UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 9, 1998
INTELECT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-11630 76-0471342
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1100 Executive Drive, Richardson, Texas 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 367-2100
N/A
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
Intelect Communications, Inc. (the "Company") completed $25 million of
financings by closing a $10 million private placement of equity and a $15
million two-year credit facility.
A. $10 MILLION PRIVATE PLACEMENT. The private placement of equity closed
on February 9, 1998 and involved the sale of $10 million of Series C Convertible
Preferred Stock to four investment entities controlled by Citadel Investment
Group L.L.C. or its affiliates (collectively "Citadel"). Citadel purchased
10,000 shares of the Series C Preferred Stock at a price of $1,000 per share for
an aggregate offering price of $10 million. The proceeds from the offering will
be used by the Company for working capital and general corporate purposes. The
Series C Preferred Stock has a 4% annual dividend. The dividend is payable upon
the conversion of the Series C Preferred Stock. Further, the dividend is payable
in additional shares of common stock of the Company ("Common Stock"), or cash at
the option of the Company. The Series C Preferred Stock has no voting rights.
The Series C Preferred Stock is convertible upon the earlier of (i) 90 days from
the issuance date or (ii) upon the effective date of a registration statement
relating to the resale of the Common Stock issuable upon the conversion of the
Series C Preferred Stock. Such conversion restrictions do not apply upon the
occurrence of certain Extraordinary Events (generally certain transactions
resulting in a change in control of the Company or certain private placements of
equity of the Company within 90 days of the closing date). The shares of Series
C Preferred Stock will automatically convert into Common Stock on the second
anniversary of the issuance to the extent any Series C Preferred Stock remains
outstanding. Each share of Series C Preferred Stock is convertible into that
number of shares of Common Stock equal to the quotient of (i) $1,000, plus any
accrued dividends divided by (ii) the Conversion Price. The Conversion Price is
the lesser of (a) $9.082 per share, or (ii) 97% of the market price of the
Common Stock, where the market price is the arithmetic average of the three
lowest Closing Bid Prices for the Common Stock for the 10 consecutive trading
days immediately preceding such date of determination. If for any 20 of 30
consecutive trading days the daily volume weighted average trading price (as
reported by Bloomberg) of the Common Stock equals or exceeds twelve ($12), then
the Company may elect for the Conversion Price to equal $9.082. The Conversion
Price is subject to adjustment in the event of certain dilutive transactions by
the Company.
The minimum number of shares that all holders of the Series C Preferred
Stock may convert on any one day is at least 500 shares. Upon conversion, the
holders of such Common Stock may not sell, in the aggregate, on any single day a
number of shares of Common Stock equal to more than 20% of the trading volume
for the Common Stock as reported by Bloomberg on the date of such determination.
This limitation shall not apply (i) in the event that the daily trading volume
is in excess of 200% of the average trading volume for the Common Stock for the
six month period which ends on the date before the date of such proposed sale,
or (ii) upon the occurrence of a "Triggering Event" (i.e., generally the failure
of the Company to have the registration statement covering the resale of the
Common Stock declared effective within 180 days of closing or the lapse of the
effectiveness of such registration statement, the delisting of the Company from
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NASDAQ, a failure to properly effect a conversion, or a breach of certain
material representations, warranties and covenants in the operative transaction
documents) or an "Extraordinary Transaction" (i.e., generally transactions which
result in a transfer or purchase of more than 49.9% of the Common Stock of the
Company or a sale of all or substantially all of its assets).
The holders of the Series C Preferred Stock and their affiliates have
agreed to not engage in any short sales of the Company's Common Stock, other
than for sales on the date a conversion notice is submitted entitling the holder
to receive the number of shares of Common Stock at least equal to the number of
shares sold.
In connection with the offering, the Company agreed to file a
registration statement within 45 days of the closing of the transaction
governing the resale of the securities issuable upon conversion of the Series C
Preferred Stock. The Company is restricted in making certain private equity
offerings until such registration statement is declared effective by the
Securities and Exchange Commission.
The Series C Preferred Stock is redeemable at the option of the Company
at a price of 110% of the Sum of the Stated Value per share plus any accrued
dividends, if the average of the daily volume weighted average trading price as
reported by Bloomberg for the prior ten (10) consecutive trading days is less
than $3 per share. The holder of the Series C Preferred Stock can require the
Company to redeem the shares upon the occurrence of a "Triggering Event" or upon
the consummation of an "Extraordinary Transaction". The redemption price upon
such events will be the greater of (i) 120% of the Stated Value of such share,
or (ii) the product of the Conversion Rate and the closing sales price of the
Common Stock of the Company.
The shares of Series C Preferred Stock will not be convertible into more
than 20% of the Common Stock of the Company without first obtaining shareholder
approval in accordance with NASDAQ listing requirements. The Company has no
obligation to seek such approval until the holders of the Series C Preferred
Stock notify the Company that the number of shares applicable to the NASDAQ 20%
cap exceeds 15% of the number of shares of Common Stock of the Company
outstanding, subject to certain conditions.
B. $15 MILLION CREDIT FACILITY. On February 12, 1998, the Company
executed an Agreement of Purchase and Sale with St. James Capital Partners,
L.P., a private lender (collectively, with St. James Capital Corporation and its
affiliated investment entities, "St. James Partners"), pursuant to which the
Company was issued a $15,000,000 credit facility from St. James Partners at a
fixed interest rate of 7% per annum. No payments of principal and interest are
due under the credit facility until maturity. The initial term of the credit
facility is one year and the Company has an unrestricted right to extend
maturity for another one year term in exchange for the issuance of warrants as
described below. Advances under the credit facility are to be used for the
purposes of the Company's working capital needs and for retiring debt.
The outstanding balance of principal and interest due from time to time
under the credit facility is convertible into shares of Common Stock of the
Company at the price of $9.082 per
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share at the election of St. James Partners, and at the Company's election if
the Common Stock has traded at a closing price equal to or greater than $13.50
per share for the previous 15 out of 17 consecutive days and at a price equal to
or greater than $13.50 per share as of the date written notice of conversion is
provided by the Company to St. James Partners.
The $15,000,000 credit facility is secured by all the outstanding shares
of three of the Company's wholly owned subsidiaries, DNA Enterprises, Inc.
("DNA"), Intelect Visual Communications Corp. ("IVC"), and Intelect Network
Technologies Company ("INT") (the pledged shares of DNA, IVC and INT, the
"Pledged Stock"). As to an initial advance of $3,000,000 under the credit
facility, St. James Partners has agreed to share collateral consisting of the
Pledged Stock in pari passu with two existing lenders having security interests
in the Pledged Stock on borrowings of the Company in the aggregate principal
amount of $9,000,000, each of those borrowings maturing on March 27, 1998.
Following such initial advance by St. James Partners, the aggregate borrowings
of the Company secured by the Pledged Stock are $12,000,000 of additional
principal. With respect to subsequent advances by St. James Partners under the
credit facility, the collateral consisting of the Pledged Stock would be shared
among the three parties in pari passu, conditioned on prior or contemporaneous
reduction of the aggregate debt to such other two secured lenders.
In connection with the $3,000,000 initial advance by St. James Partners
under the credit facility, the Company issued St. James Partners warrants to
purchase 450,000 shares of Common Stock, exercisable over a three year period
ending February 12, 2001 at the exercise price of $7.50 per share, subject to
certain anti-dilution adjustments. Under the terms of the Agreement of Purchase
and Sale, additional warrants are issuable to St. James Partners in amounts
equal to 15,000 shares of Common Stock for each $100,000 of any subsequent
advance under the credit facility. Each such warrant would be exercisable for a
three year period from its date of issue. Subject to certain anti-dilution
adjustments, the exercise price per share under any warrants issued in
conjunction with a subsequent advance under the credit facility will be equal to
$7.50 per share with respect to advances up to an aggregate of $10,000,000 in
principal borrowings under the credit facility, and in relation to subsequent
advances beyond $10,000,000 in aggregate principal borrowed under the credit
facility, at an exercise price of $1.50 over the weighted average closing price
of the Common Stock for the 10 day period prior to the date of such subsequent
advance.
Under the terms of the Agreement of Purchase and Sale, when the Company
elects to extend the maturity of the credit facility for an additional year,
additional warrants are issuable to St. James Partners in amounts equal to 5,000
shares of Common Stock for each $100,000 of the debt outstanding. Each such
warrant would be exercisable for a three year period from its date of issue.
Subject to certain anti-dilution adjustments, the exercise price per share under
any warrant issued in connection with the Company's election to extend the
maturity date of the credit facility would be equal to $1.50 over the weighted
average closing price of the Common Stock for the 10 day period prior to the
date of the Company's election to extend the maturity date specified under the
credit facility.
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Common Stock issued to St. James Partners in connection the conversion
of the outstanding debt under the credit facility and in connection with the
exercise by St. James Partners of any and all warrants issued under the credit
facility are subject to a one-time demand registration right granted by the
Company as well as piggy-back registration rights. Neither the demand
registration right nor the piggy-back registration rights can be exercised by
St. James Partners prior to May 31, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business to Be Acquired: N/A
(b) Pro Forma Financial Information of the Business to Be Acquired: N/A
(c) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
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3.1 Certificate of Designations establishing the rights and
preferences of the Series C Convertible Preferred Stock
4.1 Registration Rights Agreement among the Company and
the Buyers, dated February 6, 1998
4.2 Registration Rights Agreement dated February 12, 1998
between the Company and St. James Capital Partners, L.P.
4.3 Warrant to Purchase Common Stock of the Company dated
February 12, 1998 issued to St. James Capital Partners,
L.P. expiring on February 12, 2001
10.1 Securities Purchase Agreement among the Company and
the Buyers, dated February 6, 1998
10.2 Agreement of Purchase and Sale dated February 12, 1998
between the Company and St. James Capital Partners, L.P.
10.3 Convertible Promissory Note dated February 12, 1998 by the
Company in favor of St. James Capital Partners, L.P.
10.4 Pledge Agreement dated February 12, 1998 between the
Company and St. James Capital Partners, L.P.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTELLECT COMMUNICATIONS, INC.
(Registrant)
Date: February 17, 1998 By: /s/ HERMAN M. FRIETSCH
(Signature)
Herman M. Frietsch
Chairman of the Board
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EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
3.1 Certificate of Designations establishing the rights and
preferences of the Series C Convertible Preferred Stock
4.1 Registration Rights Agreement among the Company and
the Buyers, dated February 6, 1998
4.2 Registration Rights Agreement dated February 12, 1998
between the Company and St. James Capital Partners, L.P.
4.3 Warrant to Purchase Common Stock of the Company dated
February 12, 1998 issued to St. James Capital Partners,
L.P. expiring on February 12, 2001
10.1 Securities Purchase Agreement among the Company and
the Buyers, dated February 6, 1998
10.2 Agreement of Purchase and Sale dated February 12, 1998
between the Company and St. James Capital Partners, L.P.
10.3 Convertible Promissory Note dated February 12, 1998 by the
Company in favor of St. James Capital Partners, L.P.
10.4 Pledge Agreement dated February 12, 1998 between the
Company and St. James Capital Partners, L.P.