<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
TELTRAN INTERNATIONAL GROUP, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE
(STATE OR OTHER JURISDICTION 11-3172507
OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
ONE PENN PLAZA, SUITE 4632
NEW YORK, NEW YORK 10119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(212) 643-1283
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
<TABLE>
<S> <C>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
Not applicable Not applicable
</TABLE>
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS.
INTRODUCTION GENERAL
Teltran International Group, Ltd. (the "Company") was originally
incorporated in Utah as Spectratek Incorporated in July 1983, and was
subsequently reincorporated in Delaware as Teltran International Group, Ltd. on
October 6, 1997. Through its wholly owned subsidiary Teltran International, Inc.
("International") the Company is primarily engaged in the international
telecommunications business. Prior to April 1998 the Company was essentially a
start-up venture. Thereafter the Company commenced services to provide a voice
over Internet Protocol (VoIP) service capable of transmitting traditional
telephone messages over the Internet. VoIP, also known as Internet Telephony
uses Internet Protocol and voice messaging gateways to receive voice messages,
convert them into digital data packets, transmit them over the Internet at high
speeds and retranslate them back into voice messages with digital clarity at the
call receiver's end. In October 1998 International entered into additional
arrangements that included the ability to sell Internet telephony time.
INDUSTRY BACKGROUND
During the last fifteen years international telecommunications have changed
dramatically. Deregulation has resulted in the end of monopoly and a
proliferation of competitors. In addition, international agreements among most
industrial nations have opened telecommunication markets to competition and
foreign ownership. At the same time technology changed, adding to the overall
efficiency of telecommunication services and increasing capacity and the quality
of sound dramatically. These factors have also combined to reduce costs
significantly. With the advent of new technology came the development of new
methods of completing calls and reducing costs. One of the most prominent
methods is called refiling, which is the routing of calls from country A to
country B for termination in country C. Because of the above mentioned changes,
the rates charged callers using re-filed calls among the three countries is less
than the rate they would otherwise pay for a connection directly between
country A and country C.
Re-filing is typically achieved through a series of resale arrangements
among carriers often involving the wholesale purchase of services on a
per-minute basis by one long distance provider from another. A single
international call may pass through the facilities of multiple long distance
carriers and resellers before it reaches the foreign facilities-based carrier
that ultimately terminates the call--i.e., connects it to a local telephone
user. Re-filing has caused the emergence of alternative international providers
that rely, at least in part, on transmission services acquired on a wholesale
basis from other long distance providers. These international providers include
entities whose business is purely to act as a reseller with no independent
system to originate or terminate calls and no equipment except the connection of
the resellers source of telecommunication's time to its customer.
The advent and proliferation of Internet Protocol, the computer language
protocol used to transmit data over the Internet and to manage networks, has
added to the options available for international telephone service. Internet
Telephony uses Internet Protocol and voice messaging equipment, or gateways, to
receive voice messages, convert them into digital data packets, transmit them
over the Internet at high speeds and retranslate them back into voice messages
with digital clarity at the call receiver's and. The Internet Telephony industry
began in 1995, when experienced Internet users began to transfer voice messages
from one PC to another. Subsequently, software was introduced which allowed PC
users to place international calls via the Internet to other PC users for the
price of a local call. Initially, the growth of Internet Telephony was
constrained due to the poor sound quality of the calls and because calls were
mainly limited to those placed from one PC to another. However, as the industry
has grown, substantial improvements have been made. New software has
substantially reduced delays and improved voice quality. The use of private
networks or intranets to transmit calls as an alternative to the public Internet
has also helped to alleviate capacity
2
<PAGE>
problems. Developments in hardware, software and networks are expected to
continue to improve the quality and viability of Internet Telephony.
Internet Telephony provides customers with substantial savings compared to
conventional long distance calls, because the total cost of an Internet
telephone call is based on the local calls to and from the gateways of the
respective Internet providers, thereby bypassing the international settlements
process which requires utilizing the more expensive transoceanic fiber networks
of traditional carriers.
BUSINESS HISTORY
Initially the Company intended to concentrate its efforts on establishing
and operating a global messaging business. Pursuant to that strategy it intended
to provide its customers with a universal mailbox and a platform that was
capable of generating multimedia broadcasts of messages and documents received
by the client. In other words, the messages could be faxed or otherwise
delivered to various locations within the enterprise. As an adjunct to its
global messaging service the Company also intended to provide enhanced fax
services including fax broadcasting. The Company postponed its efforts to
provide global messaging services because of its then inability to obtain
financing for equipment and due to the new opportunities in the industry
presented by Internet telephony. It derived insignificant revenues from the
provision of global messaging services for clients through April 1998. After
April 1998, the Company focused its efforts on exploiting opportunities in
Internet Telephony and derived revenues providing services as a refile hub for
OzEmail Interline Pty, Limited ("OzEmail"). OzEmail is a subsidiary of OzEmail
Limited, a major Internet provider in Australia.
THE OZEMAIL SYSTEM
OzEmail has assembled a consortium of companies in various countries as
affiliates to establish an Internet network for the transmission and receipt of
its "Voice over Internet Protocol" (VoIP) service worldwide--OzEmail's version
of Internet Telephony. OzEmail developed proprietary hardware and software
technology utilized in the transmission, routing and connecting of
communications, including voice telephony, fax and other transmissions, through
the Internet system and other conventional systems as public switched networks.
The proprietary hardware consists of equipment known as a voice interface nodes
or VINs. The VIN, sometimes referred to as a "gateway," contains OzEmail's
proprietary software and receives voice transmissions, converts such
transmission to digital data and routes them over the Internet. A VIN is also
used to reconnect the digital data to voice transmission or the receiving end of
the call.
OzEmail has licensed the proprietary software and VINs and other trade
secrets to provide or establish a network in the country in which the provider
or affiliate is located. OzEmail joins the providers in various countries to
provide international service. Each provider furnishes termination service in
its territory enabling providers in other countries to route the calls to the
local provider which in turn terminates their calls in the territory over
conventional public switched telephone networks. The provider receives a
termination fee. The provider is required to market the OzEmail service in its
territory offering origination calling services through OzEmail systems. The
local provider is required to pay a fee to OzEmail for all international
services of the provider's customers routed through the OzEmail network. The
heart of the system is the VIN, each of which is capable of handling a fixed
number of calls. Each provider is required to purchase sufficient VINs from
OzEmail to service its customers. As a VIN can only handle a finite number of
calls, several VINS may be required for each customer. Generally, the customer
of the provider is a telecom wholesaler or a pre-paid calling card service,
calling center or other entity seeking to provide international calling to its
customers.
Basically, the client of the provider's customers originate a local call
through the Internet which connects to a VIN which transmits the call over
Internet protocol to a VIN of a provider located in the foreign country. The
call is then connected to the domestic local telephone network. All the calls
are processed by the control node of OzEmail which is also used for billing,
rating and verification purposes. If no provider has been appointed in the
country of destination, the call will be routed through a refile provider in a
third country for the least expensive routing.
3
<PAGE>
OZEMAIL/TELTRAN
In 1998 the Company was appointed as a refile hub for OzEmail in the United
States for calls terminating in countries without OzEmail affiliates. As a
refile hub, the Company received calls for the OzEmail system and directed them
through the least expensive routing to countries which have no OzEmail Internet
termination. The Company derived revenues from this activity in 1998 but
believes this source will decline as OzEmail obtains a greater number of
countries with affiliates where calls can be completed entirely through the
OzEmail network without the necessity of re-filing. In October 1998 the Company
was appointed a non-exclusive OzEmail affiliate in the United States. This
enables the Company to sell international voice telephone availability through
the OzEmail Internet system utilizing OzEmail technology and protocols. In such
capacity, called an Internet Telephony Service Provider ("ITSP"), the Company's
main focus has been the wholesaling of Internet Telephony capacity from North
America to other locations around the world within the OzEmail network. OzEmail
requires its affiliates to purchase a sufficient number of VINs to provide their
services and to test them over a period of several weeks to determine the
quality of service to the particular destination. Generally VINs cost an average
of $9,000 each. The Company has purchased twelve VINs for an aggregate cost of
$108,000 to service its existing clients. All of the Company's VINs are
installed at a technical facility operated by an unaffiliated party located
close to the Company's office in New York City.
Prior to June 1999 the Company did not derive significant revenues from its
affiliate operations. In early 1999, the Company entered into arrangements to
provide affiliate services to the Netherlands Antilles and South Africa. It took
the Company or its clients a substantial period of time to complete testing,
obtain compatible equipment and software and to complete arrangements with local
telephone companies. In June 1999 the Company began service to the Netherlands
Antilles and South Africa. Additional services are to commence to these
countries in July 1999. As an affiliate, the Company also provides termination
services in the United States. Service began in April 1999. Up to June 1999 the
Company derived little or no revenues from this service. The Company has, also,
subject to the final approval of contracts, received permission from OzEmail to
act as an affiliate in Pakistan, Israel, Bangladesh and the United Kingdom. This
will enable the Company to originate calls over the OzMail System in the United
States and complete the call itself in these countries. This will provide the
Company with the ability to receive revenues from both ends of a call. The
Company contemplates entering into arrangements with local partners to implement
foreign affiliate arrangements.
OZEMAIL AGREEMENTS
The Company's affiliate arrangements consist of two, three-year agreements
each expiring May 19, 2002. The Interconnectivity and Support Agreement enlists
Teltran, as a non-exclusive affiliate into OzEmail's international consortium of
companies. As an affiliate, Teltran is authorized to operate the OzEmail system
in the United States and to transmit Internet telephony calls worldwide over
OzEmail's interconnected systems. The Company must purchase the necessary VINs
from OzEmail to provide the service and is also obligated to provide termination
services for a fee for the benefit of providers or affiliates in other
countries. The Agreement provides for fees payable to OzEmail by the Company for
calls originating through the Company and by OzEmail to the Company for
termination services. The USA Intellectual Property License Agreement grants
Teltran a non-exclusive license for three years to use OzEmail's software,
hardware, intellectual property, advertising/promotional material, etc. to
perform services under the Interconnectivity and Support Agreement. This
Agreement requires the Company to pay royalties to OzEmail based on the services
performed as an affiliate. The Company also entered into a Telecommunications
Service Agreement permitting the Company to act as an OzEmail refile hub. This
Agreement expires in October 2000 unless terminated sooner.
GOVERNMENT REGULATION
The Company is licensed as an international reseller pursuant to
Section 214 of the Federal Communication Act. This regulation does not impose
significant restrictions on the Company's daily operations. The Company,
however, is also affected by foreign regulators or foreign government owned
telephone systems. The Company or its affiliates may be required to obtain
permission in connection with its
4
<PAGE>
client contracts. It will also be subject to foreign regulations if it is able
to establish affiliates in foreign countries.
MARKETING/CUSTOMERS
The Company will market its resale service as part of the OzEmail network
to other carriers, wholesalers, call centers, international phone card providers
and others. During 1998 the Company's principal customer was OzEmail pursuant to
the refile arrangement. During 1998 the Company received approximately 79.3% of
its revenues from OzEmail. The Company does not anticipate that it will derive
significant refile revenues from OzEmail in the future. As a result of resale
arrangements entered into by the Company, the Company does not believe it is
dependent upon OzEmail as a refile customer. The Company derived 17.1% of its
revenues in 1998 from Telecom 2000 for providing it with domestic long distance
capacity. This arrangement has terminated.
The Company markets its service through its executive officers, one of whom
is the Vice President of Sales and Marketing. The Company has also entered into
non-exclusive arrangements with agents who will receive a commission from the
revenues generated any customer of the Company introduced by an agent.
COMPETITION
Currently, the Company competes with numerous other long distance resellers
and providers. The Company believes its significant competition will be other
independent resellers and providers including providers of competing voice
telephony systems. Other competitors may include large carriers such as AT&T,
MCI/WorldCom and Sprint, other providers of international long distance services
such as STAR Telecommunications, Inc., and corporate alliances that provide
wholesale carrier services, such as "Global One". In addition, the Company has a
non exclusive affiliate arrangement with OzEmail, therefore OzEmail is free to
appoint other affiliates which may result the Company facing substantial
competition from within the OzEmail system. Many of the Company's competitors
are significantly larger and have substantially greater market presence, as well
as greater financial, technical, operational, marketing and other resources and
experience than the Company.
The Company competes for customers in the telecommunications markets
primarily based on price and, to a lesser extent, the type and quality of
service offered. Increased competition could force the Company to reduce its
prices and profit margins if its competitors are able to procure rates or enter
into service agreements that are comparable to or better than those the Company
obtains, or are able to offer other incentives to existing and potential
customers.
EMPLOYEES
The Company has six full-time employees, five of whom are engaged in
executive and technical functions and one of whom is a clerical employee. The
Company also employs a bookkeeper on a part-time basis. The Company also
utilizes consultants.
TECHNICAL FACILITY
The Company has an oral arrangement with an unaffiliated party pursuant to
which the Company's technical equipment is housed and maintained at this party's
facility in New York City located on the same block as the Company's
headquarters. All equipment, connections and telephone lines between the Company
and its customers and overseas providers are located at this facility. The
Company utilizes the owner's switches to effect these connections.
OMNICOM
In May 1999 the Company acquired all the shares of Omni Communications,
Inc. "Omnicom" is an authorized agent of UniDial Communications, which operates
as an independent network of telecommunications resellers. The Company believes
this acquisition will increase its capacity to deliver telecommunications
services to its customers.
5
<PAGE>
INTERNET PORTAL
Because it presented an opportunity which could be accomplished
inexpensively, in February 1999 the Company instituted a web portal. A portal is
a website which enables the user to access various other web sites without
multiple steps thereby saving the user time. The Company believes that
maintaining an Internet portal will assist it in establishing a presence as an
Internet service provider. While maintaining a website is not related to the
Company's Internet telephony business, the Company believes creating an Internet
environment will enhance the brand recognition of the Teltran name and could
potentially establish the Company as a well regarded Internet brand. The Teltran
portal contains direct links to many commerce sites, including Amazon.com the
Internet bookseller. Recently, the Company provided access to brokerage firms
through the portal and anticipates receiving payment from brokerage firms
utilizing this service based on customers' business introduced to the brokerage
firm through the portal. The Company has affiliate arrangements with retailers
pursuant to the Company will receive a percentage of revenues generated by
consumers accessing the site through the Company's portal. The Company proposes
to sell advertising on its website if the "hits" or number of times the website
is visited exceeds 1,000,000 hits (per month). Based on daily hits of over
35,000 by the end of June, the Company has determined to offer advertisements on
its portal commencing in the third quarter. The Company believes, therefore it
will achieve the proposed number of "hits" by late summer or early fall.
The Company is also engaged in additional activity through its web portal.
It is finalizing an arrangement with Antra Music Group Ltd., a subsidiary of
principal shareholder, to establish a website for the sale of music. Initially
this website will be utilized as a vehicle to sell records belonging to an
unaffiliated third party.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes contained elsewhere in this
prospectus.
GENERAL
Prior to April 1998 the Company was essentially a start-up venture. During
1998 most of its revenues were derived from acting as an OzEmail refile hub in
the United States. During 1999 these revenues were diminishing and the Company
devoted its efforts to promoting our affiliate arrangements with OzEmail as well
as establishing businesses for its web portal. Therefore comparisons between
1998 and 1999 will be of limited value.
During the balance of 1999 and early 2000 the Company's Plan of Operation
is to
o enter into and implement arrangements to provide wholesale customers in
the United States with Internet telephony over the OzEmail system. The
Company has already entered into three agreements, two of which commenced
in June and the third is scheduled to commence in July 1999. The Company
is negotiating additional similar arrangements. Each of these
arrangements requires the Company to expend money for equipment purchases
and the payment of various fees.
o seek to enter into arrangements to become an affiliate of OzEmail in
additional countries. This, among other things, will enable the Company
to provide economic services from the United States to those countries
and participate in revenues on both ends of a call. We have received
OzEmail's permission to establish affiliates in Bangladesh, Pakistan and
Israel. It is seeking to finalize our arrangement in Pakistan. It is also
negotiating to acquire an entity in England which will enable the Company
to become an affiliate in the United Kingdom and Ireland.
o develop its portal and provide other related businesses utilizing the
Company's portal. These including offering advertising on the Internet
developing additional sales affiliate arrangements with others on the
Internet. The Company also plans through its proposed joint venture to
operate a website for the sale of music.
o continue to augment other aspects of its telecommunications business as
well.
There can be no assurance that the Company will be able to successfully
implement its plan.
6
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
The Company's revenues were approximately $83,459 for the first quarter of
1998 while the Company received no revenues in the comparable quarter in 1998.
This increase was due to the Company's generation of sales of its services as an
affiliate in the OzEmail system.
In spite of the increase in sales, the Company incurred net losses of
($418,788) in the first quarter of 1999 which was an increase from the net loss
of ($114,843) in the first quarter of 1998. This increase was primarily due to
an increase in salaries, professional and other expenses which were associated
with the OzEmail affiliates business. Unless the Company obtains additional
customers or otherwise expands its revenue base its accounts receivable and
revenues may be concentrated in one or two customers.
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997 (UNAUDITED)
The Company's revenues were approximately $535,000 for 1998 while it
received no revenues in 1997. Over 70% of our revenues in 1998 were derived from
OzEmail for acting as a refile hub. Revenues to be derived from this activity
will decline in 1999.
The Company's operating expenses during 1998 were approximately $709,400
compared to approximately $827,800 during the prior year. The reduced expenses
were primarily attributable to decline in salary expense in 1998 resulting from
a reduction in staff.
Since the Company did not commence income producing operations until 1998,
it does not believe that either 1997 or 1998 are any indication of its future
operations. The Company anticipates that the year 1999 will be the first full
year of operations and that its revenues will be derived from businesses not
conducted in 1998.
The minimum monthly payments for the balance of the year to the Company
under new agreements will exceed total revenues in 1998. Based on these
agreements and other activities the Company believes that it will have
substantially increased revenues in 1999 as it begins to derive revenues from
its voice telephony operations.
LIQUIDITY
The Company had a negative working capital of approximately $75,700 as at
March 31, 1999 compared to a negative working capital or approximately $98,000
at March 31, 1998. The increase was primarily attributable to reduction of debt
resulting from conversion of debt in 1999. Also during 1998 the Company financed
a portion of its receivables through a factoring arrangement. Since
December 31, 1998 the Company received gross proceeds of $650,000 from the sale
of convertible notes and exercise of warrants. All the notes have been converted
into equity and we have been able to repay and terminate our factoring
arrangement. In June 1999 the Company completed a private placement of shares of
Common Stock and received approximately $1,240,000. Upon effectiveness of this
registration statement and in the absence of adverse changes these purchasers
are obligated to pay us another $400,000 for additional shares.
At the present time the Company is aware of only two substantial capital
expenditures. The Company may have to purchase VINs at $9,000 per VIN to enable
it to perform future affiliate arrangements. All affiliate arrangements require
us to pay fees to connect various segments of the call. The Company may also
have to contribute up to $300,000 as its contribution to the proposed joint
venture with Antra Music Group.
Additional funds may be required when the Company forms joint ventures to
establish foreign OzEmail affiliations and to pay for salaries under new
employment agreements with management. The Company believes funds obtained and
to be obtained from the sale of shares and cash flow for operations will be
sufficient for working capital purposes until June 2000.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's executive offices are located at One Penn Plaza, New York,
New York 10019, where it leases approximately 2,400 square feet pursuant to a
lease that expires on February 28, 2003. The annual base rental for this space
is approximately $90,000.
7
<PAGE>
The Company's telecommunication equipment is located and maintained at a
separate facility owned by a third party. See Item 1--"Description of
Business--Technical Facility."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the aggregate
and percentage ownerships of the Company's Common Stock as of June 15, 1999 for
(i) each person known by the Company to beneficially own more than five percent
of the Company's Common Stock; (ii) each of the Company's directors; (iii) each
of the executive officers named in the Summary Compensation Table below; and
(iv) all directors and executive officers as a group. The Company has filed a
registration statement covering the sale of substantially all the Company's
Common Stock owned by the individuals listed below. The address of each of the
below listed individuals is c/o Teltran International Group, Ltd., One Penn
Plaza, New York, New York 10119.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES BENEFICIAL OWNERSHIP PERCENTAGE
- ---- ---------------- -------------------------------
<S> <C> <C>
Byron R. Lerner(1).............................................. 1,139,600 8.4%
James E. Tubbs(1)............................................... 1,179,501 8.7%
Martin Miller(2)................................................ 513,000 3.9%
Peter Biagioli.................................................. 252,000 1.9%
Anita Holdings Group............................................ 2,100,000 16.5%
All officers and directors as a group (4 persons)(1)(2)(3)...... 3,084,101 20.4%
</TABLE>
- ------------------
(1) Includes currently exercisable options to purchase up to 822,501 shares of
common stock.
(2) Includes currently exercisable options to purchase up to 513,000 shares of
common stock.
(3) Includes currently exercisable options to purchase up to 252,000 shares of
common stock.
MARKET INFORMATION
Our Common Stock is currently quoted on the OTC Bulletin Board under the
symbol "TLTG."
Set forth below are the high and low closing bid quotations for our Common
Stock for the periods indicated as reflected on the electronic bulletin board.
Such quotations reflect interdealer prices without retail mark-up, mark-down or
commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- -----
<S> <C> <C>
March 31, 1999..............................................
March 31, 1998.............................................. 3.13 .4325
June 30, 1998............................................... 2.94 1.88
September 30, 1998.......................................... 1.00 .75
December 31, 1998........................................... 1.19 .4325
March 31, 1997.............................................. .65 .40
June 30, 1997............................................... .33 .22
September 30, 1997.......................................... .18 .11
December 31, 1997........................................... .125 .125
</TABLE>
As of June 15, 1999, there were approximately 246 recordholders of the the
Company's common stock, although it believes that there are more than five
hundred beneficial owners of its common stock.
The Company plans to retain most future earnings for use in its business.
Nevertheless it has adopted a semiannual dividend policy to make a distribution
to holders of record as at the end of March 31 and September 30. Payment of
dividends is within the discretion of the Company's Board of Directors and will
depend, among other factors, upon its earnings, financial condition and capital
requirements.
8
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Byron R. Lerner...................................... 55 President, Chief Executive Officer and Director
Executive Vice President, Chief Operating Officer and
James E. Tubbs....................................... 39 Director
Peter Biagioli....................................... 39 Vice President of Sales and Marketing
Martin Miller........................................ 58 Director
</TABLE>
Byron R. Lerner has been Chief Executive Officer and President of the
Company since June 1997 and a director of the Company since May 1996.
Mr. Lerner was Chief Financial Officer of the Company between May 1996 and June
1997. Between 1993 and 1995, Mr. Lerner was president of International of
GlobalCom, a firm he founded which engaged in the resale of domestic and
international long distance phone time. From 1990 to 1993 Mr. Lerner was
president of L&S Communications, a reseller of domestic and international long
distance telephone time.
James E. Tubbs has been Executive Vice President and a director of the
Company since May 1996. Between 1994 and 1995, Mr. Tubbs was President of
OmniCom, a reseller of UniDial. From 1984 through May 1996 he was employed as an
executive in various entities controlled by Brett Mussburger, the sports
broadcaster. Simultaneously Mr. Tubbs was employed in various capacities as an
executive in sports and entertainment matters by the networks which engaged
Mr. Mussburger.
Peter Biagioli has been Vice President of Sales and Marketing of the
Company since 1997. From February 1988 to January 1997 Mr. Biagioli was vice
president of Worldwide Commercial Development for the Worldwide Manifest
Division TNT Express. During the period November 1982 to January 1988 he was
employed by Avis Rent A Car System Inc. as Regional Sales Manager for the New
York Metropolitan market.
Martin Miller has been a director of the Company since November 1995.
Mr. Miller , for the past five years, has been a manager of corporate finance
for Millport Ltd., presently a Bahamian based investment advisor of foreign
investors.
ITEM 6. EXECUTIVE COMPENSATION.
Information in this section is retroactively adjusted to reflect the five
percent stock dividend to holders of record on June 3, 1999.
The following table sets forth information concerning compensation paid or
accrued by the Company or its subsidiaries for services rendered during the
fiscal year ended December 31, 1998 to the Company's Chief Executive Officer no
executive officer whose compensation exceeded $100,000 during its fiscal year
ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
FISCAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS (#)
- --------------------------- ------ ------- ---------------------
<S> <C> <C> <C>
Byron E. Lerner President and Chief
Executive Officer................................... 1998 $88,000 450,000
1997 37,500
</TABLE>
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Executive officers are
elected annually by the Board of Directors to hold office until the first
meeting of the Board following the next annual meeting of stockholders and until
their successors are chosen and qualified.
9
<PAGE>
OPTION PLAN
The Company has adopted a 1998 Stock Option Plan (the "Option Plan") for
officers, employees and consultants of the Company and any of its subsidiaries
authorizing the grant of options to purchase 3,150,000 shares of the Company's
common stock all of which have been issued. As of May 31, 1999, options to
purchase 1,975,000 shares of common stock were outstanding and options to
purchase 1,025,000 shares of common stock were available for grant.
The Option Plan is administered by the board of directors. In general, the
board or a Committee thereof will select the persons to whom options will be
granted and will determine, subject to the terms of the Option Plan, the number,
the exercise period and other provisions of such options. The options granted
under the Employee Plan will be exercisable in such installments as may be
provided in the grant.
Options granted to employees may be either incentive stock options under
the Internal Revenue Code ("ISOs") or non ISOs. The board may determine the
exercise price provided that, in the case of ISOs, such price may not be less
than 100% (110% in the case of ISOs granted to holders of 10% of the voting
power of the Company's stock) of the fair market value of the Company's common
stock at the date of grant. The aggregate fair market value determined at time
of option grant of stock with respect to which ISOs become exercisable for the
first time in any year cannot exceed $100,000.
The options are evidenced by a written agreement containing the above terms
and such other terms and conditions consistent with the Plan as the Committee
may impose. Each option, unless sooner terminated, shall expire no later than
ten (10) years (five years in the case o ISOs granted to holders of 10% of the
voting power of the Company's stock) from the date of the grant, as the
Committee may determine. The Committee has the right to amend, suspend or
terminate the Employee Plan at any time, provided, however, that unless ratified
by the Company's stockholders no amendment or change in the Plan will be
effective for limited maters including increase in the total number of shares
which may be issued under the Plan or extending the term of the Employee Plan.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES EXPIRATION
UNDERLYING OPTION GRANTED EXERCISE PRICE DATE
-------------------------- -------------- ----------------
<S> <C> <C> <C>
Byron Lerner................. 210,000 $ .36 December 8, 2008
87,501 1.66 December 8, 2008
87,500 2.85 December 8, 2008
87,500 4.75 December 8, 2008
James Tubbs.................. 210,000 .36 December 8, 2008
87,501 1.66 December 8, 2008
87,500 2.85 December 8, 2008
87,500 4.75 December 8, 2008
</TABLE>
The table below provides information concerning stock option exercises
during the fiscal year ended December 31, 1998 and the value of unexercised
options at the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR END ---------------------------
ACQUIRED ON VALUE --------------------------- NON
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE EXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Byron Lerner............................... None None None 450,000 None $
</TABLE>
The value of the in-the-money options is based on the market price of the
common stock on December 31, 1998.
10
<PAGE>
In addition, on January 31, 1999 the Company issued options to purchase an
additional 834,750 shares of common stock at $.56 per share exercisable
immediately. Of these options 262,500 were issued to each of Messrs. Lerner and
Tubbs and Martin Miller, directors of the Company. In May 1999 the Company
granted options to purchase an additional 1,050,000 shares of its common stock
at $3.85 per share. Of these, options to purchase 262,500 shares were issued to
each of Byron Lerner, James Tubbs and Martin Miller. All of the options granted
in 1999 vested immediately.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Byron Lerner,
president and chief executive officer of the Company. The agreement is for a
term of 37 months commencing March 1, 1999 and unless notice of non renewal is
given at the end of first thirteen months or any year thereafter, the term of
the agreement is extended for an additional year period. Mr. Lerner is to
receive a base annual salary of $150,000 until August 1999 when the salary
increases to $180,000. Starting in the second year of the agreement on April 1,
2000 the salary increases to $189,000 or $200,000 if the net income as defined
in the agreement is at least $200,000. The salary increases thereafter at the
rate of ten percent per annum. The agreement provides for a bonus pool which
shall be equal to 15% of net income as defined in the agreement of which
Mr. Lerner will receive a maximum of six (6%) of such pool. Mr. James Tubbs, a
vice president, and chief operating officer has entered into an identical
agreement with the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
All information in this action reflects the Company's 5% stockholder
dividends to recordholders as of June 30, 1999.
During and prior to 1998 an affiliate of Byron Lerner and James Tubbs each
advanced the Company $100,000 each. In 1998 all these advances were converted
into 525,000 shares of the Company's Common Stock. All these advances were
interest free. Mr. Lerner has advanced approximately an additional $13,000 to
the Company in 1998 and received an additional 68,250 shares of common stock.
In April 1999, the Company and Antra Holding Group Inc. exchanged shares of
each company's respective shares. The Company thus now owns 2,000,000 shares of
Antra's common stock and Antra owns 2,100,000 shares of Teltran common stock.
Antra is a public company engaged through subsidiaries in the music business. As
a result of the transaction Antra may be deemed a principal stockholder of the
Company.
The Company has entered into an agreement with Antra which requires an
adjustment in the shares delivered in connection with the above described
exchange. If on the first business day of the year 2000 either Antra's shares or
the Company's shares are trading less than 20% below the market price of the
other party's shares, the party whose shares are trading lower must issue
additional shares to the other party.
The Company is also completing arrangements to form a joint venture
corporation with Antra to market records with a subsidiary of Antra through a
website to be established on the Internet using the Company portal. This new
corporation will be owned equally by Antra and the Company and then each will be
equally responsible for funding, and share equally in losses and profits. This
venture initially will market records owned by an independent third party.
As of May 1999 the Company acquired all the shares of Omni Communications
Inc. "OmniCom" is an authorized agent of UniDial Communications, which operates
an independent network of telecommunications resellers. Mr. James Tubbs received
105,000 shares of common stock of the Company. Mr. Tubbs is an officer and
director of the Company.
11
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
The Company is authorized to issue 50,000,000 shares of its common stock,
par value $0.001 per share (the "Common Stock"), and 5,000,000 shares of
preferred stock, par value $0.001 per share (the "Preferred Stock"). As of
June 15, 1999 11,929,705 shares of the Common Stock were outstanding (after
giving effect to the Company's five percent (5%) stock dividends). No shares of
Preferred Stock are currently outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor.
In the event of liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities and after
provision has been made for each class of stock, if any, having preference over
the Common Stock. Holders of shares of Common Stock, as such, have no
conversion, preemptive or other subscription rights. There are no redemption
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
"blank check" Preferred Stock with such designation, rights and preferences as
may be determined from time to time by the Company's Board of Directors.
Accordingly, the Company's Board is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of Common Stock. The Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company does not currently intend to issue
any shares of Preferred Stock, there can be no assurance that the Company will
not do so.
TRANSFER AGENT
The transfer agent for the Common Stock is North American Transfer Co., 147
Merrick Road, Freeport, New York 11520.
12
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock is currently quoted on the OTC Bulletin Board
under the symbol "TLTG."
Set forth below are the high and low closing bid quotations for Company's
Common Stock for the periods indicated as reflected on the electronic bulletin
board. Such quotations reflect interdealer prices without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ------ ---- -----
<S> <C> <C>
March 31, 1999............................................................. -- --
March 31, 1998............................................................. 3.13 .4325
June 30, 1998.............................................................. 2.94 1.88
September 30, 1998......................................................... 1.00 .75
December 31, 1998.......................................................... 1.19 .4325
March 31, 1997............................................................. .65 .40
June 30, 1997.............................................................. .33 .22
September 30, 1997......................................................... .18 .11
December 31, 1997.......................................................... .125 .125
</TABLE>
As of May 31, 1998, there were approximately 240 recordholders of the
Company's Common Stock, although the Company believes that there are more than
five hundred beneficial owners of its Common Stock.
The Company plans to retain any future earnings for use in its business
and, accordingly, the Company does not anticipate paying dividends in the
foreseeable future. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend, among other factors, upon the
Company's earnings, financial condition and capital requirements.
ITEM 2. LEGAL PROCEEDINGS.
Management of the Company is not aware of any legal proceedings, or pending
legal proceedings, to which the Company is a party or to which its property is
subject. A claim however has been made by a corporation for $304,000
representing amounts advanced on behalf of the Company to a potential reseller
of telecommunications time to the Company. Such amount was to be held in escrow
until commencement of the contract between the Company and the reseller by an
agent appointed by the potential seller. The contract was aborted and the escrow
agent failed to return the escrow funds. The claimant has requested the payment
of the amount advanced with interest and alternately a participation in revenues
which it believed arose from the relationship with the reseller. The claimant
has failed to respond to the Company's communications for the past several
months.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None of the events described in Item 304 of Regulation S-B has occurred
within the past twenty-four months.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth information relating to all unregistered
securities of the Company sold by it since December 31, 1995. As previously
indicated, all share numbers have been adjusted retroactively to reflect a 1 for
20 reverse stock split on December 31, 1997.
On May 1, 1996, the Company issued an aggregate of 500,000 shares of Common
Stock to the stockholders of International in exchange for all of the
outstanding capital stock of International.
13
<PAGE>
In June 1996 the Company issued 158,333 shares of its common stock in
accordance with Regulation 504 of the Securities Act of 1933 for approximately
$950,000.
In February, 1998 the Company issued 500,000 to an affiliate of Bryon
Lerner and an officer and director in satisfaction of indebtedness of $100,000.
The Company believes the issuance of such shares is exempt from the registration
requirements pursuant to Section 4(2) of the Securities Act.
In May 1998 the Company issued 6,000,000 shares of its common stock to
twenty unaffiliated entities which collectively had the right to participate in
the Company's future earnings pursuant to agreement. These investors acquired
the shares for investment. The Company believes the issuance of such shares is
exempt from the registration requirements pursuant to Section 4(2) of the
Securities Act.
In July and January the Company issued its convertible notes in the
aggregate principal amount of $850,000 to several foreign investors in a
transaction exempt pursuant to Rule 504. In connection with the transaction the
Company issued warrants to purchase an aggregate of 137,500 shares of its Common
Stock various persons. All of the notes have been converted and all shares
issued. Warrants were also issued pursuant to Rule 504 to acquire 137,500 shares
of the Company have been exercised. In April 1999, the Company issued 2,000,000
shares of common stock to Antra Holdings Group, Inc. in exchange for 2,000,000
shares of that corporation's shares. The Company believes that the transaction
was exempt from the regulatory requirements of the Securities Act pursuant to
Section 4(2).
In June 1999 the Company issued 273,000 shares of its common stock to
several investors pursuant to a transaction pursuant to Section 4(2) of the
Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Sixth of the Certificate of Incorporation of the Company provides
with respect to the indemnification of directors and officers that the Company
shall indemnify to the fullest extent permitted by Sections 102(b)(7) and 145 of
the Delaware General Corporation Law, as amended from time to time, each person
that such Sections grant the Company the power to indemnify. Article Sixth of
the Certificate of Incorporation of the Company also provides that no director
shall be liable to the corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, except with respect to
(1) a breach of the director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) liability under
Section 174 of the Delaware General Corporation Law or (4) a transaction from
which the director derived an improper personal benefit, it being the intention
of the foregoing provision to eliminate the liability of the corporation's
directors to the corporation or its stockholders to the fullest extent permitted
by Section 102(b)(7) of Delaware General Corporation Law, as amended from time
to time.
PART F/S
See Index to Financial Statements and Financial Statements attached hereto.
14
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation
3.2 -- Certificate of Ownership and Merger of Spectratek Incorporation by Taltran International Group,
Ltd.
3.3 -- Amendment to Certificate of Incorporation
4 -- By-Laws
10.1 -- 1998 Stock Option Plan
10.2 -- Employment Agreement between Byron Lerner and Registrant
10.2(a) -- Employment Agreement between James Tubbs and Registrant
10.3 -- USA Interconnectivity and Support Agreement dated October 12, 1999 between Ozemail and Registrant
10.4 -- USA Intellectual Property License Agreement dated October 12, 1999 between Ozemail and Registrant
10.5 -- Telecommunication Services Agreement dated October 15, 1998 between Ozemail and Registrant
10.6 -- Extension and Modification of OzEmail Agreement
10.7 -- Subsequent Agreement dated June 10, 1999
10.8 -- Memorandum agreement between Registrant and Antra Holdings Group, Inc.
21.1 -- Subsidiary List
23 -- Consent of Leibman Goldberg & Drogin LLP
27 -- Selected Financial Data Schedule
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS.
- ------------------
* Filed herewith--other exhibits filed in connection with Registrant's Form SB-2
filed concurrently herewith and are incorporated by reference.
15
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, HEREUNTO DULY AUTHORIZED.
Date: July , 1999
TELTRAN INTERNATIONAL GROUP, LTD.
By: /s/
----------------------------------
Bryon R. Lerner
Chief Executive Officer, President
(Principal Executive, Financial
and Accounting Officer)
16
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Independent Auditors' Report.......................................................................... F-1
Financial Statements:
Consolidated Balance Sheets at December 31, 1998 and 1997........................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997................ F-3
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 1998 and 1997..... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997................ F-5
Notes to Consolidated Financial Statements.......................................................... F-6--F-9
</TABLE>
<PAGE>
LIEBMAN GOLDBERG & DROGIN LLP
Certified Public Accountants
591 Stewart Avenue, Suite 450
Garden City, New York 11530
-------------
Tel (516) 228-6600
Fax (516) 228-6664
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Teltran International Group, Ltd. and Subsidiaries
We have audited the consolidated balance sheets of Teltran International
Group, Ltd. and Subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' deficit and cash flows for
the years then ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Teltran
International Group, Ltd. and Subsidiaries as of December 31, 1998 and 1997 and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
February 22, 1999
Garden City, New York
F-1
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash............................................................................ $ 5,389 $ 3,646
Accounts receivable............................................................. 94,296 --
Deferred financing costs--net of amortization................................... 19,797 --
------------ ------------
Total current assets......................................................... 119,482 3,646
------------ ------------
Other Assets:
Goodwill--net of amortization................................................... 37,588 40,273
Organization expense--net of amortization....................................... 98 218
------------ ------------
Total other assets........................................................... 37,686 40,491
------------ ------------
Total assets................................................................. $ 157,168 $ 44,137
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Convertible debentures payable.................................................. $ 180,488 $ --
Loan payable.................................................................... 50,000 50,000
Due to factor................................................................... 65,193 --
Accounts payable, accrued expenses and taxes payable............................ 104,581 35,081
Corporation taxes payable....................................................... 100 488
------------ ------------
Total current liabilities.................................................... 400,362 85,569
------------ ------------
Long-Term Liabilities:
Notes payable................................................................... -- 250,000
Loans payable--stockholders'.................................................... 1,245 10,880
------------ ------------
Total long-term liabilities.................................................. 1,245 260,880
------------ ------------
Total liabilities............................................................ 401,607 346,449
------------ ------------
Commitments and Contingencies
Stockholders' Deficit:
Preferred stock, $.001 par value per share, 5,000,000 shares authorized and -0-
shares issued and outstanding................................................
Common stock, $.001 par value per share, 50,000,000 shares authorized and
7,697,295 and 915,637 shares issued and outstanding in 1998 and 1997
respectively................................................................. 7,697 916
Additional paid in capital in excess of par value............................... 2,002,359 1,501,928
Deficit......................................................................... (2,254,495) (1,805,156)
------------ ------------
Total stockholders' deficit (244,439) (302,312)
------------ ------------
Total liabilities and stockholders' deficit.................................. $ 157,168 $ 44,137
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
F-2
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenues:
Sales....................................................................... $ 535,197 $ --
Cost of Sales:
Purchases................................................................... 244,832 --
--------- ---------
Gross profit.................................................................. 290,365 --
--------- ---------
Expenses:
Salaries.................................................................... 143,356 371,379
Outside services............................................................ 271,850 112,032
Professional fees........................................................... 49,531 21,274
Fees--other................................................................. 9,384 1,003
Payroll taxes............................................................... 14,878 28,386
Leasing expense............................................................. 11,446 --
Travel...................................................................... 93,701 21,219
Insurance................................................................... 28,863 33,573
Rent........................................................................ 48,834 36,532
Office expense.............................................................. 3,435 170,618
Miscellaneous............................................................... 3,908 4,275
Telephone................................................................... 6,088 27,369
Amortization expense........................................................ 24,083 120
--------- ---------
Total expenses........................................................... 709,357 827,780
--------- ---------
Loss from operations.......................................................... (418,992) (827,780)
Interest expense.............................................................. 29,959 --
--------- ---------
Loss before provision for income taxes........................................ (448,951) (827,780)
Provision for income taxes.................................................... 388 464
--------- ---------
Net loss...................................................................... $(449,339) $(828,244)
--------- ---------
--------- ---------
Net loss per share of common stock based upon 7,697,295 and 915,637 (weighted
average) shares issued, respectively........................................ $ (0.06) $ (0.90)
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
----------------------- IN EXCESS OF
SHARES AMOUNT PAR VALUE DEFICIT
----------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Balance--March 1, 1996.................................... 5,145,491 $ 5,145 $ 588,550 $ (550,478)
March, 1996 Teltran Merger.............................. 10,000,000 10,000
July, 1996 issuance of 3,166,667 shares................. 3,166,667 3,167 946,833
Adjustment re: merger elimination entries............... 31,273
Net loss for the year................................... (457,707)
----------- -------- ----------- -----------
Balance--January 1, 1997.................................. 18,312,158 18,312 1,535,383 (976,912)
Adjustment re: promissory note.......................... (50,851)
Reverse stock split 1:20 - December 1, 1997............. (17,396,521) (17,396) 17,396
Net loss for the year................................... (828,244)
----------- -------- ----------- -----------
Balance--December 31, 1997................................ 915,637 916 1,501,928 (1,805,156)
Issuance of shares in consideration of joint venture
termination.......................................... 6,000,000 6,000 284,000 --
Issuance of shares re: conversion of debt............... 281,658 281 116,931 --
Issuance of shares re: payment of stockholder's loans... 500,000 500 99,500 --
Net loss for the year................................... -- -- -- (449,339)
----------- -------- ----------- -----------
Balance--December 31, 1998................................ 7,697,295 $ 7,697 $ 2,002,359 $(2,254,495)
----------- -------- ----------- -----------
----------- -------- ----------- -----------
</TABLE>
See notes to financial statements.
F-4
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................................................ $(449,339) $(828,244)
Adjustment to reconcile net loss to net cash (used in) operating activities:
Amortization expense.................................................................. 24,083 120
(Increase) in accounts receivable..................................................... (94,296) --
(Increase) in deferred financing costs................................................ (55,875) --
Cash advances from factor (net of repayments)......................................... 65,193 --
Increase in accounts payable and accrued expenses..................................... 69,112 5,613
--------- ---------
Net cash (used in) operating activities............................................ (441,122) (822,511)
--------- ---------
Cash Flows from Financing Activities:
Issuance of convertible debentures.................................................... 180,488 --
Cash received from issuance of common stock........................................... -- 602,300
Conversion of convertible debenture--stock issued..................................... 119,512 --
(Decrease) in loan payable............................................................ (50,000) --
Proceeds from loan payable............................................................ 50,000 --
(Decrease) in notes payable........................................................... (250,000) --
Decrease in loans payable--stockholders'.............................................. 102,865 --
Issuance of stock for notes payable................................................... 290,000 --
Cash received as advances from investors.............................................. -- 199,149
--------- ---------
Net cash provided by financing activities.......................................... 442,865 801,449
--------- ---------
Net increase (decrease) in cash......................................................... 1,743 (21,062)
Cash--January 1,........................................................................ 3,646 24,708
--------- ---------
Cash--December 31,...................................................................... $ 5,389 $ 3,646
--------- ---------
--------- ---------
Supplemental Disclosures:
Income tax............................................................................ $ 625 $ 464
--------- ---------
--------- ---------
Interest paid......................................................................... $ 29,959 $ --
--------- ---------
--------- ---------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--OPERATIONS:
Nature of Business:
Teltran International Group, Ltd. through its wholly owned Subsidiary
Teltran International, Inc. (the "Company") provides services for state of the
art telecommunications.
Effective March 1, 1996, the shareholders of Teltran International Inc.
("the Subsidiary"), a Delaware corporation, completed a stock exchange with
Spectratek Inc., a Utah corporation, whereby all the common shares of the
subsidiary, were exchanged for 10,000,000 common shares of Spectratek, par value
$.001. The 10,000,000 shares represented approximately 67% of the then total
issued and outstanding 15,145,491 shares of Spectratek Inc.
On October 6, 1997, Spectratek merged with Teltran International Group,
Ltd., a newly formed Delaware corporation with the surviving entity.
Except as otherwise indicated by the context, references to "the Company"
refer to Teltran International Group, Ltd. and the subsidiary.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiary. Intercompany balances and transactions have
been eliminated.
Development Stage Activities and Operations:
Prior to April 1998, the Company was a development stage activity. Since
the Company now has continuing business revenues, comparative financial
information does not include losses accumulated during the development stage
period not part of the financial statement period.
At December 31, 1998, the Company has a net operating loss carryforward of
approximately $2,254,000 after limitations based on changes in ownership.
Basic loss per share was computed by dividing the Company's net loss by the
weighted average number of common shares outstanding during the period. There is
no presentation of diluted loss per share as the effect of common stock options,
warrants and convertible debt amounts are antidilutive. The weighted average
number of common shares used to calculate loss per common share during 1998 and
1997 was 7,697,295 and 915,637 respectively.
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share". The Statement established standards for computing
and presenting earnings per share (EPS). It replaced the presentation of primary
EPS with a presentation of basic EPS and also requires dual presentation of
basic and diluted EPS on the face of the income statement. The Statement was
retroactively applied to the 1997 loss per share but did not have any effect.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those amounts.
Fair Value of Financial Instruments:
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments",
requires disclosure of the fair value information, whether or not recognized in
the balance sheet, where it is practicable to estimate that value. The carrying
value of cash, cash equivalents, accounts receivable and notes payable
approximates fair value.
F-6
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
Impairment of Long-Lived Assets:
The Company has not completed it's evaluation of the adoption of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." However, management believes any such effect will not be
material.
Revenue Recognition:
Telecommunication revenues from services provided are recognized and billed
as services are performed.
Major Customer:
During the year ended December 31, 1998, approximately 70% of the company's
revenue was from one customer. Also, 65% of accounts receivable are from this
customer who also was factored.
Goodwill:
Goodwill is stated at cost and is amortized on a straight line basis over a
life of 15 years. Amortization expense is $2,685, for the year ended
December 31, 1998.
Stock Options:
The Company recognizes compensation for stock options granted to employees
in accordance with Accounting Principles Board Opinion No. 25.
NOTE 3--NOTES RECEIVABLE:
In July 1996, the Company issued 3,166,667 shares of common stock to
investors for the sum of $950,000. During the year ended December 31, 1996, the
Company received $347,700 and the balance of $602,300 was received during the
year ended December 31, 1997.
NOTE 4--DUE TO FACTOR:
In June 1998, the Company entered into a factoring agreement; financing the
accounts receivable of their major customers. At December 31, 1998, the
outstanding balance due to the factor, represents approximately 70% of the
customers' open balance. Advances from the factor totaled $509,036 (before
customer repayments) from June, 1998 to December, 1998 and were used to pay
operating expenses as well as vendor purchases. In February 1999, the Company
terminated the factoring agreement and paid the outstanding balance in full.
NOTE 5--NOTES PAYABLE:
In August 1998, the Company issued $300,000 of convertible debentures due
August 14, 1999 to non-related parties. The debentures accrued interest at 10%.
The debentures are convertible into the Company's stock at $1.25 or 70% of the
lowest closing bid price of the common stock, 30 trading days preceding the
conversion date. During the period August through December 1998, $119,512 of
debentures were converted to 269,158 shares of common stock. In connection with
the transaction, the Company issued 30,000 warrants to purchase 30,000 shares of
common stock at $1.25 per share. Financing costs of this transaction were
deferred, and are being amortized to the convertible debentures maturity date.
Prior to 1998, the Company received a loan in the amount of $50,000. During
1998, this loan was renegotiated and terms were extended. The loan is due upon
notification from the maker or upon the anniversary date of the renegotiation.
In November 1997, the Company entered into a joint venture agreement with a
group of unrelated foreign investors which provided for their participation of
future profits of the Company in return for cancellation of
F-7
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 5--NOTES PAYABLE:--(CONTINUED)
indebtedness. In June 1998, the Company issued on aggregate of 6,000,000 shares
to these investors in consideration of the termination of the joint venture.
NOTE 6--STOCKHOLDERS' DEFICIT:
During the period August 1998 to December 31, 1998, the Company issued
269,158 shares of its common stock upon the conversion of $119,512 of the
debentures referred to in Note 5.
The Company also issued 500,000 shares of its common stock to related
parties of an officer and an officer as repayment of $100,000 advanced to the
Company during the year.
The Company adopted Financial Accounting Standards Board (FASB) Statement
No. 128, "Earnings per Share". The Statement established standards for computing
and presenting earnings per share (EPS). It replaced the presentation of primary
EPS with a presentation of basic EPS and also requires dual presentation of
basic and diluted EPS on the face of the income statement. The Statement was
retroactively applied to the 1997 loss per share but did not have any effect.
Upon completion of the reincorporation on October 6, 1997, the Company's
capitalization consisted of 50,000,000 shares of common stock and 5,000,000
shares of preferred stock. On December 1, 1997, the shareholders approved a
reverse one for twenty common stock split.
NOTE 7--COMMITMENTS AND CONTINGENCIES:
The Company was a development stage company and had no significant revenues
and limited financing during the first three months of 1998. Additionally, the
Company, as shown in the accompanying consolidated financial statements, has an
accumulated deficit of $2,254,495 at December 31, 1998 and incurred a net loss
of $449,339 during the year ended December 31, 1998. Subsequent to June 30,
1998, the Company is no longer a development stage company since revenues are
continuing.
The Company rents its facility under a lease agreement through August 31,
2003.
Future minimum lease payments under these agreements for the years ended
December 31, are as follows:
<TABLE>
<S> <C>
1999.................................................................... $ 90,500
2000.................................................................... 90,500
2001.................................................................... 90,500
2002.................................................................... 98,644
2003.................................................................... 98,644
--------
$468,788
--------
--------
</TABLE>
Rent expense for the years ended December 31, 1998 and 1997 was $48,834 and
$36,532, respectively.
NOTE 8--STOCK COMPENSATION PLAN:
During the year ended December 31, 1998, the company granted 1,180,000
stock options, with a life of 10 years, to certain officers/directors, employees
and non-employees that may be exercised at prices ranging from $.375 to $5.00
per share. Subsequent to December 31, 1998, the Company pursuant to the plan,
granted 795,000 additional stock options, also with a 10 year life, to certain
employees and non-employees that may be exercised at a price of $.59 per share.
These options vested immediately upon the date of issuance.
F-8
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 8--STOCK COMPENSATION PLAN:--(CONTINUED)
The following table summarizes certain information relative to stock
options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INCENTIVE STOCK OPTIONS SHARES EXERCISE PRICE
- ------------------------------------------------------------------------ --------- ----------------
<S> <C> <C>
Granted................................................................. 1,180,000 $ 1.69
Exercised............................................................... 0 --
---------
Outstanding--December 31, 1997.......................................... 0 --
Expired/cancelled....................................................... 0 --
Granted................................................................. 0 --
---------
Outstanding--December 31, 1998.......................................... 1,180,000 1.69
---------
---------
Exercisable--December 31, 1998.......................................... 497,500 1.69
---------
---------
</TABLE>
NOTE 9--SUBSEQUENT EVENT:
In January 1999, the Company issued $550,000 principal amount of
convertible debentures due to non-related parties. The debentures accrue
interest at 10%, and are convertible into the Company's common stock at prices
related to market. Subsequent to the issuance of the debentures, all the
debentures were converted into shares.
F-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Certificate of Incorporation
3.2 -- Certificate of Ownership and Merger of Spectratek Incorporation by Teltran
International Group, Ltd.
3.3 -- Amendment to Certificate of Incorporation
*4 -- By-Laws
10.1 -- 1998 Stock Option Plan
10.2 -- Employment Agreement between Byron Lerner and Registrant
*10.2(a) -- Employment Agreement between James Tubbs and Registrant
10.3 -- USA Interconnectivity and Support Agreement dated October 12, 1999 between Ozemail
and Registrant
10.4 -- USA Intellectual Property License Agreement dated October 12, 1999 between Ozemail
and Registrant
10.5 -- Telecommunication Services Agreement dated October 15, 1998 between Ozemail and
Registrant
10.6 -- Extension and Modification Agreement
10.7 -- Subsequent Agreement dated June 10, 1999
10.8 -- Memorandum Agreement between Registrant and Antra Holdings Group, Inc.
21.1 -- Subsidiary List
23 -- Consent of Leibman Goldberg & Drogin LLP
27 -- Selected Financial Data Schedule
</TABLE>
- ------------------
* Filed herewith other exhibits filed in connection with the Registrant's
Form SB-2 filed concurrently herewith and are incorporated by this reference.
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD.
BY-LAWS
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING.
An annual meeting of the stockholders, for the election of
directors to succeed those whose terms expire and for the transaction of such
other business as may properly come before the meeting, shall be held at such
place, on such date, and at such time as the Board of Directors shall each year
fix, which date shall be within thirteen months subsequent to the later of the
date of incorporation or the last annual meeting of stockholders.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or
purposes prescribed in the notice of the meeting, may be called by the Board of
Directors or the chief executive officer and shall be held at such place, on
such date, and at such time as they or he or she shall fix.
SECTION 3. NOTICE OF MEETINGS.
Written notice of the place, date, and time of all meetings of
the stockholders shall be given, not less than ten nor more than sixty days
before the date on which the meeting is to be held, to each stockholder entitled
to vote at such meeting, except as otherwise provided herein or required by law
(meaning, here and hereinafter, as required from time to time by the Delaware
General Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time,
written notice need not be given of the adjourned meeting if the place, date and
time thereof are announced at the meeting
<PAGE>
at which the adjournment is taken; provided, however, that if the date of any
adjourned meeting is more than thirty days after the date for which the meeting
was originally noticed, or if a new record date is fixed for the adjourned
meeting, written notice of the place, date, and time of the adjourned meeting
shall be given in conformity herewith. At any adjourned meeting, any business
may be transacted which might have been transacted at the original meeting.
SECTION 4. QUORUM.
At any meeting of the stockholders, the holders of a majority
of all of the votes entitled to be voted at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law.
If a quorum shall fail to attend any meeting, the chairman of
the meeting or the holders of a majority of the votes who are present, in person
or by proxy, may adjourn the meeting to another place, date, or time.
If a notice of any adjourned special meeting of stockholders
is sent to all stockholders entitled to vote thereat, stating that it will be
held with those present constituting a quorum, then except as otherwise required
by law, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such meeting.
SECTION 5. ORGANIZATION.
Such person as the Board of Directors may have designated or,
in the absence of such a person, the Chairman of the Board of Directors or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the
- 2 -
<PAGE>
absence of the Secretary of the Corporation, the secretary of the meeting shall
be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
or her in order.
SECTION 7. PROXIES AND VOTING.
At any meeting of the stockholders, every stockholder entitled
to vote may vote in person or by proxy authorized by an instrument in writing
filed in accordance with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or in the Corporation's
Certificate of Incorporation or as required by law.
All voting, including on the election of directors but
excepting where otherwise required by law, may be by a voice vote; provided,
however, that upon demand therefor by a stockholder entitled to vote or his or
her proxy, a stock vote shall be taken. Every stock vote shall be taken by
ballots, each of which shall state the name of the stockholder or proxy voting
and such other information as may be required under the procedure established
for the meeting. Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
- 3 -
<PAGE>
All elections shall be determined by a plurality of the votes
cast, and except as otherwise required by law, all other matters shall be
determined by a majority of the votes cast.
SECTION 8. STOCK LIST.
A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each class of stock
and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting
during the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
SECTION 9. CONSENT OF STOCKHOLDERS
IN LIEU OF MEETING.
Any action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take
- 4 -
<PAGE>
such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be made by hand or by certified or registered mail,
return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE.
The number of directors who shall constitute the whole Board
shall be such number as the Board of Directors shall from time to time have
designated, except that in the absence of any such designation, such number
shall be five (5). Each director shall be elected for a term of one year or
until his or her successor is elected and qualified, except as otherwise
provided herein or required by law.
Whenever the authorized number of directors is increased
between annual meetings of the stockholders, a majority of the directors then in
office shall have the power to elect such new directors for the balance of a
term and until their successors are elected and qualified. Any decrease
- 5 -
<PAGE>
in the authorized number of directors shall not become effective until the
expiration of the term of the directors then in office unless, at the time of
such decrease, there shall be vacancies on the board which are being eliminated
by the decrease.
SECTION 2. VACANCIES.
If the office of any director becomes vacant by reason of
death, resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified.
SECTION 3. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at
such place or places, on such date or dates, and at such time or times as shall
have been established by the Board of Directors and publicized among all
directors. A notice of each regular meeting shall not be required.
SECTION 4. SPECIAL MEETINGS.
Special meetings of the Board of directors may be called by
one-third of the directors then in office (rounded up to the nearest whole
number) or by the Chairman of the Board or by the President and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written not less than five
days before the meeting or by telegraph ing the same not less than twenty-four
hours before the meeting. Unless otherwise indicated in the notice thereof, any
and all business may be transacted at a special meeting.
- 6 -
<PAGE>
SECTION 5. QUORUM.
At any meeting of the Board of Directors, one-third of the
total number of the whole Board (rounded up to the nearest whole number) shall
constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
SECTION 6. PARTICIPATION IN MEETINGS
BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee
thereof, may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such participation
shall constitute presence in person at such meeting.
SECTION 7. CONDUCT OF BUSINESS.
At any meeting of the Board of Directors, business shall be
transacted in such order and manner as the Board may from time to time
determine, and all matters shall be determined by the vote of a majority of the
directors present, except as otherwise provided herein or required by law.
Action may be taken by the Board of Directors without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
SECTION 8. POWERS.
- 7 -
<PAGE>
The Board of Directors may, except as otherwise required by
law, exercise all such powers and do all such acts And things as may be
exercised or done by the Corporation, including, without limiting the generality
of the foregoing, the unqualified power:
(1) To declare dividends from time to time in
accordance with law;
(2) To purchase or otherwise acquire any property,
rights or privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance,
in such form as it may determine, of written obligations of
every kind, negotiable or non-negotiable, secured or
unsecured, and to do all things necessary in conjunction
therewith;
(4) To remove any officer of the Corporation with or
without cause, and from time to time to devolve the powers and
duties of any officer upon any other person for the time
being;
(5) To confer upon any officer of the corporation the
power to appoint, remove and suspend subordinate officers,
employees and agents;
(6) To adopt from time to time such stock option,
stock purchase, bonus or other compensation plans for
directors, officers, employees and agents of the Corporation
and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance.,
retirement, and other benefit plans for directors, officers,,
employees and agents of the Corporation and its subsidiaries
as it may determine; and,
(8) To adopt from time to time regulations, not
inconsistent with these By-Laws, for the management of the
Corporation's business and affairs.
- 8 -
<PAGE>
SECTION 9. COMPENSATION OF DIRECTORS.
Directors, as such, may receive, pursuant to resolution of
the Board of Directors, fixed fees and other compensation for their services as
directors, including, without limitation, their services as members of
committees of the Board of Directors.
SECTION 10. DIVISION AND DEPARTMENTS.
The Board of Directors may cause the business and operations
of the Corporation to be divided into divisions based upon such basis of
division as the Board of Directors may from time to time determine to be
advisable, and may cause the business and operations of any such division to be
further divided into sub-divisions or departments if deemed advisable by the
Board of Directors and upon such basis of subdivision as the Board may
determine.
ARTICLE III - COMMITTEES
SECTION 1. COMMITTEE OF THE BOARD OF DIRECTORS.
The Board of Directors, by a vote of a majority of the whole
Board, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a
- 9 -
<PAGE>
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his place, the member or members of the committee present at the
meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
SECTION 2. CONDUCT BUSINESS.
Each committee may determine the procedural rules for meeting
and conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third of the members shall constitute
a quorum unless the committee shall consist of one or two members, in which
event one member shall constitute a quorum; and all matters shall be determined
by a majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of such
committee.
ARTICLE IV - OFFICERS
SECTION 1. GENERALLY.
The officers of the Corporation shall consist of a Chairman of
the Board, a President, one or more Vice Presidents, a Secretary, a Treasurer
and such other officers as may from time to
- 10 -
<PAGE>
time be appointed by the Board of Directors. officers shall. be elected by the
Board of Directors. Each officer shall hold office until his or her successor
is elected and qualified or until his or her earlier resignation or removal.
Any number of offices may be held by the same person.
SECTION 2. CHAIRMAN OF THE BOARD.
The Chairman of the Board of Directors shall be the chief
executive officer of the Corporation. He or she shall preside at all meetings of
the Board of Directors and all meetings of stockholders. Subject to the
provisions of these By-Laws and to the discretion of the Board of Directors, he
or she shall have the responsibility for the general management and control of
the business and affairs of the Corporation and shall perform all duties which
are commonly incident to the office of chief executive officer or which are
delegated to him or her by the Board of Directors. The Chairman of the Board
shall be a member of the Board of Directors of the Corporation. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
SECTION 3. PRESIDENT.
The President shall be the chief operating officer of the
Corporation. Subject to the provisions of these By-Laws and to the direction of
the Board of Directors, he or she shall have the responsibility for the general
management and control of the operating divisions of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief operating officer or which are delegated to him or her by the Board of
Directors or the Chairman of the Board. He or she shall have power to sign all
stock certificates, contracts and other instruments
- 11 -
<PAGE>
of the Corporation which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of the Corporation.
SECTION 4. VICE PRESIDENT.
Each Vice President shall have such powers and duties as may
be delegated to him or her by the Board of Directors. One Vice President shall
be designated by the Board to perform the duties and exercise the powers of the
President in the event of the President's absence or disability.
SECTION 5. TREASURER.
The Treasurer shall have the responsibility for maintaining
the financial records of the Corporation. He or she shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions and of the financial
condition of the Corporation. The Treasurer shall also perform such other duties
as the Board of Directors may from time to time prescribe.
SECTION 6. SECRETARY.
The Secretary shall issue all authorized notices for, and
shall keep minutes of, all meetings of the stockholders and the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
SECTION 7. DELEGATION OF AUTHORITY.
The Board of Directors may from time to time delegate the
powers or duties of any officer to any other officers or agents, notwithstanding
any provision hereof.
- 12 -
<PAGE>
SECTION 5. REMOVAL.
Any officer of the Corporation may be removed at any time,
with or without cause, by the Board of Directors.
SECTION 9. ACTION WITH RESPECT TO
SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the
Chairman of the Board, the President or any officer of the Corporation
authorized by the Chairman of the Board or the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
SECTION 1. CERTIFICATES OF STOCK.
Each stockholder shall be entitled to a certificate signed
by, or in the name of the Corporation by, the President or a Vice President,
and by the Secretary or an Assistant Secretary, or the Treasurer or an
Assistant Treasurer, certifying the number of shares owned by him or her. Any
or all of the signatures on the certificate may be facsimile.
SECTION 2. TRANSFERS OF STOCK.
- 13 -
<PAGE>
Transfers of stock shall be made only upon the transfer books
of the Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-Laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
SECTION 3. RECORD DATE.
In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders, or to receive
payment of any dividend or other distribution or allotment of any rights or to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which record date shall not precede the date on which the
resolution fixing the record date is adopted and which record date shall not be
more than sixty nor less than ten days before the date of any meeting of
stockholders, nor more than sixty days prior to the time for such other action
as hereinbefore described; provided, however, that if no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stock holders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and, for determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of rights or to
exercise any rights of change, conversion or exchange of stock or for any other
purpose, the record date shall be at the close of business on the day on which
the Board of Directors adopts a resolution relating thereto.
- 14 -
<PAGE>
A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten days after the date upon which the
resolution fixing the record date is adopted. If no record date has been fixed
by the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in the manner prescribed by
Article I, Section 9 hereof. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by the Delaware
General Corporation Law with respect to the proposed action by written consent
of stockholders, the record date for determining stockholders entitled to
consent corporate action in writing shall be at the close of business on the day
on which the Board of Directors adopts the resolution taking such prior action.
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES.
In the event of the loss, theft or destruction of any
certificate of stock, another may be issued in its place pursuant to such
regulations as the Board of Directors may establish concerning proof of such
loss, theft or destruction and concerning the giving of a satisfactory bond or
bonds of indemnity.
- 15 -
<PAGE>
SECTION 5. REGULATIONS.
The issue, transfer, conversion and registration of
certificates of stock shall be governed by such other regulations as the Board
of Directors may establish.
ARTICLE VI - NOTICES
SECTION 1. NOTICES.
Except as otherwise specifically provided herein or required
by law, all notices required to be given to any stockholder, director, officer,
employee or agent shall be in writing and may in every instance by effectively
given by hand delivery to the recipient thereof, by depositing such notice in
the mails, postage paid, or by sending such notice by prepaid telegram or
mailgram. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram, shall be the time of the giving of the notice.
SECTION 2. WAIVERS.
A written waiver of any notice, signed by a stockholder,
director, officer, employee or agent, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer, employee or agent.
Neither the business nor the purpose of any meeting need be specified in such a
waiver.
- 16 -
<PAGE>
ARTICLE VII - MISCELLANEOUS
SECTION 1. FACSIMILE SIGNATURES.
In addition to the provisions for use of facsimile signatures
elsewhere specifically authorized in these By-Laws, facsimile signatures of any
officer or officers of the Corporation may be used whenever and as authorized by
the Board of Directors or a committee thereof.
SECTION 2. CORPORATE SEAL.
The Board of Directors may provide a suitable seal, containing
the name of the Corporation, which seal shall be in the charge of the Secretary.
If and when so directed by the Board of Directors or a committee thereof,
duplicates of the seal may be kept and used by the Treasurer or by an Assistant
Secretary or Assistant Treasurer.
SECTION 3. RELIANCE UPON BOOKS,
REPORTS AND RECORDS.
Each director, each member of any committee designated by the
Board of Directors, and each officer of the Corporation shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or other records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
officers or employees, or committees of the Board of Directors so designated, or
by any other person as to matters the director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
- 17 -
<PAGE>
SECTION 4. FISCAL YEAR.
The fiscal year of the Corporation shall be as fixed by the
Board of Directors.
SECTION 5. TIME PERIODS.
In applying any provision of these By-Laws which require that
an act be done or not done a specified number of days prior to an event or that
an act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
SECTION 6. PLACE OF BUSINESS.
The principal place of business of the Corporation shall be
One Penn Plaza, Suite 4632, New York, NY 10119 or such other location that in
the determination of the Board of Directors is advantageous to the Corporation.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be
made a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or an
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
- 18 -
<PAGE>
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while serving
as a director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith; provided, however, that,
except as provided in Section 3 hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation.
SECTION 2. RIGHT TO ADVANCEMENT OF EXPENSES.
The right to indemnification conferred in Section 1 of this
Article shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires an advancement of expenses incurred by
an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) such
advancement of expenses shall be made only upon delivery to the Corporation of
- 19 -
<PAGE>
an undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise. The rights
to indemnification and to the advancement of expenses conferred in Sections 1
and 2 of this Article shall be contract rights and such rights shall continue as
to an indemnitee who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
SECTION 3. RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 1 or 2 of this Article is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking the Corporation shall be entitled to recover such expenses upon a
final adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth
- 20 -
<PAGE>
in the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article or otherwise shall be on the Corporation.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 5. INSURANCE.
The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation
- 21 -
<PAGE>
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
SECTION 6. INDEMNIFICATION OF
EMPLOYEES OF THE CORPORATION.
Except to the extent that rights to indemnification and
advancement of expenses of employees of the Corporation may be required by any
statute, the Certificate of Incorporation, this Article VIII or any other
By-Law, agreement, vote of stockholders or disinterested directors or otherwise,
the Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee of the Corporation to the fullest extent of the provisions of this
Article with respect to the indemnifica tion and advancement of expenses of
directors and officers of the Corporation.
ARTICLE IX - AMENDMENTS
These By-laws may be amended or repealed by the Board of
Directors at any meeting or by the stockholders at any meeting.
- 22 -
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as of March
1, 1999 by and between Teltran International Group, Ltd., a Delaware
corporation (the "Company"), and James Tubbs (the "Executive").
The Executive is being employed by the Company as an executive
officer. The parties desire to enter into an employment agreement and to set
forth herein the terms and conditions of the Executive's continued employment
by the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and the mutual benefits to be derived here from,
the Company and the Executive agree as follows:
1. Employment.
(a). Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its Executive Vice President, and Chief
Operating Officer. The Executive accepts such employment with the Company and
shall perform and fulfill such duties as are assigned to him hereunder
consistent with his status as a senior executive of the Company, devoting his
best efforts and a substantial portion of his time and attention to the
performance and fulfillment of his duties and to the advancement of the
interests of the Company, subject only to the direction, approval, control and
directives of the Company's Board of Directors (the "Board"). Nothing
contained herein shall be construed, however, to prevent the Executive from
trading in or managing, for his own account and benefit, in stocks, bonds,
securities, real estate, commodities or other forms of investments (subject to
law and Company policy with respect to trading in Company securities). Without
any additional consideration, Executive shall also serve as an officer of any
or all subsidiaries of the Company. Unless otherwise indicated by the context,
the term "Company" shall include the Company and all its subsidiaries.
Notwithstanding any provisions to the contrary Executive is retaining
his ownership in and receive passive revenues from any telecommunications
company he may have an interest in prior to the date hereof and the time
devoted thereto does not interfere with his duties hereunder.
(b). Place of Performance. In connection with his employment
by the Company, the Executive shall be based at the Company's principal place
of business in the New York, New York, except when required for travel on
Company business.
(c). Nomination as Director. The Company agrees that it will
nominate the Executive as a member of the Board of Directors each year during
the term of this Agreement and will use its best efforts to ensure that the
Executive is elected to the Board of Directors.
<PAGE>
2. Term. The Executive's employment under this Agreement shall
commence as of March 1, 1999 (the "Commencement Date") and shall, unless
sooner terminated in accordance with the provisions hereof, continue
uninterrupted until April 30, 2002 ("Term"). As used herein "Year" shall refer
to a twelve month period ending March 31 except the first year shall be a
thirteen month period beginning March 1, 1999 and ending April 30, 2000.
Unless notice of non-renewal is given by either party at least sixty (60) days
prior to the end of the Term or prior to the end of any Year thereafter, the
Term of this Agreement shall be automatically extended for an additional
period of one year.
3. Compensation.
(a). Base Salary. Executive shall receive a "Base Salary"
during the Term. For the period March 1, 1999 through July 31, 1999 the Base
Salary shall be at the rate of $150,000 per annum which shall increase to the
rate of $180,000 per annum commencing August 1, 1999. On April 1, 2000 the
Base Salary shall increase to $189,000 per annum for the Year commencing on
such date provided that if Net Income, as hereinafter defined, for the year
ended March 31, 2000 is equal to or greater than $200,000 then the Base Salary
shall be increased to $200,000. Every Year after March 31, 2001 the Base
Salary shall increase by an amount equal to ten (10%) percent of the prior
year's base Salary.
(b). Net Income. As used herein the term "Net Income" shall
mean pre-tax income of the Company determined in accordance with generally
accepted accounting principles consistently applied but excluding therefrom
(i) any reduction reflecting amortization of good-will and (ii) any deduction
for any bonus awarded under Paragraph 1(c).
(c). Bonus Pool Participation. Commencing with the year
beginning April 1, 1999 and ending March 31, 2000 Executive shall be entitled
to participate in bonus pool to be awarded for each year of the Term. The
bonus pool shall equal fifteen (15%) percent of Net Income for such year and
shall be paid on the earlier of the filing of the Company's quarterly report
on Form 10-Q for the quarter ending March 31, 1999 or fifty days after the end
of such year. At the time of payment Execution shall receive a written
statement of the Company's public accountant's calculating the amount of the
bonus pool. The allocation of such bonus pool shall be determined by Byron
Lerner and James Tubbs while they are employed provided each of Messrs. Lerner
and Tubbs shall receive six (6%) percent of such bonus pool. In addition, each
of Messrs. Lerner and Tubbs shall participate in such bonus pool to such
extent for any year in which they were employed hereunder except if their
employment is terminated by their voluntary termination or termination for
cause. The obligation to pay a bonus hereunder shall survive termination or
expiration of the Agreement.
4. Insurance
(a). Health Insurance and Other Benefits. During the Term, the
Executive shall
2
<PAGE>
be entitled to all employee benefits generally offered by
the Company to its executive officers and key management employees, including,
without limitation, all pension, profit sharing, retirement, stock option,
salary continuation, deferred compensation, disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance or any other benefit plan or arrangement
established and maintained by the Company, subject to the rules and
regulations then in effect regarding participation therein.
(b). Keyman Insurance. The Company may obtain keyman life
insurance upon the life of the Executive. In amounts to be determined from
time to time by Executive and the Company.
5. Expenses.
(a). Reimbursement of Expenses. The Executive shall be
reimbursed for all items of travel, entertainment and miscellaneous expenses
that the Executive reasonably incurs in connection with the performance of his
duties hereunder, provided the Executive submits to the Company such
statements and other evidence supporting said expenses as the Company may
reasonably require.
(b). Automobile Allowance. The Executive shall be reimbursed
for the expenses of owning or leasing an automobile suitable for his position
and consistent with Company practices, including the expenses of operating,
insuring and parking such automobile, provided the Executive submits to the
Company such statements and other evidence supporting such expenses as the
Company may require.
6. Vacation. The Executive shall be entitled to not less than four
(4) weeks of vacation in any calendar year. Any unused vacation time in a year
shall be accumulated and increase the amount of vacation time in subsequent
years.
7. Termination of Employment.
(a). Death or Total Disability. In the event of the death of
the Executive during the Term, this Agreement shall terminate as of the date
of the Executive's death. In the event of the Total Disability (as that term
is defined below) of the Executive for sixty (60) days in the aggregate during
any consecutive nine (9) month period during the Term, the Company shall have
the right to terminate this Agreement by giving the Executive thirty (30)
days' prior written notice thereof, and upon the expiration of such thirty
(30) day period, the Executive's employment under this Agreement shall
terminate. If the Executive shall resume his duties within thirty (30) days
after receipt of such a notice of termination and continue to perform such
duties for four (4) consecutive weeks thereafter, this Agreement shall
continue in full force and effect, without any reduction in Base Salary and
other benefits, and the notice of termination shall be considered null and
void and of no effect. Upon termination of this Agreement under this Paragraph
7(a), the Company shall have no further
3
<PAGE>
obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be, (i) the portion, if
any, that remains unpaid of the Base Salary for the Year in which termination
occurred, but in no event less than six (6) months' Base Salary; and (ii) the
amount of any expenses reimbursable in accordance with Paragraph 4 above, and
any automobile allowance due under Paragraph 5 above; and (iii) any amounts
due under any Company benefit, welfare or pension plan. Except as otherwise
provided by their terms, any stock options not vested at the time of the
termination of this Agreement under this Paragraph 7(a) shall immediately
become fully vested.
The term "Total Disability," as used herein, shall mean a
mental or physical condition which in the reasonable opinion of an independent
medical doctor selected by the Company renders the Executive unable or
incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement at the time the disabling condition was
incurred. In the event the Executive disagrees with such opinion, the
Executive may, at his sole expense, select an independent medical doctor and,
in the event that doctor disagrees with the opinion of the doctor selected by
the Company, they shall select a third independent medical doctor, and the
three doctors shall, by majority vote, determine whether the employee has
suffered Total Disability. The expense of the third doctor shall be shared
equally by the Company and the Executive. Notwithstanding the foregoing, if
the Executive is covered under any policy of disability insurance under
Paragraph 3(c) above, under no circumstances shall the definition of Total
Disability be different from the definition of that term in such policy.
(b). Discharge for Cause. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment if the Executive,
in the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured such
breach or commenced in good faith to correct such breach within thirty (30)
days after notice; (ii) embezzles or converts to his own use any funds of the
Company or any client or customer of the Company; (iii) converts to his own
use or unreasonably destroys, intentionally, any property of the Company,
without the Company's consent; (iv) is convicted of a crime; (v) is
adjudicated an incompetent; or (vi) is habitually intoxicated or is diagnosed
by an independent medical doctor to be addicted to a controlled substance (any
disagreement of Executive shall be resolved using the procedure provided in
Paragraph 7(a) above).
(c). Termination by Executive. Executive may terminate this
Agreement for the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty (30)
days after notice ("Good Reason").
(d). No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement
by seeking other employment or otherwise, not shall the amount of any payment
provided for in this Agreement be reduced by any
4
<PAGE>
compensation earned by the Executive as the result of his employment by
another employer.
8. Restrictive Covenant.
(a). Competition. As used herein "Company Business" shall
mean any business which the Company is actively pursuing or actively
considering while the executive was employed by the Company provided that upon
termination or execution of this agreement the term "Company Business" shall
refer to any arrangement or contract or relation of the Company or any
subsidiary existing or actually pursued at the time of termination or
expiration of the Agreement. The Executive undertakes and agrees that during
the term of this Agreement and for a period of two years after the date of
termination or expiration of this Agreement he will not compete, directly or
indirectly, with respect to a Company Business or participate as a director,
officer, employee, agent, consultant, representative or otherwise, or as a
stockholder, partner or joint venturer, or have any direct or indirect
financial interest, including, without limitation, the interest of a creditor,
in any business competing with respect to a Company Business. Executive
acknowledges that such prospects represent a corporate opportunity or are the
property of the Company and Executive should have no rights with respect to
such properties on projects. Executive further undertakes and agrees that
during the term of the Agreement and for a period of one year after the date
of termination or expiration of this Agreement he will not, directly or
indirectly employ, cause to be employed, or solicit for employment any of
Company's or its subsidiaries' employees. Notwithstanding the foregoing, the
provisions of the paragraph 7 (a) shall not apply to termination by the
Executive pursuant to Section 7(c) or by the Company without cause.
(b). Scope of Covenant. Should the duration, geographical
area or range or proscribed activities contained in Paragraph 8(a) above be
held unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of proscribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
(c). Non-Disclosure of Information.
(i). The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for his
own personal benefit, any "Confidential Information" (as hereinafter defined)
either during his employment with the Company or following termination of that
employment for any reason (ii) at all times take all precautions necessary to
protect from loss or disclosure by him of any and all documents or other
information containing, referring or relating to such Confidential
Information, and (iii) upon termination of his employment with the Company for
any reason, the Executive shall promptly return to the Company any and all
documents or other tangible property containing, referring or relating to such
Confidential Information, whether prepared by him or others.
(ii). Notwithstanding any provision to the
contrary in this Paragraph 8(c), this paragraph shall not apply to information
which the Executive is called upon by legal process regular on its face
(including, without limitation, by subpoena or discovery requirement) to
disclose
5
<PAGE>
or to information which has become part of the public domain or is otherwise
publicly disclosed through no fault or action of the Executive.
(iii). For purposes of this Agreement,
"Confidential Information" means any information relating in any way to the
business of the Company disclosed to or known to the Executive as a
consequence of, result of, or through the Executive's employment by the
Company which consists of technical and nontechnical information about the
Company's products, processes, computer programs, concepts, forms, business
methods, data, any and all financial and accounting data, marketing,
customers, customer lists, and services and information corresponding thereto
acquired by the Executive during the term of the Executive's employment by the
Company. Confidential Information shall not include any of such items which
are published or are otherwise part of the public domain, or freely available
from trade sources or otherwise.
(iv). Upon termination of this Agreement for any
reason, the Executive shall turn over to the Company all tangible property
then in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of
computer programs, correspondence, memoranda, reports, notebooks, drawings,
photographs, or other documents which constitute Confidential Information.
9. Arbitration.
(a). Any and all other disputes, controversies and claims
arising out of or relating to this Agreement, or with respect to the
interpretation of this Agreement, or the rights or obligations of the parties
and their successors and permitted assigns, whether by operation of law or
otherwise, shall be settled and determined by arbitration in New York City,
New York pursuant to the then existing rules of the American Arbitration
Association ("AAA") for commercial arbitration.
(b). In the event that the Executive disputes a
determination that Cause exists for terminating his employment hereunder
pursuant to paragraph 7(b), or the Company disputes the determination that
Good Reason exists for the Executive's termination of this Agreement pursuant
to paragraph 7(c), either party disputing this determination shall serve the
other with written notice of such dispute ("Dispute Notice") within thirty
(30) days after the date the Executive is terminated for Cause or the date the
Executive terminates this Agreement for Good Reason. Within fifteen (15) days
thereafter, the Executive or the Company, as the case may be, shall, in
accordance with the Rules of the AAA, file a petition with the AAA for
arbitration of the dispute, the costs thereof to be shared equally by the
Executive and the Company unless an order of the AAA provides otherwise. If
the Executive serves a Dispute Notice upon the Company, an amount equal to the
portion of the Base Salary Executive would be entitled to receive hereunder
shall be placed by the Company in an interest-bearing escrow account mutually
agreeable to the parties or the Company shall deliver an irrevocable letter of
credit for such amount plus interest containing terms mutually agreeable to
the parties. If the AAA determines that Cause existed for the termination, the
escrowed funds and accrued interest shall be paid to the Company. However, in
the event the AAA determines that the Executive was terminated without Cause
or that Executive resigned for Good Reason, the escrowed funds and accrued
interest shall be paid to the Executive.
6
<PAGE>
(c). Any proceeding referred to in paragraph 9(a) or (b)
shall also determine Executive's entitlement to legal fees as well as all
other disputes between the parties relating to Executive's employment.
(d). The parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal
therefrom.
10. Indemnity. The Company shall indemnify and hold executive
harmless from all liability to the full extent permitted by the laws of its
state of incorporation.
11. Miscellaneous.
(a). Notices. Any notice, demand or communication required
or permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below
by registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a
facsimile machine. Notice shall be deemed to have been given and received when
so hand-delivered or after three (3) business days when so deposited in the
U.S. Mail, or when transmitted and received by facsimile or sent by express
mail properly addressed to the other party. The addresses are:
To the Company: Teltran International Group, Ltd.
One Penn Plaza
Suite 4632
New York, New York 10119
Facsimile No.: (212) 643-1283
cc: Parker Duryee Rosoff & Haft, P.C.
529 Fifth Avenue
New York, New York 10017-4608
Facsimile No.: (212) 972-9487
To the Executive: Byron R. Lerner
10 Estate Drive
Roslyn, New York 11576
The foregoing addresses may be changed at any time by notice given in the
manner herein provided.
(b). Integration; Modification. This Agreement constitutes
the entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its subject
matter. This Agreement may not be modified except by a written agreement
signed by the Executive and a duly authorized officer of the Company.
(c). Enforceability. If any provision of this Agreement
shall be invalid or unenforceable, in whole or in part, such provision shall
be deemed to be modified or restricted to the
7
<PAGE>
extent and in the manner necessary to render the same valid and enforceable,
or shall be deemed excised from this Agreement, as the case may require, and
this Agreement shall be construed and enforced to the maximum extent permitted
by law as if such provision had been originally incorporated herein as so
modified or restricted, or as if such provision had not been originally
incorporated herein, as the case may be.
(d). Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
(e). Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one (1) or more
instances shall be deemed or construed as a further or continuing waiver of
any such condition or breach or a waiver of any other condition, or the breach
of any other term or covenant set forth in this Agreement. Moreover, the
failure of either party to exercise any right hereunder shall not bar the
later exercise thereof with respect to other future breaches.
(f). Governing Law. This Agreement shall be governed by the
internal laws of the State of New York.
(g). Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
(h). Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(i). Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and, on behalf of the Company, by its duly authorized officer on the day and
year first above written.
/s/ James Tubbs
------------------------------------------
JAMES TUBBS
TELTRAN INTERNATIONAL GROUP, INC.
By: /s/ Byron R. Lerner
---------------------------------------
Byron R. Lerner, President
