As filed with the Securities and Exchange Commission on December 22, 1997.
Registration No. 333 - 35841
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-3
--------------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
INTELECT COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 76-0471342
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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)
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HERMAN M. FRIETSCH
Chairman and Chief Executive Officer
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
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Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
------------------------------
AMENDMENT FILED PURSUANT TO RULE 414(d)
OF THE SECURITIES ACT OF 1933
On December 4, 1997, the shareholders of Intelect Communications Systems
Limited, a Bermuda corporation ("Intelect (Bermuda)") at a meeting for which
proxies were solicited pursuant to Section 14(a) of the Securities Exchange Act
of 1934, as amended, approved a proposal, the principal effect of which is to
change the domicile of Intelect (Bermuda) so that it will be a publicly traded
U.S. domiciled, Delaware corporation (the "Reorganization"). The Reorganization
was effected pursuant to an Agreement and Plan of Merger by and among Intelect
(Bermuda), Intelect Communications, Inc., a Delaware corporation which was
wholly owned by Intelect (Bermuda) prior to the merger, and Intelect Merger Co.,
a Delaware corporation which was wholly owned by Intelect Communications, Inc.
prior to the merger ("Intelect Merger Co."). As a result of the merger, Intelect
Merger Co. was merged into Intelect (Bermuda), and each share of Intelect
(Bermuda) was automatically converted into the right to receive one share of
Intelect Communications, Inc. The effect of the Reorganization is that the
shareholders of Intelect (Bermuda) have become shareholders of Intelect
Communications, Inc., with Intelect Communications, Inc. becoming the publicly
traded company, and with Intelect Communications, Inc. replacing Intelect
(Bermuda) as the holding company for Intelect (Bermuda) and its subsidiaries.
The merger was effected on December 4, 1997. By this amendment, Intelect
Communications, Inc. hereby adopts this Registration Statement No. 333-35841 on
Form S-3 as its own for all purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934. This adoption is made pursuant to Rule 414(d)
as promulgated under the Securities Act of 1933.
<PAGE>
PROSPECTUS
5,813,633 Shares
INTELECT COMMUNICATIONS, INC.
Common Shares
-----------
Of the 5,813,633 common shares, par value US $0.01 per share (the
"Common Shares"), of Intelect Communications, Inc. ("Intelect Communications,
Inc." or the "Company") covered by this Prospectus for the account of certain
shareholders of the Company (the "Selling Shareholders"), 2,821,721 shares were
issued to certain of the Selling Shareholders in private placements, 750,000
shares were issued upon exercise of warrants or conversion of convertible
preferred stock, 1,910,583 shares are issuable upon exercise of warrants or
conversion of convertible preferred stock, and 331,329 shares were issued to the
certain of the Selling Shareholders in connection with the acquisition by the
Company of Mosaic Information Technologies Inc. on March 29, 1996, all of which
may be offered and sold from time to time for the account of certain of the
selling shareholders of the Company. See "Selling Shareholders." The Common
Shares covered by this Prospectus are issuable in connection with certain
financings and in satisfaction of certain registration rights obligations of the
Company to the Selling Shareholders. All of the shares offered hereunder are to
be sold by the Selling Shareholders. The Company will not receive any of the
proceeds from the sale of the shares by the Selling Shareholders.
The Selling Shareholders may from time to time sell the shares covered
by this Prospectus on the Nasdaq National Market in ordinary brokerage
transactions, in negotiated transactions, or otherwise, at market prices
prevailing at time of sale or at negotiated prices. See "Plan of Distribution."
The Common Shares are traded on the Nasdaq National Market under the symbol
ICOM.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION (OR ANY STATE SECURITIES COMMISSION) PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------
The date of this Prospectus is December 22, 1997.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements, information
statements, and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at 7 World Trade Center, Suite 1300, New York, New York 10048,
and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials also may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such materials may also be accessed electronically by means of
the Commission's home page on the Internet at HTTP://WWW.SEC.GOV. The Common
Shares of the Company are traded on the Nasdaq National Market.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Common Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, as certain items are omitted in accordance with
the rules and regulations of the Commission. For further information pertaining
to the Company and the Common Shares offered hereby, reference is made to such
Registration Statement and the exhibits and schedules thereto, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company's
predecessor, Intelect Communications Systems Limited, a corporation organized
under the laws of Bermuda ("Intelect (Bermuda)") are incorporated herein by
reference:
1. Annual Report on Form 10-K filed on April 15, 1997 and the Form
10-K/A filed on April 30, 1997;
2. Quarterly Reports on Forms 10-Q filed on May 15, 1997, August
14, 1997, and November 13, 1997;
3. Current Report on Form 8-K filed on March 27, 1997;
4. Current Report on Form 8-K filed on May 8, 1997;
5. Current Report on Form 8-K filed on August 20, 1997; and 6.
Current Report on Form 8-K filed on November 5, 1997.
The report of KPMG Peat Marwick on the aforementioned consolidated
financial statements contained in the Annual Report on Form 10-K filed on April
15, 1997, contains an explanatory paragraph that states that Intelect (Bermuda)
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 Intelect (Bermuda) is operating
profitably. 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.
The following documents of the Company filed with the Commission are
incorporated herein by reference:
1. Registration Statement of the Company filed with the Commission on
Form S-4 declared effective October 30, 1997, containing a
description of the Company's Common Shares; and
2. Current Report on Form 8-K filed December 5, 1997.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the offering of the Common Shares
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registered hereby shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the foregoing documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits specifically
incorporated by reference into such documents). Requests for such copies should
be directed to THE ATTENTION OF EDWIN J. DUCAYET, JR., 1100 EXECUTIVE DRIVE,
RICHARDSON, TEXAS 75081, (972) 367-2100. Statements in documents incorporated by
reference shall be deemed modified by statements herein. Statements so modified
shall constitute part of this Prospectus only as so modified.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
REORGANIZATION
Intelect Communications, Inc. (the "Company" or the "Registrant") was
incorporated in Delaware on May 23, 1995. The Company's predecessor, Intelect
(Bermuda) was incorporated under the laws of Bermuda in April 1980 and operated
under the name Coastal International, Ltd. until September 1985 and as
Challenger International, Ltd. until December 1995. On December 4, 1997, the
shareholders of Intelect Communications Systems Limited approved a proposal, the
principal effect of which is to change the domicile of Intelect (Bermuda) so
that it will be a publicly traded U.S. domiciled, Delaware corporation (the
"Reorganization"). The Reorganization was effected pursuant to an Agreement and
Plan of Merger by and among Intelect (Bermuda), the Company, which was wholly
owned by Intelect (Bermuda) prior to the merger, and Intelect Merger Co., a
Delaware corporation, which was wholly owned by the Company prior to the merger
("Intelect Merger Co."). As a result of the merger, Intelect Merger Co. was
merged with Intelect (Bermuda), and each share of Intelect (Bermuda) was
automatically converted into the right to receive one share of the Company. The
effect of the Reorganization is that the shareholders of Intelect (Bermuda) have
become shareholders of the Company, with Intelect Communications, Inc. becoming
the publicly traded company, and with Intelect Communications, Inc. replacing
Intelect (Bermuda) as the holding company for Intelect (Bermuda) and its
subsidiaries. The merger was effective on December 4, 1997. As hereinafter used
in this
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Prospectus, the "Company" means Intelect Communications, Inc., a Delaware
corporation, on or after December 4, 1997, and Intelect Communications Systems
Limited, a Bermuda corporation, prior to December 4, 1997.
THE COMPANY
The Company, through its operating subsidiaries, is currently engaged in
the business of designing, producing, and marketing products, technologies, and
services for multimedia applications in telecommunications and networking.
Unless the context otherwise indicates, the "Company" refers to Intelect
Communications, Inc. and its subsidiaries.
The Company's executive offices are located at 1100 Executive Drive,
Richardson, Texas 75081; telephone (972) 367-2100.
RISK FACTORS
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE, SHOULD
BE CAREFULLY CONSIDERED BY AN INVESTOR CONSIDERING A PURCHASE OF THE COMMON
SHARES.
EFFECT OF SALES ON MARKET PRICE OF STOCK
Because it is possible that a significant number of Common Shares could
be sold at the same time hereunder, such sales, or the possibility thereof,
could have a significant depressive effect on the market price of the Company's
Common Shares.
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
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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 would 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 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
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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 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.
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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 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.
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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 November 1995,
the Company agreed to certain customary obligations to indemnify the purchases
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.
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 Stock 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.
8
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Shares
offered hereby. However, with respect to those Common Shares registered hereby
that are issuable upon the exercise of warrants, the Company will receive
$3,235,000, assuming the full exercise of all of such warrants at their stated
exercise prices.
SELLING SHAREHOLDERS
The Selling Shareholders were issued the Common Shares covered by this
Prospectus in a series of unrelated private placements as summarized below:
Of the 5,813,633 Common Shares being registered:
(i) 993,023 Common Shares were issued to Infinity Investors, Ltd.
("Infinity"), 160,116 Common Shares were issued to Seacrest
Capital Limited ("Seacrest"), and 430,000 Common Shares were
issued to Zug Investments, each in settlement of a dispute
arising under and in conversion of those certain Series A and
Series B Convertible Debentures issued by the Company to
Infinity and Seacrest dated October 15, 1996, such Common Shares
being registerable pursuant to that certain Settlement Agreement
dated August 22, 1997;
(ii) 30,000 Common Shares were issued to Isaac Arnold, Jr., 10,000
Common Shares were issued to Arnold Corporation, and 20,000
Common Shares were issued Meridian Fund, Ltd., such Common
Shares being registerable pursuant to certain Subscription
Agreements dated August 22, 1997;
(iii) 750,000 Common Shares were issued to The Coastal Corporation
Second Pension Trust (the "Coastal Trust") upon exercise of a
warrant dated May 7, 1997 which was issued pursuant to that
certain Loan Agreement dated May 8, 1997 among the Company, the
Coastal Trust, and Intelect Systems Corp., a wholly-owned
subsidiary of the Company (the "Loan Agreement"); 780,583 Common
Share are issuable upon the conversion of Company Series A
Preferred Stock, which was issued to the Coastal Trust upon
conversion of debt to equity pursuant to the Loan Agreement, all
such Common Shares being registerable pursuant to those certain
Registration Rights Agreements dated May 8 and May 30, 1997;
(iv) 800,000 Common Shares are issuable to St. James Capital Corp.
("St. James") upon exercise of warrants issued to St. James
pursuant to St. James Credit Facility dated February 14, 1997,
as amended, among the Company and St. James, such Common Shares
being registerable pursuant to that certain Registration Rights
Agreement dated February 26, 1997, as amended on March 27, April
24, and May 8, 1997;
(v) 542,182 Common Shares were issued to John Shaunfield as part of
a settlement agreement dated April 25, 1997 in settlement of all
future royalties formerly owed by Intelect Network Technologies
Company, a wholly-owned subsidiary of the Company, under a
technology purchase agreement, such Common Shares being
registerable pursuant to that certain Agreement dated August 25,
1997;
(vi) 331,329 Common Shares were issued to former shareholders of
Intelect Visual Communications Corp. ("IVC"), formerly known as
Mosaic Information Technologies Inc. ("Mosaic") by the Company
in a private placement in connection with its acquisition of
Mosaic, such Common Shares being registerable pursuant to that
certain Registration Rights Agreement dated March 29, 1996;
(vii) 300,000 Common Shares are issuable to Gregory L. Mayhan and
Edgar L. Read as former shareholders of DNA Enterprises, Inc.
("DNA") upon exercise of those two certain warrants each dated
February 13, 1997 issued to Messrs. Mayhan and Read in
connection with the Company's
9
<PAGE>
acquisition of DNA, such Common Shares being registerable
pursuant to the terms of such warrants;
(viii) 636,400 Common Shares were issued to certain accredited
investors, 615,000 of such Common Shares being registerable
pursuant to certain Subscription Agreements dated August 29,
1997, and 21,400 being issued to the selling agent in such
transaction as part of such selling agent's fee; and
(ix) 30,000 Common Shares are issuable to Lifeline Industries, Inc.
upon exercise of that certain warrant expiring on December 31,
2001 issued as compensation for consulting services, such Common
Shares being registerable pursuant to the terms of such warrant.
In each case, the issuance of Common Shares to the Selling Shareholders
was undertaken pursuant to Section 4(2) of the Securities Act and, in the case
of the issuances to the accredited investors referred to in item (viii) above,
under Regulation D promulgated thereunder.
The table below sets forth the number of Common Shares beneficially
owned by each of the Selling Shareholders as of September 10, 1997, the number
of shares to be offered by each of the Selling Shareholders pursuant to this
Prospectus, and the number of shares to be beneficially owned by each of the
Selling Shareholders if all of the shares offered hereby are sold as described
herein. Except as provided below, the Selling Shareholders have not held any
positions or offices with, been employed by, or otherwise had a material
relationship with, the Company or any of its predecessors or affiliates since
September 1, 1994.
Of the Selling Shareholders, Robert M. Bolder is the former president of
IVC, a wholly-owned subsidiary of the Company.
Of the Selling Shareholders, the following were employees of Mosaic:
Eric Bolder, Robert Bolder, Robert W. Davis, Matthew Feldman, Nigel Kilpatrick,
Wellner Anderson, Gerald Brangman, Raymond Carbone, and George Eagan. Matthew
Feldman was an officer of IVC. Robert Davis and Nigel Kilpatrick are currently
employees of IVC.
Of the Selling Shareholders, the following extended credit to IVC prior
to IVC's acquisition by the Company and certain of the following received Common
Shares of the Company in partial satisfaction of such obligations of IVC: Robert
Davis and Richard Kalin.
Of the Selling Shareholders, John Shaunfield is an employee of Intelect
Network Technologies Corp., a wholly-owned subsidiary of the Company.
Of the Selling Shareholders, Edgar L. Read and Gregory Mayhan are
employees of DNA Enterprises, Inc., a wholly-owned subsidiary of the Company.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY
AS OF SEPTEMBER 10, COMMON SHARES OWNED AFTER
NAME OF SELLING SHAREHOLDER 1997 OFFERED HEREBY OFFERING
- --------------------------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C>
America First Associates Corp.......... 21,400 21,400 0
Wellner Anderson....................... 5,593 5,593 0
Kimberly Arcoro........................ 3,835 3,835 0
Robert Arcoro, Jr...................... 3,835 3,835 0
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY
AS OF SEPTEMBER 10, COMMON SHARES OWNED AFTER
NAME OF SELLING SHAREHOLDER 1997 OFFERED HEREBY OFFERING
- --------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Arnold Corporation ............................................ 10,000 10,000 0
Isaac Arnold, Jr .............................................. 99,000 30,000 69,000
Eric Bolder ................................................... 7,989 7,989 0
Gwendolyn Bolder .............................................. 3,196 3,196 0
Robert Bolder ................................................. 94,102 94,102 0
Gerald Brangman ............................................... 750 750 0
James and Mary Clay ........................................... 2,557 2,557 0
The Coastal Corporation Second Pension ........................ 6,685,135 1,530,583(1) 5,154,552(2)
Trust
Chris Cutsogeorge ............................................. 958 958 0
Blake C. Davenport ............................................ 25,000 25,000 0
Robert W. Davis ............................................... 15,979 15,979 0
George and Lisa Eagan ......................................... 9,077 9,077 0
Arnold and Elaine Feldman ..................................... 3,196 3,196 0
Matthew J. Feldman ............................................ 98,895 98,895 0
Spencer G. Feldman ............................................ 799 799 0
Fernhill Partners ............................................. 40,000 40,000 0
Fiftieth & Grover Shopping Center ............................. 29,500 25,000 4,500
</TABLE>
- --------
1 Includes 780,583 Common Shares issuable upon conversion of Series A
Preferred Shares on a share-per-share basis.
2 Includes 450,000 Common Shares issuable upon exercise of a warrant
expiring August 26, 2002 at $6.00 per Common Share; includes 4,219,409
Common Shares issuable upon conversion of the Company's 10% Cumulative
Convertible Preferred Shares, Series A (the "Series A Preferred Shares")
on a share-per-share basis; includes 485,143 Common Shares issuable upon
conversion of Series A Preferred Shares issuable upon conversion of
$3,000,000 of debt to equity at $6.18375 per share as set forth in that
certain Amended and Restated Loan Agreement dated August 27, 1997 among
the Company and The Coastal Corporation Second Pension Trust.
11
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY
AS OF SEPTEMBER 10, COMMON SHARES OWNED AFTER
NAME OF SELLING SHAREHOLDER 1997 OFFERED HEREBY OFFERING
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Carol Filler ........................................................... 25,000 25,000 0
Douglas Floren ......................................................... 25,000 25,000 0
Edward H. Gomez ........................................................ 5,273 5,273 0
Richard A. Gray ........................................................ 20,000 20,000 0
Alexander Greenberg .................................................... 25,000 25,000 0
Barbara Hall ........................................................... 1,570 1,278 292
Philip Hempleman ....................................................... 75,000 75,000 0
Kevin T. Hoffman ....................................................... 4,794 4,794 0
Infinity Investors, Ltd.(3) ............................................ 993,023 993,023 0
Joseph Kaidanow ........................................................ 5,593 5,593 0
Richard S. Kalin ....................................................... 34,967 27,517 7,450
Nigel Kilpatrick ....................................................... 6,392 6,392 0
Emanuel Kramer ......................................................... 29,721 29,721 0
Lifeline Industries, Inc. .............................................. 30,000(4) 30,000(4) 0
David May .............................................................. 15,000 15,000 0
Gregory L. Mayhan ...................................................... 150,000(5) 150,000(5) 0
Timothy McCollum ....................................................... 40,000 40,000 0
</TABLE>
- --------
3 Party to a Settlement Agreement dated August 22, 1997 which limits the
Common Shares it and Seacrest Capital Limited, collectively, can sell to
125,000 per month until October 31, 1997, and 250,000 each month
thereafter.
4 Includes 30,000 Common Shares issuable by the Company upon exercise of
that certain warrant expiring on December 31, 2001 at $4.50 per Common
Share.
5 Includes 150,000 Common Shares issuable upon exercise of a warrant
expiring February 13, 1999 at $5.00 per Common Share.
12
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
COMMON SHARES COMMON SHARES
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY
AS OF SEPTEMBER 10, COMMON SHARES OWNED AFTER
NAME OF SELLING SHAREHOLDER 1997 OFFERED HEREBY OFFERING
- ------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Meridian Fund, Ltd. .................................................... 467,000 20,000 447,000
Sanford Prater ......................................................... 40,000 40,000 0
Frank Lyon Polk III .................................................... 37,500 37,500 0
Privet Row, Inc. ....................................................... 25,000 25,000 0
Leonard Rauner ......................................................... 25,000 25,000 0
Edgar L. Read .......................................................... 150,000(6) 150,000(6) 0
Marcus R. Rowan ........................................................ 15,000 15,000 0
Seacrest Capital Limited(7) ............................................ 160,116 160,116 0
John Shaunfield ........................................................ 550,515 542,182 8,333
St. James Capital Corp. ................................................ 800,000(8) 800,000(8) 0
TCM Partners, L.P. ..................................................... 365,000 150,000 215,000
Wayne Wilkey ........................................................... 7,500 7,500 0
Zug Investments ........................................................ 430,000 430,000 0
</TABLE>
The Selling Shareholders identified above may have sold, transferred or
otherwise disposed of all or a portion of their Common Shares since the date on
which they provided the information regarding their Common Shares in
transactions exempt from the registration requirements of the Securities Act.
Additional information concerning the above listed Selling Shareholders may be
set forth from time to time in prospectus supplements to this Prospectus.
See "Plan of Distribution."
PLAN OF DISTRIBUTION
Common Shares covered hereby may be offered and sold from time to time
by the Selling Shareholders. The Selling Shareholders will act independently of
the Company in making decisions with respect, among other things, to the timing,
manner and size of each sale. Such sales may be made in the over-the-counter
market or otherwise, at
- --------
6 Includes 150,000 Common Shares issuable upon exercise of a warrant
expiring February 13, 1999 at $5.00 per Common Share.
7 Party to a Settlement Agreement dated August 22, 1997 which limits the
Common Shares it and Infinity Investors, Ltd., collectively, can sell to
125,000 per month until October 31, 1997, and 250,000 each month
thereafter.
8 Includes 800,000 Common Shares issuable upon exercise of warrants
expiring February 26, March 27, April 24, and May 8, 2002 at $2.00 per
Common Share.
13
<PAGE>
prices related to the then current market price or in negotiated transactions,
including pursuant to an underwritten offering or one or more of the following
methods: (a) purchases by the broker-dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (b) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
and (c) block trades in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction. In effecting sales, broker-dealers
engaged by the Selling Shareholders may arrange for other broker-dealers to
participate. Broker-dealers will receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to the sale.
In offering the Common Shares covered hereby, the Selling Shareholders
and any broker-dealers and any other participating broker-dealers who execute
sales for the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profits
realized by the Selling Shareholders and the compensation of such broker-dealer
may be deemed to be underwriting discounts and commissions. In addition, any
shares covered by this Prospectus which qualify for sale pursuant to Rule 144
may be sold under Rule 144 rather than pursuant to this Prospectus.
The Company has advised the Selling Shareholders that during such time
as they may be engaged in a distribution of the Common Shares included herein
they are required to comply with Regulation M promulgated under the Exchange
Act. With certain exceptions, Regulation M precludes any Selling Shareholder,
any affiliated purchasers, and any broker-dealer or other person who
participates in such distribution from bidding for or purchasing, or attempting
to induce any person to bid for or purchase any security which is the subject of
the distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the Common Shares.
Because it is possible that a significant number of Common Shares could
be sold at the same time hereunder, such sales, or the possibility thereof, may
have a significant depressive effect on the market price of the Company's Common
Shares.
This offering will terminate on the earlier of (a) the date on which the
shares are eligible for resale without restriction pursuant to Rule 144(k) under
the Securities Act or (b) the date on which all shares offered hereby have been
sold by the Selling Shareholders.
DESCRIPTION OF CAPITAL STOCK
The authorized share capital of the Company is 100,000,000 Common Shares
of $0.01 par value each (the "Common Shares") and 50,000,000 Serial Preferred
Shares of US $0.01 par value each (the "Preferred Shares"). As of December 4,
1997, there were approximately 23,954,978 Common Shares and 4,219,409 Preferred
Shares issued and outstanding.
COMMON SHAREs
The holders of Common Shares shall each be entitled to rank pari passu
in all respects with each other holder of Common Shares. Any shareholder who is
a holder of Common Shares shall be entitled to one vote for each Common Share
held by such holder. Subject to the payment of preferential amounts to which the
holders of Preferred Shares, which may be issued from time to time, may be
entitled, holders of Common Shares shall be entitled, pro rata to their holding
of Common Shares, to participate in any assets or surplus of the Company
distributable in any liquidation, dissolution or winding-up of the Company.
14
<PAGE>
PREFERRED SHARES
The Preferred Shares may be issued from time to time in one or more
series and in such amount as may be established or designated from time to time
by the Board of Directors in accordance with the Bye-Laws of the Company. The
Board of Directors has the authority to establish and designate any unissued
Preferred Shares as a series of such shares.
10,000,000 of the serial Preferred Shares have been designated as shares
of $2.0145, 10% Cumulative Convertible Preferred Shares, Series A, (the "Series
A Preferred Shares") of which 4,219,409 shares have been issued. The Series A
Preferred Shares may be redeemed, at the Company's option, at 110%, 105%, and
100% of face value after June 1, 1999, 2000, and 2001, respectively. After
August 31, 1997, the Series A Preferred Shares are convertible into Common
Shares on a share-for-share basis, subject to anti-dilution provisions.
The holders of Series A Preferred Shares do 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 the Series A Preferred Shares 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 Shares shall be entitled
to vote, they shall be entitled to one vote for each Series A Preferred Share
held.
Dividends are payable quarterly beginning September 30, 1997, in cash or
Common Shares, at the Company's option. Dividends payable in Common Shares shall
be paid in an amount equivalent to the accrued dividend, converted into 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
Series A Preferred Shares and held for the election of directors during the
Class Voting Period, the holders of a majority of the outstanding Series A
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 the Company, to elect two directors of the Company (or such greater
number constituting not less than 35% of the number of Directors authorized),
each Series A 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 the Company, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of the Company, the
holders of the Series A Preferred Shares shall be entitled to receive, out of
the remaining net assets of the Company, the amount of Two and 1.45/100 dollars
($2.0145) in cash for each Series A Preferred Share, plus an amount equal to all
dividends accrued and unpaid on each such Series A Preferred Share up to the
date fixed for distribution, before any distribution shall be made to the
holders of the Common Shares, or any other capital stock of the Company ranking
(as to any such distribution) junior to the Series A Preferred Shares.
In the event the Company issues any new securities, the holders of the
Series A Preferred Shares shall have preemption rights entitling such holders to
purchase such new securities from the Company 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 Common Shares), except such preemption
rights shall not be applicable to certain financings.
LEGAL MATTERS
The validity of the Common Shares offered by the Selling Shareholders
hereby will be passed upon by Ryan & Sudan, L.L.P., Houston, Texas.
15
<PAGE>
EXPERTS
The consolidated financial statements and financial statement schedules
of the Company as of December 31, 1995 and 1996, 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.
16
<PAGE>
PROSPECTUS
TABLE OF CONTENTS
PAGE
Available Information ..................................................... 2
Incorporation of Certain Documents by Reference ........................... 2
The Company ............................................................... 3
Risk Factors .............................................................. 4
Use of Proceeds ........................................................... 8
Selling Shareholders ...................................................... 9
Plan of Distribution ...................................................... 13
Description of Capital Stock .............................................. 14
Legal Matters ............................................................. 16
Experts ................................................................... 16
17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Nature of Expense
Legal (including Blue Sky), Printing, and Accounting
Fees and Expenses $ 46,000.00*
*Estimated TOTAL $ 46,000.00*
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Registrant's Certificate of Incorporation provides that
if 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 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
II-1
<PAGE>
(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 Article XI 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.
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 Delaware General Corporation Law 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.
ITEM 16. EXHIBITS.
See Exhibit Index included immediately preceding the Exhibits to this
Registration Statement, which is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) 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, as amended (the "Securities Act");
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(ii) To reflect in the prospectus any facts or events arising after
the effective date of this 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 this Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (1)(i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that are incorporated by reference in this
Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at the
time shall be deemed to be the initial bona fide offering thereof.
(3) 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.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable,
each filing of any employer benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the indemnification provisions described herein, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceedings) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
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 Securities Act and will be governed by
the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Post-Effective Amendment No. 1 to Form S-3 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Richardson, Texas on the 22nd day of
December, 1997.
INTELECT COMMUNICATIONS, INC.
By: /s/ HERMAN M. FRIETSCH
Herman M. Frietsch
Chairman and Chief Executive
Officer
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.
SIGNATURE TITLE DATE
/s/ HERMAN M. FRIETSCH Chief Executive Officer and December 22, 1997
Herman M. Frietsch Director (Principal Executive
Officer)
/s/ EDWIN J. DUCAYET, JR. Vice President, Chief Financial December 22, 1997
Edwin J. Ducayet, Jr. Officer Treasurer, and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
/s/ PHILIP P. SUDAN, JR. Director December 22, 1997
Philip P. Sudan, Jr.
/s/ ANTON LIECHTENSTEIN Director December 22, 1997
Anton Liechtenstein
/s/ ROBERT E. GARRISON II Director December 22, 1997
Robert E. Garrison II
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EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
4.1 Amended and Restated Certificate of Incorporation of Intelect
Communications, Inc. (1)
4.2 Amended and Restated By-laws of Intelect Communications, Inc.(1)
4.3 Plan and Agreement of Merger dated as of October 29, 1997 by and
among the Intelect (Bermuda), Intelect Communications, Inc., and
Intelect Merger Co. (1)
4.4 Specimen Stock Certificate of Intelect Communications, Inc. (2)
5.1 Opinion of Ryan & Sudan, L.L.P.
10.1 Intelect Communications, Inc. Stock Incentive Plan (1)
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)
- ----------
(1) Incorporated herein by reference to Form S-4 of Intelect
Communications, Inc. (File No. 333- 39063)
(2) Incorporated herein by reference to Form 8-K of Intelect
Communications, Inc. filed December 5, 1997
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EXHIBIT 5.1
[RYAN & SUDAN, L.L.P. LETTERHEAD]
December 22, 1997
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 75081
Re: Post-Effective Amendment No. 1 to the Registration Statement on
Form S-3 (No. 333-35841) ("Registration Statement") of Intelect
Communications, Inc.
Ladies and Gentlemen:
We have acted as counsel to Intelect Communications, Inc., a Delaware
corporation (the "Registrant"), with respect to the issuance of this opinion
relating to the proposed offering by the Registrant of up to Five Million Eight
Hundred Thirteen Thousand Six Hundred Thirty Three (5,813,633) shares (the
"Shares") of the Common Stock of the Registrant, par value $.01 per share (the
"Common Stock"), as described in such Registration Statement.
As such counsel, we have examined such corporate records, certificates
and other documents and have made such other factual and legal investigations as
we have deemed relevant and necessary as the basis for the opinions hereinafter
expressed. In such examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
conformed or photostatic copies.
Based on the foregoing, we are of the opinion that:
1. The issuance by the Registrant of the Shares has been duly authorized
by all necessary corporate action on the part of the Registrant.
2. When issued and the consideration therefor is paid in accordance with
the terms of issuance, the Shares will be duly and validly issued and
outstanding, fully paid and non-assessable shares of Common Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Post-Effective Amendment No. 1 to the Registration Statement.
Very truly yours,
/S/ RYAN & SUDAN, L.L.P.
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 (No.
333-35841) on Form S-3 of Intelect Communications, Inc. of our report dated
April 9, 1997, relating to the consolidated balance sheets of Intelect
Communications Systems Limited and subsidiaries (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 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 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. 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
December 19, 1997
