1
EXHIBIT 10.1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED UNDER THE SECURITIES ACT. THE WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
WARRANT TO PURCHASE
Up to 300,000 SHARES
INTELECT COMMUNICATIONS, INC.
(a Delaware corporation)
WARRANT FOR THE PURCHASE OF
Common Stock, $.01 Par Value per Share
THIS WARRANT WILL BE VOID
AFTER 6:00 P.M. CENTRAL STANDARD TIME ON DECEMBER 31, 2002
This amended and restated warrant (the "Warrant") certifies that, for
value received, AJC, Inc., (hereafter "AJC" or the "Holder") is entitled, at any
time and from time to time on or after September 1, 1998 (the "Beginning Date"),
and at any time prior to 6:00 p.m. Central Standard Time on December 31, 2002
(the "Expiration Time"), to purchase from Intelect Communications, Inc., a
Delaware corporation (the "Company"), up to the number of shares shown above
(the "Warrant Shares") of common stock, par value $.01, of the Company (the
"Common Stock") by surrendering this Warrant with the purchase form attached
hereto, duly executed, at the principal office of the Company at 1100 Executive
Drive, Richardson, Texas 75081, and by paying in full and in lawful money of the
United States of America, by cash or cashiers' check, the purchase price of the
Warrant Shares as to which this Warrant is exercised, on all the terms and
conditions hereinafter set forth. This Warrant is issued in connection with that
certain Advisory Services Agreement dated effective September 1, 1998 (the
"Agreement"), by and between the Company and AJC and replaces and supersedes the
warrant originally issued to AJC and dated May 1, 1997.
1. The purchase price at which the Warrant Shares are purchasable
(the "Warrant Price") shall be as follows:
a. 100,000 shares at an exercise price of $3.00 per share; and
b. 200,000 shares at an exercise price of $2.00 per share.
-1-
2
2. On the exercise of all or any portion of this Warrant in the
manner provided above, the person exercising the same shall be deemed to have
become a holder of record of Common Stock (or of the other securities or
properties to which he or it is entitled on such exercise) for all purposes, and
certificates for the securities so purchased shall be delivered to the purchaser
within a reasonable time after the Warrant shall have been exercised as set
forth above. If this Warrant shall be exercised with respect to only a portion
of the Warrant Shares covered hereby, the holder shall be entitled to receive a
similar warrant of like tenor and date covering the number of Warrant Shares
with respect to which this Warrant shall not have been exercised.
3. The Company covenants and agrees that the Warrant Shares which
may be issued on the exercise of the rights represented by this Warrant will,
upon receipt of the Warrant Price, be fully paid and nonassessable, and free
from all taxes, liens, and charges with respect to the issue thereof. The
Company further covenants and agrees that, during the period within which the
rights represented by this Warrant may be exercised, the Company will have
authorized and reserved a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant.
4. The Warrant Price and number of Warrant Shares purchasable
pursuant to this Warrant may be subject to adjustment from time to time as
follows:
(a) If the Company issues any stock dividends, the Warrant
Price in effect immediately prior to the record date for such stock
dividend shall be proportionately decreased or, at the holder's option,
the number of Warrant Shares exercisable hereunder shall be
proportionately increased, such adjustment to become effective
immediately after the opening of business on the day following such
record date.
(b) If the Company shall subdivide the outstanding shares of
Common Stock into a greater number of shares, combine the outstanding
shares of Common Stock into a smaller number of shares, or issue by
reclassification any of its shares, the Warrant Price and the number of
Warrant Shares in effect immediately prior thereto shall be adjusted so
that the holder of this Warrant shall be entitled to receive, after the
occurrence of any of the events described, the number of Warrant Shares
to which the holder would have been entitled had this Warrant been
exercised immediately prior to the occurrence of such event. Such
adjustment shall become effective immediately after the opening of
business on the day following the date on which such subdivision,
combination, or reclassification, as the case may be, becomes
effective.
(c) If any capital reorganization or reclassification of
Common Stock, or consolidation or merger of the Company with another
corporation or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or assets
with respect to or in exchange for Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or
sale, lawful adequate provisions shall be made whereby the holder of
this Warrant shall thereafter have the right to acquire and receive on
exercise hereof such shares of stock, securities, or assets as would
have been issuable
-2-
3
or payable (as part of such reorganization, reclassification,
consolidation, merger or sale) with respect to or in exchange for such
number of outstanding shares of Common Stock as would have been
received on exercise of this Warrant immediately before such
reorganization, reclassification, consolidation, merger or sale. In any
such case, appropriate provision shall be made with respect to the
rights and interests of the holder of this Warrant to the end that the
provisions hereof shall thereafter be applicable in relation to any
shares of stock, securities, or assets thereafter deliverable on the
exercise of this Warrant. In the event of a merger or consolidation of
the Company with or into another corporation or the sale of all or
substantially all of its assets as a result of which a number of shares
of common stock of the surviving or purchasing corporation greater or
less than the number of shares of Common Stock outstanding immediately
prior to such merger, consolidation, or purchase are issuable to
holders of Common Stock, then the Warrant Price in effect immediately
prior to such merger, consolidation, or purchase shall be adjusted in
the same manner as though there were a subdivision or combination of
the outstanding shares of Common Stock. The Company will not effect any
such consolidation, merger, or sale unless prior to the consummation
thereof the successor corporation resulting from such consolidation or
merger or the corporation purchasing such assets shall assume, by
written instrument mailed or delivered to the holder hereof at its last
address appearing on the books of the Company, the obligation to
deliver to such holder such shares of stock, securities, or assets as,
in accordance with the foregoing provisions, such holder may be
entitled to acquire on exercise of this Warrant.
(d) No fraction of a share shall be issued on exercise
hereof, but, in lieu thereof, the Company, notwithstanding any other
provision hereof, may pay therefor in cash at the fair value of any
such fractional share at the time of exercise.
(e) Neither the purchase or other acquisition by the Company
of any shares of Common Stock nor the sale or other disposition by the
Company of any shares of Common Stock shall affect any adjustment of
the Warrant Price or be taken into account in computing any subsequent
adjustment of the Warrant Price.
5. This Warrant shall not be transferable or assignable.
6. Notwithstanding any other provisions contained in this Warrant,
the Holder hereof understands and agrees that the following restrictions and
limitations shall be applicable to all Warrant Shares and to all resales or
other transfers thereof pursuant to the Securities Act, and that as a condition
to the exercise of such warrant that the following are and will be true and
correct:
(A) The Holder hereof agrees that the Warrant Shares shall
not be sold or otherwise transferred unless the Warrant Shares are
registered under the Securities Act and applicable state securities or
blue sky laws or are exempt therefrom.
(B) A legend in substantially the following form will be
placed on the certificate(s) evidencing the Warrant Shares:
-3-
4
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW
AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
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."
(C) Stop transfer instructions will be imposed with respect
to the Warrant Shares so as to restrict resale or other transfer
thereof, subject to this Section 6.
(D) The Holder is an "accredited investor" within the
meaning of Rule 501 of Regulation D as promulgated under the Securities
Act of 1933, and will be so as a condition of purchasing any of the
Warrant Shares. The Holder will acquire the Warrant Shares for its own
account for investment purposes and not with a view towards
distribution. The Holder must bear the economic risk of the investment
for an indefinite period of time because the Warrant Shares have not
been registered under the Securities Act and therefore cannot be sold
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. The Holder has received
and carefully reviewed copies of all documents filed by the Company as
of the time of each exercise with the Securities and Exchange
Commission. No representations or warranties have been made to the
Holder by the Company, the officers or directors of the Company, or any
agent, employee or affiliate of any of them. The Holder is aware that
the purchase of the Warrant Shares involves a high degree of risk and
that it may sustain, and has the financial ability to sustain, the loss
of its entire investment. The Holder has had the opportunity to ask
questions of, and receive answers, satisfactory to it from the
Company's management regarding the Company. The Holder understands that
no Federal or State governmental authority has made any finding or
determination relating to the fairness of an investment in the Warrant
Shares and that no Federal or State governmental authority has
recommended or endorsed, or will recommend or endorse, the investment
herein. The Holder, in making the decision to purchase the Warrant
Shares subscribed for, has relied upon independent investigations made
by it and has not relied on any information or representations made by
third parties. The Holder has significant assets, and upon consummation
of the purchase of the Warrant Shares, will continue to have
significant assets exclusive of the Warrant Shares. The Holder
understands that the Warrant Shares are being offered and sold to it in
reliance on specific provisions of Federal and State securities laws
and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and
understandings of the Holder set forth herein in order to determine the
applicability of such provisions. The Holder, in making the decision to
purchase the Warrant Shares subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties.
-4-
5
7. The Company agrees to register or qualify the Warrant Shares
(but not this Warrant) for sale as follows:
(a) If, at any time after the date hereof and during the
period in which the rights represented by this Warrant are exercisable
or the holder hereof owns the Warrant Shares, the Company proposes to
file a registration statement or notification under the Securities Act
for the primary or secondary sale of any debt or equity security, it
will give written notice at least 30 days prior to the filing of such
registration statement or notification to the holders of this Warrant
and the Warrant Shares of its intention to do so. The Company agrees
that, after receiving written notice from the warrant holder of his
desire to include his Warrant Shares in such proposed registration
statement or notification, the Company shall afford the holders of this
Warrant and the Warrant Shares the opportunity to have their Warrant
Shares included therein. Notwithstanding the provisions of this
paragraph 7(a), the Company shall have the right, at any time after it
shall have given written notice pursuant to this paragraph (whether or
not a written request for inclusion of the Warrant Shares shall be
made) to elect not to file any such proposed registration statement or
notification or to withdraw the same after the filing but prior to the
effective date thereof. In no event shall the Company be obligated to
include the Warrant Shares in any registration statement or
notification under this paragraph 7(a) if: (i) in the written opinion
of the underwriter, the inclusion of the Warrant Shares in such
registration statement or notification would be materially detrimental
to the proposed offering of debt or equity securities pursuant to which
the Company gave notice to the holders under this paragraph; (ii) in
the opinion of counsel for the Company, concurred in by counsel for the
holder hereof, that the Warrant Shares are not considered "restricted
securities" within the meaning of Rule 144 promulgated under the
Securities Act and that registration under the Securities Act is
therefore not required, or (iii) such Warrant Shares are subject to a
previously filed registration statement.
(b) In connection with the filing of a registration
statement, notification, or post-effective amendment under this
section, the Company covenants and agrees:
(i) to pay all expenses of such registration
statement, notification, or post-effective amendment,
including, without limitation, printing charges, legal fees and
disbursements of counsel for the Company, blue sky expenses,
accounting fees and filing fees, but not including legal fees
and disbursements of counsel to the holders and any sales
commissions on Warrant Shares offered and sold;
(ii) to take all necessary action which may reasonably
be required in qualifying or registering the Warrant Shares
included in a registration statement, notification or
post-effective amendment for the offer and sale under the
securities or blue sky laws of such states as requested by the
holders; provided that the Company shall not be obligated to
execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws
of any such jurisdiction; and
-5-
6
(iii) to utilize its best efforts to keep the same
effective for a period of not less than 90 nor more than 120
days.
(c) Indemnification; Contribution.
(i) Indemnification by the Company. The Company
agrees to indemnify and hold harmless the holders from and
against any and all losses, claims, damages, liabilities and
expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any such
registration statement or prospectus contained therein or in
any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation
thereof based upon information furnished in writing to the
Company by the holders or on the holders' behalf expressly for
use therein.
(ii) Indemnification by Holders. Each holder agrees
to indemnify and hold harmless, severally and not jointly, the
Company, its directors and officers and each person, if any,
who controls the Company within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to
the holders, but only with respect to information furnished in
writing by a holder or on a holder's behalf expressly for use
in any such registration statement or prospectus relating to
the Warrant Shares, any amendment or supplement thereto or any
preliminary prospectus, and only in an amount not to exceed
the proceeds of any Warrant Shares sold by any such holder
thereunder. In case any action or proceeding shall be brought
against the Company or its directors or officers, or any such
controlling person, in respect of which indemnity may be
sought against the holders, the holders shall have the rights
and duties given to the Company, and the Company or its
directors or officers or such controlling person shall have
the rights and duties given to the holders, by the preceding
subsection hereof.
(iii) Conduct of Indemnification Proceedings. If any
action or proceeding (including any governmental
investigation) shall be brought or asserted against any person
entitled to indemnification under subsections (i) or (ii)
above (an "Indemnified Party") in respect of which indemnity
may be sought from any party who has agreed to provide such
indemnification (an "Indemnifying Party"), the Indemnifying
Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such
Indemnified Party, and shall assume the payment of all
expenses. Such Indemnified Party shall have the right to
employ separate counsel in any such action and to participate
in the defense thereof, but the
-6-
7
fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (A) the Indemnifying Party has
agreed to pay such fees and expenses or (B) the named parties
to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and the
Indemnifying Party, and such Indemnified Party shall have been
advised by counsel that there is a conflict of interest on the
part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to
assume the defense of such action or proceeding on behalf of
such Indemnified Party; it being understood, however, that the
Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar or
related actions or proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable
for the fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time
for all such Indemnified Parties, which firm shall be
designated in writing by such Indemnified Parties). The
Indemnifying Party shall not be liable for any settlement of
any such action or proceeding effected without its written
consent, but if settled with its written consent, or if there
be a final judgment for the plaintiff in any such action or
proceeding, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Parties from and against any loss or
liability (to the extent stated above) by reason of such
settlement or judgment.
(iv) Contribution. If the indemnification provided
for in this Section 7(c) is unavailable to the Indemnified
Parties in respect of any losses, claims, damages, liabilities
or judgments referred to herein, then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages, liabilities
and judgments in the following manner as between the Company
on the one hand and each holder on the other, in such
proportion as is appropriate to reflect the relative fault of
the Company on the one hand and each holder on the other in
connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the
holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such
party, and the party's relative intent, knowledge, access to
information and opportunity to correct or prevent such
statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of subsection 11(f) of
the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation.
(v) Survival. The indemnity and contribution
agreements contained in this 7(c) shall remain operative and
in full force and effect regardless of (A) any
-7-
8
termination of this Agreement, (B) any investigation made by or
on behalf of any Indemnified Party or by or on behalf of the
Company and (C) the consummation of the sale or successive
resale of the Warrant Shares.
8. As used herein, the term "Common Stock" shall mean and include
the Common Stock authorized on the date of the original issue of this Warrant,
and shall also include any capital stock of any class of the Company thereafter
authorized that shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets on the voluntary or involuntary liquidation, dissolution,
or winding up of the Company; provided that the Warrant Shares purchasable
pursuant to this Warrant shall include only shares of the class designated in
the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of this Warrant or, in the case of any reorganization,
reclassification, consolidation, merger, or sale of assets of the character
referred to in paragraph 4(c) hereof, the stocks, securities, or assets provided
for in such paragraph.
9. This agreement shall be construed under and be governed by the
laws of the State of Texas.
10. Any notices required or permitted hereunder shall be
sufficiently given if delivered by hand or sent by registered or certified mail,
postage prepaid, addressed as follows:
If to AJC, Inc., to:
12 Pondview Court
Jericho, New York 11753
If to the Company, to:
Intelect Communications, Inc.
1100 Executive Drive, Richardson, Texas 75081
Attention: Herman M. Frietsch, Chairman and Chief Executive
Officer
With copy to:
Philip P. Sudan, Jr.
Ryan & Sudan, LLP
909 Fannin, Suite 3900
Houston, Texas 77010-1010
or such other address as shall be furnished in writing by any party to the
other, and any such notice or communication shall be deemed to have been given
as of the date delivered by hand or three days after being so deposited in the
mails.
-8-
9
Executed effective as of September 1, 1998.
INTELECT COMMUNICATIONS, INC.
By: /s/ HERMAN M. FRIETSCH
-------------------------------------------
Herman M. Frietsch,
Chairman of the Board, Chief Executive Officer
-9-
10
Form of Purchase
(to be signed only upon exercise of warrant)
TO: INTELECT COMMUNICATIONS, INC.
The undersigned, the owner of the attached warrant, hereby irrevocable
elects to exercise the purchase rights represented by the warrant for, and to
purchase thereunder, _____ shares of common stock of Intelect Communications
Systems Limited, and herewith makes payment of $______ therefor, and requests
that the certificate(s) for such shares be delivered to _____ _________, at
____________________________________________, and if such shall not be all of
the shares purchasable hereunder, that a new warrant of like tenor for the
balance of the shares purchasable under the attached warrant be delivered to the
undersigned.
Dated this _____ day of _____________, 199__.
-------------------------------------
Signature
-10-