PROSPECTUS
INTELECT COMMUNICATIONS, INC.
20,392,227 SHARES OF COMMON STOCK
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The Selling Stockholders listed on pages 11 & 12 may offer and resell up to
20,392,227 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 shares of common
stock that currently are issued and outstanding and shares of common stock
issuable upon exercise of warrants.
We will not receive any proceeds from the sales covered by this Prospectus.
Pursuant to an agreement dated as of December 17, 1999, we issued 5,000,000
shares of common stock to The Coastal Corporation Second Pension Trust
("Coastal") in repayment of debt owed by the Company to Coastal. We issued
additional common stock and warrants in several 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 Small Cap Market under the symbol
"ICOM." On February 25, 2000, the last sale price of our common stock was
$6.06.
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 FEBRUARY 28, 2000.
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 have developed 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, August 16, and November 12, 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
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
2
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 Small Cap 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 ARE NOT PROFITABLE; ABILITY TO CONTINUE AS GOING CONCERN
We have incurred losses from continuing operations in 1998, 1997, and 1996
of $43,138,000, $20,241,000 and $43,039,000. Negative cash flows from operations
in the same periods were, respectively, $22,929,000, $24,852,000 and
$23,050,000. During the first nine months of 1999 we incurred losses from
continuing operations of $20,788,000 and negative cash flow from operations of
$13,703,000. We funded the negative cash flows by proceeds from borrowings under
credit facilities and sales of preferred stock and common stock in the first
nine 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 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 on the consolidated financial
statements which are incorporated by reference into this Prospectus contain an
explanatory paragraph that states that we have suffered recurring losses from
continuing operations and are dependent upon the successful development and
commercialization of our products and our ability to secure adequate sources of
capital until we operate profitably. These matters raise substantial doubt about
our ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
OUR ABILITY TO BECOME PROFITABLE DEPENDS ON INCREASED SALES OF OUR PRODUCTS
Our ability to become profitable will depend, in part, on the sales volume
of our products. Increasing the sales volume will depend on our ability to:
o continue to develop our products;
o increase our sales and marketing activities;
o increase our manufacturing activities; and
o effectively compete against current and future competitors.
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We cannot assure you that we will be able to successfully increase the
sales volumes of our products to achieve profitability. We also cannot assure
that profitability and positive cash flow will be achieved when expected. If our
sales plans are not achieved, operating losses and negative cash flows exceed
our estimates, or capital requirements in connection with the design,
development, and commercialization of our principal products are higher than
estimated, we will need to raise additional capital. See page 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.
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 and OMNILYNX 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.
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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 reduction of engineering, development,
selling, and administrative costs would allow us to continue as a going concern.
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 OMNILYNX product. We have not yet
completed development of all planned enhancements to the OMNILYNX product line.
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 customers will accept OMNILYNX
enhancement. Any failure to anticipate or respond on a cost-effective and timely
basis to technological developments, changes in industry standards or customer
requirements, or any significant delays in product development or introduction,
could materially adversely effect our business, operating results and financial
condition.
COMPETITION FROM LARGER, BETTER ESTABLISHED ENTITIES IS INTENSE
Competition in the converging voice and data communications industry is
intense, and we believe that competition will increase substantially with the
development of multimedia communications products, rapid technological changes,
industry consolidations, new industry entrants, and potential regulatory
changes. Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical and marketing resources,
greater name recognition, and a larger installed customer base than we have. In
addition, many of these competitors may be able to respond more quickly to new
or emerging technologies and changes in customer requirements, and to devote
greater resources to the development, promotion and sale of their products than
we can. Our current or potential competitors may develop products and services
comparable or superior to ours or adapt more quickly than we can to new
technologies, evolving industry trends, or changing customer requirements.
Increased competition as to any of our products or services could result in
price reductions, reduced margins, and loss of 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
5
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 OMNILYNX product from a small
company which is the sole source for this component. We also buy a video codec
card used in OMNILYNX 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 OMNILYNX
product. Equivalent components are available from other vendors, but their use
would require a redesign of the method of connecting to the fiber. This would
cause significant delays in delivery of the product and could materially
adversely effect our business, results of operations, and financial condition.
Our strategy is to forecast requirements and build inventories that comprehend
vendor lead times.
We have one manufacturing facility for OMNILYNX products, and our revenues
depend on its continued operation. While third-party manufacturers could be
utilized for a significant portion of the manufacturing process, 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
6
challenged by any third parties. Likewise, the intellectual property rights of
others could impede our ability to do business. Additionally, third parties may
be able to circumvent our patents. Our patent applications may be denied.
Furthermore, it is possible that others could independently develop similar
products, duplicate our products, or design around our patented products.
We have received notice that we may be infringing on certain intellectual
property rights of others. We have asked legal counsel to evaluate these claims.
We may have to obtain licenses from third parties to avoid infringing patents or
other proprietary rights. We cannot assure that any licenses required under any
such patents or proprietary rights would be made available, if at all, on
acceptable terms. Failure to obtain these licenses could delay product
introductions, or prohibit our development, manufacture or sale of products
requiring such licenses. In addition, we could incur substantial costs in
defending or prosecuting lawsuits to protect our patents or other proprietary
rights. Intellectual property plaintiffs could obtain injunctive or other
equitable relief which could effectively block our ability to sell our products
in the United States and abroad, and could obtain an award of substantial
damages. Either result could materially adversely affect our business, results
of operations, and financial condition.
Much of our know-how and technology may not be patentable. To protect our
rights, we require many employees, consultants, advisors and collaborators to
enter into confidentiality agreements. We cannot assure that these agreements
will provide meaningful protection of our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure.
Furthermore, independent development by competitors of competing technologies
could materially adversely affect our business, results of operations and
financial condition, especially if we do not obtain patent protection or if our
patent protection is narrowly defined.
NUMEROUS GOVERNMENTAL REGULATIONS AFFECT OUR BUSINESS AND OUR PRODUCTS
While most of our operations are not directly regulated, some of our
customers are telecommunications service providers who are heavily regulated at
both the federal and state levels. Such regulation may limit the number of
potential customers for our services or impede our ability to offer competitive
services to the market, or otherwise materially adversely affect our business,
results of operations, and financial condition. At the same time, recent
deregulation of the telecommunications industry may facilitate the entrance of
new competitors or industry consolidation. This could subject us to additional
competitors, increased pricing pressures, decreased demand for our products or
services, increased cost of doing business or other factors that could
materially adversely affect our business, results of operations, and financial
condition.
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 (the "Taylor litigation"). 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
7
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.
A shareholders class action lawsuit was filed in the U.S. District Court
for the Northern District of Texas purported to have been filed on behalf of all
persons and entities who purchased Intelect common stock during the period
between February 24, 1998 and November 17, 1998. The named defendants include
Intelect Network Technologies Company, certain former and present officers and
directors of the Company, and Arthur Andersen, LLP. The complaint alleges that
the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934 and Rule 10b-5 promulgated thereunder by making false and misleading
statements concerning Intelect's reported financial results during the period,
primarily relating to revenue recognition, asset impairment and capitalization
issues. The plaintiffs seek monetary damages, interest, costs and expenses. The
Company intends to defend the suit vigorously in all aspects.
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."
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.
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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's filed on May 17, August 16, and November 12, 1999.
(3) Our Form 8-K's filed on November 23, and December 22, 1999, and
February 8, 2000.
(4) Our definitive Proxy Statement filed on April 30, 1999.
(5) 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.
(6) 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) - (5) 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) - (5) above conflict
with statements in future filings referenced in number (6) above, this
Prospectus and the prior filings are modified by the future filings listed in
number (6) above.
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.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock offered in
this Prospectus.
SELLING STOCKHOLDERS
The Selling Stockholders were issued the common stock covered by this
Prospectus in a series of private placements as summarized below:
Of the 20,392,227 shares of Common Stock being registered:
(i) We issued 7,200,000 shares of common stock, and warrants for the
purchase of 3,600,000 shares of common stock, to certain accredited
investors in a private placement which closed on January 27, 2000.
Such shares are registerable under registration rights agreements
dated January 27, 2000.
(ii) We issued warrants for the purchase of 720,000 shares of common
stock to certain principals and affiliates of Stonegate Securities,
Inc. ("Stonegate") in a private placement in connection with
Stonegate's service as placement agent in the January 27, 2000
private placement described in (i) above. We issued warrants for the
purchase of 250,000 shares of common stock to such principals and
affiliates of Stonegate in a private placement for certain
investment banking services performed by Stonegate.
(iii) We issued 5,000,000 shares of common stock to The Coastal
Corporation Second Pension Trust ("Coastal") in exchange for a
reduction in Intelect's obligations under its credit facility with
Coastal. We issued 364,726 shares of common stock to Coastal as
dividends on the Company's $2.0145, 10% Cumulative Convertible
Preferred Stock, Series A (the "Series A Preferred Stock") for
the third quarter (142,719 shares) and fourth quarter (222,007
shares) of 1999.
(iv) We issued 350,000 shares of common stock to Richard Dzanski pursuant
to a settlement agreement for the settlement and dismissal of
certain claims asserted by him against the Company.
(v) We issued warrants to purchase 225,000 shares of common stock to
Alpine Capital Partners, Inc. in connection with a private placement
of convertible debentures which occurred on October 15, 1996.
(vi) We are registering 450,500 shares for St. James Capital Partners,
L.P. ("SJCP") and 1,802,001 shares for SJMB, L.P. ("SJMB"),
(SJCP and SJMB collectively "St. James") which shares are included
herein as a result of an agreement dated September 14, 1998 between
the Company and the other parties thereto, as a result of
anti-dilution provisions in warrants issued April 2, 1998 by the
Company to St. James.
(vii) As of February 10, 2000, we issued in a private placement
transaction 15,000 shares of common stock to Young Asset Advisor, an
entity controlled by Roger Young, in consideration for certain
advisory services rendered to the Company from 1995 to the present.
In each case, the issuance of Intelect common stock to each of the Selling
Stockholders was undertaken pursuant exemptions from registration under the
Securities Act and are registered pursuant to various agreements between the
Company and such Selling Stockholders.
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 February 1, 2000, 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.
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NUMBER OF
NUMBER OF SHARES SHARES OF
OF COMMON STOCK NUMBER OF COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY
AS OF FEBRUARY 1, COMMON STOCK OWNED AFTER
NAME OF SELLING STOCKHOLDER 2000(1) OFFERED HEREBY OFFERING(6)
- ------------------------------------- ------------------- ---------------- ----------------
The Coastal Corporation Second
Pension Trust...................... 14,263,508(2) 5,364,726 5,000,000
St. James Capital Partners, L.P...... 860,000(3) 750,500 0
SJMB, L.P............................ 4,088,001(4) 1,802,001 0
Richard Dzanski...................... 350,000 350,000 0
Young Asset Advisor.................. 15,000 15,000 0
Alpine Capital Partners, Inc......... 337,500 225,000 112,500
Apogee Fund, LP...................... 180,000 180,000 0
Mary Kathryn Norman.................. 15,000 15,000 0
Lighthouse Partners USA LP........... 870,000 870,000 0
Erinch R. Ozada...................... 600,000 600,000 0
Pharos Fund Limited.................. 2,262,000 2,262,000 0
Lighthouse Investment Fund, LP....... 336,000 336,000 0
Eric Erdinch Ozada................... 60,000 60,000 0
Balkir Zihnali....................... 30,000 30,000 0
Kenneth E. Higgins, Jr............... 12,000 12,000 0
Joyce E. Heinzerling................. 15,000 15,000 0
Bank Morgan Stanley AG............... 600,000 600,000 0
Endeavor Asset Management............ 60,000 60,000 0
JPW Fund, Ltd........................ 60,000 60,000 0
Geronimo Partners, L.P............... 180,000 150,000 30,000
EOS Partners (Offshore), L.P......... 3,000 3,000 0
EOS Partners SBIC II, L.P............ 219,000 219,000 0
EOS Partners, L.P.................... 18,000 18,000 0
Eurasian Capital Partners Fund,
L.P................................ 120,000 120,000 0
Forest Performance Fund.............. 37,500 37,500 0
Forest Convertible Fund, LP.......... 17,250 17,250 0
Zurich HFR Master Hedge Fund, Ltd.... 5,250 5,250 0
Graham Partners, L.P................. 60,000 60,000 0
Gryphon Partners, L.P................ 750,000 750,000 0
Archer Fund, L.P..................... 60,000 60,000 0
Lyon Capital, LLC.................... 60,000 60,000 0
Jeff Coker........................... 15,000 15,000 0
Warren W. Garden..................... 15,000 15,000 0
Hathaway Partners Inv. Ltd.
Partnership........................ 145,000 120,000 25,000
Montrose Investments Ltd............. 285,000 285,000 0
Duck Partners, L.P................... 120,000 120,000 0
Kingdon Partners..................... 180,000 180,000 0
Europa International, Inc............ 60,000 60,000 0
LKCM Investment Partnership.......... 255,000 255,000 0
Bryan King & Mason King Livestock
Partnership........................ 15,000 15,000 0
Stanford C. Finney, Jr............... 180,000 180,000 0
Rainbow Trading Corporation.......... 255,000 255,000 0
Rainbow Trading Venture Partners..... 90,000 90,000 0
Ridgecrest Partners, Ltd............. 45,000 45,000 0
Ridgecrest Partners QP, Ltd.......... 165,000 165,000 0
Ridgecrest Partners, L.P............. 15,000 15,000 0
Sanford Prater....................... 30,000 30,000 0
Eugene McCaron....................... 15,000 15,000 0
David D. May......................... 30,000 30,000 0
Stuart Kensinger..................... 9,000 6,000 3,000
Doug Launius and Beth Launius........ 100,200 60,000 40,200
John N. Giannukos.................... 60,500 60,000 500
Michael J. Gaido, Jr................. 30,000 30,000 0
(TABLE CONTINUED ON FOLLOWING PAGE)
11
NUMBER OF
NUMBER OF SHARES SHARES OF
OF COMMON STOCK NUMBER OF COMMON STOCK
BENEFICIALLY OWNED SHARES OF BENEFICIALLY
AS OF FEBRUARY 1, COMMON STOCK OWNED AFTER
NAME OF SELLING STOCKHOLDER 2000(1) OFFERED HEREBY OFFERING(6)
- ------------------------------------- ------------------- ---------------- ----------------
Emily Harris Todd & Christopher Neal
Todd............................... 30,000 30,000 0
Paula L. Santoski.................... 30,000 30,000 0
Diane Goodwin........................ 22,000 12,000 10,000
Robert Garrison...................... 109,400 60,000 49,400
Nelson McCarter...................... 12,000 12,000 0
Don A. Sanders....................... 195,000 195,000 0
Christine M. Sanders................. 15,000 15,000 0
Bret D. Sanders...................... 15,000 15,000 0
Brad D. Sanders...................... 15,000 15,000 0
Laura K. Sanders..................... 15,000 15,000 0
Susan Sanders Keller................. 15,000 15,000 0
Katherine U. Sanders................. 60,000 60,000 0
Ben T. Morris........................ 15,000 15,000 0
Donald U. Weir & Julie E. Weir....... 60,000 60,000 0
Bruce R. McMaken..................... 15,000 15,000 0
George L. Ball....................... 15,000 15,000 0
Morton A. Cohn....................... 300,000 300,000 0
Robert Larry Kinney.................. 15,000 15,000 0
Sanders Opportunities Fund, LP....... 120,000 120,000 0
Scout Capital Partners, L.P.......... 60,000 60,000 0
Halifax Fund LP...................... 150,000 150,000 0
Valor Capital Management LP.......... 60,000 60,000 0
Carsam Capital II.................... 60,000 60,000 0
Thomas O. Meadows.................... 17,000 15,000 2,000
Jeffrey Thorp IRA Rollover Bear
Stearns Secs. Corp. Custodian...... 300,000 300,000 0
Jesse B. Shelmire.................... 472,250(5) 412,250 0
LBL Investments...................... 145,500(6) 145,500 0
Jesse & Michelle Shelmire............ 472,250(7) 60,000 0
Mark & Cynthia Gulis................. 15,000 15,000 0
Brent W. Clum........................ 30,000 30,000 0
Robert L. Swisher, Jr................ 45,000 45,000 0
Charles C. Taylor.................... 15,000 15,000 0
Ray Nixon, Jr. & Denise A. Nixon..... 60,000 60,000 0
Delaware Charter Trustee FBO Scott R.
Griffith SEP-IRA................... 472,250(8) 18,000 0
Scott Griffith....................... 472,250(9) 454,250 0
SRG & Associates 401K Profit Sharing
Plan FBO Tim Stobaugh.............. 15,000(10) 9,000 0
Tim Stobaugh......................... 15,000(11) 6,000 0
Anne K. Dahlson...................... 40,000 30,000 10,000
Richard A. Englander................. 30,000 30,000 0
Bray Family Trust.................... 60,000 60,000 0
John S. Lemak........................ 60,000 60,000 0
Allan Peterson....................... 15,000 15,000 2,000
- ------------
(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 February
1, 2000 through the conversion or exercise of any security or other right.
(2) Based solely on information supplied to the Company as of February 2, 2000
by Coastal. 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.
Includes 5,000,000 shares of common stock issuable upon exercise of a
warrant which is not presently exercisable pursuant of the terms of such
warrant.
(NOTES CONTINUED ON FOLLOWING PAGE)
12
(3) Includes (i) 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 issuable pursuant to an agreement relating to anti-dilution
provisions in such warrants as of September 14, 1998, and (ii) 110,000
shares issuable upon exercise of that certain warrant dated January 13,
1999. Assumes the sale of all shares of common stock previously issued to
St. James Capital Partners, L.P. upon conversion of indebtedness. Except as
set forth herein, does not include any additional shares which may be
acquired pursuant to anti-dilution provisions in the warrants.
(4) Includes (i) 661,000 shares of common stock issuable upon conversion of
convertible debt as of February 9, 2000 at a repayment price of $3.33 per
share (which price represents 66 2/3% of the "Market Price" (as defined)
of the Company's common stock on such date of determination), (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 an agreement relating to anti-dilution provisions in such
warrants as of September 14, 1998, and (ii) 425,000 shares issuable upon
exercise of that certain warrant dated January 13, 1999. Assumes the sale
of all shares of common stock previously issued to SJMB, L.P. upon
conversion of indebtedness. 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 60,000 shares beneficially owned by Jesse & Michelle Shelmire. Mr.
Shelmire is a Managing Director Investment Banking for Stonegate.
Beneficial ownership numbers for Mr. Shelmire do not include shares
beneficially owned by Stonegate, principals or affiliates of Stonegate.
(6) Beneficial ownership numbers for LBL Investments do not include shares
beneficially owned by Stonegate, principals or affiliates of Stonegate.
(7) Includes 412,250 shares beneficially owned by Jesse B. Shelmire.
(8) Includes 454,250 shares beneficially owned by Scott Griffith. Mr. Griffith
is a principal of Stonegate.
(9) Includes 18,000 shares beneficially owned by Delaware Charter Trustee FBO
Scott R. Griffith SEP-IRA.
(10) Includes 6,000 shares beneficially owned by Tim Stobaugh.
(11) Includes 9,000 shares beneficially owned by SRG & Associates 401k Profit
Sharing Plan FBO Tim Stobaugh.
(12) Assumes the sale of all shares of common stock covered by this Prospectus
by the Selling Stockholders. 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, April 2, and August 27, 1999 (File Nos. 333-35851, 333-53451,
333-75651 and 333-86095). With respect to St. James Capital Partners, L.P.,
assumes the sale of (i) 300,000 shares of common stock issuable upon the
exercise of the warrants covered by the registration statement filed on May
22, 1998, (ii) 110,000 shares of common stock issuable upon exercise of
warrants covered by the registration statement filed on April 2, 1999, and
(iii) all remaining shares of common stock issuable upon conversion of
certain indebtedness covered by the registration statement filed on August
27, 1999. With respect to SJMB, L.P., assumes the sale of (i) 1,200,000
shares of common stock issuable upon the exercise of the warrants covered
by the registration statement filed on May 22, 1998, (ii) 425,000 shares of
common stock issuable upon exercise of warrants covered by the registration
statement filed on April 2, 1999, and (iii) all remaining shares of common
stock issuable upon conversion of certain indebtedness covered by the
registration statement filed on August 27, 1999. With respect to Jesse &
Michelle Shelmire and Jesse B. Shelmire, Scott Griffith and Delaware
Charter Trustee FBO Scott R. Griffith SEP-IRA, and Tim Stobaugh and SRG &
Associates 401k Profit Sharing Plan FBO Tim Stobaugh, respectively, assumes
the sale of shares beneficially owned by each of them and covered by this
Prospectus. 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
for Coastal which will own 5%.
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
13
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 Small Cap 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.
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.
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
14
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.
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 474,843 shares of common stock. Mr. James W. Ryan, a partner
in Ryan & Sudan, L.L.P., beneficially owns 98,786 shares of common stock. In
addition, Messrs. Ryan and Sudan are holders of certain amended and restated
promissory notes (the "Promissory Notes") issued by the Company which have an
aggregate original 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 $1.00. The Promissory Notes were originally
issued on December 5, 1997 and bear interest at the prime rate plus 3%.
15
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.................. 8
Incorporation of Certain Documents by Reference..................... 9
Use of Proceeds..................................................... 10
Selling Stockholders................................................ 10
Plan of Distribution................................................ 14
Legal Matters....................................................... 15