UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JUNE 27, 1999
INTELECT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-11630 76-0471342
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1100 EXECUTIVE DRIVE, RICHARDSON, TEXAS 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 367-2100
________________________________________________________________
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
Settlement of Claims With Certain Preferred Shareholders and Conversion and
Exchange of Their Remaining Preferred Shares Into Common Shares.
As previously disclosed, on April 26, 1999, Intelect Communications, Inc.
(the "Company") announced that it was discontinuing indefinitely conversions of
its outstanding shares of Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), Series D Convertible Preferred Stock (the "Series D Preferred
Stock"), and Series E Convertible Preferred Stock (the "Series E Preferred
Stock") (the Series C Preferred Stock, the Series D Preferred Stock and the
Series E Preferred Stock are collectively referred to herein as the "Preferred
Stock"), for the reasons set forth in the Form 8-K of the Company dated April
26, 1999.
On June 27, 1999, the Company entered into a Settlement Agreement and
Mutual Release (the "Settlement Agreement") with certain holders of Series C, D
and E Preferred Stock managed by Citadel Investment Group, L.L.C. ("Citadel" and
collectively with the funds managed by Citadel, the "Citadel Entities").
Immediately prior to closing of the Settlement Agreement, the Citadel Entities'
holdings of Preferred Stock represented approximately 69% of all outstanding
Preferred Stock.
Pursuant to the Settlement Agreement, the Preferred Shares held by the
Citadel Entities will no longer be subject to a variable conversion price.
Instead, all of the Citadel Entities' remaining Preferred Shares and the
interest accrued thereon are being converted and exchanged into common stock of
the Company (the "Common Stock") at fixed prices, with a blended price of $1.31
per share of Common Stock. This results in the elimination of approximately 69%
of all Preferred Stock holdings outstanding immediately prior to closing of the
Settlement Agreement.
The Settlement Agreement resolves, settles and releases, with respect to
the Company and the Citadel Entities, all disputes and claims relating to the
Preferred Stock or Common Stock which arise from any events that occurred prior
to June 27, 1999, including all claims and disputes relating to the Company's
April 26, 1999 announcement of an indefinite discontinuance of conversions. The
Settlement Agreement also terminated all rights that the Citadel Entities may
have under the Series C, D and E Certificates of Designations, Preferences and
Rights and Series C, D and E Securities Purchase Agreements, except as
specifically set forth in the terms of the Settlement Agreement.
Also under the Settlement Agreement, the Citadel Entities agreed to
certain restrictions on the Citadel Entities' transfer and sale of Common Stock,
including (i) a prohibition on directly or indirectly engaging in short sales,
purchase of puts, sell calls, equity swaps or any other means or mechanism by
which the Citadel Entities would benefit from a decrease in the market price of
the Common Stock; (ii) a prohibition on sale or transfer, in any single day, of
an aggregate number of shares of Common Stock in excess of 5% of the average
daily trading volume for the Common Stock (exclusive of purchases or sales of
Common Stock by the Citadel Entities) for the ten trading days immediately
preceding such day; and (iii) a prohibition on any trading of the Common Stock
by the Citadel Entities until the closing sale price of the Common Stock (as
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reported by Bloomberg) exceeds $4.00 per share or September 8, 1999, whichever
is earlier, except that the Citadel Entities are permitted to sell a number of
shares prior to such time in connection with the unwinding of its equity swap
position in the Common Stock.
In the Settlement Agreement, the Citadel Entities granted to the Company
an irrevocable proxy to vote the Converted Shares and Exchanged Shares on all
matters that may come before the stockholders of the Company, so long as such
shares are owned by the Citadel Entities. The Company also has the right to
repurchase the Converted Shares and Exchanged Shares (Common Stock) at the
market price for the Common Stock.
In order to comply with federal securities laws and to track compliance
with the terms of the Settlement Agreement, the Settlement Agreement provides
that all Converted Shares and Exchanged Shares issued to the Citadel Entities
shall be certificated and bear a restrictive legend, and may be transferred only
upon submission by Citadel of a certificate signed by two officers verifying
compliance with The Citadel Entities' contractual representations under the
Settlement Agreement as of the date of such transfer.
Pursuant to the Settlement Agreement, (i) the Company has issued 1,937,465
shares of the Company's Common Stock (the "Converted Shares") to the Citadel
Entities in settlement of conversion notices submitted by the Citadel Entities
between April 26, 1999 and June 27, 1999; (ii) the Company has issued 1,988,341
shares of Common Stock ("Exchange Shares") in exchange for 3,114 shares of
Preferred Stock and the interest accrued thereon; and (iii) on September 10,
1999, in exchange for all remaining Preferred Stock held by the Citadel Entities
(4,660 shares of Preferred Stock) and the interest accrued thereon, the Company
will issue to the Citadel Entities 3,526,822 shares of Common Stock. The blended
share price for all of the Converted Shares and the Exchanged Shares is $1.31
per share of Common Stock.
Additionally, pursuant to the Settlement Agreement, the Company must file
a registration statement on Form S-3, covering the Exchanged Shares, within 20
days of June 27, 1999. If the registration statement is not filed within 30 days
of June 27, 1999 or declared effective by the Securities and Exchange Commission
within 90 days thereafter, the Company will be required to pay twenty dollars
per month for each Preferred Share to be exchanged for Exchange Shares until the
registration statement is declared effective.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business to Be Acquired: N/A
(b) Pro Forma Financial Information of the Business to Be Acquired: N/A
(c) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
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10.1 Settlement Agreement and Mutual Release among the
Company and the Citadel Entities, dated June 27, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTELECT COMMUNICATIONS, INC.
(Registrant)
Date: July 2, 1999 By: /s/ HERMAN M. FRIETSCH
(Signature)
Herman M. Frietsch
Chairman of the Board
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release (the "Agreement") is
made as of the 27th day of June, 1999 by and among Intelect Communications, Inc.
("Intelect", or the "Company") and Wingate Capital Ltd., Fisher Capital Ltd.,
CCG Capital Ltd., Midway Capital Ltd., NP Partners, CCG Investment Fund Ltd.
(a.k.a. CCG International Fund Ltd.), Olympus Securities, Ltd., Citadel
Investment Group, L.L.C., Citadel Limited Partnership, GLB Partners, L.P.,
Wellington Partners Limited Partnership, Kensington Global Strategies Fund,
Ltd., Orchard Investment Partners, L.P., ORD L.L.C., CCG Capital Fund L.P. and
Kenneth C. Griffin (collectively, "Citadel" or, individually, a "Citadel
Entity").
WHEREAS, Intelect issued shares of Series C Convertible Preferred
Stock (the "Series C Preferred Stock") to Citadel pursuant to a Certificate of
Designations, Preferences and Rights relating to the Series C Preferred Stock
and a Securities Purchase Agreement dated as of February 6, 1998 (collectively,
the "Series C Documents");
WHEREAS, Intelect issued shares of Series D Convertible Preferred
Stock (the "Series D Preferred Stock") to Citadel pursuant to a Certificate of
Designations, Preferences and Rights relating to the Series D Preferred Stock
and Securities Purchase Agreements dated as of May 7, 1998 and June 26, 1998
(collectively, the "Series D Documents");
WHEREAS, Intelect issued shares of Series E Convertible Preferred
Stock (the "Series E Preferred Stock" and, together with the Series C Preferred
Stock and the Series D Preferred Stock, the "Preferred Stock") to Citadel
pursuant to a Certificate of Designations, Preferences and Rights relating to
the Series E Preferred Stock (the "Series E Designation") and a Securities
Purchase Agreement dated as of February 24, 1999 (the "Series E Purchase
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Agreement", and, together with the Series E Designation, the "Series E
Documents" and, together with the Series C Documents and the Series D Documents,
the "Operative Preferred Stock Documents");
WHEREAS, Citadel delivered to Intelect Conversion Notices dated as
of May 21, 1999, copies of which are attached hereto as Exhibit A (the "May
Conversion Notices"), for the conversion of 335 shares of Series D Preferred
Stock and 687 shares of Series E Preferred Stock;
WHEREAS, Citadel has asserted possible claims against Intelect
seeking recovery for the alleged breach of the Operative Preferred Stock
Documents and other agreements between Citadel and Intelect (including without
limitation actual and/or liquidated damages and other remedies available at law
or in equity) because, among other things, of Intelect's refusal to issue common
stock upon submission of the May Conversion Notices and Intelect's April 26,
1999 announcement that it was discontinuing indefinitely conversions of its
outstanding shares of Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock;
WHEREAS, Intelect has (i) asserted that Citadel has violated certain
representations and warranties contained in the Operative Preferred Stock
Documents, (ii)
asserted possible claims seeking the recovery of alleged short-swing profits
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") allegedly realized by Citadel and (iii) notified Citadel that
Intelect has received, by letter dated April 26, 1999 from Fruchter & Twersky
(the "Request Letter") a request to bring suit seeking the recovery of alleged
short-swing profits of Citadel under Section 16(b) of the Exchange Act ;
WHEREAS, each party has made such independent investigation as such
party has deemed necessary of the facts and circumstances pertaining to the
claims asserted by each
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party and the effects thereon of this Agreement, and each party is fully
informed as to all relevant facts and circumstances and has carefully considered
the applicable law and consulted with counsel of its choice, such that it is
knowingly and voluntarily entering into the settlement and compromise of such
claims evidenced by this Agreement;
WHEREAS, arm's-length settlement negotiations have taken place
between Intelect and Citadel, and this Agreement has been reached;
WHEREAS, Intelect and Citadel have concluded that it would be in the
best interests of each party to enter into this Agreement in order to avoid the
uncertainties, expense, inconvenience and burdens of litigation, and to put to
rest this controversy and preserve valued business relationships;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
respective releases, covenants and undertakings and in full, complete and final
settlement of such claims and controversies, the parties agree as follows:
1. THIS AGREEMENT IS NOT AN ADMISSION.
The parties hereto agree that this Agreement, and any and all
negotiations, documents and discussions associated with it, shall not be deemed
or construed to be an admission or evidence of any violation of any statute,
law, rule or regulation or of any liability or wrongdoing by any of the parties
hereto, or of any absence of wrongdoing or of limitation of damage or injury,
and shall not be used, directly or indirectly, as evidence thereof, in any way
in any action or proceeding.
2. BINDING EFFECT.
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Each party is entering into this Agreement on behalf of itself, and,
to the extent not prohibited by applicable law, its agents, affiliates,
stockholders, partners, employees, directors, representatives, successors and
assigns. This Agreement shall be binding upon, and inure to the benefit of, each
party and, to the extent not prohibited by applicable law, its agents,
affiliates, stockholders, partners, employees, directors, representatives,
successors and assigns.
3. ISSUANCE OF COMMON STOCK PURSUANT TO MAY CONVERSION Notices.
Upon execution and delivery of this Agreement (the "Closing"),
Intelect shall execute and deliver to Intelect's designated transfer agent (the
"Transfer Agent") irrevocable instructions to issue and surrender, on the
business day following the date of the Closing, to a common carrier for
overnight delivery certificates for the number of shares of common stock, par
value $0.01 per share, of Intelect ("Common Stock") set forth in the May
Conversion Notices (collectively, the "Converted Shares"). Intelect shall also
instruct the Transfer Agent to issue and deliver to each Citadel Entity that
delivered a certificate for a greater number of shares of Preferred Stock than
are to be converted pursuant to the May Conversion Notices a new certificate for
the number of shares of the appropriate series of Preferred Stock not being
converted. Intelect acknowledges that the Converted Shares are being issued on
conversion of Series D Preferred Stock and Series E Preferred Stock pursuant to
the applicable Certificate of Designations, Preferences and Rights and the May
Conversion Notices, and that the Converted Shares have been registered for
resale and may be sold pursuant to Intelect's Prospectus dated April 15, 1999
(subject to the provisions of this Agreement).
4. EXCHANGE OF SERIES D PREFERRED STOCK AND SERIES E PREFERRED
STOCK.
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(a) At Closing, Citadel shall deliver to Intelect or the Transfer
Agent, in exchange for Common Stock as described below, certificates
representing 801 shares of Series D Preferred Stock and 2,313 shares of Series E
Preferred Stock. The parties acknowledge that an error occurred in issuing a
certificate for Series E Preferred Stock to NP Partners. Such certificate should
have represented 688 shares, but was erroneously issued for 668 shares. Intelect
shall direct the Transfer Agent to promptly issue to NP Partners a certificate
for 20 shares of Series E Preferred Stock and to treat such certificate as
having been delivered to the Transfer Agent pursuant to this Section 4(a).
Immediately upon receipt by Intelect or the Transfer Agent of the share
certificates referred to in this Section 4(a), Intelect shall execute and
deliver to the Transfer Agent irrevocable instructions to issue and surrender,
on the business day following the date such share certificates are surrendered
to Intelect, to a common carrier for overnight delivery certificates for the
number of shares of Common Stock set forth in the table below (collectively the
"Series 1 Exchange Shares):
NAME OF CITADEL ENTITY NUMBER OF SHARES OF COMMON STOCK
- ---------------------- --------------------------------
Wingate Capital Ltd. 658,639
Fisher Capital Ltd. 1,265,765
CCG Investment Fund Ltd. 28,743
CCG Capital Ltd. 28,743
Midway Capital Ltd. 6,451
(b) On the date that is 75 calendar days following the date of the
Closing, Citadel shall deliver to Intelect or the Transfer Agent, in exchange
for Common Stock as described below, certificates representing 4,642 shares of
Series D Preferred Stock (which shall
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constitute all of the Preferred Stock beneficially owned by Citadel following
the issuance of the Converted Shares and the Series 1 Exchange Shares).
Immediately upon receipt of such share certificates by Intelect or the Transfer
Agent, Intelect shall execute and deliver to the Transfer Agent irrevocable
instructions to issue and surrender, on the business day following the date such
share certificates are surrendered to Intelect, to a common carrier for
overnight delivery certificates for the number of shares of Common Stock set
forth in the table below (collectively, the "Series 2 Exchange Shares", and,
together with the Series 1 Exchange Shares, the "Exchanged Shares"):
NAME OF CITADEL ENTITY NUMBER OF SHARES OF COMMON STOCK
- ---------------------- --------------------------------
Wingate Capital Ltd. 1,117,992
Fisher Capital Ltd. 2,067,945
CCG Investment Fund Ltd. 130,396
CCG Capital Ltd. 131,249
Midway Capital Ltd. 79,240
5. LEGEND; REMOVAL OF LEGEND.
The certificates for the Converted Shares and for the Exchanged
Shares shall be issued to Citadel with the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON RESALE CONTAINED IN THAT CERTAIN SETTLEMENT AND MUTUAL
RELEASE AGREEMENT DATED JUNE 27, 1999 BY AND AMONG INTELECT
COMMUNICATIONS, INC AND WINGATE CAPITAL LTD. AND CERTAIN OTHER PARTIES
NAMED THEREIN AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("THE SECURITIES ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW AND, ACCORDINGLY, THE SHARES MAY NOT BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, OR
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IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND
IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS.
On the date of the Closing, Intelect shall issue irrevocable instructions to the
Transfer Agent that, with no further action by Intelect, upon receipt by the
Transfer Agent of any Converted Shares or Exchanged Shares for transfer,
accompanied by an Officers' Certificate in the form attached hereto as Exhibit B
(an "Officers' Certificate") executed by two authorized representatives of
Citadel referencing such Converted Shares or Exchanged Shares submitted for
transfer and stating that all sale restrictions under Section 6 of this
Agreement and prospectus delivery requirements under applicable securities laws
(or requirements under Rule 144, if applicable) have been complied with, the
Transfer Agent shall promptly effect transfer of such shares and shall issue to
Citadel a new certificate for the appropriate balance of the Converted Shares or
Exchanged Shares, containing the appropriate legend, as soon as practicable, but
in any event within seven business days after submission of the Converted Shares
or Exchanged Shares and the Officers' Certificate. Citadel shall, upon
reasonable request from Intelect, provide Intelect with information as to the
dates and amounts of any trades of Common Stock by Citadel. If at any time
Intelect believes that Citadel is in breach of this Agreement, Intelect may seek
from a court of competent jurisdiction an injunction, temporary restraining
order or other appropriate injunctive relief to stay or suspend sales or
transfer of Converted Shares or Exchanged Shares.
6. CERTAIN RESTRICTIONS.
(a) So long as Citadel holds any Common Stock, Citadel shall
not, directly or indirectly, engage in short sales, purchase puts, sell calls,
enter into equity swaps or otherwise take a market position through the selling
of borrowed shares, through a contractual
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arrangement or otherwise, by which Citadel would benefit from a decrease in the
market price of Intelect's Common Stock. Citadel shall, as soon as practicable
following the Closing, unwind all existing equity swap positions.
(b) Citadel shall not sell or otherwise transfer, on any
single day (a "Trade Date"), an aggregate number of shares of Common Stock in
excess of that number of shares of Common Stock equal to 5% of the average daily
trading volume for the Common Stock for the ten trading days immediately
preceding such Trade Date (as reported by Bloomberg), exclusive of purchases or
sales of Common Stock made by Citadel.
(c) Citadel shall not commence any trading of Common Stock in
any public securities market until the date on which the Closing Sale Price (as
defined in the Series E Designation) of the Common Stock equals or exceeds
$4.00, or September 8, 1999, whichever is earlier.
(d) Notwithstanding the foregoing, Citadel shall sell a number
of shares of Common Stock in connection with the unwinding of the equity swap
referred to in Section 6(a) equal to the number of shares of Common Stock
covered by such equity swap.
7. PROXY.
Citadel hereby grants to Intelect or its designee an irrevocable
proxy, coupled with an interest, to vote the Converted Shares and the Exchanged
Shares on all matters that may come before the stockholders of Intelect, so
long, but only so long, as such Converted Shares or Exchanged Shares are owned
by Citadel. Citadel agrees to execute and deliver such other documents as
Intelect may reasonably request in order to carry out the purposes and intent of
this provision.
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8. RIGHT TO REPURCHASE SHARES.
Citadel hereby grants to Intelect the right and option, by written
notice to each Citadel Entity and the Transfer Agent (the "Repurchase Notice"),
from time to time to repurchase any Converted Shares or Exchanged Shares owned
by Citadel at the time of such Repurchase Notice on the following terms and
conditions:
(a) The purchase price per share for any Converted Shares or
Exchanged Shares purchased by Intelect pursuant to this Section 8 (the
"Repurchased Shares") shall be the average Closing Sale Price (as defined in the
Series E Designation) of the Common Stock for the ten trading days immediately
preceding the date of the Repurchase Notice (the "Purchase Price").
(b) The Repurchase Notice shall specify (i) the number of
shares of Common Stock to be repurchased, (ii) the Purchase Price and (iii) the
date on which such repurchase is to occur (the "Repurchase Date"), which shall
be no fewer than two nor more than 15 business days following the date of the
Repurchase Notice, or if a Purchase Notice is delivered pursuant to the
following sentence, following the issuance of such shares. Intelect may submit a
Repurchase Notice for Series 2 Exchange Shares prior to issuance of such shares
hereunder, for the repurchase of such shares subsequent to their issuance
according to the terms of this Agreement.
(c) Intelect shall not be entitled to send a Repurchase Notice
unless it has complied with all the provisions of this Agreement and has, in the
amount of the full aggregate Purchase Price for all Repurchased Shares which
shall be:
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(i) cash available in a demand or other immediately
available account in a bank or similar financial institution; or
(ii) credit facilities with a bank or similar
financial institution that are immediately available and unrestricted for use in
repurchasing the Repurchased Shares; or
(iii) a written agreement with a standby underwriter
or qualified buyer ready, willing and able to purchase from Intelect a
sufficient number of shares of stock to provide the necessary proceeds; or
(iv) a combination of the items set forth in the
preceding clauses (i), (ii) and (iii).
(d) Each Citadel Entity whose Common Stock is being
repurchased under this Section 8 shall send to the Transfer Agent share
certificates representing the Repurchased Shares to be repurchased from such
Citadel Entity within five business days after the Repurchase Date, and Intelect
shall pay to such Citadel Entity in cash the full aggregate Purchase Price for
such Repurchased Shares within three business days after such certificates are
delivered to the Transfer Agent. If Intelect fails to pay such Purchase Price in
cash on such date, the Transfer Agent shall immediately re-deliver the
certificates for such shares to such Citadel Entity, and thereafter Citadel
shall (i) no longer be bound by the provisions of this Section 8 and (ii) not be
bound by the provisions of Section 6(b) with respect to Repurchased Shares which
it could have sold under Section 6(b) between the time of the Repurchase Notice
and the date the Purchase Price was required to be paid hereunder.
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(e) If fewer than all Converted Shares and Exchanged Shares
held by all Citadel Entities at the time of a Repurchase Notice are to be
repurchased, Intelect shall repurchase a pro rata amount from each Citadel
Entity then beneficially owning Converted Shares or Exchanged Shares.
9. REGISTRATION RIGHTS.
(a) To induce Citadel to enter into this Agreement, Intelect
shall prepare and, as soon as practicable but no later than 20 calendar days
after the date of the Closing (the "Scheduled Filing Date"), file with the
Securities and Exchange Commission a Registration Statement on Form S-3 (or if
Intelect is not eligible to use Form S-3, such other form of registration
statement as shall be required) (the "Registration Statement") covering the
resale of the Exchanged Shares (the "Registration Statement") and shall use its
best efforts to cause such Registration Statement to be declared effective no
later than 90 calendar days after the Filing Date (the "Scheduled Effective
Date").
(b) If the Registration Statement has not been filed within
ten days following the Scheduled Filing Date or is not effective by the
Scheduled Effective Date, Intelect shall pay to Citadel an amount, for each
share of Series D Preferred Stock or Series E Preferred Stock exchanged or to be
exchanged for Exchanged Shares, equal to $20.00 for each month (prorated for
parts of a month) of delay in the filing of the Registration Statement after the
tenth day following the Scheduled Filing Date or in effectiveness of the
Registration Statement after the Scheduled Effective Date.
(c) Intelect and Citadel agree that, except as provided in
Sections 9(a) and 9(b), all the terms of the Registration Rights Agreement dated
February 24, 1999 between
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Intelect and certain Buyers named therein (except Sections 2 and 11e thereof)
shall apply to the agreement to register the Exchanged Shares for resale set
forth in this Section 9, except that the term "Buyer" shall mean Citadel and the
term "Registrable Securities" shall mean the Exchanged Shares.
10. TERMINATION OF CERTAIN RIGHTS.
Except as provided in this Agreement, Citadel agrees that all rights
Citadel may have under the Operative Preferred Stock Documents are terminated.
The Registration Rights Agreements dated as of May 7, 1998 and June 26, 1998
between Intelect and the Buyers named therein shall continue in effect with
respect to the Conversion Shares (as defined therein). The Registration Rights
Agreement dated as of February 24, 1999 between Intelect and the Buyers named
therein shall continue in effect with respect to the Conversion Shares and the
Warrant Shares (as defined therein).
11. WARRANTS.
Each Citadel Entity to which Warrants to Purchase Common Stock
("Warrants") were issued pursuant to the Series E Purchase Agreement will retain
such Warrants, and nothing contained in this Agreement shall affect Citadel's
rights with respect to such Warrants under any agreement, document or other
instrument relating to such Warrants, except that the Warrant Exercise Price (as
defined in the Warrants) shall not be reset on any Reset Date (as defined in the
Warrants).
12. REPRESENTATIONS AND WARRANTIES.
(a) As of the date hereof and as of the date any Converted Shares or
Exchanged Shares (collectively, "Issued Shares") are issued, each Citadel Entity
that is receiving
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securities hereunder (a "Citadel Shareholder") hereby represents and warrants
with respect to itself only that:
(i) INVESTMENT INTENT. It is acquiring the Issued Shares for
its own account for investment only and not with a view towards, or for resale
in connection with, the public sale or distribution thereof, except pursuant to
sales registered or exempted under the Securities Act of 1933, as amended (the
"1933 Act"); provided, however, that by making the representations herein, it
does not agree to hold any of the Issued Shares for any minimum or other
specific term and reserves the right to dispose of the Issued Shares at any time
in accordance with or pursuant to a registration statement or an exemption under
the 1933 Act, except as otherwise provided in this Agreement.
(ii) ACCREDITED INVESTOR STATUS. It is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D promulgated
under the 1933 Act.
(iii) RELIANCE ON EXEMPTIONS. Such Citadel Shareholder
understands that the Issued Shares are being offered and issued to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that Intelect is relying in part
upon the truth and accuracy of, and such Citadel Shareholder's compliance with,
the representations, warranties, agreements, acknowledgments and understandings
of such Citadel Shareholder set forth herein in order to determine the
availability of such exemptions and the eligibility of such Citadel Shareholder
to acquire the Issued Shares.
(iv) INFORMATION. Such Citadel Shareholder and its advisors,
if any, have been furnished with all materials relating to the business,
finances and operations of Intelect and materials relating to the offer and
issuance of the Issued Shares which have been requested by
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such Citadel Shareholder. Such Citadel Shareholder and its advisors, if any,
have been afforded the opportunity to ask questions of Intelect, including its
management. Neither such inquiries nor any other due diligence investigations
conducted by such Citadel Shareholder or its advisors, if any, or its
representatives shall modify, amend or affect such Citadel Shareholder's right
to rely on Intelect's representations and warranties contained in this
Agreement. Such Citadel Shareholder understands that its investment in the
Issued Shares involves a high degree of risk. Such Citadel Shareholder has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Issued Shares. In addition to the foregoing such Citadel Shareholder
acknowledges that:
(a) it has access to copies of (and acknowledges that Intelect
has offered to provide, upon its request, copies of) Intelect's
filings with the Securities Exchange Commission (collectively, the
"Public Documents");
(b) it has not been furnished with any oral representation or
warranty in connection with the offering of the Issued Shares by
Intelect or any officer, employee, agent, affiliate or subsidiary,
which is not contained in or contemplated herein;
(c) it understands that the purchase of the Issued Shares
entails various risks including, but not limited to, those outlined
in the Public Documents and in this Agreement, and has determined
that the Issued Shares are a suitable investment and that at this
time it could bear a complete loss of its investment; and
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(d) any information which such Citadel Shareholder has
heretofore represented or furnished to Intelect with respect to its
financial position, business experience, or trading practices is
correct and complete as of the date of this Agreement.
(v) NO GOVERNMENTAL REVIEW. Such Citadel Shareholder
understands that no United States federal or state agency or any other
government or governmental agency has passed on or made any recommendation or
endorsement of the Issued Shares or the fairness or suitability of the
investment in the Issued Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Issued Shares.
(vi) TRANSFER OR RESALE. Such Citadel Shareholder understands
that except as provided herein: (i) the Exchanged Shares have not been and are
not being registered under the 1933 Act or any state securities laws, and may
not be offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Citadel Shareholder shall have delivered to
Intelect an opinion of counsel, in a generally acceptable form, to the effect
that the Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Citadel
Shareholder provides Intelect with reasonable assurance that such Securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act, as amended (or a successor rule thereto) ("Rule 144"); and (ii) any sale of
the Issued Shares made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of the Issued Shares under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the 1933 Act) may require
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compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) except as expressly provided
herein, neither Intelect nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
(vii) RESIDENCY. Each Citadel Shareholder is a resident of
that country or jurisdiction specified in the Schedule of Citadel Shareholders
which has heretofore been provided to Intelect.
(b) As of the date hereof and as of the date any Issued Shares are
issued, Intelect represents and warrants to each Citadel Entity that:
(i) SHARES FULLY PAID AND NON-ASSESSABLE. When issued in
accordance with this Agreement, the Issued Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof, with the holders being entitled to all rights accorded to
a holder of Common Stock.
(ii) ORGANIZATION AND QUALIFICATION. Intelect is a corporation
duly organized and validly existing under the laws of the State of Delaware and
has the requisite corporate power and authorization to own its properties and to
carry on its business as now being conducted.
(iii) AUTHORIZATION; ENFORCEMENT; COMPLIANCE WITH OTHER
INSTRUMENTS. Intelect has the requisite corporate power and authority to enter
into and perform this Agreement, and to issue the Securities in accordance with
the terms and conditions hereof. The execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated hereby
(including without limitation the issuance of the Issued Shares), have been
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duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies.
(iv) NO CONFLICTS. The execution, delivery and performance of
this Agreement by Intelect and the consummation by Intelect of the transactions
contemplated hereby will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock, par value $.01 per share, of the Company
or the By-laws, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries (as defined in the Series E Purchase Agreement) is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected. Except as disclosed in the Public Documents, neither the
Company nor its Subsidiaries is in violation of any term of or in default under
(x) the Certificate of Incorporation, any Certificate of Designation,
Preferences and Rights of any outstanding series
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of preferred stock, par value $.01 per share, or the By-laws or their
organizational charter or by-laws, respectively, or (y) any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries. The business of the Company and its Subsidiaries is not being
conducted in violation of any law, ordinance, regulation of any governmental
entity, except where such violations have not resulted or would not result,
individually or in the aggregate, in a Material Adverse Effect (as defined in
the Series E Purchase Agreement). Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by this Agreement. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company and its Subsidiaries have no knowledge
of any facts or circumstances which might give rise to any of the foregoing.
Except as disclosed in the Public Documents, the Company is not in violation of
the listing requirements of the Nasdaq National Market as in effect on the date
hereof.
(v) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31,
1996, the Company or its predecessor Intelect Communications Systems Limited, a
Bermuda Corporation, has filed all reports, schedules, forms, statements and
other documents required to be filed by it with the SEC pursuant to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"1934 Act") (all of the foregoing filed prior to the date hereof and all
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exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC or as
amended prior to the date hereof, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. As of their respective dates or as
amended prior to the date hereof, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof, or if amended prior to the date
hereof, as of the date of such amendment and the results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). No other information provided
by or on behalf of the Company to Citadel which is not included in the SEC
Documents, or if amended prior to the date hereof, as of the date of such
amendment, including, without limitation, information referred to in this
Agreement, contains any untrue statement of a
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material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstance under which they are or
were made, not misleading. Neither the Company nor any of its Subsidiaries or
any of their officers, directors, employees or agents have provided Citadel with
any material, nonpublic information, except for the knowledge of the existence
of the transactions contemplated hereby.
(vi) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. Except for the transactions contemplated hereby, and excluding
liabilities incurred in the ordinary course of business consistent with past
practices, no event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition that would be required to be disclosed by the Company under
applicable securities laws on a registration statement (including by way of
incorporation by reference) filed with the SEC, on the date this representation
is made or deemed to be made, relating to an issuance and sale by the Company of
its Common Stock and which has not been publicly disclosed.
(c) Each party represents and warrants that such party has not
filed, nor, except for the Request Letter received by Intelect, has such party
received any request or demand to file, any suit, action or proceeding of any
kind against the other.
(d) The representations and warranties made in this Section 12
shall survive the Closing and the issuance of the Issued Shares.
13. STOCKHOLDER APPROVAL/PROXY STATEMENT.
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In the event that issuance of the Exchanged Shares requires approval
of the stockholders of Intelect in order to comply with Nasdaq rules and
regulations, Intelect shall call a special meeting of its stockholders, to be
held no later than 60 calendar days after the date of the Closing, and shall
provide to each stockholder a proxy statement, which Citadel and a counsel of
its choice shall have the right to review, soliciting each stockholder's
affirmative vote for approval of Intelect's issuance of the Exchanged Shares as
described in this Agreement, and Intelect shall use its best efforts to solicit
its stockholders' approval of such issuance of the Exchanged Shares and cause
the Board of Directors of Intelect to recommend to the stockholders that they
approve such proposal.
14. MUTUAL RELEASES.
(a) In consideration of and subject to the terms of this
Agreement, Intelect, on behalf of itself and, to the extent not prohibited by
applicable law, its agents, affiliates, stockholders, partners, employees,
directors, representatives, successors and assigns, hereby expressly releases
and discharges each Citadel Entity and its agents, affiliates, stockholders,
partners, employees, directors, representatives, successors and assigns, from,
and agrees not to encourage, cooperate with or assist any third party to assert,
any and all manner of claims, of any nature whatsoever, known or unknown,
suspected or unsuspected, in law, in equity or otherwise, whether class,
individual, derivative or otherwise in nature, including but not limited to
those arising under state, federal or other laws, rules or regulations, that
Intelect ever had, now has or hereafter can, shall or may have, whether arising
under Section 16(b) of the Exchange Act or otherwise, relating in any way to the
purchase or sale of Intelect securities, from the beginning of the world through
the date of this Agreement, or as contemplated
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hereunder, or relating to any other acts, omissions, events, occurrences,
happenings or circumstances occurring or existing prior to the date of this
Agreement.
(b) In consideration of and subject to the terms of this
Agreement, each Citadel Entity, on behalf of itself and, to the extent not
prohibited by applicable law, its agents, affiliates, stockholders, partners,
employees, directors, representatives, successors and assigns, hereby expressly
releases and discharges Intelect and its agents, affiliates, stockholders,
partners, employees, directors, representatives, successors and assigns from,
and agrees not to encourage, cooperate with or assist any third party to assert,
any and all manner of claims, of any nature whatsoever, known or unknown,
suspected or unsuspected, in law, in equity or otherwise, whether class,
individual, derivative or otherwise in nature, that each Citadel Entity ever
had, now has or hereafter can, shall or may have relating to any acts,
omissions, events, occurrences, happenings or circumstances occurring or
existing prior to the date of this Agreement, including but not limited to those
arising under state, federal or other laws, rules or regulations or otherwise
relating to any act or omission relating in any way to the May Conversion
Notices or Intelect's April 26, 1999 announcement that it was discontinuing
indefinitely conversions of its outstanding shares of Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock, from the beginning of the
world through the date of this Agreement, or as contemplated hereunder.
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15. FILING OF FORM 8-K.
On or before the fifth business day following the Closing, Intelect
shall file a Form 8-K with the Securities and Exchange Commission describing the
terms of this Agreement and shall file this Agreement as an Exhibit to such Form
8-K.
16. AUTHORIZATION TO ENTER INTO THE AGREEMENT. Each party represents
that (i) except to the extent that approval by the stockholders of Intelect may
be required under the circumstances described in Section 13, it has received all
required approvals for, and is authorized to engage in, the execution, delivery
and performance of this Agreement and (ii) this Agreement has been duly executed
and delivered by such party and constitutes the valid and binding obligation of
such party enforceable against such party in accordance with its terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
17. PROFESSIONAL ADVICE.
Each party has received independent legal advice from attorneys of
its choice with respect to the advisability of making this Agreement and
entering into the releases, covenants and undertakings provided herein.
18. NO TRANSFER OF CLAIMS.
Each party represents and warrants that it has not transferred all
or any part of, or any interest in, any claim or potential cause of action that
such party is releasing pursuant to this Agreement.
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19. INTEGRATED AGREEMENT; NO WAIVER.
This Agreement contains the entire, complete, and integrated
statement of each and every term and provision agreed to by and among the
parties and is not subject to any condition not provided for herein. This
Agreement shall not be changed, modified, or supplemented except by a writing
executed by the parties hereto. No failure or delay by any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
20. NO PARTY IS THE DRAFTER OF THIS AGREEMENT. None of the parties
hereto shall be considered to be the drafter of this Agreement or any provision
hereof for the purpose of any statute, case law or rule of interpretation or
construction that might cause any provision to be construed against the drafter
hereof.
21. DISPUTES.
(a) Each party agrees that any breach by the other of this
Agreement is likely to result in irreparable harm to each non-breaching party,
that monetary damages will be an inadequate remedy of such breach and that,
accordingly, in addition to any other remedy that any non-breaching party may
have, each non-breaching party shall be entitled to enforce the specific
performance of this Agreement and to seek both temporary and permanent relief in
the event of any breach hereof.
(b) In the event of any controversy, claim or dispute between
the parties to this Agreement arising out of, relating to or in connection with
this Agreement, its interpretation or any transaction contemplated hereby or
discussed herein, or an alleged breach of
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the Agreement, each prevailing party shall be entitled to recover its reasonable
attorneys' fees, expenses, and costs incurred in connection therewith or in
connection with the enforcement or collection of any judgment or award rendered
therein.
22. [Intentionally Omitted]
23. CHOICE OF LAW AND FORUM.
The corporate laws of the State of Delaware shall govern all issues
concerning the relative rights of Intelect and its stockholders. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than those of the State
of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.
24. WAIVER OF PERSONAL SERVICE.
(a) Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or proceeding
by mailing a copy thereof to such party at the address set forth herein:
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If to Intelect:
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Attention: Herman M. Frietsch
If to Citadel:
Citadel Investment Group, L.L.C.
225 West Washington Street
Chicago, Illinois 60606
Attention: Michael J. Hughes
(b) Each party agrees that such service shall constitute good
and sufficient service of process and notice thereof.
(c) Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.
25. WAIVER OF RIGHT TO A JURY TRIAL. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT
OF THIS AGREEMENT OR ITS INTERPRETATION OR ANY TRANSACTION CONTEMPLATED HEREBY
OR DISCUSSED HEREIN.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTELECT COMMUNICATIONS, INC.
By: /s/ HERMAN M. FRIETSCH
Herman Frietsch, its Chief Executive Officer
WINGATE CAPITAL LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
FISHER CAPITAL LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
CCG CAPITAL LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
MIDWAY CAPITAL LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
NP PARTNERS
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
[Signatures continued on following page]
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[Signatures continued from preceding page]
CCG INVESTMENT FUND LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
OLYMPUS SECURITIES LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
CITADEL INVESTMENT GROUP, L.L.C.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
CITADEL LIMITED PARTNERSHIP
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
GLB PARTNERS, L.P.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
WELLINGTON PARTNERS LIMITED PARTNERSHIP
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
[Signatures continued on following page]
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[Signatures continued from preceding page]
KENSINGTON GLOBAL STRATEGIES FUND, LTD.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
ORCHARD INVESTMENT PARTNERS, L.P.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
ORD L.L.C.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
CCG CAPITAL FUND L.P.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
ORCHARD INVESTMENT PARTNERS, L.P.
By: /s/ MICHAEL J. HUGHES
Michael J. Hughes, its Authorized Signatory
/s/ MICHAEL J. HUGHES
Kenneth C. Griffin,
by Michael J. Hughes, Attorney-In-Fact
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Exhibits to Settlement Agreement and Mutual Release
Exhibit A Conversion Notices
Exhibit B Form of Officers' Certificate
