UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JULY 6, 1999
INTELECT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-11630 76-0471342
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 367-2100
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 5. OTHER EVENTS.
As previously disclosed, on April 26, 1999, Intelect Communications, Inc.
(the "Company") announced that it was discontinuing indefinitely conversions of
its outstanding shares of Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), Series D Convertible Preferred Stock (the "Series D Preferred
Stock"), and Series E Convertible Preferred Stock (the "Series E Preferred
Stock") (the Series C Preferred Stock, the Series D Preferred Stock and the
Series E Preferred Stock are collectively referred to herein as the "Preferred
Stock"), for the reasons set forth in the Form 8-K of the Company dated April
26, 1999. The Company has now settled all claims and disputes with the holders
of the Preferred Stock. Pursuant to such settlement agreements, the Company will
issue shares of common stock of the Company (the "Common Stock") upon
conversion, exchange and surrender of all Preferred Stock outstanding as of
April 26, 1999 such that all such Preferred Stock is converted, exchanged and
surrendered at an effective blended price of approximately $1.08 per share of
Common Stock.
As previously disclosed, on June 27, 1999 the Company entered into a
Settlement Agreement and Mutual Release (the "Citadel Settlement Agreement")
with certain holders of Series C, D and E Preferred Stock managed by Citadel
Investment Group, L.L.C. ("Citadel" and collectively with the funds managed by
Citadel, the "Citadel Entities"). Pursuant to the Citadel Settlement Agreement,
the Company is issuing 7,452,628 shares of Common Stock to the Citadel Entities.
Immediately prior to closing of the Citadel Settlement Agreement, the Citadel
Entities' holdings of Preferred Stock represented approximately 69% of all
outstanding Preferred Stock.
On July 6, 1999, the Company entered into a Settlement Agreement and
Mutual Release (the "Promethean Settlement Agreement") with certain holders of
Preferred Stock managed by Promethean Investment Group, L.L.C. ("Promethean" and
collectively with the funds managed by Promethean and their affiliates, the
"Promethean Entities"). On July 8, 1999, the Company entered into a Settlement
Agreement and Mutual Release (the "Angelo Gordon Settlement Agreement") with
certain holders of Preferred Stock managed by Angelo, Gordon & Co., L.P.
("Angelo Gordon" and collectively with the funds managed by Angelo Gordon and
their affiliates, the "Angelo Gordon Entities") (the Promethean Settlement
Agreement and the Angelo Gordon Settlement Agreement are collectively referred
to herein as the "July Settlement Agreements").
As a result of the July Settlement Agreements, all remaining holders of
Preferred Stock will convert, pursuant to the applicable Certificate of
Designations, such number of shares of Preferred Stock as will result in the
issuance of an aggregate total of 5,916,049 shares of Common Stock to the
Promethean Entities and the Angelo Gordon Entities. The remainder of the
Preferred Shares held by the Promethean Entities and the Angelo Gordon Entities
will then be surrendered to the Company and canceled. The July Settlement
Agreements, along with the previously reported Citadel Settlement Agreement,
result in the elimination of all Preferred Stock holdings outstanding
immediately prior to closing of the Settlement Agreements.
The July Settlement Agreements resolve, settle and release, with respect
to the Company, the Promethean Entities and the Angelo Gordon Entities, all
disputes and claims relating to the Preferred Stock or Common Stock which arise
from any events that occurred prior to execution
<PAGE>
of the July Settlement Agreements, including all claims and disputes relating to
the Company's April 26, 1999 announcement of an indefinite discontinuance of
conversions. Pursuant to the July Settlement Agreements, the Company will
dismiss with prejudice all of its claims in its lawsuit against the Promethean
Entities and the Angelo Gordon Entities in the United States District Court for
the Southern District of New York. Pursuant to the Promethean Settlement
Agreement, Promethean will dismiss with prejudice all claims in their lawsuit
against the Company in the Delaware Court of Chancery. Pursuant to the Angelo
Gordon Settlement Agreement, Angelo Gordon will dismiss with prejudice all
claims in their lawsuit against the Company in the Delaware Court of Chancery.
The July Settlement Agreements also terminated all rights that the
Promethean Entities and Angelo Gordon Entities may have under the Series C, D
and E Certificates of Designations, Preferences and Rights and Series C, D and E
Securities Purchase Agreements, except as specifically set forth in the terms of
the Settlement Agreement.
Also under the July Settlement Agreements, the Promethean Entities and the
Angelo Gordon Entities each agreed to certain restrictions on their transfer and
sale of Common Stock, including (i) a prohibition on directly or indirectly
engaging in short sales, purchase of puts, sell calls, equity swaps or any other
means or mechanism by which they would benefit from a decrease in the market
price of the Common Stock; (ii) a prohibition on sale or transfer, in any single
day, by the Promethean Entities of an aggregate number of shares of Common Stock
in excess of 7% of the trading volume for the Common Stock (exclusive of
purchases or sales of Common Stock by the Promethean Entities) on such day; and
(iii) a prohibition on sale or transfer, in any single day, by the Angelo Gordon
Entities of an aggregate number of shares of Common Stock in excess of 7% of the
trading volume for the Common Stock (exclusive of purchases or sales of Common
Stock by the Angelo Gordon Entities) on such day.
In the July Settlement Agreements, the Promethean Entities and the Angelo
Gordon Entities granted to the Company an irrevocable proxy to vote the shares
of Common Stock issued in connection with the July Settlement Agreements on all
matters that may come before the stockholders of the Company, so long as such
shares are owned by the Promethean Entities or the Angelo Gordon Entities,
respectively. The Company also has the right to repurchase, within 120 days of
the dates of the respective July Settlement Agreements, the shares issued at the
greater of the current closing sale price for the Common Stock or $1.25 per
share.
In order to comply with federal securities laws and to track compliance
with the terms of the July Settlement Agreements, the July Settlement Agreements
provide that all shares issued to the Promethean Entities and the Angelo Gordon
Entities in connection with the July Settlement Agreements shall be certificated
and bear a restrictive legend, and may be transferred only upon submission by
the respective shareholder of a certificate signed by two officers verifying
compliance with their contractual representations under the July Settlement
Agreements as of the date of such transfer.
Pursuant to the Promethean Settlement Agreement, (i) the Company has
issued 2,290,415 shares of the Company's Common Stock (the "Converted Shares")
to the Promethean Entities
<PAGE>
pursuant to conversion notices submitted by the Promethean Entities between
April 26, 1999 and July 6, 1999; (ii) beginning on September 2, 1999 the
Promethean Entities will be entitled to submit conversion notices for a number
of Preferred Shares to be converted into an aggregate of 906,210 shares of
Common Stock; and (iii) immediately after receipt of such Common Stock, the
Promethean Entities will submit all of their remaining Preferred Stock to the
Company to be canceled.
Pursuant to the Angelo Gordon Settlement Agreement, (i) the Company has
issued 2,315,711 shares of the Company's Common Stock (the "Converted Shares")
to the Angelo Gordon Entities pursuant to conversion notices submitted by the
Angelo Gordon Entities between April 26, 1999 and July 8, 1999; (ii) beginning
on September 3, 1999, the Angelo Gordon Entities will be entitled to submit
conversion notices for a number of Preferred Shares to be converted into an
aggregate of 403,713 shares of Common Stock; and (iii) immediately after receipt
of such Common Stock, the Angelo Gordon Entities will submit all of their
remaining Preferred Stock to the Company to be canceled.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business to Be Acquired: N/A
(b) Pro Forma Financial Information of the Business to Be Acquired: N/A
(c) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
10.1 Settlement Agreement and Mutual Release among the
Company and the Promethean Entities, dated July 6, 1999.
10.2 Settlement Agreement and Mutual Release among the
Company and the Angelo Gordon Entities, dated July 8,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTELECT COMMUNICATIONS, INC.
(Registrant)
Date: July 8, 1999 By: /s/ HERMAN M. FRIETSCH
(Signature)
Herman M. Frietsch
Chairman of the Board
EXHIBIT 10.1
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the "Agreement") is
made as of the 6th day of July, 1999 by and among Intelect Communications, Inc.
("Intelect", or the "Company") and Promethean Investment Group, L.L.C.,
Promethean Asset Management, L.L.C., HFTP Investments. L.L.C. ("HFTP") and their
affiliates (collectively, "Promethean" or, individually, a "Promethean Entity").
WHEREAS, Intelect issued shares of Series C Convertible Preferred
Stock (the "Series C Preferred Stock") pursuant to a Certificate of
Designations, Preferences and Rights relating to the Series C Preferred Stock
(the "Series C Designation") and a Securities Purchase Agreement dated as of
February 6, 1998 (the "Series C Purchase Agreement," collectively with the
Series C Designation, the "Series C Documents");
WHEREAS, Intelect issued shares of Series D Convertible Preferred
Stock (the "Series D Preferred Stock") pursuant to a Certificate of
Designations, Preferences and Rights relating to the Series D Preferred Stock
(the "Series D Designation") and Securities Purchase Agreements dated as of May
7, 1998 and June 26, 1998 (the "Series D Purchase Agreement", collectively with
the Series D Designation, the "Series D Documents");
WHEREAS, HFTP purchased 922 shares of Series C Preferred Stock and
522 shares of Series D Preferred Stock from the original purchasers of such
shares pursuant to a February 24, 1999 Letter Agreement (the "Letter
Agreement");
WHEREAS, Intelect issued shares of Series E Convertible Preferred
Stock (the "Series E Preferred Stock" and, together with the Series C Preferred
Stock and the Series D Preferred Stock, the "Preferred Stock") to HFTP pursuant
to a Certificate of Designations,
<PAGE>
Preferences and Rights relating to the Series E Preferred Stock (the "Series E
Designation") and a Securities Purchase Agreement dated as of February 24, 1999
(the "Series E Purchase Agreement", and, together with the Series E Designation,
the "Series E Documents" and, together with the Series C Documents, the Series D
Documents, and the Letter Agreement, the "Operative Preferred Stock Documents");
WHEREAS, Promethean delivered to Intelect Conversion Notices dated
as of April 26, April 27, April 29, June 16 and July 2, 1999 copies of which are
attached hereto as Exhibit A (the "Conversion Notices"), for the conversion of
an aggregate of 402 shares of Series C Preferred Stock, 522 shares of Series D
Preferred Stock and 453 shares of Series E Preferred Stock;
WHEREAS, Promethean has filed suit against Intelect seeking recovery
for claims including the alleged breach of the Operative Preferred Stock
Documents and other agreements between Promethean and Intelect (including
without limitation actual and/or liquidated damages and other remedies available
at law or in equity) because, among other things, of Intelect's refusal to issue
common stock upon submission of the Conversion Notices and Intelect's April 26,
1999 announcement that it was discontinuing indefinitely conversions of its
outstanding shares of Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock;
WHEREAS, Intelect has filed suit against Promethean (i) asserting
that Promethean has violated certain representations and warranties contained in
the Operative Preferred Stock Documents, (ii) asserting that Promethean has
fraudulently manipulated the market for Intelect common stock and (iii) seeking
the recovery of alleged short-swing profits
2
<PAGE>
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") allegedly realized by Promethean;
WHEREAS, each party has made such independent investigation as such
party has deemed necessary of the facts and circumstances pertaining to the
claims asserted by each party and the effects thereon of this Agreement, and
each party is fully informed as to all relevant facts and circumstances and has
carefully considered the applicable law and consulted with counsel of its
choice, such that it is knowingly and voluntarily entering into the settlement
and compromise of such claims evidenced by this Agreement;
WHEREAS, arm's-length settlement negotiations have taken place
between Intelect and Promethean, and this Agreement has been reached;
WHEREAS, Intelect and Promethean have concluded that it would be in
the best interests of each party to enter into this Agreement in order to avoid
the uncertainties, expense, inconvenience and burdens of litigation, and to put
to rest this controversy and preserve valued business relationships;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
respective releases, covenants and undertakings and in full, complete and final
settlement of such claims and controversies, the parties agree as follows:
1. THIS AGREEMENT IS NOT AN ADMISSION.
The parties hereto agree that this Agreement, and any and all
negotiations, documents and discussions associated with it, shall not be deemed
or construed to be an admission or evidence of any violation of any contractual
provision, statute, law, rule or regulation or of any liability or wrongdoing by
any of the parties hereto, or of any absence of
3
<PAGE>
wrongdoing or of limitation of damage or injury, and shall not be used, directly
or indirectly, as evidence thereof, in any way in any action or proceeding.
2. BINDING EFFECT.
Each party is entering into this Agreement on behalf of itself, and,
to the extent not prohibited by applicable law, its agents, affiliates,
stockholders, partners, employees, directors, representatives, successors and
assigns. This Agreement shall be binding upon, and inure to the benefit of, each
party and, to the extent not prohibited by applicable law, its agents,
affiliates, stockholders, partners, employees, directors, representatives,
successors and assigns.
3. ISSUANCE OF COMMON STOCK PURSUANT TO CONVERSION NOTICES. Upon
execution and delivery of this Agreement (the "Closing"), Intelect shall execute
and deliver to Intelect's designated transfer agent (the "Transfer Agent")
irrevocable instructions to issue and surrender, on the business day following
the date of the Closing, to a common carrier for overnight delivery to HFTP
certificates for 2,290,415 shares of common stock, par value $0.01 per share, of
Intelect ("Common Stock") as set forth in the Conversion Notices (collectively,
the "Converted Shares"); provided, however, that the executed version of this
Agreement shall be held in escrow until HFTP receives certificates for 2,290,415
shares of Common Stock. Intelect shall also instruct the Transfer Agent to issue
and deliver to HFTP a certificate for 1,047 shares of Series E Preferred Stock,
representing the balance of Series E Preferred shares not covered by the
Conversion Notices. Intelect acknowledges that the Converted Shares are being
issued on conversion of Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock pursuant to the applicable Certificates of
Designations, Preferences and Rights and the Conversion Notices, and that the
Converted Shares and
4
<PAGE>
Remainder Shares (as defined in Section 4, below) have been registered for
resale and may be sold pursuant to Intelect's Prospectuses dated April 15, 1998
and June 8, 1998 as supplemented by Prospectus Supplements dated March 5, 1999,
and the Prospectus dated April 15, 1999 (subject to the provisions of this
Agreement).
4. REMAINING SERIES E STOCK.
(a) CONVERSION. Subject to the provisions of this paragraph,
on the 65th day following execution hereof, HFTP or its designee will submit a
Conversion Notice (as defined in the Series E Designation) (the "Final
Conversion Notice") for a number of shares of Series E Preferred Stock to be
converted into 906,210 shares of Common Stock (the "Remainder Shares"), based on
the Conversion Price set forth in the Series E Designation, and the Company
shall honor such Final Conversion Notice at such price. In the event such
conversion in full would result in Promethean beneficially owning more than
4.99% of the Company's outstanding Common Stock (as determined in accordance
with Section 2(d) of the Series E Designation), the Final Conversion Notice will
be effective only as to that number of shares of Common Stock that would bring
Promethean's beneficial ownership level up to an aggregate of 4.99% of all
outstanding Common Stock. In such event, Promethean agrees that should its
beneficial ownership of the Common Stock of the Company at any time drop below
an aggregate of 4.99% of all outstanding shares of Common Stock, it will
promptly deliver subsequent Conversion Notices (as defined in the Series E
Designation) until a sufficient number of Series E Preferred Stock has been
converted to result in the issuance to HFTP of all of the Remainder Shares. Any
such subsequent Conversion Notices shall be based on the Conversion Price set
forth in the Series E Designation. Notwithstanding anything in the Agreement or
elsewhere, Promethean
5
<PAGE>
shall not, after Closing, convert Preferred Stock into more than 906,210 shares
of Common Stock. Accordingly, the total number of shares of Common that
Promethean may obtain through conversion of shares of the Preferred Stock at and
subsequent to Closing is 3,196,625 shares of Common Stock.
(b) PURCHASE. To the extent that Promethean owns any Series E
Preferred Stock after application of the provisions of paragraph (a) above, such
remaining shares shall be canceled and Promethean shall promptly return such
shares to the Company.
5. LEGEND; REMOVAL OF LEGEND.
The certificates for the Converted Shares and for the Remainder
Shares shall be issued to Promethean with the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON RESALE CONTAINED IN THAT CERTAIN SETTLEMENT AND MUTUAL
RELEASE AGREEMENT DATED JULY 6, 1999 BY AND AMONG INTELECT COMMUNICATIONS,
INC AND HFTP INVESTMENTS, L.L.P. AND CERTAIN OTHER PARTIES NAMED THEREIN
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("THE SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SHARES MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES
LAWS.
On the date of the Closing, Intelect shall issue irrevocable instructions to the
Transfer Agent that, with no further action by Intelect, upon receipt by the
Transfer Agent of any Converted Shares or Remainder Shares for transfer,
accompanied by an Officers' Certificate in the form attached hereto as Exhibit B
(an "Officers' Certificate") executed by two authorized representatives of
Promethean referencing such Converted Shares or Remainder Shares submitted for
transfer and
6
<PAGE>
stating that all sale restrictions under Section 6 of this Agreement and
prospectus delivery requirements under applicable securities laws (or
requirements under Rule 144, if applicable) have been complied with, the
Transfer Agent shall promptly effect transfer of such shares without the
foregoing legend and shall issue to Promethean a new certificate for the
appropriate balance of the Converted Shares or Remainder Shares, containing the
appropriate legend, as soon as practicable, but in any event within five
business days after submission of the Converted Shares or Remainder Shares and
the Officers' Certificate. Intelect shall use its best efforts to obtain from
the Transfer Agent, as soon as practicable, a letter addressed to Pormethean by
which the Transfer Agent shall agree to be bound by the irrevocble instructions
described above. Promethean shall, upon reasonable request from Intelect,
provide Intelect with information as to the dates and amounts of any trades of
Common Stock by Promethean. If requested by Promethean, Intelect and Promethean
shall enter into a confidentiality agreement in such form as mutually acceptable
to the parties in connection with such additional information requested in the
immediately preceding sentence. If at any time Intelect believes that Promethean
is in breach of this Agreement, Intelect may seek from a court of competent
jurisdiction an injunction, temporary restraining order or other appropriate
injunctive relief to stay or suspend sales or transfer of Converted Shares or
Remainder Shares. Until any such order by a court, Intelect shall take no action
to revoke such instructions.
6. CERTAIN RESTRICTIONS.
(a) So long as Promethean holds any Common Stock, Promethean
shall not, after date hereof, directly or indirectly, engage in short sales,
purchase puts, sell calls, enter into equity swaps or otherwise take a market
position through the selling of borrowed
7
<PAGE>
shares, through a contractual arrangement or otherwise, by which Promethean
would benefit from a decrease in the market price of Intelect's Common Stock.
Promethean shall, as soon as practicable following the Closing, unwind all
existing positions resulting from such transactions, if any.
(b) Promethean shall not sell or otherwise dispose of, on any
single day (a "Trade Date"), an aggregate number of shares of Common Stock in
excess of that number of shares of Common Stock equal to 7% of the trading
volume for the Common Stock for such Trade Date (as reported by Bloomberg),
exclusive of purchases or sales of Common Stock made by Promethean on such day.
(c) Notwithstanding the foregoing, Promethean shall be
permitted to sell the number of shares of Common Stock necessary to unwind the
positions referred to in Section 6(a).
(d) If Herman M. Frietsch or Philip P. Sudan, Jr. sell any
shares of Common Stock of the Company within the next 65 days at a price under
$3.00 per share, then Promethean is no longer subject to the restrictions in
paragraph 6(b) of this Agreement.
7. PROXY.
Promethean hereby grants to Intelect or its designee an irrevocable
proxy, coupled with an interest, to vote the Converted Shares and the Remainder
Shares on all matters that may come before the stockholders of Intelect, so
long, but only so long, as such Converted Shares or Remainder Shares are owned
by Promethean. Promethean agrees to execute and deliver such other documents as
Intelect may reasonably request in order to carry out the purposes and intent of
this provision.
8
<PAGE>
8. RIGHT TO REPURCHASE SHARES.
Promethean hereby grants to Intelect the right and option, upon five
days written notice to each Promethean Entity and the Transfer Agent (the
"Repurchase Notice"), from time to time during the 120 calendar days following
execution of this Agreement, to repurchase any Converted Shares or Remainder
Shares owned by Promethean at the time of such Repurchase Notice on the
following terms and conditions:
(a) The purchase price per share for any Converted Shares or
Remainder Shares purchased by Intelect pursuant to this Section 8 (the
"Repurchased Shares") shall be the greater of $1.25 or the then current closing
sale price of Intelect Common Stock as reported by Bloomberg on the trading date
on which the Repurchase Notice is delivered (the "Purchase Price").
(b) The Repurchase Notice shall specify (i) the number of
shares of Common Stock to be repurchased, (ii) the Purchase Price and (iii) the
date on which such repurchase is to occur (the "Repurchase Date"), which shall
be no more than ten days following the date of the Repurchase Notice.
(c) Intelect shall not be entitled to send a Repurchase Notice
unless it has complied with all the provisions of this Agreement and has, in the
amount of the full aggregate Purchase Price for all Repurchased Shares:
(i) cash available in a demand or other immediately
available account in a bank or similar financial institution; or
9
<PAGE>
(ii) credit facilities with a bank or similar financial
institution that are immediately available and unrestricted for use in
repurchasing the Repurchased Shares;
or
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from Intelect a sufficient
number of shares of stock to provide the necessary proceeds; or
(iv) a combination of the items set forth in the
preceding clauses (i), (ii) and (iii).
(d) Each Promethean Entity whose Common Stock is being
repurchased under this Section 8 shall send to the Transfer Agent, to be held in
escrow by the Transfer Agent until payment therefor by Intelect, share
certificates representing the Repurchased Shares to be repurchased from such
Promethean Entity within five business days after the Repurchase Date, and
Intelect shall pay to such Promethean Entity in cash the full aggregate Purchase
Price for such Repurchased Shares within one business day after such
certificates are received by the Transfer Agent. If Intelect fails to pay such
Purchase Price in cash on such date, the Transfer Agent shall immediately
re-deliver the certificates for such shares to such Promethean Entity, and
thereafter Promethean shall (i) no longer be bound by the provisions of this
Section 8 and (ii) not be bound by the provisions of Section 6(b) with respect
to Repurchased Shares which it could have sold under Section 6(b) between the
time of the Repurchase Notice and the date the Purchase Price was required to be
paid hereunder.
(e) If fewer than all Converted Shares and Remainder Shares
held by all Promethean Entities at the time of a Repurchase Notice are to be
repurchased, Intelect shall
10
<PAGE>
repurchase a pro rata amount from each Promethean Entity then beneficially
owning Converted Shares or Remainder Shares.
9. TERMINATION OF CERTAIN RIGHTS.
Except as provided in this Agreement, Promethean agrees that all
rights Promethean may have under the Operative Preferred Stock Documents are
terminated. The Registration Rights Agreements dated as of February 6, 1998, May
7, 1998 and June 26, 1998 between Intelect and the Buyers named therein shall
continue in effect with respect to the Conversion Shares (as defined therein).
The Registration Rights Agreement dated as of February 24, 1999 between Intelect
and the Buyers named therein shall continue in effect with respect to the
Conversion Shares, Remainder Shares and the Warrant Shares (as defined therein).
10. WARRANTS.
Each Promethean Entity to which Warrants to Purchase Common Stock
("Warrants") were issued pursuant to the Series E Purchase Agreement will retain
such Warrants, and nothing contained in this Agreement shall affect Promethean's
rights with respect to such Warrants under any agreement, document or other
instrument relating to such Warrants.
11. REPRESENTATIONS AND WARRANTIES.
(a) As of the date hereof and as of the date any Converted
Shares or Remainder Shares (collectively, "Issued Shares") are issued, each
Promethean Entity that is receiving securities hereunder (a "Promethean
Shareholder") hereby represents and warrants with respect to itself only that:
(i) ACCREDITED INVESTOR STATUS. It is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the 1933 Act.
11
<PAGE>
(ii) RELIANCE ON EXEMPTIONS. Such Promethean Shareholder
understands that the Issued Shares are being issued to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that Intelect is relying in part upon the truth
and accuracy of, and such Promethean Shareholder's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Promethean Shareholder set forth herein in order to determine the
availability of such exemptions and the eligibility of such Promethean
Shareholder to acquire the Issued Shares.
(iii) INFORMATION. Such Promethean Shareholder and its
advisors, if any, have been furnished with all materials relating to the
business, finances and operations of Intelect and materials relating to the
offer and issuance of the Issued Shares which have been requested by such
Promethean Shareholder. Such Promethean Shareholder and its advisors, if any,
have been afforded the opportunity to ask questions of Intelect, including its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Promethean Shareholder or its advisors, if any, or its
representatives shall modify, amend or affect such Promethean Shareholder's
right to rely on Intelect's representations and warranties contained in this
Agreement. Such Promethean Shareholder understands that its investment in the
Issued Shares involves a high degree of risk. Such Promethean Shareholder has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Issued Shares. In addition to the foregoing such Promethean Shareholder
acknowledges that:
12
<PAGE>
(a) it has access to copies of (and acknowledges
that Intelect has offered to provide, upon its request, copies of)
Intelect's filings with the Securities Exchange Commission
(collectively, the "Public Documents");
(b) it has not been furnished with any oral
representation or warranty in connection with the offering of the
Issued Shares by Intelect or any officer, employee, agent, affiliate
or subsidiary, which is not contained in or contemplated herein;
(c) it understands that the purchase of the Issued
Shares entails various risks including, but not limited to, those
outlined in the Public Documents and in this Agreement, and has
determined that the Issued Shares are a suitable investment and that
at this time it could bear a complete loss of its investment; and
(d) any information which such Promethean
Shareholder has heretofore represented or furnished to Intelect with
respect to its financial position, business experience, or trading
practices is correct and complete as of the date of this Agreement.
(iv) NO GOVERNMENTAL REVIEW. Such Promethean Shareholder
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Issued Shares or the fairness or suitability of the
investment in the Issued Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Issued Shares.
13
<PAGE>
(v) TRANSFER OR RESALE. Such Promethean Shareholder
understands that except as provided herein or in the Registration Rights
Agreements referenced in paragraph 9 hereof: (i) the issuance of the Conversion
Shares and Remainder Shares have not been and are not being registered under the
1933 Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder, (B) such
shares are sold pursuant to an effective registration statement covering the
resale of such shares and the applicable prospectus delivery requirements have
been complied with by the Promethean Shareholder, (C) such Promethean
Shareholder shall have delivered to Intelect an opinion of counsel, in a
generally acceptable form, to the effect that the Securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, or (D) such Promethean Shareholder provides
Intelect with reasonable assurance that such Securities can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended (or
a successor rule thereto) ("Rule 144"); and (ii) any sale of the Issued Shares
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the Issued
Shares under circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is defined in the
1933 Act) may require compliance with some other exemption under the 1933 Act or
the rules and regulations of the SEC thereunder; and (iii) except as expressly
provided herein, neither Intelect nor any other person is under any obligation
to register such Securities under the 1933 Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.
14
<PAGE>
(vi) RESIDENCY. Each Promethean Shareholder is a
resident of that country or jurisdiction specified in the Schedule of Promethean
Shareholders which has heretofore been provided to Intelect.
(b) As of the date hereof and as of the date any Issued Shares
are issued, Intelect represents and warrants to each Promethean Entity that:
(i) SHARES FULLY PAID AND NON-ASSESSABLE. When issued,
the Issued Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges, with the holders being entitled to all rights
accorded to a holder of Common Stock.
(ii) ORGANIZATION AND QUALIFICATION. Intelect is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite corporate power and authorization to own its
properties and to carry on its business as now being conducted.
(iii) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER
INSTRUMENTS. Intelect has the requisite corporate power and authority to enter
into and perform this Agreement, and to issue the Conversion Shares and
Remainder Shares as defined in accordance with the terms and conditions hereof.
The execution and delivery of this Agreement by the Company and the consummation
by it of the transactions contemplated hereby (including without limitation the
issuance of the Issued Shares), have been duly authorized by the Company's Board
of Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may
15
<PAGE>
be limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
(iv) NO CONFLICTS. The execution, delivery and
performance of this Agreement by Intelect and the consummation by Intelect of
the transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock, par value $.01 per share,
of the Company or the By-laws, (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries (as defined in the Series E Purchase Agreement) is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the principal market or exchange on which the
Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in the Public Documents,
neither the Company nor its Subsidiaries is in violation of any term of or in
default under (x) the Certificate of Incorporation, any Certificate of
Designation, Preferences and Rights of any outstanding series of preferred
stock, par value $.01 per share, or the By-laws or their organizational charter
or by-laws, respectively, or (y) any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries. The business
of the Company and its Subsidiaries is not being
16
<PAGE>
conducted in violation of any law, ordinance, regulation of any governmental
entity, except where such violations have not resulted or would not result,
individually or in the aggregate, in a Material Adverse Effect (as defined in
the Series E Purchase Agreement) and no bankruptcy is being contemplated or
threatened. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under or contemplated by
this Agreement. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries have no knowledge of any facts or circumstances which might give
rise to any of the foregoing. Except as disclosed in the Public Documents, the
Company is not in violation of the listing requirements of the Nasdaq National
Market as in effect on the date hereof.
(v) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December
31, 1996, the Company or its predecessor Intelect Communications Systems
Limited, a Bermuda Corporation, has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder
17
<PAGE>
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC or as amended prior to the date hereof, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates or as amended prior to the date hereof, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof,
or if amended prior to the date hereof, as of the date of such amendment and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to Promethean which is
not included in the SEC Documents, or if amended prior to the date hereof, as of
the date of such amendment, including, without limitation, information referred
to in this Agreement, contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements therein, in
the light of the circumstance under which they are or were made, not misleading.
Neither the Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have
18
<PAGE>
provided Promethean with any material, nonpublic information, except for the
knowledge of the existence of the transactions contemplated hereby.
(vi) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except for the transactions contemplated hereby, and excluding
liabilities incurred in the ordinary course of business consistent with past
practices, no event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition that would be required to be disclosed by the Company under
applicable securities laws on a registration statement (including by way of
incorporation by reference) filed with the SEC, on the date this representation
is made or deemed to be made, relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly disclosed.
(vii). REGISTRATION STATEMENTS. The registration
statements covering the Converted Shares and the Remainder Shares are effective
and the Company has received no stop order suspending effectiveness of such
registration statements.
(c) The representations and warranties made in this Section 11
shall survive the Closing and the issuance of the Issued Shares.
12. MUTUAL RELEASES.
(a) In consideration of and subject to the terms of this
Agreement, Intelect, on behalf of itself and, to the extent not prohibited by
applicable law, its agents, affiliates, stockholders, partners, employees,
directors, representatives, successors and assigns, hereby expressly releases
and discharges each Promethean Entity and its agents, affiliates,
19
<PAGE>
advisors, members, managers, stockholders, partners, employees, present and
former directors and officers, representatives, successors and assigns, from,
and agrees not to encourage, cooperate with or assist any third party to assert,
any and all manner of claims, of any nature whatsoever, known or unknown,
suspected or unsuspected, in law, in equity or otherwise, whether class,
individual, derivative or otherwise in nature, including but not limited to
those arising under state, federal or other laws, rules or regulations, that
Intelect ever had, now has or hereafter can, shall or may have, whether arising
under Section 16(b) of the Exchange Act or otherwise, relating in any way to the
purchase or sale of Intelect securities, from the beginning of the world through
the date of this Agreement, or as contemplated hereunder, or relating to any
other acts, omissions, events, occurrences, happenings or circumstances
occurring or existing prior to the date of this Agreement. As soon as
practicable after Closing, the court action filed in the United Stated District
Court for the Southern District of New York, Index No. 99CIV.4338 on June 16,
1999, will be dismissed with prejudice by the Company only as to HFTP
Investments, L.L.C. and Promethean Investment Group, L.L.C.; provided that the
foregoing release and dismissal shall not affect or limit in any way whatsoever
the rights of the Company in the aforesaid litigation or otherwise against any
other party to such litigation, and all rights against such other parties are
expressly reserved.
(b) In consideration of and subject to the terms of this
Agreement, each Promethean Entity, on behalf of itself and, to the extent not
prohibited by applicable law, its agents, affiliates, stockholders, partners,
employees, directors, representatives, successors and assigns, hereby expressly
releases and discharges Intelect and its agents, affiliates, advisors, members,
managers, stockholders, partners, employees, present and former directors and
officers,
20
<PAGE>
representatives, successors and assigns from, and agrees not to encourage,
cooperate with or assist any third party to assert, any and all manner of
claims, of any nature whatsoever, known or unknown, suspected or unsuspected, in
law, in equity or otherwise, whether class, individual, derivative or otherwise
in nature, that each Promethean Entity ever had, now has or hereafter can, shall
or may have relating to any acts, omissions, events, occurrences, happenings or
circumstances occurring or existing prior to the date of this Agreement,
including but not limited to those arising under state, federal or other laws,
rules or regulations or otherwise relating to any act or omission relating in
any way to the Conversion Notices or Intelect's April 26, 1999 announcement that
it was discontinuing indefinitely conversions of its outstanding shares of
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
from the beginning of the world through the date of this Agreement. As soon as
practicable after Closing, the court action filed in the Court of Chancery of
the State of Delaware in and for New Castle County, C.A. No. 17220-NC on June
10, 1999, will be dismissed with prejudice.
13. FILING OF FORM 8-K.
On or before the second business day following the Closing, Intelect
shall file a Form 8-K with the Securities and Exchange Commission describing the
terms of this Agreement and shall file this Agreement as an Exhibit to such Form
8-K.
14. AUTHORIZATION TO ENTER INTO THE AGREEMENT.
Each party represents that (i) it has received all required
approvals for, and is authorized to engage in, the execution, delivery and
performance of this Agreement and (ii) this Agreement has been duly executed and
delivered by such party and constitutes the valid and binding obligation of such
party enforceable against such party in accordance with its terms,
21
<PAGE>
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
15. PROFESSIONAL ADVICE.
Each party has received independent legal advice from attorneys of
its choice with respect to the advisability of making this Agreement and
entering into the releases, covenants and undertakings provided herein.
16. NO TRANSFER OF CLAIMS.
Each party represents and warrants that it has not transferred all
or any part of, or any interest in, any claim or potential cause of action that
such party is releasing pursuant to this Agreement.
17. INTEGRATED AGREEMENT; NO WAIVER.
This Agreement contains the entire, complete, and integrated
statement of each and every term and provision agreed to by and among the
parties and is not subject to any condition not provided for herein. This
Agreement shall not be changed, modified, or supplemented except by a writing
executed by the parties hereto. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
22
<PAGE>
18. NO PARTY IS THE DRAFTER OF THIS AGREEMENT.
None of the parties hereto shall be considered to be the drafter of
this Agreement or any provision hereof for the purpose of any statute, case law
or rule of interpretation or construction that might cause any provision to be
construed against the drafter hereof.
19. DISPUTES.
(a) Each party agrees that any breach by the other of this
Agreement is likely to result in irreparable harm to each non-breaching party,
that monetary damages will be an inadequate remedy of such breach and that,
accordingly, in addition to any other remedy that any non-breaching party may
have, each non-breaching party shall be entitled to enforce the specific
performance of this Agreement and to seek both temporary and permanent relief in
the event of any breach hereof.
(b) In the event of any controversy, claim or dispute between
the parties to this Agreement arising out of, relating to or in connection with
this Agreement, its interpretation or any transaction contemplated hereby or
discussed herein, or an alleged breach of the Agreement, each prevailing party
shall be entitled to recover its reasonable attorneys' fees, expenses, and costs
incurred in connection therewith or in connection with the enforcement or
collection of any judgment or award rendered therein.
20. PAYMENT OF PREVIOUS AMOUNT.
The Company will pay to Promethean within 30 days after the Closing
the legal fees it had previously agreed to pay relating to the Series E
Preferred Stock transaction.
23
<PAGE>
21. CHOICE OF LAW AND FORUM.
The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of Intelect and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than those of the State
of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.
22. WAIVER OF PERSONAL SERVICE.
(a) Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or proceeding
by mailing a copy thereof to such party at the address set forth herein:
If to Intelect:
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Attention: Herman M. Frietsch
24
<PAGE>
If to Promethean:
Promethean Investment Group, L.L.C.
750 Lexington Avenue, 22nd Floor
New York, New York 10022
Attention: James F. O'Brien, Jr.
(b) Each party agrees that such service shall constitute good
and sufficient service of process and notice thereof.
(c) Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.
23. WAIVER OF RIGHT TO A JURY TRIAL.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ITS
INTERPRETATION OR ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN.
[Remainder of page intentionally left blank]
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELECT COMMUNICATIONS, INC.
By:/s/ HERMAN FRIETSCH
Herman Frietsch, its Chief Executive Officer
PROMETHEAN INVESTMENT GROUP, L.L.C.
By: /s/ JAMES F. O'BRIEN
James F. O'Brien, its Authorized Signatory
PROMETHEAN ASSET MANAGEMENT, L.L.C.
By: /s/ JAMES F. O'BRIEN
James F. O'Brien, its Authorized Signatory
HFTP INVESTMENTS, L.L.C.
By: /s/ JAMES F. O'BRIEN
James F. O'Brien, its Authorized Signatory
26
<PAGE>
List of Exhibits
Exhibit A. Conversion Notices
Exhibit B. Officers' Certificate
EXHIBIT 10.2
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the "Agreement") is
made as of the 8th day of July, 1999 by and among Intelect Communications, Inc.
("Intelect", or the "Company") and Angelo, Gordon & Co., L.P., Leonardo, L.P.,
GAM Arbitrage Investments, Inc., AG Super Fund International Partners, L.P.,
Raphael, L.P., Ramius Fund, Ltd. and their affiliates (collectively, "Angelo
Gordon" or "Angelo Gordon Entities").
WHEREAS, Intelect issued shares of Series C Convertible Preferred
Stock (the "Series C Preferred Stock") pursuant to a Certificate of
Designations, Preferences and Rights relating to the Series C Preferred Stock
(the "Series C Designation") and a Securities Purchase Agreement dated as of
February 6, 1998 (the "Series C Purchase Agreement," collectively with the
Series C Designation, the "Series C Documents");
WHEREAS, Intelect issued shares of Series D Convertible Preferred
Stock (the "Series D Preferred Stock") pursuant to a Certificate of
Designations, Preferences and Rights relating to the Series D Preferred Stock
(the "Series D Designation") and Securities Purchase Agreements dated as of May
7, 1998 and June 26, 1998 (the "Series D Purchase Agreement", collectively with
the Series D Designation, the "Series D Documents");
WHEREAS, Angelo Gordon purchased 921 shares of Series C Preferred
Stock and 522 shares of Series D Preferred Stock from the original purchasers of
such shares pursuant to a February 24, 1999 Letter Agreement (the "Letter
Agreement");
WHEREAS, Intelect issued shares of Series E Convertible Preferred
Stock (the "Series E Preferred Stock" and, together with the Series C Preferred
Stock and the Series D Preferred Stock, the "Preferred Stock") to Angelo Gordon
pursuant to a Certificate of
<PAGE>
Designations, Preferences and Rights relating to the Series E Preferred Stock
(the "Series E Designation") and a Securities Purchase Agreement dated as of
February 24, 1999 (the "Series E Purchase Agreement", and, together with the
Series E Designation, the "Series E Documents" and, together with the Series C
Documents, the Series D Documents, and the Letter Agreement, the "Operative
Preferred Stock Documents");
WHEREAS, Angelo Gordon delivered to Intelect Conversion Notices
dated as of May 7, May 24, June 17 and July 8, 1999, copies of which are
attached hereto as Exhibit A (the "Conversion Notices"), for the conversion of
all of the Angelo Gordon Entities' remaining shares of Series D Preferred Stock
and a portion of the Angelo Gordon Entities' shares of Series E Preferred Stock;
WHEREAS, certain Angelo Gordon entities filed suit against Intelect
seeking recovery for the alleged breach of the Series E Documents because, among
other things, of Intelect's refusal to issue common stock upon submission of the
Conversion Notices and Intelect's April 26, 1999 announcement that it was
discontinuing indefinitely conversions of its outstanding shares of Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock;
WHEREAS, Intelect has filed suit against Angelo Gordon (i) asserting
that Angelo Gordon has violated certain representations and warranties contained
in the Operative Preferred Stock Documents, (ii) asserting that Angelo Gordon
has fraudulently manipulated the market for Intelect common stock and (iii)
seeking the recovery of alleged short-swing profits under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") allegedly
realized by Angelo Gordon;
2
<PAGE>
WHEREAS, each party has made such independent investigation as such
party has deemed necessary of the facts and circumstances pertaining to the
claims asserted by each party and the effects thereon of this Agreement, and
each party is fully informed as to all relevant facts and circumstances and has
carefully considered the applicable law and consulted with counsel of its
choice, such that it is knowingly and voluntarily entering into the settlement
and compromise of such claims evidenced by this Agreement;
WHEREAS, arm's-length settlement negotiations have taken place
between Intelect and Angelo Gordon, and this Agreement has been reached;
WHEREAS, Intelect and Angelo Gordon have concluded that it would be
in the best interests of each party to enter into this Agreement in order to
avoid the uncertainties, expense, inconvenience and burdens of litigation, and
to put to rest this controversy and preserve valued business relationships;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
respective releases, covenants and undertakings and in full, complete and final
settlement of such claims and controversies, the parties agree as follows:
1. THIS AGREEMENT IS NOT AN ADMISSION.
The parties hereto agree that this Agreement, and any and all
negotiations, documents and discussions associated with it, shall not be deemed
or construed to be an admission or evidence of any violation of any contractual
provision, statute, law, rule or regulation or of any liability or wrongdoing by
any of the parties hereto, or of any absence of wrongdoing or of limitation of
damage or injury, and shall not be used, directly or indirectly, as evidence
thereof, in any way in any action or proceeding.
3
<PAGE>
2. BINDING EFFECT.
Each party is entering into this Agreement on behalf of itself, and,
to the extent not prohibited by applicable law, its agents, affiliates,
stockholders, partners, employees, directors, representatives, successors and
assigns. This Agreement shall be binding upon, and inure to the benefit of, each
party and, to the extent not prohibited by applicable law, its agents,
affiliates, stockholders, partners, employees, directors, representatives,
successors and assigns.
3. ISSUANCE OF COMMON STOCK PURSUANT TO CONVERSION NOTICES.
(a) Upon execution and delivery of this Agreement (the "Closing"),
Intelect shall execute and deliver to Intelect's designated transfer agent (the
"Transfer Agent") irrevocable instructions to issue and surrender, on the
business day following the date of the Closing, to a common carrier for
overnight delivery to the Angelo Gordon Entities certificates for an aggregate
of 2,315,711 shares of common stock, par value $0.01 per share, of Intelect
("Common Stock") as set forth in the Conversion Notices (collectively, the
"Converted Shares"); provided, however, that the executed version of this
Agreement shall be held in escrow until the Angelo Gordon Entities receive
certificates for 2,315,711 shares of Common Stock. Intelect shall also instruct
the Transfer Agent to issue and deliver to the Angelo Gordon Entities
certificates for shares of Series E Preferred Stock, representing the balance of
Series E Preferred shares not covered by the Conversion Notices. Intelect
acknowledges that the Converted Shares are being issued on conversion of Series
D Preferred Stock and Series E Preferred Stock pursuant to the applicable
Certificates of Designations, Preferences and Rights and the Conversion Notices,
and that the Converted Shares and Remainder Shares (as defined in Section 4
below) have been registered for resale and may be sold pursuant to Intelect's
Prospectus dated June 8,
4
<PAGE>
1998 as supplemented by a Prospectus Supplement dated March 5, 1999 and
Intelect's Prospectus dated April 15, 1999 (subject to the provisions of this
Agreement).
4. REMAINING SERIES E STOCK
(a) Subject to the provisions of this paragraph, on the 65th
day following execution hereof, Angelo Gordon or its designee will submit a
Conversion Notice (as defined in the Series E Designation) (the "Final
Conversion Notice") for a number of shares of Series E Preferred Stock to be
converted into 403,713 shares of Common Stock (the "Remainder Shares"), based on
the Conversion Price set forth in the Series E Designation, and the Company
shall honor such Final Conversion Notice at such price. In the event such
conversion in full would result in Angelo Gordon beneficially owning more than
4.99% of the Company's outstanding Common Stock (as determined in accordance
with Section 2(d) of the Series E Designation), the Final Conversion Notice will
be effective only as to that number of shares of Common Stock that would bring
Angelo Gordon's beneficial ownership level up to an aggregate of 4.99% of all
outstanding Common Stock. In such event, Angelo Gordon agrees that should its
beneficial ownership of the Common Stock of the Company at any time drop below
an aggregate of 4.99% of all outstanding shares of Common Stock, it will
promptly deliver subsequent Conversion Notices (as defined in the Series E
Designation) until a sufficient number of Series E Preferred Stock has been
converted to result in the issuance to Angelo Gordon of all of the Remainder
Shares. Any such subsequent Conversion Notices shall be based on the Conversion
Price set forth in the Series E Designation. Notwithstanding anything in this
Agreement or elsewhere, Angelo Gordon shall not, after Closing, convert
Preferred Stock into more than 403,713 shares of Common Stock. Accordingly, the
total number of shares of
5
<PAGE>
Common that Angelo Gordon may obtain through conversion of shares of the
Preferred Stock at and subsequent to Closing is 2,719,424 shares of Common
Stock.
(b) PURCHASE. To the extent that Angelo Gordon owns any Series
E Preferred Stock after application of the provisions of paragraph (a) above,
such remaining shares shall be canceled and Angelo Gordon shall promptly return
such shares to the Company.
5. LEGEND; REMOVAL OF LEGEND.
The certificates for the Converted Shares shall be issued to Angelo
Gordon with the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON RESALE CONTAINED IN THAT CERTAIN SETTLEMENT AND MUTUAL
RELEASE AGREEMENT DATED JULY 8, 1999 BY AND AMONG INTELECT COMMUNICATIONS,
INC AND AG SUPER FUND INTERNATIONAL PARTNERS AND CERTAIN OTHER PARTIES
NAMED THEREIN AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("THE SECURITIES ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW AND, ACCORDINGLY, THE SHARES MAY NOT BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
On the date of the Closing, Intelect shall issue irrevocable instructions to the
Transfer Agent that, with no further action by Intelect, upon receipt by the
Transfer Agent of any Converted Shares or Remainder Shares for transfer,
accompanied by an Officers' Certificate in the form attached hereto as Exhibit B
(an "Officers' Certificate") executed by two authorized representatives of
Angelo Gordon referencing such Converted Shares or Remainder submitted for
transfer and stating that all sale restrictions under Section 6 of this
Agreement and prospectus delivery requirements under applicable securities laws
(or requirements under Rule 144, if applicable)
6
<PAGE>
have been complied with, the Transfer Agent shall promptly effect transfer of
such shares without the foregoing legend and shall issue to Angelo Gordon a new
certificate for the appropriate balance of the Converted Shares or Remainder
Shares, containing the appropriate legend, as soon as practicable, but in any
event within five business days after submission of the Converted Shares or
remainder Shares and the Officers' Certificate. Intelect shall use its best
efforts to obtain from the Transfer Agent, as soon as practicable, a letter
addressed to Angelo Gordon by which the Transfer Agent shall agree to be bound
by the irrevocable instructions described above. Angelo Gordon shall, upon
reasonable request from Intelect, provide Intelect with information as to the
dates and amounts of any trades of Common Stock by Angelo Gordon. If requested
by Angelo Gordon, Intelect and Angelo Gordon shall enter into a confidentiality
agreement in such form as mutually acceptable to the parties in connection with
such additional information requested in the immediately preceding sentence. If
at any time Intelect believes that Angelo Gordon is in breach of this Agreement,
Intelect may seek from a court of competent jurisdiction an injunction,
temporary restraining order or other appropriate injunctive relief to stay or
suspend sales or transfer of Converted Shares or Remainder Shares. Until any
such order by a court, Intelect shall take no action to revoke such
instructions.
6. CERTAIN RESTRICTIONS.
(a) So long as Angelo Gordon holds any Common Stock, Angelo
Gordon shall not, after date hereof, directly or indirectly, engage in short
sales, purchase puts, sell calls, enter into equity swaps or otherwise take a
market position through the selling of borrowed shares, through a contractual
arrangement or otherwise, by which Angelo Gordon would benefit from a decrease
in the market price of Intelect's Common Stock. Angelo Gordon
7
<PAGE>
shall, as soon as practicable following the Closing, unwind all existing
positions resulting from such transactions, if any.
(b) Angelo Gordon shall not sell or otherwise dispose of, on
any single day (a "Trade Date"), an aggregate number of shares of Common Stock
in excess of that number of shares of Common Stock equal to 7% of the trading
volume for the Common Stock for such Trade Date (as reported by Bloomberg),
exclusive of purchases or sales of Common Stock made by Angelo Gordon on such
day.
(c) Notwithstanding the foregoing, Angelo Gordon shall be
permitted to sell the number of shares of Common Stock necessary to unwind the
positions referred to in Section 6(a).
(d) If Herman M. Frietsch or Philip P. Sudan, Jr. sell any
shares of Common Stock of the Company within the next 65 days at a price under
$3.00 per share, then Angelo Gordon is no longer subject to the restrictions in
paragraph 6(b) of this Agreement.
7. PROXY.
Angelo Gordon hereby grants to Intelect or its designee an
irrevocable proxy, coupled with an interest, to vote the Converted Shares and
the Remainder Shares on all matters that may come before the stockholders of
Intelect, so long, but only so long, as such Converted Shares are owned by
Angelo Gordon. Angelo Gordon agrees to execute and deliver such other documents
as Intelect may reasonably request in order to carry out the purposes and intent
of this provision.
8
<PAGE>
8. RIGHT TO REPURCHASE SHARES.
Angelo Gordon hereby grants to Intelect the right and option, upon
five days written notice to each Angelo Gordon Entity and the Transfer Agent
(the "Repurchase Notice"), from time to time during the 120 calendar days
following execution of this Agreement, to repurchase any Converted Shares or
Remainder Shares owned by Angelo Gordon at the time of such Repurchase Notice on
the following terms and conditions:
(a) The purchase price per share for any Converted Shares or
Remainder Shares purchased by Intelect pursuant to this Section 8 (the
"Repurchased Shares") shall be the greater of $1.25 or the then current closing
sale price of Intelect Common Stock as reported by Bloomberg on the trading date
on which the Repurchase Notice is delivered (the "Purchase Price").
(b) The Repurchase Notice shall specify (i) the number of
shares of Common Stock to be repurchased, (ii) the Purchase Price and (iii) the
date on which such repurchase is to occur (the "Repurchase Date"), which shall
be no more than ten days following the date of the Repurchase Notice.
(c) Intelect shall not be entitled to send a Repurchase Notice
unless it has complied with all the provisions of this Agreement and has, in the
amount of the full aggregate Purchase Price for all Repurchased Shares:
(i) cash available in a demand or other immediately
available account in a bank or similar financial institution; or
9
<PAGE>
(ii) credit facilities with a bank or similar financial
institution that are immediately available and unrestricted for use in
repurchasing the Repurchased Shares; or
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from Intelect a sufficient
number of shares of stock to provide the necessary proceeds; or
(iv) a combination of the items set forth in the
preceding clauses (i), (ii) and (iii).
(d) Each Angelo Gordon Entity whose Common Stock is being
repurchased under this Section 8 shall send to the Transfer Agent, to be held in
escrow by the Transfer Agent until payment therefor by Intelect, share
certificates representing the Repurchased Shares to be repurchased from such
Angelo Gordon Entity within five business days after the Repurchase Date, and
Intelect shall pay to such Angelo Gordon Entity in cash the full aggregate
Purchase Price for such Repurchased Shares within one business day after such
certificates are received by the Transfer Agent. If Intelect fails to pay such
Purchase Price in cash on such date, the Transfer Agent shall immediately
re-deliver the certificates for such shares to such Angelo Gordon Entity, and
thereafter Angelo Gordon shall (i) no longer be bound by the provisions of this
Section 8 and (ii) not be bound by the provisions of Section 6(b) with respect
to Repurchased Shares which it could have sold under Section 6(b) between the
time of the Repurchase Notice and the date the Purchase Price was required to be
paid hereunder.
(e) If fewer than all Converted Shares and Remainder Shares
held by all Angelo Gordon Entities at the time of a Repurchase Notice are to be
repurchased, Intelect
10
<PAGE>
shall repurchase a pro rata amount from each Angelo Gordon Entity then
beneficially owning Converted Shares or Remainder Shares
9. TERMINATION OF CERTAIN RIGHTS.
Except as provided in this Agreement, Angelo Gordon agrees that all
rights Angelo Gordon may have under the Operative Preferred Stock Documents are
terminated. The Registration Rights Agreements dated as of February 6, 1998, May
7, 1998 and June 26, 1998 between Intelect and the Buyers named therein shall
continue in effect with respect to the Conversion Shares (as defined therein).
The Registration Rights Agreement dated as of February 24, 1999 between Intelect
and the Buyers named therein shall continue in effect with respect to the
Conversion Shares and the Warrant Shares (as defined therein).
10. WARRANTS.
Each Angelo Gordon Entity to which Warrants to Purchase Common Stock
("Warrants") were issued pursuant to the Series E Purchase Agreement will retain
such Warrants, and nothing contained in this Agreement shall affect Angelo
Gordon's rights with respect to such Warrants under any agreement, document or
other instrument relating to such Warrants.
11. REPRESENTATIONS AND WARRANTIES.
(a) As of the date hereof and as of the date any Converted
Shares or Remainder Shares (collectively, "Issued Shares") are issued, each
Angelo Gordon Entity that is receiving securities hereunder (a "Angelo Gordon
Shareholder") hereby represents and warrants with respect to itself only that:
(i) ACCREDITED INVESTOR STATUS. It is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the 1933 Act.
11
<PAGE>
(ii) RELIANCE ON EXEMPTIONS. Such Angelo Gordon Shareholder
understands that the Issued Shares are being issued to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that Intelect is relying in part upon the truth
and accuracy of, and such Angelo Gordon Shareholder's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Angelo Gordon Shareholder set forth herein in order to determine the
availability of such exemptions and the eligibility of such Angelo Gordon
Shareholder to acquire the Issued Shares.
(iii) INFORMATION. Such Angelo Gordon Shareholder and its
advisors, if any, have been furnished with all materials relating to the
business, finances and operations of Intelect and materials relating to the
offer and issuance of the Issued Shares which have been requested by such Angelo
Gordon Shareholder. Such Angelo Gordon Shareholder and its advisors, if any,
have been afforded the opportunity to ask questions of Intelect, including its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Angelo Gordon Shareholder or its advisors, if any, or its
representatives shall modify, amend or affect such Angelo Gordon Shareholder's
right to rely on Intelect's representations and warranties contained in this
Agreement. Such Angelo Gordon Shareholder understands that its investment in the
Issued Shares involves a high degree of risk. Such Angelo Gordon Shareholder has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Issued Shares. In addition to the foregoing such Angelo Gordon Shareholder
acknowledges that:
12
<PAGE>
(a) it has access to copies of (and acknowledges
that Intelect has offered to provide, upon its request, copies of)
Intelect's filings with the Securities Exchange Commission
(collectively, the "Public Documents");
(b) it has not been furnished with any oral
representation or warranty in connection with the offering of the
Issued Shares by Intelect or any officer, employee, agent, affiliate
or subsidiary, which is not contained in or contemplated herein;
(c) it understands that the purchase of the Issued
Shares entails various risks including, but not limited to, those
outlined in the Public Documents and in this Agreement, and has
determined that the Issued Shares are a suitable investment and that
at this time it could bear a complete loss of its investment; and
(d) any information which such Angelo Gordon
Shareholder has heretofore represented or furnished to Intelect with
respect to its financial position, business experience, or trading
practices is correct and complete as of the date of this Agreement.
(iv) NO GOVERNMENTAL REVIEW. Such Angelo Gordon Shareholder
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Issued Shares or the fairness or suitability of the
investment in the Issued Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Issued Shares.
13
<PAGE>
(v) TRANSFER OR RESALE. Such Angelo Gordon Shareholder
understands that except as provided herein or in the Registration Rights
Agreements referenced in paragraph 9 hereof: (i) the issuance of the Converted
Shares have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder, (B) such shares are
sold pursuant to an effective registration statement covering the resale of such
shares and the applicable prospectus delivery requirements have been complied
with by the Angelo Gordon Shareholder, (C) such Angelo Gordon Shareholder shall
have delivered to Intelect an opinion of counsel, in a generally acceptable
form, to the effect that the Securities to be sold, assigned or transferred may
be sold, assigned or transferred pursuant to an exemption from such
registration, or (D) such Angelo Gordon Shareholder provides Intelect with
reasonable assurance that such Securities can be sold, assigned or transferred
pursuant to Rule 144 promulgated under the 1933 Act, as amended (or a successor
rule thereto) ("Rule 144"); and (ii) any sale of the Issued Shares made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of the Issued Shares
under circumstances in which the seller (or the person through whom the sale is
made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) except as expressly
provided herein, neither Intelect nor any other person is under any obligation
to register such Securities under the 1933 Act or any state securities laws or
to comply with the terms and conditions of any exemption thereunder.
14
<PAGE>
(vi) RESIDENCY. Each Angelo Gordon Shareholder is a
resident of that country or jurisdiction specified in the Schedule of Angelo
Gordon Shareholders which has heretofore been provided to Intelect.
(b) As of the date hereof and as of the date any Issued Shares
are issued, Intelect represents and warrants to each Angelo Gordon Entity that:
(i) SHARES FULLY PAID AND NON-ASSESSABLE. When issued,
the Issued Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges, with the holders being entitled to all rights
accorded to a holder of Common Stock.
(ii) ORGANIZATION AND QUALIFICATION. Intelect is a
corporation duly organized and validly existing under the laws of the State of
Delaware and has the requisite corporate power and authorization to own its
properties and to carry on its business as now being conducted.
(iii) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER
INSTRUMENTS. Intelect has the requisite corporate power and authority to enter
into and perform this Agreement, and to issue the Converted Shares and Remainder
as defined in accordance with the terms and conditions hereof. The execution and
delivery of this Agreement by the Company and the consummation by it of the
transactions contemplated hereby (including without limitation the issuance of
the Issued Shares), have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its stockholders. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by
15
<PAGE>
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
(iv) NO CONFLICTS. The execution, delivery and
performance of this Agreement by Intelect and the consummation by Intelect of
the transactions contemplated hereby will not (i) result in a violation of the
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock, par value $.01 per share,
of the Company or the By-laws, (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries (as defined in the Series E Purchase Agreement) is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and the rules and regulations of the principal market or exchange on which the
Common Stock is traded or listed) applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected. Except as disclosed in the Public Documents,
neither the Company nor its Subsidiaries is in violation of any term of or in
default under (x) the Certificate of Incorporation, any Certificate of
Designation, Preferences and Rights of any outstanding series of preferred
stock, par value $.01 per share, or the By-laws or their organizational charter
or by-laws, respectively, or (y) any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries. The business
of the Company and its Subsidiaries is not being
16
<PAGE>
conducted in violation of any law, ordinance, regulation of any governmental
entity, except where such violations have not resulted or would not result,
individually or in the aggregate, in a Material Adverse Effect (as defined in
the Series E Purchase Agreement) and no bankruptcy is being contemplated or
threatened. Except as specifically contemplated by this Agreement and as
required under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under or contemplated by
this Agreement. All consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof. The Company and its
Subsidiaries have no knowledge of any facts or circumstances which might give
rise to any of the foregoing. Except as disclosed in the Public Documents, the
Company is not in violation of the listing requirements of the Nasdaq National
Market as in effect on the date hereof.
(v) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December
31, 1996, the Company or its predecessor Intelect Communications Systems
Limited, a Bermuda Corporation, has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 Act") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder
17
<PAGE>
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC or as amended prior to the date hereof, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates or as amended prior to the date hereof, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof,
or if amended prior to the date hereof, as of the date of such amendment and the
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments). No
other information provided by or on behalf of the Company to Angelo Gordon which
is not included in the SEC Documents, or if amended prior to the date hereof, as
of the date of such amendment, including, without limitation, information
referred to in this Agreement, contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
therein, in the light of the circumstance under which they are or were made, not
misleading. Neither the Company nor any of its Subsidiaries or any of their
officers, directors, employees or agents have
18
<PAGE>
provided Angelo Gordon with any material, nonpublic information, except for the
knowledge of the existence of the transactions contemplated hereby.
(vi) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except for the transactions contemplated hereby, and excluding
liabilities incurred in the ordinary course of business consistent with past
practices, no event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition that would be required to be disclosed by the Company under
applicable securities laws on a registration statement (including by way of
incorporation by reference) filed with the SEC, on the date this representation
is made or deemed to be made, relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly disclosed.
(vii). REGISTRATION STATEMENTS. The registration
statements covering the Converted Shares and the Remainder Shares are effective
and the Company has received no stop order suspending effectiveness of such
registration statements.
(c) The representations and warranties made in this Section 11
shall survive the Closing and the issuance of the Issued Shares.
12. MUTUAL RELEASES.
(a) In consideration of and subject to the terms of this
Agreement, Intelect, on behalf of itself and, to the extent not prohibited by
applicable law, its agents, affiliates, stockholders, partners, employees,
directors, representatives, successors and assigns, hereby expressly releases
and discharges each Angelo Gordon Entity and its agents, affiliates,
19
<PAGE>
advisors, members, managers, stockholders, partners, employees, present and
former directors and officers, representatives, successors and assigns, from,
and agrees not to encourage, cooperate with or assist any third party to assert,
any and all manner of claims, of any nature whatsoever, known or unknown,
suspected or unsuspected, in law, in equity or otherwise, whether class,
individual, derivative or otherwise in nature, including but not limited to
those arising under state, federal or other laws, rules or regulations, that
Intelect ever had, now has or hereafter can, shall or may have, whether arising
under Section 16(b) of the Exchange Act or otherwise, relating in any way to the
purchase or sale of Intelect securities, from the beginning of the world through
the date of this Agreement, or as contemplated hereunder, or relating to any
other acts, omissions, events, occurrences, happenings or circumstances
occurring or existing prior to the date of this Agreement. As soon as
practicable after Closing, the court action filed in the United Stated District
Court for the Southern District of New York, Index No. 99CIV.4338 on June 16,
1999, will be dismissed with prejudice by the Company as to the Angelo Gordon
Entities.
(b) In consideration of and subject to the terms of this
Agreement, each Angelo Gordon Entity, on behalf of itself and, to the extent not
prohibited by applicable law, its agents, affiliates, stockholders, partners,
employees, directors, representatives, successors and assigns, hereby expressly
releases and discharges Intelect and its agents, affiliates, advisors, members,
managers, stockholders, partners, employees, present and former directors and
officers, representatives, successors and assigns from, and agrees not to
encourage, cooperate with or assist any third party to assert, any and all
manner of claims, of any nature whatsoever, known or unknown, suspected or
unsuspected, in law, in equity or otherwise, whether class, individual,
20
<PAGE>
derivative or otherwise in nature, that each Angelo Gordon Entity ever had, now
has or hereafter can, shall or may have relating to any acts, omissions, events,
occurrences, happenings or circumstances occurring or existing prior to the date
of this Agreement, including but not limited to those arising under state,
federal or other laws, rules or regulations or otherwise relating to any act or
omission relating in any way to the Conversion Notices or Intelect's April 26,
1999 announcement that it was discontinuing indefinitely conversions of its
outstanding shares of Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, from the beginning of the world through the date of
this Agreement. As soon as practicable after Closing, the court action filed in
the Court of Chancery of the State of Delaware in and for New Castle County,
C.A. No. 17187NC on May 28, 1999, will be dismissed with prejudice.
13. FILING OF FORM 8-K.
On or before the second business day following the Closing, Intelect
shall file a Form 8-K with the Securities and Exchange Commission describing the
terms of this Agreement and shall file this Agreement as an Exhibit to such Form
8-K.
14. AUTHORIZATION TO ENTER INTO THE AGREEMENT.
Each party represents that (i) it has received all required
approvals for, and is authorized to engage in, the execution, delivery and
performance of this Agreement and (ii) this Agreement has been duly executed and
delivered by such party and constitutes the valid and binding obligation of such
party enforceable against such party in accordance with its terms, except as
such enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies.
21
<PAGE>
15. PROFESSIONAL ADVICE.
Each party has received independent legal advice from attorneys of
its choice with respect to the advisability of making this Agreement and
entering into the releases, covenants and undertakings provided herein.
16. NO TRANSFER OF CLAIMS.
Each party represents and warrants that it has not transferred all
or any part of, or any interest in, any claim or potential cause of action that
such party is releasing pursuant to this Agreement.
17. INTEGRATED AGREEMENT; NO WAIVER.
This Agreement contains the entire, complete, and integrated
statement of each and every term and provision agreed to by and among the
parties and is not subject to any condition not provided for herein. This
Agreement shall not be changed, modified, or supplemented except by a writing
executed by the parties hereto. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
18. NO PARTY IS THE DRAFTER OF THIS AGREEMENT.
None of the parties hereto shall be considered to be the drafter of
this Agreement or any provision hereof for the purpose of any statute, case law
or rule of interpretation or construction that might cause any provision to be
construed against the drafter hereof.
22
<PAGE>
19. DISPUTES.
(a) Each party agrees that any breach by the other of this
Agreement is likely to result in irreparable harm to each non-breaching party,
that monetary damages will be an inadequate remedy of such breach and that,
accordingly, in addition to any other remedy that any non-breaching party may
have, each non-breaching party shall be entitled to enforce the specific
performance of this Agreement and to seek both temporary and permanent relief in
the event of any breach hereof.
(b) In the event of any controversy, claim or dispute between
the parties to this Agreement arising out of, relating to or in connection with
this Agreement, its interpretation or any transaction contemplated hereby or
discussed herein, or an alleged breach of the Agreement, each prevailing party
shall be entitled to recover its reasonable attorneys' fees, expenses, and costs
incurred in connection therewith or in connection with the enforcement or
collection of any judgment or award rendered therein.
20. [Intentionally omitted]
21. CHOICE OF LAW AND FORUM.
The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of Intelect and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than those of the State
of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the
23
<PAGE>
City of New York, Borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.
22. WAIVER OF PERSONAL SERVICE.
(a) Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or proceeding
by mailing a copy thereof to such party at the address set forth herein:
If to Intelect:
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Attention: Herman M. Frietsch
If to Angelo Gordon:
ANGELO GORDON & CO., L.P.
245 Park Avenue - 26th Floor
New York, New York 10167
Attention: Gary Wolf or Ari Storch
(b) Each party agrees that such service shall constitute good
and sufficient service of process and notice thereof.
(c) Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.
24
<PAGE>
23. WAIVER OF RIGHT TO A JURY TRIAL.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ITS INTERPRETATION OR ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN.
[Remainder of page intentionally left blank]
25
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELECT COMMUNICATIONS, INC.
By: /s/ HERMAN FRIETSCH
Herman Frietsch, its Chief Executive Officer
ANGELO GORDON & CO., L.P
By: /s/ FRED BERGER
Fred Berger, its Authorized Signatory
LEONARDO, L.P.
By: /s/ FRED BERGER
Fred Berger, its Authorized Signatory
GAM ARBITRAGE INVESTMENTS, INC.
By: /s/ Fred Berger
Fred Berger, its Authorized Signatory
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: /s/ FRED BERGER
Fred Berger, its Authorized Signatory
[signatures continued on next page]
26
<PAGE>
[signatures continued on previous page]
RAPHAEL, L.P..
By: /s/ FRED BERGER
Fred Berger, its Authorized Signatory
RAMIUS FUND, LTD
By: /s/ FRED BERGER
Fred Berger, its Authorized Signatory
27
<PAGE>
List of Exhibits
Exhibit A. Conversion Notices
Exhibit B. Officers' Certificate
