2,300,000 Shares
INTELECT COMMUNICATIONS SYSTEMS LIMITED
Common Shares
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The common shares, par value US $0.01 per share (the "Common Shares"),
of Intelect Communications Systems Limited ("Intelect Communications Systems
Limited" or the "Company") covered by this Prospectus are shares issuable upon
conversion of debentures and warrants, which may be offered and sold, from time
to time, for the account of certain shareholders of the Company (the "Selling
Shareholders"). See "Selling Shareholders." The Common Shares covered by this
Prospectus are issuable in connection with certain financings. All of the shares
offered hereunder are to be sold by the Selling Shareholders. The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Shareholders.
The Selling Shareholders may from time to time sell the shares covered
by this Prospectus on the Nasdaq National Market in ordinary brokerage
transactions, in negotiated transactions, or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution." The Common Shares are traded on the Nasdaq National Market under
the symbol ICOMF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is October 24, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048, and at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials also may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such materials may also be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.com. The Common
Shares of the Company are traded on the Nasdaq National Market. Reports and
other information concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, as certain items are omitted in accordance with
the rules and regulations of the Commission. For further information pertaining
to the Company and the Common Shares offered hereby, reference is made to such
Registration Statement and the exhibits and schedules thereto, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1995 and the Company's Transition Report on Form 10-K
for the transition period from November 1, 1995 to December 31,
1995;
(2) The proxy statement for the Company's Annual Meeting of
Shareholders held on June 26, 1996;
(3) The Company's Quarterly Report on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996; and
(4) The Company's Current Reports on Form 8-K dated November 10, 1995,
February 20, 1996 and April 12, 1996 and Amendments to such
Current Reports on Form 8-K/A dated December 4, 1995, April 12,
1996 and June 3, 1996, respectively.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Common Shares
registered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
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incorporated by reference into such documents). Requests for such copies should
be directed to the Secretary of the Company, Reid House, 31 Church Street,
Hamilton, Bermuda HM12, telephone (441) 295-8639. Statements in documents
incorporated by reference shall be deemed modified by statements herein.
Statements so modified shall constitute part of this Prospectus only as so
modified.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAW
The Company conducts its business operations through direct and
indirect subsidiaries. The parent company is a Bermuda company and holds its
assets, including the assets of such subsidiaries, outside the United States. A
majority of the Company's directors and officers are not residents of the United
States. Certain of the Company's assets and most of the assets of its directors
and officers are located outside the United States. As a result, it may be
difficult for investors in the Common Shares to (i) effect service of process
within the United States upon the Company or such persons, or (ii) realize in
the United States upon the judgments of courts of the United States against the
Company or such persons predicated upon the civil liability provisions of the
United States federal securities laws. The Company has been advised by its
Bermuda counsel, Appleby, Spurling & Kempe, that there is doubt (i) whether a
judgment of a United States court predicated solely upon the civil liability
provisions of the United States federal securities laws would be enforceable in
Bermuda against the Company or such persons, and (ii) whether an action could be
brought in Bermuda against the Company or such persons in the first instance on
the basis of a liability predicated solely upon the provisions of the United
States federal securities laws.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
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THE COMPANY
Intelect Communications Systems Limited ("Intelect Communications
Systems Limited" or the "Company") was incorporated under the laws of Bermuda in
April 1980 and operated under the name of Coastal International, Ltd. until
September 1985 and as Challenger International, Ltd. until December 1995. The
Company has several operating subsidiaries (including Intelect, Inc.
("Intelect") based in Richardson, Texas and Intelect Europe Limited ("Intelect
Europe") based in Derbyshire, England). Unless the context otherwise indicates,
the Company refers to Intelect Communications Systems Limited and its
subsidiaries.
During the year ended October 31, 1995 the Company acquired Intelect
and Intelect Europe and disposed of its previous principal operating subsidiary,
Savage Corporation ("Savage"). During the quarter ended March 31, 1996, the
Company acquired DNA Enterprises, Inc. ("DNA") and Mosaic Information
Technologies Inc. ("Mosaic"). The Company's operations are now focused in the
field of providing multimedia voice, data and video products and systems for
communications-critical applications.
The Company's executive offices are located at Reid House, 31 Church
Street, Hamilton, Bermuda HM12 (telephone: (441) 295-8639).
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common
Shares offered hereby.
SELLING SHAREHOLDERS
The Selling Shareholders were issued securities, for which the Common
Shares covered by this Prospectus are issuable, in a private placement as
summarized below:
Of the 2,300,000 Common Shares being registered, an estimated 2,070,000
Common Shares will be issuable to Infinity Investors, Ltd. ("Infinity") and an
estimated 230,000 Common Shares will be issuable to Seacrest Capital Limited
("Seacrest"), each, subject to certain convertible debentures issued to Infinity
and Seacrest in a private placement.
In each case, the issuance of Common Shares to the Selling Shareholders
was undertaken pursuant to Regulation D promulgated under Section 4(2) of the
Securities Act.
In addition, in connection with the private placement of convertible
debentures described above, the Company and each of Infinity and Seacrest
entered into a registration rights agreement (the "Registration Rights
Agreement") providing, among other things, for the registration of the Common
Shares issuable upon conversion of such debentures.
The following table sets forth the number of Common Shares beneficially
owned by each of the Selling Shareholders as of October 17, 1996, the number of
shares to be offered by each of the Selling Shareholders pursuant to this
Prospectus and the number of shares to be beneficially owned by each of the
Selling Shareholders if all of the shares offered hereby are sold as described
herein. Except as provided below, the Selling Shareholders have not held any
positions or offices with, been employed by, or otherwise had a material
relationship with, the Company or any of its predecessors or affiliates since
August 1, 1993.
<TABLE>
<CAPTION>
Number of
Number of Common Shares
Common Shares Beneficially Number of Beneficially
Name of Owned Common Shares Owned After
Selling Shareholder as of October 17, 1996 Offered Hereby Offering
------------------- ---------------------- -------------- --------
<S> <C> <C> <C>
Infinity Investors, Ltd. (1) 2,070,000 (1) 2,070,000 0
Seacrest Capital Limited (1) 230,000 (1) 230,000 0
</TABLE>
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(1) The convertible debenture in the principal amount of US $9,000,000 issued to
Infinity and the convertible debenture in the principal amount of US $1,000,000
issued to Seacrest each provide for conversion of the debentures into Common
Shares on the bases of a floating conversion ratio tied to a percentage of the
market price of the Company's Common Shares. For the 90-day period following the
date of each debenture, the two debentures are convertible into an aggregate of
up to 2,300,000 Common Shares. Thereafter, the number of shares issuable upon
conversion of the debentures is determined by a formula based on the current
market price of the Common Shares, with no maximum number of Common Shares into
which the debentures are convertible. The convertible debentures issued to
Infinity and Seacrest each limit the conversion right of the holder such that in
no instance shall the maximum number of Common Shares into which the holder may
convert their debenture exceed, at any one time, an amount equal to the
remainder of (i) 4.99% of the then issued and outstanding Common Shares of the
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Company following such conversion, minus (ii) the number of Common Shares of the
Company held by such holder.
PLAN OF DISTRIBUTION
Common Shares covered hereby may be offered and sold from time to time
by the Selling Shareholders. The Selling Shareholders will act independently of
the Company in making decisions with respect to the timing, manner and size of
each sale. Such sales may be made in the over-the-counter market or otherwise,
at prices related to the then current market price or in negotiated
transactions, including pursuant to an underwritten offering or one or more of
the following methods: (a) purchases by the broker-dealer as principal and
resale by such broker or dealer for its account pursuant to this Prospectus; (b)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (c) block trades in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction. The Company has been advised
by the Selling Shareholders that they have not made any arrangements relating to
the distribution of the shares covered by this Prospectus. In effecting sales,
broker-dealers engaged by the Selling Shareholders may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or
discounts from the Selling Shareholders in amounts to be negotiated immediately
prior to the sale. The Registration Rights Agreement provides that the Company
will indemnify the Selling Shareholders against certain liabilities, including
liabilities under the Securities Act.
In offering the Common Shares covered hereby, the Selling Shareholders
and any broker-dealers and any other participating broker-dealers who execute
sales for the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profits
realized by the Selling Shareholders and the compensation of such broker-dealer
may be deemed to be underwriting discounts and commissions. In addition, any
shares covered by this Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus. None of the
shares covered by this Prospectus presently qualifies for sale pursuant to Rule
144.
The Company has advised the Selling Shareholders that during such time
as they may be engaged in a distribution of Common Shares included herein they
are required to comply with Rules 10b-6 and 10b-7 under the Exchange Act (as
those Rules are described in more detail below) and, in connection therewith,
that they may not engage in any stabilization activity in connection with
Intelect securities, are required to furnish to each broker-dealer through which
Common Shares included herein may be offered copies of this Prospectus, and may
not bid for or purchase any securities of the Company or attempt to induce any
person to purchase any Intelect securities except as permitted under the
Exchange Act. The Selling Shareholders have agreed to inform the Company when
the distribution of the shares is completed.
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an account in
which the participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 10b-7 governs bids and purchases made in
order to stabilize the price of a security in connection with a distribution of
the security.
This offering will terminate on the earlier of (a) the date on which
the shares are eligible for resale pursuant to Rule 144 under the Securities Act
or (b) the date on which all shares offered hereby have been sold by the Selling
Shareholders.
DESCRIPTION OF CAPITAL STOCK
The authorized share capital of the Company is US $950,000, divided
into 80,000,000 Common Shares of US $0.01 par value each (the "Common Shares")
and 15,000,000 Serial Preferred Shares of US $0.01 par value each (the
"Preferred Shares"). As of October 14, 1996, there were 13,794,055 Common Shares
and no Preferred Shares issued and outstanding.
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COMMON SHARES
The holders of Common Shares shall be entitled to rank pari passu in
all respects with each other holder of Common Shares. Any shareholder who is a
holder of Common Shares shall be entitled to one vote for each Common Share held
by such holder. Subject to the payment of preferential amounts to which the
holders of any Preferred Shares which may be issued from time to time may be
entitled, holders of the Common Shares shall be entitled, pro rata to their
holding of Common Shares, to participate in any assets or surplus of the Company
distributable in any liquidation, dissolution or winding-up of the Company.
PREFERRED SHARES
The Preferred Shares may be issued from time to time in one or more
series and in such amount as may be established or designated from time to time
by the Board of Directors in accordance of the Bye-Laws of the Company. The
Board of Directors has the authority to establish and designate any unissued
Preferred Shares as a series of such of shares.
VARIATION OF RIGHTS
If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, whether or not the Company is being
wound up, be varied with the consent in writing of the holders of three-fourths
of the issued and outstanding shares of that class or with the sanction of a
resolution passed by a majority of the votes cast at a separate general meeting
of the holders of the shares of the class in accordance with the relevant
provisions of the Companies Act 1981 of Bermuda. The rights conferred upon the
holders of the shares of any class issued with preferred or other rights shall
not, unless otherwise expressly provided by the terms of issue of the shares of
that class, be deemed to be varied by the creation or issue of further shares
ranking pari passu therewith.
LIMITATIONS ON OWNERSHIP OF SHARES BY RESIDENTS OF BERMUDA
Under the Exchange Control Act of 1972 of Bermuda, the issue and
transfer of shares of Bermuda companies such as the Company is subject to the
prior general approval of the Bermuda Monetary Authority (the "Authority"). The
Authority has approved the issue and subsequent unrestricted transfer of the
Shares offered by this Prospectus to and between persons and corporations
considered by the Authority to be nonresidents of Bermuda for foreign exchange
purposes. The issue or transfer of Shares of the Company to persons or
corporations considered by the Authority to be residents of Bermuda for foreign
exchange purposes will require the specific approval of the Authority.
LEGAL MATTERS
The validity of the Common Shares offered by the Selling Shareholders
hereby will be passed upon by Appleby, Spurling & Kempe, Hamilton, Bermuda.
EXPERTS
The consolidated financial statements and financial statement schedules
of Intelect Communications Systems Limited as of December 31, 1995 and October
31, 1995 and 1994 and for the two month period ended December 31, 1995 and each
of the years in the three-year period ended October 31, 1995, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick, Hamilton, Bermuda, independent chartered
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Intelect, Inc. as of April 24,
1995 and December 31, 1994
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and 1993 and for the years ended December 31, 1994 and 1993 and the period from
January 1, 1995 to April 24, 1995, have been incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, Dallas, Texas, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The financial statements of DNA Enterprises, Inc. as of December 31,
1995 and 1994 and for each of the years in the three-year period ended December
31, 1995, have been incorporated by reference herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, Dallas, Texas,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Mosaic Information Technologies Inc. (a
development stage company) as of December 31, 1995, 1994 and 1993 and for each
of the years in the three-year period ended December 31, 1995 and for the period
from January 24, 1992 (date of inception) through to December 31, 1995, have
been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, New York, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering Mosaic Information
Technologies Inc. (a development stage company) financial statements as of
December 31, 1995, 1994 and 1993 and for each of the years in the three-year
period ended December 31, 1995 and for the period from January 24, 1992 (date of
inception) through to December 31, 1995, contains an explanatory paragraph which
states that the Company's recurring losses from operations since inception,
working capital deficiency and net capital deficiency raise substantial doubt
about the entity's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
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