AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. ___________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
INTELECT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 3661 76-0471342
(Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Identification Number)
Code Number)
1100 Executive Drive
Richardson, Texas 75081
(972) 367-2100
(Address, including zip code, and telephone
number, including area code, of Registrant's
Principal Executive Offices)
HERMAN M. FRIETSCH
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
(972) 367-2100
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
--------------------
with a copy to:
ROBERT C. BEASLEY
RYAN & SUDAN, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010
(713) 652-0501
--------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective and the
consummation of the Plan of Merger as described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Per Share (1) Aggregate Offering Registration
Price (1) Fee (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par value 24,000,000 $7.31 $175,440,000 $53,163.63
Shares (2)
====================================================================================================================================
Series A Convertible Preferred Stock, $.01 par value 4,219,409 $7.31 (4) $ 30,843,879 $ 9,346.63
Shares (3)
====================================================================================================================================
Warrants to Purchase Common Stock 2,515,063(5) $7.31 (6) $ 18,385,110 $ 5,571.25
====================================================================================================================================
Total: $68,081.51
====================================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457(f)(1) of the Securities Act of 1933, as
amended (the "Securities Act"), solely for the purpose of calculating
the registration fee for this filing, based on the market value of the
Common Shares, $.01 par value per share, of Intelect Communication
Systems Limited (the "Company Common Shares"), to be exchanged as a
result of the Merger described herein ($7.28 per Share, which is the
average of the high and low prices of the Company Common Shares reported
on the Nasdaq National Market System on October 28, 1997).
(2) Based upon the conversion of each Company Common Share into one share of
Common Stock, $.01 par value, of Intelect Communications, Inc.
("Intelect (Delaware)") pursuant to the Merger Agreement described
herein, and upon the number of Company Common Shares outstanding at
October 28, 1997, plus an estimate of the number of Company Common
Shares that may be issued upon the exercise of outstanding options and
warrants prior to December 4, 1997, the date of the shareholder meeting
described herein.
(3) Based upon the conversion of each Series A Convertible Preferred Share,
$.01 par value, of the Company into one share of Series A Convertible
Preferred Share, $.01 par value, of Intelect (Delaware) pursuant to the
Merger Agreement described herein.
(4) Estimated pursuant to Rule 457(f)(1) of the Securities Act, solely for
the purpose of calculating the registration fee for this filing, based
on the market value of the Company Common Shares into which the Company
Preferred Shares are convertible.
(5) Based upon the exchange of each Warrant to purchase Company Common
Shares outstanding as of the date hereof into a right to purchase
Intelect (Delaware) Common Shares pursuant to the Merger Agreement
described herein.
(6) Estimated pursuant to Rule 457(f)(1) of the Securities Act, solely for
the purpose of calculating the registration fee for this filing, based
on the market value of the Company Common Shares for which the Warrants
are exercisable.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
====================================================
<PAGE>
INTELECT COMMUNICATIONS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
LOCATION IN PROSPECTUS OF ITEMS OF FORM S-4
<TABLE>
<CAPTION>
LOCATION IN PROXY
S-4 ITEM S-K ITEM ITEM STATEMENT/PROSPECTUS
- ---------------- ---------------- --------------------------------------------- -------------------------------------------------
INFORMATION ABOUT THE TRANSACTION
<S> <C> <C> <C>
1 ITEM 501 FOREPART OF REGISTRATION STATEMENT FACING PAGE OF REGISTRATION STATEMENT; CROSS
AND OUTSIDE FRONT COVER PAGE OF REFERENCE SHEET; OUTSIDE FRONT COVER PAGE
PROSPECTUS OF PROXY STATEMENT/PROSPECTUS
2 ITEM 502 INSIDE FRONT AND OUTSIDE BACK INSIDE FRONT COVER PAGE OF PROXY
COVER PAGES OF PROSPECTUS STATEMENT/PROSPECTUS; TABLE OF CONTENTS;
AVAILABLE INFORMATION
3 ITEM 503 RISK FACTORS, RATIO OF EARNINGS TO SUMMARY OF PROXY STATEMENT/PROSPECTUS;
FIXED CHARGES AND OTHER RISK FACTORS
INFORMATION
4 ITEM 202 TERMS OF THE TRANSACTION AND SUMMARY OF PROXY STATEMENT/PROSPECTUS;
DESCRIPTION OF SECURITIES TO BE THE SPECIAL MEETING - GENERAL PROXY
REGISTERED INFORMATION; THE REORGANIZATION PROPOSAL;
COMPARISON OF SHAREHOLDERS' RIGHTS
5 PRO FORMA FINANCIAL INFORMATION SELECTED FINANCIAL DATA
6 MATERIAL CONTRACTS WITH THE THE REORGANIZATION PROPOSAL
COMPANY BEING ACQUIRED
7 ITEM 507 ADDITIONAL INFORMATION REQUIRED *
FOR REOFFERING BY PERSONS AND
PARTIES DEEMED TO BE UNDERWRITERS
8 ITEM 509 INTERESTS OF NAMED EXPERTS AND LEGAL MATTERS; EXPERTS
COUNSEL
9 ITEM 510 DISCLOSURE OF COMMISSION POSITION *
ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
INFORMATION ABOUT THE REGISTRANT
10 INFORMATION WITH RESPECT TO S-3 INCORPORATION OF CERTAIN DOCUMENTS BY
REGISTRANTS REFERENCE; ADDITIONAL INFORMATION
11 INCORPORATION OF CERTAIN INCORPORATION OF CERTAIN DOCUMENTS BY
INFORMATION BY REFERENCE REFERENCE
12 INFORMATION WITH RESPECT TO S-2 OR *
S-3 REGISTRANTS
13 INCORPORATION OF CERTAIN *
INFORMATION BY REFERENCE
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
14 INFORMATION WITH RESPECT TO *
REGISTRANTS OTHER THAN S-3 OR S-2
REGISTRANTS
15 INFORMATION WITH RESPECT TO S-3 INCORPORATION OF CERTAIN DOCUMENTS BY
COMPANIES REFERENCE
16 INFORMATION WITH RESPECT TO S-2 OR *
S-3 COMPANIES
17 INFORMATION WITH RESPECT TO *
COMPANIES OTHER THAN S-3 OR S-2
COMPANIES
VOTING AND MANAGEMENT INFORMATION
18 INFORMATION IF PROXIES, CONSENTS OR NOTICE OF MEETING; OUTSIDE FRONT COVER
AUTHORIZATIONS ARE TO BE SOLICITED PAGE; SUMMARY OF PROXY STATEMENT -
PROSPECTUS; THE SPECIAL MEETING-GENERAL
PROXY INFORMATION; THE REORGANIZATION
PROPOSAL; MANAGEMENT; PRINCIPAL
SHAREHOLDERS; EXECUTIVE COMPENSATION
INFORMATION IF PROXIES, CONSENTS OR
AUTHORIZATIONS ARE NOT TO BE
19 SOLICITED OR IN AN EXCHANGE OFFER *
- ------------------------------------
* OMITTED BECAUSE NOT REQUIRED, INAPPLICABLE, OR THE ANSWER IS NEGATIVE.
</TABLE>
<PAGE>
INTELECT COMMUNICATIONS SYSTEMS LIMITED
1100 EXECUTIVE DRIVE
RICHARDSON, TEXAS 75081
Dear Shareholder:
We are pleased to invite you to attend an important Special Meeting of
Shareholders to be held on December 4, 1997, at 9:00 a.m., at the offices of the
Company located at 1225 Commerce Street, Richardson, Texas 75081 (the
"Meeting"). Because of the importance of the business of the Meeting, we would
like as many of you as possible either to attend in person, or to be represented
by sending in your proxies.
The business of the Meeting includes consideration of a plan of merger
(the "Merger"), the principal effect of which will be to restructure the Company
from a Bermuda to a U.S. domiciled corporation (the "Reorganization"). The
Reorganization will not change the Company's assets, liabilities, or operations
on a consolidated basis. Pursuant to the Reorganization, Intelect
Communications, Inc., a Delaware corporation ("Intelect (Delaware)"), will
become the holding company for Intelect Communications Systems Limited., a
Bermuda company (the "Company") and its subsidiaries (collectively, the
"Group"). Intelect (Delaware) will become the publicly traded corporation and
the shareholders of the Company will become shareholders of Intelect (Delaware).
The Board of Directors of the Company has carefully considered the
Reorganization with the advice of the Company's counsel and Arthur Andersen LLP,
its independent auditors, and believes it to be in the best interests of the
Company for a number of reasons. Substantially all of the Group's operations are
located in the United States. The Company has registered its Common Shares under
the U.S. Securities Act of 1933, as amended (the "Securities Act") and the U.S.
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and a large
majority of the Company's shareholders reside in the U.S. The Company views the
United States as its primary market for raising capital and each of the Boards
of Directors of the Company and Intelect (Delaware) believes that the
Reorganization will facilitate access to such markets and increase the Group's
attractiveness and flexibility to meet future financing needs. As part of its
expected growth strategy for the short and medium term, Intelect (Delaware) will
pursue opportunities to invest in other U.S. based companies in the multimedia
communications industry, as it has done in the past. The price for any potential
acquisitions may be in common shares of Intelect (Delaware) ("Intelect
(Delaware) Common Shares") and the Company believes that Intelect (Delaware)
Common Shares will be more attractive as consideration for such acquisitions if
the issuer is domiciled in the United States. Relocating control and ownership
of the Group's operations to Delaware is expected to simplify the Groups's tax
and securities filings, accounting and operations and substantially reduce both
the cost and the burden of these reporting obligations. In addition, Delaware
has adopted comprehensive, modern and flexible corporate laws to meet the
changing needs of today's corporations. The Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of law has developed construing Delaware law and establishing public policy with
respect to Delaware corporations.
The Reorganization has been designed to maintain the Group's results of
operations, existing net operating losses (for United States tax purposes) and
asset values without causing any material United States income tax consequences.
In addition, the Reorganization has been structured so that it will be treated
as a tax-free transaction for United States tax purposes to United States
residents.
The details of the Reorganization are included in the attached Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus").
Approval and adoption of the Reorganization requires the affirmative vote
of 75% of the votes actually cast by holders of each class of shares, voting
separately, entitled to vote at the Meeting.
Under Section 106 of the Companies Act 1981 (Bermuda), as amended, holders
of Intelect Communications Systems Limited Common Shares are entitled to assert
dissenters' rights with respect to the proposed Merger and, subject to the
consummation of the Merger, to receive the "fair value" of their shares in cash
by complying with the procedures set forth in Section 106 of the Companies Act
1981 (Bermuda). In the opinion of the Board of Directors,
<PAGE>
the fair value of the Common Shares of Intelect (Delaware) that the shareholders
are receiving in the Merger is at least equal to, if not greater than, the fair
value of the Company's Common Shares. The trading market for the Company's
Common Shares (Nasdaq National Market) will continue to be the trading market
for the Intelect (Delaware) Common Shares. The principal effect of the
Reorganization is simply to change the domicile of the Company so that it will
be a publicly traded U.S. domiciled corporation. The Board of Directors believes
that this change will enhance the marketability of the Company's shares by
raising the Company's profile in the U.S. capital markets and will have a
positive effect on the trading of the Company's share. It is a condition to the
Merger that, unless waived by the Company, the number of the Company's Common
Shares held by shareholders of the Company who properly exercise their
dissenters' rights shall not exceed an amount which, in the opinion of the Board
of directors, would represent an unacceptable cash cost in light of the
Company's current and anticipated cash requirements. A description of
dissenters' rights under Bermuda law is included in the accompanying Proxy
Statement/Prospectus and a copy of the relevant text of the Companies Act 1981
(Bermuda) is attached as Appendix 4 to the accompanying Proxy
Statement/Prospectus.
After considering many different factors (which are reviewed in detail in
the Proxy Statement/Prospectus), your Board RECOMMENDS that you vote IN FAVOR of
the resolution concerning the Reorganization.
We hope that you will be able to attend the Meeting. WHETHER YOU ARE ABLE
TO ATTEND, IT IS STILL IMPORTANT THAT YOU BE REPRESENTED AT THE MEETING. WE URGE
YOU TO COMPLETE THE ENCLOSED PROXY AND RETURN IT NOT LATER THAN THE TIME
SPECIFIED IN THE NOTICE OF SPECIAL MEETING OF SHAREHOLDERS IN THE ENVELOPE
PROVIDED. REGARDLESS OF THE NUMBER OF COMPANY COMMON SHARES YOU OWN, YOUR VOTE
IS IMPORTANT.
Thank you for your review and consideration. Your affirmative support is
requested and will be appreciated.
Yours very truly,
HERMAN M. FRIETSCH
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
<PAGE>
INTELECT COMMUNICATIONS SYSTEMS LIMITED
1100 Executive Drive
Richardson, Texas 75081
NOTICE OF THE
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, DECEMBER 4, 1997
To the Shareholders of Intelect Communications Systems Limited:
TAKE NOTICE that a Special General Meeting of the shareholders of INTELECT
COMMUNICATIONS SYSTEMS LIMITED (the "Company") will be held on Thursday,
December 4, 1997, at 9:00 a.m. at the Company's offices located at 1225 Commerce
Street, Richardson, Texas 75081 (the "Meeting") for the purpose of considering
and voting upon the following matters:
1. To consider and vote upon a proposal, the principal effect of
which will be to change the domicile of the Company so that it
will be a publicly traded U.S. domiciled corporation (the
"Reorganization" or "Reorganization Proposal"). The
Reorganization will be effected pursuant to an Agreement and Plan
of Merger (the "Merger Agreement") by and among the Company,
Intelect Communications, Inc., a Delaware corporation that is
currently a wholly-owned subsidiary of the Company ("Intelect
(Delaware)"), and Intelect Merger Co., a newly-formed Delaware
corporation which is a wholly-owned subsidiary of Intelect
(Delaware) ("Merger Co."). THE REORGANIZATION IS MORE COMPLETELY
DESCRIBED IN THE MERGER AGREEMENT, THE FORM OF WHICH IS ATTACHED
AS APPENDIX 1 TO THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
2. To transact such other business as may properly be brought before
the Meeting or any adjournment thereof.
The Board of Directors of the Company has no knowledge of any other
business to be transacted at the Meeting.
Affirmative action with respect to the Reorganization Proposal has been
taken by the Company's Board of Directors and the Board of Directors recommends
that the shareholders vote in favor of the Reorganization Proposal. The close of
business on October 28, 1997, has been fixed as the record date for the
determination of shareholders entitled to notice of, and to vote at, the Meeting
and any adjournments thereof.
The affirmative vote of the holders of seventy-five percent (75%) of the
votes represented and voting at the Meeting by holders of each class of shares,
voting separately, entitled to vote is required to approve the Reorganization
Proposal.
Under Section 106 of the Companies Act 1981 (Bermuda), as amended, holders
of Common Shares of the Company are entitled to assert dissenters' rights with
respect to the proposed merger (the "Merger") and, subject to the consummation
of the Merger, to receive the "fair value" of their shares in cash by complying
with the procedures set forth in Section 106 of the Companies Act 1981
(Bermuda). In the opinion of the Board of Directors, the fair value of the
Intelect (Delaware) Common Shares that the shareholders are receiving in the
Reorganization is at least equal to, if not greater than, the fair value of the
Company's Common Shares. Unless waived by the Company, it is a condition to the
Merger that the number of the Company's Common Shares held by shareholders of
the Company who properly exercise their dissenters' rights shall not exceed an
amount which, in the opinion of the Board of Directors, would represent an
unacceptable cash cost in light of the Company's current and anticipated cash
requirements. A description of dissenters' rights under Bermuda law is included
in the accompanying Proxy
<PAGE>
Statement/Prospectus and a copy of the relevant text of the Companies Act 1981
(Bermuda) is attached as Appendix 4 to the accompanying Proxy
Statement/Prospectus.
October ___, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
EDWIN J. DUCAYET, JR., ASSISTANT SECRETARY
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE NEED
BE AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
PROXY STATEMENT/PROSPECTUS
PROSPECTUS
FOR COMMON SHARES OF
INTELECT COMMUNICATIONS, INC.
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
INTELECT COMMUNICATIONS SYSTEMS LIMITED
TO BE HELD ON DECEMBER 4, 1997
This Proxy Statement/Prospectus accompanies the Notice (the "Notice") of
the Special General Meeting of Shareholders of Intelect Communications Systems
Limited (the "Company") and is furnished in connection with the solicitation by
the Board of Directors of the Company of proxies to be voted at the Special
Meeting of Shareholders of the Company (the "Meeting") and at any and all
adjournment or postponement of such Meeting. The Meeting is to be held on
Thursday, December 4, 1997, at 9:00 a.m. at the offices of the Company located
at 1225 Commerce Street, Richardson, Texas 75081. It is expected that
solicitation of proxies will be primarily by mail, however, the Company will
retain agents to solicit proxies. The Company has retained Regan & Associates,
Inc., a professional solicitation firm, which will assist in soliciting proxies
for a fee estimated at $6,250 plus reimbursement of out-of-pocket expenses. The
costs of solicitation will be borne by the Company. Unless otherwise stated, all
amounts included in this Proxy Statement are stated in U.S. dollars.
This Proxy Statement/Prospectus relates to a proposed plan of merger,
the principal effect of which will be to restructure the Company as a publicly
traded U.S. domiciled corporation (the "Reorganization"). The Reorganization
will be effected pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") by and among the Company, Intelect Communications, Inc., a Delaware
corporation that is currently a wholly-owned subsidiary of the Company
("Intelect (Delaware)"), and Intelect Merger Co., a newly-formed Delaware
corporation which is a wholly-owned subsidiary of Intelect (Delaware) ("Merger
Co."). As a result of the Reorganization, among other things, (i) Merger Co.
will be merged ("amalgamated" under Bermuda law) with the Company (the "Merger")
pursuant to the Merger Agreement, the form of which is attached as Appendix 1
hereto; (ii) except for Company Common Shares, $.01 par value per share
("Company Common Shares") which are held by Company shareholders who properly
exercise their dissenters' rights under Bermuda law ("Dissenting Shares"), each
outstanding Company Common Share will be converted into the right to receive one
common share, $.01 par value per share, of Intelect (Delaware) ("Intelect
(Delaware) Common Shares"), (iii) except for shares of the Company's 10%
Cumulative Convertible Preferred Shares, Series A, $.01 par value per share
("Company Preferred Shares") which are held by Company shareholders who properly
exercise their dissenters' rights under Bermuda law, each outstanding Company
Preferred Share will be converted into the right to receive one 10% Cumulative
Convertible Preferred Share, Series A, $.01 par value per share, of Intelect
(Delaware) ("Intelect (Delaware) Preferred Shares"), (iv) the Company will
become a wholly-owned subsidiary of Intelect (Delaware), (v) all warrants for
Company Common Shares validly existing and outstanding on the effective date of
the Merger Agreement will become obligations of Intelect (Delaware); and (vi)
each holder of options to purchase Company Common Shares issued by the Company
pursuant to the Company's Stock Incentive Plan (the "Company Plan") whether
vested or unvested ("Company Options"), will be granted substitute options to
purchase an equal number of Intelect (Delaware) Common Shares pursuant to
Intelect (Delaware)'s Stock Incentive Plan ("Intelect (Delaware) Stock Incentive
Plan) on the same terms and conditions and at the same exercise price per share
as presently provided for by the Company Options. The Intelect (Delaware) Stock
Incentive Plan is identical in all material respects to the Company Plan, and
the Company Plan will be terminated if the Merger is consummated. The
Reorganization will not change the Company's assets, liabilities, or operations
on a consolidated basis.
1
<PAGE>
This Proxy Statement/Prospectus serves as a Prospectus of Intelect
(Delaware) with respect to up to 24,000,000 Intelect (Delaware) Common Shares to
be issued in the Merger in exchange for the Company Common Shares, 4,219,409
Intelect (Delaware) Preferred Shares to be issued in the Merger in exchange for
the Company Preferred Shares, and warrants to purchase up to 2,515,068 of
Intelect (Delaware) Common Shares, which warrants are to be received in exchange
for the outstanding warrants to purchase up the same amount of Company Common
Shares. Each person who controls or who is under common control with the Company
at the time the Merger is submitted for a vote of the Company shareholders may,
in connection with any distribution of Intelect (Delaware) Common Shares
received in the Merger, be deemed to be an "affiliate" of the Company and thus
an "underwriter" within the meaning of the Securities Act of 1933, as amended
(the "Securities Act"), unless such stock is sold pursuant to paragraph (d) of
Rule 145 promulgated under the Securities Act, pursuant to an effective
registration statement filed under the Securities Act with respect to such
shares or pursuant to another applicable exemption therefrom. This Proxy
Statement/Prospectus does not cover any resales of the Intelect (Delaware)
Common Shares received by Company shareholders upon consummation of the Merger,
and no person is authorized to make any use of this Proxy Statement/Prospectus
in connection with any such resale. See "Reorganization Proposal -- Securities
Law Considerations."
This Proxy Statement/Prospectus also serves as the proxy statement in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Meeting to be held for the purpose of approving the
proposed Merger and the Intelect (Delaware) Stock Incentive Plan.
The Notice of Meeting, this Proxy Statement/Prospectus, and the enclosed
proxy are being first mailed to shareholders on or about October ____, 1997.
The Meeting has been called to consider and take action on the following
proposals:
1. To consider and vote upon the Reorganization Proposal, the
principal effect of which will be to restructure the Company as
a publicly traded U.S. domiciled corporation, and which would be
effectuated pursuant to the Merger Agreement by and among the
Company, Intelect (Delaware), and Merger Co., pursuant to which,
among other things, (a) Merger Co. will be merged with the
Company, (b) except for Company Common Shares which are held by
Company shareholders who properly exercise their dissenters'
rights under Bermuda law, each outstanding Company Common Share
will be converted into the right to receive one Intelect
(Delaware) Common Share, (c) except for Company Preferred Shares
which are held by Company shareholders who properly exercise
their dissenters' rights under Bermuda law, each outstanding
Company Preferred Share will be converted into the right to
receive one Intelect (Delaware) Preferred Share, (d) the Company
will become a wholly-owned subsidiary of Intelect (Delaware),
and (e) each holder of Company Options, issued pursuant to the
Company Plan, whether vested or unvested, will be granted an
equal number of Intelect (Delaware) Common Shares pursuant to
the Intelect (Delaware) Stock Incentive Plan on the same terms
and conditions and at the same exercise price per share as
presently provided for by the Company Options. THE
REORGANIZATION PROPOSAL IS MORE COMPLETELY DESCRIBED IN THE
MERGER AGREEMENT, THE FORM OF WHICH IS ATTACHED AS APPENDIX 1 TO
THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.
2. To transact such other business as may properly be brought
before the meeting or any adjournment or postponement thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
ANY INVESTMENT IN INTELECT (DELAWARE) COMMON SHARES INVOLVES A HIGH
DEGREE OF RISK. SEE RISK FACTORS, BEGINNING ON PAGE 11, FOR A DISCUSSION OF
CERTAIN CONSIDERATIONS AND RISKS RELEVANT TO THE CHOICES OF SHAREHOLDERS OF THE
COMPANY REGARDING THE REORGANIZATION PROPOSAL AND THEIR INVESTMENT IN SECURITIES
OF INTELECT (DELAWARE) REFERRED TO HEREIN.
2
<PAGE>
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE OR OTHER SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE
OR OTHER SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
UNTIL _____, 1997 (25 DAYS AFTER THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN INTELECT (DELAWARE)
COMMON SHARES MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS __________, 1997.
3
<PAGE>
AVAILABLE INFORMATION
The Company is, and has been, subject to the informational requirements
of the Securities Exchange Act of 1934 (the "Exchange Act"). The reports and
other information filed and to be filed by the Company and Intelect (Delaware)
with the Securities and Exchange Commission (the "SEC"), as well as the S-4
Registration Statement (and the exhibits and schedules thereto) may be inspected
and copied at the Public Reference facilities maintained by the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 and the SEC
Regional Offices: New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048 and Chicago Regional Office, Northwestern Atrium
Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661-2511.
Additionally, copies of such material may be accessed, inspected, and
downloaded, at no cost beyond internet provider-imposed service fees, via the
SEC internet web page located at HTTP://WWW.SEC.GOV. In addition, certain
material to be filed by Intelect (Delaware) may be inspected at the National
Association of Securities Dealers, Inc. ("NASD"), Public Reference Room, 1735 K
Street, NW, Washington, D.C. 20006-1506.
Intelect (Delaware) is not currently subject to the reporting and
informational requirements of Sections 13 or 15(d) of the Exchange Act and,
therefore, does not file reports, proxy statements, and other information
required thereby. Intelect (Delaware) has filed a registration statement on Form
S-4 (the "Registration Statement"), of which this Proxy Statement/Prospectus
forms a part, with the SEC under the Securities Act with respect to the Intelect
(Delaware) Common Shares issuable in connection with the Reorganization. This
Proxy Statement/Prospectus, which constitutes a part of the Registration
Statement, omits certain information contained in the Registration Statement.
Such additional information may be obtained from the Commission's principal
office in Washington, D.C. Statements made in this Proxy Statement/Prospectus as
to the contents of any contract, agreement, or other document referred to are
not necessarily complete, and in each instance that reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or such other document, and each such statement is qualified in its
entirety by such reference. Intelect (Delaware) has filed a Registration
Statement on Form 8-A under the Exchange Act (the "Form 8-A") with respect to
the Intelect (Delaware) Common Shares and it is intended that the Form 8-A will
be declared effective concurrently with the Registration Statement. Upon the
effectiveness of the Form 8-A, Intelect (Delaware) will be subject to the
reporting and informational requirements of the Exchange Act and will file
reports and other information in connection therewith.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, INTELECT (DELAWARE), OR
ANY OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER WILL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY,
MERGER CO., OR INTELECT (DELAWARE) SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by the Company are
incorporated by reference in this Proxy Statement/Prospectus:
1. The Company's Annual Report on Form 10-K filed on April 15, 1997
and the Form 10-K/A filed on April 30, 1997;
2. The Company's Quarterly Reports on Forms 10-Q filed on May 15,
1997 and August 14, 1997;
3. The Company's Current Reports on Forms 8-K filed on March 27,
May 8, and August 20, 1997;
4
<PAGE>
and
4. The description of the Company's Common Shares set forth in the
Company's Registration Statement filed pursuant to Section 12 of
the Exchange Act on Form 8-A, and any amendment or report filed
for the purpose of updating any such description.
The report of KPMG Peat Marwick on the aforementioned consolidated
financial statements contained in the Company's Annual Report on Form 10-K filed
on April 15, 1997, contains an explanatory paragraph that states that the
Company has suffered recurring losses from continuing operations, is dependent
upon the successful development and commercialization of its products and its
ability to secure adequate sources of capital until the Company is operating
profitably, and that these matters raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Meeting shall be deemed to be incorporated by
reference herein and shall be part hereof from the date of filing of 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 Proxy Statement/Prospectus to the extent that a statement
in this Proxy Statement/Prospectus or in any other subsequently filed document
which is deemed to be incorporated by reference modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. AS A RESULT OF ONE OR
MORE OF THE RISK FACTORS DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS
PROSPECTUS, ACTUAL EVENTS AND RESULTS COULD DIFFER MATERIALLY FROM THOSE SET
FORTH IN THE FORWARD-LOOKING STATEMENTS.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO THE COMPANY WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
DOCUMENTS RELATING TO THE COMPANY (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON REQUEST, FROM INTELECT COMMUNICATIONS SYSTEMS LIMITED,
ATTENTION: EDWIN J. DUCAYET, JR., 1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS 75081,
(972) 367-2100.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY NOVEMBER 24, 1997.
5
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION ........................................................ 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .............................. 4
SUMMARY ...................................................................... 8
RISK FACTORS ................................................................. 11
Income Tax Consequences ................................................. 11
Recent Operating Losses ................................................. 12
Fluctuations in Operating Results; Customer Concentration ............... 12
Rapid Technological Change and Importance of New Products ............... 12
Competition ............................................................. 13
Management of Growth .................................................... 13
Dependence on Product Components; Single Sources of Supply;
Dependence on a Single Facility ...................................... 14
Dependence Upon Third Parties to Market and Service the Products ........ 14
Dependence on Proprietary Technology .................................... 14
Government Regulation and Legal Uncertainties ........................... 15
Contingent Liabilities .................................................. 15
Dependence on Key Personnel; Retention of Employees ..................... 16
Value of Shares of Stock; Market for Common Stock; Stock Price Volatility 16
REGULATORY APPROVALS ......................................................... 16
SELECTED FINANCIAL DATA ...................................................... 16
MARKET PRICE AND DIVIDENDS ................................................... 19
PRICE RANGE OF COMPANY COMMON SHARES ......................................... 19
CERTAIN COMPARATIVE PER SHARE DATA ........................................... 20
HOLDINGS OF MANAGEMENT ....................................................... 20
THE MEETING .................................................................. 21
General ................................................................. 21
Solicitation of Proxies ................................................. 21
Appointment and Revocation of Proxies ................................... 21
Exercise of Discretion by Proxies ....................................... 21
Dissenters' Rights of Appraisal ......................................... 22
Voting Shares, Quorum, and Vote Required ................................ 22
THE REORGANIZATION PROPOSAL .................................................. 22
Principal Features of the Reorganization Proposal ....................... 23
Operations of the Company and Management Following the Reorganization ... 24
Trading in Intelect (Delaware) Common Shares Following the Reorganization 24
Amendment or Termination of the Merger Agreement ........................ 24
Principal Reasons for the Reorganization Proposal ....................... 24
Treatment of the Company's Securities and Other Obligations ............. 25
Description of Intelect (Delaware) Securities ........................... 26
Accounting Treatment .................................................... 28
Nasdaq Listing .......................................................... 29
Securities Laws Considerations .......................................... 29
Conditions to the Reorganization ........................................ 29
Interests of Certain Persons ............................................ 29
INCOME TAX CONSIDERATIONS TO SHAREHOLDERS .................................... 30
United States Federal Income Tax Considerations ......................... 30
Bermuda Tax Considerations .............................................. 31
COMPARATIVE RIGHTS OF SHAREHOLDERS ........................................... 31
General ................................................................. 31
Bermuda and Delaware Corporate Law ...................................... 31
Charter and Bylaw Provisions ............................................ 38
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS ............................................ 40
VOTE REQUIRED TO APPROVE THE REORGANIZATION PROPOSAL
AND BOARD RECOMMENDATION ................................................ 41
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............... 41
MANAGEMENT ................................................................... 43
BOARD AND COMMITTEE MEETINGS ................................................. 44
EXECUTIVE COMPENSATION ....................................................... 45
Compensation of Directors ............................................... 45
Compensation of Executive Officers ...................................... 46
Compensation Committee Interlocks and Insider Participation ............. 48
Compensation Committee Report on Executive Compensation ................. 48
Section 16(a) Beneficial Ownership Reporting Compliance ................. 50
Employee Agreements ..................................................... 50
Comparative Stock Performance ........................................... 51
Certain Transactions .................................................... 52
ANNUAL REPORT ON FORM 10-K ................................................... 52
OTHER MATTERS ................................................................ 53
SHAREHOLDER PROPOSALS AND SUBMISSIONS FOR 1998 ANNUAL MEETING ................ 53
TRANSFER AGENTS AND REGISTRARS ............................................... 53
LEGAL MATTERS ................................................................ 53
EXPERTS ...................................................................... 53
APPROVAL OF PROXY STATEMENT/PROSPECTUS BY BOARD OF DIRECTORS ................. 53
</TABLE>
Appendix 1 Agreement and Plan of Merger
Appendix 2 Amended and Restated Certificate of Incorporation of Intelect
Communications, Inc.
Appendix 3 Restated By-laws of Incorporation of Intelect Communications,
Inc.
Appendix 4 Excerpts from the Companies Act 1981 of Bermuda, as amended
7
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/-Prospectus. Reference is made to, and this
summary is qualified in its entirety by, the more detailed information contained
in or incorporated by reference in this Proxy Statement/Prospectus and the
exhibits hereto. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this Proxy
Statement/Prospectus. Unless otherwise indicated, all dollar amounts are stated
in U.S. dollars.
INTELECT COMMUNICATIONS SYSTEMS LIMITED
The Company, incorporated under the laws of Bermuda, is a holding company, and
through its operating subsidiaries it is currently engaged in the business of
designing, producing, and marketing products, technologies, and services for
multimedia applications in telecommunications and networking. The Company's
products and services, owned and provided through its subsidiaries, include
SonetLYNXTM digital fiber-optic multiplexers; CS4TM intelligent programmable
telecommunications switches; comprehensive services by DNA Enterprises for
system architecture, software development, hardware design, and digital signal
processing products; LANscapeTM, PanoramaTM and VuBridgeTM multimedia network
videoconferencing systems; and S4TM mission-critical communications control
systems. The Company conducts its operations in the United States through
Intelect (Delaware). The principal executive offices of the Company are located
at 1100 Executive Drive, Richardson, Texas 75081; its telephone number is (972)
367-2100.
INTELECT COMMUNICATIONS, INC.
Intelect (Delaware), incorporated under the laws of Delaware, is currently a
wholly-owned subsidiary of the Company. Intelect (Delaware) is the parent
company of all other operating Company subsidiaries in the United States, and is
the entity through which the Company currently conducts its operations in the
United States. The principal executive offices of Intelect (Delaware) are
located at 1100 Executive Drive, Richardson, Texas 75081; its telephone number
is (972) 367-2100.
EFFECT OF THE REORGANIZATION
The effect of the Reorganization will be that shareholders of the Company will
become shareholders of Intelect (Delaware), with Intelect (Delaware) becoming
the publicly traded company. Intelect (Delaware) will replace the Company as the
holding company for the Company and its subsidiaries. The Reorganization will be
accomplished by means of a merger transaction (an "amalgamation" under Bermuda
law) between the Company and Merger Co., a wholly-owned Delaware subsidiary of
Intelect (Delaware), which in turn is a wholly owned Delaware subsidiary of the
Company. In the merger, each Company Common Share will be automatically
converted into the right to receive one Intelect (Delaware) Common Share, and
each Company Preferred Share will be automatically converted into the right to
receive one Intelect (Delaware) Preferred Share. These transactions will not
affect the business, assets, liabilities, or operations of the Company on a
consolidated basis.
VOTE REQUIRED
The approval and adoption of the Reorganization Proposal by shareholders of the
Company will require the affirmative vote of the holders of 75% of the Company
Common Shares present or represented and voting at the Meeting and by 75% of the
Company Preferred Shares present or represented and voting at the Meeting, the
Company Common Shares and the Company Preferred Shares voting separately. The
presence of two shareholders (or proxy holders representing shareholder(s))
holding in the aggregate in excess of 35% of the issued and outstanding shares
entitled to vote constitutes a quorum at the Meeting. As of October 28, 1997,
the directors and executive officers of the Company and its respective
affiliates, as a group, may be deemed to be the beneficial
8
<PAGE>
owners of 1,701,906 Company Common Shares, representing approximately 6.89% of
the outstanding Common Shares of the Company. The directors and executive
officers of the Company have indicated that they intend to vote their respective
Company Common Shares in favor of the Reorganization. The holder of all of the
Company Preferred Shares has also indicated that it intends to vote all of its
Company Preferred Shares in favor of the Reorganization.
DISSENTERS' APPRAISAL RIGHTS WITH RESPECT TO THE REORGANIZATION
Under Bermuda law, the Company's shareholders who do not vote for the
Reorganization may elect to have the "fair value" of their shares determined in
accordance with Section 106 of The Companies Act 1981 (Bermuda), as amended (the
"Companies Act"), and paid to them in cash if the Reorganization is consummated
and if they comply with the provisions of said Section 106. See "Dissenting
Shareholders Rights." Unless waived by the Company, it is a condition of the
Merger that the number of the Company Common Shares held by shareholders of the
Company who properly exercise their dissenters' rights shall not exceed an
amount which, in the opinion of the Board of Directors, would represent an
unacceptable cash cost in light of the Company's current and anticipated cash
requirements.
BACKGROUND OF AND REASONS FOR THE REORGANIZATION
The Board of Directors believes that the Reorganization, which will result in
Intelect (Delaware) replacing the Company as the holding company for the Company
and its subsidiaries, will afford the Company the opportunity to capitalize more
effectively upon its efforts to enhance shareholders' value over the long term.
The Company views the United States markets as its primary source for raising
capital and the Company believes that the Reorganization will facilitate access
to such markets and increase the Company's flexibility to meet its future
financing needs. As part of its expected growth strategy for the short and
medium term, the Company expects to pursue opportunities to invest in other U.S.
based companies in the multimedia communications industry, as it has done in the
past. The price for any potential acquisitions may be in Intelect (Delaware)
Common Shares and the Company believes that Intelect (Delaware) Common Shares
will be more attractive as consideration for such acquisitions if the issuer is
domiciled in the United States. The Board of Directors and senior management
believe that the Reorganization will improve the Company's flexibility and
ability to meet its future equity and debt financing needs, enhance the
marketability of the Company's shares by raising the Company's profile in U.S.
capital markets, provide investors with an opportunity to assess the Company on
a more comparable footing with its U.S. domiciled competitors and, over time,
have a positive effect on the trading of the Company's stock. In addition, for
many years, Delaware has followed a policy of encouraging incorporation in that
State and has adopted comprehensive, modern, and flexible corporate laws to meet
the changing needs of today's corporations. The Delaware courts have developed
considerable expertise in dealing with corporate issues and a substantial body
of law has developed construing Delaware law and establishing public policies
with respect to Delaware corporations. In addition, the Company does not conduct
any operations in Bermuda, and its current operations are conducted almost
entirely in the United States. The Company has registered its Company Common
Shares under the Securities Act and the Exchange Act and a large majority of the
Company's shareholders reside in the U.S. Consequently, the Company is required
to comply with both Bermuda and U.S. tax, corporate, and securities laws, which
is both expensive and time consuming. Becoming a Delaware corporation is
expected to simplify the Company's tax and securities filings, accounting and
operations, and substantially reduce both the cost and the burden of these
reporting obligations.
9
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors of the Company has unanimously approved the
Reorganization Proposal, believes it to be in the best interests of the Company
and its shareholders, and unanimously recommends approval of the Reorganization
to the shareholders.
EFFECTIVE DATE OF THE REORGANIZATION
Subject to Bermuda regulatory approval, the Reorganization will become effective
upon filing, with the Secretary of State of the State of Delaware and the
Registrar of Companies in Bermuda, a certificate of merger with respect to the
merger of Merger Co. with the Company, which is anticipated to occur as promptly
as practicable after shareholder approval of the Reorganization has been
obtained (the "Effective Date").
Conditions to the Reorganization and Regulatory Approvals
The obligations of the Company and Intelect (Delaware) to effect the
Reorganization are subject to the satisfaction of the following conditions:
1. The Reorganization Proposal shall have been approved by the affirmative
vote of holders of the Company Common Shares representing at least 75% of
the votes present or represented and voting at the Meeting and by holders
of the Company Preferred Shares representing at least 75% of the votes
present or represented and voting at the Meeting;
2. Rights of dissent and appraisal being exercised by Company shareholders
shall not, in the opinion of the Board of Directors, represent an
unacceptable cash cost in light of the Company's current and anticipated
cash requirements;
3. Intelect (Delaware) Common Shares issuable to Company shareholders pursuant
to the Reorganization, as well as such other Intelect (Delaware) Common
Shares required to be reserved for issuance in connection with the
Reorganization, shall have been authorized for trading on the Nasdaq
National Market upon official notice of issuance;
4. There shall be no temporary restraining order, preliminary injunction, or
other legal restraint or prohibition preventing the consummation of the
Reorganization;
5. The Company shall have filed the Certificate of Merger with the Delaware
Secretary of State and with the Bermuda Registrar of Companies; and
6. The consent of the Minister of Finance to the Merger pursuant to Section
104B of the Companies Act shall have been obtained.
The Company is not aware of any other regulatory filings or approvals that would
be required in order to consummate the Reorganization.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The Reorganization, if approved, has been structured as a tax-free
reorganization under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"). Based upon the advice of Arthur Andersen LLP, the Company
believes that the U.S. shareholders generally will not incur any income tax
liability solely by reason of the Reorganization
10
<PAGE>
unless a shareholder exercises dissenters' rights in which case capital gains
taxes will apply. ALL COMPANY SHAREHOLDERS SHOULD READ CAREFULLY THE MORE
DETAILED DISCUSSION UNDER "REORGANIZATION PROPOSAL -- INCOME TAX CONSIDERATIONS
TO SHAREHOLDERS" AND ARE URGED TO CONSULT THEIR OWN TAX ADVISORS.
CERTAIN BERMUDA INCOME TAX CONSEQUENCES OF THE REORGANIZATION
A Bermuda citizen shareholder should not incur any income tax liability solely
by reason of the Reorganization. See "Reorganization Proposal -- Income Tax
Considerations to Shareholders."
COMPARISON OF SHAREHOLDERS' RIGHTS
The Company is organized under the laws of Bermuda, while Intelect (Delaware) is
organized under the laws of Delaware. As a consequence, there are certain
differences between the laws that govern the rights of shareholders of the
Company and those that govern the rights of shareholders of Intelect (Delaware).
Additionally, there are certain differences between the respective charter
documents and by-laws of the Company and Intelect (Delaware). See "Comparative
Rights of Shareholders."
NASDAQ LISTING AND SHARE TRADING
The Company Common Shares are listed and traded on the Nasdaq National Market
under the symbol "ICOMF." Intelect (Delaware) has applied to have the Intelect
(Delaware) Common Shares approved for listing on the Nasdaq National Market
under the symbol "ICOM" subject to official notice of issuance. The Nasdaq
National Market will consider the delivery of existing stock certificates
representing Company Common Shares as constituting "good delivery" of Intelect
(Delaware) Common Shares in transactions subsequent to the Merger. Accordingly,
it will not be necessary for shareholders to exchange their existing stock
certificates for stock certificates of Intelect (Delaware).
ACCOUNTING
Treatment The Reorganization will be accounted for in a manner similar to a
pooling of interests. The costs associated with the Reorganization, which are
not expected to be significant, will be charged to the results of operations of
Intelect (Delaware) upon the consummation of the Reorganization.
RISK
Factors For a discussion of certain matters that should be considered by
shareholders in connection with the Reorganization, see "Risk Factors."
RISK FACTORS
AN INVESTMENT IN THE INTELECT (DELAWARE) COMMON SHARES OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, SHOULD BE CAREFULLY
CONSIDERED BY SHAREHOLDERS OF THE COMPANY IN EVALUATING WHETHER TO APPROVE THE
MERGER AGREEMENT AND BECOME HOLDERS OF INTELECT (DELAWARE) COMMON SHARES. THE
FOLLOWING RISK FACTORS APPLY TO THE COMPANY AND ITS BUSINESS AND OPERATIONS. IF
THE MERGER IS CONSUMMATED, THESE RISK FACTORS WILL APPLY EQUALLY TO INTELECT
(DELAWARE) IN THAT FOLLOWING THE MERGER INTELECT (DELAWARE)'S PRIMARY ASSETS
WILL BE ITS OWNERSHIP OF THE EQUITY OF THE COMPANY AND THE COMPANY'S CURRENT
OPERATING SUBSIDIARIES.
INCOME TAX CONSEQUENCES
Although the Company believes that the Merger will be treated as a
tax-free transaction for United States tax purposes to United States residents,
no advance income tax ruling to that effect has been or will be sought or
obtained from the Internal Revenue Service (the "Service"). Accordingly, there
can be no assurance that the Service
11
<PAGE>
would not challenge the tax-free status of the Merger or, if challenged, that a
court would not agree with the Service. See "Income Tax Considerations to
Shareholders."
RECENT OPERATING LOSSES
The Company had operating losses and net losses for the year ending
December 31, 1996 and for each of the first two quarters of 1997, as well as in
earlier periods. The losses in 1997 were due to below standard margins on new
products (which constituted the majority of sales) and proportionately high
costs and expenses to support near-term production and sales growth. The
Company's capital requirements in connection with the design, development, and
commercialization of its principal products have been and will continue to be
significant. Depending on the success of the Company's product development and
marketing efforts, substantial additional capital may be required. Any
additional funding the Company may require would be sought through public or
private equity or debt financings, collaborative arrangements, or from other
sources. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available, the Company
will have to reduce certain areas of product development, manufacturing or
marketing activity, or otherwise modify its business strategy, and its business,
results of operations, and financial condition will be materially adversely
affected.
FLUCTUATIONS IN OPERATING RESULTS; CUSTOMER CONCENTRATION
The Company expects that its quarterly operating results are likely to
vary significantly depending on factors such as the market acceptance of the
Company's recently introduced products, the size, timing and recognition of
revenue from significant orders, increased competition, the proportion of
revenues derived from distributors, Original Equipment Manufacturers ("OEMs")
and other channels, changes in the Company's pricing policies or those of its
competitors, the financial stability of major customers, new product
introductions or enhancements by competitors, delays in the introduction of
products or product enhancements by the Company or by competitors, customer
order deferrals in anticipation of upgrades and new products, market acceptance
of new products, customer concerns about the Company's financial condition, the
timing and nature of expenses, and general economic conditions. The Company's
expense levels are based, in part, on its expectations as to future orders and
sales, and the Company may be unable to adjust spending in a timely manner to
compensate for any sales shortfall. If sales are below expectations, operating
results are likely to be materially adversely affected. Net income may be
disproportionately affected by a reduction in sales because a significant
portion of the Company's expenses do not vary with revenues. The Company may
also choose to reduce price or increase spending in response to competition or
to pursue new market opportunities. In particular, if new competitors,
technological advances by existing competitors or other competitive factors
require the Company to invest significantly greater resources in research and
development efforts, the Company's operating margins in the future may be
materially adversely affected.
The Company anticipates that, because its marketing strategy targets
relatively large potential customers, a small number of large orders may
comprise a significant portion of the Company's future product sales.
Historically, sales to a relatively small number of customers have accounted for
a significant portion of the Company's total revenues, particularly with respect
to its S4 and SONETLYNX products. Any significant deferral of purchases of the
Company's products or the reduction, delay or cancellation of orders from one or
more significant customers could materially and adversely affect the Company's
business, results of operations, and financial condition.
Because of all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Shares could likely be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS
The markets for the Company's current and planned products are
characterized by rapid technological change, evolving industry standards,
changing market conditions and frequent new product introductions and
enhancements. The introduction of products embodying new technologies or the
emergence of new industry standards can render existing products or products
under development obsolete or unmarketable. The Company's ability to
12
<PAGE>
anticipate changes in such markets and to successfully develop and introduce new
products on a timely basis will be a significant factor in the Company's ability
to grow and remain competitive. New product development often requires long-term
forecasting of market trends, development and implementation of new technologies
and processes and a substantial capital commitment. In particular, the Company
has recently invested substantial resources toward the development of new
products such as its SONETLYNX product line and the CS4. The Company has not yet
completed the development of the CS4 or of planned future enhancements to the
SONETLYNX product line and has not completed beta testing of the LANscape 2.0
product. Development and customer acceptance of new products is inherently
uncertain, and there can be no assurance that the Company will successfully
complete developments on a timely basis or that products will be commercially
successful. The Company competes or will be competing with established companies
with greater financial resources and more developed channels of distribution. No
assurances can be given that the Company will be successful in completing the
CS4 on schedule, that the Company will be successful in competing in this
environment or that it will be able to sell sufficient quantities of the CS4 to
recover its investment or to realize profits. No assurance can be given that
SONETLYNX enhancements will be accepted by customers or that the LANscape 2.0
product will meet standards and expectations of the videoconferencing industry.
Any failure by the Company to anticipate or respond on a cost-effective and
timely basis to technological developments, changes in industry standards or
customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company's business,
operating results and financial condition.
COMPETITION
Competition in the multimedia communications industry is intense, and
the Company believes that competition will increase substantially with the
development of multimedia communications products, rapid technological changes,
industry consolidations, new industry entrants, and potential regulatory
changes. Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition, and a larger installed customer base than
the Company. In addition, many of these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements,
and to devote greater resources to the development, promotion and sale of their
products than the Company. There can be no assurance that the Company's current
or potential competitors will not develop products and services comparable or
superior to those developed by the Company or adapt more quickly than the
Company to new technologies, evolving industry trends or changing customer
requirements. Increased competition could result in price reductions, reduced
margins, or loss of market share, any of which would materially and adversely
affect the Company's business, results of operations, or financial condition.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors, or that competitive pressures faced by
the Company will not have a material adverse effect on its business, results of
operations, and financial condition. If the Company is unable to compete
successfully against current and future competitors, the Company's business,
results of operations, and financial condition will be materially adversely
affected.
The Company believes that the videoconferencing market may present lower
barriers to entry than its other markets and may therefore be subject to greater
competition in the future. Increased competition could result in price
reductions, reduced margins and loss of market share by the Company. There can
be no assurance that the Company will be able to compete successfully with its
existing or new competitors or that competitive pressures faced by the Company
will not materially and adversely affect its business, results of operations,
and financial condition.
MANAGEMENT OF GROWTH
The Company is faced with the risks typically associated with rapid
expansion. It has experienced growth in its corporate structure, in the number
of its employees, and the scope of its operating and financial systems. This
expansion has resulted in the need to hire a significant number of new
personnel. As a result of the level of technical and marketing expertise
necessary to support its existing and new customers, the Company must attract
and retain highly qualified and well-trained personnel. There may be only a
limited number of persons with the requisite skills to serve in these positions
and it may become increasingly difficult for the Company to attract and retain
such
13
<PAGE>
personnel. Failure to manage the Company's growth properly could have a material
adverse effect on the Company's business, results of operations, and financial
condition.
DEPENDENCE ON PRODUCT COMPONENTS; SINGLE SOURCES OF SUPPLY; DEPENDENCE ON A
SINGLE FACILITY
The manufacture of the Company's products requires the assembly of a
number of components, the majority of which the Company sources from
substantial, and sometimes multiple, vendors. However, the supply level of and
the lead time in delivering certain key components is dynamic and difficult to
predict with any certainty. Sporadic shortages of or significant increases in
the price of such components could materially and adversely affect the Company's
business, results of operations, and financial condition. Certain key components
are available from only one source. The Company has no supply commitments
relating to such components. While the Company has generally been able to obtain
an adequate supply of such components in a timely manner, the Company believes
that alternate sources of supply could be difficult to develop over a short
period of time. The Company buys components from vendors who extend credit. Any
failure to receive suitable credit terms from vendors could have a material
adverse effect upon the Company's business, results of operations, and financial
condition.
The Company buys a fiber optic interface card, for the SONETLYNX OC-3
product, from a small company which is the sole source for the component. The
Company also buys a video codec card, used in SONETLYNX video applications, from
another small company which is the sole source. Delays in delivery of either
component would restrict the Company's ability to increase sales. In the event
either vendor fails to meet commitments, the Company intends to rely on its
in-house manufacturing capabilities, the conversion, however, to in-house backup
supply would not be without some interruption and could have a material adverse
effect upon the Company's business, results of operations, and financial
condition.
The Company uses fiber optic connectors made by a single vendor in the
SONETLYNX OC-3 product. Equivalent components are available from other vendors,
but their use would require a redesign of the method of connecting to fiber.
Such a redesign would cause significant delays in delivery of the product and
could have a material adverse effect upon the Company's business, results of
operations, and financial condition. Accordingly, the Company's strategy is to
forecast requirements and build inventories which comprehend vendor lead times.
The Company has one manufacturing facility, and its revenues are
dependent upon the continued operation of the facility. There can be no
assurance that the occurrence of operational problems at the Company's facility
would not materially adversely affect the Company's business, results of
operations, and financial condition.
DEPENDENCE UPON THIRD PARTIES TO MARKET AND SERVICE THE PRODUCTS
Although the Company expects to continue to market its products directly
to certain accounts, the Company intends to establish a network of resellers,
consisting primarily of value-added resellers ("VARs") and systems integrators
and OEMs with established distribution channels for multimedia communications
products, to market the Company's products and to educate potential end-users
and service providers with respect to the Company's products. The Company's
future prospects depend in large part on its ability to successfully develop
relationships with third parties and upon the marketing and product service
efforts of such third parties. There can be no assurance that the Company will
be able, for financial or other reasons, to finalize third-party distribution or
marketing agreements or that such arrangements, if finalized, will result in the
successful commercialization of any of the Company's products. In such event,
the Company's business, operating results and financial condition could be
materially affected.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success will depend, in part, on its ability to obtain
patents, maintain trade secret protection and operate without infringing the
proprietary rights of third parties or having third parties circumvent the
Company's intellectual property rights. The Company has three issued U.S.
patents. Two relate to key technologies in the S4 communications switch product
and one relates to an interactive voice communication terminal not presently
incorporated in any product. Three additional patents are pending. They relate
to (i) video distribution within the
14
<PAGE>
SONETLYNX product line, (ii) certain features of the CS4 programmable digital
switch, and (iii) architecture and features of the LANscape 2.0
videoconferencing product. There can be no assurance that any patents issued to
the Company will provide the Company with any competitive advantages or will not
be challenged by any third parties, that the patents of others will not impede
the ability of the Company to do business or that third parties will not be able
to circumvent the Company's patents, that any of the Company's patent
applications will result in the issuance of patents or that the Company will
develop additional proprietary products that are patentable. Furthermore, there
can be no assurance that others will not independently develop similar products,
duplicate any of the Company's products, or, if patents are issued to the
Company, design around the patented products developed by the Company.
The Company may be required to obtain licenses from third parties to
avoid infringing patents or other proprietary rights. No assurance can be given
that any licenses required under any such patents or proprietary rights would be
made available, if at all, on terms acceptable to the Company. If the Company
does not obtain such licenses, it could encounter delays in product
introductions, or could find that the development, manufacture or sale of
products requiring such licenses could be prohibited. In addition, the Company
could incur substantial costs in defending itself in suits brought against the
Company on patents or other proprietary rights it might infringe or in filing
suits against others to have such patents or other proprietary rights declared
invalid. Parties making such claims may be able to obtain injunctive or other
equitable relief which could effectively block the Company's ability to sell its
products in the United States and abroad, and could obtain an award of
substantial damage either of which could have a material adverse effect upon the
Company's business, results of operations, and financial condition
Much of the Company's know-how and technology may not be patentable. To
protect its rights, the Company requires many employees, consultants, advisors
and collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure. Furthermore, the Company's business
may be adversely affected by competitors who independently develop competing
technologies, especially if the Company obtains no, or only narrow, patent
protection.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
While most of the Company's operations are not directly regulated, the
telecommunications service providers that constitute certain of the Company's
customers (particularly for the CS4) are heavily regulated at both the federal
and state levels. Such regulation may limit the number of potential customers
for the Company's services or impede the Company's ability to offer competitive
services to the market, or otherwise have a material adverse effect on the
Company's business, results of operations, and financial condition. At the same
time, recently enacted legislation deregulating the telecommunications industry
may cause changes in the industry, which are difficult to predict at this time,
including entrance of new competitors and industry consolidation, which could in
turn subject the Company to additional competitors, increased pricing pressures,
decrease the demand for the Company's products or services, increase the
Company's cost of doing business or otherwise materially adversely affect the
Company's business, results of operations, and financial condition.
CONTINGENT LIABILITIES
In connection with the sale of its former operations in October 1995,
the Company agreed to certain customary obligations to indemnify the purchasers
in such sale for potential losses associated with product liability,
environmental matters, employee matters and other similar items. Certain of
these indemnity obligations survive indefinitely. In the event that a loss
associated with the former operations of the Company is determined to be subject
to such indemnity obligations, the Company's business, results of operations,
and financial condition could be materially adversely affected. Furthermore, the
Company could incur substantial costs (including the diversion of the attention
of management) in defending itself in lawsuits relating to such indemnity
obligations.
15
<PAGE>
DEPENDENCE ON KEY PERSONNEL; RETENTION OF EMPLOYEES
The Company's success depends in large part on the continued service of
its key creative, technical, marketing, sales and management personnel and its
ability to continue to attract, motivate and retain highly qualified employees.
Because of the multifaceted nature of interactive media, key personnel often
require a unique combination of creative and technical talents. Such personnel
are in short supply, and the competition for their services is intense. The
process of recruiting key creative, technical and management personnel with the
requisite combination of skills and other attributes necessary to execute the
Company's strategy is often lengthy. The Company has at-will employment
arrangements with its management and other personnel, who may generally
terminate their employment at any time. The loss of the services of key
personnel or the Company's failure to attract additional qualified employees
could have a material adverse effect on the Company's results of operations and
new product development efforts.
VALUE OF SHARES OF STOCK; MARKET FOR COMMON STOCK; STOCK PRICE VOLATILITY
The Company's Common Shares are quoted on the Nasdaq National Market.
Based upon historical trends in the market for the Company's stock and for other
similar technology company stocks, the Company anticipates that the trading
price of its Common Shares may be subject to wide fluctuations in response to
quarterly variations in operating results, changes in actual earnings or in
earnings estimates by analysts, announcements of technological developments by
the Company or its competitors, general market conditions or other events
largely outside the Company's control. In addition, the stock market has
experienced extreme price and volume fluctuations which have particularly
affected the market prices of "high technology" stocks. These fluctuations have
often been disproportionate or unrelated to the operating performance of these
companies. These broad market fluctuations, general economic conditions or other
factors outside the Company's control may adversely affect the market price for
the Company's stock.
REGULATORY APPROVALS
No material federal or state regulatory approvals must be obtained in
order to consummate the Reorganization.
SELECTED FINANCIAL DATA
The historical consolidated financial data presented below as of
December 31, 1996 and 1995 and as of October 31, 1995, 1994, 1993, and 1992, and
for the year ended December 31, 1996, the two month period ended December 31,
1995 and the years ended October 31, 1995, 1994, 1993, and 1992 were derived
from the Company's audited consolidated financial statements incorporated by
reference in this prospectus.
The historical consolidated financial data as of June 30, 1997 and for
the six month periods ended June 30, 1997 and 1996 were derived from the
Company's unaudited consolidated financial statements. Results of operations for
the six month periods ended June 30, 1997 and 1996 are not necessarily
indicative of results of operations for a full year or predictive of future
periods.
The information set forth below should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1996,
the related notes and the independent auditors' report, which contains an
explanatory paragraph that states that the Company has suffered recurring losses
from continuing operations and is dependent upon the successful development and
commercialization of its products and its ability to secure adequate sources of
capital until the Company is operating profitably. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements and the selected data do not include any
adjustments that might result from the outcome of this uncertainty.
The selected historical financial information for Intelect (Delaware) is
not presented as Intelect (Delaware) has not had, on a non-consolidated basis,
any operations, and the only assets and commitments Intelect (Delaware)
16
<PAGE>
has had is a Management Contract with Herman M. Frietsch, the Chairman and Chief
Executive Officer of the Company. See "Reorganization Proposal -- Interest of
Certain Persons." Consequently, pro forma financial information for Intelect
(Delaware) is not presented because this information would not differ from the
historical financial information of the Company presented herein. The costs
associated with the Merger, which are not expected to be significant, will be
accounted for as a current period expense by Intelect (Delaware) upon
consummation of the Merger.
17
<PAGE>
<TABLE>
<CAPTION>
Two
Year months
ended ended
Six Months Ended December December
June 30 31 31 Years ended October 31
--------------- ---- ---- ------------------------------------
1997 1996 1996 1995 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS: (THOUSANDS OF U. S. DOLLARS EXCEPT PER SHARE DATA)
Product, service and
contract revenue ......... $ 13,544 5,288 $ 9,352 $ 734 $ 2,030 $ -- $ -- $ --
Other income ................ (64) 291 653 190 168 20 126 289
Total revenues .............. $ 13,480 $ 5,579 10,005 924 2,198 20 126 289
Loss from continuing
operations ............... (12,939) (6,851) (42,983) (2,776) (5,194) (538) (446) (248)
Income from discontinued
operations ............... -- -- -- -- 3,546 3,410 1,517 1,564
Income (loss) on disposal
of discontinued operations (113) (9) (56) (236) 13,824 -- -- --
Income (loss) before
extraordinary item ....... $(13,052) $ (6,860) $(43,039) $ (3,012) $ 12,176 $ 2,872 $ 1,071 $ 1,316
Earnings (Loss) Per
Share Data:
Continuing operations ....... $ (0.71) $ (0.52) $ (3.32) $ (0.24) $ (0.46) $ (0.05) $ (0.04) $ (0.05)
Discontinued operations ..... $ (0.01) $ -- $ (0.01) $ (0.02) $ 1.52 $ 0.31 $ 0.14 $ 0.32
Net income (loss) for period $ (0.72) $ (0.52) $ (3.33) $ (0.26) $ 1.12 $ 0.26 $ 0.10 $ 0.27
Weighted average shares
(thousands) .............. 18,210 13,162 12,943 11,385 11,451 11,061 10,715 4,942
Cash dividends per share .... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
June 30 December 31 October 31
---- ------------- -----------------------------
1997 1996 1995 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
BALANCE SHEET: (THOUSANDS OF U. S. DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Current assets .................... $16,721 $11,594 $19,957 $24,587 $ 2,599 $1,049 $3,655
Excess of cost over assets
of companies acquired ........... 13,911 14,573 8,685 9,349 -- -- --
Net assets of discontinued
operations ...................... -- -- -- -- 9,573 7,207 1,178
Other long-term assets ............ 13,625 9,851 2,597 1,786 -- -- --
Total assets ...................... $44,257 $36,018 $31,239 $35,722 $12,172 $8,256 $4,833
Liabilities & Shareholders' Equity:
Current liabilities including
current maturities of
long-term debt ................. $21,916 $ 9,810 $ 5,331 $ 7,091 $ 269 $ 175 $ 491
Long-term liabilities ............. 639 18,477 368 365 -- -- --
Shareholders' equity .............. 21,702 7,731 25,540 28,266 11,903 8,081 4,342
$44,257 $36,018 $31,239 $35,722 $12,172 $8,256 $4,833
</TABLE>
18
<PAGE>
MARKET PRICE AND DIVIDENDS
The Company's Common Shares are listed on the Nasdaq National Market
under the symbol "ICOMF." On October ___, 1997, the last full trading day
preceding public announcement of the proposed Reorganization, the closing price
per Common Share on the Nasdaq National Market was $____. On October ___, 1997,
the most recent practicable date prior to the printing of this Proxy
Statement/Prospectus, the closing price per Common Share on the Nasdaq National
Market was $______. The Company has not paid any cash dividends since inception.
Intelect (Delaware) Common Shares are not listed on any securities
exchange.
Intelect (Delaware) has applied for listing of the Intelect (Delaware)
Common Shares under the symbol "ICOM" on the Nasdaq National Market after the
Effective Date.
The Company has never declared or paid any dividends on the Company
Common Shares and Intelect (Delaware) does not intend to pay cash dividends on
shares of its Common Shares in the foreseeable future. Intelect (Delaware)
intends to retain future earnings, if any, to finance the development and
expansion of its business. Intelect (Delaware)'s ability to declare or pay cash
dividends, if any, will be dependent upon the ability of its subsidiaries to
declare and pay dividends or otherwise transfer funds to Intelect (Delaware),
because Intelect (Delaware) will conduct its operations through subsidiaries.
PRICE RANGE OF COMPANY COMMON SHARES
The Common Shares are quoted on Nasdaq under the symbol "ICOMF." The
table below sets forth, for the calendar quarters indicated, the high and low
sale price per shares quoted on Nasdaq for the Company's Common Shares. The
information with respect to Nasdaq quotations reflects interdealer prices,
without retail markup, markdown or commissions and may not represent actual
transactions.
COMPANY
COMMON SHARES
-------------
HIGH LOW
---- ---
Calendar 1994:
Second Quarter ................................. 2-3/4 1-7/8
Third Quarter .................................. 3 2-1/8
Fourth Quarter ................................. 2-1/2 1-3/4
Calendar 1995:
First Quarter .................................. 2-58 1-7/8
Second Quarter ................................. 3-5/8 2
Third Quarter .................................. 6-5/8 3-1/8
Fourth Quarter ................................. 6-1/2 3-13/16
Calendar 1996:
First Quarter .................................. 5-5/8 4-1/2
Second Quarter ................................. 15-3/8 5-5/16
Third Quarter .................................. 11-3/4 6-5/8
Fourth Quarter ................................. 8-1/8 4-1/4
Calendar 1997:
First Quarter .................................. 5-1/4 1-7/8
Second Quarter ................................. 4-11/16 1-3/8
Third Quarter ................................. 11-5/8 4-1/4
Fourth Quarter (through October 28, 1997) ...... 11-3/8 7-5/8
19
<PAGE>
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR COMPANY COMMON
SHARES.
CERTAIN COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative data related to book
value and loss per Company Common Share on a historical basis and per share of
Intelect (Delaware) Common Shares on a pro forma basis, which are the same
because, pursuant to the Reorganization, each of the Company Common Shares will
be exchanged for one share of Intelect (Delaware) Common Shares. The comparative
data related to book value and loss per share of Intelect (Delaware) Common
Shares on a historical basis is not presented here because Intelect (Delaware)
has not had operations. The information shown below should be read in
conjunction with the historical financial statements of the Company, including
the respective notes thereto, which appear elsewhere in this Proxy
Statement/Prospectus, or incorporated herein by reference, and the selected
historical financial data, including the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus, or incorporated herein by reference.
BOOK VALUE PER INCOME (LOSS) PER
COMMON SHARE ($) COMMON SHARE($)
---------------- ------------------
Period Ending or As Of
June 30, 1997........... 1.03 (0.72)(1)
June 30, 1996........... 1.95 (0.52)(1)
December 31, 1996....... 0.51 (3.33)(3)
December 31, 1995....... 2.24 (0.26)(2)
October 31, 1995........ 2.48 1.12(3)
October 31, 1994........ 1.12 0.26(3)
October 31, 1993........ 0.75 0.10(3)
October 31, 1992........ 0.88 0.27(3)
- ---------------------
(1) Period of six months.
(2) Period of two months.
(3) Period of twelve months.
HOLDINGS OF MANAGEMENT
The voting shares of the Company are the Company Common Shares. On
October 28, 1997 the Company had outstanding approximately 23,926,830 Company
Common Shares. Shareholders of record at the close of business on October 28,
1997 (the "Record Date") are entitled to one (1) vote for each Company Common
Share held by them, except to the extent that any such shareholder transfers any
such shares after that date and the transferee produces properly endorsed share
certificates or otherwise establishes ownership of the shares and demands not
later than ten days before the Meeting that the new name of ownership be
included in the shareholders' list for the Meeting, in which case the transferee
is entitled to vote such shares at the Meeting. The presence of two shareholders
or proxy holders representing shareholder(s) holding in aggregate in excess of
35% of the issued and outstanding shares entitled to vote is necessary to
constitute a quorum at the Meeting. Approval of the Reorganization Proposal
requires the affirmative vote of not less than 75% of Company Common Shares
present or represented and voting at the Meeting and not less than 75% of
Company Preferred Shares present or represented and voting at the Meeting, with
the Company Common Shares and the Company Preferred Shares voting separately.
As of October 28, 1997 the directors and executive officers of the
Company and their respective affiliates, as a group, may be deemed to be the
beneficial owners of 1,701,906 Company Common Shares, representing
20
<PAGE>
approximately 6.89% of the outstanding Company Common Shares. The directors and
executive officers of the Company have indicated that they intend to vote their
respective Company Common Shares in favor of the Reorganization. The holder of
all of the Company Preferred Shares has also indicated it intends to vote its
Company Preferred Shares in favor of the Reorganization.
THE MEETING
GENERAL
This Proxy Statement/Prospectus is furnished to Shareholders in
connection with the solicitation of proxies by the Board of Directors of the
Company to be used at the Special Meeting of Shareholders to be held on December
4, 1997 at 9:00 a.m., at the offices of the Company located at 1225 Commerce
Street, Richardson, Texas 75081, and at any adjournment or postponement thereof
for the purposes set forth in the accompanying Notice of Special Meeting of
Shareholders. The information contained herein is given as of the date hereof,
except where otherwise noted.
SOLICITATION OF PROXIES
In addition to solicitation by mail, officers, directors and regular
employees of the Company may, without additional compensation, solicit proxies
personally or by telephone or telecopier. This solicitation is made on behalf of
the Board of Directors of the Company. In addition, the Company has retained
Regan & Associates, Inc., a professional solicitation firm, which will assist in
soliciting proxies for a fee estimated at $6,250 plus reimbursement of
out-of-pocket expenses. The cost of the solicitation has been or will be borne
by the Company. The Company will also arrange with custodians, nominees, and
fiduciaries for the forwarding of solicitation of proxy materials to the
beneficial owners of shares held of record by such persons. The Company may
reimburse such custodians, nominees, and fiduciaries reasonable out-of-pocket
expenses incurred in connection therewith.
APPOINTMENT AND REVOCATION OF PROXIES
The persons designated in the enclosed form of proxy are either
directors or officers of the Company. A shareholder desiring to appoint some
other person to represent him at the Meeting may do so either by inserting such
person's name in the blank space provided in the form of proxy or by completing
another form of proxy.
A proxy or revocation of proxy, in order to be acted upon, must be
deposited with the Assistant Secretary of the Company, c/o American Stock
Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, NY 10005 at any
time up to and including the last business day preceding the day of the Meeting
or any adjournment or postponement thereof, or with the Chairman of the Meeting
at the Meeting or any adjournment or postponement thereof. In the case of a
proxy revocation by means other than attending the Meeting and notifying the
Chairman, such revocation shall be by an instrument in writing executed by the
shareholder or by his attorney authorized in writing or, if the shareholder is a
corporation, under its corporate seal or by an officer or attorney thereof duly
authorized. A shareholder whose shares are held by a broker must return his
proxy to his broker in the envelope provided.
EXERCISE OF DISCRETION BY PROXIES
All properly executed proxies, not revoked prior to the vote at the
Meeting, will be voted or withheld from voting in accordance with the
instructions of the shareholder on any ballot that may be called for and, if the
shareholder specifies a choice with respect to any matter to be acted upon, the
shares will be voted accordingly. IF NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE
VOTED FOR THE REORGANIZATION PROPOSAL.
The enclosed form of proxy confers discretionary authority upon the
persons named therein with respect to amendments or variations to matters
identified in the Notice and with respect to other matters which are
appropriately brought before the Meeting. Except as disclosed herein, at the
date hereof, the management of the Company knows of no such amendments,
variations or other matters.
21
<PAGE>
DISSENTERS' RIGHTS OF APPRAISAL
The action to be taken if the Reorganization Proposal is approved gives
right to the shareholders under Bermuda law to dissent and obtain payment for
their shares. A failure of a shareholder to vote against the Reorganization
Proposal will constitute a waiver of his appraisal or similar rights, and a vote
against the Reorganization Proposal will be deemed to satisfy any notice
requirements under Bermuda law with respect to appraisal rights. See
"Reorganization Proposal, Rights of Dissenting Shareholders."
VOTING SHARES, QUORUM, RECORD DATE, AND VOTES REQUIRED
The Company's Common Shares and the Company's Preferred Shares are
entitled to vote separately as a class on the Reorganization Proposal. On
October 28, 1997, the Company had outstanding approximately 23,926,830 Company
Common Shares. Shareholders of record at the close of business on October 28,
1997 (the "Record Date") are entitled to one (1) vote for each Company Common
Share held by them, except to the extent that any such shareholder transfers any
such shares after that date and the transferee produces properly endorsed share
certificates or otherwise establishes ownership of the shares and demands not
later than ten days before the Meeting that the new name of ownership be
included in the shareholders' list for the Meeting, in which case the transferee
is entitled to vote such shares at the Meeting. The presence of two shareholders
or proxy holders representing shareholder(s) holding in aggregate in excess of
35% of the issued and outstanding shares entitled to vote is necessary to
constitute a quorum at the Meeting. Shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e., shares held by a broker or nominee
which are represented at the Meeting, but with respect to which such broker or
nominee is not empowered to vote on a proposal) will be counted as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Approval of the Reorganization Proposal requires the affirmative vote of
not less than 75% of Company Common Shares present or represented and voting at
the Meeting and not less than 75% of the Company Preferred Shares present or
represented and voting at the Meeting. Abstentions will have the same effect as
votes against the Reorganization Proposal. Broker non-votes, however, will be
treated as un-voted for purposes of determining approval of the Reorganization
Proposal and will not be counted as votes for or against such Proposal.
As of October 28, 1997, the directors and executive officers of the
Company and their respective affiliates, as a group, may be deemed to be the
beneficial owners of 1,701,906 Company Common Shares, representing approximately
6.89% of the outstanding Company Common Shares. The directors and executive
officers of the Company have indicated that they intend to vote their respective
Company Common Shares in favor of the Reorganization. The holders of all of the
Company Preferred Shares has indicated that it intends to vote all of its
Company Preferred Shares in favor of the Reorganization.
THE REORGANIZATION PROPOSAL
THE FOLLOWING DISCUSSION SUMMARIZES CERTAIN ASPECTS OF THE
REORGANIZATION PROPOSAL, INCLUDING CERTAIN MATERIAL DIFFERENCES BETWEEN BERMUDA
LAW AND DELAWARE LAW. THIS SUMMARY DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION
OF THE REORGANIZATION PROPOSAL OR THE DIFFERENCES BETWEEN SHAREHOLDERS' RIGHTS
UNDER BERMUDA LAW AND DELAWARE LAW AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO (I) THE AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 29, 1997 BETWEEN THE
COMPANY, INTELECT (DELAWARE), AND MERGER CO. (THE "MERGER AGREEMENT") ATTACHED
HERETO AS APPENDIX 1 AND INCORPORATED HEREIN BY REFERENCE, (II) THE CERTIFICATE
OF INCORPORATION OF INTELECT (DELAWARE) (THE "NEW CERTIFICATE"), ATTACHED HERETO
AS APPENDIX 2, AND (III) THE RESTATED BY-LAWS OF INTELECT (DELAWARE) (THE "NEW
BY-LAWS") ATTACHED HERETO AS APPENDIX 3. COPIES OF THE COMPANY'S MEMORANDUM OF
ASSOCIATION, AS AMENDED (THE "PRESENT CHARTER"), AND THE BYE-LAWS OF THE COMPANY
(THE "PRESENT BYE-LAWS") ARE AVAILABLE FOR INSPECTION AT THE COMPANY'S EXECUTIVE
OFFICE, AND COPIES WILL BE SENT TO SHAREHOLDERS WITHOUT CHARGE, ON WRITTEN
REQUEST.
On August 22, 1997, the Company's Board of Directors approved, subject
to shareholder approval, a proposal (the "Reorganization Proposal") to relocate
the control and ownership of the Group's operations from Bermuda to the State of
Delaware in the United States by means of a merger (an "amalgamation" under
Bermuda law) (the
22
<PAGE>
"Merger") of the Company with Intelect Merger Co. ("Merger Co."). Merger Co., a
newly formed, wholly-owned Delaware subsidiary of Intelect Communications, Inc.
("Intelect (Delaware)"), which in turn is a wholly-owned Delaware subsidiary of
the Company. Merger Co. will be merged with and into the Company, and in the
Merger, each Common Share of the Company will automatically be converted, upon
the effectiveness of the Merger, into the right to receive one share of Intelect
(Delaware) Common Shares. The principal effect of the Merger will be that
Intelect (Delaware) will become the public holding company for the Company.
The principal office of Intelect (Delaware) is the same as that of the
Company, 1100 Executive Drive, Richardson, Texas 75081, telephone (972)
367-2100. If the requisite shareholder vote approving the Reorganization
Proposal is obtained, each Company Common Share will be exchanged for the right
to acquire one Intelect (Delaware) Common Share. The effect of the
Reorganization will be that the shareholders of the Company will become
shareholders of Intelect (Delaware), which is a Delaware corporation governed by
General Corporation Law of the State of Delaware ("Delaware Law" or the "DGCL"),
which law differs in certain respects from Bermuda law, including certain
differences in shareholders' rights. See "-- Comparative Rights of Shareholders
- -- Bermuda and Delaware Corporate Law."
Approval of the Reorganization Proposal by the Company's shareholders
will also constitute approval of the Merger and the Merger Agreement, as well as
other matters included in the Reorganization Proposal described in this Proxy
Statement/Prospectus. Pursuant to the terms of the Merger Agreement, the New
Certificate and New By-laws will replace the Present Charter and Present
Bye-Laws as the charter documents affecting corporate governance and
shareholders' rights. For a description of the differences between the Present
Charter and Present Bye-Laws of the Company and the New Certificate and New
By-laws, see "-- Comparative Rights of Shareholders -- Charter and Bylaw
Provisions."
Approval of the Reorganization Proposal will also constitute approval of
the Intelect (Delaware) Stock Incentive Plan. The Intelect (Delaware) Stock
Incentive Plan is identical in all material respects to the Company Plan, and
the Company Plan will be terminated if the Merger is consummated. The Company
Plan was approved by the shareholders of the Company on December 13, 1995. The
Company Plan was amended by vote of the shareholders at the Company's Annual
General Meeting on August 13, 1997, to increase the number of Common Shares
authorized under the Company Plan from 3,000,000 shares to 4,000,000 shares, and
as authorized under the Plan, the Company Plan has been amended by the Board of
Directors to effect minor changes to conform to changes in Rule 16b-3
promulgated under the Securities Exchange Act of 1934. See "Treatment of the
Company's Securities and other Obligations -- Treatment of Stock Options and
Stock Option Plan of the Company."
The approval of the Reorganization Proposal will affect certain rights
of shareholders. Accordingly, shareholders are urged to read carefully this
Proxy Statement/Prospectus and the appendices hereto. Shareholders of the
Company whose shares are not voted in favor of the Reorganization Proposal will
have statutory dissenter's rights. See "Dissenting Shareholders Rights."
PRINCIPAL FEATURES OF THE REORGANIZATION PROPOSAL
At the Effective Date of the Merger, Merger Co. will be merged with and
into the Company. Each Company Common Share issued and outstanding immediately
prior to the Effective Date will, by virtue of the Merger, be converted into one
Intelect (Delaware) Common Share and each Company Preferred Share issued and
outstanding immediately prior to the Effective Date will, by virtue of the
Merger, be converted into one Intelect (Delaware) Preferred Share. At the
Effective Date: (i) certificates which immediately prior to the Effective Date
represented Company Common Shares will for all purposes be deemed to represent
the same number of Intelect (Delaware) Common Shares; and (ii) certificates
which immediately prior to the Effective Date represented Preferred Shares of
the Company will for all purposes be deemed to represent the same number of
Preferred Shares of Intelect (Delaware).
23
<PAGE>
OPERATIONS OF THE COMPANY AND MANAGEMENT FOLLOWING THE REORGANIZATION
Approval of the Reorganization Proposal will not result in any change in
the business, management, assets or liabilities of the Company. Pursuant to the
Merger Agreement, the Company, as the Surviving Corporation in the Merger, will
continue to be liable for all of the Company's obligations. The Directors and
Officers of the Company, including those Directors elected at the Annual Meeting
of Shareholders held on August 13, 1997, will be the Directors of the Intelect
(Delaware) following the Merger. The Directors of Intelect (Delaware) will hold
their offices for the same terms as their respective offices in the Company.
TRADING IN INTELECT (DELAWARE) COMMON SHARES FOLLOWING THE REORGANIZATION
Following the consummation of the Merger, Intelect (Delaware) Common
Shares will be listed on the Nasdaq National Market under the symbol "ICOM." The
Company Common Shares are currently listed on the Nasdaq National Market under
the symbol "ICOMF." The Nasdaq National Market will consider the delivery of
existing stock certificates representing Common Shares of the Company as
constituting "good delivery" of Intelect (Delaware) Common Shares in
transactions subsequent to the Merger. ACCORDINGLY, IT WILL NOT BE NECESSARY FOR
SHAREHOLDERS TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK
CERTIFICATES OF INTELECT (DELAWARE).
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
It is anticipated that, if approved by the shareholders, the Merger will
become effective as soon as practicable after the Meeting. However, the Merger
Agreement provides that the Merger may be abandoned by the Board of Directors of
either the Company or Merger Co. prior to the Effective Date, either before or
after shareholder approval. In addition, the Merger Agreement may be amended
prior to the Effective Date, either before or after shareholder approval;
provided, however, that the Merger Agreement may not be amended after
shareholder approval if such amendment would (1) alter or change the amount or
kind of shares to be received by shareholders in the Merger, (2) alter or change
any term of the New Certificate, (3) alter or change any of the terms and
conditions of the Merger Agreement if such alteration or changes would adversely
affect the Company shareholders, or (4) violate applicable law.
PRINCIPAL REASONS FOR THE REORGANIZATION PROPOSAL
The Board of Directors believes that the best interests of the Company
and its shareholders will be served by changing the Company's domicile from
Bermuda to the State of Delaware in the United States. The Company believes that
the Reorganization will facilitate access to such markets and increase the
Company's flexibility to meet its future financing needs. As part of its
expected growth strategy for the short and medium term, the Company expects to
pursue opportunities to invest in other U.S. based companies in the multimedia
communications industry, as it has done in the past. The price for any potential
acquisitions may be in Intelect (Delaware) Common Shares and the Company
believes that Intelect (Delaware) Common Shares will be more attractive as
consideration for such acquisitions if the issuer is domiciled in the United
States. The Board of Directors and senior management believe that the
Reorganization will improve the Company's flexibility and ability to meet its
future equity and debt financing needs, enhance the marketability of the
Company's shares by raising the Company's profile in U.S. capital markets,
provide investors with an opportunity to assess the Company on a more comparable
footing with its U.S.-domiciled competitors and, over time, have a positive
effect on the trading of the Company's stock.
Maintaining the Company's domicile in Bermuda is needlessly costing the
Company revenue while not providing a corresponding benefit to the Company or
its shareholders. Because substantially all of the Company's operations are run
through its U.S. subsidiaries, no avoidance of U.S. taxation or U.S. laws and
U.S. regulations is achieved. The only significant tax benefit to the
shareholders under the current arrangement would be limited to non-U.S.
taxpayers, who, in the event the Company pays a dividend (which has not
previously occurred and is not currently foreseen), would not be subject to U.S.
taxation on the dividend. All U.S. shareholders, on the other hand, would be
subject to such tax. This hypothetical, contingent, and limited tax benefit does
not, in the view of the Board of
24
<PAGE>
Directors, justify the cost associated with maintaining the status quo.
Maintaining domicile in Bermuda requires that the Company maintain outside
counsel in Bermuda (in addition to U.S. counsel). Additionally, due to recent
resignations from the Company, there are no directors or officers who reside in
Bermuda and as a result, the Company's management has already been relocated to
the U.S., further limiting any actual ties to Bermuda. Finally, in the opinion
of the Company's Board of Directors, Bermuda law is not as well-developed as
that of Delaware nor are Bermuda courts as experienced in dealing with corporate
matters, thus limiting the predictability of legal applications and outcomes
regarding issues ranging from company liability to the fiduciary duties of
directors. Such unpredictability is an undesirable factor in risk management
while making business decisions in today's high technology industry.
Delaware has historically followed a policy of encouraging incorporation
in that state and has adopted comprehensive, modern and flexible corporation
laws which are periodically updated and revised to meet changing business needs.
As a result, many major corporations have chosen Delaware for their initial
domicile or have subsequently reincorporated in Delaware in a manner similar to
that proposed by the Company. Delaware courts have developed considerable
expertise in dealing with corporate legal issues, and a substantial body of case
law has developed construing Delaware law and establishing public policy with
respect to Delaware corporations. The larger body and degree of predictability
of Delaware corporate law as presented in the numerous precedents decided by the
Delaware courts is a great advantage to a company in that it is allowed to make
corporate decisions and take corporate actions with increased confidence of what
the outcome and consequences of those decisions and actions will be under the
corporate law governing Delaware corporations.
For the foregoing reasons, the Board of Directors believes that the
activities of the Company can be carried more effectively if the Company is able
to operate as a corporation organized and governed by Delaware law. It should be
noted, however, that shareholders in some instances have fewer rights and hence
less protection under Delaware Law than under Bermuda Law. See "-- Comparative
Rights of Shareholders -- Bermuda and Delaware Corporate Law."
TREATMENT OF THE COMPANY'S SECURITIES AND OTHER OBLIGATIONS
Pursuant to the terms of the Merger Agreement, each validly existing
option and warrant to purchase Company Common Shares outstanding immediately
prior to the Effective Date of the Merger, including without limitation each
option granted under the Company's Incentive Stock Option Plan, and each other
outstanding option and each warrant to purchase Company Common Shares will,
subject to applicable law, become an option or warrant to purchase Intelect
(Delaware) Common Shares, subject to the same terms and conditions as set forth
in the Company's Incentive Stock Option Plan or other agreement pursuant to
which such option or warrant was granted. All employee benefit plans and other
agreements and arrangements of the Company will be continued by Intelect
(Delaware) upon the same terms and subject to the same conditions as currently
in effect.
TREATMENT OF PREFERRED SHARES OF THE COMPANY
As of the Effective Date, each Preferred Share of the Company will be
exchanged for one Preferred Share of Intelect (Delaware). The Designations,
Rights, and Preferences of the Intelect (Delaware) Preferred Shares shall be
identical to the Designations, Rights and Preferences of the Company Preferred
Shares except that each Intelect (Delaware) Preferred Share shall be convertible
into that number of Intelect (Delaware) Common Shares which the holder of the
Company Preferred Shares would have been entitled to receive had such holder
exercised his right of conversion in full immediately prior to the Effective
Date.
TREATMENT OF STOCK OPTIONS AND STOCK OPTION PLAN OF THE COMPANY
At the Effective Date, each outstanding option to purchase the Company
Common Shares and any stock appreciation rights related thereto that have been
granted pursuant to the Company's Stock Incentive Plan (a "Company Stock
Option"), whether vested or unvested, shall be assumed by Intelect (Delaware).
Each such option shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such
25
<PAGE>
Company Stock Option, a number of Intelect (Delaware) Common Shares equal to the
number of Company Common Shares purchasable pursuant to such Company Stock
Option at a price per share equal to the per-share exercise price for the
Company Common Shares purchasable pursuant to such Company Stock Option;
provided, however, that in the case of any option to which Section 421 of the
Code applies by reason of its qualification under any of Sections 422-424 of the
Code, the option price, the number of shares purchasable pursuant to such option
and the terms and conditions of exercise of such option shall be determined in
order to comply with Section 424(a) of the Code; and provided further, that the
number of Intelect (Delaware) Common Shares that may be purchased upon exercise
of such Company Stock Option shall not include any fractional share and, upon
exercise of such Company Stock Option, a cash payment shall be made for any
fractional share based upon the closing price of Intelect (Delaware) Common
Shares on the Nasdaq National Market or, if then traded on an exchange, such
exchange, on the last trading day of the calendar month immediately preceding
the date of exercise.
TREATMENT OF WARRANTS OF THE COMPANY
All warrants for Company Common Shares validly existing and outstanding
on the Effective Date will become obligations of Intelect (Delaware). Each
warrant assumed by Intelect (Delaware) will continue to have, and be subject to,
the same terms and conditions set forth in such warrant in effect immediately
prior to the Effective Date. Each such warrant will be exercisable for that
number of Intelect (Delaware) Common Shares which the holder of such warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such warrant in full immediately prior to the Effective Date and
elected to receive Intelect (Delaware) Common Shares in exchange for Company
Common Shares in the Merger. Intelect (Delaware) will assume any registration
obligations covering such warrants and underlying common shares until such
warrants are exercised or expire.
TREATMENT OF REGISTRATION RIGHTS
All contractual agreements of the Company outstanding on the Effective
Date to register Company Common Shares will become obligations of Intelect
(Delaware) to register Intelect (Delaware) Common Shares issuable pursuant to
the Reorganization. The registration rights agreements assumed by Intelect
(Delaware) will continue to have, and be subject to the same terms and
conditions as are currently set forth in such agreements.
DESCRIPTION OF INTELECT (DELAWARE) SECURITIES
The authorized capital stock of Intelect (Delaware) consists of
50,000,000 Common Shares, of which 41,435 Intelect (Delaware) Common Shares have
been issued and are outstanding and held by the Company (its incorporator), and
50,000,000 Preferred Shares, par value $.01 per share (the "Intelect (Delaware)
Preferred Shares"), of which no Shares are issued and outstanding.
INTELECT (DELAWARE) COMMON SHARES
Each holder of Intelect (Delaware) Common Shares is entitled to cast one
vote, either in person or by proxy, for each share owned of record on all
matters submitted to a vote of shareholders of Intelect (Delaware), including
the election of directors. The Board of Directors of Intelect (Delaware) is
divided into three classes, with the classes as nearly equal in number as
possible. Initially, approximately one-third of the directors will serve a
one-year term, approximately one-third of the directors will serve a two-year
term and approximately one-third of the directors will serve a three-year term.
Thereafter, the term of each class of directors will be three years, with the
term of one class expiring each year in rotation. The holders of Intelect
(Delaware) Common Shares do not possess cumulative voting rights, which means
that the holders of more than 50% of the outstanding Intelect (Delaware) Common
Shares voting for the election of directors can elect all of such directors,
and, in such event, the holders of the remaining Intelect (Delaware) Common
Shares will be unable to elect any of Intelect (Delaware)'s directors.
Holders of the outstanding Intelect (Delaware) Common Shares are
entitled to share ratably in such dividends as may be declared by the Board of
Directors of Intelect (Delaware) out of funds legally available therefor. Upon
the liquidation, dissolution, or winding up of Intelect (Delaware), each
outstanding Intelect (Delaware) Common Share
26
<PAGE>
will be entitled to share in the assets of Intelect (Delaware) legally available
for distribution to shareholders after the payment of all debts and other
liabilities subject to any superior rights of the holders of any outstanding
shares of Intelect (Delaware) Preferred Shares.
Holders of the Intelect (Delaware) Common Shares have no preemptive
rights. There are no conversion or subscription rights, and shares are not
subject to redemption. All of the outstanding Intelect (Delaware) Common Shares
are, and the shares offered hereby will be, when issued in accordance with the
terms hereof, duly issued, fully paid and nonassessable.
For a more detailed discussion of the Intelect (Delaware) Common Shares,
see "Comparative Rights of Shareholders -- Charter and Bylaw Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent for the Intelect (Delaware) Common Shares is American
Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, NY 10005.
INTELECT (DELAWARE) PREFERRED SHARES
Intelect (Delaware) shall be authorized to issue Intelect (Delaware)
preferred shares 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 of
Intelect (Delaware) in accordance with the New Certificate, the New Bye-Laws,
and the DGCL. The Board of Directors shall have the authority to establish and
designate any unissued preferred shares as a series of such shares. Intelect
(Delaware) could issue Intelect (Delaware) preferred shares with terms and
conditions which could discourage a takeover or other transaction that holders
of some or a majority of Intelect (Delaware) Common Shares might believe to be
in their best interests or in which such holders might receive a premium for
their shares over the then market price of such shares. As of the date hereof,
no Intelect (Delaware) preferred shares are outstanding.
As of the Effective Date, 10,000,000 of the Intelect (Delaware)
preferred shares shall be designated as shares of $2.0145, 10% Cumulative
Convertible Preferred Shares, Series A, (the "Intelect (Delaware) Preferred
Shares") of which 4,219,409 shares will be issued and exchanged on a share per
share basis to the only current holder of Company Preferred Shares. The Intelect
(Delaware) Preferred Shares shall have the identical Designations, Rights, and
Preferences as the Company's Preferred Shares. The Intelect (Delaware) Preferred
Shares will be redeemable, at Intelect (Delaware)'s option, at 110%, 105%, and
100% of face value after June 1, 1999, 2000, and 2001, respectively. The
Intelect (Delaware)Preferred Shares shall be convertible into Intelect
(Delaware) Common Shares on a share-for-share basis, subject to anti-dilution
provisions.
The holders of Intelect (Delaware) Preferred Shares will not generally
have any right or power to vote on any question or in any proceeding at any
meeting of shareholders, provided that holders of such shares shall receive
notice of, and be entitled to representation at, any such meeting. On any
matters on which the holders of the Intelect (Delaware) Preferred Shares shall
be entitled to vote, they shall be entitled to one vote for each Intelect
(Delaware) Preferred Share held.
Dividends shall be payable quarterly beginning December 31, 1997, in
cash or Intelect (Delaware) Common Shares, at Intelect (Delaware)'s option.
Dividends payable in Intelect (Delaware) Common Shares shall be paid in an
amount equivalent to the accrued dividend, converted into Intelect (Delaware)
Common Shares at the average closing market bid price for the five (5)
consecutive trading days prior to the date the dividend is otherwise payable. In
case at any time the equivalent of three (3) or more full quarterly dividends
(whether consecutive or not) on any series of Preferred Shares shall be in
arrears, then during the period (hereinafter called the "Class Voting Period")
commencing with such time and ending with the time when all arrears in dividends
on all Preferred Shares shall have been paid and the full dividend on all
Preferred Shares for the then current quarterly dividend period shall have been
paid or declared and set apart for payment, at a meeting called by the holders
of the Intelect (Delaware) Preferred Shares and held for the election of
directors during the Class Voting Period, the holders of a majority of the
27
<PAGE>
outstanding Intelect (Delaware) Preferred Shares represented in person or by
proxy at said meeting shall be entitled, as a class, to the exclusion of the
holders of all other classes of shares of Intelect (Delaware), to elect two
directors of Intelect (Delaware) (or such greater number constituting not less
than 35% of the number of Directors authorized), each Intelect (Delaware)
Preferred Share entitling the holder thereof to one vote for each Director.
In the event of any liquidation, dissolution, or winding up of the
affairs of Intelect (Delaware), whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of Intelect (Delaware),
the holders of the Intelect (Delaware) Preferred Shares shall be entitled to
receive, out of the remaining net assets of the Intelect (Delaware), the amount
of Two and 1.45/100 dollars ($2.0145) in cash for each Intelect (Delaware)
Preferred Share, plus an amount equal to all dividends accrued and unpaid on
each such Intelect (Delaware) Preferred Share up to the date fixed for
distribution, before any distribution shall be made to the holders of Intelect
(Delaware) Common Shares, or any other capital stock of Intelect (Delaware)
ranking (as to any such distribution) junior to the Intelect (Delaware)
Preferred Shares.
In the event Intelect (Delaware) issues any new securities, the holders
of the Intelect (Delaware) Preferred Shares shall have preemption rights
entitling such holders to purchase such new securities from Intelect (Delaware)
in cash for the same per share consideration at which such new securities are
issued (or the per share price at which a share of the new securities is
acquirable upon exercise or conversion of options, warrants or other rights to
Intelect (Delaware) Common Shares), except such preemption rights shall not be
applicable to certain financings.
Except for such Preferred Shares, Intelect (Delaware) has not authorized
the issuance of any other Intelect (Delaware) Preferred Shares, nor does
Intelect (Delaware) have any present plans to issue any Intelect (Delaware)
Preferred Shares after the Effective Date.
DELAWARE BUSINESS COMBINATION STATUTE
Intelect (Delaware) is a Delaware corporation and is subject to Section
203 ("Section 203") of the DGCL. In general, Section 203 will prevent an
"interested shareholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) of Intelect (Delaware) from engaging in
a "business combination" (as therein defined) with Intelect (Delaware) for three
years following the date such person became an interested shareholder, unless
(i) before such person became an interested shareholder, the Board of Directors
of Intelect (Delaware) approved the business combination in question, or the
transaction which resulted in such person becoming an interested shareholder,
(ii) upon consummation of the transaction that resulted in the interested
shareholder becoming such, the interested shareholder owns at least 85% of the
voting shares of Intelect (Delaware) outstanding at the time such transaction
commenced (excluding shares held by directors who are also officers of Intelect
(Delaware) and by employee stock option plans that do not provide employees with
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer), or (iii) following the transaction
in which such person became an interested shareholder, the business combination
is approved by the Board of Directors of Intelect (Delaware) and authorized at a
meeting of shareholders by the affirmative vote of the holders of not less than
662/3% of the outstanding voting shares of Intelect (Delaware) not owned by the
interested shareholder. Under Section 203, the restrictions described above do
not apply to certain business combinations proposed by an interested shareholder
following the announcement (or notification) of one of certain extraordinary
transactions involving Intelect (Delaware) and a person who had not been an
interested shareholder during the preceding three years or who became an
interested shareholder with the approval of Intelect (Delaware)'s directors, and
which transactions are approved or not opposed by a majority of the members of
the Board of Directors then in office who were directors prior to any person
becoming an interested shareholder during the previous three years or where
recommended for election or elected to succeed such directors by a majority of
such directors.
ACCOUNTING TREATMENT
The Reorganization will be accounted for in a manner similar to a
pooling of interests. In accordance with U.S. generally accepted accounting
principles ("GAAP"), Intelect (Delaware) anticipates its consolidated financial
statements will reflect the assets and liabilities of the Company at their
historical cost as presented in the Company's
28
<PAGE>
historical consolidated financial statements. Effectively, the Company is
transferring its assets and liabilities to Intelect (Delaware) in a common
control transaction. The costs associated with the Reorganization, which are not
expected to be significant, will be charged to the results of operations of
Intelect (Delaware) upon the consummation of the Reorganization.
NASDAQ LISTING
Intelect (Delaware) has applied to have the Intelect (Delaware) Common
Shares authorized for listing on the Nasdaq National Market ("NNM") under the
symbol "ICOM" following the Effective Date. Authorization of the Intelect
(Delaware) Common Shares for listing on the NNM is a condition precedent to the
consummation of the transactions contemplated by the Reorganization. Although
Intelect (Delaware) fully expects its Common Shares to be authorized for listing
on NNM, failure to satisfy this condition would have a material adverse effect
on the liquidity of Intelect (Delaware) Common Shares, and if such listing on
the NNM is not authorized, management does not intend to proceed with the
Reorganization.
SECURITIES LAWS CONSIDERATIONS
The Intelect (Delaware) Common Shares issuable in connection with the
Reorganization are concurrently being registered under the Securities Act
pursuant to the Registration Statement of Intelect (Delaware) on Form S-4 of
which this Proxy Statement/Prospectus forms a part.
Consequently, all Intelect (Delaware) Common Shares received by
Shareholders in the Reorganization will be freely transferable under the United
States federal securities laws, except that such Intelect (Delaware) Common
Shares received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of either company may be resold by such
affiliates only in transactions permitted by the resale provisions of Rules 144
or 145 promulgated under the Securities Act (which permit limited sales under
certain circumstances), or pursuant to a separate offering registered under the
Securities Act or a separate offering exempt from such registration.
CONDITIONS TO THE REORGANIZATION
Consummation of the Reorganization is subject to (i) the approval of the
Reorganization by the affirmative requisite vote of the Shareholders, (ii) the
Intelect (Delaware) Common Shares being authorized for listing on the NNM, (iii)
holders of Company Common Shares exercising their rights of dissent and
appraisal shall not, in the opinion of the Board of Directors, represent an
unacceptable cash cost in light of the Company's current and anticipated cash
requirements, and (iv) the absence of any temporary restraining order,
preliminary injunction, or other legal restraint or prohibition preventing the
consummation of the Reorganization. In addition to these conditions, the
Reorganization may be abandoned prior to the Effective Date notwithstanding
approval by the Shareholders, by written agreement of Intelect (Delaware) and
the Company.
INTEREST OF CERTAIN PERSONS
The Company's salary and bonus compensation to its Chairman and Chief
Executive Officer, Mr. Herman M. Frietsch, is currently being paid pursuant to a
management contract between Mr. Frietsch and Intelect (Delaware). The terms of
such management contract provide, effective January 1, 1997, for a minimum fee
of $250,000 plus the possibility of a discretionary bonus per annum and for a
minimum term ending December 31, 1997. Thereafter the contract is automatically
renewed, but may be terminated on the next December 31 following three (3) years
notice of termination. The management contract will survive the Reorganization.
29
<PAGE>
INCOME TAX CONSIDERATIONS TO SHAREHOLDERS
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the principal federal income tax
consequences associated with the Merger to a Company shareholder who is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States and who
holds shares of the Company as a capital asset. This summary does not, however,
discuss all aspects of federal income taxation that may be relevant either to a
particular shareholder in light of personal circumstances or to certain types of
shareholders subject to special treatment under the federal income tax laws (for
example, life insurance companies, tax-exempt organizations, foreign investors,
dealers in securities and taxpayers subject to the alternative minimum tax), and
this summary does not discuss any aspect of state, local or foreign tax laws.
The following summary is based on interpretation of the Internal Revenue
Code (the "Code"), related Income Tax Regulations thereunder, relevant court
decisions, and Internal Revenue Service (the "Service") published Revenue
Rulings, Private Letter Rulings, Technical Advice Memoranda, General Counsel
Memoranda, and Revenue Procedures as of the date hereof. However, federal income
tax laws and their interpretations are subject to change, which could adversely
affect the statements and conclusions set forth herein.
If there is a change in applicable local law, the Code, the Income Tax
Regulations and published rulings thereunder, the current administrative
rulings, or in the prevailing judicial interpretation of the foregoing, the
statements and conclusions herein would necessarily have to be reevaluated in
light of any such changes, which could apply on a retroactive basis. No ruling
has been requested from the Service with respect to any of the matters discussed
herein and, thus, no assurance can be provided that opinions and statements set
forth herein (which do not bind the Service or the courts) will not be
challenged by the Service or would be sustained by a court if so challenged.
EACH OF THE SHAREHOLDERS OF THE COMPANY SHOULD CONSULT THEIR OWN
ADVISORS AS TO THE TAX TREATMENT WHICH MAY BE ANTICIPATED TO RESULT FROM THE
TRANSACTIONS CONTEMPLATED HEREBY REGARDING THEIR PARTICULAR CIRCUMSTANCES,
INCLUDING THE APPLICATION OF STATE AND LOCAL LAWS.
The Merger has been structured with the intention that it qualify as an
exchange under Section 351 of the Code. BASED UPON THE CONTINUING ACCURACY OF
CERTAIN ASSUMPTIONS AND REPRESENTATIONS OF THE PARTIES TO THE MERGER, Arthur
Andersen LLP ("Arthur Andersen"), advisor to the Company, has delivered an
opinion to the Company to that effect.
The formation of Merger Co. and its merger into the Company will be
disregarded, and the transaction will be treated as a transfer by the
shareholders of their Company Common Shares and Company Preferred Shares
(collectively "Company Shares") to Intelect (Delaware) in exchange for Intelect
(Delaware) Common Shares and Intelect (Delaware) Preferred Shares (collectively
"Intelect (Delaware) Shares").
No gain or loss will be recognized for federal income tax purposes by a
shareholder of the Company as a result of the Merger upon the exchange of
Company Shares solely for Intelect (Delaware) Shares, except with respect to
cash, if any, received by any dissenting shareholders of the Company.
With respect to a shareholder who receives solely Intelect (Delaware)
Shares in exchange for Company Shares, such shareholder's aggregate tax basis in
the Intelect (Delaware) Shares received (or the rights thereto) pursuant to the
Merger Agreement will equal such holder's aggregate basis in the Company Shares
converted therefor, and such holder's holding period for the Intelect (Delaware)
Shares received (or the right thereto) in the Merger Agreement will include his
holding period in the Company Shares converted therefor, provided the
shareholder held the Company Shares as a capital asset.
30
<PAGE>
Where a dissenting shareholder of the Company receives solely cash, such
cash should be treated as having been received by the shareholder as a
distribution in redemption of Company Shares, subject to the provisions and
limitations of Sections 302 and 304 of the Code.
The opinion of Arthur Andersen was based upon review of documents and
materials they considered relevant, including this Proxy Statement/Prospectus
and the Merger Agreement. In addition, in rendering the opinion, Arthur Andersen
received and relied upon representations of fact and certain certifications of
the Company and Intelect (Delaware), and that the transactions contemplated in
the Merger Agreement will be consummated on the Effective Date and in compliance
with all material terms and conditions as described in such agreements.
OTHER CONSIDERATIONS - APPLICATION OF SECTION 306
The Intelect (Delaware) Preferred Shares received by the holders of the
Company Preferred Shares in the exchange may be treated as Section 306 stock. If
so treated, the disposition of such stock may result in ordinary income rather
than capital gain income to such shareholder upon a taxable disposition of such
Intelect (Delaware) Preferred Shares. The amount realized upon disposition
treated as ordinary income is limited to the amount that would have been treated
as a dividend had the holder received cash in lieu of the Preferred Shares upon
the exchange.
Each holder of the Company's Preferred Shares that is receiving Intelect
(Delaware) Preferred Shares in exchange therefor should consult their own tax
advisor as to whether Section 306 applies to the Intelect (Delaware) Preferred
Shares received.
BERMUDA TAX CONSIDERATIONS
At the date hereof, there is no Bermuda income tax, corporation tax,
profits tax, withholding tax, capital gains tax, capital transfer tax, stamp
duty or inheritance tax payable by the Company or Intelect (Delaware) as a
result of or in connection with the Merger.
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
As a result of the Merger, holders of Company Common Shares will become
shareholders of Intelect (Delaware) and the rights of all such former Company
shareholders will thereafter be governed by the New Certificate, the New By-laws
and the DGCL. The rights of the holders of Company Common Shares are, as stated,
currently governed by the Present Charter, the Present Bye-laws and The
Companies Act 1981 of Bermuda ("The Companies Act").
The following summary, which does not purport to be a complete statement
of the general differences among the rights of the shareholders of Intelect
(Delaware) and the Company, sets forth certain differences between the DGCL and
The Companies Act, the New Certificate and New By-laws and the Present Charter
and the Present Bye-laws. This summary is qualified in its entirety by reference
to the full text of each of such charter and governance documents, the DGCL and
The Companies Act. For information as to how such documents may be obtained, see
"Available Information."
BERMUDA AND DELAWARE CORPORATE LAW
The Companies Act, under which the Company was incorporated, differs in
certain material respects from the provisions of the DGCL. Set forth below is a
summary of certain significant provisions of The Companies Act which are
materially different from the DGCL. The following statements are summaries, and
do not purport to deal with all aspects of Bermuda or Delaware law that may be
relevant to the Company and its shareholders.
31
<PAGE>
AUTHORIZED CAPITAL STOCK
THE COMPANY. The Company has, as of October 28, 1997, 80,000,000
authorized Company Common Shares, par value $.01 per share, of which 23,926,830
are issued and outstanding and 15,000,000 Company Preferred Shares, par value
$.01 per share, of which 4,219,409 are issued and outstanding in the form of 10%
Cumulative Convertible Preferred Shares, Series A (the "Company Preferred
Shares").
INTELECT (DELAWARE). The New Certificate authorizes the issuance of
50,000,000 Intelect (Delaware) Common Shares, par value $.01 per share, and
50,000,000 Intelect (Delaware) Preferred Shares, par value $.01 per share. There
are currently 41,435 Intelect (Delaware) Common Shares issued and outstanding,
all of which are held by the Company. Upon the consummation of the Merger,
Intelect (Delaware) will have the same number of issued and outstanding Intelect
(Delaware) Common Shares (assuming no exercise of dissenters' rights) as the
number of Company Common Shares issued and outstanding immediately before the
Reorganization, together with the currently outstanding 41,435 Intelect
(Delaware) Common Shares held by the Company, which will continue to remain
outstanding. However, under the DGCL, such Intelect (Delaware) Common Shares
that will continue to be held by the Company will not be entitled to vote and
will not be counted for purposes of determining whether a quorum of shareholders
entitled to vote at a meeting is present. See "Description of Intelect
(Delaware) Securities."
Under the New Certificate, the Board of Directors of Intelect (Delaware)
is authorized to issue preferred shares in series and to fix the powers,
designations, preferences, or other rights of the shares and the qualifications,
limitations, and restrictions of such shares. Intelect (Delaware) Preferred
Shares issued by Intelect (Delaware) after the Reorganization may rank
preferentially to Intelect (Delaware) Common Shares as to dividend rights,
liquidation preferences, or both, may have full or limited voting rights
(including multiple voting rights and voting rights as a class), and may be
convertible into Intelect (Delaware) Common Shares. Other than the Intelect
(Delaware) Preferred Shares to be issued as part of the Reorganization in
exchange for Company Preferred Shares, Intelect (Delaware) has no present plans
or understandings for the issuance of any preferred shares. However, any such
issuance in the future could adversely affect the rights of holders of Intelect
(Delaware) Common Shares, particularly if the preferred shares are given
preferential dividend, liquidation, or voting rights. See "Description of
Intelect (Delaware) Securities."
VOTING RIGHTS AND QUORUM REQUIREMENTS
THE COMPANY. Under Bermuda law, in the absence of any other agreement to
the contrary, the voting rights of shareholders are regulated by the Present
Bye-Laws. The Present Bye-Laws specify that two persons present in person or
represented throughout the meeting, in person or by proxy, in excess of 35% of
the total issued voting shares in the Company shall form a quorum for the
transaction of business.
Any shareholder of the Company who is present at a meeting may vote in
person, as may any corporation which is present by a duly authorized
representative. The Present Bye-Laws also permit votes by proxy, provided the
instrument appointing the proxy, together with such evidence of its due
execution as is satisfactory to the Company's Board of Directors, is delivered
to the Company's registered office (or at any other place specified in the
notice convening the meeting or adjourned meetings) prior to the meeting or, in
the case of a poll taken subsequently to the date of the meeting, before the
time appointed for the taking of that poll. There is no specified record date
for meetings under Bermuda law.
Under the Present Bye-Laws (subject to any rights or restrictions
otherwise afforded to any Company shares), shareholders of the Company are
entitled to one vote per Company Common Share.
INTELECT (DELAWARE). Under the DGCL and the New By-laws, each holder of
record of Intelect (Delaware) Common Shares is entitled to one vote per share.
The presence, in person or by proxy, of the holders of record of shares of
capital stock entitling the holders thereof to cast a majority of votes entitled
to be cast by the holders of shares of capital stock shall constitute a quorum.
The presiding officer, if directed by the Board of Directors, or the
shareholders entitled to vote at the meeting may adjourn the meeting if no
quorum is present or represented thereat. The presiding officer, if directed by
the Board of Directors, may also adjourn the meeting in which a quorum is
32
<PAGE>
present or represented, if the Board of Directors determines that an adjournment
is necessary or appropriate to enable the shareholders to either consider fully
information which the Board of Directors determines has not been made
sufficiently or timely available to the shareholders, or otherwise exercise
effectively their voting rights. Under the DGCL, the shareholder entitled to
vote at a meeting of shareholder may authorize another person or persons to act
for him by proxy. Unless the proxy provides for a longer period, no proxy may be
voted or acted upon after three years from its date. Proxies may be transmitted
by telegram, cablegram or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service or like agent duly authorized by the person who will be the
holder of the proxy to receive such transmission, provided that such proxy
either sets forth or is submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the shareholder. The New By-laws provide that all matters subject
to a vote by the shareholders may (but need not) be by ballot, such being at the
discretion of the Board of Directors or the officer presiding at the meeting.
VOTING RIGHTS WITH RESPECT TO EXTRAORDINARY CORPORATE TRANSACTIONS
BERMUDA. Bermuda law permits amalgamation between two or more Bermuda
companies (or between a Bermuda company and one or more Bermuda or foreign
companies, provided that a Bermuda company is the surviving corporation) and,
subject to any requirement of the bye-laws of any of such companies, generally
requires the approval, in the case of the amalgamation of non-affiliated
companies, of a majority vote of three-fourths of shareholders of each such
company present, in person or by proxy, at a meeting called for that purpose. A
90% vote may be required where such an amalgamation amounts to a scheme or
contract under Section 102 of the Companies Act. A majority vote of shareholders
is required to increase the authorized capital of a Bermuda company, but unless
such increase is required, and subject to any provision of the bye-laws to the
contrary, no shareholder approval is required for the issue of shares by an
acquiring company in a share-for-share exchange, asset purchase, or, subject to
the limitations set forth below, other forms of reorganization.
DELAWARE. Approval of mergers and consolidations and of sales, leases or
exchanges of all or substantially all of the property or assets of a company,
require the approval of the holders of a majority of the outstanding shares
entitled to vote, except that no vote of shareholders of the company surviving a
merger is necessary if (i) the merger does not amend the certificate of
incorporation of the company, (ii) each outstanding share immediately prior to
the effective date of the merger is to be an identical share after the merger,
and (iii) either no common shares of the company and no securities or
obligations convertible into common shares are to be issued in the merger, or
the common shares to be issued in the merger plus common shares initially
issuable on conversion of other securities issued in the merger does not exceed
20% of the common shares of the company immediately before the effective date of
the merger.
DISSENTERS' RIGHTS
BERMUDA. Under Bermuda law, a dissenting shareholder of a company
participating in certain transactions may, under varying circumstances, receive
cash in the amount of the fair market value of his shares (as determined by a
court), in lieu of the consideration he or she would otherwise receive in any
such transactions. Bermuda law generally does not condition dissenters' rights
to circumstances in which a vote of the shareholders of the surviving company is
required. Bermuda law, in general, provides for dissenters' rights in an
amalgamation between non-affiliated companies, a scheme of arrangement, a
reconstruction and certain other transactions. For a more thorough discussion of
dissenters' rights under Bermuda law, see "Rights of Dissenting Shareholders."
DELAWARE. Shareholders are entitled to demand appraisal of their shares
in the case of mergers or consolidations, except where (i) they are shareholders
of the surviving company and the merger did not require their approval under the
DGCL, or (ii) the company shares are either listed on a national securities
exchange or on the NNM or held of record by more than 2,000 shareholders.
Appraisal rights are available in either (i) or (ii) above, however, if the
shareholders are required by the terms of the merger or consolidations to accept
any consideration other than (a) shares of the company surviving or resulting
from the merger or consolidation, (b) shares of another company which are either
listed on a national securities exchange or held of record by more than 2,000
shareholders, (c) cash in lieu
33
<PAGE>
of fractional shares, or (d) any combination of the foregoing. Appraisal rights
are not available in the case of a sale, lease, exchange or other disposition by
a company of all or substantially all of its property and assets.
DERIVATIVE SUITS
BERMUDA. In certain circumstances an action can be brought by minority
shareholders, on behalf of the Company, seeking to enforce a right of action
vested in or derived from the Company. However, such a derivative action will
not be permitted where there is an alternative action available which would
provide an adequate remedy. Any property or damages recovered by derivative
action go to the Company, not to the plaintiff shareholders. The Companies Act
enables a shareholder who complains that the affairs of a company are being or
have been conducted in a manner oppressive or prejudicial to some part of the
shareholders, including himself, to petition the court, which may, if it is of
the opinion that to wind up a company would unfairly prejudice those
shareholders, but that otherwise the facts would justify a winding up order on
just and equitable grounds, make such order as it thinks fit. The Companies Act
also provides that a company may be wound up by the court if the court is of the
opinion that it is just and equitable to do so. The latter provision is also
available to minority shareholders seeking relief from the oppressive conduct of
the majority, and the court has wide discretion to make such order as it may
think fit. Except as mentioned above, claims against a Bermuda company by its
shareholders must be based on the general law of contract or tort of Bermuda. A
statutory right of action is conferred on subscribers to shares of a Bermuda
company against persons (including directors and officers) responsible for the
issue of a prospectus in respect of damage suffered by reason of an untrue
statement therein, but this confers no right of action against the company
itself. In addition, the company itself (as opposed to its shareholders) may
take action against the officers (including directors) of a Bermuda company for
breach of their statutory and fiduciary duty to act honestly and in good faith
with a view to the best interests of the company.
DELAWARE. Derivative actions may be brought in Delaware by a shareholder
on behalf of, and for the benefit of, the corporation. The DGCL provides that a
shareholder must state in the complaint that he or she was a shareholder of the
corporation at the time of the transaction of which he or she complains. A
shareholder may not sue derivatively unless he or she first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile. No suit shall be brought against
any officer, director, or shareholder for any debt of a corporation for which he
or she is an officer, director, or shareholder, until judgment be obtained
therefor against the corporation and execution thereon returned.
SPECIAL MEETINGS OF SHAREHOLDERS
BERMUDA. Under Bermuda law, a special meeting of shareholders may be
convened by the Board of Directors at any time and must be convened upon the
requisition of shareholders holding not less than one-tenth of the paid-in
capital of the company carrying the right to vote at general meetings.
DELAWARE. Shareholders generally do not have the right to call meetings
of shareholders unless such right is granted in the certificate of incorporation
or by-laws. However, if a company fails to hold its annual meeting within a
period of 30 days after the date designated therefor, or if no date has been
designated for a period of 13 months after its last annual meeting, the Delaware
Court of Chancery may order a meeting to be held upon the application of a
shareholder or director. The New Certificate and the New By-laws provide that
shareholders may not call a special meeting and that only a majority of the
Board of Directors may call a special meeting of shareholders. See "--Charter
and Bylaw Provisions--Special Meeting of Shareholders" below.
AMENDMENTS TO CHARTER
BERMUDA. Amendments to the memorandum of association and bye-laws of a
Bermuda company must be submitted to a general meeting of the shareholders and
shall be effective only to the extent approved by the shareholders at such
meeting.
34
<PAGE>
DELAWARE. Amendments to the certificate of incorporation require the
affirmative vote of the holders of a majority of the outstanding shares entitled
to vote thereon; except that if the certificate of incorporation requires the
vote of a greater number or proportion of the directors or of the holders of any
class of stock than is required by Delaware law with respect to any matter, the
provision of the certificate of incorporation may not be amended, altered or
repealed except by such greater vote. The New Certificate requires a 90% vote to
amend certain of its provisions. See "--Charter and Bylaw Provisions--Amendments
to Charter."
ANTI-TAKEOVER STATUTES
BERMUDA. Bermuda does not currently have a tender offer statute.
However, The Companies Act provides that where an offer is made for shares in a
company by another company and, within four months of the offer, the holders of
not less than 90% in value of the shares that are the subject of such offer
accept it, the offeror may by notice, given within two months after the
expiration of the four months, require that dissenting shareholders to transfer
their shares under the terms of the offer. Dissenting shareholders may apply to
a court within one month of the notice objecting to the transfer, and the court
may give such order as it thinks fit. The Companies Act also provides that the
holders of not less than 95% of the shares of any class of shares in a company
may give notice to the remaining shareholder or class of shareholders of the
intention to acquire their shares on the terms set out in the notice. Recipients
of the notice have a right to apply to the Bermuda courts for an appraisal.
DELAWARE. Generally, Section 203 of the DGCL prohibits a publicly held
Delaware company from engaging in a "business combination" with an "interested
shareholder" for a period of three years after the date of the transaction in
which the person became an interested shareholder, unless (i) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owns at least 85% of the outstanding voting stock, or (iii) on or
after such date the business combination is approved by the board of directors
and by the affirmative vote of at least 66 2/3% of the outstanding voting shares
that is not owned by the interested shareholder. An "interested shareholder" is
a person who, together with affiliates or associates, owns (or within three
years, did own) 15% or more of the company's voting stock.
LIMITATIONS ON DIRECTOR LIABILITY
BERMUDA. Under Bermuda law, a director must observe the statutory duty
of care which requires such director to act honestly and in good faith with a
view to the best interests of the company and exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. Bermuda law renders void any provision in the bye-laws or any
contract between a company and any such director exempting him from or
indemnifying him against any liability in respect of fraud or dishonesty of
which he or she may be guilty in relation to the company. The Present Bye-laws
contain certain provisions limiting the liability of directors as permitted
under Bermuda law. See "--Charter and Bylaw Provisions--Limitation of Director
Liability."
DELAWARE. Under Delaware law, a company may include in its certificate
of incorporation, a provision eliminating or limiting the liability of a
director to the company or its shareholders for monetary damages for breach of
fiduciary duty as a director, provided that a company may not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the company or its shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
certain acts concerning unlawful payments of dividends or stock purchases or
redemptions under Section 174 of the DGCL, or (iv) for any transactions from
which a director derived an improper personal benefit. The New Certificate
contains certain provisions limiting the liability of directors as permitted
under Delaware law. See "--Charter and By-law Provisions--Limitation of Director
Liability."
35
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
BERMUDA. Under Bermuda law, a company is permitted to indemnify its
officers and directors, out of the funds of the company, against any liability
incurred by him in defending any proceedings, whether civil or criminal, in
which judgment is given in his favor, or in which he or she is acquitted, or in
connection with any application under relevant Bermuda legislation in which
relief from liability is granted to him by the court. The Present Bye-laws
contain certain provisions regarding the indemnification of officers and
directors. See "--Charter and By-law Provisions--Indemnification of Directors
and Officers."
DELAWARE. Under Delaware law, a company is permitted to indemnify its
officers, directors and certain others against any liability incurred in any
civil, criminal, administrative or investigative proceeding if such individual
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the company and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. In addition, under Delaware law, to the extent that a director,
officer, employee or agent of a company has been successful on the merits or
otherwise in defense of any proceeding referred to above or in defense of any
claim, issue or matter therein, he or she must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith. The New By-laws contain provisions regarding the
indemnification of officers and directors.
INSPECTION OF BOOKS AND RECORDS; SHAREHOLDER LISTS
BERMUDA. Bermuda law provides the general public with a right of
inspection of a Bermuda company's public documents at the office of the
Registrar of Companies in Bermuda, and provides a Bermuda company's shareholders
with a right of inspection of such company's bye-laws, minutes of general
(shareholder) meetings, and audited financial statements. The register of
shareholders is also open to inspection by shareholders free of charge and, upon
payment of a small fee, by any other person. A Bermuda company is required to
maintain its share register in Bermuda but may establish a branch register
outside of Bermuda. A Bermuda company is required to keep at its registered
office a register of its directors and officers which is open for inspection by
members of the public without charge. Bermuda law does not, however, provide a
general right for shareholders to inspect or obtain copies of any other
corporate records.
DELAWARE. Any shareholder of record, in person or by attorney or other
agents, upon written demand under oath stating the purpose thereof, has the
right during the company's usual hours for business to inspect, for any proper
purpose, the company's stock ledger, a list of its shareholders, and its other
books and records, and to make copies or extracts therefrom.
PREEMPTIVE RIGHTS
BERMUDA. Under Bermuda law, no shareholder has a preemptive right to
subscribe for additional issues of a company's shares unless, and to the extent
that, such right is expressly granted to such shareholder under the Bye-laws of
a company or under any contract between such shareholder and the company. The
Present Bye-laws do not provide for preemptive rights and the Company is not a
party to any contract with any holder of Common Shares providing such rights.
However, the holders of the Company's Preferred Shares have certain preemptive
rights.
DELAWARE. Under Delaware law, no shareholder has a preemptive right to
subscribe to additional issues of a corporation's stock unless, and to the
extent that, such right is expressly granted to such shareholder in the
corporation's certificate of incorporation. The New Certificate does not provide
for preemptive rights. However, Intelect (Delaware)'s Preferred Shares that are
being issued in the Reorganization in exchange for the Company's Preferred
Shares will have the same preemptive rights as the Company's Preferred Shares.
36
<PAGE>
DIVIDENDS
BERMUDA. Bermuda law permits payment of dividends and distributions of
contributed surplus by a company unless the company, after the payment is made,
would be unable to pay its liabilities as they become due, or the realizable
value of the company's assets would be less, as a result of the payment, than
the aggregate of its liabilities and its issued share capital and share premium
accounts. The excess of the consideration paid on issue of shares over the
aggregate par value of such shares must (except in certain limited
circumstances) be credited to a share premium account.. Share premium may be
distributed in certain limited circumstances, for example to pay up unissued
shares which may be distributed to shareholders in proportion to their holdings,
but is otherwise subject to limitation.
DELAWARE. Delaware law generally allows dividends to be paid out of
surplus of the corporation or out of the net profit of the corporation for the
current fiscal year and/or the prior fiscal year. No dividends may be paid if
they would result in the capital of the corporation being less than the capital
represented by the preferred shares of the corporation.
NUMBER AND QUALIFICATIONS OF DIRECTORS; SIZE OF BOARD
BERMUDA. Under Bermuda law, the minimum number of directors on the board
of directors of a company is two, although the minimum number of directors may
be set higher and the maximum number of directors may also be set in accordance
with the bye-laws of the company. The exact number of directors is usually fixed
by the shareholders in general meeting. Only the shareholders may increase or
decrease the number of director seats last approved by the shareholders.
The Present Bye-laws proved that the number of directors which
constitute the Company Board of Directors shall not be less than three (3) nor
more than nine (9), and that the specific number of directors constituting the
Board shall be determined from time to time by the shareholders in general
meeting. The size of the Company Board is currently fixed at five. Only the
shareholders may change the size of the Company Board.
DELAWARE. Under Delaware law, the minimum number or directors is one.
The number of directors constituting the board of directors of a Delaware
corporation may be specified in the by-laws or the certificate of incorporation.
Accordingly, unless the certificate of incorporation provides otherwise, the
directors may change the number of directors constituting the board by amending
the by-laws. If the number of directors is specified in the certificate of
incorporation, then any change in the number of directors must be made pursuant
to a certificate of amendment approved by the shareholders.
The number of directors for Intelect (Delaware) is set in the New
Bylaws, and the New Charter does not provide otherwise. The New By-laws provide
that the number of directors which constitute Intelect (Delaware)'s Board shall
be five (5), subject to the rights, if any, of holders of the preferred shares
of Intelect (Delaware).
REMOVAL OF DIRECTORS
BERMUDA. Subject to its bye-laws the members of a Bermuda company may,
at a special general meeting called for the purpose, remove any director or the
entire board of directors provided that notice of the meeting shall be served on
the director or directors concerned not less than fourteen days before such
meeting. Any director subject to such notice shall be entitled to be heard at
the meeting. The Present Bye-laws provide that directors may be removed from
office only for cause by the affirmative vote of the holders of at least a
majority of the shares entitled to vote thereat.
DELAWARE. Unless a corporation's certificate of incorporation provide
otherwise, Delaware law allows directors of a corporation to be removed with or
without cause by the vote of the holder of a majority of the shares entitled to
vote in any election of directors. The New Certificate provides that, except as
may be provided in a resolution or resolutions proving for any class or series
of preferred shares with respect to any directors elected by the holders of such
class or series, directors may be removed only for cause by the affirmative vote
of the holders of at least 90%
37
<PAGE>
of the voting power of all of the shares of capital stock of the Company then
entitled to vote generally in the election of directors, voting together as a
single class. The affirmative vote of the holders of 90% of the issued and
outstanding Intelect (Delaware) Common Shares is required to amend or repeal, or
adopt any provision inconsistent with, this provision of the New Certificate.
CHARTER AND BYLAW PROVISIONS
The New Certificate and New By-laws differ in certain material respects
from the provisions of the Present Charter and Present Bye-Laws. Set forth below
is a summary of certain significant material differences between such documents.
The following statements are summaries and do not purport to deal with all
aspects of such documents that may be relevant to the Company and its
shareholders.
LIMITATIONS ON DIRECTOR LIABILITY
COMPANY. The Present Bye-laws and Bermuda law provide that every
director and officer shall act honestly and in good faith with a view to the
best interest of the Company and shall exercise the care, diligence and skill
that a reasonably prudent person would exercise in comparable circumstances and
that, subject to the foregoing, no director or officer shall be liable for acts,
neglects, defaults, or loss, damage, or expense, to the Company resulting from
insufficiency or deficiency of title or security, bankruptcy, insolvency or
tortious acts of any person, error in judgement, oversight, or any other
misfortune, whether such results from his own act or that of other directors,
officers or employees, so long as such was carried out in execution of his
duties and provided that nothing in the bye-laws shall relieve any director or
officer from the duty to act in accordance with The Companies Act.
INTELECT (DELAWARE). The New Certificate limits director liability to
the extent permitted by the DGCL as described under "--Bermuda and Delaware
Law--Limitations on Director Liability."
INDEMNIFICATION OF DIRECTORS AND OFFICERS
COMPANY. The Present Bye-Laws generally provide that the officers and
directors of the Company and their heirs shall be indemnified and held harmless
out of the assets and profits of the Company from and against all actions,
costs, charges, losses, damages and expenses which they or their heirs may incur
by reason of any act done or omitted in the execution of their duty in their
respective offices; provided, that the Company shall not be obligated to extend
such indemnity to any matter in respect of any willful negligence, willful
default, fraud or dishonesty which may attach to any of such persons.
INTELECT (DELAWARE). The New By-laws generally provide that officers,
directors and certain others will be indemnified by Intelect (Delaware) against
any liability incurred in any civil, criminal, administrative or investigative
proceeding if such individual acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Intelect
(Delaware), and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. In addition, to the extent that a
director, officer, employee or agent of Intelect (Delaware) has been successful
on the merits or otherwise in defense of any proceeding referred to above or in
defense of any claim, issue or matter therein, he or she will be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
AMENDMENTS TO CHARTER
COMPANY. The Present Charter and Present Bye-Laws may be amended by a
vote of the holders of a majority of the outstanding Company Common Shares,
unless otherwise provided in such documents. See "--Bermuda and Delaware
Corporate Law--Amendments to Charter."
INTELECT (DELAWARE). The New Certificate provides that certain
provisions of such certificate may only be amended by a vote of the holders of
at least 90% of the outstanding Intelect (Delaware) Common Shares. The
provisions that can only be amended by such 90% vote are provisions that (i)
allow the Board of Directors to determine the rights,
38
<PAGE>
powers, duties, rules, and procedures that affect its power to manage and direct
the business and affairs of the Company; (ii) allow the Board of Directors to
set the number of directors; (iii) classifies the Board of Directors into three
classes; (iv) permits directors to fill any vacancies in the Board of Directors;
(v) provides that a director may only be removed by a vote of 90% of the
outstanding Intelect (Delaware) Common Shares; (vi) limits the liability of
directors to the extent permitted under Delaware law; (vii) expressly denies the
right of shareholders to act by written consent; and (viii) provides that the
New By-laws may be amended only by a vote of the Board of Directors. The other
provisions of the New Certificate may be amended by the affirmative vote of both
(a) a majority of the members of the Board of Directors then in office and (b) a
majority of the voting power of all of the shares of capital stock of the
Company entitled to vote generally in the election of directors voting together
as a single class. See"--Bermuda and Delaware Corporate Law--Amendments to
Charter."
SPECIAL MEETINGS OF SHAREHOLDERS; ADVANCE NOTICE REQUIREMENTS FOR
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
COMPANY. The Present Bye-Laws provide that a special meeting of
shareholders may be called by the holders of 10% of the outstanding shares of a
company's voting securities. See "--Bermuda and Delaware Corporate Law-- Special
Meetings of Shareholders."
INTELECT (DELAWARE). The New Certificate prohibits shareholders from
taking action by written consent in lieu of an annual or special meeting and,
thus, shareholders may only take action at an annual or special meeting called
in accordance with the New By-laws. The New Certificate and the New By-laws
provide that special meetings of shareholders may only be called by pursuant to
a resolution adopted by a majority of the Board of Directors. Special meetings
may not be called by the shareholders.
These provisions could have the effect of delaying consideration of a
shareholder proposal until the next annual meeting. The provisions would also
prevent the holders of a majority of the voting power of the capital stock of
Intelect (Delaware) entitled to vote from unilaterally using the written consent
procedure to take shareholder action. Moreover, a shareholder could not force
the Board of Directors, the Chief Executive Officer, or a majority of the Board
of Directors by calling a special meeting of the shareholders prior to the time
such persons believe such consideration to be appropriate, except as required by
Delaware law.
The New Certificate and the New By-laws establish advance notice
procedures with regard to shareholder proposals and the nomination, other than
by or at the direction of the Board of Directors or a committee thereof, of
candidates for election as directors. These procedures provide that the notice
of shareholder proposals and shareholder nominations for the election of
directors at an annual meeting must be in writing and received by the Secretary
of Intelect (Delaware) not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the shareholder in order to be timely must be received not later than the close
of business on the tenth day following the day on which notice of the date of
such meeting was mailed or public disclosure of the date of the annual meeting
was made, whichever occurs first. The notice of nominations for the elections of
directors must set forth certain information with respect to the shareholder
giving the notice and with respect to each nominee.
By requiring advance notice of nominations by shareholders, the
foregoing procedures will afford the Board of Directors an opportunity to
consider the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Board of Directors, to inform shareholders about
such qualifications. By requiring advance notice of other proposed business,
such procedures will provide the Board of Directors with an opportunity to
inform shareholders prior to such meetings, of any business proposed to be
conducted at such meetings, together with any recommendations as to the Board of
Directors' position regarding action to be taken with respect to such business,
so that shareholders can better decide whether to attend such a meeting or to
grant a proxy regarding the disposition of any such business.
39
<PAGE>
Although the New Certificate and the New By-laws do not give the Board
of Directors any power to approve or disapprove shareholder nominations for the
election of directors or proposals for action, they may have the effect of
precluding a contest for the election of directors or the consideration of
shareholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal, with
regard to whether consideration of such nominees or proposals might be harmful
or beneficial to Intelect (Delaware) and its shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS
After the Effective Date, Company Common Shares that are issued and
outstanding immediately prior to the Effective Date held by Company shareholders
who did not vote in favor of the adoption and approval of the Merger and who
comply with Section 106(6), (6A), (6B), and (6C) of The Companies Act will, at
the election of Intelect (Delaware) either (1) be canceled and Intelect
(Delaware) Common Shares delivered in consideration thereof, subject to the
rights of such shareholders under Sections 106(6), (6A), (6B), and (6C) of The
Companies Act, or (2) not be canceled and the holders thereof not be entitled to
receive Intelect (Delaware) Common Shares unless and until such holders have
failed to perfect or have effectively withdrawn or lost their rights to
appraisal under The Companies Act, whereupon such shares will be canceled and
Intelect (Delaware) Common Shares delivered in consideration thereof. Unless
waived, it is a condition to the respective obligations of Intelect (Delaware)
and Merger Co. to consummate the Merger that the holders exercising their rights
of dissent and appraisal under The Companies Act shall not, in the opinion of
the Board of Directors, represent an unacceptable cash cost in light of the
Company's current and anticipated cash requirements. THE PROCEDURES SET FORTH IN
THE COMPANIES ACT MUST BE FOLLOWED EXACTLY OR ANY DISSENTERS' RIGHTS MAY BE
LOST.
The information set forth below is a general summary of dissenters'
rights as they apply to Company shareholders and is qualified in its entirety by
reference to those excerpts from The Companies Act which are set forth in
Appendix 4 hereto.
Amalgamations under Bermuda law are governed by Sections 104 through 109
of The Companies Act. The amalgamation provisions of The Companies Act generally
require that the directors of each amalgamating company submit an amalgamation
agreement for approval by the shareholders voting as a whole and, if separate
classes exist, voting by class. Unless the bye-laws provide specifically for the
majority required to approve an amalgamation and the size of the quorum at a
meeting convened for such purposes, (1) the resolution of the shareholders or
class must be approved by a majority vote of 75% of those voting at such meeting
and (2) the quorum necessary for such a meeting shall be two persons at least,
holding or representing by proxy more than one-third of the issued shares of the
company or the class, as the case be. Any shareholder present in person or by
proxy may demand a poll.
Any shareholder of the Company who does not vote in favor of the
adoption and approval of the Merger and who is not satisfied that he or she has
been offered fair value for his Company Common Shares in the Merger may, within
one month of the giving of the notice of the Special Meeting, apply to a Bermuda
court for the court to appraise the fair value of such shareholder's shares. In
the opinion of the Board of Directors of the Company, the fair value of the
Intelect (Delaware) Common Shares that the shareholders are receiving in the
Merger is at least equal in fair value to the Company Common Shares. Because the
principal effect of the Reorganization is to change the domicile of the Company
so that it will be a publicly traded U.S. domiciled corporation, the Company
believes that the fair value of the Intelect (Delaware) Common Shares should be
at least equal to, if not greater than, the fair value of the Company Common
Shares. The trading market for the Company's Common Shares (Nasdaq National
Market) will continue to be the trading market for the Intelect (Delaware)
Common Shares. The Company believes the Reorganization will, among other things,
enhance the marketability of the Company's shares by raising the Company's
profile in U.S. capital markets and thus will have a positive effect on the
trading of the Company's stock. However, in the event the court does determine
that the shareholder is not receiving fair value in the Merger, then within one
month of the court's appraising the fair value of any such shares, the Company
shall be required to pay to the dissenting shareholder an amount equal to the
value of the shares as appraised by the court. If the Merger has become
effective prior to the court appraisal, then, within one month of such
appraisal, if the amount paid to the dissenting shareholder is less than
40
<PAGE>
that appraised by the court, the Company shall pay to such shareholder the
difference between the amount paid to him and the value appraised by the Court.
VOTE REQUIRED TO APPROVE THE REORGANIZATION PROPOSAL
AND BOARD RECOMMENDATION
The affirmative vote of the holders of seventy-five percent (75%) of the
votes present or represented and voting at the meeting by holders of each class
of shares, voting separately, entitled to vote, is required for approval of the
Reorganization Proposal. A vote FOR the Reorganization Proposal also will
constitute approval of the Merger, the Merger Agreement, and the New Certificate
and New By-laws, as well as the related matters described in this
Proxy/Prospectus Statement, including, without limitation, the Intelect
(Delaware) Incentive Stock Option Plan.
The Board of Directors recommends a vote FOR approval of the
Reorganization Proposal.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 28,
1997, with respect to the beneficial ownership of Company Common Shares by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding Common Shares; (ii) each director and nominee for director, (iii)
each executive officer named in the Summary Compensation Table under the heading
"Executive Compensation" below and (iv) all directors and executive officers of
the Company as a group. Unless otherwise indicated, the information included
below is based upon the Company's stock transfer records as maintained by the
Company's stock transfer agent.
The number of Company Common Shares beneficially owned by each director
or executive officer is determined under the rules of the SEC, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has sole or shared voting power or investment power and also any
shares which the individual has the right to acquire within 60 days after
October 28, 1997 through the exercise of any stock option or other right. Unless
otherwise indicated, each person has sole investment and voting power (or shares
such power with his or her spouse) with respect to the shares set forth in the
following table. The inclusion herein of any shares deemed beneficially owned
does not constitute admission of beneficial ownership of those shares.
Name and Address Amount and Nature of Percent of Class
of Beneficial Owner Beneficial Ownership
Herman M. Frietsch 758,667(1) 3.06%
1100 Executive Drive
Richardson, Texas
Peter E. Ianace 148,095(2) *
1100 Executive Drive
Richardson, Texas
R. Eugene Helms 100,000(3) *
269 W. Renner Parkway
Richardson, Texas
41
<PAGE>
Anton Liechtenstein 402,400(4) 1.63%
Administration and Trust Co.
Josepf Rheinbergerstrasse 6
Vaduz, Liechtenstein
Philip P. Sudan, Jr. 125,000(5) *
Two Houston Center, Suite 3900
Houston, Texas
Robert E. Garrison II 125,000(6) *
5599 San Felipe, 3rd Floor
Houston, Texas
Peter G. Leighton(7) 100 *
31 Church Street
Hamilton, Bermuda HM12
Rhianon M. Pedro(8) 10 *
31 Church Street
Hamilton, Bermuda HM12
Jeremy T. G. Posner(9) 0 *
Zichron Tuvia 28
Jerusalem
Israel
The Coastal Corporation Second 1,530,583(10) 6.17%
Pension Trust
Nine Greenway Plaza
Houston, Texas
All Directors and Executive 1,701,906 6.86%
Officers (10 persons)(11)
- ---------------------------
(1) Includes 356,667 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 27, 1997.
Includes 6,000 shares owned beneficially by Mr. Frietsch's spouse as to
which he disclaims beneficial ownership.
(2) Includes 140,000 shares issuable upon exercise of options which are
currently exercisable.
(3) Includes 100,000 shares issuable upon exercise of options which are
currently exercisable.
(4) Includes 125,000 shares issuable upon exercise of options which are
currently exercisable.
(5) Includes 25,000 shares issuable upon exercise of options which are
currently exercisable.
(6) Includes 125,000 shares issuable upon exercise of options which are
currently exercisable.
(7) Resigned as President and director in March 1997.
(8) Terminated as Treasurer, Chief Financial Officer and Senior Vice
President in February 1997.
(9) Resigned as a director in March 1997.
(10) Does not include 3,219,409 Common Shares issuable upon conversion of the
Company's Preferred Shares after August 31, 1997. See "Certain
Transactions."
(11) Includes 746,667 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 27, 1997.
* Indicates holdings of less than one percent.
42
<PAGE>
MANAGEMENT
After the filing of the certificate of merger with respect to the Merger
of Merger Co. into the Company (the "Certificate of Merger") with the Secretary
of State of the State of Delaware (the "Effective Date"), the Company will be a
wholly-owned subsidiary of Intelect (Delaware). The persons who are officers and
directors of the Company immediately prior to the Effective Date will be the
officers and directors of Intelect (Delaware) and of the Company immediately
after the Effective Date without change, until their successors have been duly
elected or appointed and qualified.
NAME AGE OFFICE AND EMPLOYMENT DURING LAST FIVE YEARS
Herman M. Frietsch 58 Chairman of the Board of the Company since 1989;
Chief Executive Officer since February 1997;
Director since 1988; Executive Chairman from
October 1995 to February 1997; Chief Executive
Officer of Intelect (Delaware).
Peter E. Ianace 48 Vice President, Sales and Marketing of the
Company since February 1997; Vice President,
Marketing and Distribution of the Company since
June 1996; President of Intelect Network
Technologies Company (a subsidiary of the
Company) since November 1993; Chief Executive
Officer of Intelect Network Technologies Company
since July 1995; President of Opcom, Inc., a
fiber optic products manufacturer, from January
1992 to March 1993.
R. Eugene Helms 46 Vice President, Chief Technology Officer of the
Company since June 1996; President and Chief
Executive Officer of DNA Enterprises, Inc. (a
subsidiary of the Company) since April 1996;
President and Owner of TeleSolutions Inc., a
consulting firm, since January 1990; Vice
President, Engineering of Mizar, Inc., a Digital
Signal Processing products manufacturer, from
March 1994 to October 1995.
Edwin J. Ducayet, Jr. 57 Chief Financial Officer of the Company since
February 1997; Vice President and Chief
Financial Officer of Intelect Network
Technologies Company since December 1991.
Prinz Anton von and 51 Director of the Company since 1980; Chairman of
zu Liechtenstein the Stock Option Committee of the Board of
Directors; first Managing Director of the
Company; Private Investor.
Philip P. Sudan, Jr. 46 Director of the Company since February 1997;
Chairman of the Audit Committee of the Board of
Directors; Partner, Ryan & Sudan, L.L.P., a law
firm in Houston, Texas, since 1990.
Robert E. Garrison II 55 Director of the Company since June 1997; Founder
of Harris Webb & Garrison, Inc., a regional
investment banking firm located in Houston,
Texas, and a partner from 1994 to present;
Chairman of the Board and CEO of Pinnacle
Management & Trust Co., a trust company and
money management firm, from 1994 to present;
Chairman of the Board of BioCyte Therapeutics,
Inc., a company engaged in the clinical
development of novel therapeutic for life
threatening diseases, primarily cancer;
President and CEO of Med Center Bank & Trust, a
Texas state bank, from 1992 to 1994; Mr.
43
<PAGE>
Garrison serves on the Board of Directors of
Somerset House Publishing, Inc., FFP Partners,
Harris Webb & Garrison, Inc., Pinnacle
Management & Trust Co., and BioCyte
Therapeutics, Inc.
Messrs. Frietsch and Sudan are members of the Compensation Committee of
the Board of Directors. Messrs. Sudan and Garrison are members of the Audit
Committee of the Board of Directors. Messrs. Sudan, Liechtenstein, and Garrison
are members of the Stock Option Committee of the Board of Directors.
Effective March 5, 1997, Peter G. Leighton resigned as President and
Director of the Company. By letter dated March 21, 1997, Mr. Leighton requested
that the Company disclose his letter of resignation which he furnished to the
Board of Directors of the Company and which describes Mr. Leighton's
disagreements with the Company's operations, policies or practices. In a Form
8-K filed March 27, 1997, the Company has summarized those disagreements, and
the Company has presented its views why it believes Mr. Leighton's description
of certain events is incorrect or incomplete. The following restates the summary
of Mr. Leighton's description of his disagreement with the Company and the
Company's response as set forth in such Form 8-K filing: Mr. Leighton stated in
his March 5, 1997 letter of resignation that he disagreed with the Company's
entering into a $15,000,000 Credit Facility (the "Facility") with St. James
Capital Corporation ("St. James"). Mr. Leighton stated in his letter: "Because
of my complete objection to the Facility, and the course on which [the Company]
has been set in motion by a majority of its Board members, it is impossible for
me to continue as a director of this Company." Mr. Leighton expressed concern in
his letter that the Company would reach a point where it could not repay the
Facility without the injection of further capital. Mr. Leighton also stated that
if the Company was unable to raise capital through an equity offering, the
Company would be required to negotiate with St. James for additional financing
before it can seek financing from other sources. Mr. Leighton also mentioned in
his letter certain financing sources that the Board had considered in addition
to St. James, and Mr. Leighton disagreed with certain actions taken by Mr.
Herman Frietsch, Chairman of the Board, which had the result of preventing Mr.
Leighton from binding the Company to such other financing sources and requiring
Board of Directors approval of such other financing sources. Mr. Leighton also
believed that the Board of Directors failed in its duty of care to the Company
regarding the proper consideration of available financing proposals and that the
Facility was contrary to the interests of the Company and its shareholders.
The Company believes Mr. Leighton's description of certain events as
stated in his letter of resignation are incorrect and incomplete. The Company
believes that at all times the Board of Directors acted properly and with full
regard to it's obligations to the Company and to the interests of the Company
and it's Shareholders.
Effective March 13, 1997, Jeremy T. G. Posner resigned as a director of
the Company. By letter dated May 1, 1997, Mr. Posner, through his attorney,
requested that the Company disclose his letter of resignation which he furnished
to the Board of Directors of the Company and which describes Mr. Posner's
disagreements with the Company's operations, policies or practices. The Company
has summarized those disagreements, and the Company has presented its views why
it believes Mr. Posner's description of certain events is incorrect or
incomplete, in a Form 8-K filed May 8, 1997. The following restates the summary
of Mr. Posner's description of his disagreement with the Company and the
Company's response as set forth in such Form 8-K filing: Mr. Posner stated in
his March 13, 1997 letter of resignation that he was resigning as it had "become
increasingly clear . . . that [his] views as a director of the [Company] are in
the minority of the Board and [his] efforts to further the interests of the
[Company] have been totally frustrated," and Mr. Posner's letter cites two
examples.
The Company believes Mr. Posner's description of certain events as
stated in his letter of resignation are incorrect and incomplete and that Mr.
Posner's resignation was the result of his disagreement with the source and
structure of potential financing and other operational issues of the Company.
BOARD AND COMMITTEE MEETINGS
The business of the Company is managed under the direction of the Board
of Directors. The Board of Directors meets on a regularly scheduled basis to
review significant developments affecting the Company and to act on matters
44
<PAGE>
requiring approval by the Board of Directors. It also holds special meetings and
acts by written consent when important matters require action by the Board of
Directors between scheduled meetings. The Board of Directors held 13 meetings
during fiscal 1996. Except as set forth below, each director attended at least
75% of the aggregate of the total number of meetings of the Board of Directors
and the total number of meetings held by all committees of the Board of
Directors on which the director served and during the period he served. Messrs.
Frietsch, Leighton, and Posner each attended 100% of the meetings of the Board
of Directors during 1996. Mr. Anton Liechtenstein attended five of the 13
meetings (i.e., 38%), but was represented by proxy at each of the other
meetings. Mr. Simon C. Scupham served as a director until his term expired at
the Annual General Meeting in June 1996. Mr. Scupham was unable to attend any of
the six meetings held in 1996 before the expiration of his term. Mr. Wendall
Hollis was appointed a director in March 1996 and attended six of the nine Board
meetings held in 1996 while he was a director.
The Company's Board of Directors has three standing committees: the
Audit Committee, the Compensation Committee, and the Stock Option Committee.
The Audit Committee is responsible for approving the scope of the annual
audit and for making recommendations to the Board of Directors concerning the
selection of the Company's independent accountants. The Audit Committee also
reports to the Board of Directors concerning the Company's internal accounting
controls, factors that may affect the integrity of the Company's financial
reports, compliance by the Company's management and employees with Company
policies, and other matters. During fiscal 1996, the members of the Audit
Committee were: from January to June 1996, Messrs. Liechtenstein and Scupham;
from June to December 1996, Messrs. Liechtenstein and Hollis.
This committee met informally one time during fiscal 1996.
The Compensation Committee is responsible for determining the
compensation of the Company's senior management and establishing compensation
policies for the Company's employees generally. During fiscal 1996, the members
of this committee were Messrs. Frietsch and Leighton. The Compensation Committee
met informally at least six times during fiscal 1996. See "Compensation
Committee Report on Executive Compensation" below.
The Stock Option Committee is responsible for administering the
Company's stock option plans. During fiscal 1996, the members of the committee
were Messrs. Liechtenstein and Scupham until June 1996, and were Messrs.
Liechtenstein and Hollis thereafter. The Stock Option Committee held no formal
meetings during fiscal 1996, but instead formalized all of its decisions by use
of written unanimous consents in lieu of such meetings. The Stock Option
Committee executed 15 unanimous consents during fiscal 1996.
The Company does not have a nominating committee or a committee serving
a similar function. Nominations are made by and through the full Board of
Directors.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During 1996, directors received no cash compensation or meeting
attendance fees for their services as directors, however, non-employee, outside
directors who are members of the Audit Committee and the Stock Option Committee
each received a cash fee of $10,000 per annum for work on each committee.
Currently, employee directors receive no compensation for their services as
directors, however, non-employee, outside directors each receive a cash fee of
$1,000 per month for service as directors, and members of the Audit,
Compensation, and the Stock Option Committees each receive a cash fee of up to
$1,000 per month for work on each committee. Non-employee, outside directors
also may receive grants of stock options in the discretion of the Board.
For a discussion of certain transactions between the Company and certain
directors and their affiliates, see "Certain Transactions."
45
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table summarizes the annual and long-term compensation
paid to Herman M. Frietsch, President and Chief Executive Officer of the
Company, and the other Executive Officers who have earned more than $100,000 in
salary and bonus during the last three completed fiscal years ended December 31,
1996 (the Chief Executive Officer and such other executive officers are
hereinafter referred to as the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
---------------------------------------- ----------
Other Securities
Annual Underlying All Other
Fiscal Compen- Options / Compen-
Name and Principal Positions Year Salary ($) Bonus ($) sation ($) SARS (#) sation
- ------------------------------- ---- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Herman M. Frietsch 1994 20,000 150,000 -- 40,000 0
Chairman and Chief 1995 120,000 120,000 -- 150,000 0
Executive Officer of the 1996 250,000 -- -- 50,000 0
Company; CEO of Intelect
Systems Corp.
Peter E. Ianace 1995 160,000 -- -- 350,000 0
Vice President of the 1996 240,000 -- 4,750 -- 0
Company; President and
CEO of Intelect Network
Technologies Company
R. Eugene Helms 1996 131,538 56,725 8,827 100,000 0
Vice President of the
Company; President and
CEO of DNA Enterprises
Peter G. Leighton(1) 1994 125,000 100,000 -- 40,000 0
1995 150,000 150,000 -- 150,000 0
1996 250,000 -- -- 50,000 0
1995 12,500 20,000 -- 10,000 0
Rhianon M. Pedro(3) 1996 83,333 -- -- 40,000 0
</TABLE>
(1) Resigned as President and Director of the Company in March 1997.
(2) Terminated as Treasurer, Chief Financial Officer, and Senior Vice
President of the Company in February 1997.
46
<PAGE>
The following table sets forth stock options granted in 1996 to each of
the Named Executive Officers. The table also set forth the hypothetical gains
that would exist for the options at the end of their ten-year terms at assumed
compound rates of stock appreciation of 5% and 10%. The actual future value of
the options will depend on the market value of the Company's Common Shares.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
Number of
Common % of Total Potential Realizable Value
Shares Options/ at Assumed Annual Rates of
Underlying SARS Stock Price Appreciation for
Options Granted to Exercise Option Terms(1)
/SARS Employees Price Expiration ---------------------------
Name Granted(#) in 1996 ($/Share) Date 5%($) 10%($)
----------------- ---------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch 50,000 3.97% 6.500 04/15/06 204,391 517,966
Peter E. Ianace - - - - - -
R. Eugene Helms 100,000 7.94% 5.350 04/01/06 336,459 852,652
Peter G. Leighton 50,000 3.97% 6.500 04/15/06 204,391 517,966
Rhianon M. Pedro 20,000 1.59% 4.313 02/23/06 54,242 137,460
7,000 0.56% 6.500 04/15/06 28,615 72,515
13,000 1.03% 7.250 10/04/06 59,273 150,210
</TABLE>
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options, if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Shares, the
optionholders' continued employment through the option period, and the
date on which the options are exercised. These amounts are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
47
<PAGE>
The following table sets forth the number of shares acquired on exercise of
stock options and the aggregate gains realized on exercise in 1996 by each of
the Named Executive Officers. The table also sets forth the number of shares
covered by exercisable and unexercisable options held by such executives on
December 31, 1996 and the aggregate gains that would have been realized had
these options been exercised on December 31, 1996, even though these options
were not exercised, and the unexercisable options could not have been exercised,
on December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities
Number of Underlying Unexercised Value of Unexercised In-
Common Options/SARS at Fiscal the-Money Options/SARS at
Shares Year-End (#) Fiscal Year-End(2) ($)
Acquired on Value -------------------------------- -------------------------------
Name Exercise (#) Realized(1)($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ------------ -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herman M. Frietsch - - 226,667 63,333 590,667 28,333
Peter E. Ianace - - 70,000 280,000 105,000 420,000
R. Eugene Helms - - - 100,000 - -
Peter G. Leighton 135,000 692,525 91,667 63,333 176,267 28,333
Rhianon M. Pedro - - 16,333 33,667 2,281 8,313
</TABLE>
(1) Market value on the date of exercise of shares covered by options
exercised, less the option exercise price.
(2) Market value of shares covered by in-the-money options on December 31,
1996 ($4.50), less the option exercise price. Options are in-the-money if
the market value of the shares covered thereby is greater than the option
exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company during
the last fiscal year consisted of Herman M. Frietsch and Peter G. Leighton.
During the last fiscal year, Mr. Frietsch served as the Chairman of the Board
and Mr. Leighton served as the President of the Company. Mr. Leighton resigned
as President and Director of the Company in March 1997. The Compensation
Committee is currently composed of Mr. Frietsch and Philip P. Sudan, Jr. Mr.
Sudan is a partner of Ryan & Sudan, L.L.P., outside counsel to the Company.
During 1996, no executive officer of the Company served as a director or member
of the Compensation Committee (or other committee serving an equivalent
function) of any other entity, one of whose executive officers served as a
director of or member of the Compensation Committee of the Company, nor has such
interlocking relationship existed in the past.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") designs and directs the
compensation policies of the Company. Members of the Committee as of December
31, 1996 were Herman M. Frietsch and Peter G. Leighton. The current members of
the Committee are Herman M. Frietsch and Philip P. Sudan, Jr. Committee members
do not participate in Board actions on compensation relating to themselves.
48
<PAGE>
OVERVIEW AND PHILOSOPHY
The Committee in determining executive compensation follows the general
guideline of pay-for-performance while taking into account the need to provide
total compensation packages that will attract and retain qualified and effective
executives. Individual performance standards and accomplishments are reviewed
and considered in order to relate the compensation of executives to the
financial performance of the Company.
Various elements of compensation fulfill different roles in the attraction,
retention and motivation of qualified officers and employees. For Named
Executive Officers, greater emphasis is given to variable and contingent forms
of compensation and less emphasis is given to perquisites and other benefits.
The Company's executive officer compensation is comprised of base salary, cash
incentive bonuses, long-term incentive compensation in the form of stock
options, and various benefits such as the Company's medical plan.
BASE SALARY
Subject to the provisions of any applicable employment agreements, base
salary levels in fiscal 1996 for the Company's executive officers, including the
Chief Executive Officer, were intended and believed to be competitive and
comparable relative to companies in the telecommunications industry and other
companies in similar or analogous circumstances. In determining base salaries,
the Compensation Committee took into account individual experience and
performance and specific issues particular to the Company and reviewed
independent compensation data to establish levels that were within the ranges of
persons holding positions of comparable responsibilities.
COMPENSATION OF CEO
The compensation arrangements for Messrs. Frietsch and Leighton were
established by the Company's Board of Directors based in part upon analyses and
guidelines prepared for the Board of Directors by the Performance and
Compensation Management Group of KPMG Peat Marwick, New York, N.Y., from an
independent review and evaluation of executive compensation in comparable
circumstances and competitive conditions. The KPMG analysis defined a peer group
of companies based on sales, size, and line of business and compared pay levels
and practices at these companies with those of the Company. The analysis
compared the Company's historic financial performance over the preceding three
fiscal years relative to the selected peer group on a range of performance
criteria and analyzed all levels of compensation.
ANNUAL CASH BONUS PROGRAM
The Company maintains annual incentive compensation arrangements for its
executive officers. R. Eugene Helms, President and CEO of DNA Enterprises, Inc.,
a subsidiary of the Company, earned a $56,725 bonus pursuant to his employment
contract for the performance and earnings of DNA Enterprises Inc. in fiscal year
1996. Otherwise, no bonuses were paid to executive officers with respect to
fiscal year 1996.
STOCK OPTIONS
To further link the interests of the Board of Directors and management with
those of the Company's shareholders, stock options are granted periodically to a
significant number of directors, officers, managers and qualified employees
under the 1995 Stock Incentive Plan. To encourage continued service, the options
normally become exercisable over three years in three equal annual installments
from the date of grant and expire after ten years. Stock options granted to
executive officers are considered to be appropriate in terms of the market value
of the shares covered by the options relative to performance, other forms of
compensation and taking into consideration the possible future value of the
options.
49
<PAGE>
BENEFITS
The Company provides medical benefits to its executive officers pursuant to
the Company's medical insurance plan.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M).
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
enacted in 1993, generally disallows a tax deduction to public companies for
compensation over $1 million paid to the corporation's chief executive officer
and four other most highly compensated executive officers. Qualifying
performance compensation will not be subject to the deduction limit if certain
requirements are met. The Company intends to structure the performance-based
portion of the compensation of its executive officers in a manner that complies
with the new statute to mitigate any disallowance of deductions.
This report of the Compensation Committee on executive compensation is
submitted by the current members of the committee as noted below:
Herman M. Frietsch
Philip P. Sudan, Jr.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers (as defined in Rule 16a- 1(f)), directors, and persons who own more
than ten percent of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission ("SEC"). Such persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it and written
representations from persons required to file such reports ("Reporting
Persons"), the Company believes that all filing requirements applicable to such
Reporting Persons were timely complied with during the fiscal year ended
December 31, 1996, except that (i) Mr. Ianace filed a Form 5 rather than a
Statement of Changes in Beneficial Ownership on Form 4 due January 1997
reflecting one transaction; (ii) Mr. Ducayet filed a Form 5 rather than a
Statement of Changes in Beneficial Ownership on Form 4 due January 1997
reflecting one transaction; (iii) Mr. Frietsch filed late a Statement of Changes
in Beneficial Ownership on Form 4 due May 1996 reflecting one transaction; (iv)
Mr. Leighton filed late a Statement of Changes in Beneficial Ownership on Form 4
due May 1996 reflecting one transaction; (v) Ms. Pedro filed late a Statement of
Changes in Beneficial Ownership on Form 4 due November 1996 reflecting one
transaction; (vi) Mr. Posner filed late a Statement of Changes in Beneficial
Ownership on Form 4 due May 1996 reflecting one transaction; (vii) Nancy E. H.
Miracle, Vice President of Intelect Network Technologies Company, filed late a
Statement of Changes in Beneficial Ownership on Form 4 due May 1996 reflecting
one transaction; and (viii) Willard F. Barnett, Senior Vice President of
Intelect Network Technologies Company, filed late a Statement of Changes in
Beneficial Ownership on Form 4 due May 1996 reflecting one transaction.
EMPLOYEE AGREEMENTS
Mr. Frietsch is a party to a management contract with Intelect (Delaware),
the terms of which provide, effective January 1, 1997, for a minimum fee of
$250,000 plus the possibility of a discretionary bonus per annum and for a
minimum term ending December 31, 1997, thereafter the contract is automatically
renewed, but may be terminated on the next December 31 following three (3) years
notice of termination.
Mr. Ianace is a party to an employment agreement with Intelect Network
Technologies Company the terms of which provide for a minimum salary of $240,000
for five years ending April 24, 2000.
During 1996, Mr. Leighton was a party to an employment contract with the
Company, the terms of which provided for a minimum salary of $250,000 plus the
possibility of a discretionary bonus per annum. Such agreement
50
<PAGE>
was amended in January 1996 to provide, upon termination, for the continuation
of Mr. Leighton's salary for three years following the year of termination. Mr.
Leighton resigned as a director and officer of the Company in March 1997.
COMPARATIVE STOCK PERFORMANCE
The following graph compares the yearly percentage change in the cumulative
total shareholder return over the past five years on the Company's Common Shares
(Nasdaq National Market trading symbol ICOMF) through December 31, 1996 with the
cumulative total return (including reinvested dividends) of the Standard &
Poor's Small Cap Index and the Nasdaq National Market Index ("NMS"). This graph
assumes the investment of $100 in the Company's Common Shares, Standard & Poor's
Small Cap Index and the NMS on January 1, 1991. Amounts have been rounded to the
nearest dollar.
The stock price performance on the following graph is not necessarily
indicative of future stock price performance.
[GRAPHIC COMPILED FROM PLOTTING POINTS IN TABLE BELOW]
1991 1992 1993 1994 1995 1996 CAGR(1)
- --------------- ---- ---- ---- ---- ---- ---- -------
ICOMF 100 146 433 281 742 600 43.1%
S&P SMALLCAP 100 121 144 137 176 216 16.6%
NMS 100 116 134 131 185 227 17.8%
- --------------- ---- ---- ---- ---- ---- ---- -------
(1) Compound Annual Growth Rate for the five years ending December 31, 1996.
51
<PAGE>
CERTAIN TRANSACTIONS
On October 31, 1995, Intelect Network Technologies Company, a wholly-owned
subsidiary of the Company, loaned $135,000 to Mr. Ianace, the Company's Vice
President of Sales and Marketing and President of Intelect Network Technologies
Company. The loan is secured by Company Common Shares issuable upon exercise of
any options for the Company's stock issued to Mr. Ianace. The loan was renewed
and extended on October 31, 1996, and the maturity date of the loan is October
31, 1997. The loan bears interest at the rate of 5% per annum. As of July 2,
1997, $93,300 (including accrued interest) remained outstanding on the loan.
On May 8, 1997, the Company executed a Loan Agreement with The Coastal
Corporation Second Pension Trust (the "Coastal Trust") pursuant to which the
Company borrowed $5 million from the Coastal Trust. As of August 22, 1997, the
Coastal Trust owned warrants and Company Preferred Shares which after August 31,
1997, will be convertible into more than five percent (5%) of the outstanding
Company Common Shares. The loan was at 2% over prime with principal and interest
due at maturity in March 1998. In connection with the loan, the Coastal Trust
received warrants to purchase 750,000 Company Common Shares at an exercise price
of $2.00 per share and exercisable over a five year period. Pursuant to the
terms of the Loan Agreement, on May 31, 1997 the Company issued to the Coastal
Trust 2,482,005 shares of the Company's Preferred Stock, $.01 par value, for $5
million. Pursuant to the Loan Agreement, the Coastal Trust also exchanged $3.5
million of the $5 million loan for 1,737,404 additional Company Preferred
Shares. The Preferred Shares provides for a 10% dividend, is convertible into
Company Common Shares on a one-for-one share basis, has no voting rights except
in the event of three quarters arrearage on quarterly dividends, and has
preemptive rights. The Company has the choice of paying dividends in cash or in
Company Common Shares based on the current market value of the Company Common
Shares at the time the dividends are payable. The Company may redeem the stock
at 110%, 105%, and 100% of the issue price after June 1, in years 1999, 2000,
and years thereafter, respectively.
During 1996, the Company paid $120,000 to CFM Limited, a company controlled
by Peter G. Leighton, who at the time was the Company's President and a
director. The Company borrowed $500,000 from CFM Limited during 1996, and repaid
such loan in September 1996, including interest in the amount of $13,000.
Philip P. Sudan, Jr., a director of the Company since February 1997, is a
partner of Ryan & Sudan, L.L.P., counsel for the Company.
In January 1996, the Company amended employment agreements with Herman M.
Frietsch and with Peter G. Leighton which, generally upon termination, provide
for continuation of salaries for three years following the current year of
employment.
A corporation owned by R. Eugene Helms was paid $156,338 and entered into a
royalty agreement with DNA Enterprises, Inc., a wholly-owned subsidiary of the
Company, in exchange for certain intellectual property rights in connection with
a pocket terminal product and DSP products.
For a description of certain employment and other arrangements between the
Company and its executive officers, see "Compensation of Executive Officers"
above. For a description of stock options granted to certain directors of the
Company, see "Compensation of Directors" above.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY PERSON RECEIVING A COPY OF
THIS PROXY STATEMENT/PROSPECTUS, UPON WRITTEN REQUEST OF SUCH PERSON, A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND FORM 10-K/A FOR THE YEAR ENDING
DECEMBER 31, 1996, INCLUDING THE FINANCIAL STATEMENTS AND THE FINANCIAL
STATEMENT SCHEDULES THERETO. SUCH REQUESTS SHOULD BE ADDRESSED TO EDWIN J.
DUCAYET, JR., INTELECT COMMUNICATIONS SYSTEMS LIMITED, 1100 EXECUTIVE DRIVE,
RICHARDSON, TEXAS 75081.
52
<PAGE>
OTHER MATTERS
The Board of Directors does not intend to bring any other matters before the
Meeting nor does the Board of Directors know of any matters which other persons
intend to bring before the Meeting. If, however, other matters not mentioned in
this Proxy Statement/Prospectus properly come before the Meeting, the persons
named in the accompanying form of proxy will vote thereon in accordance with the
recommendation of the Board of Directors.
SHAREHOLDER PROPOSALS AND SUBMISSIONS FOR 1998 ANNUAL MEETING
If any Shareholder wishes to present a proposal to be considered for
inclusion in the proxy materials to be solicited by the Company's Board of
Directors with respect to the next Annual Meeting of Shareholders, such proposal
shall be presented to the Company's management by March 16, 1998. Such proposals
should be directed to the Company, 1100 Executive Drive, Richardson, Texas
75081, Attention: Chief Financial Officer.
TRANSFER AGENTS AND REGISTRARS
The transfer agent and registrar for Intelect (Delaware) Common Shares and
the Company Common Shares is American Stock Transfer & Trust Company, 40 Wall
Street, 46th Floor, New York, New York 10005.
LEGAL MATTERS
The legality of the transactions contemplated by the consummation of the
Reorganization and certain tax matters are being passed upon for the Company by
Ryan & Sudan, L.L.P., Houston, Texas. Mr. Philip P. Sudan, Jr., a
director of the Company, is a partner of Ryan & Sudan, L.L.P.
EXPERTS
The consolidated financial statements and financial statement schedule of the
Company as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1996, the two month period ended December 31, 1995 and the years
ended October 31, 1995 and 1994 have been incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick,
independent chartered accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick covering the aforementioned consolidated financial statements and
financial statement schedule contains an explanatory paragraph that states that
the Company has suffered recurring losses from continuing operations and is
dependent upon the successful development and commercialization of its products
and its ability to secure adequate sources of capital until the Company is
operating profitably. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements
and financial statement schedule do not include any adjustments that might
result from the outcome of this uncertainty.
APPROVAL OF PROXY STATEMENT/PROSPECTUS
BY BOARD OF DIRECTORS
The contents of this Proxy Statement/Prospectus and the sending thereof to
Shareholders have been approved by the Board of Directors of the Company.
THE BOARD OF DIRECTORS ENCOURAGES SHAREHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE,
53
<PAGE>
SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE TO WHICH NO
POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES. YOUR VOTE IS IMPORTANT.
IF YOU ARE A SHAREHOLDER OF RECORD AND ATTEND THE MEETING AND WISH TO VOTE IN
PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANYTIME PRIOR TO THE VOTE.
By Order of the Board of Directors
Dated: October ____, 1997 HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
54
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article VII of the Registrant's Certificate of Incorporation provides that if
the Delaware Law is amended hereafter to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware Law as so amended. Any amendment, repeal or
modification of Article VII of the Registrant's Certificate of Incorporation
shall not adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission occurring
prior to such amendment, repeal or modification.
Article XI of the Registrant's By-Laws provides that the Registrant (i) shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Registrant) by reason of the fact that he or she is or was a
director or an officer of the Registrant, or is or was serving at the request of
the Registrant as a director or an officer of another corporation, partnership,
joint venture, trust or other enterprise, to the full extent authorized or
permitted by law, as now or hereafter in effect, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Registrant, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful, and (ii) may indemnify, if the Board of
Directors determines such indemnification is appropriate, any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Registrant) by
reason of the fact that he or she is or was an employee or agent of the
Registrant, or is or was serving at the request of the Registrant as an employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, to the full extent authorized or permitted by law, as now or
hereafter in effect, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Registrant, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Registrant, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful. To the extent that (i) a director or an officer of the
Registrant or (ii) any other employee or agent of the Registrant who the Board
of Directors has authorized the Registrant to indemnify, has been successful on
the merits or otherwise in defense of any action, suit or proceeding or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection therewith. Notwithstanding the foregoing, except for
proceedings to enforce rights to indemnification, the Registrant shall not be
obligated to indemnify any person in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized in advance, or unanimously consented to, by the Board of Directors.
Article XI of the Registrant's By-Laws also provides that any indemnification
provided therein (unless ordered by a court) shall be made by the Registrant
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in sections 1 and 2 of ArticleXI of the Registrant's By-Laws. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the shareholders.
II-1
<PAGE>
Expenses (including attorneys fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Registrant in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
Registrant or as otherwise authorized by law. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
Article XI of the Registrant's By-Laws further provides that the
indemnification and advancement of expenses shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of the corporation or is or was serving
at its request in such capacity in another corporation or business association
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he or she acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interest of the
corporation and, with respect to any criminal action or proceeding, if he or she
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification will be made with respect to any matter as to which such person
will have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
II-2
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
EXHIBIT DESCRIPTION OF EXHIBIT
2.1 Plan and Agreement of Merger dated as of October 29, 1997 by and among
the Intelect Communications Systems Limited ("ICSL"), Intelect
Communications, Inc ("Intelect (Delaware)"), and Intelect Merger Co.,
a copy of which appears as Appendix 1 to the Prospectus contained as
part of this Registration Statement.
3.1 Memorandum of Association of ICSL, as amended (1)
3.2 Certificate of Incorporation of ICSL, as amended (1)
3.3 Bye-Laws of ICSL (1)
3.4 Amended and Restated Certificate of Incorporation of Intelect
(Delaware), a copy of which appears as Appendix 2 to the Prospectus
contained as part of this Registration Statement.
3.5 Amended and Restated By-laws of Intelect (Delaware), a copy of which
appears as Appendix 3 to the Prospectus contained as part of this
Registration Statement.
4.1 Form of Certificate of Designation of Rights and Preferences of Series
A Preferred Stock, $.01 par value, of Intelect (Delaware)
5.1 Opinion of Ryan & Sudan, L.L.P.
8.1 Tax Opinion of Arthur Andersen LLP
10.1 Intelect (Delaware) Stock Incentive Plan
23.1 Consent of KPMG Peat Marwick, Chartered Accountants, Hamilton, Bermuda
23.2 Consent of Ryan & Sudan, L.L.P. (included in Exhibit 5.1)
23.3 Consent of Arthur Andersen LLP (included in Exhibit 8.1)
99.1 Form of ICSL proxy card
(1) Incorporated herein by reference to the ICSL's Form S-3 (File No.
333-9049).
(b) Financial Statement Schedules
Not applicable.
II-3
<PAGE>
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Intelect (Delaware) of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of their respective
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13
of this Form, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the
request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
registration statement when it became effective;
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial BONA FIDE offering
thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(6) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on October 30, 1997.
INTELECT COMMUNICATIONS, INC.
By: /S/ HERMAN M. FRIETSCH
Herman M. Frietsch
President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ----------------------------------------- ----------------
<S> <C> <C>
/S/ HERMAN M. FRIETSCH Chief Executive Officer and October 30, 1997
Herman M. Frietsch Director (Principal Executive Officer)
/S/ EDWIN J. DUCAYET, JR Vice President, Chief Financial Officer, October 30, 1997
Edwin J. Ducayet, Jr. Treasurer, and Assistant Secretary
(Principal Financial Officer and Principal
Accounting Officer)
/S/ EDWIN J. DUCAYET, JR. Director October 30, 1997
Philip P. Sudan, Jr.
/S/ ANTON LIECHTENSTEIN Director October 30, 1997
Anton Liechtenstein
/S/ ROBERT E. GARRISON II Director October 30, 1997
Robert E. Garrison II
</TABLE>
II-5
<PAGE>
Appendix 1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of October 29, 1997, pursuant
to Sections 252 and 253 of the General Corporation Law of Delaware and Sections
104 through 109 of the Companies Act 1981 of Bermuda (this "Agreement"), is
among Intelect Communications Systems Limited, a Bermuda company (the
"Company"), Intelect Communications, Inc., a Delaware corporation formed by the
Company as a direct and wholly-owned subsidiary of the Company ("Intelect
(Delaware)"), and Intelect Merger Co., a Delaware corporation to be formed by
Intelect (Delaware) as a direct and wholly-owned subsidiary of Intelect
(Delaware) ("Merger Co.").
WHEREAS, the Boards of Directors of Intelect (Delaware), Merger Co., and
the Company each have determined that it is in furtherance of and consistent
with their respective long-term business strategies and is fair to and in the
best interests of their respective shareholders for Merger Co. to merge with and
into the Company (the "Merger") upon the terms and subject to the conditions of
this Agreement;
WHEREAS, the Boards of Directors and shareholders of Intelect (Delaware)
and Merger Co. have unanimously approved the Merger upon the terms and subject
to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
(as defined herein) shall qualify as a reorganization within the meaning of
Section 368(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code");
NOW, THEREFORE, in consideration of the foregoing premises and the
undertakings herein contained and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 THE MERGER; EFFECTIVE DATE OF THE MERGER. Upon the terms and
conditions of this Agreement and in accordance with The Companies Act 1981 of
Bermuda, as amended (the "Bermuda Act") and the Delaware General Corporation Law
(the "DGCL"), Merger Co. shall be merged ("amalgamated" under Bermuda law) with
and into the Company at the Effective Date (as hereinafter defined) (the
"Merger"). The Merger shall become effective as of the date indicated in a
certificate of amalgamation (the "Certificate of Merger"), prepared and executed
in accordance with the relevant provisions of the Bermuda Act and the DGCL, that
is filed with the Registrar of Companies pursuant to the Bermuda Act and the
Delaware Secretary of State (the "Effective Date"). The filing of the
Certificate of Merger shall be made upon, or as soon as practicable after, the
closing of the Merger (the "Closing").
1.2 EFFECTS OF THE MERGER.
(a) At the Effective Date: (i) Merger Co. shall be merged with and
into the Company, the separate existence of Merger Co. shall cease and the
Company shall continue as the surviving corporation (Merger Co. and the
Company are sometimes referred to herein as the "Constituent Corporations"
and the Company is sometimes referred to herein as the "Surviving
Corporation"); (ii) the Memorandum of Association of the Company as in
effect immediately prior to the Effective Date shall be the Memorandum of
Association of the Surviving Corporation; and (iii) the Bye-laws of the
Company as in effect immediately prior to the Effective Date shall be the
Bye-laws of the Surviving Corporation.
(b) The individuals listed on Exhibit A hereto shall, from and after
the Effective Date, be the initial directors and officers of the Surviving
Corporation and shall serve until their successors have been duly elected
or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Memorandum of
Association and Bye-laws.
<PAGE>
(c) The Merger shall have such other effects as specified in Section
109 of the Bermuda Act. On the Effective Date (i) the Merger shall become
effective, (ii) the property of the Company and Merger
Co. shall become the property of the Surviving Corporation, (iii) the
Surviving Corporation shall become liable for the obligations of the
Company and Merger Co., (iv) any existing cause of action or claim
against, or liability or prosecution of, the Company and Merger Co. shall
be unaffected and shall be assumed by the Surviving Corporation, (v) any
civil, criminal or administrative action or proceeding pending by or
against the Company or Merger Co. may be continued to be prosecuted by or
against the Surviving Corporation, and (vi) a conviction against, or
ruling, order or judgment in favor of or against, the Company or Merger
Co. may be enforced by or against the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. At the Effective Date, by virtue of the
Merger and without any action on the part of Intelect (Delaware), the
Constituent Corporations or their respective shareholders,
(a) CAPITAL STOCK OF MERGER CO. Each issued and outstanding share of
the capital stock of Merger Co. shall be converted into and become one
fully paid and nonassessable ordinary share, par value $0.01 per share, of
the Surviving Corporation.
(b) EXCHANGE RATIO FOR COMPANY COMMON SHARES. Each share of Company
Common Shares issued and outstanding immediately prior to the Effective
Date (other than Dissenting Shares (as hereinafter defined)) shall be
converted into one (1) share of common stock, par value $0.01 per share,
of Intelect (Delaware) ("Intelect (Delaware) Common Shares"). All such
shares of Company Common Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Intelect (Delaware) Common Shares.
(c) EXCHANGE RATIO FOR COMPANY PREFERRED SHARES. Each share of
Company 10% Cumulative Convertible Preferred Stock, Series A, $.01 par
value (the "Company Preferred Shares") issued and outstanding immediately
prior to the Effective Date (other than Dissenting Shares (as hereinafter
defined)) shall be converted into one (1) share of 10% Cumulative
Convertible Preferred Stock, Series A, par value $0.01 per share, of
Intelect (Delaware) ("Intelect (Delaware) Preferred Shares"). All such
shares of Company Preferred Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Intelect (Delaware) Preferred Shares.
(d) INTELECT (DELAWARE) COMMON SHARES OUTSTANDING PRIOR TO THE
EFFECTIVE DATE. Each share of Intelect (Delaware) Common Shares issued and
outstanding immediately prior to the Effective Date shall remain
outstanding, but no payment or distribution shall be made with respect
thereto.
(e) ASSUMPTION OF STOCK OPTIONS. Each outstanding Company Stock
Option (as defined in Section 5.10) whether vested or unvested shall be
assumed by Intelect (Delaware) as provided in Section 3.5.
(f) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON SHARES. All
Intelect (Delaware) Common Shares issued upon the surrender for exchange
of Company Common Shares in accordance with the terms hereof, and all
Intelect (Delaware) Preferred Shares issued upon the surrender for
exchange of Company Preferred Shares in accordance with the terms hereof,
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Common Shares and Company Preferred Shares,
2
<PAGE>
respectively, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date
prior to the Effective Date that may have been declared or made by the
Company on such shares in accordance with the terms of this Agreement or
prior to the date hereof and which remain unpaid at the Effective Date,
and after the Effective Date there shall be no further registration of
transfers on the share transfer books of the Surviving Corporation of the
Company Common Shares or the Company Preferred Shares that were
outstanding immediately prior to the Effective Date. From and after the
Effective Date, the stock transfer books of the Company (but not of the
Surviving Corporation) shall be closed and no transfer of Company Common
Shares shall thereafter be made. If, after the Effective Date,
Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article II.
(g) NO LIABILITY. Neither Intelect (Delaware) nor the Company shall
be liable to any holder of Company Common Shares, Company Preferred
Shares, Intelect (Delaware) Common Shares, or Intelect (Delaware)
Preferred Shares, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash in lieu of fractional Intelect
(Delaware) Common Shares or Intelect (Delaware) Preferred Shares delivered
to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any amounts remaining unclaimed by holders of any
such shares on the day immediately preceding the day on which such amounts
would otherwise escheat to or become property of any governmental entity
shall, to the extent permitted by applicable law, become the property of
Intelect (Delaware) free and clear of any claims or interest of any such
holders or their successors, assigns or personal representatives
previously entitled thereto.
2.2 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, Company Common Shares or Company Preferred Shares that are issued and
outstanding immediately prior to the Effective Date and which are held by
shareholders who have properly exercised appraisal rights with respect thereto
under the Bermuda Act (the "Dissenting Shares") shall not be converted into or
represent the right to receive Intelect (Delaware) Common Shares or Intelect
(Delaware) Preferred Shares, respectively, as provided in Section 2.1, but the
holders of Dissenting Shares shall be entitled to receive such payment of the
appraised value of such shares held by them from the Surviving Corporation as
shall be determined pursuant to the Bermuda Act; provided, however, that if any
such holder shall have failed to perfect or shall withdraw or lose the right to
appraisal and payment under the Bermuda Act, each such holder's shares shall
thereupon be deemed to have been converted as of the Effective Date into the
right to receive Intelect (Delaware) Common Shares or Intelect (Delaware)
Preferred Shares, respectively, without any interest thereon, as provided in
Section 2.1, and such shares shall no longer be Dissenting Shares. Any payments
relating to Dissenting Shares shall be made solely by the Surviving Corporation
and no funds or other property have been or will be provided by Intelect
(Delaware) or any of its other direct or indirect subsidiaries for such payment.
2.3 EXCHANGE OF COMPANY SHARES FOR INTELECT (DELAWARE) SHARES. On the
Effective Date: (i) certificates which immediately prior to the Effective Date
represented Company Common Shares will for all purposes be deemed to represent
the same number of Intelect (Delaware) Common Shares; and (ii) certificates
which immediately prior to the Effective Date represented Company Preferred
Shares will for all purposes be deemed to represent the same number of Intelect
(Delaware) Preferred Shares. The Nasdaq National Market will consider the
delivery of existing stock certificates representing Common Shares of the
Company as constituting "good delivery" of Intelect (Delaware) Common Shares in
transactions subsequent to the Merger. It will not be necessary for holders of
Company Common Shares to exchange their existing stock certificates for stock
certificates of Intelect (Delaware) Common Shares.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. Intelect (Delaware) has
filed with the Securities and Exchange Commission (the "SEC") the Proxy
Statement and the S-4, in which the Proxy Statement will be included
3
<PAGE>
as a prospectus. Intelect (Delaware) shall use its reasonable best efforts to
have the S-4 declared effective under the Securities Act of 1933, as amended
(the "Securities Act"), as promptly as practicable after such filing. Intelect
(Delaware) shall use its reasonable best efforts to cause the Proxy Statement to
be mailed to shareholders of the Company at the earliest practicable date.
Intelect (Delaware) shall use its reasonable best efforts to obtain all
necessary state securities laws or "blue sky" permits, approvals, and
registrations in connection with the issuance of Intelect (Delaware) Common
Shares in the Merger and upon the exercise of the Company Stock Options (as
defined herein) and the Company shall furnish all information concerning the
Company and the holders of the Company Common Shares, including financial
statements required by Form S-4 and the proxy rules under the U.S. Securities
Exchange Act of 1934 as may be reasonably requested in connection with obtaining
such permits, approvals and registrations.
3.2 SHAREHOLDERS MEETINGS. The Company shall call a meeting of its
shareholders (respectively, the "Company Shareholder Meeting") to be held as
promptly as practicable after the date hereof for the purpose of voting upon
this Agreement and the Merger.
3.3 LISTING. Intelect (Delaware) shall use its reasonable best efforts to
cause the Intelect (Delaware) Common Shares to be issued in the Merger, the
Intelect (Delaware) Common Shares issuable upon exercise of warrants (as
described in Section 3.6) and the Intelect (Delaware) Common Shares issuable
upon exercise of the Company Stock Options and issuable under the Company Stock
Option Plan to be approved for trading on the Nasdaq National Market, subject to
official notice of issuance, prior to the Closing Date.
3.4 BOARD OF DIRECTORS AND OFFICERS AT THE EFFECTIVE DATE. Intelect
(Delaware) shall take all necessary action so that as of the Effective Date the
directors of Intelect (Delaware) shall only be those individuals identified as
directors on Exhibit A hereto and the officers of Intelect (Delaware) shall only
be those individuals identified as officers on Exhibit A hereto, except to the
extent any such individual is unwilling or unable to serve in such capacity.
3.5 STOCK OPTIONS; RESERVATION AND REGISTRATION OF SHARES.
(a) At the Effective Date, each outstanding option to purchase the
Company Common Shares and any stock appreciation rights related thereto
that have been granted pursuant to the Company's Stock Incentive Plan (a
"Company Stock Option"), whether vested or unvested, shall be assumed by
Intelect (Delaware). Each such option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable
under such Company Stock Option, a number of Intelect (Delaware) Common
Shares equal to the number of Company Common Shares purchasable pursuant
to such Company Stock Option at a price per share equal to the per-share
exercise price for the Company Common Shares purchasable pursuant to such
Company Stock Option; provided, however, that in the case of any option to
which Section 421 of the Code applies by reason of its qualification under
any of Sections 422-424 of the Code, the option price, the number of
shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with
Section 424(a) of the Code; and provided further, that the number of
Intelect (Delaware) Common Shares that may be purchased upon exercise of
such Company Stock Option shall not include any fractional share and, upon
exercise of such Company Stock Option, a cash payment shall be made for
any fractional share based upon the closing price of Intelect (Delaware)
Common Shares on the Nasdaq National Market or, if then traded on an
exchange, such exchange, on the last trading day of the calendar month
immediately preceding the date of exercise.
(b) Intelect (Delaware) shall take all corporate action necessary to
reserve for issuance a sufficient number of Intelect (Delaware) Common
Shares for delivery upon exercise of the Company Stock Options. As soon as
practicable after the Effective Date, Intelect (Delaware) shall file with
the SEC a post-effective amendment to the existing Forms S-8 and S-3s
pursuant to Rule 414 of the Securities Act, or a registration statement on
Form S-8 (or any successor form) or another appropriate form with respect
to the
4
<PAGE>
Intelect (Delaware) Common Shares subject to the Company Stock Options and
shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so
long as the Company Stock Options remain outstanding.
3.6 TREATMENT OF WARRANTS. All warrants for Company Common Shares validly
existing and outstanding on the Effective Date will become obligations of
Intelect (Delaware). Each warrant assumed by Intelect (Delaware) will continue
to have, and be subject to, the same terms and conditions set forth in such
warrant in effect immediately prior to the Effective Date. Each such warrant
will be exercisable for that number of Intelect (Delaware) Common Shares which
the holder of such warrant would have been entitled to receive pursuant to the
Merger had such holder exercised such warrant in full immediately prior to the
Effective Date and elected to receive Intelect (Delaware) Common Shares in
exchange for Company Common Shares in the Merger. Intelect (Delaware) will
assume any registration obligation covering such warrants and underlying common
shares until such warrants are exercised or expire.
3.7 TREATMENT OF REGISTRATION RIGHTS. All contractual agreements of the
Company outstanding on the Effective Date to register Company Common Shares will
become obligations of Intelect (Delaware) to register Intelect (Delaware) Common
Shares issuable pursuant to the Reorganization. The registration rights
agreements assumed by Intelect (Delaware) will continue to have, and be subject
to the same terms and conditions as are currently set forth in such agreements.
3.8 OTHER EMPLOYEE BENEFIT PLANS. At the Effective Date, Intelect
(Delaware) will assume all employee benefit plans sponsored by the Company (and
all obligations of the Company thereunder) in effect as of the Effective Date or
with respect to which employee rights or accrued benefits are outstanding as of
the Effective Date.
3.9 OTHER ACTIONS. Except as contemplated by this Agreement, neither
Intelect (Delaware) nor the Company shall, and shall not permit any of its
Subsidiaries to, take or agree or commit to take any action that is reasonably
likely to result in any of the conditions to the Merger set forth in Article IV
not being satisfied. Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties hereto agrees to use its reasonable best
efforts to take or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable, to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
3.10 REORGANIZATION. It is the intention of Intelect (Delaware) and the
Company that the Merger will qualify as a reorganization described in Section
368(a) of the Code (and any comparable provisions of applicable state or local
law). Neither Intelect (Delaware) nor the Company (nor any of their respective
Subsidiaries) will take or omit to take any action (whether before, on or after
the Closing Date) that would cause the Merger not to be so treated. The parties
will characterize the Merger as such a reorganization for purposes of all
returns and other filings.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of 75% of the Company
Common Shares present or represented by proxy and voting at a special
general meeting of Company shareholders at which a quorum is present in
person or by proxy, and by the affirmative vote of 75% of the Company
Preferred Shares present or represented
5
<PAGE>
by proxy and voting at a special general meeting at which a quorum is
present in person or by proxy, with the Company Common Shares and the
Company Preferred Shares voting separately as classes, and by the
shareholders of Intelect (Delaware) and Merger Co. in accordance with the
DGCL.
(b) DISSENTERS' RIGHTS. Holders exercising their rights of dissent
and appraisal under the Bermuda Act shall not, in the opinion of the Board
of Directors, represent an unacceptable cash cost in light of the
Company's current and anticipated cash requirements.
(c) LISTING. The Intelect (Delaware) Common Shares issuable to the
Company's shareholders pursuant to this Agreement and such other Intelect
(Delaware) Common Shares required to be reserved for issuance in
connection with the Merger shall have been authorized for trading on the
Nasdaq National Market, upon official notice of issuance.
(d) OTHER APPROVALS. All filings required to be made prior to the
Effective Date with, and all consents, approvals, permits and
authorizations required to be obtained prior to the Effective Date from
any governmental entity and from any necessary parties in connection with
the execution and delivery of this Agreement.
(e) S-4. The S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order.
(f) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect nor shall any proceeding
brought by a domestic administrative agency or commission seeking any of
the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation, or order enacted, entered, enforced, or deemed
applicable to the Merger which makes the consummation illegal.
ARTICLE V
ABANDONMENT AND AMENDMENT
5.1 ABANDONMENT. At any time prior to the Effective Date, this Agreement
and Plan of Merger may be terminated and the Merger may be abandoned by the
Board of Directors of either the Company or Intelect (Delaware) or both,
notwithstanding approval of this Agreement and Plan of Merger by the
shareholders of the Company or Intelect (Delaware).
5.2. AMENDMENT. This Agreement and Plan of Merger may be amended by the
Boards of Directors of the Company and Intelect (Delaware) at any time prior to
the Effective Date, provided that an amendment made subsequent to the approval
to this Agreement and Plan of Merger by the shareholders of the Company shall
not (i) alter or change the amount or kink of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such corporation, (ii) alter or
change any term of the Certificate of Incorporation of Intelect (Delaware) to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of this Agreement and Plan of merger if such alteration or change would
adversely affect the holders of any class or series of the stock of such
corporation.
5.3 EFFECT OF ABANDONMENT. In the event of termination or abandonment of
this Agreement by either the Company or Intelect (Delaware) as provided in
Section 5.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Intelect (Delaware), Merger Co. or the
Company.
5.4 EXTENSION; WAIVER. At any time prior to the Effective Date, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for
6
<PAGE>
the performance of any of the obligations or other acts of the other parties
hereto; (ii) waive any inaccuracies in any representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii)
waivecompliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE VI
GENERAL PROVISIONS
6.1 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the word "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. Unless the context otherwise
requires, "or" is disjunctive but not necessarily exclusive, and words in the
singular include the plural and in the plural include the singular.
6.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
6.3 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with any other documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereto and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
6.4 GOVERNING LAW. Except to the extent that the laws of Bermuda or the
State of Delaware are mandatorily applicable to the Merger or the internal
affairs of any of the parties, this Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
6.5 SEVERABILITY. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate as
if the parties mutually agreed under Section 5.1(a).
6.6 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
7
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
INTELECT (DELAWARE): INTELECT COMMUNICATIONS, INC.
(a Delaware corporation)
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: Chairman of the Board
MERGER CO.: INTELECT MERGER CO.
(a Delaware corporation)
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: Chairman of the Board
THE COMPANY: INTELECT COMMUNICATIONS SYSTEMS
LIMITED (a Bermuda corporation)
/s/ HERMAN M. FRIETSCH
Herman M. Frietsch
President and Chief Executive Officer
8
Appendix 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTELECT COMMUNICATIONS, INC.
This document constitutes an amendment and restatement of the original
Certificate of Incorporation of Intelect Communications, Inc. (the
"Corporation"), which was filed with the Secretary of State of Delaware on May
23, 1995. The name under which the original Certificate of Incorporation was
filed was Intelect Systems Corp. This Amended and Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections
245(c) and 242 of the Delaware General Corporation Law.
ARTICLE I
Name
The name of the Corporation is Intelect Communications, Inc.
ARTICLE II
Address of Registered Office:
Name of Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, county of New Castle, 19801. The name of its registered agent at
that address in the State of Delaware is The Corporation Trust Company.
ARTICLE III
Purpose and Powers
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law ("Delaware Law"). It shall have all powers that may now
or hereafter be lawful for a corporation under the Delaware Law.
ARTICLE IV
Capital Stock
Section 4.1. TOTAL NUMBER OF SHARES OF STOCK. The total number of shares
of capital stock of all classes that the Corporation shall have authority to
issue is 100,000,000 (Hundred Million) shares.
1
<PAGE>
The authorized capital stock is divided into 50,000,000 (Fifty Million) shares
of preferred stock, of the par value of $.01 each (the "Preferred Stock"), and
50,000,000 (Fifty Million) shares of common stock, of the par value of $.01 each
(the "Common Stock").
Section 4.2. PREFERRED STOCK. (a) The shares of Preferred Stock of the
Corporation may be issued from time to time in one or more classes or series
thereof, the shares of each class or series thereof to have such voting powers,
full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as are stated and expressed herein or in
the resolution or resolutions providing for the issue of such class or series,
adopted by the board of directors of the Corporation (the "Board of Directors")
as hereinafter provided.
(b) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article IV and to the limitations prescribed
by the Delaware Law, to authorize the issue of one or more classes, or series
thereof, of Preferred Stock and with respect to each such class or series to fix
by resolution or resolutions providing for the issue of such class or series the
voting powers, full or limited, if any, of the shares of such class or series
and the designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof. The
authority of the Board of Directors with respect to each class or series thereof
shall include, but not be limited to the determination or fixing of the
following:
(i) the maximum number of shares to constitute such class or series,
which may subsequently be increased or decreased by resolutions of the
Board of Directors unless otherwise provided in the resolution providing
for the issue of such class or series, the distinctive designation thereof
and the stated value thereof if different than the par value thereof;
(ii) the dividend rate of such class or series, the conditions and
dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or
classes of stock or any other series of any class of stock of the
Corporation, and whether such dividends shall be cumulative or
noncumulative;
(iii) whether the shares of such class or series shall be subject to
redemption, in whole or in part, and if made subject to such redemption
the times, prices and other terms and conditions of such redemption,
including whether or not such redemption may occur at the option of the
Corporation or at the option of the holder or holders thereof or upon the
happening of a special event;
(iv) the terms and amount of any sinking fund established for the
purchase or redemption of the shares of such class or series;
(v) whether or not the shares of such class or series shall be
convertible into or exchangeable for shares of any other class or classes
of any stock or any other series of
2
<PAGE>
any class of stock of the Corporation, and, if provision is made for
conversion or exchange, the times, prices, rates, adjustments, and other
terms and conditions of such conversion or exchange;
(vi) the extent, if any, to which the holders of shares of such
class or series shall be entitled to vote with respect to the election of
directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock;
(viii) the rights of the holders of the shares of such class or
series upon the dissolution of, or upon the subsequent distribution of
assets of, the Corporation; and
(ix) the manner in which any facts ascertainable outside the
resolution or resolutions providing for the issue of such class or series
shall operate upon the voting powers, designations, preferences, rights
and qualifications, limitations or restrictions of such class or series.
Section 4.3. COMMON STOCK. The shares of Common Stock of the Corporation
shall be of one and the same class. The holders of Common Stock shall have one
vote per share of Common Stock on all matters on which holders of Common Stock
are entitled to vote.
ARTICLE V
Board of Directors
Section 5.1. POWERS OF THE BOARD OF DIRECTORS. The business and affairs of
the Corporation shall be managed by or under the direction of its Board of
Directors which shall consist of not less than three members. In furtherance,
and not in limitation, of the powers conferred by the laws of the State of
Delaware, the Board of Directors is expressly authorized to:
(a) adopt, amend, alter, change or repeal the By-Laws of the
Corporation; provided, however, that no By-Laws hereafter adopted shall
invalidate any prior act of the directors that would have been valid if
such new By-Laws had not been adopted;
(b) determine the rights, powers, duties, rules and procedures that
affect the power of the Board of Directors to manage and direct the
business and affairs of the Corporation, including the power to designate
and empower committees of the Board of Directors, to elect, appoint and
empower the officers and other agents of the Corporation, and to determine
the time and place of the notice requirements for Board meetings, as well
as quorum and voting requirements for and the manner of taking Board
action; and
3
<PAGE>
(c) exercise all such powers and do all such acts as may be
exercised or done by the Corporation, subject to the provisions of the
Delaware Law, this Certificate of Incorporation and the By-Laws of the
Corporation.
Section 5.2. NUMBER OF DIRECTORS. The number of directors constituting the
Board of Directors shall be determined from time to time exclusively by a vote
of a majority of the Board of Directors in office at the time of such vote.
Section 5.3. CLASSIFIED BOARD OF DIRECTORS. The directors shall be divided
into three classes, with each class to be as nearly equal in number as
reasonably possible, and with the initial term of office of the first class of
directors to expire at the 1998 annual meeting of stockholders, the initial term
of office of the second class of directors to expire at the 1999 annual meeting
of stockholders and the initial term of office of the third class of directors
to expire at the 2000 annual meeting of stockholders, in each case upon the
election and qualification of their successors. Commencing with the 1998 annual
meeting of stockholders, directors elected to succeed those directors whose
terms have thereupon expired shall be elected to a term of office to expire at
the third succeeding annual meeting of stockholders after their election, and
upon the election and qualification of their successors. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain the number of directors in each class as
nearly equal as reasonably possible, but in no case will a decrease in the
number of directors shorten the term of any incumbent director.
Section 5.4. VACANCIES. Any vacancies in the Board of Directors for any
reason and any newly created directorship resulting by reason of any increase in
the number of directors may be filled only by the Board of Directors, acting by
a majority of the remaining directors then in office, although less than a
quorum, or by a sole remaining director, and any directors so appointed shall
hold office until the next election of the class for which such directors have
been chosen and until their successors are elected and qualified.
Section 5.5. REMOVAL OF DIRECTORS. Except as may be provided in a
resolution or resolutions providing for any class or series of Preferred Stock
pursuant to Article IV hereof with respect to any directors elected by the
holders of such class or series, any director may be removed from office at any
time, but only for cause, and only by the affirmative vote of the holders of at
least ninety percent (90%) of the voting power of all of the shares of capital
stock of the Corporation then entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE VI
Stockholder Actions and Meetings of Stockholders
Except as may be provided in a resolution or resolutions providing for any
class or series of Preferred Stock pursuant to Article IV hereof, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at a duly called annual or special
4
<PAGE>
meeting of such holders and may not be effected by any written consent in lieu
of a meeting by such holders. Special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the members of the Board of Directors then
in office. Elections of directors need not be by written ballot unless otherwise
provided in the ByLaws.
ARTICLE VII
Limitation on Liability of Directors
No person shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of a fiduciary duty as a director,
including, without limitation, directors serving on committees of the Board of
Directors; provided however, that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware Law, or (iv) for any transaction from
which the director derived an improper personal benefit. If the Delaware Law is
amended hereafter to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware Law as so amended. Any amendment, repeal or modification of this
Article VII shall not adversely affect any right or protection of a director of
the Corporation existing hereunder with respect to any act or omission occurring
prior to such amendment, repeal or modification.
ARTICLE VIII
Amendment of By-Laws
The power to adopt, amend, alter, change or repeal any By-Laws of the
Corporation shall be vested exclusively with the Board of Directors.
ARTICLE IX
Amendment of Certificate of Incorporation
The Corporation hereby reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in any
manner permitted by Delaware Law and all rights and powers conferred upon
stockholders, directors and officers herein are granted subject to this
reservation. Except as may be provided in a resolution or resolutions providing
for any class or series of Preferred Stock pursuant to Article IV hereof and
which relate to such class or series of Preferred Stock, any such amendment,
alteration, change or repeal shall require the affirmative vote of both (a) a
majority of the members of
5
<PAGE>
the Board of Directors then in office and (b) a majority of the voting power of
all of the shares of capital stock of the Corporation entitled to vote generally
in the election of directors voting together as a single class; except that any
proposal to amend, alter, change or repeal the provisions of Article V, Article
VI, Article VII, Article VIII and this Article IX shall require the affirmative
vote of ninety percent (90%) of the voting power of all of the shares of capital
stock entitled to vote generally in the election of directors, voting together
as a single class.
ARTICLE X
Severability
In the event that any of the provisions of this Certificate of
Incorporation (including any provision within a single Section, paragraph or
sentence) are held by a court of competent jurisdiction to be unenforceable for
any reason, the remaining provisions of this Certificate of Incorporation shall
be and remain enforceable to the fullest extent permitted by law.
THE UNDERSIGNED, being the Chairman and Chief Executive Officer of the
Corporation, for the purpose of amending and restating the Certificate of
Incorporation of the Corporation pursuant to Delaware Law does make this
Certificate, hereby declaring and certifying that this is the act and deed of
the Corporation and that the facts herein stated are true, and accordingly have
hereunto set my hand as of the 28th day of October 1997.
/s/ HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ATTEST:
/s/ EDWIN J. DUCAYET, JR.
ASSISTANT SECRETARY
6
Appendix 3
RESTATED BY-LAWS OF
INTELECT COMMUNICATIONS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE IN DELAWARE. The address of the registered
office of Intelect Communications, Inc. (hereinafter called the "Corporation")
in the State of Delaware shall be Corporation Trust Center, 1209 Orange Street,
in the City of Wilmington, County of New Castle, and the registered agent in
charge thereof shall be The Corporation Trust Company.
SECTION 2. OTHER OFFICES. The Corporation may have an office or offices at
any other place or places within or without the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place within or without
the State of Delaware, and at such date and hour, as shall be designated by the
Board of Directors of the Corporation (the "Board") and set forth in the notice
or in a duly executed waiver of notice thereof.
SECTION 2. SPECIAL MEETINGS. A special meeting of the stockholders for any
purpose or purposes may be called at any time by a majority of the Board. A
special meeting of stockholders of the Corporation may not be called by any
other person or persons. Any such meeting shall be held at such place within or
without the State of Delaware, and at such date and hour, as shall be designated
in the notice or in a duly executed waiver of notice of such meeting.
Only such business as is stated in the written notice of a special meeting
may be acted upon thereat.
SECTION 3. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each annual or special meeting of stockholders stating the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is to be held, shall be given
personally or by first class mail to each stockholder entitled to vote at such
meeting, not less than 10 nor more than 60 calendar days before the date of the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary shall have received
<PAGE>
from any stockholder entitled to vote a written request that notices intended
for such stockholder are to be mailed to an address other than the address that
appears on the records of the Corporation, notices intended for such stockholder
shall be mailed to the address designated in such request.
Notice of a special meeting may be given by the person or persons calling
the meeting, or, upon the written request of such person or persons, by the
Secretary of the Corporation on behalf of such person or persons. If the person
or persons calling a special meeting of stockholders give notice thereof, such
person or persons shall forward a copy thereof to the Secretary. Every request
to the Secretary for the giving of notice of a special meeting of stockholders
shall state the purpose or purposes of such meeting.
SECTION 4. WAIVER OF NOTICE. Notice of any annual or special meeting of
stockholders need not be given to any stockholder entitled to vote at such
meeting who files a written waiver of notice with the Secretary, duly executed
by the person entitled to notice, whether before or after the meeting. Neither
the business to be transacted at, nor the purpose of, any meeting of
stockholders need be specified in any written waiver of notice. Attendance of a
stockholder at a meeting, in person or by proxy, shall constitute a waiver of
notice of such meeting, except as provided by law.
SECTION 5. ADJOURNMENTS. When a meeting is adjourned to another date, hour
or place, notice need not be given of the adjourned meeting if the date, hour
and place thereof are announced at the meeting at which the adjournment is
taken. If the adjournment is for more than 30 calendar days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the adjourned meeting. At the adjourned meeting any business may be
transacted which might have been transacted at the original meeting.
When any meeting is convened the presiding officer, if directed by the
Board, may adjourn the meeting if (a) no quorum is present for the transaction
of business, or (b) the Board determines that adjournment is necessary or
appropriate to enable the stockholders (i) to consider fully information which
the Board determines has not been made sufficiently or timely available to
stockholders or (ii) otherwise to exercise effectively their voting rights.
SECTION 6. QUORUM. Except as otherwise provided by law or the Restated
Certificate of Incorporation of the Corporation (the "Restated Certificate of
Incorporation"), whenever a class of stock of the Corporation is entitled to
vote as a separate class, or whenever classes of stock of the Corporation are
entitled to vote together as a single class, on any matter brought before any
meeting of the stockholders, whether annual or special, holders of shares
entitled to cast a majority of the votes entitled to be cast by all the holders
of the shares of stock of such class voting as a separate class, or classes
voting together as a single class, as the case may be, outstanding and entitled
to vote thereat, present in person or by proxy, shall constitute a quorum at any
such meeting of the stockholders. If, however, such quorum shall not be present
or represented at any such meeting of the stockholders, the stockholders
entitled to vote
2
<PAGE>
thereat may adjourn the meeting from time to time in accordance with Section 5
of this Article II until a quorum shall be present or represented.
SECTION 7. VOTING. Unless otherwise provided in the Restated Certificate
of Incorporation, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of capital stock entitled to
vote thereat held by such stockholder. Except as otherwise provided by law or
the Restated Certificate of Incorporation or these Restated ByLaws, when a
quorum is present with respect to any matter brought before any meeting of the
stockholders, the vote of the holders of shares entitled to cast a majority of
the votes entitled to be cast by all the holders of the shares constituting such
quorum shall decide any such matter. Votes need not be by written ballot, unless
the Board, in its discretion, or the officer of the Corporation presiding at a
meeting of stockholders, in such officer's discretion, requires any votes or
votes cast at such meeting to be cast by written ballot.
SECTION 8. PROXIES. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for such stockholder
by proxy. Such proxy shall be filed with the Secretary before such meeting of
stockholders at such time as the Board may require. No proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period.
SECTION 9. ADVANCE NOTICE OF BUSINESS TO BE TRANSACTED AT ANNUAL MEETINGS.
To be properly brought before the annual meeting of stockholders, business must
be either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board (or any duly authorized committee
thereof), (b) otherwise properly brought before the meeting by or at the
direction of the Board (or any duly authorized committee thereof) or (c)
otherwise properly brought before the meeting by any stockholder of the
Corporation (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 9 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 9. In addition to
any other applicable requirements, including but not limited to the requirements
of Rule 14a-8 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation,
not less than 60 days nor more than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided, however, that in
the event that the annual meeting is called for a date that is not within 30
days before or after such anniversary date, notice by the stockholder in order
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the annual
meeting is mailed or such public disclosure of the date of the annual meeting is
made, whichever first occurs.
3
<PAGE>
To be in proper written form, a stockholder's notice to the Secretary must
set forth as to each matter such stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (b) the
name and record address of such stockholder, (c) the class or series and number
of shares of capital stock of the Corporation which are owned beneficially or of
record by such stockholder, together with evidence reasonably satisfactory to
the Secretary of such beneficial ownership, (d) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (e) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
Notwithstanding anything in these Restated By-Laws to the contrary, no
business shall be conducted at the annual meeting of stockholders except
business brought before such meeting in accordance with the procedures set forth
in this Section 9; provided, however, that, once business has been properly
brought before such meeting in accordance with such procedures, nothing in this
Section 9 shall be deemed to preclude discussion by any stockholder of any such
business. If the chairman of such meeting determines that business was or
properly brought before the meeting in accordance with the foregoing procedures,
the chairman shall declare to the meeting that the business was not properly
brought before the meeting and such business shall not be transacted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law or by
the Restated Certificate of Incorporation directed or required to be exercised
or done by the stockholders.
SECTION 2. NUMBER AND TERM OF DIRECTORS HOLDING OFFICE. Subject to the
rights, if any, of holders of preferred stock of the Corporation, the Board
shall consist of five (5) members (including such directors as shall be elected
by any series of special voting preferred stock of the Corporation). The
directors shall be divided into three classes, with each class to be as nearly
equal in number as reasonably possible; and with the initial term of office of
the first class of directors to expire at the 1998 annual meeting of
stockholders, the initial term of office of the second class of directors to
expire at the 1999 annual meeting of stockholders and the initial term of office
of the third class of directors to expire at the 2000 annual meeting of
shareholders, in each case upon the election and qualification of their
successors. Commencing with the 1998 annual meeting stockholders, directors
elected to succeed those directors whose terms have thereupon expired shall be
elected to a term of office to expire at the third succeeding annual meeting of
stockholders after their election, and upon the election and
4
<PAGE>
qualification of their successors. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain or
attain the number of directors in each class as nearly equal as reasonably
possible, but in no case will a decrease in the number of directors shorten the
term of any incumbent director.
SECTION 3. NOMINATION OF DIRECTORS AND ADVANCE NOTICE THEREOF. Only
persons who are nominated in accordance with the following procedures shall be
eligible for election as directors of the Corporation, except as may be
otherwise provided in the Restated Certificate of Incorporation with respect to
the right of holders of preferred stock of the Corporation to nominate and elect
a specified number of directors in certain circumstances. Nominations of persons
for election to the Board may be made at any annual meeting of stockholders, or
at any special meeting of stockholders called for the purpose of electing
directors, (a) by or at the direction of the Board (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 3 and on the record date for the determination of stockholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 3. In addition to any other applicable
requirements, for a nomination to be made by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a stockholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting, not less than 60 days nor more than 90 days
prior to the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder in order to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting is mailed or such public
disclosure of the date of the annual meeting is made, whichever first occurs, or
(b) in the case of a special meeting of stockholders called for the purpose of
electing directors, not later than the close of business on the tenth day
following the day on which notice of the date of the special meeting is mailed
or public disclosure of the date of the special meeting is made, whichever first
occurs.
To be in proper written form, a stockholder's notice to the Secretary must
set forth (a) as to each person whom the stockholder proposes to nominate for
election as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder; and (b) as to
the stockholder giving the notice, (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
together with evidence
5
<PAGE>
reasonably satisfactory to the Secretary of such beneficial ownership, (iii) a
description of all arrangements or understandings between such stockholder and
each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section 3,
except as may be otherwise provided in the Restated Certificate of Incorporation
with respect to the right of holders of preferred stock of the Corporation to
nominate and elect a specified number of directors in certain circumstances. If
the chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the chairman of the meeting shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded.
SECTION 4. RESIGNATION. Any director may resign at any time by giving
written notice to the Board, the Chief Executive Officer or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, then it shall take effect when accepted by action of the Board. Except
as aforesaid, acceptance of such resignation shall not be necessary to make it
effective.
SECTION 5. VACANCIES. Any vacancies in the Board of Directors for any
reason and any newly created directorship resulting by reason of any increase in
the number of directors may be filled only by the Board of Directors, acting by
a majority of the remaining directors then in office, although less than a
quorum, or by a sole remaining director, and any directors so appointed shall
hold office until the next election of the class for which such directors have
been chosen and until their successors are elected and qualified.
SECTION 6. REMOVAL OF DIRECTORS. Except as may be provided in a resolution
or resolutions providing for any class or series of preferred stock with respect
to any directors elected by the holders of such class or series, any director
may be removed from office at any time, but only for cause, and only by the
affirmative vote of the holders of at least 90% of the voting power of all of
the shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class.
SECTION 7. MEETINGS. (a) Annual Meetings. As soon as practicable after
each annual election of directors, the Board shall meet for the purpose of
organization and the
6
<PAGE>
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 7 of this Article III.
(b) Other Meeting. Other meetings of the Board shall be held at such times
as the Board shall from time to time determine or upon call by the Chairman of
the Board, the Chief Executive Officer of the Corporation or any four directors.
(c) Notice of Meetings. Regular meetings of the Board may be held without
notice. The Secretary of the Corporation shall give notice to each director of
each special meeting, including the time and place of such special meeting.
Notice of each such meeting shall be given to each director by telephone,
telegram, facsimile, telex or cable not later than four Business Days before the
day on which such meeting is to be held or on such shorter notice (but in no
event fewer than two days notice) as the Chairman of the Board may deem
necessary or appropriate in the circumstances. Notice of any meeting shall not
be required to be given to any director who shall attend such meeting. A waiver
of notice by the person entitled thereon, whether before or after the time of
any such meeting, shall be deemed equivalent to adequate notice. For purposes of
this Section 6(c), a "Business Day" means any day except a Saturday, Sunday, or
other day on which commercial banks in New York, New York are authorized by law
to close.
(d) Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board may from time to
time by resolution determine or as shall be designated in the respective notices
or waivers of notice thereof.
(e) Quorum and Manner of Acting. Except as otherwise provided by law, the
Restated Certificate of Incorporation or these Restated By-Laws, a majority of
the total number of directors then in office shall be necessary at any meeting
of the Board in order to constitute a quorum for the transaction of business at
such meeting, and the affirmative vote of a majority of those directors present
at any such meeting at which a quorum is present shall be necessary for the
passage of any resolution or act of the Board. In the absence of a quorum for
any such meeting, a majority of the directors present thereat may adjourn such
meeting from time to time until a quorum shall be present thereat. Notice of any
adjourned meeting need not be given.
(f) Organization and Order of Business. The Chairman of the Board shall
act as chairman of each meeting of the Board and preside thereat or, in the
absence of the Chairman of the Board at any meeting of the Board, any other
director chosen by a majority of the directors present thereat shall act as
chairman of the meeting and preside thereat. The Secretary of the Corporation
or, in the case of the Secretary's absence, any person whom the chairman of the
meeting shall appoint, shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 8. ACTION BY CONSENT. Any action required or permitted to be taken
at any meeting of the Board or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all members of the board or
such committee, as the case may be,
7
<PAGE>
and such committee, as the case may be, and such written consent or consents are
filed with the minutes of the proceedings of the Board or such committee.
SECTION 9. MEETINGS BY CONFERENCE TELEPHONE, ETC. At the request of any
one or more members of the Board, or of any committee thereof, any meeting of
the Board or such committee shall provide for the ability of any director to
participate in a meeting of the Board, or of such committee, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 10. COMPENSATION. Unless otherwise restricted by the Restated
Certificate of Incorporation or these By-Laws, the Board of the Compensation
Committee may determine the compensation of directors. The Corporation may
reimburse each director or member of a committee for any out-of-pocket expenses
incurred by him or her on account of his or her attendance at any meeting of the
Board or such committee. Nothing contained in this Section 9 shall be construed
to preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
COMMITTEES
SECTION 1. AUDIT COMMITTEE. The Board may designate an Audit Committee to
the composed of two or more directors, all of whom shall be independent within
the meaning of the Marketplace Rules of the NASDAQ as in existence on the date
hereof, or as amended from time to tome hereafter. A majority of the members of
the Audit Committee shall constitute a quorum. The Audit Committee shall from
time to time review and make recommendations to the Board with respect to the
selection of independent auditors, the fees paid to such auditors, the adequacy
of the audit and accounting procedures of the Corporation and such other matters
as may be specifically delegated to the Audit Committee by the Board. In this
connection the Audit Committee shall, at its request, meet with representatives
of the independent auditors and with the financial officers of the Corporation
separately or jointly.
SECTION 2. COMPENSATION COMMITTEE. The Board may designate a Compensation
Committee to be composed of two or more directors. A majority of the members of
the Compensation Committee shall constitute a quorum. The Compensation Committee
shall from time to time review and make recommendations to the Board with
respect to the management remuneration policies of the Corporation, including
salary rates and benefits of appointed officers, other remuneration plans such
as incentive compensation, deferred compensation and stock option plans,
directors' compensation and benefits and such other matters as may be
specifically delegated to the Compensation Committee by the Board.
SECTION 3. NOMINATING COMMITTEE. The Board may designate a Nominating
Committee to be composed of two or more directors in accordance with the
provisions of the
8
<PAGE>
Stockholders' Agreement. A majority of the members of the Nominating Committee
shall constitute a quorum. The Nominating Committee shall from time to time
review, report and make recommendations to the Board on the following matters:
(i) nominees for directors who may be elected from time to time by the holders
of the Common Stock of the Corporation, selection criteria for directors, and
removal of Directors if deemed appropriate; (ii) evaluation and performance of
the Board and individual Directors; and (iii) such other matters as the Board
may from time to time prescribe.
SECTION 4. BOARD DESIGNATED COMMITTEES. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees
("Special Committees"), each Special Committee to consist of one or more
directors.
SECTION 5. COMMITTEE PROCEDURE, SEAL. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee; provided, however, that
alternate members of the Audit Committee must satisfy the criteria set forth in
Section 1 above and alternate members of the Compensation Committee must satisfy
the criteria set forth in Section 2 above. In the absence or disqualification of
a member of a committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another director to act at the
meeting in the place of any such absent or disqualified member; provided,
however, that appointees to the Audit Committee must satisfy the criteria set
forth in Section 1 above and appointees to the Compensation Committee must
satisfy the criteria set forth in Section 2 above. Any committee of the Board,
to the extent provided in the resolution of the Board designating such
committee, shall have and may exercise all the powers and authority of the Board
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have such power or
authority in reference to the following matters: (i) approving or adopting or
recommending to the stockholders of the Corporation, any action or matter
expressly required by the Delaware General Corporation Law (the "DGCL") to be
submitted to stockholders for approval or (ii) adopting, amending or repealing
any by-law of the Corporation.
ARTICLE V
OFFICERS
SECTION 1. EXECUTIVE OFFICERS. The officers of the Corporation shall
include a Chairman of the Board, a President and Chief Executive Officer, a
Chief Financial Officer, a Treasurer and a Secretary. The officers of the
Corporation may also include a Chief Operating Officer, one or more Senior Vice
Presidents, one or more Executive Vice Presidents, one or more Vice Presidents,
one or more Assistant Treasurers and one or more Assistant Secretaries. Each
such officer shall be elected by the Board at its annual meeting and shall hold
office for such term as may be determined by the Board. Each such officer shall
hold office until the next succeeding annual meeting of the Board and until his
or her successor is elected or until his or
9
<PAGE>
her earlier death or resignation or removal in the manner hereinafter provided.
Any two or more offices may be held by the same person.
The Board may elect, and the Chief Executive Officer may appoint, such
other officers of the Corporation as the Board or the Chief Executive Officer
deems necessary who shall have such authority and shall perform such duties as
the Board or the Chief Executive Officer may prescribe. If additional officers
are elected or appointed, each of them shall hold office until his or her
successor is elected or appointed or until his or her earlier death or
resignation or removal in the manner hereinafter provided.
SECTION 2. AUTHORITY AND DUTIES. All officers, as between themselves and
the Corporation, shall have such authority and perform such duties in the
management of the Corporation as may be provided in these Restated By-Laws or,
to the extent not so provided, by resolution of the Board.
SECTION 3. RESIGNATION AND REMOVAL. (a) Any officer may resign at any time
by giving written notice to the Board, the Chief Executive Officer or the
Secretary of the Corporation, and such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, when accepted by action of the Board. Except as aforesaid,
the acceptance of such resignation shall not be necessary to make it effective.
(b) All officers elected, and all agents appointed, by the Board shall be
subject to removal at any time by the Board and all officers and agents
appointed by the Chief Executive Officer shall be subject to removal at any time
by the Chief Executive Officer or the Board, in each case, with or without
cause.
SECTION 4. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term in the same manner as provided for election and
appointment to such office.
SECTION 5. CHAIRMAN OF THE BOARD. The initial Chief Executive Officer
shall be the Chairman of the Board of the Corporation. Thereafter the Chairman
of the Board shall be selected by the Board. The Chairman of the Board shall
preside at all meetings of the Board and at all meetings of the stockholders and
shall have and exercise such further powers and duties as may from time to time
be conferred upon or assigned to him or her by the Board.
SECTION 6. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President and Chief
Executive Officer of the Corporation, subject to the direction of the Board,
shall have general charge of the business and affairs of the Corporation, shall
have the direction of all other officers, agents and employees of the
Corporation and may assign such duties to the other officers of the Corporation
as he or she deems appropriate. In case of the absence or inability to act of
the President and Chief Executive Officer, the Board may designate such other
person as it deems appropriate to assume the duties of the President and Chief
Executive Officer and,
10
<PAGE>
when so acting, but subject to the foregoing, such person shall have all of the
powers of, and be subject to all the restrictions upon, the Chief Executive
Officer.
SECTION 7. CHIEF OPERATING OFFICER. The Chief Operating Officer of the
Corporation, subject to the direction of the President and Chief Executive
Officer, shall have charge of the day-to-day operations of the Corporation,
shall assist the President and Chief Executive Officer in carrying out the
orders and resolutions of the Board and shall perform such other duties as the
Chief Executive Officer or the Board of Directors shall from time to time
assign. At the request of the President and Chief Executive Officer, the Chief
Operating Officer, until otherwise determined, and subject to any limitations
imposed by the Board, shall assume the duties of the President and Chief
Executive Officer and, when so acting, but subject to the foregoing, shall have
all of the powers of, and be subject to all the restrictions upon, the Chief
Executive Officer.
SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer, subject
to the direction of the President and Chief Executive Officer, shall have
overall charge of all of the financial affairs of the Corporation and shall
perform such other duties as the Chief Executive Officer or the Board of
Directors shall from time to time assign.
SECTION 9. SENIOR VICE PRESIDENTS, EXECUTIVE VICE PRESIDENTS AND VICE
PRESIDENTS. Each Senior Vice President, Executive Vice President and Vice
President of the Corporation shall have such powers and perform such duties as
the President and Chief Executive Officer or the Board may from time to time
prescribe and shall perform such other duties as may be prescribed by these
Restated By-Laws.
SECTION 10. TREASURER. The Treasurer of the Corporation shall have charge
and custody of and be responsible for all funds and securities of the
Corporation.
SECTION 11. ASSISTANT TREASURERS. The Assistant Treasurers of the
Corporation, if any, in order of their seniority or in any other order
determined by the Board, shall generally assist the Treasurer and perform such
other duties as the Board or the Treasurer shall prescribe, and, in the absence
of disability of the Treasurer, shall perform the duties and exercise the powers
of the Treasurer.
SECTION 12. SECRETARY. The Secretary of the Corporation shall keep the
records of all meetings of the stockholders and the Board. He or she shall affix
the seal of the Corporation to all deeds, contracts, bonds or other instruments
requiring the corporate seal when the same shall have been signed on behalf of
the Corporation by a duly authorized officer and shall be the custodian of all
contracts, deeds, documents and all other indicia of title to properties owned
by the Corporation and of its other corporate records.
SECTION 13. ASSISTANT SECRETARY. The Assistant Secretaries, if any, in
order of their seniority or in any other order determined by the Board, shall
generally assist the Secretary and
11
<PAGE>
perform such other duties as the Board or the Secretary shall prescribe, and, in
the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. EXECUTION OF DOCUMENTS. Any officer, employee or agent of the
Corporation designated by the Board (or any duly authorized committee of the
Board to the extent permitted by law) shall have power to execute and deliver
deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders
for the payment of money and other documents for and in the name of the
Corporation, and the Board (or such a committee) may authorize any such officer,
employee or agent to delegate such power (including authority to redelegate) by
written instrument to other officers, employees or agents of the Corporation.
SECTION 2. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board or the Chief Executive Officer or any other officer of
the Corporation to whom power in that respect shall have been delegated by the
Board shall select.
SECTION 3. PROXIES IN RESPECT OF STOCK OR OTHER SECURITIES OF OTHER
CORPORATIONS. The Board or the Chief Executive Officer shall designate the
officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and on
behalf of the corporation the powers and rights that the Corporation may have as
the holder of stock or other securities in any other corporation, and to vote or
consent in respect of such stock or securities. Such designated officers may
instruct the person or persons so appointed as to the manner of exercising such
powers and rights, and such designated officers may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise such powers and rights.
ARTICLE VII
SHARES AND TRANSFER OF SHARES
SECTION 1. CERTIFICATES OF STOCK. Every owner of shares of stock of the
Corporation shall be entitled to have a certificate evidencing the number of
shares of stock of the Corporation owned by such owner and designating the class
of stock to which such shares belong, which shall otherwise be in such form as
the Board shall prescribe. Each such certificate shall bear the signature (or a
facsimile thereof) of the President and Chief Executive Officer, the Chief
Operating Officer or the Chief Financial Officer and the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation.
12
<PAGE>
SECTION 2. RECORD. A record shall be kept of the name of the person, firm
or corporation owning the stock represented by each certificate evidencing stock
of the Corporation issued, the number of shares represented by each such
certificate, and the date therefor, and, in the case of cancellation, the date
of cancellation. Except as otherwise expressly required by law, the person in
whose name shares of stock stand on the books of the Corporation shall be deemed
the owner therefor for all purposes as regards the Corporation.
SECTION 3. TRANSFER OF STOCK. (a) The transfer of shares of stock and the
certificates evidencing such shares of stock of the Corporation shall be
governed by Article 8 of Subtitle I of Title 6 of the Delaware Code (the Uniform
Commercial Code), as amended from time to time.
(b) Registration of transfers of shares of stock of the Corporation shall
be made only on the books of the Corporation upon request of the registered
holder thereof, or of such holder's attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and upon
the surrender of the certificate or certificates evidencing such shares properly
endorsed or accompanied by a stock power duly executed.
SECTION 4. ADDRESSES OF STOCKHOLDERS. Each stockholder shall designate to
the Secretary of the Corporation an address at which notices of meetings and all
other corporate notices may be served or mailed to such stockholder, and, if any
stockholder shall fail to so designate such an address, corporate notices may be
served upon such stockholder by mail directed to such stockholder at such
stockholder's post office address, if any, as the same appears on the share
record books of the Corporation or at such stockholder's last known post office
address.
SECTION 5. LOST, DESTROYED OR MUTILATED CERTIFICATES. A holder of any
shares of stock of the Corporation shall promptly notify the Corporation of any
loss, destruction or mutilation of any certificate or certificates evidencing
all or any such shares of stock. The Board may, in its discretion, cause the
Corporation to issue a new certificate in place of any certificate theretofore
issued by it and alleged to have been mutilated, lost, stolen or destroyed, upon
the surrender of the mutilated certificate or, in the case of loss, theft or
destruction of the certificate, upon satisfactory proof of such loss, theft or
destruction, and the Board may, in its discretion, require the owner of the
lost, stolen or destroyed certificate or such owner's legal representative to
give the Corporation a bond sufficient to indemnify the Corporation against any
claim made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
SECTION 6. FACSIMILE SIGNATURES. Any or all of the signatures on a
certificate evidencing shares of stock of the Corporation may be facsimiles.
SECTION 7. REGULATIONS. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with the Restated Certificate of
Incorporation or these Restated By-Laws, concerning the issue, transfer and
registration of certificates evidencing stock of the
13
<PAGE>
Corporation. It may appoint, or authorize any principal officer or officers to
appoint, one or more transfer agents and one or more registrars, and may require
all certificates of stock to bear the signature or signatures (or a facsimile or
facsimiles thereof) of any of them. The Board may at any time terminate the
employment of any transfer agent or any registrar of transfers. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall cease to be such officer, transfer
agent or registrar, whether because of death, resignation, removal or otherwise,
before such certificate or certificates shall have been delivered by the
Corporation, such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed or whose facsimile signature has been placed upon such certificate or
certificates had not ceased to be such officer, transfer agent or registrar.
SECTION 8. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other such action. A
determination of stockholders entitled to notice of, or to vote at, any meeting
of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
SECTION 9. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the owner
of shares of stock to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments a person registered on its
records as the owner of shares of stock, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares of stock on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of the State of Delaware.
SECTION 10. STOCKHOLDER AGREEMENTS. Shares of stock of the Corporation may
be subject to one or more agreements abridging, limiting or restricting the
rights of any one or more stockholders to sell, assign, transfer, mortgage,
pledge or hypothecate any or all of the stock of the Corporation held by them,
or providing for preemptive rights, or may be subject to one or more agreements
providing a purchase option with respect to any shares of stock of the
Corporation. If such agreements exist, all certificates evidencing shares of
stock subject to such abridgements, limitations, restrictions or options shall
have reference thereto endorsed on such certificate and such stock shall not
thereafter be transferred on the books of the Corporation except in accordance
with the terms and conditions of such agreement of agreements. Copies of such
agreement or agreements shall be maintained at the offices of the Corporation.
ARTICLE VIII
14
<PAGE>
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such place or
places within or without the State of Delaware as the Board may from time to
time determine.
ARTICLE IX
SEAL
The Board shall provide a corporate seal which shall bear the full name of
the Corporation.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change from time to time, by the Board.
ARTICLE XI
INDEMNIFICATION
SECTION 1. GENERAL. The Corporation (i) shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a director or an officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or an officer of another corporation, partnership, joint venture, trust
or other enterprise, to the full extent authorized or permitted by law, as now
or hereafter in effect, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
her in connection with such action, suit or proceeding if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful, and (ii) may indemnify, if the Board of Directors determines such
indemnification is appropriate, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he or she is or was an employee or agent of the Corporation, or is or
was serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, to the full
extent authorized or permitted by law, as now or hereafter in effect, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or
15
<PAGE>
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
SECTION 2. DERIVATIVE ACTIONS. The Corporation (i) shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was a director or an officer of the Corporation, or is or was serving
at the request of the Corporation as a director or an officer of another
corporation, partnership, joint venture, trust or other enterprise, to the full
extent authorized or permitted by law, a now or hereafter in effect, against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and (ii) may indemnify,
if the Board of Directors determines such indemnification is appropriate, any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he or
she is or was an employee or an agent of the Corporation, or is or was serving
at the request of the Corporation as an employee or an agent of another
corporation, partnership, joint venture, trust or other enterprise, to the full
extent authorized or permitted by law, as now or hereafter in effect, against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Corporation; provided, however, that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. SUCCESSFUL DEFENSE. To the extent that (i) a director or an
officer of the Corporation or (ii) any other employee or agent of the
Corporation who the Board of Directors has authorized the Corporation to
indemnify, has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 1 and 2 above, or in defense
of any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
16
<PAGE>
SECTION 4. PROCEEDINGS INITIATED BY ANY PERSON. Notwithstanding anything
to the contrary contained in sections 1 or 2 above, except for proceedings to
enforce rights to indemnification, the Corporation shall not be obligated to
indemnify any person in connection with a proceeding (or part thereof) initiated
by such person unless such proceeding (or part thereof) was authorized in
advance, or unanimously consented to, by the Board of Directors.
SECTION 5. PROCEDURE. Any indemnification under sections 1 and 2 above
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such person
has met the applicable standard of conduct set forth in sections 1 and 2 above.
Such determination shall be made (i) by a majority vote of the directors who are
not parties to such action, suit or proceeding even though less than a quorum,
or (ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
SECTION 6. ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation pursuant to this
Article XI or as otherwise authorized by law. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
SECTION 7. RIGHTS NOT EXCLUSIVE. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other subsections of this
Article XI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office.
SECTION 8. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
or her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability under the provisions of the DGCL.
SECTION 9. DEFINITION OF "CORPORATION". For purposes of this Article XI,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents so that any person who is or was a
director, officer,
17
<PAGE>
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article XI with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued.
SECTION 10. CERTAIN OTHER DEFINITIONS. For purposes of this Article XI,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation",
as referred to in this Article XI.
SECTION 11. CONTINUATION OF RIGHTS. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article XI shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 12. REPEAL OR MODIFICATION. Any repeal or modification of this
Article XI by the stockholders of the Corporation shall not adversely affect any
rights to indemnification and to advancement of expenses that any person may
have at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
SECTION 13. AMENDMENTS TO DGCL. If the DGCL is amended hereafter to
broaden the rights of those seeking indemnification or advancement of expenses,
then such rights shall be extended to such persons to the fullest extent
authorized by the DGCL, as so amended, without further action by either the
Board of Directors or the stockholders of the Corporation.
ARTICLE XII
AMENDMENTS
These Restated By-Laws, or any of them, may be altered, amended or
repealed, or new by-laws may be made, but only to the extent any such
alteration, amendment, repeal or new by-law is not inconsistent with any
provision of the Restated Certificate of Incorporation, by a majority of the
whole Board of Directors; provided, however, that no alteration, amendment or
repeal of Section 8 of Article III of these Restated By-Laws may be made by the
Board without the consent of all of the directors.
18
APPENDIX 4
AMALGAMATION OF COMPANIES
104 I. Two or more companies which are registered in Bermuda may be
subject to the consent of the Minister given in his discretion amalgamate and
continue as one company:
Provided that if the amalgamated company is to be a local company it
shall comply with the Third Schedule.
II.The companies shall, not more than three months prior to an
application for the consent of the Minister under subsection (1), advertise in
an appointed newspaper their intention to amalgamate.
AMALGAMATION OF EXEMPTED COMPANY AND FOREIGN CORPORATION
104A A. An exempted company and a body incorporated outside Bermuda
(hereinafter in this section referred to as a "foreign corporation") may apply
to the Minister for consent to amalgamate and continue as an exempted company
registered in Bermuda to which the provisions of this Act and any other relevant
laws of Bermuda shall apply.
B. An application for consent under subsection (1) shall be in such
form, and be accompanied by an application fee and such documents, as the
Minister may determine, including documentary proof, satisfactory to the
Minister, that the foreign corporation has obtained all necessary authorization
required under the laws of the country in which it was incorporated to enable it
to make the application.
C. The exempted company and the foreign corporation shall, not more
than three months prior to an application for the consent of the Minister under
subsection (1), advertise in an appointed newspaper their intention to
amalgamate.
D. The provisions of sections 105 and 109, MUTATIS MUTANDIS, apply
to an amalgamation under this section in the same way as they apply to an
amalgamation under section 104.
E. The Minister shall not grant consent under this section to a
foreign corporation carrying on banking business as defined in the Banks Act
1969 [TITLE 17 ITEM 20].
AMALGAMATION AGREEMENT
105 (1) Each company proposing to amalgamate shall enter into an agreement
setting out the terms and means of effecting the amalgamation and, in
particular, setting out:
(a) the provisions that are required to be included in the
memorandum;
1
<PAGE>
(b) the name and address of each proposed director of the
amalgamated company;
(c) the manner in which the shares of each amalgamating company
are to be converted into shares or other securities of the
amalgamated company;
(d) if any shares of an amalgamating company are not to be
converted into securities of the amalgamated company, the
amount of money or securities that the holders of such
shares are to receive in addition to or instead of
securities of the amalgamated company;
(e) the manner of payment of money instead of the issue of
fractional shares of the amalgamated company or of any
other securities which are to be received in the
amalgamation;
(f) whether the bye-laws of the amalgamated company are to be
those of one of the amalgamating companies and, if not, a
copy of the proposed bye-laws; and
(g) details of any arrangements necessary to perfect the
amalgamation and to provide for the subsequent management
and operation of the amalgamated company.
(2) If shares of one of the amalgamating companies are held by or on
behalf of another of the amalgamating companies, the amalgamation agreement
shall provide for the cancellation of such shares when the amalgamation becomes
effective without any repayment of capital in respect thereof, and no provision
shall be made in the agreement for the conversion of such into shares of the
amalgamated company.
SHAREHOLDER APPROVAL
106 (1) The directors of each amalgamating company shall submit the
amalgamation agreement for approval to a meeting of the holders of shares of the
amalgamating company of which they are directors and, subject to subsection (4),
to the holders of each class of such shares.
(2) A notice of a meeting of shareholders complying with section 75
shall be sent in accordance with that section to each shareholder of each
amalgamating company, and shall:
(a) include or be accompanied by a copy of the amalgamating
agreement; and
2
<PAGE>
(b) subject to subsection (2A) state:
(i) the fair value of the shares as determined by each
amalgamating company; and
(ii) that a dissenting shareholder is entitled to be paid
the fair value of his shares.
(2A) Nowithstanding subsection 2(b)(ii), failure to state the matter
referred to in that subsection does not invalidate an amalgamation.
(3) Each share of an amalgamating company carries the right to vote
in respect of an amalgamation whether or not it otherwise carries the right to
vote.
(4) The holders of shares of a class of shares of an amalgamating
company are entitled to vote separately as a class in respect of an amalgamation
if the amalgamation agreement contains a provision which would constitute a
variation of the rights attaching to any such class of shares for the purposes
of section 47.
(4A) The provisions of the bye-laws of the company relating to the
holding of general meetings shall apply to general meetings and class meetings
required by this section provided that, unless the bye-laws otherwise provide,
the resolution of the shareholders or class must be approved by a majority vote
of three-fourths of those voting at such meeting and the quorum necessary for
such meeting shall be two persons at least holding or representing by proxy more
than one-third of the issued shares of the company or the class, as the case may
be, and that any holder of shares present in person or by proxy may demand a
poll.
(5) An amalgamation agreement shall be deemed to have been adopted
when it has been approved by the shareholders as provided in this section.
(6) Any shareholder who did not vote in favour of the amalgamation
and who is not satisfied that he has been offered fair value for his shares may
within one month of the givng of the notice referred to in subsection (2) apply
to the Court to appraise the fair value of his shares.
(6A) Subject to subsection (6B), within one month of the Court
appraising the fair value of any shares under subsection (6) the company shall
be entitled either:
(a) to pay to the dissenting shareholder an amount equal to the
value of his shares as appraised by the Court; or
(b) to terminate the amalgamation in accordance with subsection
(7).
3
<PAGE>
(6B) Where the Court has appraised any shares under subsection (6)
and the amalgamation has proceeded prior to the appraisal then, within one month
of the Court appraising the value of the shares, if the amount paid to the
dissenting shareholder for his shares if less than that appraised by the Court
the amalgamated company shall pay to such shareholder the difference between the
amount paid to him and the value appraised by the Court.
(6C) No appeal shall lie from an appraisal by the Court under this
section.
(6D) The costs of any application to the Court under this section
shall be in the discretion of the Court.
(7) An amalgamation agreement may provide that at any time before
the issue of a certificate of amalgamation the agreement may be terminated by
the directors of an amalgamating company, notwithstanding approval of the
agreement by the shareholders of all or any of the amalgamating companies.
SHORT FORM AMALGAMATION
107 (1) A holding company and one or more of its wholly-owned subsidiary
companies may amalgamate and continue as one company without complying with
section 105 and 106 if:
(a) the amalgamation is approved by a resolution of the
directors of each amalgamating company; and
(b) the resolutions provide that:
(i) the shares of each amalgamating subsidiary company
shall be cancelled without any repayment of capital in
respect thereof;
(ii) the memorandum of amalgamation shall be the same as
the memorandum of the amalgamating holding company;
and
(iii)no securities shall be issued by the amalgamated
company in connection with the amalgamation.
(2) Two or more wholly-owned subsidiary companies of the same
holding company may amalgamate and continue as one company without complying
with sections 105 and 106 if:
(a) the amalgamation is approved by a resolution of the
directors of each amalgamating company; and
(b) the resolutions provide that:
4
<PAGE>
(i) the shares of all but one of the amalgamating
subsidiary companies shall be cancelled without any
repayment of capital in respect of such shares;
(ii) the memorandum shall be the same as the memorandum of
the amalgamating subsidiary company whose shares are
not cancelled.
(3) The amalgamating companies may elect to combine their respective
authorized share capitals and in the resolutions approving the amalgamation they
shall state whether or not they so elect.
(4) For the purposes of subsection (1), the expression "holding
company" or "subsidiary company" does not include an overseas company.
(5) For the purposes of subsection (2), the expression "subsidiary
company" does not include an overseas company.
REGISTRATION OF AMALGAMATED COMPANIES
108 (1) Subject to subsections (2) and (3) after the amalgamation of
companies has been adopted, the amalgamated company shall on application be
registered by the Registrar and a certificate of amalgamation issued to the
company.
(2) Any application for the registration of an amalgamated company
shall be accompanied by:
(a) the consent of the Minister;
(b) the registered address of the amalgamated company;
(c) the memorandum of the amalgamated company; and
(d) the documents referred to in subsection (3).
(3) An application for registration of an amalgamated company shall
have attached to it a statutory declaration by an officer of each amalgamating
company and establishes to the satisfaction of the Registrar that there are
reasonable grounds for believing that:
(a) each amalgamating company is and the amalgamated company
will be able to pay its liabilities as they become due;
5
<PAGE>
(b) the realizable value of the amalgamated company's assets
will not be less than the aggregate of its liabilities and
issued capital of all classes; and either
(c) no creditor will be prejudiced by the amalgamation; or
(d) adequate notice has been given to all known creditors of
the amalgamating companies and no creditor objects to the
amalgamation otherwise than on grounds that are frivolous
or vexatious.
(4) For the purposes of subsection (2), adequate notice is given if:
(a) a notice in writing is sent to each known creditor having a
claim against the company that exceeds one thousand
dollars; and
(b) a notice is published in an appointed newspaper stating
that the company intends to amalgamate with one or more
specified companies in accordance with this Act and that a
creditor of the company may object to the amalgamation
within thirty days from the date of the notice.
EFFECT OF CERTIFICATE OF AMALGAMATED COMPANIES
109 On the date shown in a certificate of amalgamation:
(a) the amalgamation of the amalgamating companies and their
continuance as one company shall become effective;
(b) the property of each amalgamating company shall become the
property of the amalgamated company;
(c) the amalgamated company shall continue to be liable for the
obligations of each amalgamating company;
(d) an existing cause of action, claim or liability to
prosecution shall be unaffected;
(e) a civil, criminal or administrative action or proceeding
pending by or against an amalgamating company may be
continued to be prosecuted by or against the amalgamated
company;
(f) a conviction against, or ruling, order or judgment in
favour of or against, an amalgamating company may be
enforced by or against the amalgamated company; and
6
<PAGE>
(g) the memorandum of amalgamation shall be deemed to be the
memorandum of the amalgamated company and the certificate
of amalgamation shall be deemed to be the certificate of
incorporation of the amalgamated company; however, the date
of incorporation of a company is its original date of
incorporation and its amalgamation with another company
does not alter its original date of incorporation.
7
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of October 29, 1997, pursuant
to Sections 252 and 253 of the General Corporation Law of Delaware and Sections
104 through 109 of the Companies Act 1981 of Bermuda (this "Agreement"), is
among Intelect Communications Systems Limited, a Bermuda company (the
"Company"), Intelect Communications, Inc., a Delaware corporation formed by the
Company as a direct and wholly-owned subsidiary of the Company ("Intelect
(Delaware)"), and Intelect Merger Co., a Delaware corporation to be formed by
Intelect (Delaware) as a direct and wholly-owned subsidiary of Intelect
(Delaware) ("Merger Co.").
WHEREAS, the Boards of Directors of Intelect (Delaware), Merger Co., and
the Company each have determined that it is in furtherance of and consistent
with their respective long-term business strategies and is fair to and in the
best interests of their respective shareholders for Merger Co. to merge with and
into the Company (the "Merger") upon the terms and subject to the conditions of
this Agreement;
WHEREAS, the Boards of Directors and shareholders of Intelect (Delaware)
and Merger Co. have unanimously approved the Merger upon the terms and subject
to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
(as defined herein) shall qualify as a reorganization within the meaning of
Section 368(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code");
NOW, THEREFORE, in consideration of the foregoing premises and the
undertakings herein contained and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 THE MERGER; EFFECTIVE DATE OF THE MERGER. Upon the terms and
conditions of this Agreement and in accordance with The Companies Act 1981 of
Bermuda, as amended (the "Bermuda Act") and the Delaware General Corporation Law
(the "DGCL"), Merger Co. shall be merged ("amalgamated" under Bermuda law) with
and into the Company at the Effective Date (as hereinafter defined) (the
"Merger"). The Merger shall become effective as of the date indicated in a
certificate of amalgamation (the "Certificate of Merger"), prepared and executed
in accordance with the relevant provisions of the Bermuda Act and the DGCL, that
is filed with the Registrar of Companies pursuant to the Bermuda Act and the
Delaware Secretary of State (the "Effective Date"). The filing of the
Certificate of Merger shall be made upon, or as soon as practicable after, the
closing of the Merger (the "Closing").
1.2 EFFECTS OF THE MERGER.
(a) At the Effective Date: (i) Merger Co. shall be merged with and
into the Company, the separate existence of Merger Co. shall cease and the
Company shall continue as the surviving corporation (Merger Co. and the
Company are sometimes referred to herein as the "Constituent Corporations"
and the Company is sometimes referred to herein as the "Surviving
Corporation"); (ii) the Memorandum of Association of the Company as in
effect immediately prior to the Effective Date shall be the Memorandum of
Association of the Surviving Corporation; and (iii) the Bye-laws of the
Company as in effect immediately prior to the Effective Date shall be the
Bye-laws of the Surviving Corporation.
(b) The individuals listed on Exhibit A hereto shall, from and after
the Effective Date, be the initial directors and officers of the Surviving
Corporation and shall serve until their successors have been duly elected
or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Memorandum of
Association and Bye-laws.
<PAGE>
(c) The Merger shall have such other effects as specified in Section
109 of the Bermuda Act. On the Effective Date (i) the Merger shall become
effective, (ii) the property of the Company and Merger
Co. shall become the property of the Surviving Corporation, (iii) the
Surviving Corporation shall become liable for the obligations of the
Company and Merger Co., (iv) any existing cause of action or claim
against, or liability or prosecution of, the Company and Merger Co. shall
be unaffected and shall be assumed by the Surviving Corporation, (v) any
civil, criminal or administrative action or proceeding pending by or
against the Company or Merger Co. may be continued to be prosecuted by or
against the Surviving Corporation, and (vi) a conviction against, or
ruling, order or judgment in favor of or against, the Company or Merger
Co. may be enforced by or against the Surviving Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. At the Effective Date, by virtue of the
Merger and without any action on the part of Intelect (Delaware), the
Constituent Corporations or their respective shareholders,
(a) CAPITAL STOCK OF MERGER CO. Each issued and outstanding share of
the capital stock of Merger Co. shall be converted into and become one
fully paid and nonassessable ordinary share, par value $0.01 per share, of
the Surviving Corporation.
(b) EXCHANGE RATIO FOR COMPANY COMMON SHARES. Each share of Company
Common Shares issued and outstanding immediately prior to the Effective
Date (other than Dissenting Shares (as hereinafter defined)) shall be
converted into one (1) share of common stock, par value $0.01 per share,
of Intelect (Delaware) ("Intelect (Delaware) Common Shares"). All such
shares of Company Common Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Intelect (Delaware) Common Shares.
(c) EXCHANGE RATIO FOR COMPANY PREFERRED SHARES. Each share of
Company 10% Cumulative Convertible Preferred Stock, Series A, $.01 par
value (the "Company Preferred Shares") issued and outstanding immediately
prior to the Effective Date (other than Dissenting Shares (as hereinafter
defined)) shall be converted into one (1) share of 10% Cumulative
Convertible Preferred Stock, Series A, par value $0.01 per share, of
Intelect (Delaware) ("Intelect (Delaware) Preferred Shares"). All such
shares of Company Preferred Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Intelect (Delaware) Preferred Shares.
(d) INTELECT (DELAWARE) COMMON SHARES OUTSTANDING PRIOR TO THE
EFFECTIVE DATE. Each share of Intelect (Delaware) Common Shares issued and
outstanding immediately prior to the Effective Date shall remain
outstanding, but no payment or distribution shall be made with respect
thereto.
(e) ASSUMPTION OF STOCK OPTIONS. Each outstanding Company Stock
Option (as defined in Section 5.10) whether vested or unvested shall be
assumed by Intelect (Delaware) as provided in Section 3.5.
(f) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON SHARES. All
Intelect (Delaware) Common Shares issued upon the surrender for exchange
of Company Common Shares in accordance with the terms hereof, and all
Intelect (Delaware) Preferred Shares issued upon the surrender for
exchange of Company Preferred Shares in accordance with the terms hereof,
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Company Common Shares and Company Preferred Shares,
2
<PAGE>
respectively, subject, however, to the Surviving Corporation's obligation
to pay any dividends or make any other distributions with a record date
prior to the Effective Date that may have been declared or made by the
Company on such shares in accordance with the terms of this Agreement or
prior to the date hereof and which remain unpaid at the Effective Date,
and after the Effective Date there shall be no further registration of
transfers on the share transfer books of the Surviving Corporation of the
Company Common Shares or the Company Preferred Shares that were
outstanding immediately prior to the Effective Date. From and after the
Effective Date, the stock transfer books of the Company (but not of the
Surviving Corporation) shall be closed and no transfer of Company Common
Shares shall thereafter be made. If, after the Effective Date,
Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article II.
(g) NO LIABILITY. Neither Intelect (Delaware) nor the Company shall
be liable to any holder of Company Common Shares, Company Preferred
Shares, Intelect (Delaware) Common Shares, or Intelect (Delaware)
Preferred Shares, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash in lieu of fractional Intelect
(Delaware) Common Shares or Intelect (Delaware) Preferred Shares delivered
to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any amounts remaining unclaimed by holders of any
such shares on the day immediately preceding the day on which such amounts
would otherwise escheat to or become property of any governmental entity
shall, to the extent permitted by applicable law, become the property of
Intelect (Delaware) free and clear of any claims or interest of any such
holders or their successors, assigns or personal representatives
previously entitled thereto.
2.2 DISSENTING SHARES. Notwithstanding anything in this Agreement to the
contrary, Company Common Shares or Company Preferred Shares that are issued and
outstanding immediately prior to the Effective Date and which are held by
shareholders who have properly exercised appraisal rights with respect thereto
under the Bermuda Act (the "Dissenting Shares") shall not be converted into or
represent the right to receive Intelect (Delaware) Common Shares or Intelect
(Delaware) Preferred Shares, respectively, as provided in Section 2.1, but the
holders of Dissenting Shares shall be entitled to receive such payment of the
appraised value of such shares held by them from the Surviving Corporation as
shall be determined pursuant to the Bermuda Act; provided, however, that if any
such holder shall have failed to perfect or shall withdraw or lose the right to
appraisal and payment under the Bermuda Act, each such holder's shares shall
thereupon be deemed to have been converted as of the Effective Date into the
right to receive Intelect (Delaware) Common Shares or Intelect (Delaware)
Preferred Shares, respectively, without any interest thereon, as provided in
Section 2.1, and such shares shall no longer be Dissenting Shares. Any payments
relating to Dissenting Shares shall be made solely by the Surviving Corporation
and no funds or other property have been or will be provided by Intelect
(Delaware) or any of its other direct or indirect subsidiaries for such payment.
2.3 EXCHANGE OF COMPANY SHARES FOR INTELECT (DELAWARE) SHARES. On the
Effective Date: (i) certificates which immediately prior to the Effective Date
represented Company Common Shares will for all purposes be deemed to represent
the same number of Intelect (Delaware) Common Shares; and (ii) certificates
which immediately prior to the Effective Date represented Company Preferred
Shares will for all purposes be deemed to represent the same number of Intelect
(Delaware) Preferred Shares. The Nasdaq National Market will consider the
delivery of existing stock certificates representing Common Shares of the
Company as constituting "good delivery" of Intelect (Delaware) Common Shares in
transactions subsequent to the Merger. It will not be necessary for holders of
Company Common Shares to exchange their existing stock certificates for stock
certificates of Intelect (Delaware) Common Shares.
ARTICLE III
ADDITIONAL AGREEMENTS
3.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. Intelect (Delaware) has
filed with the Securities and Exchange Commission (the "SEC") the Proxy
Statement and the S-4, in which the Proxy Statement will be included
3
<PAGE>
as a prospectus. Intelect (Delaware) shall use its reasonable best efforts to
have the S-4 declared effective under the Securities Act of 1933, as amended
(the "Securities Act"), as promptly as practicable after such filing. Intelect
(Delaware) shall use its reasonable best efforts to cause the Proxy Statement to
be mailed to shareholders of the Company at the earliest practicable date.
Intelect (Delaware) shall use its reasonable best efforts to obtain all
necessary state securities laws or "blue sky" permits, approvals, and
registrations in connection with the issuance of Intelect (Delaware) Common
Shares in the Merger and upon the exercise of the Company Stock Options (as
defined herein) and the Company shall furnish all information concerning the
Company and the holders of the Company Common Shares, including financial
statements required by Form S-4 and the proxy rules under the U.S. Securities
Exchange Act of 1934 as may be reasonably requested in connection with obtaining
such permits, approvals and registrations.
3.2 SHAREHOLDERS MEETINGS. The Company shall call a meeting of its
shareholders (respectively, the "Company Shareholder Meeting") to be held as
promptly as practicable after the date hereof for the purpose of voting upon
this Agreement and the Merger.
3.3 LISTING. Intelect (Delaware) shall use its reasonable best efforts to
cause the Intelect (Delaware) Common Shares to be issued in the Merger, the
Intelect (Delaware) Common Shares issuable upon exercise of warrants (as
described in Section 3.6) and the Intelect (Delaware) Common Shares issuable
upon exercise of the Company Stock Options and issuable under the Company Stock
Option Plan to be approved for trading on the Nasdaq National Market, subject to
official notice of issuance, prior to the Closing Date.
3.4 BOARD OF DIRECTORS AND OFFICERS AT THE EFFECTIVE DATE. Intelect
(Delaware) shall take all necessary action so that as of the Effective Date the
directors of Intelect (Delaware) shall only be those individuals identified as
directors on Exhibit A hereto and the officers of Intelect (Delaware) shall only
be those individuals identified as officers on Exhibit A hereto, except to the
extent any such individual is unwilling or unable to serve in such capacity.
3.5 STOCK OPTIONS; RESERVATION AND REGISTRATION OF SHARES.
(a) At the Effective Date, each outstanding option to purchase the
Company Common Shares and any stock appreciation rights related thereto
that have been granted pursuant to the Company's Stock Incentive Plan (a
"Company Stock Option"), whether vested or unvested, shall be assumed by
Intelect (Delaware). Each such option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable
under such Company Stock Option, a number of Intelect (Delaware) Common
Shares equal to the number of Company Common Shares purchasable pursuant
to such Company Stock Option at a price per share equal to the per-share
exercise price for the Company Common Shares purchasable pursuant to such
Company Stock Option; provided, however, that in the case of any option to
which Section 421 of the Code applies by reason of its qualification under
any of Sections 422-424 of the Code, the option price, the number of
shares purchasable pursuant to such option and the terms and conditions of
exercise of such option shall be determined in order to comply with
Section 424(a) of the Code; and provided further, that the number of
Intelect (Delaware) Common Shares that may be purchased upon exercise of
such Company Stock Option shall not include any fractional share and, upon
exercise of such Company Stock Option, a cash payment shall be made for
any fractional share based upon the closing price of Intelect (Delaware)
Common Shares on the Nasdaq National Market or, if then traded on an
exchange, such exchange, on the last trading day of the calendar month
immediately preceding the date of exercise.
(b) Intelect (Delaware) shall take all corporate action necessary to
reserve for issuance a sufficient number of Intelect (Delaware) Common
Shares for delivery upon exercise of the Company Stock Options. As soon as
practicable after the Effective Date, Intelect (Delaware) shall file with
the SEC a post-effective amendment to the existing Forms S-8 and S-3s
pursuant to Rule 414 of the Securities Act, or a registration statement on
Form S-8 (or any successor form) or another appropriate form with respect
to the
4
<PAGE>
Intelect (Delaware) Common Shares subject to the Company Stock Options and
shall use its best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so
long as the Company Stock Options remain outstanding.
3.6 TREATMENT OF WARRANTS. All warrants for Company Common Shares validly
existing and outstanding on the Effective Date will become obligations of
Intelect (Delaware). Each warrant assumed by Intelect (Delaware) will continue
to have, and be subject to, the same terms and conditions set forth in such
warrant in effect immediately prior to the Effective Date. Each such warrant
will be exercisable for that number of Intelect (Delaware) Common Shares which
the holder of such warrant would have been entitled to receive pursuant to the
Merger had such holder exercised such warrant in full immediately prior to the
Effective Date and elected to receive Intelect (Delaware) Common Shares in
exchange for Company Common Shares in the Merger. Intelect (Delaware) will
assume any registration obligation covering such warrants and underlying common
shares until such warrants are exercised or expire.
3.7 TREATMENT OF REGISTRATION RIGHTS. All contractual agreements of the
Company outstanding on the Effective Date to register Company Common Shares will
become obligations of Intelect (Delaware) to register Intelect (Delaware) Common
Shares issuable pursuant to the Reorganization. The registration rights
agreements assumed by Intelect (Delaware) will continue to have, and be subject
to the same terms and conditions as are currently set forth in such agreements.
3.8 OTHER EMPLOYEE BENEFIT PLANS. At the Effective Date, Intelect
(Delaware) will assume all employee benefit plans sponsored by the Company (and
all obligations of the Company thereunder) in effect as of the Effective Date or
with respect to which employee rights or accrued benefits are outstanding as of
the Effective Date.
3.9 OTHER ACTIONS. Except as contemplated by this Agreement, neither
Intelect (Delaware) nor the Company shall, and shall not permit any of its
Subsidiaries to, take or agree or commit to take any action that is reasonably
likely to result in any of the conditions to the Merger set forth in Article IV
not being satisfied. Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties hereto agrees to use its reasonable best
efforts to take or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable, to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement.
3.10 REORGANIZATION. It is the intention of Intelect (Delaware) and the
Company that the Merger will qualify as a reorganization described in Section
368(a) of the Code (and any comparable provisions of applicable state or local
law). Neither Intelect (Delaware) nor the Company (nor any of their respective
Subsidiaries) will take or omit to take any action (whether before, on or after
the Closing Date) that would cause the Merger not to be so treated. The parties
will characterize the Merger as such a reorganization for purposes of all
returns and other filings.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of 75% of the Company
Common Shares present or represented by proxy and voting at a special
general meeting of Company shareholders at which a quorum is present in
person or by proxy, and by the affirmative vote of 75% of the Company
Preferred Shares present or represented
5
<PAGE>
by proxy and voting at a special general meeting at which a quorum is
present in person or by proxy, with the Company Common Shares and the
Company Preferred Shares voting separately as classes, and by the
shareholders of Intelect (Delaware) and Merger Co. in accordance with the
DGCL.
(b) DISSENTERS' RIGHTS. Holders exercising their rights of dissent
and appraisal under the Bermuda Act shall not, in the opinion of the Board
of Directors, represent an unacceptable cash cost in light of the
Company's current and anticipated cash requirements.
(c) LISTING. The Intelect (Delaware) Common Shares issuable to the
Company's shareholders pursuant to this Agreement and such other Intelect
(Delaware) Common Shares required to be reserved for issuance in
connection with the Merger shall have been authorized for trading on the
Nasdaq National Market, upon official notice of issuance.
(d) OTHER APPROVALS. All filings required to be made prior to the
Effective Date with, and all consents, approvals, permits and
authorizations required to be obtained prior to the Effective Date from
any governmental entity and from any necessary parties in connection with
the execution and delivery of this Agreement.
(e) S-4. The S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order.
(f) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect nor shall any proceeding
brought by a domestic administrative agency or commission seeking any of
the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation, or order enacted, entered, enforced, or deemed
applicable to the Merger which makes the consummation illegal.
ARTICLE V
ABANDONMENT AND AMENDMENT
5.1 ABANDONMENT. At any time prior to the Effective Date, this Agreement
and Plan of Merger may be terminated and the Merger may be abandoned by the
Board of Directors of either the Company or Intelect (Delaware) or both,
notwithstanding approval of this Agreement and Plan of Merger by the
shareholders of the Company or Intelect (Delaware).
5.2. AMENDMENT. This Agreement and Plan of Merger may be amended by the
Boards of Directors of the Company and Intelect (Delaware) at any time prior to
the Effective Date, provided that an amendment made subsequent to the approval
to this Agreement and Plan of Merger by the shareholders of the Company shall
not (i) alter or change the amount or kink of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such corporation, (ii) alter or
change any term of the Certificate of Incorporation of Intelect (Delaware) to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of this Agreement and Plan of merger if such alteration or change would
adversely affect the holders of any class or series of the stock of such
corporation.
5.3 EFFECT OF ABANDONMENT. In the event of termination or abandonment of
this Agreement by either the Company or Intelect (Delaware) as provided in
Section 5.1, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Intelect (Delaware), Merger Co. or the
Company.
5.4 EXTENSION; WAIVER. At any time prior to the Effective Date, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for
6
<PAGE>
the performance of any of the obligations or other acts of the other parties
hereto; (ii) waive any inaccuracies in any representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii)
waivecompliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE VI
GENERAL PROVISIONS
6.1 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the word "include," "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. Unless the context otherwise
requires, "or" is disjunctive but not necessarily exclusive, and words in the
singular include the plural and in the plural include the singular.
6.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
6.3 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(together with any other documents and instruments referred to herein) (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereto and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
6.4 GOVERNING LAW. Except to the extent that the laws of Bermuda or the
State of Delaware are mandatorily applicable to the Merger or the internal
affairs of any of the parties, this Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
6.5 SEVERABILITY. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or the failure to
take an action constitutes a material breach of this Agreement or makes the
Agreement impossible to perform in which case this Agreement shall terminate as
if the parties mutually agreed under Section 5.1(a).
6.6 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
7
<PAGE>
IN WITNESS WHEREOF, each party has caused this Agreement to be signed by
its respective officers thereunto duly authorized, all as of the date first
written above.
INTELECT (DELAWARE): INTELECT COMMUNICATIONS, INC.
(a Delaware corporation)
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: Chairman of the Board
MERGER CO.: INTELECT MERGER CO.
(a Delaware corporation)
By: /s/ HERMAN M. FRIETSCH
Name: Herman M. Frietsch
Title: Chairman of the Board
THE COMPANY: INTELECT COMMUNICATIONS SYSTEMS
LIMITED (a Bermuda corporation)
/s/ HERMAN M. FRIETSCH
Herman M. Frietsch
President and Chief Executive Officer
8
EXHIBIT 4.1
CERTIFICATE OF THE DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF THE $2.0145, 10% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES A, PAR VALUE $.01 PER SHARE, OF INTELECT COMMUNICATIONS,
INC. AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF, WHICH HAVE NOT
BEEN SET FORTH IN THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OR THE
BY-LAWS OF THE CORPORATION.
------------------------
Pursuant to the
By - Laws of the Corporation
------------------------
The undersigned, Herman M. Frietsch, Chief Executive Officer of
INTELECT COMMUNICATIONS, INC. a company with limited liability organized and
existing under the laws of the State of Delaware (hereinafter called the
"Corporation"), DO HEREBY CERTIFY that the Board of Directors of the Corporation
duly adopted the following resolution on __________________, 1997:
RESOLVED, that pursuant to the authority expressly granted to
and vested in the Board of Directors of the Corporation by the provisions
of the Amended and Restated Certificate of Incorporation and the By-Laws
of the Corporation, this Board of Directors hereby creates a series of
Preferred Stock, par value US$.01 per share, of the Corporation, to
consist of 10,000,000 shares of such Preferred Stock, and this Board of
Directors hereby fixes the designations, preferences and relative,
participating, optional or other special rights of the shares of such
series, and the qualifications, limitations, or restrictions thereof (in
addition to the designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, set forth in the Amended and Restated Certificate of
Incorporation of the Corporation which are applicable to Preferred Stock
of all series) as follows (the "Designation"):
I. DESIGNATION
1.01 The Designation of the series of Preferred Stock created by
this resolution shall be "$2.0145, 10% Cumulative Convertible Preferred Stock,
Series A" (hereinafter called the "Series A Preferred Stock").
II. CASH DIVIDENDS ON SERIES A PREFERRED STOCK
2.01 The holders of shares of the Series A Preferred Stock will be
entitled to receive, when, as and if declared by the Corporation's Board of
Directors out of funds of the Corporation legally available therefor, cumulative
cash dividends on the shares of the Series A Preferred Stock at the rate of
$0.20145 per annum per share, payable quarterly on December 31, March 31, June
30 and September 30, in each year, commencing December 31, 1997 (accrued from
the date of original issue). Such dividends shall be cumulative from the date of
original issue of such shares. Each such dividend shall be paid to the holders
of record of shares of the Series A Preferred Stock as they appear on the stock
register of the Corporation on such record date, not more than 30 days nor less
than 10 days preceding the dividend payment date thereof, as shall be fixed by
the Board of Directors of the Corporation or a duly authorized committee
thereof. Dividends in arrears on the Series A Preferred Stock shall accrue
interest at the dividend rate payable on the Preferred Stock.
2.02 If dividends are not paid in full or declared in full and sums
set apart for the payment thereof upon the Series A Preferred Stock and any
other Preferred Stock ranking on a parity as to dividends with the Series A
Preferred Stock, all dividends declared upon shares of Series A Preferred Stock
and any other Preferred Stock ranking on a parity as to dividends shall be
declared pro rata so that in all cases the amount of dividends declared per
share on the Series A Preferred Stock and such other Preferred Stock shall bear
to each other the same ratio that accumulated dividends per share, including
dividends accrued or in arrears, if any, on the shares of Series A Preferred
Stock and such
<PAGE>
other Preferred Stock bear to each other. Except as provided in the preceding
sentence, unless full cumulative dividends on the Series A Preferred Stock have
been paid or declared in full and sums set aside for the payment thereof, no
dividends shall be declared or paid or set aside for payment or other
distribution made upon the common stock, par value $.01 per share, of the
Corporation (the "Common Stock"), or any other capital stock of the Corporation
ranking junior to or on a parity with the Series A Preferred Stock as to
dividends or liquidation rights, nor shall any Common Stock, or any other
capital stock of the Corporation ranking junior to or on a parity with the
Series A Preferred Stock as to dividends or upon liquidation be redeemed,
purchased or otherwise acquired for any consideration (or any payment made to or
available for a sinking fund for the redemption of any shares of such stock) by
the Corporation or any subsidiary of the Corporation (except by conversion into
stock of the Corporation ranking junior to the Series A Preferred Stock as to
dividends and liquidation rights).
2.03 The terms "dividends accrued" or "dividends in arrears"
whenever used herein with reference to the Preferred Stock shall be deemed to
mean an amount which shall be equal to dividends thereon at the annual dividend
rates per share for the respective series from the date or dates on which such
dividends commence to accrue to the end of the then current quarterly dividend
period for such Preferred Stock (or, in the case of redemption, to the date of
redemption), less the amount of all dividends paid, or declared in full and sums
set aside for the payment thereof, upon such Preferred Stock.
2.04 Dividends payable on the Series A Preferred Stock for any
period less than a full quarterly dividend period shall be computed on the basis
of a 360-day year of twelve 30-day months and the actual number of days elapsed
in the period for which payable.
2.05 At the option of the Corporation, dividends payable on the
Series A Preferred Stock may be paid in Common Stock in an amount equivalent to
the accrued dividend, converted into shares of Common Stock at the average
closing market bid price for the five (5) consecutive trading days prior to the
date the dividend is otherwise payable, provided that the Common Stock is, at
the dividend payment date, be listed with a national exchange, including the
NASDAQ National Market System.
III. OPTIONAL REDEMPTION OF SERIES A PREFERRED STOCK
3.01 The Series A Preferred Stock will be redeemable at the option
of the Corporation by a duly adopted resolution of its Board of Directors, at
any time in whole or from time to time in part, subject to the limitations set
forth below, at the following redemption prices per share plus, in each case,
all dividends accrued and unpaid on the Series A Preferred Stock up to the date
fixed for redemption, upon giving notice as provided hereinbelow; provided,
however, that the Corporation may not redeem any shares of Series A Preferred
Stock prior to June 1, 1999.
If redeemed during the twelve month
PERIOD BEGINNING JUNE 1, PRICE
1999 110% of the face amount, $2.0145
2000 105% "
thereafter 100% "
3.02 If less than all of the outstanding shares of Series A
Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined PRO RATA.
3.03 At least 30 days but not more than 60 days prior to the date
fixed for the redemption of shares of the Series A Preferred Stock, a written
notice shall be mailed to each holder of record of shares of Series A Preferred
Stock to be redeemed in a postage prepaid envelope addressed to such holder at
his post office address as shown on the records of the Corporation, notifying
such holder of the election of the Corporation to redeem such shares, stating
the date fixed for redemption thereof (hereinafter referred to as the
"Redemption Date"), and calling upon such holder to surrender to the Corporation
on the Redemption Date at the place designated in such notice his certificate or
certificates representing the number of shares specified in such notice of
redemption. On or after the Redemption Date each holder of shares of Series A
Preferred Stock to be redeemed shall present and surrender his certificate or
certificates for such shares to the Corporation at the place designated in such
notice and thereupon the redemption price of such shares shall be paid to or on
the order of the person whose name appears on such certificate or certificates
as the owner thereof and
- 2 -
<PAGE>
each surrendered certificate shall be canceled. In case less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Redemption Date
(unless default shall be made by the Corporation in payment of the redemption
price) all dividends on the shares of Series A Preferred Stock designated for
redemption in such notice shall cease to accrue, and all rights of the holders
thereof as stockholders of the Corporation, except the right to receive the
redemption price thereof (including all accrued and unpaid dividends up to the
Redemption Date) upon the surrender of certificates representing the same, shall
cease and terminate and such shares shall not thereafter be transferred (except
with the consent of the Corporation) on the books of the Corporation, and such
shares shall not be deemed to be outstanding for any purpose whatsoever. At its
election the Corporation, prior to the Redemption Date, may deposit the
redemption price (including all accrued and unpaid dividends up to the
Redemption Date) of the shares of Series A Preferred Stock so called for
redemption in trust for the holders thereof with a bank or trust company (having
a capital, surplus and undivided profits aggregating not less than $50,000,000)
in the Borough of Manhattan, City and State of New York, the City of Dallas,
State of Texas, or in any other city in which the Corporation at the time shall
maintain a transfer agency with respect to such stock, in which case such notice
to holders of the Series A Preferred Stock to be redeemed shall state the date
of such deposit, shall specify the office of such bank or trust company as the
place of payment of the redemption price, and shall call upon such holders to
surrender the certificates representing such shares at such price on or after
the date fixed in such redemption notice (which shall not be later than the
Redemption Date) against payment of the redemption price (including all accrued
and unpaid dividends up to the Redemption Date). From and after the making of
such deposit, the shares of Series A Preferred Stock so designated for
redemption shall not be deemed to be outstanding for any purpose whatsoever, and
the rights of the holders of such shares shall be limited to the right to
receive the redemption price of such shares (including all accrued and unpaid
dividends up to the redemption date), without interest, upon surrender of the
certificates representing the same to the Corporation at said office of such
bank or trust company. Any interest accrued on such funds shall be paid to the
Corporation from time to time. Any moneys so deposited which shall remain
unclaimed by the holders of such Series A Preferred Stock at the end of two
years after the Redemption Date shall be returned by such bank or trust company
to the Corporation, after which the holders of the Series A Preferred Stock
shall have no further interest in such moneys.
3.04 Shares of the Series A Preferred Stock retired pursuant to the
provisions of this ARTICLE III shall not be reissued.
IV. VOTING RIGHTS
4.01 The holders of the Series A Preferred Stock shall not, except
as required by law or as set forth herein, have any right or power to vote on
any question or in any proceeding at any meeting of stockholders, provided that
holders of the Series A Preferred Stock shall receive notice of, and be entitled
to representation at any such meeting. On any matters on which the holders of
the Series A Preferred Stock shall be entitled to vote, they shall be entitled
to one vote for each share held.
4.02 In case at any time the equivalent of three (3) or more full
quarterly dividends (whether consecutive or not) on any series of Preferred
Stock shall be in arrears, then during the period (hereinafter in this SECTION
4.02 called the "Class Voting Period") commencing with such time and ending with
the time when all arrears in dividends on all Preferred Stock shall have been
paid and the full dividend on all Preferred Stock for the then current quarterly
dividend period shall have been paid or declared and set apart for payment, at a
meeting called by the holders of the Series A Preferred Stock Corporation held
for the election of directors during the Class Voting Period, the holders of a
majority of the outstanding shares of Series A Preferred Stock represented in
person or by proxy at said meeting shall be entitled, as a class, to the
exclusion of the holders of all other classes of stock of the Corporation, to
elect two directors of the Corporation (or such greater number constituting not
less than 35% of the number of Directors authorized), each share of Series A
Preferred Stock entitling the holder thereof to one vote for each Director.
4.03 Any director who shall have been elected by holders of Series A
Preferred Stock or by any director so elected as herein contemplated, may be
removed at any time during a Class Voting Period, either for or without cause,
by, and only by, the affirmative votes of the holders of record of a majority of
the outstanding shares of Series A Preferred Stock given at a special meeting of
such stockholders called for the purpose, and any vacancy thereby created may be
filled during such Class Voting Period by the holders of Series A Preferred
Stock, present in person or represented by proxy at such meeting. Any director
to be elected by the Board of Directors of the Corporation
- 3 -
<PAGE>
to replace a director elected by holders of Series A Preferred Stock, or elected
by a director as in this sentence provided, and who dies, resigns, or otherwise
ceases to be a director shall, except as otherwise provided in the preceding
sentence, be elected by the remaining director theretofore elected by the
holders of Series A Preferred Stock. At the end of the Class Voting Period the
holders of Series A Preferred Stock shall be automatically divested of all
voting power vested in them under this SECTION 4.03 but subject always to the
subsequent vesting hereunder of voting power in the holders of Series A
Preferred Stock in the event of any similar cumulated arrearage in payment of
quarterly dividends occurring or defaults thereafter. The term of all directors
elected pursuant to the provisions of this SECTION 4.03 shall in all events
expire at the end of the Class Voting Period.
4.04 The holders of the Series A Preferred Stock shall not, except
as required by law or as set forth herein, have any right or power to vote on
any question or in any proceeding at any meeting of stockholders, to:
(i) "solicit" proxies with respect to Voting Securities under
any circumstances or become a "participant" in any "election contest" relating
to the election of directors of the Corporation, as such terms are defined in
Regulation 14A under the 1934 Act, as amended or induce or attempt to induce any
other person to do any of the foregoing; or
(ii) assist any other person to acquire or affect control of
the Corporation.
V. PRIORITY OF SERIES A PREFERRED STOCK IN EVENT OF DISSOLUTION
5.01 In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of the Series A Preferred Stock shall be entitled to receive, out of the
remaining net assets of the Corporation, the amount of Two and 1.45/100 dollars
($2.0145) in cash for each share of Series A Preferred Stock, plus an amount
equal to all dividends accrued and unpaid on each such share up to the date
fixed for distribution, before any distribution shall be made to the holders of
the Common Stock, or any other capital stock of the Corporation ranking (as to
any such distribution) junior to the Series A Preferred Stock. If upon any
liquidation, dissolution or winding up of the Corporation, the assets
distributable among the holders of any series of Preferred Stock ranking (as to
any such distribution) on a parity with the Series A Preferred Stock shall be
insufficient to permit the payment in full to the holders of all such series of
Preferred Stock of all preferential amounts payable to all such holders, then
the entire assets of the Corporation thus distributable shall be distributed
ratably among the holders of all series of the Preferred Stock ranking (as to
any such distribution) on a parity with the Series A Preferred Stock in
proportion to the respective amounts that would be payable per share if such
assets were sufficient to permit payment in full.
5.02 For purposes of this ARTICLE V, a distribution of assets in any
dissolution, winding up or liquidation shall not include (i) any consolidation
or merger of the Corporation with or into any other corporation, (ii) any
dissolution, liquidation, winding up, or reorganization of the Corporation
immediately followed by reincorporation of another successor corporation or
(iii) a sale or other disposition of all or substantially all of the
Corporation's assets to another corporation; PROVIDED, THAT in each case,
effective provision is made in the certificate of incorporation or by-laws of
the resulting and surviving corporation or otherwise for the protection and
continuation of the rights of the holders of Series A Preferred Stock.
VI. CONVERSION OF SERIES A PREFERRED STOCK
6.01 Holders of shares of Series A Preferred Stock will have the
right, exercisable at any time after August 31, 1997 , except in the case of
shares of Series A Preferred Stock called for redemption as provided above, to
convert such shares of Preferred Stock into shares of Common Stock (calculated
as to each conversion to the nearest 1/100th of a share) at the conversion rate
of One (1.00) share of Common Stock for each share of Series A Preferred Stock
so converted, subject to adjustment as described below. In the case of shares of
Series A Preferred Stock called for redemption, conversion rights will expire at
the close of business on the tenth day preceding the redemption date. No payment
or adjustment for accrued dividends on the Series A Preferred Stock is to be
made on conversion. However, if a share of Series A Preferred Stock (other than
a share of Series A Preferred Stock called for redemption within such period) is
converted between the record date with respect to any dividend payment and the
next succeeding
- 4 -
<PAGE>
dividend payment date, such share of Series A Preferred Stock must be
accompanied by funds equal to the dividend payable on such dividend payment date
on the Series A Preferred Stock so converted.
6.02 Any holder of shares of the Series A Preferred Stock electing
to convert such shares or any portion thereof shall deliver the certificates
therefor to the principal office of any transfer agent for the Common Stock,
with the form of notice of election to convert endorsed on such certificates
fully completed and duly executed. The conversion right with respect to any such
shares of the Series A Preferred Stock shall be deemed to have been exercised at
the date upon which the certificates therefor with such notice of election duly
executed shall have been so delivered, and the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock upon said date.
6.03 No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon conversion of shares of the Series A
Preferred Stock. If more than one share of the Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder the number of full
shares of Common Stock which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of the Series A
Preferred Stock so surrendered. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion of any share or shares of the
Series A Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fraction in an amount equal to the same fraction of the last sales price
(or the quoted closing bid price if there were no sales) per share of Common
Stock on the principal exchange on which the Common Stock is listed on the
business day next preceding the date of conversion, or, if the Common Stock is
not then listed on an exchange, the closing sales price (or the quoted closing
bid price if there were no sales) as reported by the National Association of
Securities Dealers Automated Quotation System on the business day next preceding
the date of conversion. In the absence of one or more such quotations, the Board
of Directors shall in good faith determine the current market price on the basis
of such quotation as it considers appropriate.
6.04 If a holder converts shares of Series A Preferred Stock, the
Corporation shall pay any documentary, stamp or similar issue or transfer tax
due on the issue of shares of Common Stock upon the conversion. The holder,
however, shall pay any such tax which is due because the shares are issued in a
name other than the name of such holder.
6.05 The Corporation shall reserve out of its authorized but
unissued Common Stock or its Common Stock held in treasury enough shares of
Common Stock to permit the conversion of all of the shares of Series A Preferred
Stock, and shall increase from time to time, the authorized amount of its Common
Stock if at any time the authorized amount of its Common Stock remaining
unissued shall not be sufficient to permit the conversion of all Series A
Preferred Stock at the time outstanding. All shares of Common Stock which may be
issued upon conversion of the shares of Series A Preferred Stock shall be
validly issued, fully paid and nonassessable. In order that the Corporation may
issue shares of Common Stock upon conversion of the shares of Series A Preferred
Stock, the Corporation will comply with all applicable Federal and State
securities laws and will list such shares on each securities exchange on which
the Common Stock is listed.
6.06 The conversion rate in effect at any time shall be subject to
adjustment as follows (no consent to the actions underlying such adjustment,
intended or implied):
(i) In case the Corporation shall (i) pay a dividend on Common
Stock in Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
conversion rate in effect immediately prior thereto shall be adjusted
retroactively as provided below so that the number of shares of Common Stock
into which each share of Series A Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of shares of Common
Stock into which such share of Series A Preferred Stock was theretofore
convertible by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately following such action and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior thereto. Such adjustment shall be made whenever any event
listed above shall occur and shall become effective retroactively immediately
after the record date in the case of a dividend and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
- 5 -
<PAGE>
(ii) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them (for a period expiring within 45
days after the record date therefor) to subscribe for or purchase shares of
Common Stock at a price per share less than the current market price per share
of Common Stock (as determined in accordance with the provisions of
sub-paragraph (iv) below) at the record date therefor the number of shares of
Common Stock into which each share of Series A Preferred Stock shall thereafter
be convertible shall be determined by multiplying the number of shares of Common
Stock into which such share of Series A Preferred Stock was theretofore
convertible by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for subscription or
purchase and of which the denominator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock which the aggregate offering price
of the number of shares of Common Stock so offered would purchase at the current
market price per share of Common Stock (as determined in accordance with the
provisions of sub-paragraph (iv) below). Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective retroactively
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants.
(iii) In case the Corporation shall distribute to all holders
of its Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Corporation is the continuing corporation)
shares of capital stock (other then Common Stock), evidences of its indebtedness
or assets (excluding cash dividends) or rights to subscribe (excluding those
referred to in paragraph (ii) above), then in each such case the number of
shares of Common Stock into which each share of Series A Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of Common Stock into which such share of Series A Preferred Stock was
theretofore convertible by a fraction of which the numerator shall be the number
of outstanding shares of Common Stock multiplied by the current market price per
share of Common Stock (as determined in accordance with the provisions of
sub-paragraph (iv) below) on the date of such distribution and of which the
denominator shall be the number of outstanding shares of Common Stock multiplied
by such current market price per share of Common Stock, less the fair market
value (as determined by the independent auditors of the Corporation, whose
determination shall be conclusive, and described in a statement filed with the
transfer agent for the Series A Preferred Stock) of the capital stock, assets or
evidences of indebtedness so distributed or of such subscription rights. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective retroactively immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(iv) For the purpose of any computation under sub-paragraphs
(ii) and (iii) above, the current market price per share of Common Stock at any
date shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days commencing 45 trading days before the day in question.
The closing price for each day shall be the reported last sale price or, in case
no such reported sale takes place on such day, the reported closing bid price,
in either case, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which the shares are listed or
admitted to trading, or if they are not listed or admitted to trading on any
such exchange, the closing bid price as furnished by any member of the National
Association of Securities Dealers, Inc. or any comparable organization selected
from time to time by the Corporation for that purpose.
(v) No adjustment in the conversion rate shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the rate then in effect; PROVIDED, HOWEVER, that any adjustments which by reason
of this sub-paragraph (v) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
(vi) In the event that, at any time as a result of an
adjustment made pursuant to
subparagraph (i) or (iii) above, the holder of any share of Series A Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares of the Corporation other than shares of the Common Stock, thereafter the
number of such other shares so receivable upon conversion of any share of Series
A Preferred Stock shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with respect
to the Common Stock contained in paragraphs (i) through (v) of this paragraph,
and the other provisions of this ARTICLE VI with respect to the Common Stock
shall apply on like terms to any such other shares.
(vii) Whenever the conversion rate is adjusted, as herein
provided, the Board of Directors of the Corporation shall certify the conversion
rate after such adjustment and setting forth a brief statement of the facts
- 6 -
<PAGE>
requiring such adjustment and a computation thereof. The Corporation shall
promptly cause a notice of the adjusted conversion rate to be mailed to each
registered holder of Series A Preferred Stock. In the event any holders of the
Series A Preferred Stock challenge the determination of fair market price, such
value shall be determined by a firm of independent certified public accountants
selected by the Board of Directors of the Corporation (who may be the regular
accountants employed by the Corporation) for which the costs shall be divided
between the Corporation and such holders.)
6.07 If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common Stock issuable upon
conversion of the Series A Preferred Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (ii) any consolidation or merger to
which the Corporation is a party (other than a consolidation or merger in which
the Company is the continuing corporation and which does not result in any
reclassification of, or change (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination) in, outstanding shares of Common Stock) or (iii) any
sale or conveyance of the properties and assets of the Corporation as, or
substantially as, an entirety to any other corporation; then the Corporation or
such successor or purchasing corporation, as the case may be, shall provide in
its Certificate of Incorporation (or analogous document) that each share of
Series A Preferred Stock shall be convertible into the kind and amount of shares
of stock and other securities or property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock issuable upon conversion of each such share of Series A
Preferred Stock immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such Certificate of Incorporation (or
analogous document) shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article. The Corporation shall cause notice of the execution of any such event
contemplated by this paragraph to be mailed to each holder of Series A Preferred
Stock as soon as practicable. The above provisions of this paragraph shall
similarly apply to successive reclassifications, consolidations, mergers and
sales.
6.08 The Corporation at any time may reduce the conversion price (or
increase the conversion rate), temporarily or otherwise, by any amount but in no
event shall such conversion price be less than the par value of the Common Stock
at the time such reduction is made. Whenever the conversion price is reduced
pursuant to this paragraph, the Corporation shall mail to the holders a notice
of the reduction. The Corporation shall mail the notice at least 15 days before
the date the reduced conversion price (or increased conversion rate) takes
effect. The notice shall state the reduced conversion price (or increased
conversion rate) and the period it will be in effect. A reduction of the
conversion price (or increase in conversion rate) does not change or adjust the
conversion price otherwise in effect for purposes of SECTION 6.06 PARAGRAPH (VI)
AND (VII).
VII. RANKING OF SERIES A PREFERRED STOCK
7.01 With regard to rights to receive dividends and distributions
upon dissolution of the Corporation, the Series A Preferred Stock shall rank
senior in rank and prior to all other stock of the Corporation outstanding at
the time of issuance of the Series A Preferred Stock.
VIII. PREEMPTION
8.01 The Series A Preferred Stock shall carry a right of preemption
for New Securities as follows: "New Securities" shall mean any Common Stock of
the Corporation, whether now authorized or not, and rights, options or warrants
to purchase said capital stock, and debt or equity securities of any type
whatsoever that are, or may become, convertible into said Common Stock;
provided, however, that for purposes of this SECTION 8.01, the term "New
Securities" does not include securities issued in Excluded Financings. "Excluded
Financings" mean (i) non-convertible debt or non-convertible preferred stock
financings of any type, (ii) underwritten public offerings of Common Stock,
(iii) private financings (taking into account all material aspects thereof such
as conversion price, issuance price and any warrants issued in connection
therewith) which are consummated at a price at least equal to the then-current
Market Price of the Common Stock (which for the purposes of this Section 8.01,
shall be the average closing market bid price for the Common Stock for the five
(5) consecutive trading days preceding the date in question), (iv) project
financings, (v) bank financings and (vi) any capital stock of the Corporation
issued pursuant to warrants or other rights issued prior to the date hereof,
(vii) the issuance, sale, exercise or conversion or grant of options to purchase
Common Stock
- 7 -
<PAGE>
pursuant to any of the Corporation's employee stock option, compensation, bonus
or incentive plans or otherwise, and (viii) the issuance or sale of any equity
or debt securities used in acquisitions by the Corporation of operating assets
or stock of entities to be owned and operated by the Corporation or a
Subsidiary.
8.02 In the event the Corporation issues any New Securities , then
the holders of the Series A Preferred Stock shall be entitled to purchase from
the Corporation in cash for the same per share consideration at which such New
Securities are issued in such financing (or the per share price at which a share
of the New Securities is acquirable upon exercise or conversion of options,
warrants or other rights to Common Stock ("Common Stock Equivalents") that are
issued in such financing) and the Corporation shall be obligated to issue to
such holders that additional number of shares of Common Stock which, when added
to the number of shares of Common Stock then held by the holders, plus the
number of shares of Common Stock issuable upon conversion of the Preferred
Shares held by holders thereof, will represent a percentage of the number of
Common Stock immediately after such issuance that is the same as the percentage
of the number of Common Stock outstanding immediately before such issuance
represented by the number of Common Stock held by Coastal, in each case
including Common Stock Equivalents, plus the number of Common Stock issuable
upon conversion of the Preferred Shares held by Coastal. The preemptive rights
granted under this SECTION VIII shall not include (i) non-convertible debt or
non-convertible preferred stock financings of any type; (ii) any capital stock
of the Corporation issued pursuant to warrants or other rights issued prior to
the date hereof, (iii) the issuance, sale, exercise or conversion or grant of
options to purchase Common Stock pursuant to any of the Corporation's employee
stock option, compensation, bonus or incentive plans or otherwise, and (iv) the
issuance or sale of any equity or debt securities used in acquisitions by the
Corporation of operating assets or stock of entities to be owned and operated by
the Corporation or a Subsidiary.
8.03 For the purposes of this SECTION VIII, the per share
consideration with respect to the issuance of Common Stock will be the price per
share received by the Corporation, prior to the payment of any expenses,
commissions, discounts and other applicable costs. With respect to the issuance
of Common Stock Equivalents, the per share consideration will be determined by
dividing the maximum number of Common Stock issuable with respect to such Common
Stock Equivalents into the total aggregate consideration received by the
Corporation upon the sale or issuance of such Common Stock Equivalents plus the
minimum aggregate amount of additional consideration received by the Corporation
upon the conversion or exercise of such Common Stock Equivalents. In connection
with the sale or issuance of Common Stock for non-cash consideration, the amount
of consideration will be the fair market value of such consideration as
determined in good faith by the Board of Directors of the Corporation.
IX. REGISTRATION RIGHTS
9.01 DEMAND REGISTRATIOAt any time and from time to time, but in no
event earlier than
June 1, 1998, a holder or holders, holding in the aggregate at least ten percent
(10%) of the issued and outstanding Series A Preferred Shares, may make a
written demand upon the Corporation to file, within sixty (60) days after such
written demand is made, with the US Securities and Exchange Commission a
registration statement covering all of the authorized, issued and outstanding
Series A Preferred Stock (the "Registration Statement"). The Corporation shall
cause such Registration Statement to become effective as soon as practicable and
to cause all of the (i) the Series A Preferred Stock and (ii) any Preferred
Stock issued or issuable at any time or from time to time in respect of the
Series A Preferred Stock upon a conversion, stock split, stock dividend,
recapitalization or other similar event involving the Corporation (collectively
"Registrable Securities" ) to be qualified in such state jurisdictions as the
holders may request.
(ii) The demand registration rights provided in this Section
shall be subject to the following limitations:
(a) If, upon receipt of any request for registration of
Registrable Securities the Corporation is then engaged by a reputable and
nationally or regionally recognized investment banking firm regarding a good
faith proposed registered public offering of Shares of Common Stock, then the
Company shall give notice of such negotiations to all holders of unregistered
securities of the Corporation within ten (10) days of the date upon which the
Corporation received such holder's request and the Corporation shall not, for
sixty (60) days after giving such notice to such holders, be required to
undertake a required registration of the Registrable Securities pursuant to this
Section in response to such holder's request; provided, however, that if such
registration statement of such proposed public offering is not filed within
sixty (60) days after the Corporation gives such notice to holders of the
Registrable
- 8 -
<PAGE>
Securities, the Corporation shall respond to the holder's request for
registration of Registrable Securities and, unless otherwise required by the
provisions of this Section, register such Registrable Securities, no later than
twenty (20) days after the expiration of such sixty (60) day period and as
provided herein;
(b) The filing of a Registration Statement covering the
Registrable Securities
shall be in compliance with all applicable statutes, rules and regulations of
all applicable government authorities and of every exchange on which the Capital
Stock of the Company is listed; and
(c) The Corporation shall only be required to file a
Registration Statement if
the holders of the Registrable Securities are not otherwise reasonably able to
transfer the Registrable Securities pursuant to an exemption from registration
under applicable federal and state securities laws.
(d) The Corporation shall be entitled to require that a
holder or holders of
Registrable Securities refrain from effecting any public sales or distributions
of the Registrable Securities for a period not to exceed ninety (90) days if the
board of directors of the Corporation reasonably determines that such public
sales or distributions would interfere in any material respect with any
transaction involving the Corporation and for which the holder or holders has
declined a right of first refusal or of preemption granted by the Corporation.
The Corporation shall be required to lift such restrictions regarding effecting
public sales or distributions of the Registrable Securities as soon as
reasonably practicable
9.02 PIGGYBACK REGISTRATION.
(i) Subject to the terms hereof, if at any time or from time
to time the Corporation or any shareholder of the Corporation shall determine to
register any of its securities (except for registration statements relating to
employee benefit plans or exchange offers), either for its own account or the
account of a security holder, the Corporation will promptly give to the holders
of Registrable Securities written notice thereof not less than 30 days prior to
the filing of any registration statement; and include in such registration (and
any related qualification under blue sky laws or other compliance), and in the
underwriting involved therein, if any, such Registrable Securities as such
holders may request in a writing delivered to the Corporation within twenty (20)
days after the holders' receipt of written notice.
(ii) The holders of Registrable Securities may participate in
any number of registrations until all of the shares held by holders of
Registrable Securities have been distributed pursuant to a registration or until
the shares are transferable pursuant to Rule 144 under the Securities Act.
(iii) If any registration statement is an underwritten public
offering, the right of holders of Registrable Securities to registration
pursuant to this Section shall be conditioned upon each such holder's
participation in such reasonable underwriting arrangements as the Corporation
shall make regarding the offering, and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein. Holders of
Registrable Securities and all other shareholders proposing to distribute their
securities through such underwriting shall (together with the Corporation and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Corporation. Notwithstanding any other
provision of this Section 9.02, if the managing underwriter concludes in its
reasonable judgment that the number of shares to be registered for selling
shareholders (including the holders of Registrable Securities) would materially
adversely effect such offering, the number of shares to be registered, together
with the number of shares of Preferred Stock or other securities held by other
shareholders proposed to be registered in such offering, shall be reduced on a
pro rata basis based on the number of shares proposed to be sold by the holders
of Registrable Securities as compared to the number of Shares proposed to be
sold by all shareholders. If any holder of Registrable Securities disapproves of
the terms of any such underwriting, it may elect to withdraw therefrom by
written notice to the Company and the managing underwriter, delivered not less
than 10 days before the effective date. The Registrable Securities excluded by
the managing underwriter or withdrawn from such underwriting shall be withdrawn
from such registration, and shall not be transferred in a public distribution
prior to one hundred twenty (120) days after the effective date of the
registration statement relating thereto, or such other shorter period of time as
the underwriters may require.
- 9 -
<PAGE>
9.03 EXPENSES OF REGISTRATION. All Registration Expenses shall be
borne by the Company. Unless otherwise stated herein, all Selling Expenses
relating to securities registered on behalf of the holders of Registrable
Securities shall be borne by the holders of Registrable Securities.
9.04 INDEMNIFICATION.
(i) To the extent permitted by law, the Corporation will
indemnify each holder of Registrable Securities, each of its officers and
directors and partners, and each person controlling such holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
to the extent such expenses, claims, losses, damages or liabilities arise out of
or are based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other similar document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Corporation of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Corporation in connection with any such registration,
qualification or compliance, and the Corporation will reimburse each holder of
Registrable Securities, each of its officers and directors and partners, and
each person controlling each holder of Registrable Securities, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained herein shall not apply to
amounts paid in settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Corporation (which consent
shall not unreasonably be withheld); provided, further, that the Corporation
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to the Corporation by a holder
of Registrable Securities, such controlling person or such underwriter
specifically for use therein; provided, however, that the indemnity contained
herein shall not apply to amounts paid in settlement of any claim, loss, damage,
liability, or expense if settlement is effected without the consent of such
holder of Registrable Securities (which consent shall not be unreasonably
withheld).
Notwithstanding the foregoing, insofar as the foregoing indemnity relates to
any such untrue statement (or alleged untrue statement) or omission (or alleged
omission) made in the preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the Commission at the time the registration
statement becomes effective or in the final prospectus filed with the Commission
pursuant to the applicable rules of the Commission or in any supplement or
addendum thereto, the indemnity agreement herein shall not inure to the benefit
of any underwriter if a copy of the final prospectus filed pursuant to such
rules, together with all supplements and addenda thereto, was not furnished to
the person or entity asserting the loss, liability, claim or damage at or prior
to the time such furnishing is required by the Securities Act.
(ii) To the extent permitted by law, each holder of
Registrable Securities will, if securities held by such holder are included in
the securities as to which such registration, qualification or compliance is
being effected pursuant to terms hereof, indemnify the Corporation, each of its
directors and officers, each underwriter, if any, of the Corporation's
securities covered by such a registration statement, each person who controls
the Corporation or such underwriter within the meaning of Section 15 of the
Securities Act, and each other person selling the Corporation's securities
covered by such registration statement, each of such person's officers and
directors and each person controlling such persons within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) by such holder of a material fact contained in any
such registration statement, prospectus, offering circular or other document, or
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, or
any violation by such holder of Registrable Securities of any rule or regulation
promulgated under the Securities Act applicable to holders of Registrable
Securities and relating to action or inaction required of holders of Registrable
Securities in connection with any such registration, qualification or
compliance, and will reimburse the Corporation, such other persons, such
directors, officers, persons, underwriters or control persons for any legal or
other expenses reasonably incurred in connection with investigating or
- 10 -
<PAGE>
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Corporation by such
holder of Registrable Securities specifically for use therein; provided,
however, that the indemnity contained herein shall not apply to amounts paid in
settlement of any claim, loss, damage, liability or expense if settlement is
effected without the consent of such holder of Registrable Securities (which
consent shall not be unreasonably withheld). Notwithstanding the foregoing, the
liability of such holder of Registrable Securities under this Subsection shall
be limited in an amount equal to the net proceeds from the sale of the Shares
sold by such holder of Registrable Securities, unless such liability arises out
of or is based on willful conduct by such holder of Registrable Securities. In
addition, insofar as the foregoing indemnity relates to any such untrue
statement (or alleged untrue statement) or omission (or alleged omission) made
in the preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement
becomes effective or in the final prospectus filed pursuant to applicable rules
of the Commission or in any supplement or addendum thereto, the indemnity
agreement herein shall not inure to the benefit of the Corporation or any
underwriter, if a copy of the final prospectus filed pursuant to such rules,
together with all supplements and addenda thereto, was not furnished to the
person or entity asserting the loss, liability, claim or damage at or prior to
the time such furnishing is required by the Securities Act.
(iii) Notwithstanding the foregoing SECTIONS (I) AND (II ),
each party entitled to indemnification under this Section (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or as to which the
Indemnifying Party is asserting separate or different defenses, which defenses
are inconsistent with the defenses of the Indemnified Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. No Indemnified Party shall
consent to entry of any judgment or enter into any settlement without the
consent of each Indemnifying Party.
(iv) If the indemnification provided for in this Section is
unavailable to an Indemnified Party in respect of any losses, claims, damages or
liabilities referred to therein, 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 or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Corporation on the one hand and all shareholders
offering securities in the offering (the "Selling Security Holders") on the
other from the offering of the Corporation's securities, or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Corporation
on the one hand and the Selling Security Holders on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Corporation on the one hand and the Selling
Security Holders on the other shall be the net proceeds from the offering
(before deducting expenses) received by the Corporation on the one hand and the
Selling Security Holders on the other. The relative fault of the Corporation on
the one hand and the Selling Security Holders on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Corporation or by the
Selling Security Holders and the parties' relevant intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Corporation and the Selling Security Holders agree that it would not be just
and equitable if contribution pursuant to this Section were based solely upon
the number of entities from whom contribution was requested or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this Section. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages and liabilities referred
- 11 -
<PAGE>
to above in this Section shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim, subject to the provisions hereof.
Notwithstanding the provisions of this Section, no Selling Shareholder shall be
required to contribute any amount or make any other payments under this
Agreement which in the aggregate exceed the proceeds received by such Selling
Shareholder. No person guilty of fraudulent misrepresentation (within the
meaning of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
X. LIMITATIONS
10.01 So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or the
written consent as provided by law, of the holders of at least two-thirds (2/3)
of the outstanding shares of Series A Preferred Stock, voting as a class, (a)
create, authorize or issue any class or series of stock ranking either as to
payment of dividends or distribution of assets prior to the Series A Preferred
Stock; or (b) change the preferences, rights or powers with respect to the
Series A Preferred Stock so as to affect such stock adversely; but nothing
herein contained shall require such a class vote or consent (i) in connection
with any increase in the total number of authorized shares of common stock, or
(ii) in connection with the authorization or increase of any class or series of
stock ranking junior to or on a parity with the Series A Preferred Stock;
PROVIDED, HOWEVER, that no such vote or written consent of the holders of the
Series A Preferred Stock shall be required if, at or prior to the time when the
issuance of any such stock ranking prior to the Series A Preferred Stock is to
be made or any such change is to take effect, as the case may be, provision is
made for the redemption of all shares of Series A Preferred Stock at the time
outstanding, and further provided, that the provisions of this ARTICLE IX shall
not in any way limit the right and power of the Corporation to issue the
presently authorized but unissued shares of its capital stock, or bonds, notes,
mortgages, debentures, and other obligations, and to incur indebtedness to banks
and to other lenders.
IN WITNESS WHEREOF, INTELECT COMMUNICATIONS, INC. has caused
this certificate to be made under the seal of the Corporation, signed by its
Chairman and attested by its Assistant Secretary this ____day of _________ 1997.
INTELECT COMMUNICATIONS, INC.
(Corporate Seal)
By:_______________________________________
Herman M. Frietsch
Chairman and Chief Executive Officer
Attest:
_________________________________
Edwin J. Ducayet, Jr.
Assistant Secretary
- 12 -
<PAGE>
THE STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
BE IT REMEMBERED, that on this day of _______ 1997, personally came
before me, a Notary Public, Herman M. Frietsch and Edwin J. Ducayet, Jr., the
Chief Executive Officer and Assistant Secretary respectively, of INTELECT
COMMUNICATIONS, INC., a corporation organized under the laws of the State of
Delaware, the corporation described in and which executed the foregoing
certificate, known to me personally to be such, and they, the said as such Chief
Executive Officer and the Assistant Secretary, duly executed said certificate
before me and acknowledged the said certificate to be their act and deed and the
act and deed of said corporation, and that the facts stated therein are true;
that the signatures of the said President and of the said Assistant Secretary of
said corporation to said foregoing certificate are in the handwriting of the
said Chief Executive Officer and the Assistant Secretary, of said corporation,
respectively, and that the seal affixed to said certificate is the common or
corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office
the day and year aforesaid.
____________________________________
Notary Public,
State of Texas
[Notary Seal] My commission expires:
- 13 -
EXHIBIT 5.1
October 30, 1997
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas
Re: Registration Statement on Form S-4 Registering 24,000,000 Shares of Common
Stock, $.01 par value (the "Common Shares"), 4,219,409 Shares of Series A
Convertible Preferred Stock, $.01 par value (the "Preferred Shares"), and
Warrants to purchase up to 2,515,063 Shares of Common Stock (the
"Warrants")
Ladies and Gentlemen:
In connection with the registration of the 24,000,000 Common Shares,
4,219,409 Preferred Shares, and the Warrants (as referenced above) of Intelect
Communications, Inc., a Delaware corporation (the "Company"), under the
Securities Act of 1933, as amended (the "Act"), by the Company on Form S-4 (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") on October 30, 1997, you have requested our opinion with respect
to the matters set forth below.
In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization, issuance and sale of the Common Shares,
the Preferred Shares, and the Warrants, and for the purposes of this opinion,
have assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies certified or
otherwise identified to our satisfaction of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the General Corporation Law of the State of Delaware, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of the laws of
any other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the state.
Subject to the foregoing, it is our opinion that the Common Shares, the
Preferred Shares, and the Warrants have been duly authorized, and, upon
issuance, delivery and payment therefor in the manner contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable.
<PAGE>
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
RYAN & SUDAN, L.L.P.
EXHIBIT 8.1
October 29, 1997
Mr. Edwin J. Ducayet, Jr.
Intelect Communications Inc.
1100 Executive Drive
Richardson, Texas 75081
Dear Mr. Ducayet:
You have requested our opinion as to certain U.S. federal income tax
consequences to the shareholders of Intelect Communications Systems Limited
("ICSL") under the Internal Revenue Code of 1986, as amended (the "Code"),
resulting from the Agreement and Plan of Merger (the "Merger Agreement"), dated
October 29, 1997 by and among ICSL, Intelect Communications, Inc., ("Intelect
Delaware"), a Delaware corporation that is currently a wholly owned subsidiary
of ICSL, and Intelect Merger Co. ("Merger Co."), a newly formed Delaware
corporation which is a wholly owned subsidiary of Intelect Delaware, pursuant to
which the common shareholders of ICSL will receive common stock of Intelect
Delaware, and the preferred shareholders of ICSL (collectively "Shareholders")
will receive preferred stock of Intelect Delaware (collectively "Intelect
Delaware Stock") in exchange for their respective common stock and preferred
stock in ICSL (collectively "ICSL Stock").
Terms not otherwise defined herein shall have the meanings ascribed to them in
the Merger Agreements and/or the Registration Statement on Form S-4 of Intelect
Delaware (the "Registration Statement"), dated October 30, 1997.
In rendering our opinion, we have assumed that the merger will occur in
accordance with the Merger Agreement and that there are no other arrangements
between ICSL, Merger Co., Intelect Delaware, any parties to the Registration
Statement, or any Shareholders thereof. In addition, we have assumed the due
authorization, execution and delivery by each party thereto of all documents,
the genuineness of all signatures, the authority of all persons signing such
documents on behalf of each party thereto, the legal capacity of all natural
persons, the authenticity of all documents submitted to us as originals and the
conformity to the original document of any document submitted to us as a
certified, conformed, or photostatic copy. Further, we have relied on and
assumed to be accurate, as of the date hereof and as of the Effective Time, and
without further inquiry, the certifications and representations made by and on
behalf of ICSL, Intelect Delaware, Merger Co., and the Shareholders, and each of
the other parties to the Merger Agreement.
We are of the opinion, based upon the Code, the Treasury regulations, existing
administrative and judicial interpretations thereof and the foregoing
representations, all assumed to be accurate as of the date hereof and as of the
Effective Time, that, for U.S. federal income tax purposes:
1. The formation of Merger Co. and its merger into ICSL will be disregarded,
and the transaction will be treated as a transfer by the Shareholders of
their ICSL stock to Intelect Delaware in exchange for Intelect Delaware
Stock.
2. No gain or loss will be recognized for federal income tax purposes by a
shareholder of ICSL, as a result of the Merger Agreement upon the exchange
of shares of ICSL Stock solely for shares of Intelect Delaware Stock,
except with respect to cash, if any, received by any dissenting
shareholders of ICSL.
3. A shareholder of ICSL, who receives solely stock of Intelect Delaware in
exchange for ICSL shares, will have an aggregate tax basis in the Intelect
Delaware Stock received (or the rights thereto), pursuant to the Merger
Agreement, equal to such holder's aggregate tax basis in the ICSL Stock
converted therefor, and such holder's holding period for the Intelect
Delaware Stock received (or the right thereto) in the Merger Agreement will
include his holding period in the ICSL Stock converted therefor, provided
the ICSL shares exchanged were held by such holder as a capital asset.
4. Where a dissenting shareholder of ICSL receives solely cash, such cash
should be treated as having been received by the shareholder as a
distribution in redemption of the shares of ICSL, subject to the provision
and limitations of Sections 302 and 304 of the Code.
We have not been engaged, nor have we undertaken, to render tax advice or
opinions to a Shareholder other than as expressed in this letter. Specifically,
we have expressed no opinion regarding the U.S. federal or state income tax
consequences to a Shareholder associated with any other payments or
distributions that may be made by ICSL or Intelect Delaware before or after the
Merger. Accordingly, a Shareholder should consult his or her own tax advisor as
to such U.S. federal income tax consequences.
This opinion is based upon the relevant tax authorities in effect as of the date
hereof. We provide no assurance that the authorities upon which this opinion is
based will not be amended, revoked, or modified (with or without retroactive
effect) in a manner which would affect or change our conclusions. Additionally,
should any of the representations or facts set forth herein prove to be either
incomplete or inaccurate, as of the date hereof, our opinion may change.
This opinion is strictly limited to what we consider to be the material Federal
income tax consequences to the shareholders of ICSL as set forth herein, and no
opinion is intended to be implied or may be inferred beyond those expressly
stated herein. Our opinion is rendered as of the date hereof and we assume no
obligation to update or supplement it to reflect any change of fact,
circumstance, or law after such date.
This opinion is not binding on the Internal Revenue Service (the "Service") or
the courts. There can be no assurance that the Service or the courts will not
take positions contrary to the position expressed herein. The opinion expressed
herein reflects our assessment of the probable outcome of litigation and other
adversarial proceedings based solely on an analysis of the existing U.S. federal
income tax authorities relating to the issues.
This opinion is for the benefit of Intelect Delaware, ICSL, and their respective
shareholders and may not be relied upon by any other person or for any other
purposes without our prior written consent.
Very truly yours,
ARTHUR ANDERSEN LLP
EXHIBIT 10.1
INTELECT COMMUNICATIONS, INC.
STOCK INCENTIVE PLAN
1. PURPOSE.
The purposes of the Stock Incentive Plan (the "Plan") are to enable
Intelect Communications, Inc. (the "Company") and its Subsidiaries, if any, to
attract and retain directors and key employees and to provide them with
additional incentive to advance the interests of the Company. For the purposes
of the Plan, the term "Subsidiary" means any corporation or other entity in
which the Company has, directly or indirectly, an equity interest representing
50% or more of the capital stock thereof or equity interests therein.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors of the Company (the "Board") and
consisting of not less than two members of the Board.
(b) The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the Plan as it shall deem to
be necessary and advisable for the administration of the Plan.
(c) Notwithstanding any provision contained in this Plan, the Board
of Directors shall have the authority, in addition to the authority that
the Board may delegate to the Committee, to issue stock options, and to
award restricted shares, restricted share units, performance units and
bonus shares, in compliance with the terms of this Plan as the Board of
Directors shall in its discretion determine to be necessary or
appropriate.
3. ELIGIBILITY.
(a) Officers and other key employees of the Company or any
Subsidiary shall be eligible to be granted incentive stock options and
non-qualified stock options (collectively "stock options") and to receive
restricted shares, restricted share units, performance units or bonus
share awards as described herein.
(b) Non-employee directors of the Company shall be eligible to be
granted non-qualified stock options and to receive restricted shares,
restricted share units, performance units or bonus share awards as
described herein.
4. SHARES AVAILABLE.
The aggregate number of shares of the Company's Common Stock, $.01 par
value ("Common Shares"), which may be issued and as to which grants or awards of
stock options, restricted shares, restricted share units, performance units or
bonus shares may be made under the Plan is 4,000,000 shares (of which no more
than 1,000,000 shares shall be available for the grant of restricted shares or
restricted share units), subject to adjustment and substitution as set forth in
Section 8. If any stock option granted under the Plan is cancelled by mutual
consent or terminates or expires for any reason without having been exercised in
full, the number of shares subject thereto shall again be available for purposes
of the Plan. If Common Shares or the right to receive Common Shares are
forfeited to the Company pursuant to the restrictions applicable to restricted
shares or restricted share units awarded under the Plan, the shares so forfeited
or covered by such right shall not again be available for the purposes of the
Plan. To the extent any award of performance units is not earned or is paid in
cash rather than shares, the number of shares covered thereby shall again be
available for purposes of the Plan. The shares which may be issued under the
Plan may be either authorized but unissued shares or treasury shares or partly
each, as shall be determined from time to time by the Board.
1
<PAGE>
5. GRANTS AND AWARDS.
(a) With respect to officers and other key employees, the Committee
shall have authority, in its discretion, to grant incentive stock options
pursuant to Section 422 of the Internal Revenue Code (the "Code") and
non-qualified stock options, and to award restricted shares, restricted
share units, performance units and bonus shares, provided such grants or
awards are otherwise made in compliance with the provisions of this Plan.
Notwithstanding any other provision contained in the Plan or in any
stock option agreement, the aggregate fair market value, determined on the
date of grant, of the shares with respect to which incentive stock options
are exercisable for the first time by an employee during any calendar year
under all plans of the corporation employing such employee, any parent or
subsidiary corporation of such corporation and any predecessor corporation
of any such corporation shall not exceed $100,000; provided, however, that
all or any portion of a stock option which cannot be exercised because of
such limitation shall be treated as a non qualified option.
(b) With respect to non-employee directors, the Board or the
Committee shall be authorized to grant non-qualified stock options and to
award restricted shares, restricted share units, performance units, and
bonus shares in such amounts and on such terms as the Board or the
Committee may in its discretion determine, provided such grants or awards
are otherwise made in compliance with the provisions of this Plan.
(c) The maximum number of shares covered by all grants or awards in
any fiscal year of the Company to any participant shall not exceed 350,000
(subject to adjustment and substitution as set forth in Section 8).
(d) If a grantee of a stock option, restricted share or performance
unit engages in the operation or management of a business (whether as
owner, partner, officer, director, employee or otherwise and whether
during or after termination of employment or directorship) which is in
competition with the Company or any of its Subsidiaries, the Committee may
immediately terminate all outstanding stock options held by the grantee,
declare forfeited all restricted shares or restricted share units held by
the grantee as to which the restrictions have not yet lapsed and terminate
all outstanding performance unit awards held by the grantee for which the
applicable Performance Period has not been completed; provided, however,
that this sentence shall not apply if the exercise period of a stock
option following termination of employment or directorship has been
extended as provided in Section 9(c), if the lapse of the restrictions
applicable to restricted shares or restricted share units has been
accelerated as provided in Section 9(d), or if a performance unit has been
deemed to have been earned as provided in Section 9 (e). Whether a grantee
has engaged in the operation or management of a business which is in
competition with the Company or any of its Subsidiaries shall be
determined by the Committee in its discretion, and any such determination
shall be final and binding.
6. TERMS AND CONDITIONS OF STOCK OPTIONS.
Stock options granted under the Plan shall be subject to the following
terms and conditions:
(a) The purchase price at which each incentive stock option may be
exercised (the "option price") shall not be less than one hundred percent
(100%) of the fair market value per share of the Common Shares covered by
the incentive stock option on the date of grant; provided, however, that
in the case of an incentive stock option granted to an employee who,
immediately prior to such grant, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock
of the Company or a Subsidiary (a "Ten Percent Employee"), the option
price shall not be less than one hundred ten percent (110%) of such fair
market value on the date of grant. For purposes of this Section 6(a), an
individual (i) shall be considered as owning not only shares of stock
owned individually but also all shares of stock that
2
<PAGE>
are at the time owned, directly or indirectly by or for the spouse,
ancestors, lineal descendants and brothers and sisters (whether by the
whole or half blood) of such individual and (ii) shall be considered as
owning proportionately any shares owned, directly or indirectly, by or for
any company, partnership, estate or trust in which such individual is a
shareholder, partner or beneficiary.
(b) The option price for each non-qualified stock option shall be
determined by the Committee but may not be less than 25% (twenty-five
percent) of the fair market value of the Common Shares on the date the
non-qualified stock option is granted.
(c) The option price for each stock option shall be paid in full
upon exercise and shall be payable in cash in United States dollars
(including check, bank draft or money order), which may include cash
forwarded through a broker or other agent-sponsored exercise or financing
program; provided, however, that in lieu of such cash the person
exercising the stock option may pay the option price in whole or in part
by delivering to the Company Common Shares having a fair market value on
the date of exercise of the stock option equal to the option price for the
shares being purchased; except that any portion of the option price
representing a fraction of a share shall in any event be paid in cash.
Notwithstanding any procedure of a broker or other agent-sponsored
exercise or financing program, if the option price is paid in cash, the
exercise of the stock option shall not be deemed to occur and no Common
Shares will be issued until the Company has received full payment in cash
(including check, bank draft or money order) for the option price from the
broker or other agent. The date of exercise of a stock option shall be
determined under procedures established by the Committee, and as of the
date of exercise the person exercising the stock option shall be
considered for all purposes to be the owner of the shares with respect to
which the stock option has been exercised. Payment of the option price
with shares shall not increase the number of Common Shares available for
issuance under the Plan.
(d) No stock option shall be exercisable during the first six months
of its term, except that this limitation on exercise shall not apply if
Section 9(b) becomes applicable or if the issuance or grant of the stock
option has been approved by the Board. No stock option shall be
exercisable after the expiration of ten years (five years in the case of
an incentive stock option granted to a Ten Percent Employee) from the date
of grant. To the extent it is exercisable, a stock option may be exercised
at any time in whole or in part.
(e) The Committee shall have the power to set the time or times
within which each option shall be exercisable, and to accelerate the time
or times of exercise. Unless the stock option agreement otherwise
provides, the option shall become exercisable on a cumulative basis as to
33-1/3% of the total number of shares covered thereby on each of the
first, second, and third anniversary dates of the date of grant of the
option.
(f) No stock option shall be transferable by the grantee otherwise
than by will, or if the grantee dies intestate, by the laws of descent and
distribution of the state of domicile of the grantee at the time of death.
All stock options shall be exercisable during the lifetime of the grantee
only by the grantee.
(g) Unless the Committee, in its discretion, shall otherwise
determine:
(i) If the employment or directorship of a grantee who is not
disabled within the meaning of Section 422 (c) (6) of the Code (a
"Disabled Grantee") is voluntarily terminated with the consent of
the Company or a Subsidiary or a grantee retires under any
retirement plan of the Company or a Subsidiary, any then outstanding
incentive stock option held by such grantee shall be exercisable by
the grantee (but only to the extent exercisable by the grantee
immediately prior to such termination) at any time prior to the
expiration date of such incentive stock option or within three
months after the date of such termination, whichever is the shorter
period;
3
<PAGE>
(ii) If the employment or directorship of a grantee who is not
a Disabled Grantee is voluntarily terminated with the consent of the
Company or a Subsidiary or a grantee retires under any retirement
plan of the Company or a Subsidiary, any then outstanding
non-qualified stock option held by such grantee shall be exercisable
by the grantee (but only to the extent exercisable by the grantee
immediately prior to such termination) at any time prior to the
expiration date of such non-qualified stock option or within one
year after the date of such termination, whichever is the shorter
period;
(iii) If the employment or directorship of a grantee who is a
Disabled Grantee is voluntarily terminated with the consent of the
Company or a Subsidiary, any then outstanding stock option held by
such grantee shall be exercisable by the grantee in full (whether or
not so exercisable by the grantee immediately prior to such
termination) by the grantee at any time prior to the expiration date
of such stock option or within one year after the date of such
termination, whichever is the shorter period;
(iv) Following the death of a grantee during employment or
while serving as a director, any outstanding stock option held by
the grantee at the time of death shall be exercisable in full
(whether or not so exercisable by the grantee immediately prior to
the death of the grantee) by the person entitled to do so under the
will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate,
by the legal representative of the grantee at any time prior to the
expiration date of such stock option or within one year after the
date of death, whichever is the shorter period;
(v) Following the death of a grantee after termination of
employment or directorship during a period within which a stock
option is exercisable, any outstanding stock option held by the
grantee at the time of death shall be exercisable by such person
entitled to do so under the will of the grantee or by such legal
representative (but only to the extent the stock option was
exercisable by the grantee immediately prior to the death of the
grantee) at any time prior to the expiration date of such stock
option or within one year after the date of death, whichever is the
shorter period; and
(vi) Unless the exercise period of a stock option following
termination of employment or directorship has been extended as
provided in Section 9(c), if the employment or directorship of a
grantee terminates for any reason other than voluntary termination
with the consent of the Company or a Subsidiary, retirement under
any retirement plan of the Company or a Subsidiary or death, all
outstanding stock options held by the grantee at the time of such
termination shall automatically terminate.
(h) In each subparagraph of Section 6(g), whether termination of
employment or directorship is a voluntary termination with the consent of
the Company or a Subsidiary and whether a grantee is a Disabled Grantee
shall be determined in each case by the Committee in its discretion and
any such determination by the Committee shall be final and binding.
(i) All stock options shall be confirmed by an agreement, which
shall be executed on behalf of the Company by an executive officer
authorized by the Committee and by the grantee, and shall contain such
provisions, restrictions and conditions as are not inconsistent with this
Plan but need not be identical. The provisions of this Plan shall be
deemed to be set forth in full or incorporated by reference in each such
agreement.
(j) The term "fair market value" for all purposes of the Plan shall
mean the market price of the Common Shares, determined by the Committee as
follows:
4
<PAGE>
(i) If the Common Shares are traded on a stock exchange, then
the Fair Market Value shall be equal to the closing price reported
by the applicable composite-transactions report for such date;
(ii) If the Common Shares are traded in the Nasdaq Stock
Market and is classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by
the Nasdaq National Market system for such date;
(iii) If the Common Shares are traded in the Nasdaq Stock
Market, but is not classified as a national market issue, then the
Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted by the Nasdaq
system for such date; and
(iv) If none of the foregoing provisions is applicable, then
the Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
(k) The obligation of the Company to issue Common Shares under the
Plan shall be subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to such shares,
if deemed necessary or appropriate by counsel for the Company, (ii) the
condition that the shares shall have been listed (or authorized for
listing upon official notice of issuance) upon each stock exchange, if
any, on which the Common Shares may then be listed and (iii) all other
applicable laws, regulations, rules and orders which may then be in
effect.
(l) Subject to the foregoing provisions of this Section and the
other provisions of the Plan, any stock option granted under the Plan may
be exercised at such times and in such amounts and be subject to such
restrictions and other terms and conditions, if any, as shall be
determined, in its discretion, by the Committee and set forth in the
agreement referred to in Section 6(i), or an amendment thereto.
(m) The Company may, at the time any distribution is made under the
Plan, whether in cash or in Common Shares, or at the time any stock option
is exercised, withhold from such distribution or Common Shares issuable
upon the exercise of a stock option, any amount necessary to satisfy
federal, state or local tax withholding requirements with respect to such
distribution or exercise of such stock option. Such withholding may be
satisfied, at the Company's option, either by cash or the Company's
withholding of Common Shares. Agreements may contain withholding
provisions applicable only to participants who are subject to the
Securities and Exchange Act of 1934, as amended (the "1934 Act"), Section
16 ("Section 16 Persons").
7. TERMS AND CONDITIONS OF RESTRICTED SHARE, RESTRICTED SHARE UNIT,
PERFORMANCE UNIT AND BONUS SHARE AWARDS.
(a) RESTRICTED SHARES AND UNITS. Restricted share or restricted
share unit awards shall be evidenced by a written agreement in the form
prescribed by the Committee in its discretion, which shall set forth the
number of restricted Common Shares or restricted share units entitling the
holder to receive Common Shares awarded, the restrictions imposed thereon
(including, without limitation, restrictions on the right of the grantee
to sell, assign, transfer or encumber such shares or units while such
shares or units are subject to other restrictions imposed under this
Section 7), the duration of such restrictions, events (which may, in the
discretion of the Committee, include performance-based events) the
occurrence of which would cause a forfeiture of restricted shares or
restricted share units and such other terms and conditions as the
Committee in its discretion deems appropriate. Restricted share or
restricted share unit awards shall be effective only upon execution of the
applicable restricted share or restricted share unit agreement on behalf
of the Company by the Chief Executive Officer (if other than the
President), the President or any Vice President, and by the grantee.
5
<PAGE>
Restricted shares or restricted share units may be issued for no
consideration other than for services to be rendered or for such
consideration as shall be determined at the time of award by the
Committee.
Except as otherwise specified by the Committee at the time of award
of restricted shares or restricted share units, restricted shares or
restricted share units issued shall vest (i.e., become non-forfeitable,)
as follows: 33 1/3% on the date of the first anniversary of the date of
issuance of the restricted shares or restricted share units and an
additional 33 1/3% on each anniversary date thereafter. If prior to full
vesting of the restricted shares or restricted share units the employment
or directorship of the holder thereof is voluntarily terminated with the
consent of the Company or Subsidiary or the holder retires under any
retirement plan of the Company or a Subsidiary or dies during employment
or directorship, the Committee may in its absolute discretion determine to
vest all or any part of the restricted shares or restricted share units
except as otherwise provided in Section 9(e). If the employment or
directorship of the holder of restricted shares or restricted share units
terminates for any reason other than voluntary termination with the
consent of the Company or a Subsidiary, retirement under any retirement
plan of the Company or a Subsidiary or death, all unvested restricted
shares or restricted share units shall be forfeited. Whether the
termination of employment or directorship is a voluntary termination with
the consent of the Company or a Subsidiary shall be determined by the
Committee in its discretion, and a determination by the Committee on any
matter with respect to restricted shares or restricted share units shall
be final and binding on both the Company and the holder of restricted
shares or restricted share units.
Following a restricted share award and prior to the lapse or
termination of the applicable restrictions, the Committee shall deposit
share certificates for such restricted shares in escrow (which may be an
escrow in the custody of an officer of the Company). Upon the lapse or
termination of the applicable restrictions (and not before such time), the
grantee shall be issued or transferred share certificates for such
restricted shares. From the date a restricted share award is effective,
the grantee shall be a shareholder with respect to all the shares
represented by such certificates and shall have all the rights of a
shareholder with respect to all such shares, including the right to vote
such shares and to receive all dividends and other distributions paid with
respect to such shares, subject only to the restrictions imposed by the
Committee. The grantee of restricted share units shall not have any rights
as a shareholder until the delivery to the grantee of shares on lapse of
the restrictions imposed.
(b) PERFORMANCE UNITS. The Committee may award performance units
which shall be earned by an awardee based on the level of performance over
a specified period of time by the Company, a Subsidiary or Subsidiaries,
any branch, department or other portion thereof or the awardee
individually, as determined by the Committee. For the purposes of the
grant of performance units, the following definitions shall apply:
(i) "Performance unit" shall mean an award, expressed in
dollars or Common Shares, granted to an awardee with respect to a
Performance Period. Awards expressed in dollars may be established
as fixed dollar amounts, as a percentage of salary, as a percentage
of a pool based on earnings of the Company, a Subsidiary or
Subsidiaries or any branch, department or other portion thereof or
in any other manner determined by the Committee in its discretion,
provided that the amount thereof shall be capable of being
determined as a fixed dollar amount as of the close of the
Performance Period.
(ii) "Performance Period" shall mean an accounting period of
the Company or a Subsidiary of not less than one year, as determined
by the Committee in its discretion.
(iii) "Performance Target" shall mean that level of
performance established by the Committee which must be met in order
for the performance unit to be fully earned. The Performance Target
may be expressed in terms of earnings per share, return on assets,
asset growth, ratio of capital to assets or such other level or
levels of accomplishment by the Company,
6
<PAGE>
a Subsidiary or Subsidiaries, any branch, department or other
portion thereof or the awardee individually as may be established or
revised from time to time by the Committee.
(iv) "Minimum Target" shall mean a minimal level of
performance established by the Committee which must be met before
any part of the performance unit is earned. The Minimum Target may
be the same as or less than the Performance Target in the discretion
of the Committee.
An awardee shall earn the performance unit in full by meeting the
Performance Target for the Performance Period. If the Minimum Target has
not been attained at the end of the Performance Period, no part of the
performance unit shall have been earned by the awardee. If the Minimum
Target is attained but the Performance Target is not attained, the portion
of the performance unit earned by the awardee shall be determined on the
basis of a formula established by the Committee.
Payment of earned performance units shall be made to awardees
following the close of the Performance Period as soon as practicable after
the time the amount payable is determined by the Committee. Payment in
respect of earned performance units, whether expressed in dollars or
shares, may be made in cash, in Common Shares, or partly in cash and
partly in Common Shares, as determined by the Committee at the time of
payment. For this purpose, performance units expressed in dollars shall be
converted to shares, and performance units expressed in shares shall be
converted to dollars, based on the fair market value of the Common Shares,
as of the date the amount payable is determined by the Committee.
If prior to the close of the Performance Period the awardee of
performance units is voluntarily terminated with the consent of the
Company or a Subsidiary or the awardee retires under any retirement plan
of the Company or a Subsidiary or the awardee dies during employment or
directorship, the Committee may in its absolute discretion determine to
pay all or any part of the performance unit based upon the extent to which
the Committee determines the Performance Target or Minimum Target has been
achieved as of the date of termination of employment, or directorship,
retirement or death, the period of time remaining until the close of the
Performance Period and/or such other factors as the Committee may deem
relevant. If the Committee in its discretion determines that all or any
part of the performance unit shall be paid, payment shall be made to the
awardee or his or her estate as promptly as practicable following such
determination and may be made in cash, in Common Shares, or partly in cash
and partly in Common Shares, as determined by the Committee at the time of
payment. For this purpose, performance units expressed in dollars shall be
converted to shares, and performance units expressed in shares shall be
converted to dollars, based on the fair market value of the Common Shares
as of the date the amount payable is determined by the Committee.
Except as otherwise provided in Section 9(e), if the employment or
directorship of an awardee of performance units terminates prior to the
close of a Performance Period for any reason other than voluntary
termination with the consent of the Company or a Subsidiary or retirement
under any retirement plan of the Company or a Subsidiary or death, the
performance units of the awardee shall be deemed not to have been earned,
and no portion of such performance units may be paid. Whether termination
of employment or directorship is a voluntary termination with the consent
of the Company or a Subsidiary shall be determined, in its discretion, by
the Committee. Any determination by the Committee on any matter with
respect to performance units shall be final and binding on both the
Company and the awardee.
Performance unit awards shall be evidenced by a written agreement in
the form prescribed by the Committee which shall set forth the amount or
manner of determining the amount of the performance unit, the Performance
Period, the Performance Target and any Minimum Target and such other terms
and conditions as the Committee in its discretion deems appropriate.
Performance unit awards shall be effective only upon execution of the
applicable performance unit agreement on behalf of the Company by the
Chief Executive Officer (if other than the President), the President or
any Vice President, and by the awardee.
7
<PAGE>
(C) BONUS SHARES. The Committee shall have the authority in its
discretion to award bonus Common Shares to eligible individuals from time
to time in recognition of the contribution of the awardee to the
performance of the Company, a Subsidiary or Subsidiaries, or any branch,
department or other portion thereof, in recognition of the awardee's
individual performance or on the basis of such other factors as the
Committee may deem relevant.
8. ADJUSTMENT AND SUBSTITUTION OF SHARES.
If a dividend or other distribution shall be declared upon the Common
Shares payable in Common Shares, the number of Common Shares then subject to any
outstanding stock options, restricted share units or performance unit awards and
the number of Common Shares which may be issued under the Plan but are not then
subject to outstanding stock options or awards shall be adjusted by adding
thereto the number of Common Shares which would have been distributable thereon
if such shares had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend or distribution. Common
Shares so distributed with respect to any restricted shares held in escrow shall
be held by the Company in escrow and shall be subject to the same restrictions
as are applicable to the restricted shares on which they were distributed.
If the outstanding Common Shares shall be changed into or exchangeable for
a different number or kind of shares of stock or other securities of the Company
or another company, whether through reorganization, reclassification,
recapitalization, stock split-up, combination of shares, merger or
consolidation, then there shall be substituted for each share of the Common
Shares subject to any then outstanding stock option, restricted share unit or
performance unit award, and for each share of the Common Shares which may be
issued under the Plan but which is not then subject to any outstanding stock
option or award, the number and kind of shares of stock or other securities into
which each outstanding share of the Common Shares shall be so changed or for
which each such share shall be exchangeable. Unless otherwise determined by the
Committee in its discretion, any such stock or securities, as well as any cash
or other property, into or for which any restricted shares held in escrow shall
be changed or exchangeable in any such transaction shall also be held by the
Company in escrow and shall be subject to the same restrictions as are
applicable to the restricted shares in respect of which such stock, securities,
cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in this Section
8, the aggregate option price for all shares subject to each then outstanding
stock option prior to such adjustment or substitution shall be the aggregate
option price for all shares of stock or other securities (including any
fraction) to which such shares shall have been adjusted or which shall have been
substituted for such shares. Any new option price per share shall be carried to
at least three decimal places with the last decimal place rounded upwards to the
nearest whole number.
No adjustment or substitution provided for in this Section 8 shall require
the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of restricted shares held in
escrow shall be treated in the same manner as owners of Common Shares not held
in escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the
Committee in its discretion, any cash or other property paid in lieu of a
fractional share shall be subject to restrictions similar to those applicable to
the restricted shares exchanged therefor.
If any such adjustment or substitution provided for in this Section 8
requires the approval of shareholders in order to enable the Company to grant
incentive stock options, then no such adjustment or substitution shall be made
without the required shareholder approval. Notwithstanding the foregoing, in the
case of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue to qualify
as an incentive stock option or to cause a modification, extension or renewal of
such stock option within the meaning of Section 424 of the Code, the Committee
may elect that such adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Committee, in its
8
<PAGE>
discretion, shall deem equitable and which will not result in any
disqualification, modification, extension or renewal (within the meaning of
Section 424 of the Code) of such incentive stock option.
9. ADDITIONAL RIGHTS IN CERTAIN EVENTS.
(a) DEFINITIONS. For purposes of this Section 9, the following terms
shall have the following meanings:
(i) The term "Person" shall be used as that term is used in
Sections 13(d) and 14(d) of the 1934 Act.
(ii) Beneficial ownership shall be determined as provided in
Rule 13d-3 under the 1934 Act as in effect on the effective date of
the Plan.
(iii) "Voting Shares" shall mean all securities of a
corporation entitling the holders thereof to vote in an annual
election of directors (without consideration of the rights of any
class of stock other than the Common Shares to elect directors by a
separate class vote); and a specified percentage of "Voting Power"
of a company shall mean such number of the Voting Shares as shall
enable the holders thereof to cast such percentage of all the votes
which could be cast in an annual election of directors (without
consideration of the rights of any class of stock other than the
Common Shares to elect directors by a separate class vote).
(iv) "Tender Offer" shall mean a tender offer or exchange
offer to acquire securities of the Company (other than such an offer
made by the Company or any Subsidiary), whether or not such offer is
approved or opposed by the Board.
(v) "Section 9 Event" shall mean the date upon which any of
the following events occurs:
(A) The Company acquires actual knowledge that any
Person has acquired the Beneficial Ownership, directly or
indirectly, of securities of the Company entitling such Person
to 20% or more of the Voting Power of the Company, other than
the Company, a Subsidiary or any employee benefit plan(s)
sponsored by the Company, or a Person approved by the Board
that has acquired 20% or more but less than 50% of the Voting
Power of the Company; or
(B) A Tender Offer is made to acquire securities of the
Company entitling the holders thereof to 20% or more of the
Voting Power of the Company; or
(C) A solicitation subject to Rule 14a-11 under the 1934
Act (or any successor Rule) relating to the election or
removal of 50% or more of the members of any class of the
Board shall be made by any person other than the Company; or
(D) The shareholders of the Company shall approve a
merger, consolidation, share exchange, division or sale or
other disposition of assets of the Company as a result of
which the shareholders of the Company immediately prior to
such transaction shall not hold, directly or indirectly,
immediately following such transaction a majority of the
Voting Power of (i) in the case of a merger or consolidation,
the surviving or resulting corporation, (ii) in the case of a
share exchange, the acquiring corporation or (iii) in the case
of a division or a sale or other disposition of assets, each
surviving, resulting or acquiring corporation which,
immediately following the transaction, holds more than 20% of
the consolidated assets of the Company immediately prior to
the transaction;
9
<PAGE>
provided, however, that (i) if securities beneficially owned by a
grantee are included in determining the Beneficial Ownership of a
Person referred to in Section 9(a)(v)(A), (ii) a grantee is required
to be named pursuant to Item 2 of the Schedule 14D-I (or any similar
successor filing requirement) required to be filed by the bidder
making a Tender Offer referred to in Section 9(a)(v)(B), or (iii) if
a grantee is a "participant" as defined in Rule 14a-11 under the
1934 Act (or any successor Rule) in a solicitation (other than a
solicitation by the Company) referred to in Section 9(a)(v)(C), then
no Section 9 Event with respect to such grantee shall be deemed to
have occurred by reason of such event.
(b) ACCELERATION OF THE EXERCISE DATE OF STOCK OPTIONS. Unless the
agreement referred to in Section 6(i), or an amendment thereto, shall
otherwise provide, notwithstanding any other provision contained in the
Plan, in case any Section 9 Event occurs all outstanding stock options
(other than those held by a person referred to in the proviso to Section
9(a) (v) ) shall become immediately and fully exercisable whether or not
otherwise exercisable by their terms.
(C) EXTENSION OF THE EXPIRATION DATE OF STOCK OPTIONS. Unless the
agreement referred to in Sec tion 6(i), or an amendment thereto, shall
otherwise provide, notwithstanding any other provision contained in the
Plan, all stock options held by a grantee (other than a grantee referred
to in the proviso to Section 9(a)(v)) whose employment or directorship
with the Company or a Subsidiary terminates within one year of any Section
9 Event for any reason other than voluntary termination with the consent
of the Company or a Subsidiary, retirement under any retirement plan of
the Company or a Subsidiary or death shall be exercisable for a period of
three months from the date of such termination of employment or
directorship, but in no event after the expiration date of the stock
option.
(d) LAPSE OF RESTRICTIONS ON RESTRICTED SHARE OR RESTRICTED SHARE
UNIT AWARDS. If any Section 9 Event occurs prior to the scheduled lapse of
all restrictions applicable to restricted share or restricted share unit
awards under the Plan (other than those held by a person referred to in
the proviso to Section 9(a) (v)), all such restrictions shall lapse upon
the occurrence of any such Section 9 Event regardless of the scheduled
lapse of such restrictions.
(e) PAYMENT OF PERFORMANCE UNITS. If any Section 9 Event occurs
prior to the end of any Performance Period, all performance units awarded
with respect to such Performance Period (other than those held by a person
referred to in the proviso to Section 9(a)(v)) shall be deemed to have
been fully earned as of the date of such Section 9 Event, regardless of
the attainment or nonattainment of the Performance Target or any Minimum
Target, and shall be paid to the awardees thereof as promptly as
practicable thereafter. If the performance unit is not expressed as a
fixed amount in dollars or shares, the Committee may provide in the
performance unit agreement for the amount to be paid in the case of a
Section 9 Event.
10. EFFECT OF THE PLAN ON THE RIGHTS OF EMPLOYEES AND EMPLOYER.
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option or to be awarded restricted shares, restricted share
units, performance units or bonus shares under the Plan. Nothing in the Plan, in
any stock option, in any restricted share, restricted share unit, performance
unit or bonus share award under the Plan or in any agreement providing for any
of the foregoing shall confer any right to any employee to continue in the
employ of the Company or any Subsidiary or interfere in any way with the rights
of the Company or any Subsidiary to terminate the employment of any employee at
any time.
11. AMENDMENT.
(a) The right to alter and amend the Plan at any time and from time
to time and the right to revoke or terminate the Plan are hereby
specifically reserved to the Board; provided that no such alteration
10
<PAGE>
or amendment of the Plan shall, without shareholder approval (i) increase
by more than 10% the total number of shares which may be issued under the
Plan to Section 16 Persons, (ii) materially increase the benefits accruing
under the Plan to Section 16 Persons, (iii) materially modify the
requirements as to eligibility for participation in the Plan by Section 16
Persons, (iv) make any changes in the class of employees eligible to
receive incentive stock options under the Plan, or (v) increase the number
of shares with respect to which incentive stock options may be granted
under the Plan. Approval of the Plan by the shareholders of the Company
pursuant to Section 12 shall also be deemed to constitute approval of any
amendments to Section 6(f) that are designed to take advantage of changes
in income tax or securities laws or regulations adopted for the purpose of
reducing or eliminating restrictions on transferability of options. No
alteration, amendment, revocation or termination of the Plan shall,
without the written consent of the holder of a stock option, restricted
shares, restricted share units, performance units or bonus shares
theretofore awarded under the Plan, adversely affect the rights of such
holder with respect thereto.
(b) It is the Company's intent that the Plan comply in all respects
with Rule 16b-3 of the 1934 Act, and any regulations promulgated
thereunder. If any provision of the Plan is later found not to be in
compliance with the Rule, the provision shall be deemed null and void. All
grants and exercises of stock options under the Plan shall be executed in
accordance with the requirements of Section 16 of the 1934 Act, as amended
and any regulations promulgated thereunder. To the extent that any of the
provisions contained herein do not conform with Rule 16b-3 of the 1934 Act
or any amendments thereto or any successor regulation, then the Committee
may make such modifications so as to conform the Plan and any stock
options granted thereunder or the Rule's requirements.
12. EFFECTIVE DATE AND DURATION OF PLAN.
The effective date and date of adoption of the Plan shall be December 4,
1997, the date of approval of the Plan by the Shareholders. No stock option may
be granted, and no restricted shares, restricted share units, bonus shares or
performance units payable in Common Shares may be awarded under the Plan
subsequent to December 13, 2005.
13. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as
directors, the members of the Committee administering the Plan shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any rights granted thereunder, and
against all amounts paid by them in settlement thereof (provided such settlement
is approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding that
such member is liable for negligence or misconduct in the performance of such
member's duties; provided that within 60 days after institution of any such
action, suit or proceeding, the member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend the same.
11
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Intelect Communications Systems Limited
We consent to incorporation by reference in the registration statement on Form
S-4 relating to the restructuring of Intelect Communications Systems Limited as
a U.S. domiciled corporation of our report dated April 9, 1997, relating to the
consolidated balance sheets of Intelect Communications Systems Limited and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year ended
December 31, 1996, the two months ended December 31, 1995 and the years ended
October 31, 1995 and 1994, and the related schedule, which report appears in the
December 31, 1996 annual report on Form 10-K of Intelect Communications Systems
Limited.
Our report dated April 9, 1997, contains an explanatory paragraph that states
that the Company has suffered losses from continuing operations and is dependent
upon the successful development and commercialization of its products and its
ability to secure adequate sources of capital until the Company is operating
profitably. These matters raise substantial doubt about the company's ability to
continue as a going concern. Management's plans with regard to these matters are
described in note 1 to the consolidated financial statements. The consolidated
financial statements and financial statement schedule do not include any
adjustments that might result from the outcome of this uncertainty.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
October 29, 1997
INTELECT COMMUNICATIONS SYSTEMS LIMITED
PROXY SOLICITED BY DIRECTORS FOR SPECIAL MEETING
December 4, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the notice of special meeting and proxy
statement, hereby appoint Herman M. Frietsch and Edwin J. Ducayet, Jr., and each
of them, with full power of substitution, proxies of the undersigned to vote all
shares of the undersigned in Intelect Communications Systems Limited at the
special meeting of shareholders to be held on December 4, 1997 and at any
adjournments thereof.
The directors recommend a vote FOR each of the items below.
1. To approve a proposal to approve an Agreement and Plan of Merger by
and among the Company, Intelect Communications, Inc. ("Intelect
(Delaware)"), a Delaware corporation that is currently a
wholly-owned subsidiary of the Company, and Intelect Merger Co.
("Merger Co."), a newly-formed Delaware wholly-owned subsidiary of
Intelect (Delaware), the principal effect of which will be to change
the domicile of the Company so that it will be a publicly traded
U.S. domiciled corporation and pursuant to which the shareholders of
the Company will exchange their shares in the Company for shares in
Intelect (Delaware).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the proxies are authorized to vote upon matters
not known to the Board of Directors as of the date of the
accompanying proxy statement, matters incident to the conduct of the
meeting and to vote for any nominee of the Board whose nomination
results from the inability of any of the above named nominees to
serve.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES PROVIDED, THE PROXIES SHALL VOTE
FOR THE PROPOSAL TO CHANGE THE DOMICILE OF THE COMPANY.
Please sign exactly as name appears below.
Dated: __________________________, 1997
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title. If a corporation, please sign
in full corporate name by president or
other authorized officer. If a
partnership, please sign in
partnership name by authorized person.
______________________________________
Signature
______________________________________
Signature if held jointly
PLEASE SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
