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 sustain its capital
and financial flexibility and meet its obligations. We urge your affirmative
vote in support of the Company's continuing progress. We appreciate your
interest and consideration.
Our meeting is called for January 27, 1999 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
December__, 1998
<PAGE>
INTELECT COMMUNICATIONS, INC.
NOTICE OF THE
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 27, 1999
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 January 27, 1999, at 3:00
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 amend the Company's Amended
and Restated Certificate of Incorporation to increase the number of
shares of the Company's common stock, par value $0.01 (the "Common
Stock") authorized for issuance from 50,000,000 to
100,000,000 shares;
2. To consider and vote upon a proposal to approve the issuance of 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");
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
December 17, 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
December__, 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
JANUARY 27, 1999
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 January 27, 1999, at the Company's
offices located at 1100 Executive Drive, Richardson, Texas 75081 at 3:00 p.m.
local time.
The Notice of Meeting, this Proxy Statement, and the enclosed proxy are
being first mailed to stockholders on or about December __, 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 "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, and (ii) 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"),(the Charter Amendment
Proposal and the Preferred Stock 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 January
27, 1999 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 December__, 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 Charter Amendment Proposal requires the
affirmative vote of a majority of the outstanding shares of Common Stock, while
the Preferred Stock Proposal requires the affirmative vote of a majority of the
voting power present and entitled to vote at the Meeting. 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 December 17, 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 AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF
COMMON STOCK AUTHORIZED FOR ISSUANCE
PROPOSED AMENDMENT.
The Company presently has authorized for issuance 50,000,000 shares of
Common Stock. 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 designated 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").
2
<PAGE>
BACKGROUND
The following table sets forth certain information and forward assumptions
relating to the number of shares of Common Stock outstanding, as well as the
number of shares reserved for issuance as of December 9, 1998.
<TABLE>
<CAPTION>
COMMON STOCK
REQUIRED TO BE
COMMON STOCK RESERVED FOR
COMMON STOCK COMMON STOCK RESERVED FOR SERIES C AND D
AUTHORIZED OUTSTANDING OTHER SECURITIES PREFERRED STOCK TOTAL
-------------- -------------- ------------------ ------------------ ----------
<S> <C> <C> <C> <C>
50,000,000 30,835,414 10,249,360 9,892,422 50,977,196
</TABLE>
With respect to the Preferred Stock, the Company is required to reserve at least
150% of the shares of Common Stock that may be issuable upon conversion. For
example, as presented in the above table, assuming a variable conversion price
of $1.636875 per share as of December 9, 1998 (which is 97% of the average of
the three lowest closing bid prices of the Common Stock for the ten consecutive
trading days ended December 8, 1998), the Company would be required to reserve
for issuance 9,892,422 shares even though an aggregate of only 6,594,948 shares
would be issuable at such prices. 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. Because of the inadequate number of shares authorized for issuance,
the Company is not reserving the full amount of Common Stock it is required to
reserve under the terms of the Series C and Series D Preferred Stock, but at
present is reserving only approximately 3,401,340 shares in connection with
future conversions. The holders of the Preferred Stock have not taken any action
with respect to enforcing the full amount of Common Stock required to be
reserved, nor have they agreed to waive such a requirement. Until the Preferred
Stock Proposal is approved, as of December 9, 1998, under the rules of the
Nasdaq Stock Market ("Nasdaq") where the Company's Common Stock is currently
listed, the holders of the Preferred Stock can only convert such shares into an
additional 306,514 shares of Common Stock.
CONSEQUENCES IF APPROVED
The Charter Amendment will allow the Company to reserve and issue such
shares of Common Stock as may be required under the terms of its securities,
including the Preferred Stock, 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 rules of Nasdaq
or on such other stock exchange on which the Common Stock may be listed. Nasdaq
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 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.
3
<PAGE>
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, the
Company would be in breach of certain of its existing agreements, unless
otherwise waived, (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 might be exercised 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. Due to the
Company's cash flow position and results of operations, the Company expects 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.
PROPOSAL 2: 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
BOARD APPROVAL OF THE PRIVATE PLACEMENTS
During the later part of 1997, the Company was intending and planning to
undertake an underwritten public offering of its Common Stock for cash proceeds
in the range of $20 to $30 million. Due to unforseen adverse changes in the
Korean market which accounted for a majority of the Company's revenues in 1997,
the Company was advised by its financial
4
<PAGE>
adviser at that time, Hambrecht & Quist, L.L.C. ("H&Q"), to delay such an
offering. Subsequently, because of continuing negative market factors, primarily
in relation to Asian markets, H&Q advised the Company that it did not believe
the Company's situation could be resolved in time for the Company to proceed
with a successful public offering during the first half of 1998. Due to the
Company's continuing need for working capital, H&Q suggested a private placement
of convertible securities with the initial objective of raising approximately
$10-15 million for the Company. This activity commenced in the later part of
December 1997.
The Company explored a variety of transactions with different investors.
Due to market conditions at the time, the Company was advised by H&Q that it
should not expect to be able to raise a meaningful amount of funds with a
private placement of its Common Stock. Furthermore, the Company was
contemporaneously negotiating with St. James Capital Partners, L.P. for the
establishment of a new secured credit facility. Accordingly, the Board believed,
with the advice and concurrence of H&Q, that the issuance of a convertible
equity security would be the only security the Company could expect to issue in
order to raise the working capital it required. Among other things, the Board
considered primarily the economic terms of the proposed transaction; namely, the
amount of funds which could be raised, whether the security was a debt or equity
instrument, any required dividends, whether or not the securities were
convertible and if so, the conversion provisions. The Board also considered
other terms, as well as the quality and reputation of the investor. After
considering these factors, and within the advice of H&Q, the Board believed that
the most favorable terms to the Company were those proposed by Citadel
Investment Group, L.L.C. and that could be concluded with a series of investment
funds managed by the Citadel Investment Group, L.L.C. (collectively "Citadel").
The Company then decided to issue to Citadel the Series C Preferred Stock in a
private placement transaction in February 1998 (the "Series C Private
Placement"). Due to a continued need for additional working capital, as well as
for the above considerations, the Board decided to approve the issuance of the
Series D Preferred Stock in private placements to Citadel in May and June of
1998 (the "Series D Private Placements").
NASDAQ RULES AND STOCKHOLDER APPROVAL
Under Nasdaq rules, 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 (the "Nasdaq 20% Rule"). In addition, stockholder approval is also
required in connection with transactions which are deemed to be a "change in
control" under Nasdaq rules. Although the Company does not believe that the
issuance of the Preferred Stock in the Private Placements constitute a "change
in control", if the transaction were to be so construed, the approval being
sought would also be effective to satisfy the Nasdaq requirement. In addition,
as noted, the Company has agreed with Citadel that it will use its best efforts
to obtain stockholder approval under the Nasdaq requirement within 60 days of
the receipt of notice from Citadel that the number of shares of Common Stock
issued or may be issued in connection with conversions of the Preferred Stock
would exceed 15% or more of the number of shares of Common Stock outstanding as
of February 9, 1998 (i.e., approximately 3,593,247 shares). The Company has
received such notice from Citadel and accordingly has agreed to obtain such
stockholder approval.
The exact number of shares of Common Stock issuable upon conversion of
each of the shares of Preferred Stock issued in the Private Placement cannot
currently be determined for the future because the Preferred Stock is also
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 operation of the variable conversion
price formulas will cause the number of shares of Common Stock to be issued to
increase with declines in the market price of the Common Stock. Due to the
decline in the market price of the Common Stock since the Private Placements and
because the Preferred Stock is convertible into Common Stock at rates or prices
that vary or move by formulas which are tied to the market price of the Common
Stock, the Company may be required to issue shares of Common Stock, subject to
the Nasdaq 20% Rule, equal to 20% or more of the shares of Common Stock
outstanding on the date of the Series C Private Placement (i.e., February 9,
1998) and at prices less than the greater of book or market value at the time of
the Series C Private Placement (i.e., $7.0625 per share on February 9, 1998). In
order to assure continued compliance with the Nasdaq requirements, the terms of
the Private Placements 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
5
<PAGE>
approximately 4,790,994 shares without stockholder approval). Thus, upon
approval of the Proposal, the Company may be required to issue shares of Common
Stock equal to 20% or more of the shares of Common Stock outstanding on the date
of the Series C Private Placement. If the approval sought is not obtained, the
Company may be required to redeem the Preferred Stock. See "Summary of
Transaction Terms" and "Consequences if Stockholder Approval Not Obtained".
GENERAL
In the Series C Private Placement, 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. In addition, in the Series D
Private Placements, 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 C Private Placement and the Series D Private Placements collectively the
"Private Placements"). The Company used the proceeds from the Private Placements
for working capital and general corporate purposes. All of the securities sold
in the above transactions were sold in separate private placements to the
Citadel entities. The Citadel entities have represented to the Company that each
are "accredited investors" and none of such entities are affiliates of each
other. None of the Citadel entities are affiliates of the Company or any of its
officers or directors.
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 previously as exhibits to the
Company's current reports on Form 8-K filed on February 17, May 11, and June 29,
1998. The underlying documents for each series of Preferred Stock are a
Securities Purchase Agreement, Registration Rights Agreement and a Certificate
of Designations, Preferences and Rights, all filed as exhibits to the applicable
Form 8-K. See "Available Information".
PURCHASERS; CONVERSION SHARES
The following table sets forth certain information relating to the holders
of the Preferred Stock as of December 9, 1998. The Common Stock assumed issuable
upon the conversion of the remaining Preferred Stock is computed based on a
conversion price of $1.636875 as of December 9, 1998 (which is 97% of the
average of the three lowest closing bid prices of the Common Stock for the ten
consecutive trading days ended December 8, 1998). The aggregate number of shares
thus deemed issuable upon conversion is computed by dividing the aggregate
stated value of the Series C and Series D Preferred Stock (i.e., $1,000 per
share multiplied by the applicable number of shares of Series C and Series D
Stock) plus accrued premium of 4% per year, by the conversion price being
applied.
6
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK
COMMON ISSUABLE ON
SERIES C SERIES D COMMON STOCK REMAINING
PREFERRED PREFERRED STOCK ISSUABLE ON PREFERRED STOCK -
STOCK STOCK ISSUED REMAINING PERCENTAGE
ON PRIOR PREFERRED OF SHARES
PURCHASER ISSUED REMAINING ISSUED REMAINING CONVERSIONS STOCK OUTSTANDING
- --------- ------ --------- ------ --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Olympus 6,354 1,464 0 2,324,876 932,400 3.0%
Securities Ltd.
NP Partners 3,421 811 0 1,253,583 511,528 1.7%
CCG Capital Ltd. 100 14 400 292 94,637 190,629 .6%
CCG Investment 125 20 400 292 105,690 194,414 .6%
Fund Ltd.
Fisher Capital 0 5,883 4,963 412,257 3,091,619 10.0%
Ltd.
Wingate Capital 0 3,167 2,553 275,137 1,590,124 5.2%
Ltd.
Midway Capital 0 150 150 0 93,235 .3%
Ltd.
TOTALS 10,000 2,309 10,000 8,250 4,484,480 6,594,948 21.4%
</TABLE>
As of December 9, 1998, the holders of the Series C and Series D Preferred Stock
have previously converted an aggregate of 9,441 shares of Preferred Stock into a
total of 4,484,480 shares of Common Stock, or approximately 19% of the Company's
shares outstanding on February 9, 1998, the closing date of the Series C
Preferred Stock.
With respect to the Preferred Stock, subject to the Nasdaq 20% Rule, as the
price of the Common Stock decreases, the number of shares of Common Stock
underlying the Preferred Stock continues to increase. For instance, assuming a
hypothetical conversion price of $0.818438 (which is 50% of the conversion price
of $1.636875 as of December 9, 1998), the total number of shares of Common Stock
which would underlie the remaining shares of Preferred Stock would be
approximately 13,189,896 shares, or approximately 42.8% of the total number of
shares of Common Stock outstanding as of such date.
CONVERSION. The conversion price of the Preferred Stock is the lesser of a fixed
conversion price or a variable conversion price. Thus, each share of Preferred
Stock is convertible into that number of shares of Common Stock equal to (i)
$1,000 (the "Stated Value"), plus any accrued premium of 4% per annum, divided
by (ii) the applicable conversion price. The applicable conversion price is the
lesser of (i) a fixed conversion price of $9.082 per share for the Series C
Preferred Stock, and $2.998 per share for the Series D Preferred Stock (which
price became effective on November 10, 1998 and represents the average of the
trading price of the Common Stock for the five trading days following the
Company's filing of the Form 10-Q for the period ended June 30, 1998), 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 "Variable Conversion
Price"). Subject to the Nasdaq 20% Rule, as the price of the Common Stock
declines, the number of shares underlying the Preferred Stock continues to
increase. In addition, the Company can elect for the conversion price on the
Preferred Stock to equal the applicable fixed conversion price if for any 20 of
30 consecutive trading days 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. In the event that the Company or the transfer
agent do not timely effect a
7
<PAGE>
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".
In addition, if the holders of the Preferred Stock submit a conversion request
and the Company is not able to issue the required amount of shares of Common
Stock due to the Company's inability to comply with the Nasdaq 20% Rule, under
the Certificate of Designations, a Triggering Event would occur. In such event,
the Company could be required by the holders to redeem all of the remaining
shares of Preferred Stock at a price equal to 120% of the Stated Value, or
approximately $12,670,800 based on the 10,559 shares of Preferred Stock which
remain outstanding as of December 9, 1998. In addition, upon the Triggering
Event, the holders of the Preferred Stock could attempt to require the Company
to delist its Common Stock from Nasdaq and begin trading on the electronic
bulletin board or pink sheets. See "Summary of Transaction Terms - Redemption -
Occurrence of Triggering Event" and "Consequences if Stockholder Approval Not
Obtained."
The shares of Preferred Stock are presently convertible. Pursuant to contractual
agreements between the Company and the purchasers of the Preferred Stock, such
purchasers have agreed to limit their conversions of the Preferred Stock to no
more than 1,200,000 shares of Common Stock per continuing 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 are prohibited in the Certificate of Designations
from converting 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. 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 applicable Conversion Price then in effect on the second anniversary date of
issuance, to the extent any shares of the applicable issuance of Preferred Stock
remain outstanding.
Due to declines in the market price of the Company's Common Stock, upon the
effectiveness of the re-set of the fixed conversion price on the Series D
Preferred Stock on November 10, 1998, certain anti-dilution provisions were
triggered in warrants to purchase up to 1,500,000 shares of Common Stock at an
exercise price of $7.50 issued by the Company to SJMB, L.P. and St. James
Capital Partners, L.P. In connection with such anti-dilution provisions, the
holders of such warrants are entitled to a replacement warrant to purchase up to
approximately 3,753,000 shares of Common Stock at an exercise price of $2.998
per share, subject to anti-dilution provisions.
In connection with the convertibility of the Preferred Stock, the following
aspects are applicable:
o because the Variable Conversion Price of the Preferred Stock by formula is
below the market price of the Common Stock upon conversion, the lower the
price of the Common Stock at the time the holder converts, the greater
number of shares of Common Stock received upon conversion;
o to the extent that Common Stock received upon conversion is sold into the
market, and disregarding the manner in which such shares are sold as well
as any other factors such as reactions to the Company's operation results
and general market conditions which may be operative in the market at such
time, such sales may cause a decrease in the market price of the Common
Stock, which in turn relative to additional conversions of the Preferred
Stock would reduce the Variable Conversion Price and increase the number
of shares of Common Stock issued upon conversion and available for sale
into the market for the Common Stock;
o short sales of the Common Stock may be attracted by or accompany
conversions and sales of Common Stock from conversions, which sales in the
aggregate could cause downward pressure upon the price of the Common
Stock, excluding the effect of other market factors possibly operative at
the time; and
o conversions of the Preferred Stock may result in substantial dilution of
the interests of the other holders of Common Stock. In this regard, the
ownership limitation which prohibits the purchasers from owning more
8
<PAGE>
than 5% of the Common Stock of the Company only applies to shares of
Common Stock held at one time and does not prevent purchasers from
converting and selling some of their holdings and then later converting
the rest of the holdings.
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"). The Company does not presently intend
to pay such Additional Amount in cash.
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, except to the extent such holders own shares of Common Stock.
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.
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".
MAJOR TRANSACTIONS
o certain mergers, consolidations, tender offers, or the sale of
substantially all the assets of the Company
TRIGGERING EVENTS
o failure of registration statement covering the resale of the conversion
shares to be declared effective within 180 days;
o the effectiveness of the registration statements lapses for seven or more
consecutive days (subject to applicable grace periods);
o 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;
o the delisting of the Company's Common Stock for seven consecutive days;
o certain failures to comply with conversions of the Preferred Stock for 10
or more consecutive days;
o the inability of the Company to issue conversion shares due to limitations
imposed by the Nasdaq 20% Rule; and
o certain breaches of representations, warranties, covenants or terms of the
transaction documents which would have a Material Adverse Effect (as
defined).
REDEMPTION AND OTHER REMEDIES
o Redemption by the Company at (a) 120% of the Stated Value of the Preferred
Stock, or (b) 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.
9
<PAGE>
o If unable to effect redemption, interest will accumulate on the value of
the shares the Company is unable to redeem at the rate of 2.5% per month.
o Holders are also entitled to void their redemption notices and receive a
reset of their applicable Fixed Conversion Price.
OCCURRENCE OF TRIGGERING EVENT
Certain events are likely to occur which could cause a Triggering Event, unless
otherwise waived by Citadel. First, if the Company is not able to have a
registration statement covering the resale of the Series D Preferred Stock
issued on June 26, 1998 declared effective on or before December 23, 1998, the
holders may declare a Triggering Event at such date with respect to those
shares. Under present circumstances, the Company believes that it is not likely
that the registration statement will be declared effective by such date.
Finally, as noted, if the Company is unable to convert the remaining shares of
the Preferred Stock due to limitations imposed by the Nasdaq 20% Rule, the
holders can notify the Company of a Triggering Event. The Company can convert
the remaining Preferred Stock into only approximately an additional 306,514
shares of Common Stock as of December 9, 1998. Since the holders of the
Preferred Stock may convert such Preferred Stock into Common Stock at the rate
of 1,200,000 shares of Common Stock per continuing 30 day period, the holders
could attempt to make a conversion which the Company would have to refuse to
make due to the Nasdaq 20% Rule. In such an event, the holders could declare a
Triggering Event, demand redemption of the Preferred Stock and could undertake
to force the Company to delist from the Nasdaq. In the event of a redemption,
the Company could be obligated by the holders to redeem the remaining shares of
Preferred Stock at 120% of the Stated Value per share, or an aggregate
redemption price of approximately $12,670,800 based on the 10,559 shares of
Preferred Stock which remain as of December 9, 1998. If the Company is unable to
redeem all of the shares, the holders could demand that the Company redeem all
of the shares of Preferred Stock which it is able to redeem, and pay interest to
the holders on any shares not redeemed at the rate of 2.5% per month. The
Company presently does not have the funds available to pay the redemption price
for all or any significant portion of the Preferred Stock or the required
interest payments. Accordingly, if Citadel were to enforce its rights in
connection with a Triggering Event, there could be material adverse financial
consequences to the Company which could severely impair the Company's ability to
continue as a going concern.
REGISTRATION OF SHARES; LIQUIDATED DAMAGES. The Company is required by agreement
to 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 and has agreed to ensure that the registration
statement covering such shares is sufficient to cover at least 150% of the
number of "registrable securities", as defined. As of December 9, 1998, the
Company has an effective 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 was required to have declared effective by September 24,
1998 a registration statement covering the remaining 5,000 shares of Series D
Preferred Stock which were issued on June 26, 1998 (the "Series D2 Registration
Statement"). Such registration statement has not been declared effective by the
Commission.
Since the Series D2 Registration Statement has not yet been declared effective,
Citadel may allege that the Company has incurred certain liquidated damages. The
amount of such damages would be approximately $1 per share of Preferred Stock
per day and is due within five days of the date such damages are incurred. Thus,
the total amount owed as of December 9, 1998 would be approximately $380,000. If
the Company is unable to pay such damages, Citadel could require the Company to
issue shares of Common Stock to pay such penalties. With respect to the
liquidated damages penalties, the Company plans to seek waivers of this
provision from the holders of the Preferred Stock. There can be no assurance
that the Company will be successful in resisting the enforcement of the
liquidated damages penalties or in obtaining waivers from the holders of
Preferred Stock. 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.
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REDEMPTION AT COMPANY'S OPTION
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 Common Stock of the Company has an average of the volume-weighted average
trading price for the prior ten consecutive trading days of 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.
OTHER TERMS. The transaction 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) unless otherwise waived by
Citadel, 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 market price of the 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.
PLACEMENT AGENT COMPENSATION
The placement agents for the Series C Private Placement were H&Q and
Lifeline Industries, Inc. ("Lifeline"). H&Q and Lifeline were paid placement
agent fees of $400,000 and $280,000, 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 $62,500 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.
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, in
accordance with the Nasdaq 20% Rule, the Company will be prohibited under the
terms of its listing agreement with Nasdaq from issuing more than an aggregate
of approximately 4,790,994 shares of Common Stock in connection with the Private
Placements. If the Company would be unable to issue any additional
11
<PAGE>
shares of Common Stock due to the Nasdaq 20% Rule, as noted, the Company could
be required by the holders to redeem the shares 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. 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. As noted, if the Company is
required to redeem all of the shares of Preferred Stock submitted for redemption
within five business days, the holders can attempt to require the Company to
redeem those shares it is able to redeem and have the Company 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 "Summary of Transaction
Terms-Redemption" and "Available Information".
The Company does not have and does not expect to have available the cash
resources to fund 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 proposal is not
obtained, the Company may become subject to actions by Citadel to enforce its
rights, which if enforced by Citadel, could have material adverse financial
consequences to the Company which could severely impair the Company's ability to
continue as a going concern.
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.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of December 9, 1998
(except as 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;
(iii) each executive officer; 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.
12
<PAGE>
The number of Common Stock beneficially owned by each director or
executive officer is determined under the rules of the Securities and Exchange
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 December 9, 1998 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
of Beneficial Owner Beneficial Ownership Percent of Class
Herman M. Frietsch 827,520(1) 2.66%
Peter E. Ianace 218,095(2) *
R. Eugene Helms 135,000(3) *
Edwin J. Ducayet, Jr. 80,671(4) *
Anton Liechtenstein 402,400(5) 1.30%
Philip P. Sudan, Jr. 267,360(6) *
Robert E. Garrison II 150,000(7) *
The Coastal Corporation Second 5,734,779(8) 16.37%
Pension Trust
SJMB, L.P. 1,872,777(9) 7.2%
All Directors and Executive 2,081,046(10) 6.75%
Officers as a group (7 persons)
- ---------------------------
(1) Includes 290,00 shares issuable upon exercise of options which are
currently exercisable or become exercisable by February 7, 1999. Includes
35,520 shares as of February 7, 1999, 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.
(2) Includes 210,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by February 7, 1999. 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 February 7, 1999. Principal
business address is 269 W. Renner Pkwy., Richardson, Texas.
(4) Includes 58,333 shares issuable upon exercise of options which are
currently exercisable or become exercisable by February 7, 1999. 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 February 7, 1999. Principal
business address is Administration and Trust Co., Josef Rheinbergerstrasse
6, Vaduz, Liechtenstein.
(6) Includes 120,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by February 7, 1999. Includes
47,350 shares as of February 9, 1999, 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. Principal business address is Two
Houston Center, Suite 3900, Houston, Texas 77010.
13
<PAGE>
(7) Represents 150,000 shares issuable upon exercise of options which are
currently exercisable or become exercisable by February 7, 1999. Principal
business address is 5599 San Felipe, 3rd Floor, Houston, Texas.
(8) Based solely upon information contained in Schedule 13G of The Coastal
Corporation Second Pension Trust, filed on November 17, 1998. Principal
business address is Nine Greenway Plaza,
Houston, Texas 77046-0995.
(9) Based solely on information contained in Schedule 13D of SJMB, L.P., filed
on July 16, 1998. Principal business address is 1980 Post Oak Blvd., Suite
2030, Houston, Texas 77056. The general partner of SJMB, L.P., is SJMB,
L.L.C. The directors of SJMB, L.L.C. are Charles E. Underbrink, John L.
Thompson, Alan D. Feinsilver, Titus H. Harris, Jr. and Edward R. Naumes.
(10) Includes 1,073,333 shares issuable upon exercise of options which are
currently exercisable or become exercisable by February 7, 1999.
* 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 operative documents for the Series C Preferred Stock
are a Securities Purchase Agreement, a Registration Rights Agreement and a
Certificate of Designations, Preferences and Rights, each of which are dated
February 6, 1998 and are exhibits to the 8-K filed on February 17, 1998. The
operative documents for the Series D Preferred Stock are a Securities Purchase
Agreement and a Registration Rights Agreement dated May 8, and June 26, 1998,
respectively, and a Certificate of Designations, Preferences and Rights dated
May 7, 1998. These documents are exhibits to the 8-K's filed on May 11 and June
29, 1998. 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 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: December__, 1998 HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Special Meeting of Stockholders
INTELECT COMMUNICATIONS, INC.
January 27, 1999
[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
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
1. To approve the amendment to the Amended and Restated Certificate of
Incorporation to increase the number of shares of Common Stock authorized
for issuance
[ ] [ ] [ ]
2. 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
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:____________________ 1999
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
January 27, 1999
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 January 27, 1999 and at any adjournments
thereof.
