AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
INTELECT COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 76-0471342
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
1100 EXECUTIVE DRIVE
RICHARDSON, TEXAS 75081
(972) 367-2100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
INTELECT COMMUNICATIONS, INC.
1100 EXECUTIVE DRIVE
RICHARDSON, TEXAS 75081
TELEPHONE: (972) 367-2100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH A COPY TO:
ROBERT C. BEASLEY
RYAN & SUDAN, L.L.P.
909 FANNIN, SUITE 3900
HOUSTON, TEXAS 77010
TELEPHONE: (713) 652-0501
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: from time
to time after the effective date of the registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE
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Common Stock, $.01 par value.... $33,597,363 $0.77 $25,869,970 $7,192
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(1) Represents 26,893,335 shares of common stock issuable to Wingate Capital
Ltd., Fisher Capital, Ltd. CCG Investment Fund Ltd., and CCG Capital Ltd.,
Midway Capital Ltd., HFTP Investment LLC, Leonardo, L.P., GAM Arbitrage
Investments, Inc., AG Super Fund International Partners, L.P., Raphael,
L.P., and Ramius Fund, Ltd. upon conversion of their Series D Convertible
Preferred Stock ("Series D Preferred Shares") and Series E Convertible
Preferred Stock ("Series E Preferred Shares") as more fully set forth
under the title "Selling Stockholders" in this Prospectus; 750,000 shares
issuable upon the exercise of warrants to purchase common stock issued or to
be issued to the purchasers of the Series E Preferred Shares; 440,683 shares
of common stock issued to the Coastal Corporation Second Pension Trust as
dividends on Series A Cumulative Convertible Preferred Stock; 110,000 shares
issuable upon the exercise of a warrant to purchase common stock issued to
St. James Capital Partners, L.P.; an aggregate of 100,000 shares of common
stock issued to Olympus Securities Ltd.and NP Partners; 425,000 shares
issuable upon the exercise of a warrant to purchase of 425,000 shares of
common stock issued to SJMB, L.P.; 450,000 shares issuable upon the exercise
of a warrant to purchase common stock issued to AJC, Inc.; 30,000 shares of
common stock issuable upon the exercise of a warrant issued to Lifeline
Industries, Inc.; 270,806 shares of common stock issuable to certain
individuals upon conversion of their convertible promissory notes made by
Intelect; and 3,100,000 shares of common stock issued and 840,000 shares of
common stock issuable upon exercise of certain warrants issued to certain
accredited investors.
(2) Pursuant to Rule 457(c), the registration fee for the above shares is
calculated based upon the average of the high and low prices of Intelect
common stock as reported on the NASDAQ National Market on April 2, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC
BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE IN WHICH THE
OFFER, SOLICITATION OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 2, 1999
PROSPECTUS
INTELECT COMMUNICATIONS, INC.
_____________ SHARES OF COMMON STOCK
------------------------
The Selling Stockholders listed on page 12 and 14 may offer and resell up
to 33,597,363 shares of Intelect Communications, Inc. ("Intelect" or the
"Company") common stock under this Prospectus, for each of their own accounts.
The number of shares the Selling Stockholders may sell includes
o shares of common stock that currently are issued and outstanding;
o shares of common stock that they may receive if they convert their
Series D Convertible Preferred Stock ("Series D Preferred Shares");
o shares of common stock that they may receive if they convert their
Series E Convertible Preferred Stock ("Series E Preferred Shares");
o shares of common stock issued to them as dividends;
o shares of common stock that they may receive upon conversion of loans
to the company; or
o shares of common stock they may purchase upon the exercise of warrants
to purchase shares of common stock.
We will not receive any proceeds from the sales covered by this Prospectus.
We issued the Series D Preferred Shares in a private placement transaction
on June 26, 1998. We issued the Series E Preferred Shares and warrants to
purchase common stock in a private placement transaction on March 5, 1999. We
intend to issue more Series E Preferred Shares and warrants to purchase common
stock in a private placement upon the effectiveness of the registration
statement covering this Prospectus and certain other conditions. We issued
common stock, warrants to purchase common stock and debt securities which are
convertible into common stock in a series of unrelated private placements. For
further information on the Selling Stockholders and each of these transactions
see "Selling Stockholders" in this Prospectus.
Our common stock is quoted on the Nasdaq National Market under the symbol
"ICOM." On April 2, 1999, the last sale price of our common stock was $0.97.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE SEE
"RISK FACTORS" BEGINNING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC OR ANY
STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 2, 1999.
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TABLE OF CONTENTS
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PAGE
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About Intelect....................... 3
Risk Factors......................... 3
Where You Can Find More Information
About Intelect..................... 11
Incorporation of Certain Documents by
Reference.......................... 11
Use of Proceeds...................... 12
Selling Stockholders................. 12
Plan of Distribution................. 16
Legal Matters........................ 18
Experts.............................. 18
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ABOUT INTELECT
We design, develop, manufacture, market and sell products and services for
converging voice, data and video networks. We established our current operations
through a series of mergers in 1995 and 1996, at which time we defined four
communications product platforms to respond to the increasing demands of speed
and complexity in communications network.
We strategically focus our product lines and services to take advantage of
the convergence of telecommunications and data communications. This convergence
rises from the explosive growth of Internet applications such as E-commerce,
which is driving the demand for expansion of network capacities. These industry
trends require today's network integrators and managers to manage multiple
applications at multiple locations within available bandwidth resources while
balancing the need for network reliability. We designed our product lines to
meet these evolving markets and applications.
We intend is to develop and bring to market a new generation of intelligent
flexible and scalable communications platform to allow customers to combine
their current voice, data and video networks (telephone, computers,
surveillance, etc.) into a single communications network, which would also
upgrade their communications into the latest generation of high-speed
technologies under a single network management system. More information about
our products, markets and operations may be found in our Form 10-K annual
report, filed on April 2, 1999.
The Company's executive offices are located at 1100 Executive Drive,
Richardson, Texas 75081; telephone (972) 367-2100.
RISK FACTORS
This prospectus and the documents it incorporates by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements accurately reflect our current view with respect to future events and
financial performance. The future events we describe in these risk factors
involve risks and uncertainties related to:
o general economic conditions in our product markets;
o our continuing development of our products;
o the market acceptance of our products;
o dependence on our suppliers;
o dependence on channels of distribution;
o competition;
o fluctuations in customer demand for our products;
o access to external sources of capital;
o execution of our margin improvement and cost control plans; and
o management of our corporate expansion.
In this prospectus, the words "anticipate ," "believe," "expect,"
"intend," "plan," "future," and similar expressions identify
forward-looking statements. Our actual results could differ materially from
those that we project in the forward-looking statements as a result of factors
that we have set forth throughout this document as well as factors of which we
are currently not aware.
Your investment in the shares offered by the Selling Stockholders in this
Prospectus involves a high degree of risk and should not be made by you if you
cannot afford the loss of your entire investment. In addition to the other
information in this prospectus, or incorporated in this prospectus by reference,
you
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should consider carefully the following risk factors before investing in the
common stock offered by the Prospectus:
OUR STOCK PRICE MAY DROP DUE TO MARKET FLUCTUATIONS AND SALES OF LARGE NUMBERS
OF OUR SHARES
Intelect stock is quoted on the Nasdaq National Market. Based on historical
trends in the market for our stock and for other similar technology company
stocks, we anticipate that the trading price of our common stock may be subject
to wide fluctuations in response to:
o quarterly variations in operating results;
o changes in actual earnings or in earnings estimates by analysts;
o our announcements of technological developments
o our competitors' announcements of technological developments
o general market conditions; or
o other events largely outside our control.
In addition, extreme price and volume fluctuations in the stock market have
particularly affected the market prices of "high technology" stocks. These
fluctuations were often disproportionate to or unrelated to the operating
performance of these companies. These broad market fluctuations, general
economic conditions or other factors outside our control may adversely affect
the market price of our common stock.
The exact number of shares of common stock issuable upon the conversion of
the Company's Series C Convertible Preferred Stock (the "Series C Preferred
Shares"), Series D Preferred Shares, and the Series E Preferred Shares
(collectively the "Preferred Shares") depends on the conversion price in
effect on the date of conversion, which price is the lower of either a fixed or
a variable conversion price. The variable conversion price for each of the
Preferred Shares is determined as 83.5% of the average of the two lowest closing
bid prices of the common stock for the forty (40) trading days prior to the date
of conversion. Accordingly, if the market price of our common stock falls, the
variable conversion price for the Preferred Shares will also decrease. If the
holder of preferred shares converts at the lower price, the holder will receive
more shares of common stock than the it would receive in the case of a higher
stock price. In connection with the conversions of the Preferred Shares, the
following risks should be considered:
o because the variable conversion price of each of the Preferred Shares
is a function of the market price of the common stock upon conversion,
the lower the price of the common stock at the time the holder
converts, the greater number of shares of common stock received upon
conversion;
o to the extent that common stock received upon conversion is sold into
the market, and disregarding the manner in which such shares are sold
as well as any other factors such as reactions to our operating
results and general market conditions which may be operative in the
market at such time, such sales may cause a decrease in the market
price of the common stock, which in turn relative to additional
conversions of the Preferred Shares would reduce the variable
conversion price and increase the number of shares of common stock
issued upon conversion and available for sale into the market for the
common stock;
o short sales of the common stock may be attracted by Preferred Shares
or accompany conversions and sales of common stock from conversions,
which sales in the aggregate could cause downward pressure upon the
price of the common stock, excluding the effect of other market
factors possibly operative at the time; and
o conversions of the Preferred Shares may result in substantial dilution
of the interests of the other holders of common stock. In this regard,
the ownership limitation which prohibits the purchasers from owning
more than 5% of the Intelect common stock only applies to shares of
common stock held at one time and does not prevent purchasers from
converting and selling some of their holdings and then later
converting the rest of the holdings.
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In addition, under the terms of the registration rights agreements for the
Series D and Series E Preferred Shares we may be required to register additional
shares of common stock to provide for conversions of the Series D and Series E
Preferred Shares.
Large numbers of the shares offered under this Prospectus could be sold at
the same time. Such sales, or the possibility of such sales, could significantly
depress the market price of the common stock. Under rules governing the
eligibility for inclusion on the Nasdaq National Market, Intelect stock could be
delisted from Nasdaq if its bid price falls below $1 or we otherwise fail to
satisfy the minimum listing requirements of Nasdaq. This could further depress
the market price of the shares by reducing the marketability of the shares. In
addition, should a delisting extend for five or more consecutive trading days, a
"triggering event" would occur and the holders of the Preferred Shares could
require us to redeem the outstanding shares of Preferred Shares.
Each of the holders of the Series C and D Preferred Shares are prohibited
under the applicable Certificate of Designations (together with their
affiliates) from converting such shares into common stock if such conversion
would cause it to own more than 15% of Intelect common stock. This limitation
does not apply in the event of certain "triggering events" (i.e., generally,
failure to have the Registration Statement declared effective by certain dates,
suspension of effectiveness of the Registration Statement, delisting of Intelect
stock from NASDAQ, failure or refusal to comply with conversion notices of the
preferred stock, failure to issue conversion shares due to NASDAQ limitations,
and certain beaches of the agreements, representations and warranties in the
transaction documents relating to the Series D and Series E Preferred Shares).
The holders are also prohibited (together with their affiliates) from converting
preferred shares into common stock if the conversion would result in control
over more than 5% of Intelect common stock, unless in the case of the Series C
and D Preferred Shares such holder or holders provide Intelect at least 61 days
prior notice. Because the variable conversion price of the Series C and D Shares
varies inversely with the market price of the common stock, the conversion of
all of the Series C and D Preferred Shares without the above restrictions could
result in a change in control of Intelect.
WE ARE NOT PROFITABLE; ABILITY TO CONTINUE AS GOING CONCERN
We have incurred operating losses in 1998, 1997, and 1996 of $45,878,000,
$20,241,000 and $43,039,000. Negative cash flows from operations in the same
periods were, respectively, $23,129,000, $24,852,000 and $23,050,000. We funded
the negative cash flows by proceeds from borrowings under credit facilities and
sales of preferred stock and common stock in 1998 and 1997 and by proceeds from
issuance of convertible debentures in 1996. It is uncertain when, if ever, the
Company will report operating income or positive cash flow from operations. If
cash needs exceed available resources, there also can be no assurance that
additional capital will be available through public or private equity or debt
financings.
The reports of Grant Thornton LLP and KPMG Peat Marwick on the consolidated
financial statements which are incorporated by reference into this Prospectus
contain an explanatory paragraph that states that we have suffered recurring
losses from continuing operations and are dependent upon the successful
development and commercialization of our products and our ability to secure
adequate sources of capital until we operate profitably. These matters raise
substantial doubt about our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
OUR ABILITY TO BECOME PROFITABLE DEPENDS ON INCREASED SALES OF OUR PRODUCTS
Our ability to become profitable will depend, in part, on the sales volume
of our products. Increasing the sales volume will depend on our ability to:
o continue to develop our products;
o increase our sales and marketing activities;
o increase our manufacturing activities; and
o effectively compete against current and future competitors.
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We cannot assure you that we will be able to successfully increase the
sales volumes of our products to achieve profitability. We also cannot assure
that profitability and positive cash flow will be achieved when expected. If our
sales plans are not achieved, operating losses and negative cash flows exceed
our estimates, or capital requirements in connection with the design,
development, and commercialization of our principal products are higher than
estimated, we will need to raise additional capital. See page 7 regarding
additional funding.
WE ARE NOT ABLE TO PREDICT SALES IN THE FUTURE AND A NUMBER OF FACTORS MAY CAUSE
OUR PERIODIC RESULTS TO FLUCTUATE
We are not able to accurately predict our sales in future quarters. In any
quarter, a number of factors could affect our sales volumes and our ability to
fill orders. Our periodic results have varied in the past. In the future, we
expect our periodic operating results to vary significantly depending on, but
not limited to, a number of factors, including:
o the market acceptance of our current and new products;
o engineering and development requirements;
o the size, timing and recognition of revenue from significant orders;
o increased competition;
o new product introductions or enhancements by competitors;
o the proportion of revenues derived from distributors, value added
resellers and other sales channels;
o changes in our pricing policies or those of our competitors;
o the financial stability of major customers;
o delays in the introduction of our products or product enhancements;
o customer order deferrals in anticipation of upgrades and new products;
o customer concerns about our financial condition;
o the costs and possible supply constraints of components we use to build
our products;
o changes in regulation of our product markets;
o the timing and nature of expenses; and
o general economic conditions.
Our expense levels are based, in part, on our expectations of future orders
and sales, and we may be unable to adjust spending in a timely manner to
compensate for any sales shortfall. If sales are below expectations, operating
results are likely to be materially adversely affected. Net income may be
disproportionately affected by a reduction in sales because a significant
portion of our expenses do not vary with revenues. We may also choose to reduce
price or increase spending in response to competition or to pursue new market
opportunities. In particular, if new competitors, technological advances by
existing competitors or other competitive factors require us to invest
significantly greater resources in engineering and development efforts, the
spending could materially adversely affect our operating results and financial
condition.
Because our marketing strategy targets relatively large potential
customers, we anticipate that a small number of large orders may comprise a
significant portion of our future product sales. None of our significant
customers have entered into a long-term supply agreement requiring them to
purchase a minimum amount of our products. Historically, sales to a relatively
small number of customers have accounted for a significant portion of our total
revenues, particularly with respect to our SONETLYNX products. We cannot assure
that our principal customers will continue to purchase our products at current
levels, if at all. Also, we cannot assure that we will be able to replace such
purchases with sales to other customers. Any significant deferral of purchases
of our products or the reduction, delay or cancellation of
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orders from one or more significant customers could materially and adversely
affect our business, results of operations, and financial condition.
WE MAY NEED ADDITIONAL FUNDING IN THE FUTURE AND THESE FUNDS MAY NOT BE
AVAILABLE TO US
If these sales plans are not achieved, if operating losses and negative
cash flows exceed our estimates, or if capital requirements of the design,
development, and commercialization of our principal products are higher than
estimated, we will need to raise additional capital. Although we believe we
could raise additional capital through public or private equity or debt
financings, if necessary, we cannot assure that such financings will be
available, or available on acceptable terms. If such financing is needed but is
not available, we have determined that a significant reduction of engineering,
development, selling, and administrative costs would allow us to continue as a
going concern through the end of 1999. After such time, we will need to increase
revenues over current levels to continue to operate in our current form.
OUR ABILITY TO GROW AND REMAIN COMPETITIVE DEPENDS ON OUR ABILITY TO FORESEE AND
RESPOND TO RAPID TECHNOLOGICAL CHANGE WITH NEW PRODUCTS AND KEY PRODUCT
ENHANCEMENTS
Rapid technological change, evolving industry standards and frequent new
product introductions and enhancements shape and can quickly change our current
and planned product markets. New technologies or the emergence of new industry
standards can render existing products or products under development obsolete or
unmarketable. Our ability to grow and remain competitive depends, in large part,
on our ability to anticipate changes in our product markets and to successfully
develop and introduce new products on a timely basis. New product development
often requires long-term forecasting of market trends, development and
implementation of new technologies and processes and a substantial capital
commitment. In particular, we recently invested substantial resources toward the
development of new products such as our SONETLYNX/FIBRETRAX product line and the
CS4. We have not yet completed development of the CS4 or of planned enhancements
to the SONETLYNX/FIBRETRAX product line and may require additional testing of
the LANscape product. Development and customer acceptance of new products is
inherently uncertain, and we cannot assure that we will complete developments on
a timely basis or that products will be commercially successful. We compete or
will be competing with established companies with greater financial resources
and more developed channels of distribution. We cannot assure that we will
complete the CS4 on schedule, that we will be competitive in this environment or
that we will be able to sell sufficient quantities of the CS4 to recover our
investment or realize profits. We cannot assure that customers will accept
SONETLYNX/FIBRETRAX enhancements or that the LANscape product will meet
standards and expectations of the videoconferencing industry. Any failure to
anticipate or respond on a cost-effective and timely basis to technological
developments, changes in industry standards or customer requirements, or any
significant delays in product development or introduction, could materially
adversely effect our business, operating results and financial condition.
COMPETITION FROM LARGER, BETTER ESTABLISHED ENTITIES IS INTENSE
Competition in the converging voice and data communications industry is
intense, and we believe that competition will increase substantially with the
development of multimedia communications products, rapid technological changes,
industry consolidations, new industry entrants, and potential regulatory
changes. Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition, and a larger installed customer base than we have. In
addition, many of these competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, and to devote
greater resources to the development, promotion and sale of their products than
we can. Our current or potential competitors may develop products and services
comparable or superior to ours or adapt more quickly than we can to new
technologies, evolving industry trends, or changing customer requirements.
Increased competition could result in price reductions, reduced margins, or loss
of market share, which would materially and adversely affect our business,
results of operations, or financial condition.
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The videoconferencing market may present lower barriers to entry than other
markets and may therefore be subject to greater competition in the future.
Increased competition could result in price reductions, reduced margins, and
loss our market share, which could materially and adversely affect our business,
results of operations, and financial condition.
WE DEPEND ON KEY MEMBERS OF OUR MANAGEMENT AND ENGINEERING STAFF, AND WE MUST
RETAIN AND RECRUIT QUALIFIED INDIVIDUALS TO BE COMPETITIVE
Our success depends in large part on the continued service of key creative,
technical, marketing, sales and management personnel and our ability to attract,
motivate and retain highly qualified employees. Because of the multifaceted
nature of interactive media, key personnel often require a unique combination of
creative and technical talents. Such personnel are in short supply, and the
competition for their services is intense. Recruitment of such personnel can be
a lengthy process. We have at-will employment arrangements with management and
other personnel, meaning they may terminate their employment at any time. The
loss of key personnel or failure to attract additional qualified employees could
materially adversely affect our business, the results of operations and new
product development efforts.
WE DEPEND ON THE SUPPLY OF PRODUCT COMPONENTS FROM OUTSIDE SUPPLIERS AND, IN
SOME CASES, SINGLE SOURCES OF SUPPLY. WE DEPEND ON A SINGLE MANUFACTURING
FACILITY
The majority of the components required to assemble our products come from
outside sources. The supply level of and the lead time in delivering certain key
components changes and is difficult to predict with any certainty. Occasional
unexpected shortages of or significant increases in the price of components
could materially and adversely affect our business, results of operations, and
financial condition.
We rely on a single source for certain key components and do not have
supply commitments for those components. If we lose the ability to obtain these
components from our current suppliers, we will have difficulty replacing this
supply of components in a short time frame. Many of our vendors extend us credit
for the components they supply. Poor credit terms would materially adversely
affect our business, results of operations, and financial condition.
We buy a fiber optic interface card for the SONETLYNX OC-3 product from a
small company which is the sole source for this component. We also buy a video
codec card used in SONETLYNX video applications from another small company which
is the sole source. Delays in delivery of either component would restrict our
ability to increase sales. If either vendor fails to meet commitments, we intend
to rely on its in-house manufacturing capabilities. However, the conversion to
in-house backup supply would involve some interruption in our production and
could materially adversely affect our business, results of operations, and
financial condition.
We use fiber optic connectors made by a single vendor in the SONETLYNX OC-3
product. Equivalent components are available from other vendors, but their use
would require a redesign of the method of connecting to the fiber. This would
cause significant delays in delivery of the product and could materially
adversely effect our business, results of operations, and financial condition.
Our strategy is to forecast requirements and build inventories that comprehend
vendor lead times.
We have one manufacturing facility for SONETLYNX and LANscape products, and
our revenues depend on its continued operation. Operational problems at the
facility could materially adversely affect our business, results of operations,
and financial condition.
WE DEPEND ON THIRD PARTIES TO MARKET AND SERVICE OUR PRODUCTS
Although we expect to continue to market our products directly to certain
accounts, we intend to maintain a network of resellers, consisting primarily of
distributors, value-added resellers, and systems integrators with established
distribution channels for communications products, to market our products and
educate potential end-users and service providers about our products. Our future
prospects depend in large part on our development of relationships with third
parties and their marketing and product service efforts. We cannot assure that
we will be able, for financial or other reasons, to finalize third-party
distribution or
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marketing agreements or that such arrangements will result in the successful
commercialization of any of our products. Failure to develop third party
marketing and service arrangements or failure of third parties to effectively
market and service our products could materially adversely affect our business
or our financial condition.
WE RELY ON PATENTS AND OTHER PROPRIETARY INFORMATION. THE LOSS OF, OR A DISPUTE
REGARDING, PROPRIETARY INFORMATION OR INTELLECTUAL PROPERTY RIGHTS WOULD
NEGATIVELY AFFECT OUR BUSINESS
Our success depends, in part, on our ability to maintain trade secret
protection, obtain patents and operate without infringing the proprietary rights
of third parties or having third parties circumvent our intellectual property
rights. We have three issued U.S. patents. Fifteen additional patents are
pending. We cannot assure that the patents will provide us with any competitive
advantages or will not be challenged by any third parties. Likewise, the
intellectual property rights of others could impede our ability to do business.
Additionally, third parties may be able to circumvent our patents. Our patent
applications may be denied. Furthermore, it is possible that others could
independently develop similar products, duplicate our products, or design around
our patented products.
We have received notice that we may be infringing on certain intellectual
property rights of others. We have asked legal counsel to evaluate these claims.
We may have to obtain licenses from third parties to avoid infringing patents or
other proprietary rights. We cannot assure that any licenses required under any
such patents or proprietary rights would be made available, if at all, on
acceptable terms. Failure to obtain these licenses could delay product
introductions, or prohibit our development, manufacture or sale of products
requiring such licenses. In addition, we could incur substantial costs in
defending or prosecuting lawsuits to protect our patents or other proprietary
rights. Intellectual property plaintiffs could obtain injunctive or other
equitable relief which could effectively block our ability to sell our products
in the United States and abroad, and could obtain an award of substantial
damages. Either result could materially adversely affect our business, results
of operations, and financial condition.
Much of our know-how and technology may not be patentable. To protect our
rights, we require many employees, consultants, advisors and collaborators to
enter into confidentiality agreements. We cannot assure that these agreements
will provide meaningful protection of our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure.
Furthermore, independent development by competitors of competing technologies
could materially adversely affect our business, results of operations and
financial condition, especially if we do not obtain patent protection or if our
patent protection is narrowly defined.
NUMEROUS GOVERNMENTAL REGULATIONS AFFECT OUR BUSINESS AND OUR PRODUCTS
While most of our operations are not directly regulated, some of our
customers are telecommunications service providers who are heavily regulated at
both the federal and state levels. Such regulation may limit the number of
potential customers for our services or impede our ability to offer competitive
services to the market, or otherwise materially adversely affect our business,
results of operations, and financial condition. At the same time, recent
deregulation of the telecommunications industry may facilitate the entrance of
new competitors or industry consolidation. This could subject us to additional
competitors, increased pricing pressures, decreased demand for our products or
services, increased cost of doing business or other factors that could
materially adversely affect our business, results of operations, and financial
condition.
9
<PAGE>
WE MAY BE SUBJECT TO SIGNIFICANT CONTINGENT LIABILITIES
In connection with the sale of former operations in November 1995, our
subsidiary Intelect Communications Systems Limited agreed to indemnify Savage
Sports Corporation, the purchaser of Savage Arms, Inc. (a manufacturer of fire
arms) for potential losses associated with product liability, environmental
matters, employee matters and other similar items. Certain of these indemnity
obligations survive indefinitely. A finding of liability against Intelect
Communications Systems Limited could materially adversely affect our business,
results of operations, and financial condition. Furthermore, we could incur
substantial costs (including the diversion of the attention of management) in
defending lawsuits relating to these indemnity obligations.
One of the liabilities assumed in the 1995 sale involves a firearms product
liability lawsuit which one defendant, Western Auto Supply Co., settled for $5
million and, in turn, has asserted a third-party claim against Savage Arms, Inc.
For indemnification in the amount of the settlement plus attorneys' fees and
related costs. Savage Arms has asserted defenses to the claims and we believe
additional defenses may be available. Based on the information available to
date, it is impossible to predict the outcome of this litigation or to assess
the probability of any verdict.
Savage Sports Corporation also seeks indemnification for certain other
products liability claims. Intelect Communications Systems Limited has
undertaken the defense of a lawsuit filed against Savage Arms, Inc. by Emhart
Industries, Inc. in the United States District Court for the District of
Massachusetts, in which Emhart requests indemnification from Savage Arms (to
date, approximately $2.2 million). We have asserted additional defenses. The
parties are in discovery and we cannot at this time predict the outcome of the
litigation.
An adverse outcome in the Taylor or Emhart litigation would materially
adversely affect our financial condition and the results of operation.
OUR CHARTER, BYLAWS AND THE DELAWARE CORPORATE LAWS DISCOURAGE, DELAY OR PREVENT
A CHANGE IN CONTROL OF INTELECT
Certain provisions of our certificate of incorporation, by-laws and
Delaware law could discourage potential acquisition proposals, delay or prevent
a change in control of the company and limit the price that certain investors
might be willing to pay in the future for shares of common stock. These
provisions include:
o a classified Board of Directors;
o provisions that the Board of Directors have exclusive authority to
amend or change the By-laws;
o the ability of the Board of Directors to authorize the issuance,
without further stockholder approval, of preferred stock with rights
and privileges which could be senior to the common stock;
o eliminating the stockholders' ability to take any action without a
meeting;
o eliminating the ability of stockholders to call special meetings
without the required consent of the Board of Directors;
o and establishment of certain advance notice procedures for nomination
of candidates for election as directors and for stockholder proposals
to be considered at stockholders' meetings.
We are also subject to Section 203 of the Delaware General Corporation Laws
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an "interested stockholder."
10
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
public reference facilities of the SEC in Washington, D.C., Chicago, Illinois
and New York, New York. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's web site at http:\\www.sec.gov. Intelect common stock
is traded on the Nasdaq Stock Market.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we have
filed with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this Prospectus and any later information that we
file with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any additional documents
we file with the SEC until this offering of common stock is terminated. This
Prospectus is part of a registration statement on Form S-3 that we filed with
the SEC. The documents that we incorporate by reference are:
(1) Our Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
(2) Our Form 8-K filed on March 8, 1999.
(3) Our Form 8-K filed on March 2, 1999.
(4) Our Form 8-K filed on February 3, 1999.
(5) Our definitive Rule 14A Proxy Statement filed on January 29, 1999.
(6) The description of our common stock contained in our Registration
Statement on Form S-4 declared effective on October 30, 1997 (File
No. 333-39063) and our Form 8-K filed on December 5, 1997.
(7) All documents we file with the SEC under Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act after the date of this Prospectus and
before to the termination of the offering of the common stock
registered under this registration statement.
To the extent that prior filings listed in numbers (1) - (6) above conflict
with this Prospectus, those prior filings are modified by this Prospectus and
included herein only as modified. To the extent that statements in this
Prospectus or in the prior filings listed in numbers (1) - (6) above conflict
with statements in future filings referenced in number (7) above, this
Prospectus and the prior filings are modified by the future filings listed in
number (7) above.
For information on the consolidated financial statements see "Experts" in
this Prospectus.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
EDWIN J. DUCAYET, JR.,
CHIEF FINANCIAL OFFICER
INTELECT COMMUNICATIONS, INC.
1100 EXECUTIVE DRIVE
RICHARDSON, TEXAS 75081
(972) 367-2100.
11
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock offered in
this Prospectus.
SELLING STOCKHOLDERS
The Selling Stockholders were issued the common stock covered by this
Prospectus in a series of private placements as summarized below:
Of the 33,597,363 shares of Common Stock being registered:
(i) Effective June 26, 1998, we issued 5,000 shares of Series D
Convertible Preferred Shares to Wingate Capital Ltd., Fisher
Capital, Ltd. CCG Investment Fund Ltd., CCG Capital Ltd., and Midway
Capital Ltd. The number of Series D Preferred Shares shares issued
and held by each Selling Stockholder is as follows: Fisher Capital
Ltd. -- 2893 shares, Wingate Capital Ltd. -- 1557 shares, CCG
Capital Ltd. -- 200 shares, CCG Investment Fund Ltd. -- 200 shares,
Midway -- 150 shares. The Series D Preferred Shares may be converted
into a number of common shares equal to (i) the aggregate stated
value of the Series D Preferred Shares (i.e., $1,000 per share),
plus any accrued and unpaid premium on that amount at a rate of
4.00% per annum from the June 26, 1998 issuance, divided by (ii) the
Conversion Price. The Conversion Price for the Series D Preferred
Shares is the lesser of (a) $2.998 per share, or (b) as of the date
of this Prospectus, 83.5% of the Market Price of the Common Stock,
where the Market Price is the average of the two lowest closing bid
prices for the Common Stock for the forty (40) consecutive trading
days immediately preceding such date of determination. Under the
antidilution provisions of the Series D Preferred Shares, if we
issue securities that have a more favorable variable conversion
price, the selling stockholders may elect to substitute the more
favorable variable price when making conversions of the Series D
Preferred Shares.
(ii) Effective March 5, 1999, at the Initial Closing under a Securities
Purchase Agreement dated as of February 24, 1999 between us and the
Buyers named therein (the "Securities Purchase Agreement"), we
issued 3,000 shares of Series E Convertible Preferred Shares to
Olympus Securities, Ltd., NP Partners, Wingate Capital Ltd., Fisher
Capital Ltd. CCG Investment Fund Ltd., and CCG Capital Ltd. In the
same transaction, we issued to the purchasers warrants to purchase
100 shares of common stock for each Series E Preferred Share
issued. The number of Series E Preferred Shares issued at the
Initial Closing and held by each selling stockholder is as follows:
Olympus Securities, Ltd., -- 1,228 shares, NP Partners -- 688
shares, Fisher Capital Ltd. -- 664 shares, Wingate Capital
Ltd. -- 342 shares, CCG Capital Ltd. -- 39 shares, CCG Investment
Fund Ltd. -- 39 shares. Upon the satisfaction of certain
conditions, including the effectiveness of the registration
statement covered by this Prospectus, we plan to sell 3,000 more
Series E Preferred Shares and warrants for the purchase of 100
shares of common stock for each Series E Preferred Share at a
"Mandatory Closing" to certain purchasers under the Securities
Purchase Agreement. The number of Series E Preferred Shares to be
issued to the selling stockholders at the Mandatory Closing is as
follows: HFTP Investment LLC -- 1,500 shares, Leonardo,
L.P. -- 1,000 shares, GAM Arbitrage Investments, Inc. -- 100
shares, AG Super Fund International Partners, L.P. -- 100 shares,
Raphael, L.P. -- 100 shares, Ramius Fund, Ltd. -- 200 shares. The
Series E Preferred Shares may be converted into a number of common
shares equal to (i) the aggregate stated value of the Preferred
Shares (i.e., $1,000 per share), plus any accrued and unpaid
premium on that amount at a rate of 8.00% per annum from the date
of issuance of such shares, divided by (ii) the Series E Conversion
Price. The Series E Conversion Price for the shares offered under
this Prospectus is the lesser of (a) the "fixed conversion price"
(which is (i) $1.80 for the 3,000 shares issued at the March 5,
1999 Initial Closing, and (ii) the lesser of $1.80 or the lowest
closing bid price of Intelect common stock during the ten (10)
consecutive trading days immediately prior to the date of the
initial filing of this registration statement for the 3,000 shares
to be issued at the Mandatory Closing), or (b) as of the date of
this Prospectus, 83.5% of the Market Price of the Common Stock,
where
12
<PAGE>
the Market Price is the average of the two lowest closing bid
prices for the Common Stock for the forty (40) consecutive trading
days immediately preceding such date of determination. Under the
antidilution provisions, if we issue securities that have a more
favorable variable conversion price, the selling stockholders may
elect to substitute the more favorable variable price when making
conversions of the Series E Preferred Shares.
(iii) On January 13, 1999, in connection with the extension of the
maturity date of a debt instrument, we issued to St. James Capital
Partners, L.P. a warrant for the purchase of 110,000 shares of
common stock at an exercise price of the lesser of (i) $1.50 over
the volume weighted average of the closing price of the Common
Stock for the ten (10) day period prior to January 13, 1999 and
(ii) $3.50 (subject to certain antidilution provisions stated in
the warrant).
(iv) On January 13, 1999, in connection with the extension of the
maturity date of a debt instrument, we issued to St. James Capital
Partners a warrant for the purchase of 425,000 shares of common
stock at an exercise price of the lesser of (i) $1.50 over the
volume weighted average of the closing price of the Common Stock for
the ten (10) day period prior to January 13, 1999 and (ii) $3.50
(subject to certain antidilution provisions stated in the warrant).
(v) Effective April 1, 1999, in connection with an amendment to an
advisory services agreement between Intelect and AJC, Inc, we issued
to AJC, Inc. an amended and restated warrant for the purchase of
300,000 shares of Intelect common stock, with an exercise price of
$2.00 per share for 300,000 shares and an additional warrant for the
purchase of 150,000 shares at an exercise price of $2.00 per share.
The amended and restated warrant replaced a previous warrant issued
to AJC, Inc. on May 1, 1997.
(vi) On September 1, 1998, we issued to Lifeline Industries, Inc. a
warrant for the purchase of 30,000 shares of Intelect common stock
with an exercise price of $2.00 per share.
(vii) We issued an aggregate of 440,683 shares of common stock to the
Coastal Corporation Second Pension Trust ("Coastal") as dividends
on the Company's $2.0145, 10% Cumulative Convertible Preferred
Stock, Series A (the "Series A Preferred Stock") for the
dividends payable for the second through fourth quarters of 1998
and for the first quarter of 1999.
(viii) On December 5, 1997, we obtained debt financing from certain
individuals and issued convertible promissory notes to David C.
Conner, Herman M. Frietsch. Todd Grassi, Nancy Miracle, James W.
Ryan. P.C., and Philip P. Sudan, P.C. (collectively the "Company
Stockholders"). The principal and interest of these promissory
notes are convertible into shares of common stock at a price of
$2.00 per share. As of April 1, 1999, the aggregate principal and
interest outstanding for each of these promissory notes and the
number of shares issuable if the notes were converted on April 1,
1999 is as follows: Mr. Conner $57,593 and 28,796 shares, Mr.
Frietsch $115,186 and 59,593 shares, Mr. Grassi $40,416 and 20,207
shares, Ms. Miracle $35,368.43 and 17,684 shares, James W. Ryan,
P.C. $76,791 and 38,395 shares and Philip P. Sudan, Jr., P.C.
$153,581 and 76,790 shares. In this registration statement, we have
agreed to register an additional amount of shares to cover an
estimated amount which would accrue based on interest on each of
the Promissory Notes at 11.5% accruing until September 1, 2000.
(ix) 2,800,000 shares of common stock and warrants to purchase 840,000
shares of common stock were issued to accredited investors in
private placements on December 22, 1998 and January 4, 1999.
(x) 65,000 shares of common stock were issued to Olympus Securities,
Ltd.and 35,000 shares were issued to NP Partners in a private
placement on March 9, 1999 in connection with a settlement of
certain penalties and damages.
In each case, the issuance of Intelect common stock to each of the Selling
Stockholders was undertaken pursuant to Section 4(2) of the Securities Act.
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<PAGE>
Except as otherwise indicated, the table below sets forth the number of
shares of Intelect common stock beneficially owned by each of the Selling
Stockholders as of March 30, 1999, the number of shares of common stock to be
offered by each Selling Stockholder under this Prospectus, and the number of
shares of common stock to be beneficially owned by each Selling Stockholder if
all of the shares of common stock offered hereby are sold as described herein.
Of the Company Stockholders, Mr. Conner and Mr. Grassi are employees of the
Company. Mr. Frietsch is the Chairman and Chief Executive Officer of the
Company. Philip P. Sudan, Jr. is a director of the Company, a partner in Ryan &
Sudan, L.L.P. (outside counsel to the Company) and a controlling shareholder of
Philip P. Sudan, Jr., P.C. James W. Ryan is a partner in Ryan & Sudan, L.L.P.
and a controlling shareholder of James W. Ryan, P.C. In addition, Philip P.
Sudan, Jr. and James W. Ryan, P.C. are parties to the promissory notes issued by
the Company as described above.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK NUMBER OF SHARES
BENEFICIALLY OWNED OF COMMON STOCK
AS OF MARCH 30, NUMBER OF SHARES BENEFICIALLY
1999, EXCEPT AS OF COMMON STOCK OWNED AFTER
NAME OF SELLING STOCKHOLDER NOTED(1)(2) OFFERED HEREBY OFFERING(10)
- ------------------------------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
Wingate Capital Ltd.(4).............. 1,774,435(2) 1,382,603(3) 0
Fisher Capital Ltd.(4)............... 3,250,258(2) 2,250,537(3) 0
NP Partners(4)....................... 4,389,279(2) 5,475,932(3) 0
Olympus Securities, Ltd.(4).......... 8,102,848(2) 10,038,870(3) 0
CCG Capital Ltd.(4).................. 214,064(2) 106,127(3) 0
CCG Investment Fund, Ltd.(4)......... 229,043(2) 106,127(3) 0
Midway Capital Ltd.(4)............... 197,434(2) 345,510(3) 0
HFTP Investment LLC.................. 3,860,626(2) 4,019,830(3) 0
Leonardo, L.P.(5).................... 2,524,187(2) 2,567,390(3) 0
GAM Arbitrage Investments, Inc.(5)... 264,227(2) 267,990(3) 0
AG Super Fund International Partners,
L.P.(5)............................ 265,552(2) 267,990(3) 0
Raphael, L.P.(5)..................... 257,321(2) 267,990(3) 0
Ramius Fund, Ltd.(5)................. 501,302(2) 535,978(3) 0
AJC, Inc............................. 450,000 450,000 0
Lifeline Industries, Inc............. 30,000 30,000 0
The Coastal Corporation Second
Pension Trust...................... 5,217,677(9) 440,683 0
St. James Capital Partners, L.P...... 560,319(6) 110,000 0
SJMB, L.P............................ 2,132,676(7) 425,000 0
Herman M. Frietsch................... 867,188 65,769 801,419
Nancy M. Miracle..................... 17,685 20,408 0
David C. Conner...................... 47,796 32,884 14,912
Todd Grassi.......................... 20,027 20,027 0
James W. Ryan, P.C................... 103,395 43,846 59,549
Philip P. Sudan, Jr., P.C............ 298,029 87,692 210,337
Oscar S. Wyatt, Jr................... 950,000 950,000 0
Fayez Sarofim........................ 950,000 950,000 0
Morton Cohn.......................... 650,000 650,000 0
Don A. Sanders....................... 325,000 325,000 0
John Drury........................... 260,000 260,000 0
Kaherine U. Sanders.................. 260,000 260,000 0
Donald V. Weir....................... 130,000 130,000 0
Christine M. Sanders................. 130,000 130,000 0
Brad D. Sanders...................... 48,750 48,750 0
Susan Sanders Keller................. 48,750 48,750 0
Bret Sanders......................... 48,750 48,750 0
Laura K. Sanders..................... 48,750 48,750 0
George Ball.......................... 65,000 65,000 0
Steve Scott.......................... 325,000 325,000 0
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
14
<PAGE>
- ------------
(1) Beneficial ownership is determined under SEC rules and generally includes
voting or investment power with respect to securities and includes any
securities the person has the right to acquire within 60 days of the date
of determination through the conversion or exercise of any security or
other right.
(2) Beneficial ownership is determined as of April 2, 1999 and with regard to
the holders of the Series C, D and E Preferred Shares, is based on a
Conversion Price of the Series D and E Preferred Shares equal to $0.2828
(which is 83.5% of the average of the two lowest closing bid prices of the
Common Stock for the forty (40) consecutive trading days ended April 1,
1999). See paragraphs (i) and (ii) above for further detail of the terms of
the Series D and E Preferred Shares offered under this Prospectus. Includes
Series E Preferred shares and related warrants issuable at Mandatory
Closing as set forth in (ii) above.
(3) Represents 175% of the number of shares of common stock issuable upon
conversion of the Series D Preferred Shares and 200% of the number of
shares of common stock issuable upon conversion of the Series E Preferred
Shares and 125% of the number of shares of common stock issuable to the
Series E purchasers upon exercise of their warrants to purchase common
shares. The number of common shares registered and offered under this
Prospectus were determined by agreement between Intelect and the Selling
Stockholders. The number of common shares ultimately issuable on conversion
of the Series D and E Preferred Shares cannot be determined at this time
because that number depends on (a) closing bid prices of the common stock
prior to conversion and (b) certain antidilution adjustments, as described
in paragraphs (i) and (ii) above. No holder of Series D or Series E
Preferred Shares covered by this Prospectus can convert them if the
conversion would cause that holder to beneficially own more than 5% of
Intelect's common stock (other than shares deemed to be beneficially owned
through ownership of Series D and E Preferred Shares and warrants or
options to purchase stock, except upon 61 days prior notice to the Company
with respect to the Series D Preferred Shares).
(4) Citadel Limited Partnership is the managing general partner of NP Partners
(formerly known as Nelson Partners),and the trading manager of Wingate
Capital Ltd., Fisher Capital Ltd., Olympus Securities, Ltd., CCG Investment
Fund Ltd., CCG Capital Ltd., and Midway Capital Ltd. (the "Citadel
Entities") and consequently has voting control and investment discretion
over securities held by the Citadel Entities. Citadel Limited Partnership
and each of the Citadel Entities disclaims beneficial ownership of the
shares of Common Stock held by the other Citadel Entities.
(5) Angelo, Gordon & Co., L.P. is the trading manager of Leonardo, L.P., GAM
Arbitrage Investments, Inc., AG Super Fund International Partners, L.P.,
Raphael, L.P. and Ramius, L.P. (the "Angelo Gordon Entities") and
consequently has voting control and investment discretion over securities
held by the Angelo Gordon Entities.
(6) As of May 13, 1998, does not include shares beneficially owned by SJMB,
L.P.
(7) As of May 13, 1998, does not include shares beneficially owned by St. James
Capital Partners, L.P.
(8) With respect to CCG Capital, Ltd., CCG Investment Fund, Ltd. assumes the
conversion and sale of the shares of Common Stock issuable upon conversion
of the Series C included in that certain registration statement of the
Company on Form S-3 filed on May 22, 1998 (File No. 333-49379), and with
respect to each of CCG Capital Ltd., CCG Investment Fund, Ltd., Wingate
Capital, Ltd. and Fisher Capital, Ltd. assumes the conversion and sale of
the shares of Common Stock issuable upon conversion of the Series D
Preferred Stock included in that certain registration statement of the
Company on Form S-3 filed on June 10, 1998 (File No. 333-53451).
(9) Includes 188,217 shares issued to The Coastal Corporation Second Pension
Trust as a dividend payable for the quarter ended March 31, 1999.
(10) Assumes the sale of all of the shares of common stock issuable upon
conversion of the Series A Preferred, shares of common stock issued as
dividends on the Series A Preferred, and shares of common stock issuable
upon conversion of warrants held by Coastal or previously issued upon
conversion of warrants held by Coastal and covered by those certain
registration statements of the Company on Form S-3 filed on December 30,
1998 (File No. 333-35841) and on May 22, 1998 (File No. 333-53451). With
respect to Leonardo, L.P., GAM Arbitrage Investments, Inc., AG Super Fund
International Partners, L.P., Raphael, L.P., Ramius Fund, Ltd., and HFTP
Investment LLC assumes the conversion and sale of the shares of common
stock issuable upon conversion of the Series C Preferred Shares included in
that certain registration statement filed on April 3, 1998 (File No. 333-
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
15
<PAGE>
49379) and the shares of common stock issuable upon conversion of the
Series D Preferred Shares and included in that certain registration
statement of the Company on Form S-3 filed on May 22, 1998 (File No.
333-49379). With respect to each of CCG Capital Ltd., CCG Investment Fund,
Ltd., Wingate Capital, Ltd. and Fisher Capital, Ltd. assumes the conversion
and sale of the shares of Common Stock issuable upon conversion of the
Series D Preferred Shares included in that certain registration statement
of the Company on Form S-3 filed on May 22, 1998 (File No. 333-53451). With
respect to St. James Capital Partners, L.P. and SJMB, L.P., assumes the
conversion and sale of all debt convertible into common stock and shares of
common stock issuable upon exercise of warrants included in the certain
registration statement of the Company on Form S-3 filed on May 22, 1998
(File No. 333-49379).
Since the date on which they provided the information regarding their
common stock, the Selling Stockholders identified above may have sold,
transferred or otherwise disposed of all or a portion of their common stock in
transactions exempt from the registration requirements of the Securities Act.
Additional information concerning the above listed Selling Stockholders may be
set forth from time to time in Prospectus supplements to this Prospectus. See
"Plan of Distribution."
PLAN OF DISTRIBUTION
The common stock is offered on behalf of the Selling Stockholders. The
common stock may be sold or distributed from time to time by the Selling
Stockholders, or by donees or transferees of, or other successors in interests
to, the Selling Stockholders, directly to one or more purchasers or through
brokers, dealers or underwriters who may act solely as agents or may acquire
common stock as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The sale of Intelect common stock may occur
in one or more of the following methods:
(i) ordinary brokers' transactions;
(ii) transactions involving cross or block trades or otherwise on the
Nasdaq National Market;
(iii) purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this Prospectus;
(iv) "at the market" to or through market makers or into an existing market
for the Common Stock;
(v) in other ways not involving market makers or established trading
markets, including direct sales to purchases or sales effected through
agents;
(vi) through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise);
(vii) in privately negotiated transactions;
(viii) to cover short sales; or
(ix) any combination of the foregoing.
From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some or all of their conversion
shares, and the pledgees, secured parties or persons to whom such securities
have been hypothecated shall, upon foreclosure in the event of default, be
deemed to be Selling Stockholders hereunder. In addition, a Selling Stockholder
may, from time to time, sell short Intelect common stock. In such instances,
this Prospectus may be delivered in connection with such short sales and the
conversion shares offered hereby may be used to cover such short sales.
From time to time one or more of the Selling Stockholders may transfer,
pledge, donate or assign such Selling Stockholders' conversion shares to lenders
or others and each of such persons will be deemed to be a Selling Stockholder
for purposes of this Prospectus. The number of Selling Stockholders' conversion
shares beneficially owned by those Selling Stockholders who so transfer, pledge,
donate or assign Selling Stockholders' conversion shares will decrease as and
when they take such actions. The plan of distribution
16
<PAGE>
for Selling Stockholders' conversion shares sold hereunder will otherwise remain
unchanged, except that the transferees, pledgees, donees or other successors
will be Selling Stockholders hereunder.
A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the common
stock in the course of hedging the positions they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the common stock by such broker-dealers. A Selling Stockholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the common stock to the broker-dealers, who may then resell or otherwise
transfer such common stock. A Selling Stockholder may also loan or pledge the
common stock to a broker-dealer and the broker-dealer may sell the common stock
so loaned or upon a default may sell or otherwise transfer the pledged common
stock.
Brokers, dealers, underwriters or agents participating in the distribution
of the common stock as agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholders and/or
purchasers of the common stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be less than or in excess of customary
commissions). The Selling Stockholders and any broker-dealers who act in
connection with the sale of common stock covered by this Prospectus may be
deemed to be "Underwriters" within the meaning of the Securities Act, and any
commissions they receive and proceeds of any sale of common stock may be deemed
to be underwriting discounts and commissions under the Securities Act. Neither
Intelect nor any Selling Stockholders can presently estimate the amount of such
compensation. We know of no existing arrangements between any Selling
Stockholders, any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the common stock.
We will pay substantially all of the expenses incident to the registration,
offering and sale of the common stock to the public other than commissions or
discounts of underwriters, broker-dealers or agents. We have also agreed to
indemnify certain of the Selling Stockholders and certain related persons
against certain liabilities, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Intelect,
Intelect has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Each purchaser of the Series D Preferred Shares has agreed to refrain from
selling on any trading day a number of shares of Common Stock issued pursuant to
the conversion of the Series D Preferred Shares in excess of that number of
shares of common stock equal to 20% of the daily trading volume of the common
stock on such date of determination, except that this limitation does not apply
if the daily trading volume is in excess of 200% of the average daily trading
volume for the prior 6 month period and further does not apply in the event of
certain Extraordinary Events, a Major Transaction, or a Triggering Event (each
as defined in the Certificate of Designation for the Series D Preferred Shares).
In addition, each purchaser of the Series D Preferred Shares agreed to not
engage in any "short sales" (as defined in Rule 3b-3 of the Securities
Exchange Act of 1934, as amended) of Intelect common stock, other than for short
sales which such purchaser makes and submits a conversion notice entitling such
purchaser to receive a number of shares of common stock at least equal to the
number of shares so sold.
We have advised the Selling Stockholders that during such time as they may
be engaged in a distribution of the common stock included herein they are
required to comply with Regulation M promulgated under the Exchange Act. With
certain exceptions, Regulation M precludes any Selling Stockholder, any
affiliated purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the common stock.
17
<PAGE>
Because it is possible that a significant number of shares of the common
stock could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a significant depressive effect on the market price of
Intelect common stock.
This offering will terminate on the earlier of (a) the date on which the
shares are eligible for resale without restriction pursuant to Rule 144(k) under
the Securities Act or (b) the date on which all shares offered hereby have been
sold by the Selling Stockholders.
LEGAL MATTERS
The validity of the common stock offered by the Selling Stockholders hereby
will be passed upon by Ryan & Sudan, L.L.P., Houston, Texas. Philip P. Sudan,
Jr. is a partner of Ryan & Sudan, L.L.P and a director of Intelect. Mr. Sudan
beneficially owns 298,029 shares of common stock. Mr. James W. Ryan, a partner
in Ryan & Sudan, L.L.P., beneficially owns 103,395 shares of common stock. In
addition, Messrs. Ryan and Sudan are parties to certain amended and restated
promissory notes with the Company as described under "Selling Stockholders".
EXPERTS
Our financial statements and schedules as of December 31, 1998, and for the
year then ended, incorporated by reference in this Prospectus and elsewhere in
the registration statement have been audited by Grant Thornton LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports. The report of Grant Thornton LLP
on the consolidated financial statements contains an explanatory paragraph that
states that we have suffered recurring losses from continuing operations and are
dependent upon the successful development and commercialization of our products
and our ability to secure adequate sources of capital until we operate
profitably. These matters raise substantial doubt about our ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our financial statements and schedules as of December 31, 1997, and for the
year then ended, incorporated by reference in this Prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
Our consolidated balance sheet as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1996, the two month period ended December 31, 1995
and the year ended October 31, 1995, together with the related notes and the
report of KPMG Peat Marwick, independent chartered accountants, all contained in
our 1997 annual report, are incorporated herein by reference. The KPMG Peat
Marwick report on the aforementioned consolidated financial statements contains
an explanatory paragraph that states that we have suffered recurring losses from
continuing operations and are dependent upon the successful development and
commercialization of our products and our ability to secure adequate sources of
capital until we operate profitably. These matters raise substantial doubt about
our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
18
<PAGE>
PROSPECTUS
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY INTELECT COMMUNICATIONS, INC. (THE "COMPANY") OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH
IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
NATURE OF EXPENSE
- -------------------------------------
SEC Registration Fee................. $ 7,192
Legal (including Blue Sky), Printing,
and Accounting Fees and Expenses... $ 30,000*
Miscellaneous........................ $ 2,000*
TOTAL........................... $ 39,192*
- ------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article VII of the Registrant's Certificate of Incorporation provides that
if Delaware law is amended hereafter to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by Delaware law as so amended. Any amendment, repeal or
modification of Article VII of the Registrant's Certificate of Incorporation
shall not adversely affect any right or protection of a director of the
Corporation existing hereunder with respect to any act or omission occurring
prior to such amendment, repeal or modification.
Article XI of the Registrant's By-Laws provides that the Registrant (i)
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Registrant) by reason of the fact that he or she is or
was a director or an officer of the Registrant, or is or was serving at the
request of the Registrant as a director or an officer of another corporation,
partnership, joint venture, trust or other enterprise, to the full extent
authorized or permitted by law, as now or hereafter in effect, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful, and (ii) may
indemnify, if the Board of Directors determines such indemnification is
appropriate, any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Registrant) by reason of the fact that he or she is or
was an employee or agent of the Registrant, or is or was serving at the request
of the Registrant as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, to the full extent authorized or
permitted by law, as now or hereafter in effect, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Registrant, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to the best interests of the Registrant, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful. To the extent that (i) a director
or an officer of the Registrant or (ii) any other employee or agent of the
Registrant who the Board of Directors has authorized the Registrant to
indemnify, has been successful on the merits or otherwise in defense of any
action, suit or proceeding or in defense of any claim, issue or matter therein,
he or she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection therewith.
Notwithstanding the foregoing, except for proceedings to enforce rights to
indemnification, the Registrant shall not be obligated
II-1
<PAGE>
to indemnify any person in connection with a proceeding (or part thereof)
initiated by such person unless such proceeding (or part thereof) was authorized
in advance, or unanimously consented to, by the Board of Directors.
Article XI of the Registrant's By-Laws also provides that any
indemnification provided therein (unless ordered by a court) shall be made by
the Registrant only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in sections 1 and 2 of Article XI of the Registrant's By-Laws. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the Stockholders.
Expenses (including attorneys fees) incurred by an officer or director in
defending any civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Registrant in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to be indemnified by the
Registrant or as otherwise authorized by law. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate.
Article XI of the Registrant's By-Laws further provides that the
indemnification and advancement of expenses shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of Stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding such office.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative, by reason
of the fact that he or she is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in another
corporation or business association against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interest of the corporation and, with respect to any
criminal action or proceeding, if he or she had no reasonable cause to believe
his conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification will be made with respect to
any matter as to which such person will have been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court determines
that such indemnification is proper under the circumstances.
ITEM 16. EXHIBITS.
See Exhibit Index included immediately preceding the Exhibits to this
Registration Statement, which is incorporated herein by reference.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which,
II-2
<PAGE>
individually or in the aggregate, represent a fundamental
change in the information set forth in this Registration
Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (1)(i) and (1) (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") that are incorporated by reference in this
Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable,
each filing of any employer benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the indemnification provisions described herein, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceedings) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Richardson, Texas on the 2nd day of April 1999.
INTELECT COMMUNICATIONS, INC.
By: /s/ HERMAN M. FRIETSCH
HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
/s/HERMAN M. FRIETSCH Chief Executive Officer and Director April 2, 1999
HERMAN M. FRIETSCH (Principal Executive Officer)
/s/EDWIN J. DUCAYET, JR. Vice President, Chief Financial April 2, 1999
EDWIN J. DUCAYET, JR. Officer, Treasurer, and Assistant
Secretary (Principal Financial
Officer and Principal Accounting
Officer)
/s/PHILIP P. SUDAN, JR. Director April 2, 1999
PHILIP P. SUDAN, JR.
/s/ANTON LIECHTENSTEIN Director April 2, 1999
ANTON LIECHTENSTEIN
/s/ROBERT E. GARRISON II Director April 2, 1999
ROBERT E. GARRISON II
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
4.1 -- Amended and Restated Certificate of Incorporation of Intelect Communications, Inc.(1)
4.2 -- Certificate of Amendment of Amended and Restated Certificate of Incorporation of Intelect
Communications, Inc.(2)
4.3 -- Amended and Restated By-Laws of Intelect Communications, Inc.(1)
4.4 -- Certificate of Designations of the Series A Preferred Stock dated December 2, 1997(1)
4.5 -- Certificate of Designations of the Series D Preferred Stock dated May 7, 1998(3)
4.6 -- Certificate of Designations of the Series E Preferred Stock dated March 3, 1999(4)
5.1 -- Opinion of Ryan & Sudan, L.L.P., Houston, Texas
10.1 -- Securities Purchase Agreement among Intelect Communications, Inc. and the Buyers, dated
May 8, 1998(3)
10.2 -- Registration Rights Agreement among Intelect Communications, Inc. and the Buyers, dated
May 8, 1998(3)
10.3 -- Securities Purchase Agreement among Intelect Communications, Inc. and the Buyers, dated
June 26, 1998(5)
10.4 -- Registration Rights Agreement among Intelect Communications, Inc. and the Buyers, dated
June 26, 1998(5)
10.5 -- Securities Purchase Agreement among Intelect Communications, Inc. and the Buyers, dated
February 24, 1999 (relating to Series E Preferred Shares)(4)
10.6 -- Registration Rights Agreement among Intelect Communications, Inc. and the Buyers, dated
February 24, 1999 (relating to Series E Preferred Shares)(4)
10.7 -- Form of Warrant to Purchase Common Stock of Intelect Communications, Inc. (issued in
connection with purchase of the Series E Preferred Shares)(4)
10.8 -- Form of Warrant to Purchase Common Stock of Intelect Communications, Inc., issued as of
December 2, 1998(4)
10.9 -- Form of Warrant to Purchase Common Stock of Intelect Communications, Inc. at an exercise
price of $2.998 (December 22, 1998 private placement warrants)(4)
10.10 -- Form of Registration Rights Agreement between Intelect Communications, Inc. and the
Buyers, dated as of December 22, 1998(4)
10.11 -- Registration Rights Agreement between Intelect Communications, Inc. and Lifeline
Industries, Inc. dated June 29, 1998(6)
10.12 -- Amended and Restated Warrant issued to Lifeline Industries, Inc. exercisable to purchase
up to 30,000 shares of Common Stock(7)
10.13 -- Form of Warrant issued to AJC, Inc. exercisable to purchase Common Stock at an exercise
price of $2.00
10.14 -- Registration Rights Agreement between Intelect Communications, Inc. and St. James Partners
dated February 12, 1998(8)
10.15 -- Agreement for Purchase and Sale dated February 12, 1998 by Intelect Communications, Inc.
and St. James Capital Partners, L.P. ("St. James Partners")(8)
10.16 -- $15,000,000 Convertible Promissory Note issued to St. James Partners by Intelect
Communications, Inc. dated February 12, 1998(8)
10.17 -- Pledge Agreement between Intelect Communications, Inc. and St. James Partners dated
February 12, 1998(8)
10.18 -- Amendment No. 1 to Registration Rights Agreement dated as of April 2, 1998 between
Intelect Communications, Inc. and St. James Partners(9)
10.19 -- $2,000,000 Convertible Promissory Note issued to St. James Partners by Intelect
Communications, Inc. dated April 2, 1998(9)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
10.20 -- $13,000,000 Convertible Promissory Note issued to SJMB by Intelect Communications, Inc.
dated April 2, 1998(9)
10.21 -- Form of Warrant to Purchase Common Stock of Intelect Communications, Inc. issued to St.
James Capital Partners, L.P. and SJMB, L.P., issued January 13, 1999(4)
10.22 -- Registration Rights Agreements dated May 8 and May 30, 1997 among Intelect Communications
Systems Ltd. and The Coastal Corporation Second Pension Trust(10)
10.23 -- Subscription Agreement dated May 30, 1997 among Intelect Communications Systems Ltd. and
The Coastal Corporation Second Pension Trust(10)
10.24 -- Form of Amended and Restated Promissory Note dated December 5, 1997 by Intelect
Communications, Inc. in favor of various holders(11)
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of KPMG Peat Marwick
23.3 -- Consent of Grant Thornton LLP
23.4 -- Consent of Ryan & Sudan, L.L.P. (included in Exhibit 5.1)
</TABLE>
- ------------
(1) Incorporated herein by reference to Form S-4 of Intelect Communications,
Inc. filed October 30, 1997 (File No. 333-39063)
(2) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed March 8, 1999
(3) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed May 11, 1998
(4) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed March 2, 1999
(5) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed June 29, 1998
(6) Incorporated herein by reference to Form S-3 of Intelect Communications,
Inc. filed August 10, 1998 (File No. 333-61123)
(7) Incorporated herein by reference to Form 10-Q of Intelect Communications,
Inc. filed November 16, 1998
(8) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed February 17, 1998
(9) Incorporated herein by reference to Form 10-Q of Intelect Communications,
Inc. for the quarter ended March 31, 1998
(10) Incorporated herein by reference to Form 10-Q of Intelect Communications
Systems Ltd. for the quarter ended June 30, 1997
(11) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed September 16, 1998
EXHIBIT 5.1
[RYAN & SUDAN, L.L.P. LETTERHEAD]
April 2, 1999
Intelect Communications, Inc.
1100 Executive Drive
Richardson, Texas 75081
Re: Registration Statement on Form S-3 of Intelect Communications, Inc. (the
"Company")
Ladies and Gentlemen:
We have acted as counsel to Intelect Communications, Inc., a Delaware
corporation (the "Company"), with respect to the offering by certain selling
shareholders of up to 33,597,363 shares (the "Shares") of the Common Stock of
the Company, par value $.01 per share (the "Common Stock") under the
Registration Statement, filed by the Company under the Securities Act of 1933,
as amended.
As such counsel, we have examined such corporate records, certificates and
other documents and have made such other factual and legal investigations as we
have deemed relevant and necessary as the basis for the opinions hereinafter
expressed. In such examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
conformed or photostatic copies. Unless otherwise defined herein, capitalized
terms shall have the meanings assigned to them in the Registration Statement.
Based on the foregoing, we are of the opinion that:
1. The shares of Common Stock initially issuable upon the exercise of
the warrants covered by the Registration Statement have been duly
authorized and reserved for issuance, and upon exercise of such
warrants and the payment of the exercise price in accordance with
the terms of the warrants, such shares of Common Stock will be
validly issued, fully paid, and non-assessable by the Company.
2. The shares of Common Stock initially issuable upon the conversion of
the amended and restated promissory notes by the Company
Stockholders have been duly authorized and reserved for issuance,
and upon conversion of such amended and restated promissory notes in
accordance with their terms, each will be validly issued, fully
paid, and non-assessable by the Company.
3. The shares of Common Stock initially issuable upon the conversion of
each of the Series D Preferred and the Series E Preferred Shares of
the Company have been duly authorized and reserved for issuance, and
upon the conversion of each of the Series D Preferred and the Series
E Preferred Shares in accordance with its respective Certificate of
Designations, each will be validly issued, fully paid, and
non-assessable by the Company.
4. The other shares of Common Stock covered by this Registration
Statement have been duly authorized, are fully paid, and
non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
RYAN & SUDAN, L.L.P.
EXHIBIT 10.13
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144
PROMULGATED UNDER THE SECURITIES ACT. THE WARRANT AND THE SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
WARRANT TO PURCHASE
Up to _______ SHARES
INTELECT COMMUNICATIONS, INC.
(a Delaware corporation)
FORM OF
WARRANT FOR THE PURCHASE OF
Common Stock, $.01 Par Value per Share
THIS WARRANT WILL BE VOID
AFTER 6:00 P.M. CENTRAL STANDARD TIME ON________________
This amended and restated warrant (the "Warrant") certifies that, for
value received, AJC, Inc., (hereafter "AJC" or the "Holder") is entitled, at any
time and from time to time on or after April 1, 1999 (the "Beginning Date"), and
at any time prior to 6:00 p.m. Central Standard Time on December 31, ______ (the
"Expiration Time"), to purchase from Intelect Communications, Inc., a Delaware
corporation (the "Company"), up to the number of shares shown above (the
"Warrant Shares") of common stock, par value $.01, of the Company (the "Common
Stock") by surrendering this Warrant with the purchase form attached hereto,
duly executed, at the principal office of the Company at 1100 Executive Drive,
Richardson, Texas 75081, and by paying in full and in lawful money of the United
States of America, by cash or cashiers' check, the purchase price of the Warrant
Shares as to which this Warrant is exercised, on all the terms and conditions
hereinafter set forth. This Warrant is issued in connection with that certain
Advisory Services Agreement dated effective September 1, 1998, as amended April
1, 1999 (the "Agreement"), by and between the Company and AJC and replaces and
supersedes the amended and restated warrant issued to AJC and dated September 1,
1999
1. The purchase price at which the Warrant Shares are purchasable (the
"Warrant Price") shall be____________ shares at an exercise price of $2.00 per
share.
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<PAGE>
2. On the exercise of all or any portion of this Warrant in the manner
provided above, the person exercising the same shall be deemed to have become a
holder of record of Common Stock (or of the other securities or properties to
which he or it is entitled on such exercise) for all purposes, and certificates
for the securities so purchased shall be delivered to the purchaser within a
reasonable time after the Warrant shall have been exercised as set forth above.
If this Warrant shall be exercised with respect to only a portion of the Warrant
Shares covered hereby, the holder shall be entitled to receive a similar warrant
of like tenor and date covering the number of Warrant Shares with respect to
which this Warrant shall not have been exercised.
3. The Company covenants and agrees that the Warrant Shares which may be
issued on the exercise of the rights represented by this Warrant will, upon
receipt of the Warrant Price, be fully paid and nonassessable, and free from all
taxes, liens, and charges with respect to the issue thereof. The Company further
covenants and agrees that, during the period within which the rights represented
by this Warrant may be exercised, the Company will have authorized and reserved
a sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
4. The Warrant Price and number of Warrant Shares purchasable pursuant to
this Warrant may be subject to adjustment from time to time as follows:
(a) If the Company issues any stock dividends, the Warrant Price in
effect immediately prior to the record date for such stock dividend shall
be proportionately decreased or, at the holder's option, the number of
Warrant Shares exercisable hereunder shall be proportionately increased,
such adjustment to become effective immediately after the opening of
business on the day following such record date.
(b) If the Company shall subdivide the outstanding shares of Common
Stock into a greater number of shares, combine the outstanding shares of
Common Stock into a smaller number of shares, or issue by reclassification
any of its shares, the Warrant Price and the number of Warrant Shares in
effect immediately prior thereto shall be adjusted so that the holder of
this Warrant shall be entitled to receive, after the occurrence of any of
the events described, the number of Warrant Shares to which the holder
would have been entitled had this Warrant been exercised immediately prior
to the occurrence of such event. Such adjustment shall become effective
immediately after the opening of business on the day following the date on
which such subdivision, combination, or reclassification, as the case may
be, becomes effective.
(c) If any capital reorganization or reclassification of Common
Stock, or consolidation or merger of the Company with another corporation
or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or assets with respect to
or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful
adequate provisions shall be made
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<PAGE>
whereby the holder of this Warrant shall thereafter have the right to
acquire and receive on exercise hereof such shares of stock, securities,
or assets as would have been issuable or payable (as part of such
reorganization, reclassification, consolidation, merger or sale) with
respect to or in exchange for such number of outstanding shares of Common
Stock as would have been received on exercise of this Warrant immediately
before such reorganization, reclassification, consolidation, merger or
sale. In any such case, appropriate provision shall be made with respect
to the rights and interests of the holder of this Warrant to the end that
the provisions hereof shall thereafter be applicable in relation to any
shares of stock, securities, or assets thereafter deliverable on the
exercise of this Warrant. In the event of a merger or consolidation of the
Company with or into another corporation or the sale of all or
substantially all of its assets as a result of which a number of shares of
common stock of the surviving or purchasing corporation greater or less
than the number of shares of Common Stock outstanding immediately prior to
such merger, consolidation, or purchase are issuable to holders of Common
Stock, then the Warrant Price in effect immediately prior to such merger,
consolidation, or purchase shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of
Common Stock. The Company will not effect any such consolidation, merger,
or sale unless prior to the consummation thereof the successor corporation
resulting from such consolidation or merger or the corporation purchasing
such assets shall assume, by written instrument mailed or delivered to the
holder hereof at its last address appearing on the books of the Company,
the obligation to deliver to such holder such shares of stock, securities,
or assets as, in accordance with the foregoing provisions, such holder may
be entitled to acquire on exercise of this Warrant.
(d) No fraction of a share shall be issued on exercise hereof, but,
in lieu thereof, the Company, notwithstanding any other provision hereof,
may pay therefor in cash at the fair value of any such fractional share at
the time of exercise.
(e) Neither the purchase or other acquisition by the Company of any
shares of Common Stock nor the sale or other disposition by the Company of
any shares of Common Stock shall affect any adjustment of the Warrant
Price or be taken into account in computing any subsequent adjustment of
the Warrant Price.
5. This Warrant shall not be transferable or assignable.
6. Notwithstanding any other provisions contained in this Warrant, the
Holder hereof understands and agrees that the following restrictions and
limitations shall be applicable to all Warrant Shares and to all resales or
other transfers thereof pursuant to the Securities Act, and that as a condition
to the exercise of such warrant that the following are and will be true and
correct:
(A) The Holder hereof agrees that the Warrant Shares shall not be
sold or otherwise transferred unless the Warrant Shares are registered
under the Securities Act and applicable state securities or blue sky laws
or are exempt therefrom.
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<PAGE>
(B) A legend in substantially the following form will be placed on
the certificate(s) evidencing the Warrant Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH
ANY OTHER APPLICABLE SECURITIES LAWS."
(C) Stop transfer instructions will be imposed with respect to the
Warrant Shares so as to restrict resale or other transfer thereof, subject
to this Section 6.
(D) The Holder is an "accredited investor" within the meaning of
Rule 501 of Regulation D as promulgated under the Securities Act of 1933,
and will be so as a condition of purchasing any of the Warrant Shares. The
Holder will acquire the Warrant Shares for its own account for investment
purposes and not with a view towards distribution. The Holder must bear
the economic risk of the investment for an indefinite period of time
because the Warrant Shares have not been registered under the Securities
Act and therefore cannot be sold unless they are subsequently registered
under the Securities Act or an exemption from such registration is
available. The Holder has received and carefully reviewed copies of all
documents filed by the Company as of the time of each exercise with the
Securities and Exchange Commission. No representations or warranties have
been made to the Holder by the Company, the officers or directors of the
Company, or any agent, employee or affiliate of any of them. The Holder is
aware that the purchase of the Warrant Shares involves a high degree of
risk and that it may sustain, and has the financial ability to sustain,
the loss of its entire investment. The Holder has had the opportunity to
ask questions of, and receive answers, satisfactory to it from the
Company's management regarding the Company. The Holder understands that no
Federal or State governmental authority has made any finding or
determination relating to the fairness of an investment in the Warrant
Shares and that no Federal or State governmental authority has recommended
or endorsed, or will recommend or endorse, the investment herein. The
Holder, in making the decision to purchase the Warrant Shares subscribed
for, has relied upon independent investigations made by it and has not
relied on any information or representations made by third parties. The
Holder has significant assets, and upon consummation of the purchase of
the Warrant Shares, will continue to have significant assets exclusive of
the Warrant Shares. The Holder understands that the Warrant Shares are
being offered and sold to it in reliance on specific provisions of Federal
and State securities laws and that the Company is relying upon the truth
and accuracy of the
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<PAGE>
representations, warranties, agreements, acknowledgments and
understandings of the Holder set forth herein in order to determine the
applicability of such provisions. The Holder, in making the decision to
purchase the Warrant Shares subscribed for, has relied upon independent
investigations made by it and has not relied on any information or
representations made by third parties.
7. The Company agrees to register or qualify the Warrant Shares (but not
this Warrant) for sale as follows:
(a) If, at any time after the date hereof and during the period in
which the rights represented by this Warrant are exercisable or the holder
hereof owns the Warrant Shares, the Company proposes to file a
registration statement or notification under the Securities Act for the
primary or secondary sale of any debt or equity security, it will give
written notice at least 30 days prior to the filing of such registration
statement or notification to the holders of this Warrant and the Warrant
Shares of its intention to do so. The Company agrees that, after receiving
written notice from the warrant holder of his desire to include his
Warrant Shares in such proposed registration statement or notification,
the Company shall afford the holders of this Warrant and the Warrant
Shares the opportunity to have their Warrant Shares included therein.
Notwithstanding the provisions of this paragraph 7(a), the Company shall
have the right, at any time after it shall have given written notice
pursuant to this paragraph (whether or not a written request for inclusion
of the Warrant Shares shall be made) to elect not to file any such
proposed registration statement or notification or to withdraw the same
after the filing but prior to the effective date thereof. In no event
shall the Company be obligated to include the Warrant Shares in any
registration statement or notification under this paragraph 7(a) if: (i)
in the written opinion of the underwriter, the inclusion of the Warrant
Shares in such registration statement or notification would be materially
detrimental to the proposed offering of debt or equity securities pursuant
to which the Company gave notice to the holders under this paragraph; (ii)
in the opinion of counsel for the Company, concurred in by counsel for the
holder hereof, that the Warrant Shares are not considered "restricted
securities" within the meaning of Rule 144 promulgated under the
Securities Act and that registration under the Securities Act is therefore
not required, or (iii) such Warrant Shares are subject to a previously
filed registration statement.
(b) In connection with the filing of a registration statement,
notification, or post-effective amendment under this section, the Company
covenants and agrees:
(i) to pay all expenses of such registration statement,
notification, or post-effective amendment, including, without
limitation, printing charges, legal fees and disbursements of
counsel for the Company, blue sky expenses, accounting fees and
filing fees, but not including legal fees and disbursements of
counsel to the holders and any sales commissions on Warrant Shares
offered and sold;
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<PAGE>
(ii) to take all necessary action which may reasonably be
required in qualifying or registering the Warrant Shares included in
a registration statement, notification or post-effective amendment
for the offer and sale under the securities or blue sky laws of such
states as requested by the holders; PROVIDED that the Company shall
not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction; and
(iii) to utilize its best efforts to keep the same effective
for a period of not less than 90 nor more than 120 days.
(c) INDEMNIFICATION; CONTRIBUTION.
(i) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless the holders from and against any and all
losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any such registration statement or prospectus contained
therein or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by the holders or on
the holders' behalf expressly for use therein.
(ii) INDEMNIFICATION BY HOLDERS. Each holder agrees to
indemnify and hold harmless, severally and not jointly, the Company,
its directors and officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Company to the holders, but only with
respect to information furnished in writing by a holder or on a
holder's behalf expressly for use in any such registration statement
or prospectus relating to the Warrant Shares, any amendment or
supplement thereto or any preliminary prospectus, and only in an
amount not to exceed the proceeds of any Warrant Shares sold by any
such holder thereunder. In case any action or proceeding shall be
brought against the Company or its directors or officers, or any
such controlling person, in respect of which indemnity may be sought
against the holders, the holders shall have the rights and duties
given to the Company, and the Company or its directors or officers
or such controlling person shall have the rights and duties given to
the holders, by the preceding subsection hereof.
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<PAGE>
(iii) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or
proceeding (including any governmental investigation) shall be
brought or asserted against any person entitled to indemnification
under subsections (i) or (ii) above (an "Indemnified Party") in
respect of which indemnity may be sought from any party who has
agreed to provide such indemnification (an "Indemnifying Party"),
the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such
Indemnified Party, and shall assume the payment of all expenses.
Such Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (A) the Indemnifying Party
has agreed to pay such fees and expenses or (B) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and
such Indemnified Party shall have been advised by counsel that there
is a conflict of interest on the part of counsel employed by the
Indemnifying Party to represent such Indemnified Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of
the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action or proceeding on behalf
of such Indemnified Party; it being understood, however, that the
Indemnifying Party shall not, in connection with any one such action
or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the fees
and expenses of more than one separate firm of attorneys (together
with appropriate local counsel) at any time for all such Indemnified
Parties, which firm shall be designated in writing by such
Indemnified Parties). The Indemnifying Party shall not be liable for
any settlement of any such action or proceeding effected without its
written consent, but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or
proceeding, the Indemnifying Party shall indemnify and hold harmless
such Indemnified Parties from and against any loss or liability (to
the extent stated above) by reason of such settlement or judgment.
(iv) CONTRIBUTION. If the indemnification provided for in this
Section 7(c) is unavailable to the Indemnified Parties in respect of
any losses, claims, damages, liabilities or judgments referred to
herein, then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments in the following manner as between the
Company on the one hand and each holder on the other, in such
proportion as is appropriate to reflect the relative fault of the
Company on the one hand and each holder on the other in connection
with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company
on the one hand and of the
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<PAGE>
holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the party's
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of subsection 11(f)
of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(v) SURVIVAL. The indemnity and contribution agreements
contained in this 7(c) shall remain operative and in full force and
effect regardless of (A) any termination of this Agreement, (B) any
investigation made by or on behalf of any Indemnified Party or by or
on behalf of the Company and (C) the consummation of the sale or
successive resale of the Warrant Shares.
8. As used herein, the term "Common Stock" shall mean and include the
Common Stock authorized on the date of the original issue of this Warrant, and
shall also include any capital stock of any class of the Company thereafter
authorized that shall not be limited to a fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends and in the
distribution of assets on the voluntary or involuntary liquidation, dissolution,
or winding up of the Company; PROVIDED that the Warrant Shares purchasable
pursuant to this Warrant shall include only shares of the class designated in
the Company's Certificate of Incorporation as Common Stock on the date of the
original issue of this Warrant or, in the case of any reorganization,
reclassification, consolidation, merger, or sale of assets of the character
referred to in paragraph 4(c) hereof, the stocks, securities, or assets provided
for in such paragraph.
9. This agreement shall be construed under and be governed by the laws of
the State of Texas.
10. Any notices required or permitted hereunder shall be sufficiently
given if delivered by hand or sent by registered or certified mail, postage
prepaid, addressed as follows:
If to AJC, Inc., to:
12 Pondview Court
Jericho, New York 11753
If to the Company, to:
Intelect Communications, Inc.
1100 Executive Drive, Richardson, Texas 75081
Attention: Herman M. Frietsch, Chairman and Chief Executive Officer
-8-
<PAGE>
With copy to:
Philip P. Sudan, Jr.
Ryan & Sudan, LLP
909 Fannin, Suite 3900
Houston, Texas 77010-1010
or such other address as shall be furnished in writing by any party to the
other, and any such notice or communication shall be deemed to have been given
as of the date delivered by hand or three days after being so deposited in the
mails.
Executed effective as of April 1, 1999.
INTELECT COMMUNICATIONS, INC.
By:____________________________________
Herman M. Frietsch,
Chairman of the Board, Chief
Executive Officer
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<PAGE>
Form of Purchase
(to be signed only upon exercise of warrant)
TO: INTELECT COMMUNICATIONS, INC.
The undersigned, the owner of the attached warrant, hereby irrevocable
elects to exercise the purchase rights represented by the warrant for, and to
purchase thereunder, _____ shares of common stock of Intelect Communications
Systems Limited, and herewith makes payment of $______ therefor, and requests
that the certificate(s) for such shares be delivered to _____ _________, at
____________________________________________, and if such shall not be all of
the shares purchasable hereunder, that a new warrant of like tenor for the
balance of the shares purchasable under the attached warrant be delivered to the
undersigned.
Dated this _____ day of _____________, 199__.
______________________________________
Signature
-10-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Intelect Communications, Inc.
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 (Registration No.
333- ) of our report dated March 31, 1999, included in Intelect
Communications, Inc.'s Form 10-K for the year ended December 31, 1998, and to
all references to our firm under the caption "Experts" in this registration
statement.
GRANT THORNTON LLP
Dallas, Texas
April 2, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Intelect Communications, Inc.
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement on Form S-3 (Registration No.
333- ) of our report dated March 27, 1998, included in Intelect
Communications, Inc.'s Form 10-K for the year ended December 31, 1997, and to
all references to our firm included in this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
April 2, 1999
EXHIBIT 23.3
CONSENT OF KPMG PEAT MARWICK
The Board of Directors
Intelect Communications, Inc.
We consent to the incorporation by reference in the registration statement
on Form S-3 dated April 2, 1999 of our report dated April 9, 1997, relating to
the consolidated statements of operations, stockholders' equity and cash flows
of Intelect Communications Systems Limited and subsidiaries for the year ended
December 31, 1996, and the related schedule, which report appears in the
December 31, 1998 annual report on Form 10-K of Intelect Communications, Inc.
Our report dated April 9, 1997, contains an explanatory paragraph that
states that Intelect Communications Systems Limited has suffered recurring
losses from continuing operations and is dependent upon the successful
development and commercialization of its products and its ability to secure
adequate sources of capital until the Company is operating profitably. These
matters raise substantial doubt about the company's ability to continue as a
going concern. Management's plans with regard to these matters are described in
note 1 to the consolidated financial statements. The consolidated financial
statements and financial statement schedule do not include any adjustments that
might result from the outcome of this uncertainty.
We consent to the reference to our firm under the heading "Experts" in
the prospectus.
KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
April 2, 1999
