SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
INTELECT COMMUNICATIONS, INC.
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
_________________________ (2) Aggregate number of securities to which
transaction applies: ________________________ (3) Per unit price or other
underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee is calculated and state how it was
determined: ____________________________________________________________________
(4) Proposed maximum aggregate value of transaction: _________________________
(5) Total fee paid: __________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: __________________________________________________
(2) Form, Schedule or Registration Statement No.: ____________________________
(3) Filing Party: ____________________________________________________________
(4) Date Filed: ______________________________________________________________
<PAGE>
INTELECT COMMUNICATIONS, INC.
To the Stockholders of Intelect Communications, Inc.:
You are requested to vote on the matters being presented for action at a
Special Meeting of Stockholders of Intelect Communications, Inc. These matters
are important and critical to the Company's capability to meet its obligations
and sustain its capital and financial flexibility. We urge your affirmative vote
in support of the Company's continuing progress. We appreciate your interest and
consideration.
Our meeting is called for December 22, 1998 at the Company's offices
located at 1100 Executive Drive, Richardson, Texas 75081. The attached Notice of
Special Meeting and Proxy Statement describe the business of the meeting.
Directors and officers of the Company will also be present to address the items
for actions and respond to stockholder inquiries.
We cordially invite you to attend the meeting. Whether or not you plan to
attend the meeting, please sign, date, and return the enclosed proxy promptly in
the envelope provided. If you attend the meeting, you may, at your discretion,
withdraw the proxy and vote in person.
Thank you for your time and consideration to respond to this request.
Sincerely,
For the Board of Directors
and Management
/s/Herman M. Frietsch
Herman M. Frietsch
Chairman
Enclosures
November __, 1998
<PAGE>
INTELECT COMMUNICATIONS, INC.
NOTICE OF THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 22, 1998
To the Stockholders of Intelect Communications, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Intelect
Communications, Inc. (the "Company") will be held on December 22, 1998, at 1:00
p.m. local time at the Company's offices located at 1100 Executive Drive,
Richardson, Texas 75081 (the "Meeting") for the purpose of considering and
voting upon the following matters:
1. To consider and vote upon a proposal to approve the issuance of the
Company's common stock, par value $0.01 (the "Common Stock")
issuable upon conversion of the Company's Series C Convertible
Preferred Stock, $0.01 par value per share (the "Series C Preferred
Stock") and the Company's Series D Convertible Preferred Stock,
$0.01 par value per share (the "Series D Preferred Stock");
2. To consider and vote upon a proposal to amend the Company's Amended
and Restated Certificate of Incorporation to increase the number of
shares of Common Stock authorized for issuance from 50,000,000 to
100,000,000 shares;
and
3. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors of the Company has fixed the close of business on
November 4, 1998 as the record date for the meeting, and only holders of Common
Stock of record at such time will be entitled to vote at the meeting or any
adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
EDWIN J. DUCAYET, JR., ASSISTANT SECRETARY
Richardson, Texas
November__, 1998
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.
<PAGE>
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
PROXY STATEMENT
FOR A
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
DECEMBER 22, 1998
This Proxy Statement accompanies the Notice (the "Notice") of a Special
Meeting of Stockholders of Intelect Communications, Inc. (the "Company") and is
furnished in connection with the solicitation by the Board of Directors of the
Company (the "Board") of proxies to be voted at the Special Meeting of
Stockholders of the Company (the "Meeting") and at any and all adjournments of
such Meeting. The Meeting is to be held on December 22, 1998, at the Company's
offices located at 1100 Executive Drive, Richardson, Texas 75081 at 1:00 p.m.
local time.
The Notice of Meeting, this Proxy Statement, and the enclosed proxy are
being first mailed to stockholders on or about November __, 1998.
PURPOSES OF THE SPECIAL MEETING
At the Meeting, holders of record of the Company's outstanding shares of
common stock, par value $0.01 per share ("Common Stock"), will be asked (i) to
consider and vote upon a proposal (the "Preferred Stock Proposal") to approve
the issuance of Common Stock issuable upon conversion of the Company's Series C
Convertible Preferred Stock, par value $0.01 per share (the "Series C Preferred
Stock") and the Company's Series D Convertible Preferred Stock, par value $0.01
per share (the "Series D Preferred Stock") (the Series C Preferred Stock and the
Series D Preferred Stock collectively the "Preferred Stock"), and (ii) to
consider and vote upon a proposal (the "Charter Amendment Proposal") to amend
the Company's Amended and Restated Certificate of Incorporation (the
"Certificate") to increase the number of shares of Common Stock authorized for
issuance from 50,000,000 to 100,000,000 shares (the Preferred Stock Proposal and
the Charter Amendment Proposal collectively the "Proposals").
The Board unanimously recommends that stockholders vote FOR the Proposals.
As of the date of this Proxy Statement, the Board knows of no other business to
come before the Meeting.
EXERCISE OF DISCRETION BY PROXIES
Each properly executed proxy received at or before the Meeting on December
22, 1998 or any adjournments thereof will be voted at the meeting as specified
therein. A proxy may be revoked at any time prior to its exercise by delivering
written notice of its revocation to the Secretary of the Company, by a later
dated proxy, or by attending the Meeting and voting in person. If a stockholder
does not specify otherwise, the shares represented by proxy will be voted as
recommended by the Board. Thus, if no directions are given, the proxy will be
voted FOR the Proposals.
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.
The expense of this proxy solicitation, including the cost of preparing
and mailing the Proxy Statement and the proxy, will be paid by the Company. Such
expense may also include the charges and expenses of banks, brokerage firms and
other custodians, nominees or fiduciaries for forwarding proxies and proxy
material to beneficial owners of the Company's Common Stock. The Company expects
to solicit proxies primarily by mail, but directors, officers, employees, and
agents of the Company may also solicit proxies in person or by telephone or by
other electronic means. In addition, the Company has retained Regan &
Associates, Inc. to assist in the solicitation of
<PAGE>
proxies for which the Company will pay an estimated $10,000 in fees, plus
expenses and disbursements. The Proxy Statement and the accompanying proxy were
first mailed to stockholders on or about November__, 1998.
VOTING SHARES, QUORUM AND VOTES REQUIRED
The presence, in person or by proxy, of a majority of the outstanding
shares of Common Stock entitled to vote at the Meeting shall constitute a quorum
for the transaction of business. The Preferred Stock Proposal to be voted on at
the Meeting requires the affirmative vote of a majority of the voting power
present and entitled to vote at the meeting, while the Charter Amendment
Proposal requires the affirmative vote of a majority of the outstanding shares
of Common Stock. Votes cast by proxy or in person at the Meeting will be
tabulated by the election inspectors appointed for the meeting. Abstentions and
broker non-votes (as hereafter defined) will be counted as present by the
election inspectors for the purpose of determining the presence of a quorum. For
the purpose of computing the vote required for approval of matters to be voted
on at the Meeting, the election inspectors will treat shares held by a
stockholder who abstains from voting as being "present" and "entitled to vote"on
the matter and, thus, an abstention has the same legal effect as a vote against
the matter. However, in the case of a broker non-vote or where a stockholder
withholds authority from his proxy to vote the proxy as to a particular matter,
such shares will not be treated as "present" and "entitled to vote" on the
matter, and, thus, a broker non-vote or the withholding of a proxy's authority
will have no effect on the outcome of the vote on the matter. A "broker
non-vote" refers to shares of the Company's Common Stock represented at the
Meeting in person or by proxy by a broker or nominee, where such broker or
nominee does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to such proposal and has not received
voting instructions on a particular matter from the beneficial owners or persons
entitled to vote. Under the rules of the National Association of Securities
Dealers, generally, brokers holding stock for the accounts of their clients who
have not been given specific voting instructions as to a matter by their clients
may vote their clients' proxies in their own discretion on routine matters.
A stockholder may, with respect to the Proposals: (i) vote for the matter;
(ii) vote against the matter; or (iii) abstain from voting on the matter.
Only holders of the Company's Common Stock of record at the close of
business on November 4, 1998, will be entitled to receive notice of and to vote
at the Meeting. The Company had approximately ______ shares of Common Stock
outstanding on the record date which are entitled to vote, and each such share
is entitled to one vote.
PROPOSAL 1: TO APPROVE THE ISSUANCE OF THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THE SERIES C PREFERRED STOCK AND THE
SERIES D PREFERRED STOCK
GENERAL
Pursuant to the terms of a Securities Purchase Agreement dated February 6,
1998, the Company issued and sold an aggregate of 10,000 shares of Series C
Preferred Stock, resulting in aggregate gross proceeds to the Company of
$10,000,000 (the "Series C Private Placement"). In addition, pursuant to the
terms of a Securities Purchase Agreement dated May 8, 1998 and a Securities
Purchase Agreement dated June 26, 1998, the Company issued and sold an aggregate
of 10,000 shares of Series D Preferred Stock, resulting in aggregate gross
proceeds to the Company of $10,000,000 (the "Series D Private Placements")(the
Series C Private Placement and the Series D Private Placements collectively the
"Private Placements"). All of the securities sold in the above transactions were
sold in private placements solely to accredited investors.
Stockholders of the Company are being asked to consider and vote upon a
proposal to approve the issuance to holders of the Series C Preferred Stock and
the Series D Preferred Stock of the full number of shares of Common
2
<PAGE>
Stock to which such holders would be entitled upon conversion of the Series C
Preferred Stock or the Series D Preferred Stock, as the case may be, to satisfy
the requirements of the NASDAQ Stock Market ("Nasdaq").
SUMMARY OF TRANSACTION TERMS
The following is a summary of the material terms of the Private
Placements, which terms are qualified by reference to the full text of the
underlying documents which have been filed as exhibits to the Company's current
reports on Form 8-K filed on February 17, May 11, and June 29, 1998. See
"Available Information".
DIVIDENDS. The holders of the Preferred Stock are not entitled to receive
dividends. The holders are entitled to receive upon conversion, payable in cash
or Common Stock at the election of the Company, an annual premium of 4% on the
aggregate "Stated Value" (i.e., $1,000 per share) of the applicable series of
Preferred Stock (the "Additional Amount").
VOTING RIGHTS. The holders of the Preferred Stock have no voting rights except
as provided by law and have no right to vote on the proposal in this Proxy
Statement.
LIQUIDATION PREFERENCE. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of the
Preferred Stock shall be entitled to receive in cash out of the assets of the
Company, whether from capital or from earnings available for distribution to its
stockholders ("Liquidation Funds") before any amount shall be paid to any class
junior in rank to the Preferred Stock an amount per share of Preferred Stock
equal to $1,000 plus any Additional Amount (the "Liquidation Preference"). In
addition to the Liquidation Preference, in the event of any involuntary
liquidation, dissolution or winding up, the holders will also be entitled to
receive any Liquidation Funds distributed to the holders of the Common Stock,
after the Liquidation Preference has been paid, to the same extent as if such
holders of the Preferred Stock has converted their shares into Common Stock
(without regard to any limitations on conversion) and had held such shares of
Common Stock on the record date for the distribution of the remaining
Liquidation Funds.
CONVERSION. The shares of Preferred Stock generally are not convertible until
the earlier of 90 days after the issuance date or upon the effectiveness of a
registration statement filed under the Securities Act of 1933 registering the
resale of the shares of Common Stock issuable upon conversion. Pursuant to the
agreements between the Company and the holders of the Preferred Stock, the
holders have agreed to limit their conversions of the Preferred Stock such that
no more than 1,200,000 shares of Common Stock will be issued upon conversion in
any rolling 30 day period. However, these conversion restrictions do not apply
in the event of certain "Extraordinary Events", as defined, which generally
include certain mergers, business combinations, or change in control
transactions, certain private placements of equity securities, the suspension or
delisting of the Company's Common Stock, or an announcement of a bankruptcy or
other similar event. The holders of the Preferred Stock have agreed to not
convert their respective holdings of the Preferred Stock if after giving effect
to such conversion the holder would beneficially own in excess of 5% of the
outstanding shares of Common Stock of the Company following such conversion,
except on 61 days prior notice to the Company. In no event may the holders
beneficially own upon conversion in excess of 15% of the outstanding shares of
Common Stock of the Company without the prior consent of the Company, except in
case of a "Triggering Event" (which the holders have notified the Company has
occurred). See "Summary of Transaction Terms -- Registration of Shares". The
holders may not convert their respective holdings of Preferred Stock unless
their conversion notice contains at least 200 shares, or all of such lesser
amount of shares of Preferred Stock then held. The Preferred Stock will convert
automatically into Common Stock at the Conversion Price (as hereinafter defined)
then in effect on the second anniversary date of issuance, to the extent any
shares of the applicable issuance of Preferred Stock remain outstanding.
Each share of Preferred Stock is convertible into that number of shares of
Common Stock equal to (i) $1,000 (the "Stated Value"), plus an Additional
Amount, divided by (ii) the applicable Conversion Price. With respect to the
Series C Preferred Stock, the applicable Conversion Price is the lesser of (i)
$9.082 per share (the "Series C Fixed Conversion Price"), or (ii) a variable
conversion price which is 97% of the average of the three lowest closing bid
prices of the Common Stock as reported on Bloomberg for the ten consecutive
trading days before the date of conversion. The Series D Preferred Stock has an
applicable Conversion Price of the lesser of (i) $9.082 per share,
3
<PAGE>
which will be reset to $2.998 effective November 10, 1998, which reset price
represents the 5 day average daily volume-weighted average trading price as
reported by Bloomberg of the Common Stock for the five trading days following
the date the Company filed its report on Form 10-Q for the period ending June
30, 1998 (the "Series D Fixed Conversion Price"), or (ii) a variable conversion
price which is 97% of the average of the three lowest closing bid prices of the
Common Stock as reported on Bloomberg for the ten consecutive trading days
before the date of conversion. In addition, in the event that for any 20 of 30
consecutive trading days beginning on the applicable conversion effective date
the daily volume weighted average trading price (as reported on Bloomberg) of
the Common Stock equals or exceeds 150% of the applicable Fixed Conversion Price
or $12, then the Company can elect for the conversion price on the Preferred
Stock to equal the applicable Fixed Conversion Price. In the event that the
Company or the transfer agent do not timely effect a conversion or reissuance of
the remaining shares of Preferred Stock, the Company is subject to certain
liquidated damage penalties, adjustments to the applicable Fixed Conversion
Price and certain other penalties as more fully described in the applicable
Certificate of Designations. See "Available Information".
The Series D Preferred Stock has also activated certain anti-dilution and
repricing provisions in warrants issued by the Company to SJMB, L.P. and St.
James Capital Partners, L.P. in previous financings. Such repricing and
antidilution provisions in such warrants could result, assuming the full
exercise of such warrants, in the issuance of over 1.7 million additional shares
of Common Stock than were originally covered by such warrants, with an exercise
price being adjusted downward to the applicable conversion price of the Series D
Preferred Stock.
REDEMPTION. The holders of the Preferred Stock may require the Company to redeem
the Preferred Stock upon the consummation of a "Major Transaction" or a
"Triggering Event" at a price per share equal to the greater of (i) 120% of the
Stated Value of such shares and (ii) the product of the applicable conversion
rate in effect on the date of the "Major Transaction" or the date a notice of
redemption is delivered in the case of a "Triggering Event", and the closing
sales price of the Common Stock on the trading date immediately preceding such
date on which the "Major Transaction" or "Triggering Event" occurred. Generally
a "Major Transaction" is defined to include certain consolidations, mergers,
business combinations, or tender offers involving more than 49.9% of the
outstanding Common Stock of the Company, or the sale or transfer of
substantially all of the Company's assets. A "Triggering Event" is generally the
failure of the registration statement shares issuable upon conversion to be
declared effective within 180 days of the scheduled effective date, the
effectiveness of the registration statements lapses for seven or more
consecutive days (subject to applicable grace periods), the registration
statement is unavailable for the sale of all of the "Registrable Securities" (as
defined) for seven or more consecutive days in accordance with the terms of the
applicable registration rights agreement, the delisting of the Company's Common
Stock for seven consecutive days, certain failures to comply with conversions of
the Preferred Stock for 10 or more consecutive days, the inability of the
Company to issue conversion shares due to limitations imposed by Nasdaq, or
certain breaches of representations, warranties, covenants or terms of the
transaction documents which would have a Material Adverse Effect (as defined).
If the Company is unable to redeem all of the shares submitted for redemption,
it is required to redeem those shares it is able to redeem pro-rata and it will
pay interest to the holders on any shares which were not redeemed as required at
2.5% per month. In addition, the holders are also entitled to void their
redemption notices and receive a reset of their applicable Fixed Conversion
Price, as more fully set forth in the applicable Certificate of Designations.
See "Available Information".
In addition, as more fully set forth in the applicable Certificate of
Designations, the Company may redeem the Preferred Stock following 90 days after
the issuance date if the average of the volume-weighted average trading price of
the Common Stock for the prior ten consecutive trading days is less than $3 per
share. In such event, the redemption price will be equal to 110% of the Stated
Value per share plus the Additional Amount.
REGISTRATION OF SHARES. The Company is required to initially register with the
Securities and Exchange Commission (the "Commission") the resale of at least
175% of the number of shares of Common Stock issuable upon conversion of the
Preferred Stock based on the applicable conversion price in effect on the date
of the filing of such registration statement. The Company has agreed to file a
new registration statement or file an amendment to the existing registration
statement if the existing registration statement is not sufficient to cover at
least 150% of the number of the shares of Common Stock issuable upon conversion.
As of October 28, 1998, the Company has an effective
4
<PAGE>
registration statement on Form S-3 covering the resale of shares of Common Stock
issuable upon conversion of the Series C Preferred Stock (Registration No.
333-49379) (the "Series C Registration Statement"), and with respect to 5,000
shares of the Series D Preferred Stock issued on May 8, 1998 (Registration No.
333-53451) (the "Series D1 Registration Statement"). In addition, the Company
has filed a registration statement on Form S-3 on August 10, 1998 which covers
the remaining 5,000 shares of Series D Preferred Stock which were issued on June
26, 1998 which has not been declared effective by the Commission as of October
28, 1998. Due to decreases in the market price of the Common Stock following the
initial filings of such registration statements, such registration statements
are insufficient to cover the number of shares required to be registered and
which are issuable upon conversion of the Series C Preferred Stock and the
Series D Preferred Stock, respectively. Pursuant to an agreement between the
Company and the holders of the Preferred Stock, the Company plans to register a
portion of the additional shares required to be registered, and following the
Meeting, assuming approval of the Proposals, plans to register the full amount
of additional shares it is required to register.
Pursuant to contractual provisions with Citadel, since all of such shares
are not currently registered as required, Citadel has informed the Company that
a "Triggering Event" has occurred with respect to the Preferred Stock and,
further, that the Company has incurred certain liquidated damages. Upon the
occurrence of such a Triggering Event, the holders of the Preferred Stock can
require the Company to redeem the Preferred Stock at a price equal to the
greater of (i) 120% of the Stated Value, or (ii) an amount equal to the
conversion rate then in effect multiplied by the market price of the Company's
Common Stock on the date before the Triggering Event occurred. Further,
provisions which limit the holder to owning no more than 15% of the Common Stock
upon conversion without the prior consent of the Company would no longer apply.
The Company is attempting to secure waivers from the holders of the Preferred
Stock with respect to the enforcement of the remedies upon the occurrence of a
Triggering Event and the payment of the liquidated damages, although no
assurances can be given that such efforts will be successful. The enforcement of
the redemption provisions which occur upon a Triggering Event and the
enforcement of the liquidated damages provision against the Company could have a
material adverse effect on the Company's results of operations and financial
position, as well as its ability to continue as a going concern.
OTHER TERMS. The transactions documents relating to the Preferred Stock also
contain certain other representations, warranties, agreements, and
indemnification obligations of the Company. These include, among other things,
the obligation of the Company to obtain approval of the Company's stockholders
within 60 days in the event that the number of shares already issued in
connection with conversions of the Preferred Stock or issuable upon the future
conversion of the Preferred Stock exceeds 15% or more of the number of shares of
Common Stock outstanding as of February 9, 1998. The operative agreements also
contain (i) certain restrictions on the holders of the Preferred Stock from
selling shares of Common Stock on any single trading day in excess of 20% of the
trading volume of the Common Stock on such date of determination except on days
where the trading volume is in excess of 200% of the trading volume for the
prior six months or upon the occurrence of certain Extraordinary Events, Major
Transactions, or Triggering Events (as defined), (ii) prohibit the holders from
engaging in "short sales" as defined in Rule 3b-3 of the Securities Exchange Act
of 1934, (iii) prohibit the Company from redeeming any of its Common Stock or
paying any cash dividends on its Common Stock, (iv) limit the ability of the
Company to issue any senior preferred stock, (v) prohibit the Company from
engaging in any private placements of equity or debt convertible into equity
before the effectiveness of the registration statement covering the applicable
Preferred Stock (except for conversions to Common Stock or exercises to purchase
Common Stock of currently outstanding warrants, options, or convertible
securities, bona fide loans without an equity feature, grant of equity to
employees and directors under employee benefit plans, Rule 144A financings, and
certain other exceptions), and (vi) prohibit the Company from entering into
certain related party transactions except in accordance with Delaware law. The
shares of Preferred Stock are also subject to antidilution provisions which are
triggered in the event of certain stock splits, recapitalizations, or other
dilutive transactions, as well as issuances of Common Stock at a price below 95%
of the market price in effect, or the issuance of warrants, options, or other
convertible securities which have an exercise price less than 95% of the
5
<PAGE>
market price on the date of issuance, other than for certain previously
outstanding securities. The shares of Preferred Stock are also subject to
certain repricing provisions in the event that the Company issues any
convertible securities which have a variable conversion price which is at a 5%
or greater discount to the market price of the Common Stock on the conversion
date.
NASDAQ RULES AND STOCKHOLDER APPROVAL.
Under the rules of the Nasdaq, as a condition of listing, the Company is
required to obtain stockholder approval of the sale or issuance of Common Stock
(or securities convertible into Common Stock) by the Company equal to 20% or
more of the Common Stock before the issuance at a price less than the greater of
book or market value. In addition, stockholder approval is also required in
connection with transactions which are deemed to be a "change in control".
Although the Company does not believe that the issuance of the Preferred Stock
in the Private Placements constitute a change in control under the Nasdaq rules,
if the transaction were to be so construed, the approval sought would be
effective to satisfy the stockholder vote required. In addition, as noted, the
Company has agreed with the purchasers of the Preferred Stock that it will use
its best efforts to obtain stockholder approval within 60 days of the receipt of
notice from the holders that the number of shares of Common Stock already issued
in connection with conversions of the Preferred Stock or issuable upon the
future conversion of the Preferred Stock exceeds 15% or more of the number of
shares of Common Stock outstanding as of February 9, 1998, generally without
regard to any limitations on conversion (i.e., approximately 3,622,128 shares).
The Company has received such notice from the purchasers of the Preferred Stock
and accordingly has agreed to obtain such stockholder approval, absent
applicable waiver from Nasdaq, on or before the date of the Meeting.
The exact number of shares of Common Stock issuable upon exercise of each
of the shares of Preferred Stock issued in the Private Placement cannot
currently be estimated because the Preferred Stock is subject to adjustment
mechanisms in the applicable Conversion Price which cause the number of shares
issuable to be dependent on future events, namely the future trading prices of
the Common Stock and the decisions on conversions made by the holders of the
Preferred Stock. The variable conversion price formulas applicable to the
Preferred Stock will cause the number of shares of Common Stock to be issued to
vary inversely with the market price of the Common Stock. In order to assure
continued compliance with the Nasdaq, the terms of the Private Placement provide
that shares of Common Stock issuable upon conversion of the Preferred Stock may
not be issued if such issuance would violate Nasdaq rules (i.e., issuances of
Common Stock in excess of approximately 4,799,995 shares) unless the stockholder
approval sought hereby is obtained. If the approval sought is not obtained, the
Company may be required to redeem a portion of the Preferred Stock. See
"Consequences if Stockholder Approval Not Obtained".
CONSEQUENCES IF STOCKHOLDER APPROVAL NOT OBTAINED
The Company is obligated to use its best efforts to obtain stockholder
approval. If the stockholder approval sought hereby is not obtained, the Company
will be prohibited under the terms of its listing agreement with Nasdaq from
issuing more than an aggregate of approximately 4,799,995 shares of Common Stock
in connection with the Private Placements which is slightly less than 20.0% of
the shares of Common Stock outstanding on the date of the Series C Private
Placement (the "Nasdaq 20% limitation"). If the Company would be unable to issue
any additional shares of Common Stock due to the Nasdaq 20% limitation, the
Company would be required to redeem the shares at the option of the holders at a
price per share equal to the greater of (i) 120% of the Stated Value of such
shares and (ii) the product of the applicable conversion rate in effect on the
date a notice of redemption is delivered by the holders and the closing sales
price of the Common Stock on the trading day immediately preceding such event
(the "Special Redemption Price"). Further, the holder could argue that failure
to obtain such stockholder approval was a breach of the Company's obligations
under the operative transactions documents which had a Material Adverse Effect.
If such an argument were successful, the Company may be obligated to redeem all
of the outstanding shares of Preferred Stock at the Special Redemption Price
without regard to whether or not the Company was able to issue any additional
shares of Common Stock. The redemption must be completed within five business
days of the event which required such redemption. As noted, if the Company is
required to redeem all of the shares of Preferred Stock submitted for
redemption, it is required to redeem those shares it is able to redeem pro-rata
and it will pay interest to the holders on any shares which were not redeemed as
required at 2.5% per month. In addition, the holders are also entitled to
6
<PAGE>
void their redemption notices and receive a reset of their applicable Fixed
Conversion Price, as more fully set forth in the applicable Certificate of
Designations. See "Available Information".
The Company does not have, and does not expect to have, available the cash
resources to satisfy such required redemptions of the Preferred Stock, and in
the event that it is required to make the required interest payments there would
likely be a material adverse effect on the Company's results of operations and
financial position. Accordingly, if stockholder approval of the transactions is
not obtained, the Company's ability to continue as a going concern could be
materially and adversely affected.
EFFECT OF CONVERSION OF PREFERRED STOCK ON HOLDERS OF COMMON STOCK
The issuance of Common Stock upon the conversion of the Preferred Stock
will have no effect on the rights or privileges of existing stockholders except
to the extent that the interest of each stockholder in the economic results and
voting power in the Company is reduced pro rata based on the number of shares
owned by existing shareholders prior to any issuance. As noted above, the exact
number of shares of Common Stock issuable upon conversion of the Preferred Stock
cannot currently be determined but such issuances will vary inversely with the
market price of the Common Stock to the extent the variable conversion price
applies, and such shares will be issued at a 3% discount to a defined average
market price. The current holders of Common Stock will be diluted by issuances
of Common Stock upon conversion of the Preferred Stock to an extent that depends
on the future market price of the Common Stock, the timing of conversions of
Preferred Stock and exercise of the related placement agent warrants, and
whether the Company opts to pay cash for the Additional Amount in lieu of
additional shares of Common Stock upon conversion of the Preferred Stock. See
"--Summary of Transaction Terms."
USE OF PROCEEDS
The aggregate net proceeds received by the Company from the issuance of
Series C Preferred Stock and the Series D Preferred Stock was approximately
$9,179,000 and $9,645,000, respectively (after cash fees to the placement agents
and estimated transaction expenses). The net proceeds of the Private Placements
were used for working capital and general corporate purposes.
INTERESTS OF CERTAIN PERSONS
None of the investors in the Preferred Stock transactions is a director,
executive officer or five percent shareholder of the Company or an affiliate of
any such person or entity.
PLACEMENT AGENT COMPENSATION
The placement agents for the Series C Private Placement were Lifeline
Industries, Inc. ("Lifeline") and Hambrecht & Quist L.L.C. ("H&Q"). Lifeline and
H&Q were paid placement agent fees of $280,000 and $400,000, respectively. H&Q
also received an immediately exercisable warrant to purchase 33,036 shares of
Common Stock at an exercise price of $10.292 per share which expires on May 20,
2003. The placement agent for the Series D Private Placements was Lifeline. In
connection with the May 8, 1998 Series D Private Placement, Lifeline received a
placement fee of $125,000, and in connection with the June 26, 1998 Series D
Private Placement Lifeline received $62,5000 and an immediately exercisable
warrant to purchase 30,000 shares of Common Stock at an exercise price of $2.00
per share which expires on April 30, 2005. The placements agents have already
received their fees and warrants and will be able to retain them whether or not
stockholder approval sought hereby is obtained.
VOTE REQUIRED
The proposal requires the approval of a majority of the votes cast at the
Meeting by the holders of Common Stock. THE COMPANY'S BOARD RECOMMENDS THAT YOU
VOTE FOR THE PREFERRED STOCK PROPOSAL.
7
<PAGE>
PROPOSAL 2: TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF THE COMPANY'S COMMON STOCK
PROPOSED AMENDMENT.
The Company's Board has unanimously adopted a resolution proposing and
declaring advisable the Charter Amendment Proposal which would increase the
authorized number of shares of Common Stock from 50,000,000 shares to
100,000,000 shares. The increased shares will be used for general corporate
purposes. The number of authorized shares of the Company's Preferred Stock would
remain unchanged. The proposed increase in the authorized shares of Common Stock
would be accomplished by amending Section 4.1 of Article IV of the Company's
Certificate to read as follows:
Section 4.1. TOTAL NUMBER OF SHARES OF CAPITAL STOCK. The total
number of shares of capital stock of all classes which the Company
shall have authority to issue is 150,000,000 shares, consisting of
100,000,000 shares of Common Stock, par value $0.01 per share (the
"Common Stock"), and 50,000,000 shares of Preferred Stock, par value
$0.01 per share (the "Preferred Stock").
BACKGROUND.
As of October 28, 1998, 29,446,054 shares of Common Stock were issued and
outstanding and another 13,849,360 shares are required to be reserved for
issuance in connection with the exercise or conversion of certain outstanding
warrants, stock options, or convertible securities, other than the Preferred
Stock. With respect to the Preferred Stock, the Company is required to reserve
at least 150% of the shares of Common Stock that are issuable upon exercise. As
of October 28, 1998, there were 3,907 shares of Series C Preferred Stock and
8,250 shares of Series D Preferred Stock which had not been converted. Assuming
a variable conversion price of each of $2.43 per share for the Preferred Stock,
the Company would be required to reserve for issuance 2,422,887 shares and
5,103,093 shares, respectively. When these amounts are combined with the other
shares reserved for issuance, together with the shares presently outstanding,
the Company would have no additional shares of Common Stock available for future
issuance.
CONSEQUENCES IF APPROVED.
The Charter Amendment will allow the Company to issue all of the shares of
Common Stock which it may be required to issue under the terms of its securities
and will provide the Company with the capability and flexibility in its capital
structure for investments and acquisitions, stock splits or stock dividends,
stock plans, financings, for shares issuable upon conversion of the Preferred
Stock and other securities convertible or exercisable into Common Stock, and for
other general corporate purposes.
Authorized but unissued shares of the Common Stock may be issued at such
times, for such purposes and for such consideration as the Board may determine
to be appropriate. Such action can be taken without further authorization from
the stockholders unless otherwise required by applicable laws or Nasdaq rules or
on such other stock exchange on which the Common Stock may be listed. The
Nasdaq, on which the Company's Common Stock is currently listed, requires
stockholder approval in certain instances, including (i) the issuance of Common
Stock in acquisitions where the potential issuance of stock could result in an
increase in the number of shares of common stock outstanding by 20% or more,
(ii) a transaction or series of related transactions that would result in the
original issuance of additional shares of Common Stock, other than in a public
offering for cash, if the Common Stock (including securities convertible into or
exercisable for Common Stock) has, or will have upon issuance, voting power
equal to or in excess of 20% of the voting power outstanding before the issuance
of the Common Stock, or if the number of shares of Common Stock to be issued is
or will be equal to or in excess of 20% of the number of shares outstanding
before the issuance of the Common Stock; or (iii) a transaction or series of
transactions whereby the issuance would result in a change in control of the
Company. The additional shares of Common Stock to be authorized will have the
same status as presently authorized Common Stock and approval of the Charter
Amendment Proposal will have no immediate effect on the rights of existing
stockholders. Holders of the Common Stock do not have preemptive purchase rights
with respect to any
8
<PAGE>
newly issued shares. To the extent that the additional authorized shares are
issued in the future, they could decrease the existing stockholders' relative
percentage ownership in the Company.
The proposed increase in authorized shares is not intended to impede a
change in control of the Company, and the Company is not aware of any current
efforts to acquire control of the Company. However, it is possible that the
additional shares could be issued as a means of preventing or discouraging an
unsolicited change in control of the Company. The issuance of additional shares
could be used to dilute the ownership of anyone seeking to gain control of the
Company or could be placed with an entity opposed to change in control.
Management has no present intention to propose any anti-takeover measures in
future proxy solicitations.
CONSEQUENCES IF APPROVAL NOT OBTAINED.
If stockholder approval of the Charter Amendment is not obtained, unless
otherwise waived, the Company would be in breach of certain of its existing
agreements (including with the holders of the Preferred Stock) and would be
prohibited from issuing any additional shares of Common Stock.
Assuming that all of the securities which are excisable or converted into
Common Stock are in fact exercised or converted, the Company could be in the
position of not being able to issue the full number of shares of Common Stock,
as required under the terms of the applicable warrants, options or convertible
securities. The Company does not believe that such an event is reasonably likely
to occur due to the exercise and conversion prices of certain of the securities
being significantly in excess of the current market price of the Common Stock,
as well as the fact that the holders of the Preferred Stock have required that
the Company reserve for issuance a number of shares which is significantly in
excess over what could presently become issuable upon conversion. However, if
certain events were to occur and the Company was not able to issue such shares
of Common Stock as required, it could be in breach of the terms of such
securities.
The Company is prohibited from issuing shares of Common Stock or new
securities exercisable or convertible into Common Stock in excess of the number
of shares which are presently authorized. Accordingly, the Company's
capitalization and financial flexibility are severely limited. In addition, due
to the Company's cash flow position and results of operations, the Company has
to issue shares of Common Stock or securities excisable or convertible into
Common Stock to persons in connection with financial transactions or financial
obligations. In addition, in order to attract and retain qualified employees,
the Company is frequently required to issue stock options or Common Stock to
such persons. Until stockholder approval is obtained, the Company could be in
the position of not being able to issue any additional shares of Common Stock or
securities (including options) exercisable or convertible into Common Stock to
such persons and employees. This could have a material adverse effect on the
Company. Accordingly, the Board believes that approval of the amendment to the
Certificate to increase the number of authorized shares should be approved.
VOTE REQUIRED.
The affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock is required to approve the Charter
Amendment Proposal. THE COMPANY'S BOARD RECOMMENDS A VOTE FOR THE CHARTER
AMENDMENT PROPOSAL.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 28, 1998
(unless otherwise indicated), with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (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.
9
<PAGE>
The number of Common Stock beneficially owned by each director or
executive officer is determined under the rules of the Commission, 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, 1998 (unless otherwise indicated) 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 848,122(1) 2.85%
Peter E. Ianace 218,095(2) *
R. Eugene Helms 135,000(3) *
269 W. Renner Parkway
Richardson, Texas
Edwin J. Ducayet, Jr. 80,671(4) *
Anton Liechtenstein 402,400(5) 1.36%
Administration and Trust Co.
Josef Rheinbergerstrasse 6
Vaduz, Liechtenstein
Philip P. Sudan, Jr. 294,816(6) *
Two Houston Center, Suite 3900
Houston, Texas
Robert E. Garrison II 150,000(7) *
5599 San Felipe, 3rd Floor
Houston, Texas
The Coastal Corporation Second 5,662,897(8) 16.62%
Pension Trust
Nine Greenway Plaza
Houston, Texas 77046
SJMB, L.P. 1,872,777(9) 5.98%
1980 Post Oak Blvd., Suite 2030
Houston, Texas 77056
All Directors and Executive 2,129,104(10) 7.23%
Officers as a group (7 persons)
- -------------------------------------------------------------------------------
(1) Includes 290,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998. Includes
56,122 shares which assumes the conversion at a price of $2.00 per dollar
of outstanding principal and interest of a loan made by Mr. Frietsch to
the Company. Includes 6,000 shares owned beneficially by Mr. Frietsch's
spouse as to which he disclaims beneficial ownership. Principal business
address is 1100 Executive Drive, Richardson, Texas 75081.
10
<PAGE>
(2) Includes 210,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998.
Principal business address is 1100 Executive Drive, Richardson, Texas
75081.
(3) Includes 120,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998.
(4) Includes 58,333 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998.
Principal business address is 1100 Executive Drive, Richardson, Texas
75081.
(5) Includes 125,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998.
(6) Includes 120,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998. Includes
74,816 shares which assumes the conversion at a price of $2.00 per dollar
of outstanding principal and interest of a loan made by Mr. Sudan to the
Company.
(7) Represents 150,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998.
(8) Based solely upon information supplied to the Company by The Coastal
Corporation Second Pension Trust, includes 4,219,409 shares of Common
Stock issuable upon exercise of the Company's Series A Preferred Stock and
450,00 shares issuable upon conversion of a currently exercisable warrant.
(9) Based solely on information contained in Schedule 13D of SJMB, L.P. filed
on July 16, 1998.
(10) Includes 1,073,333 shares issuable upon exercise of options which are
currently exercisable or become exercisable by December 28, 1998.
* Indicates holdings of less than one percent.
STOCKHOLDER PROPOSALS AND SUBMISSIONS FOR 1999 ANNUAL MEETING
If any Stockholder 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 Stockholders, such proposal
shall have been presented to the Company's management by February 18, 1999. Such
proposals should be directed to the Company at 1100 Executive Drive, Richardson,
Texas 75081, Attention: Chief Financial Officer and Assistant Secretary.
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports, proxy statements,
and other information with the Commission. You may read and copy and reports and
statements or other information the Company files at the Commission's public
reference room in Washington, D.C. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the Commission. Please call the
Commission at 1(800) SEC-0330 for further information on the operation of the
public reference rooms. The Company's SEC filings are also available to the
public on the Commission Internet site (http://www.sec.gov).
The Company filed with the Commission Current Reports on Form 8-K dated
February 17, May 11, and June 29, 1998 (collectively the "Form 8-K's"), which
describe the Private Placements and contain copies of the operative transaction
documents as exhibits. The Company will provide without charge to each person to
whom a copy of this proxy statement is delivered, upon the written or oral
request of such persons, a copy of the Form 8-K's. Requests for such copies
should be addressed to Assistant Secretary, Intelect Communications, Inc., 1100
Executive Drive, Richardson, Texas 77081, telephone (972) 367-2100. Copies of
such documents are also located on the Commission Internet site
(http://www.sec.gov).
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, DATE,
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
11
<PAGE>
IMPORTANT. IF YOU ARE A STOCKHOLDER 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:November__, 1998 HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
12
<PAGE>
Please date, sign and mail your proxy card back as
soon as possible!
Special Meeting of Stockholders
INTELECT COMMUNICATIONS, INC.
December 22, 1998
Please Detach and Mail in the Envelope Provided
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
[X] Please mark your votes as in this example.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE
1. To approve the issuance of the Common Stock issuable upon conversion of the
Series C Preferred Stock and the Series D Preferred Stock
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To approve the amendment to the Amended and Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized
for issuance to 100,000,000 shares
[_] [_] [_]
In their discretion, the proxies are
authorized to vote upon matters not known to
the Board of Directors as of the date of the
accompany ing 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
ABOVE.
Signature _____________________________________
Signature if held jointly____________________________ Dated:_______________ 1998
NOTE: Please sign exactly as name appears hereon. 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.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
INTELECT COMMUNICATIONS, INC.
PROXY SOLICITED BY DIRECTORS FOR SPECIAL MEETING
December 22, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the notice of the Special Meeting, hereby
appoints Herman M. Frietsch and Edwin J. Ducayet, Jr., and each of them, with
full power of substitution, are hereby authorized as attorneys and proxies of
the undersigned to represent and to vote all shares of the undersigned in
Intelect Communications, Inc. at the special meeting of stockholders of Intelect
Communications, Inc. to be held on December 22, 1998 and at any adjournments
thereof.
13
