BOOK ENTRY TRANSFER AGENT AGREEMENT
This Book Entry Transfer Agent Agreement (this "Agreement"), dated
October 15, 1996, between INTELECT COMMUNICATIONS SYSTEMS LIMITED, a Bermuda
company (the "Company"), INFINITY INVESTORS LTD., a Nevis West Indies
corporation ("Infinity"), SEACREST CAPITAL LIMITED, a Nevis West Indies
corporation ("Seacrest") (Infinity and Fairway collectively being referred to as
the "Holders") and AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York banking
corporation (the "Transfer Agent").
R E C I T A L S:
WHEREAS, pursuant to that certain Convertible Securities Agreement of
Intelect Communications Systems Limited dated October 15, 1996 (the
"Subscription Agreement") by and among the Company and the Holders, the Company
issued to the Holders an aggregate of $5 million principal amount of Series A
Debentures, and an aggregate of $5 million principal amount of Series B
Debentures, each of which is convertible into common shares of the Company
(collectively, the "Debentures"); and
WHEREAS, the Company and the Holders have agreed to enter into this
Agreement with the Transfer Agent to provide for (i) the closing of the issuance
of the Debentures and (ii) a "book entry" system of accounting for the
Debentures; and
WHEREAS, the Transfer Agent is willing to (i) serve as an escrow agent
to facilitate the closing under the Subscription Agreement, (ii) hold the
Debentures on behalf of the Holder, and (iii) establish a book entry system of
accounting for the Debentures, on the terms hereafter described.
NOW, THEREFORE, in consideration of the foregoing, the parties hereby
agree as follows:
1. CLOSINGS. The Transfer Agent hereby agrees to act as an escrow agent
to facilitate the Closings as follows:
(a) On the date hereof the Holders shall wire transfer to an
account designated by the Transfer Agent $10,000,000 in the aggregate (the
"Purchase Price"), and the Company shall deliver to the Transfer Agent the
Debentures in the names of the Holders and in the amounts as set forth on
Schedule 1 hereto. The Transfer Agent may, at its discretion, confirm the
authenticity of the Debentures by transmitting a copy of the same in the form
received from the Company to the Holders or their counsel for written or oral
verification as to the form thereof.
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 1
(b) Immediately following the deliveries specified in (a)
above, together with a delivery from the Company to the Transfer Agent of a
fully executed copy of the Subscription Agreement, the Transfer Agent shall wire
transfer the Purchase Price, less the Consulting Fee (as hereafter defined), to
the Company pursuant to wire transfer instructions as provided by the Company.
The Company hereby directs the Transfer Agent to wire transfer $300,000 of the
Purchase Price (the "Consulting Fee") to Alpine Capital Partners, Inc. (the
"Consultant") in consideration of certain services provided by the Consultant to
the Company, pursuant to wire transfer instructions as provided by the
Consultant.
(c) The Transfer Agent shall hold the Debentures for the
benefit of the Holders, as hereafter described.
(d) All interest (if any) earned on the funds placed in escrow
and prior to their distribution to the Company shall be for the account of the
Holders.
2. OWNERSHIP OF DEBENTURES. Record and beneficial ownership of the
Debentures shall remain in the name of the Holders (unless and until transferred
pursuant to the terms of the Debentures, with written notice thereof to the
Transfer Agent). Any transfer or purported transfer of the Debentures (1) not
made pursuant to the terms of the Debentures or (2) not properly noticed to the
Transfer Agent shall be null and void ab initio and shall not be given effect
thereto by the Transfer Agent. The Transfer Agent shall not be required to
acknowledge any transfer of the Debentures unless accompanied by written
confirmation thereof from the Company and the Holders.
3. PAYING AGENT. The Transfer Agent shall act as paying agent for the
Debentures. Accordingly, all payments of principal required of the Company
related to the Debentures shall be made to the Transfer Agent for the account
and benefit of the holders of such Debentures as registered on the books of the
Transfer Agent ("Registered Debentureholder"). Upon the receipt of any such
payment of principal, in cash, the Transfer Agent shall promptly wire transfer
such sum to the account of the Debentureholders as follows:
Infinity Seacrest
- -------- --------
CitiBank New York CitiBank New York
ABA 021 000 089 ABA 021 000 089
Credit: Bear Stearns Credit: Bear Stearns
Account No. 0925-3186 Account No. 0925-3186
Credit: Infinity Investors Ltd. Credit: Seacrest Capital Ltd.
Acct. No. 102-05092 Acct. No. 483-91295
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 2
ALL OTHER REGISTERED DEBENTUREHOLDERS
-------------------------------------
Such account as is reflected on the books of the Transfer Agent.
All payments of interest shall be made directly to the Registered
Debentureholders by the Company, which shall notify the Transfer Agent of such
payments when made.
4. ACCOUNTING AGENT. The Transfer Agent shall act as the accounting
agent of the Company and the Registered Debentureholders and shall establish and
maintain a book entry system of accounting for the Debentures (the "Accounting
Ledger") crediting (reducing) the outstanding balance owed thereunder by all (i)
payments of principal made by the Company to the Transfer Agent as paying agent
as required pursuant to Section 3 above, (ii) by the appropriate amount upon
delivery of Converted Stock to the applicable Registered Debentureholders
following receipt of a Notice of Conversion (as each such term is defined in
Section 5 below), and (iii) by payments in cash of interest made by the Company
to the Registered Debentureholders of which notice is given to the Transfer
Agent pursuant to Section 3 above. At such time as the remaining sum due and
owing on any Debenture as reflected on the Accounting Ledger is zero following
the procedures described in this Agreement, the Transfer Agent shall return such
Debenture to the Company marked "Paid in Full."
5. ISSUANCE OF CONVERTED SHARES.
(a) Consistent with Section 3.2 of each Debenture, in order to
convert all or a portion of a Debenture into common shares of the Company (the
"Converted Stock"), a Registered Holder shall deliver written notice (each, a
"Notice of Conversion") to the Transfer Agent of the portion of the Debenture it
elects to so convert and a calculation of the number of shares of Converted
Stock to be issued upon such conversion. Upon receipt by the Transfer Agent of
any such Notice of Conversion (including receipt via facsimile) from any
Registered Holder, the Transfer Agent shall immediately deliver a copy thereof
to the Company, via facsimile, requesting the Company to confirm the number of
shares of Converted Stock to be issued to such Registered Holder in connection
therewith. The Company shall, upon receipt thereof, promptly confirm or dispute
the number of shares of Converted Stock to be issued to the Registered Holder,
providing written notice thereof via facsimile to the Transfer Agent and the
Registered Holder (the "Company Notice"). In the event the Company confirms the
number of shares of Converted Stock to be so issued, it shall, as part of the
Company Notice, direct the Transfer Agent to issue such shares of Converted
Stock to the Registered Holder. In the event the Company disputes the number of
shares of Converted Stock to be so issued, the Company and the Registered Holder
shall immediately, in good faith, seek to resolve such dispute. In the event the
Company and the Registered Holder cannot resolve such dispute, each party
reserves all rights and remedies against the other associated with such Notice
of Conversion.
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 3
(b) The Transfer Agent shall not be required to issue shares
of Converted Stock unless and until receipt (including via facsimile) of written
notice from either (i) the Company, confirming the number of shares of Converted
Stock to be issued or (ii) the Registered Holder and the Company, setting forth
the number of shares of Converted Stock to be issued.
(c) Reference is hereby made to that certain Registration
Rights Agreement appended to the Subscription Agreement. At such time as a
Registration Statement as contemplated therein has been declared effective by
the Securities and Exchange Commission covering the resale of the Converted
Stock, the Company shall cause its legal counsel to deliver to the Transfer
Agent an opinion certifying that the Converted Stock may be sold by the
Registered Holder receiving such shares upon conversion of the Debentures, with
the purchaser thereof receiving certificates without restrictive legend, which
opinion shall remain effective so long as such Registration Statement remains in
full force and effect. In the event that, at any time, the Registration
Statement ceases to be effective, the Company or its legal counsel shall
immediately deliver written notice thereof to the Transfer Agent and the
Registered Holders stating that the opinion of the Company's legal counsel may
no longer be relied upon by the Transfer Agent (unless and until any new
Registration Statement is so declared effective with an accompanying opinion to
that effect of the Company's legal counsel). Upon the receipt of any Notice of
Conversion while a Registration Statement is effective, the Converted Stock
described above may be sold by the Registered Holder receiving such shares upon
conversion of the Debentures, with the purchaser thereof receiving certificates
without restrictive legend.
6. TERMINATION. This Agreement shall terminate promptly upon the
earlier to occur of (1) written demand by all of the Registered Debentureholders
of their respective Debentures or (2) no sum remains due and owing under any of
the Debentures. Notwithstanding the foregoing, the Transfer Agent may terminate
its obligations under this Agreement at such time as the Transfer Agent no
longer serves as the transfer agent for the Company's common stock, by delivery
of written notice thereof to the Registered Holders and the Company. Upon
delivery of such notice, the Transfer Agent shall deliver the original
Debentures to Infinity, on behalf of all Registered Holders, together with a
copy of the Accounting Ledger (with a corresponding copy delivered to the
Company).
7. FEES. The Company hereby agrees to pay the Transfer Agent for all
services rendered hereunder.
8. NOTICES. Any notice or demand to be given or that may be given under
this Agreement shall be in writing and shall be (a) delivered by hand, or (b)
delivered through or by expedited mail or package service, or (c) transmitted by
telecopy, in each case with personal delivery acknowledged, addressed to the
parties as follows:
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 4
As to the Company: Intelect Communications Systems Limited
Reid House, Church Street
Hamilton, Bermuda
Telephone: 441/295-8639
Fax: 441-292-5560
Attn: Peter G. Leighton
With copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Telephone: 617/526-6000
Fax: 617/526-5000
Attn: Philip P. Rossetti
As to either Holder: c/o HW Finance
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Telephone: 214/720-1689
Fax: 214/720-1662
Attn: Barrett Wissman
With a copy to: c/o HW Finance
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Telephone: 214/720-1689
Fax: 214/720-1612
Attn: Barrett Wissman
As to the Transfer
Agent: American Stock Transfer
& Trust Company
40 Wall Street
New York, New York 10005
Telephone: 718/921-8200
Fax: 718/236-4588
9. NONCONTRAVENTION. The Company agrees that it will not at any time
take any action or undertake any activity that would in any way impede, restrict
or limit the right and ability of the Registered Debentureholders to convert the
Debentures into shares of Converted Stock pursuant to the terms and provisions
of this Agreement, the Subscription Agreement, as amended from time to time, and
the Debentures. Accordingly, the Company agrees that the instructions and
procedures set forth above
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 5
in this Agreement constitute irrevocable instructions, directions and
authorizations to the Transfer Agent and that the Transfer Agent is authorized
to disregard any written or oral communication received by it from the Company
or otherwise that could in any way be construed to constitute an authorization
or direction for the Transfer Agent to act contrary to, or to not faithfully
comply with, the irrevocable instruction, direction and authorization set forth
herein. Each of the Registered Debentureholders is an intended third party
beneficiary of these irrevocable instructions.
10. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
the Transfer Agent, each officer, director, employee and agent of the Transfer
Agent, and each person, if any, who controls the Transfer Agent within the
meaning of the Securities Act of 1933, as amended (the "Act") or the Securities
Exchange Act of 1934, as amended (the "Exchange Act") against any losses,
claims, damages, or liabilities, joint or several, to which it, they or any of
them, or such controlling person, may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the performance by the Transfer
Agent of its duties pursuant to the Agreement; and will reimburse the Transfer
Agent, and each officer, director, employee and agent of the Transfer Agent, and
each such controlling person for any legal or other expenses reasonably incurred
by it or any of them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any case if such loss, claim, damage or liability arises
out of or is based upon any action not taken in good faith, or any action or
omission that constitutes gross negligence or willful misconduct.
Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the Company under this Section,
notify in writing the Company of the commencement thereof, and failure so to
notify the Company will relieve the Company from any liability under this
Section as to the particular item for which indemnification is then being sought
but not from any other liability which it may have to any indemnified party
(unless such failure to so notify the Company does not prejudice in any material
respect the rights and defenses of the Company). In case any such action is
brought against any indemnified party, and it notifies the Company of the
commencement thereof, the Company will be entitled to assume the defense
thereof, with counsel who shall be to the reasonable satisfaction of such
indemnified party. The Company shall not be liable to any such indemnified party
on account of any settlement of any claim of action effected without the consent
of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, without giving effect to
conflicts of law rules of such jurisdiction.
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 6
12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the full
and entire understanding of the parties with respect to the subject matter
hereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by facsimile signature.
[Signature page follows]
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 7
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the date first above written.
INTELECT COMMUNICATIONS SYSTEMS
LIMITED
By:/s/ Peter G. Leighton
------------------------------
Title: PRESIDENT
------------------------------
INFINITY INVESTORS LTD.
By: /s/ J. A. Loughran
------------------------------
Title: Director
------------------------------
SEACREST CAPITAL LIMITED
By: /s/ James E. Martin
------------------------------
Title: President and Treasurer
------------------------------
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By: /s/ Herbert J. Lemmar
------------------------------
Title: Vice President
------------------------------
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 8
SCHEDULE 1
Principal Amount Purchase Price
of Debentures of Debentures
------------- -------------
Infinity Investors Ltd.
Series A Debentures $ 4,500,000.00 $ 4,500,000.00
Series B Debentures $ 4,500,000.00 $ 4,500,000.00
Seacrest Capital Limited
Series A Debentures $ 500,000.00 $ 500,000.00
Series B Debentures $ 500,000.00 $ 500,000.00
Totals
$10,000,000.00 $10,000,000.00
============== ==============
BOOK ENTRY TRANSFER AGENT AGREEMENT - Page 9