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) May 8, 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.)
ITEM 5. OTHER EVENTS.
Intelect Communications, Inc. (the "Company") completed a $5 million
private placement of equity on May 8, 1998. The private placement involved the
sale of $5 million of the Company's Series D Convertible Preferred Stock to four
investment entities advised by Citadel Investment Group, L.L.C. or its
affiliates (collectively, "Citadel"). Citadel purchased 5,000 shares of the
Series D Preferred Stock at a price of $1,000 per share for an aggregate
offering price of $5 million. The proceeds from the offering will be used by the
Company for working capital and general corporate purposes. The Series D
Preferred Stock has a 4% annual premium which is payable upon the conversion of
the Series D Preferred Stock. Further, the premium is payable in additional
shares of common stock of the Company ("Common Stock"), or cash at the option of
the Company. The Series D Preferred Stock has no voting rights. The Series D
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 D
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 D Preferred
Stock will automatically convert into Common Stock on the second anniversary of
the issuance to the extent any Series D Preferred Stock remains outstanding.
Each share of Series D Preferred Stock is convertible into that number of shares
of Common Stock equal to the quotient of (i) $1,000 (the "Stated Value"), plus
any accrued premium divided by (ii) the Conversion Price. The Conversion Price
is the lesser of (a) $9.082 per share (which amount shall be reset on the sixth
day following the filing of the Company's Form 10-Q for the period ending June
30, 1998 at the lesser of (x) $9.082 per share, or (y) the 5 day average daily
volume weighted average trading price of the Common Stock for the 5 trading days
immediately before the sixth day following the filing of such Form 10-Q), 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 the lesser of $9.082 or such reset amount. 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 D Preferred
Stock may convert on any one day is at least 200 shares which is the same
restriction the holders of the Company's Series C Convertible Preferred Stock
now have. 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
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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 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 D 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 30 days of the closing of the transaction governing the resale
of the securities issuable upon conversion of the Series D Preferred Stock. The
Company is restricted from making certain private equity offerings until such
registration statement is declared effective by the Securities and Exchange
Commission.
In addition, so long as at least 25% of the Series D Preferred Stock is
outstanding, the Company has agreed to provide the holders notice of any future
draw downs under the Company's credit facility with St. James Capital Corp. The
holders will have the opportunity to purchase additional shares of Series D
Preferred Stock of the Company in an amount equal to the draw down amount,
subject to the Company obtaining required waivers of rights of preemption and
first refusal of the holders of its Series A and Series B Convertible Preferred
Stock.
The Series D 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
premium, 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 D 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 D 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 either the holders of the Series D
Preferred Stock notify the Company, or the Company notifies such holders, 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.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business to Be N/Auired:
(b) Pro Forma Financial Information of the Business to Be Acquired: N/A
(c) Exhibits:
EXHIBIT DESCRIPTION OF EXHIBIT
3.1 Certificate of Designations establishing the rights and
preferences of the Series D Preferred Stock
4.1 Registration Rights Agreement among the Company and the Buyers,
dated May 8, 1998
10.1 Securities Purchase Agreement among the Company and the Buyers,
dated May 8, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTELECT COMMUNICATIONS, INC.
(Registrant)
Date: May 11, 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 D Preferred Stock
4.1 Registration Rights Agreement among the Company and the Buyers,
dated May 8, 1998
10.1 Securities Purchase Agreement among the Company and the Buyers,
dated May 8, 1998
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