buyer in the ratios specified in Section 1 above in denominations of
$100,000. Upon conversion of the Debentures, Seller will issue one or
more certificates representing the Shares in the name of Buyer, with a
legend (if applicable) substantially in the form specified by Section
2(vii) above, and in such denominations to be specified by Buyer prior
to conversion;
(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
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with the SEC or any stock exchange or Nasdaq or any other regulatory
authority, 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) Seller shall: (i) maintain the listing of its Shares on
the Nasdaq Stock Market; (ii) reserve immediately prior to the Closing
and shall continue to reserve from its authorized Common Shares a
sufficient number of Common Shares to permit conversion in full of all
outstanding Debentures in accordance with their respective terms; and
(iii) file an Additional Shares Listing Application with Nasdaq
promptly following the Closing;
(xi) Until such time as Buyer has converted one hundred
percent (100%) of this Debenture 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);
(xii) Seller agrees that it will not issue a press release to
the public containing Buyer's name or other identifying information
without such Buyer's written consent and in fulfilling its obligations
under the Registration Rights Agreement. Buyer acknowledges that this
Agreement and the related documents may be filed with the SEC; and
(xiii) Subject in part to the truth and accuracy of the
Buyer's representations and warranties in Section 2, the offer, sale
and issuance of the Debentures are exempt from the registration
requirements of the Securities Act and applicable state securities
laws.
4. REGISTRATION.
Immediately following the Closing, Seller shall, at Seller's expense,
effect the registration of the Shares issuable upon conversion of the Debentures
held by Buyer 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 the registration of the Shares issuable upon
conversion of the Debentures is not declared effective by the SEC within ninety
(90) days of the Closing Date (the "Registration Date"), then such failure shall
be a breach of the Debentures entitling Buyer to be paid by Seller such Buyer's
pro rata portion of the "Damage Amount", as liquidated damages and not as a
penalty. The Damage Amount shall mean $500 for each $1 million of Debentures for
each calendar day following the Registration Date in which the registration of
the Shares is not effective with the SEC. The Damage Amount shall be payable in
cash as of the end of each calendar week following the Delivery
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Date, and shall be payable whether or not an Event of Default (as defined in the
Debenture) has occurred.
5. CLOSING.
(i) Closing Date. The Debentures shall be dated and delivered,
and the Purchase Price shall be paid, on the date that Seller notifies
Buyer in its written acknowledgment of Seller's receipt of Buyer's
executed counterpart of this Agreement (the "Closing Date"). The
Parties anticipate that the Closing Date shall be August 8, 1996.
(ii) Conditions to Closing.
(a) The Seller shall furnish to the Buyers legal opinions
each addressed to the Buyers and dated as of the Closing Date from (i)
Appleby, Spurling & Kempe substantially in the form of Exhibit D
attached hereto, and (ii) Hale and Dorr, substantially in the form of
Exhibit E attached hereto.
(b) Seller shall have delivered a certificate executed by
its President, dated the Closing Date, and certifying that all of
Seller's representations and warranties made in this Agreement are true
and correct as of the Closing Date.
6. 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.
(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 Freeborn & Peters $5,000 at the
Closing, in payment of attorneys' fees and related costs of
consummating the transactions contemplated herein.
(iv) Notices. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, or telecopied, initially to the
address set forth below, and thereafter at such other address, notice
of which is given in accordance with the provisions of this Section 6.
if to the Company:
Intelect Communications Systems Limited
Reid House, 31 Church Street
Hamilton, Bermuda
Attn: Peter G. Leighton
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Fax: 441/292-5560
if to the Buyer, at such address as is listed for
such Buyer on the signature page hereto.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; three (3) business days after
being deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; and when receipt is acknowledged, if telecopied.
IN WITNESS WHEREOF, this Agreement was duly executed on the date first
written above.
Official Signatory of Seller:
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By:
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Peter G. Leighton, President
Address:
Reid House, 31 Church Street
Hamilton, Bermuda
(Telephone) 441/295-8639
(Fax) 441/292-5560
Attn: Peter G. Leighton
Official Signatory of Buyer:
By:
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Name:
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Title:
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Address:
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Telephone:
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Fax:
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