AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 27, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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INTELECT COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 76-0471342
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
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)
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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)
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WITH A COPY TO:
ROBERT C. BEASLEY
RYAN & SUDAN, L.L.P.
909 FANNIN, SUITE 3900
HOUSTON, TEXAS 77010
TELEPHONE: (713) 652-0501
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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
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
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.... 24,155,613 $1.016 $24,542,103 $6,823
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(1) Represents shares to be sold by the Selling Stockholders listed under the
title "Selling Stockholders" in this Prospectus.
(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 August 24, 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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<PAGE>
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.
PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 27, 1999
INTELECT COMMUNICATIONS, INC.
24,155,613 SHARES OF COMMON STOCK
------------------------
The Selling Stockholders listed on page 11 may offer and resell up to
24,155,613 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 have received in exchange for the
Company's Series D Convertible Preferred Stock ("Series D Preferred
Shares") and Series E Convertible Preferred Stock ("Series E Preferred
Shares") in compliance with the Citadel Settlement Agreement (as defined
herein);
o shares of common stock that they have received or may receive in exchange
for in compliance with the Citadel Settlement Agreement;
o shares of common stock issued or issuable upon the exchange of certain
outstanding indebtedness for shares of common stock; and
o shares of common stock issuable upon exercise of warrants.
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 and the Series E Preferred Shares in private placement
transactions on March 5 and April 22, 1999 (the Series D Preferred Shares and
the Series E Preferred Shares are collectively referred to as the "Preferred
Shares"). Pursuant to a Settlement Agreement and Mutual Release (the "Citadel
Settlement Agreement") by and among the Company and Citadel Investment Group,
L.L.C. ("Citadel") and certain of Citadel's affiliates, including Wingate
Capital Ltd., Fisher Capital, Ltd., CCG Investment Fund Ltd., CCG Capital
Ltd.and Midway Capital Ltd. (collectively the "Citadel Entities"), the Citadel
Entities have agreed to exchange their remaining Preferred Shares for 5,515,563
shares of common stock of the Company (the "Exchange Shares"). We issued
1,988,341 Exchange Shares on July 1, 1999 upon exchange of a portion of the
Preferred Shares. We expect to issue an additional 3,526,822 Exchange Shares on
or about September 10, 1999, upon exchange of the Citadel Entities remaining
Preferred Shares. Pursuant to an agreement dated as of August 13, 1999, we have
agreed to issue 2,777,778 shares of common stock to The Coastal Corporation
Second Pension Trust ("Coastal") in repayment of debt owed by the Company to
Coastal. Pursuant to a Repayment and Exchange Agreement dated as of August 13,
1999, we agreed to issue shares of common stock to St. James Capital Partners,
L.P. ("SJCP") and SJMB, L.P. ("SJMB")(SJCP and SJMB collectively "St.
James") in repayment of debt owed by the Company. We issued additional common
stock in a series of unrelated private placements to accredited investors. 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 SmallCap Market under the symbol
"ICOM." On August 26, 1999, the last sale price of our common stock was $1.031.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE SEE
"RISK FACTORS" BEGINNING ON PAGE 2.
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.
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THE DATE OF THIS PROSPECTUS IS AUGUST , 1999.
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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 networks.
We strategically focus our product lines and services to take advantage of
the convergence of telecommunications and data communications. This convergence
arises from the explosive growth in communication services (such as high-speed
Internet, video and countless voice services), 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 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, and our Form 10-Q quarterly reports, filed on
May 17, and August 16, 1999, and in the Form 8-K filed on August 18, 1999.
Our 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
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by reference, you 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 SmallCap 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.
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.
WE MAY BE DELISTED BY NASDAQ
Intelect's common stock was transferred to the Nasdaq SmallCap Market
effective August 26, 1999 from the Nasdaq National Market. Intelect's continued
listing with the Nasdaq SmallCap Market will involve the successful completion
of an application and review process. This process will require the Company to
file an application for new listing, to pay all fees for initial listing and to
demonstrate compliance with all requirements for continued listing on the Nasdaq
SmallCap Market, including compliance with the Nasdaq Notifications of Listing
of Additional Shares program, on or before September 7, 1999. If the Company
fails to comply with any of the provisions of the Nasdaq decision, Intelect's
securities will be delisted from Nasdaq. If during the course of Nasdaq's review
process for the Company's listing on the Nasdaq SmallCap Market, the Company's
stock price falls below a minimum $1.00 bid price, the Company will be placed
under a 90 day exception to the minimum bid price requirement. If after such 90
day period, the Company falls below the minimum bid price requirement, the
Company will be required to comply with minimum bid price requirement for at
least ten consecutive trading days or be delisted from Nasdaq.
There can be no assurance that the Nasdaq procedures will result in a
determination favorable to Intelect or that Intelect's common stock will
continue to be listed on the Nasdaq SmallCap Market. The inability to maintain
the listing could adversely affect the liquidity of Intelect common stock and
could materially adversely affect our operating results and financial condition.
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. During the
first six months of 1999 we incurred operating losses of $11,151,000 and
negative cash flow from operations of $8,548,000. We funded the negative cash
flows by proceeds from borrowings under credit facilities and sales of preferred
stock and common stock in the first six months of 1999, and during 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
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be no assurance that additional capital will be available through public or
private equity or debt financing.
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.
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 5 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.
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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
prices or increase spending in response to competition or to pursue new market
opportunities. 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 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 our 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
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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. 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 as to any of our products or services 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
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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 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
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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.
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; and
o 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."
8
<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 10-Q filed on May 17, 1999.
(3) Our Form 8-K's filed on July 2, and July 8, 1999.
(4) Our Form 10-Q filed on August 16, 1999.
(5) Our Form 8-K's filed on August 18, and August 25, 1999.
(6) Our definitive Proxy Statement filed on April 30, 1999.
(7) 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.
(8) 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 the termination of the offering of the common stock
registered under this registration statement.
To the extent that prior filings listed in numbers (1) - (7) 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) - (7) above conflict
with statements in future filings referenced in number (8) above, this
Prospectus and the prior filings are modified by the future filings listed in
number (8) 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:
ROBERT P. CAPPS
CHIEF FINANCIAL OFFICER
INTELECT COMMUNICATIONS, INC.
1100 EXECUTIVE DRIVE
RICHARDSON, TEXAS 75081
(972) 367-2100.
9
<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 transactions exempt from registration under the
Securities Act of 1933 as summarized below:
Of the 24,155,613 shares of Common Stock being registered:
(i) Pursuant to the Citadel Settlement Agreement, on June 27, 1999, the
Citadel Entities agreed to exchange all of their remaining Preferred
Shares for 5,515,563 shares of common stock of the Company (the
"Exchange Shares"). Of the 5,515,563 Exchange Shares which are
covered by this Prospectus, Intelect issued 1,988,341 Exchange
Shares on July 1, 1999 upon exchange of Preferred Shares and
Intelect expects to issue an additional 3,526,822 Exchange Shares on
or about September 10, 1999, upon exchange of the Citadel Entities'
remaining Preferred Shares.
(ii) We issued 1,762,499 common shares to certain accredited investors in
a private placement which closed on June 30, 1999. Such shares are
registerable under registration rights agreements dated June 3,
1999.
(iii) We issued 106,263 shares of common stock to AJC Equities, Inc.
("AJC") in a private placement for certain advisory services
performed by AJC in connection with Intelect's June 30, 1999 private
placement to accredited investors.
(iv) We issued 84,000 shares of common stock in a private placement to
Sanders Morris Mundy in satisfaction of certain investment banking
and consulting services performed by Sanders Morris Mundy.
(v) We issued 142,719 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 second quarter of 1999. We
issued to Coastal 2,777,778 shares of common stock in exchange for
$3 million of indebtedness which the Company owed to Coastal in a
transaction exempt from registration under the Securities Act of
1933. In addition, in connection with an amendment to our credit
facility with Coastal, we issued in a private placement a warrant to
purchase 1,067,308 shares of common stock and a replacement warrant
to purchase 450,000 shares of common stock, each at an exercise
price of $1.30 per share.
(vi) The Company presently owes indebtedness to St. James under certain
Convertible Promissory Notes issued to St. James (the "St. James
Notes"). In connection with a recapitalization of the indebtedness
which the Company owes to St. James under the St. James Notes, we
issued 2,364,346 shares to SJCP in repayment of $2 million of the
indebtedness (the "Initial Repayment Amount"), and agreed to issue
an amount of additional shares to SJCP and SJMB to effect the
repayment of $1 million of additional indebtedness (the "Mandatory
Repayment Amount") upon the effective date of the Registration
Statement which covers this Prospectus (the "Mandatory Repayment
Shares"). The number of Mandatory Repayment Shares which the Company
agreed to issue is equal to the Mandatory Repayment Amount divided
by 66 2/3% of the "Market Price" (as defined) of the common stock on
the date of the effectiveness of the Registration Statement. Under a
Registration Rights Agreement with St. James, we agreed to register
150% of the number of shares issuable upon the exchange of the
Mandatory Repayment Amount divided by 66 2/3% of the Market Price as
determined on the date of the filing of the Registration Statement,
or 2,236,136 shares, based on a price of $0.6708. In addition, we
also agreed that St. James would be allowed, after giving effect to
the repayment of the Initial Repayment Amount and the Mandatory
Repayment Amount, at its option, to exchange the remaining balance
of principal and interest under the St. James Notes for common stock
at a price equal to the greater of $1.08 or 66 2/3% of the Market
Price of the common stock on the date of the exchange (the "Optional
Exchange Shares"). The
10
<PAGE>
Company has agreed to register 7,649,433 Optional Exchange Shares,
which number is based on the balance on the St. James Notes as of
the maturity date of such notes on February 12, 2000, after giving
effect to the repayment of the Initial Repayment Amount on August
13, 1999 and the Mandatory Repayment Amount as of September 30,
1999, divided by $1.08. The maximum number of shares issuable to St.
James is subject to Nasdaq Rule 4460(i), which prohibits the
Company, absent stockholder approval, from issuing shares at less
than book or market value if the total number of shares equals or
exceeds 20% of the shares outstanding on the transaction date (the
"Nasdaq 20% Rule"). Pursuant to the Repayment Agreement with St.
James, if the Company were unable to issue any additional shares due
to the Nasdaq 20% Rule, then it would be required to use its best
efforts to obtain stockholder approval within 75 days of such date.
In each case, the issuance of Intelect common stock to each of the Selling
Stockholders was undertaken pursuant to exemptions from registration under the
Securities Act of 1933.
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 August 18, 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES
COMMON STOCK OF COMMON STOCK
BENEFICIALLY OWNED NUMBER OF SHARES BENEFICIALLY
AS OF AUGUST 18, OF COMMON STOCK OWNED AFTER
NAME OF SELLING STOCKHOLDER 1999(1) OFFERED HEREBY OFFERING(6)
- ------------------------------------- ------------------- ---------------- ----------------
<S> <C> <C> <C>
Wingate Capital Ltd.................. 1,824,635(2) 1,776,631 0
Fisher Capital Ltd................... 3,517,515(2) 3,333,710 0
CCG Capital Ltd...................... 193,199(2) 159,992 0
CCG Investment Fund, Ltd............. 192,346(2) 159,139 0
Midway Capital Ltd................... 118,932(2) 85,691 0
The Coastal Corp. Second Pension
Trust.............................. 8,898,782(3) 4,437,805 0
Sanders Morris Mundy................. 84,000 84,000 0
Rodney Jones......................... 234,526 210,526 24,000
Robert Ted Lyons IRA................. 49,700 31,000 18,700
Joel A. Ruth......................... 107,000 55,000 52,000
John H. Northcutt.................... 34,280 25,000 9,280
Legg Mason Wood Walker, Custodian FBO
William P. Byers IRA............... 25,000 25,000 0
BMF, L.L.C........................... 60,000 60,000 0
Richard G. Trevino................... 8,000 5,500 2,500
Robert Marvin........................ 230,000 100,000 130,000
Louis Falletta....................... 200,000 171,000 29,000
Eric Larson.......................... 145,000 80,000 65,000
Crown Texas Realty, Inc. Profit
Sharing Plan....................... 155,000 100,000 55,000
Bonnie Ligon Dickens................. 507,000 300,000 207,000
Philip C. Bird, M.D.................. 25,000 25,000 0
Jeffrey Rabin........................ 280,000 200,000 80,000
Fred B. Dulock....................... 100,000 35,000 65,000
Tim W. Lowell........................ 61,315 26,315 35,000
Fred & Melissa Roesch................ 100,000 50,000 50,000
Richard E. Bean...................... 263,158 263,158 0
AJC, Inc............................. 556,231 106,231 0
St. James Capital Partners, L.P...... 3,556,487(4) 2,861,808 694,679
SJMB, L.P............................ 12,235,551(5) 9,388,107 2,847,444
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
11
<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 August 18,
1999 through the conversion or exercise of any security or other right.
(2) Beneficial ownership based on Citadel's Schedule 13-G, filed on July 16,
1999. Also includes the following amounts of shares of common stock
issuable upon exercise of warrants: Wingate Capital Ltd. -- 48,004 shares;
Fisher Capital Ltd. -- 183,805 shares; CCG Capital Ltd. -- 3,900 shares;
CCG Investment Fund, Ltd. -- 3,900 shares. Does not include the following
shares issuable upon exercise of warrants: NP Partners -- 68,800 shares;
Olympus Securities, Ltd. -- 122,800 shares. All such warrant shares are
subject to the following restrictions: none of the holders has the right to
exercise warrants for a number of shares of common stock (i) in excess of
the number of shares that, upon giving effect to such exercise would cause
the aggregate number of shares of common stock beneficially owned (as
defined in the applicable warrants) by the holder and its affiliates to
exceed 5% of the outstanding shares of Intelect common stock following the
exercise, or (ii) to the extent that, after giving effect to such exercise,
such holder would have acquired beneficial ownership (as defined in the
applicable warrants) of a number of shares of common stock during the
60-day period ending on and including the date such exercise was
implemented (the "60-Day Period") which, when added to the number of
shares beneficially owned at the beginning of the 60-Day Period, is in
excess of 10% of the shares of common stock outstanding immediately after
giving effect to such conversion or exercise. Citadel Limited Partnership
is the trading manager of Wingate Capital Ltd., Fisher Capital Ltd., CCG
Investment Fund Ltd., CCG Capital Ltd., Midway Capital Ltd., Olympus
Securities, Ltd. and NP Partners (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.
(3) Based solely on information supplied to the Company as of August 18, 1999
by the Coastal Corporation Second Pension Trust, includes 3,719,409 shares
of Common Stock issuable upon conversion of the Company's Series A
Preferred Stock and 1,517,308 shares of Common Stock issuable upon exercise
of currently exercisable warrants.
(4) Includes (i) 331,641 shares of common stock issuable upon conversion of
convertible debt, (ii) 750,500 shares of common stock issuable upon
exercise of warrants, which represents 300,000 shares of common stock
issuable upon exercise of warrants issued on April 2, 1998 and an
additional 450,500 shares pursuant to anti-dilution provisions in such
warrants as of November 10, 1998 and (iii) 110,000 shares issuable upon
exercise of that certain warrant dated January 13, 1999. Except as set
forth herein, does not include any additional shares which may be acquired
pursuant to anti-dilution provisions in the warrants.
(5) Includes (i) 8,808,549 shares of common stock issuable upon conversion of
convertible debt, (ii) 3,002,001 shares of common stock issuable upon
exercise of warrants, which represents 1,200,000 shares of common stock
issuable upon exercise of warrants issued on April 2, 1998 and an
additional 1,802,001 shares pursuant to anti-dilution provisions in such
warrants as of November 10, 1998 and (iii) 425,000 shares issuable upon
exercise of that certain warrant dated January 13, 1999. Except as set
forth herein, does not include any additional shares which may be acquired
pursuant to anti-dilution provisions in the warrants.
(6) With respect to Coastal, assumes the sale of all of the shares of common
stock issuable upon conversion of the Company's Series A Preferred Stock
and shares of common stock issuable or issued upon exercise of warrants
held by Coastal, or issued to Coastal as dividends on the Company's Series
A Preferred Stock and covered in previous registration statements of the
Company on Form S-3 filed on December 30, 1997, May 22, 1998 and April 2,
1999 (File
12
<PAGE>
Nos. 333-35851, 333-53451 and 333-75651). With respect to CCG Capital Ltd.,
CCG Investment Fund, Ltd., Wingate Capital, Ltd., Fisher Capital, Ltd., and
Midway Capital assumes the sale of the shares of Common Stock issued upon
conversion of the Series D Preferred Shares and Series E Preferred Shares,
and any shares issuable upon exercise of related warrants, included in the
registration statements of the Company on Form S-3 filed on May 22, 1998
and April 2, 1999 and which are not included as Exchange Shares registered
in this Registration Statement. With respect to AJC, Inc., assumes the sale
of all of the shares issuable upon the exercise of the warrants covered by
the registration statement filed on April 2, 1999. With respect to SJMB,
L.P., assumes the sale of 1,200,000 shares of common stock issuable upon
the exercise of warrants covered by the registration statement filed on May
22, 1998 and 425,000 shares of common stock issuable upon exercise of
warrants covered by the registration statement filed on April 2, 1999. With
respect to St. James Capital Partners, L.P., assumes the sale of 300,000
shares of common stock issuable upon the exercise of warrants covered by
the registration statement filed on May 22, 1998 and 110,000 shares of
common stock issuable upon exercise of warrants and covered by the
registration statement filed on April 2, 1999. Upon completion of the
offering, and after giving effect the sale of all of the shares of common
stock referred to herein, each Selling Stockholder will own less than 1% of
the common stock of the Company except as follows: SJMB, L.P. 4.3% and SJCP
1.3%.
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 interest
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; or
(viii) 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 pledges, 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, subject to certain restrictions
on the Citadel Entities as set forth in the Citadel Settlement Agreement and St.
James in the Repayment Agreement
13
<PAGE>
(which prohibit them from engaging in short selling, purchasing puts, selling
calls, or similar transactions pursuant to which they could benefit from the
decrease in the price of Intelect Common Stock), 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 for Selling Stockholders'
conversion shares sold hereunder will otherwise remain unchanged, except that
the transferees, pledges, donees or other successors will be Selling
Stockholders hereunder.
Subject to certain restrictions on the Citadel Entities as set forth in the
Citadel Settlement Agreement and St. James in the Repayment Agreement (which
prohibit them from engaging in short selling, purchasing of puts, selling calls,
or similar transactions pursuant to which they could benefit from the decrease
in the price of Intelect Common Stock), 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.
The Citadel Entities have agreed to refrain from selling on any trading day
a number of Exchange Shares or shares of common stock issued pursuant to the
conversion of the Preferred Shares in excess of that number of shares of common
stock equal to 5% of the daily trading volume of the common stock for the ten
trading days prior to such date of determination, excluding sales by the Citadel
Entities.
14
<PAGE>
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.
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 386,395 shares of common stock. Mr. James W. Ryan, a partner
in Ryan & Sudan, L.L.P., beneficially owns 104,561 shares of common stock. In
addition, Messrs. Ryan and Sudan are holders of certain amended and restated
promissory notes (the "Promissory Note") issued by the Company which have an
aggregate principal balance of $200,000. The Promissory Notes are payable on
demand in cash or in Common Stock. If a holder elects to convert his Promissory
Note into Common Stock, the number of shares to which the holder would be
entitled is equal to the aggregate principal and interest outstanding under the
Promissory Note divided by $2.00. The Promissory Notes were originally issued on
December 5, 1997 and bear interest at the prime rate plus 3%.
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 statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1996, the related schedule and the report
of KPMG Peat Marwick, independent chartered accountants, all contained
15
<PAGE>
in our 1998 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.
16
<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.
TABLE OF CONTENTS
PAGE
----
About Intelect......................................................... 2
Risk Factors........................................................... 2
Where You Can Find More Information About Intelect..................... 9
Incorporation of Certain Documents by Reference........................ 9
Use of Proceeds........................................................ 10
Selling Stockholders................................................... 10
Plan of Distribution................................................... 13
Legal Matters.......................................................... 15
Experts................................................................ 15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
NATURE OF EXPENSE
--------------------
SEC Registration Fee.......................................... $ 6,823
Legal (including Blue Sky), Printing, and Accounting
Fees and Expenses........................................... $ 20,000*
Miscellaneous................................................. $ 2,000*
TOTAL.................................................... $ 28,823*
- ------------
* 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'
II-1
<PAGE>
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 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");
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<PAGE>
(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,
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.
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<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 27th day of August, 1999.
INTELECT COMMUNICATIONS, INC.
By: /s/ HERMAN M. FRIETSCH
HERMAN M. FRIETSCH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Herman M. Frietsch, his true and lawful
attorney-in-fact and agent with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
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
------------ --------- ------
<S> <C> <C>
/s/ HERMAN M. FRIETSCH Chief Executive Officer and Director August 27, 1999
HERMAN M. FRIETSCH (Principal Executive Officer)
/s/ ROBERT P. CAPPS Executive Vice President and Chief August 27, 1999
ROBERT P. CAPPS Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ PHILIP P. SUDAN, JR. Director August 27, 1999
PHILIP P. SUDAN, JR.
/s/ ANTON LIECHTENSTEIN Director August 27, 1999
ANTON LIECHTENSTEIN
/s/ ROBERT E. GARRISON II Director August 27, 1999
ROBERT E. GARRISON II
</TABLE>
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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 -- Settlement Agreement and Mutual Release by and among Intelect Communications, Inc. 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, dated June 27, 1999(5)
10.2 -- Registration Rights Agreement among Intelect Communications, Inc. 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, dated
June 27, 1999(5)
10.3 -- Form of Registration Rights Agreement between Intelect Communications, Inc. and the
Buyers, dated as of June 30, 1999
10.4 -- Registration Rights Agreements dated May 8 and May 30, 1997 among Intelect Communications
Systems Ltd. and The Coastal Corporation Second Pension Trust(6)
10.5 -- Agreement to Amend Receivables and Inventory Backed Credit Lines(7)
10.6 -- Form of Warrant in favor of Coastal(7)
10.7 -- Registration Rights Agreement between the Company and Coastal(7)
10.8 -- Repayment and Exchange Agreement between the Company and St. James(7)
10.9 -- Registration Right Agreement between the Company and St. James(7)
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>
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(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
<PAGE>
(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 July 2, 1999
(6) Incorporated herein by reference to Form 10-Q of Intelect Communications
Systems Ltd. for the quarter ended June 30, 1997
(7) Incorporated herein by reference to Form 8-K of Intelect Communications,
Inc. filed August 18, 1999
EXHIBIT 5.1
[RYAN & SUDAN, L.L.P. LETTERHEAD]
August 27, 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 24,155,613 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 the 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.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of June
____,1999 by and among INTELECT COMMUNICATIONS, INC., a Delaware corporation,
with headquarters located at 1100 Executive Drive, Richardson, Texas, 75081 (the
"COMPANY"), and the undersigned buyer (a "BUYER").
WHEREAS:
A. In connection with the Subscription Agreement by and among the
parties hereto of even date herewith (the "SUBSCRIPTION AGREEMENT"), the Company
has agreed, upon the terms and subject to the conditions of the Subscription
Agreement, in a transaction exempt from registration under Regulation D as
promulgated under the Securities Act of 1933, as amended (the "1933 ACT"), to
issue and sell to the Buyer shares (the "COMMON SHARES") of the Company's common
stock, par value $0.01 per share (the "COMMON STOCK"), and
B. To induce the Buyer to execute and deliver the Subscription
Agreement, the Company has agreed to provide certain registration rights under
the 1933 Act, and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyer hereby
agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
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<PAGE>
d. "REGISTRABLE SECURITIES" means the Common Shares and any shares
of capital stock issued or issuable with respect to the Common Shares as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, as soon
as practicable but in no event later than 20 days after the date of issuance of
the relevant Common Shares, file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form S-3 covering the resale of all
the Registrable Securities as set forth herein. In the event that Form S-3 is
unavailable for such a registration, the Company shall use such other form as is
available for such a registration, subject to the provisions of Section 2(d).
The Company shall use its commercially reasonable best efforts to have the
Registration Statement declared effective by the SEC no later than 45 days after
the filing of such Registration Statement or Registration Statements.
b. PIGGY-BACK REGISTRATIONS. Unless the Registrable Securities have
been registered pursuant to Section 2(a) and for so long as such registration is
effective, subject to the provisions of Section 3(e) hereof, and sufficient to
cover all Registrable Securities, then, if at any time prior to the expiration
of the Registration Period (as hereinafter defined), the Company proposes to
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its securities
(other than on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans) the Company shall promptly send to each
Investor written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(b) and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(b) below. No right to
registration of Registrable Securities under this Section 2(b) shall be
construed to limit any registration required under Section 2(a). The obligations
of the Company under this Section 2(b) may be waived by Investors holding a
majority of the Registrable Securities. If an offering in connection with which
an Investor is entitled to registration under this Section 2(b) is an
underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten offering
using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock
included in such underwritten offering. If a registration
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<PAGE>
pursuant to this Section 2(b) is to be an underwritten public offering and the
managing underwriter(s) advise the Company in writing, that in their reasonable
good faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, and (3) third,
the securities requested to be registered by the Investors and other holders of
securities entitled to participate in the registration, as of the date hereof,
drawn from them pro rata based on the number each has requested to be included
in such registration.
c. INELIGIBILITY FOR FORM S-3. In the event that Form S-3 is not
available for any registration of Registrable Securities hereunder, the Company
shall (i) register the sale of the Registrable Securities on another appropriate
form and (ii) undertake to register the Registrable Securities on Form S-3 as
soon as such form is available, provided that the Company shall maintain the
effectiveness of the Registration Statement then in effect until such time as a
Registration Statement on Form S-3 covering the Registrable Securities has been
declared effective by the SEC.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its commercially reasonable best efforts to effect the
registration of the Registrable Securities in accordance with the intended
method of disposition thereof and, pursuant thereto, the Company shall have the
following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the twentieth (20th) day after the date of issuance of any Common Shares for
the registration of Registrable Securities pursuant to Section 2(a)) and use its
commercially reasonable best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective within 45 days after
such filing, and keep such Registration Statement effective pursuant to Rule 415
at all times until the earlier of (i) the date as of which the Investors may
sell all of the Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) or (ii) the date on
which (A) the Investors shall have sold all the Registrable Securities and (B)
none of the Common Shares is outstanding (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
b. Subject to Section 3(e), the Company shall prepare and file with
the SEC such amendments (including post-effective amendments) and supplements to
a Registration Statement
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<PAGE>
and the prospectus used in connection with such Registration Statement, which
prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act,
as may be necessary to keep such Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by such Registration Statement until such time
as all of such Registrable Securities shall have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in such Registration Statement.
d. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits, and each preliminary prospectus, (ii) upon the effectiveness of
any Registration Statement, two (2) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
e. The Company shall promptly notify each Investor who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any event
as a result of which the prospectus included in a Registration Statement, as
then in effect, includes an untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
two (2) copies of such supplement or amendment to each Investor. The Company
shall also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Legal Counsel and each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. Subject to Section 3(l) hereof, the Company shall use its best
efforts to prevent the issuance of any stop order or other suspension of
effectiveness of a Registration Statement, or the suspension of the
qualification of any of the Registrable Securities for sale in any jurisdiction
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<PAGE>
and, if such an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify each Investor
who holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
h. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market System or, if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii), the Company
is unsuccessful in satisfying the preceding clause (i) or (ii), to secure the
inclusion for quotation on The Nasdaq SmallCap Market for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 3(h).
i. The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investors may reasonably
request and registered in such names as the Investors may reasonably request.
j. The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.
k. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.
l. Notwithstanding anything to the contrary in Section 3(g), at any
time after the Registration Statement has been declared effective, the Company
may delay the disclosure of material non-public information concerning the
Company the disclosure of which at the time is not, in the good faith opinion of
the Board of Directors of the Company and its counsel, in the best interest of
the Company and, in the opinion of counsel to the Company, otherwise required (a
"GRACE PERIOD"); provided, that the Company shall promptly (i) notify the
Investors in writing of the existence of material non-public information giving
rise to a Grace Period and the date on which the Grace Period will begin, and
(ii) notify the Investors in writing of the date on which the Grace Period ends;
and, provided further, that during any consecutive 365 day period, there shall
be only two allowable Grace Periods, such Grace Periods not to exceed 30 days
(an "ALLOWABLE GRACE PERIOD"). For purposes of determining the length of a Grace
Period above, the Grace Period shall
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begin on and include the date the holders receive the notice referred to in
clause (i) and shall end on and include the date the holders receive the notice
referred to in clause (ii). Upon expiration of the Grace Period, the Company
shall again be bound by the first sentence of this Section 3(l) with respect to
the information giving rise thereto.
4. OBLIGATIONS OF THE INVESTORS.
a. At least two (2) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor if such Investor elects
to have any of such Investor's Registrable Securities included in such
Registration Statement. It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2(b), each such Investor agrees
to enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to any Registration Statement(s) covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(e) or 3(f).
e. No Investor may participate in any underwritten registration
under Section 2(b) hereof unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any underwriting
arrangements approved by the Investors entitled hereunder to approve such
arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such
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underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable fees and expenses, other than selling commissions,
transfer taxes, fees and costs attributable to counsel for the Investors, and
underwriting discounts and commissions, incurred in connection with
registrations, filings or qualifications pursuant to Sections 2 and 3,
including, all registration, listing and qualifications fees, printers and
accounting fees, and fees and disbursements of counsel for the Company, shall be
paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents of,
and each Person, if any, who controls any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and any underwriter (as defined in the 1933 Act) for the Investors, and the
directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which the statements therein were made, not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or
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regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement by the Company (the matters in the foregoing clauses (i)
through (iv) being, collectively, "VIOLATIONS"). The Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person or underwriter
for such Indemnified Person expressly for use in connection with the preparation
of the Registration Statement or any such amendment thereof or supplement
thereto, if such prospectus was timely made available by the Company pursuant to
Section 3(d); (ii) with respect to any preliminary prospectus, shall not inure
to the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(d), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(d);
and (iv) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
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Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Company shall
pay reasonable fees for only one separate legal counsel for the Investors, and
such legal counsel shall be selected by the Investors holding a majority in
interest of the Registrable Securities included in the Registration Statement to
which the Claim relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any negotiation
or defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably available to the
Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person
fully apprized at all times as to the status of the defense or any settlement
negotiations with respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its written
consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without
the consent of the Indemnified Party or Indemnified Person, consent to entry of
any judgment or enter into any settlement or other compromise which does not
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include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to
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such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing of such reports and other documents is required for the
applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall not be assignable by the
Investors without the prior written consent of the Company.
10. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
b. Any notices consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically generated and kept on file by the sending
party); or (iii) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
INTELECT COMMUNICATIONS, INC.
1100 Executive Drive
Richardson, Texas 75081
Telephone: (972) 367-2100
Facsimile: (972) 367-2271
Attention: Herman M. Frietsch
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With a copy to:
RYAN & SUDAN, L.L.P.
Two Houston Center
909 Fannin Street, 39th Floor
Houston, Texas 77010
Telephone: (713) 652-0501
Facsimile: (713) 652-0503
Attention: Philip P. Sudan, Jr., Esq.
If to a Buyer, to its address and facsimile number on the Schedule of Buyers
attached hereto, with copies to such Buyer's representatives as set forth on the
Schedule of Buyers or to such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) provided by a courier or
overnight service or (C) mechanically generated by the sender's facsimile
machine containing the time, date, recipient facsimile number and an image of
such transmission shall be rebuttable evidence of personal delivery, overnight
or courier delivery or transmission by facsimile in accordance with clause (i),
(iii) or (ii) above, respectively.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. The construction, validity, enforcement and interpretation of
this Agreement shall be governed by the internal laws of the State of Texas,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of Texas. Each
party hereby irrevocably submits to the non-exclusive jurisdiction of the state
and federal courts sitting in the City of Houston, 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. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement and the Subscription Agreement constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein
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and therein. This Agreement and the Subscription Agreement supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities,
determined as if all of the Common Shares then outstanding have been converted
into Registrable Securities without regard to any limitation on conversions of
Common Shares.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.
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IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYER:
INTELECT COMMUNICATIONS, INC.
By:______________________________ By:______________________________
Herman M Frietsch Printed Name:
Chairman and CEO
ADDRESS FOR NOTICES:
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 included in this registration statement.
GRANT THORNTON LLP
Dallas, Texas
August 26, 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
August 26, 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 August 27, 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 its 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
August 27, 1999
