<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY , 1999
REGISTRATION NO. 333-75885
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- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELTRAN INTERNATIONAL GROUP, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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<S> <C> <C>
DELAWARE (4813) 11-3172507
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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ONE PENN PLAZA, SUITE 4632
NEW YORK, NEW YORK 10119
(212) 643-1283
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
OFFICES AND PLACE OF BUSINESS)
------------------------
BYRON R. LERNER, PRESIDENT
ONE PENN PLAZA, SUITE 4632
NEW YORK, NEW YORK 10119
(212) 643-1283
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
Copies to:
MICHAEL D. DIGIOVANNA, ESQ.
PARKER DURYEE ROSOFF & HAFT
529 FIFTH AVENUE
NEW YORK, NEW YORK 10017
(212) 599-0500
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same Offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES REGISTERED SECURITY(2) OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................... 8,690,000(1) 1.97(1) 17,119,300(1) 4,759.17(1)
Common Stock, par value $.001 per
share(2)................................ 1,948,206(2) 12.75(2) 24,839,626.50(2) 6,905.42(3)
Totals........................ 10,638,206 41,958,926.50 11,664.59
</TABLE>
(1) Included in original SB-2 filing on April 8, 1999 at which time the fee was
paid.
(2) Additional shares included in this Amendment 1 to this registration
statement on Form SB-2.
(3) Such fee was calculated using a proposed maximum offering price of $12.75
per share which was the average of the bid and asked prices of the Common
Stock on the OTC Bulletin Board on July 6, 1999.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
SHARES
TELTRAN INTERNATIONAL GROUP, LTD.
COMMON STOCK
------------------------
Shareholders of Teltran International Group Ltd. named under the caption
"Selling Security Holders", from time to time, may offer and sell up to
10,638,206 shares of our common stock.
INVESTING IN TELTRAN'S COMMON STOCK IS RISKY. SEE "RISK FACTORS P 5"
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Our common stock is quoted on the OTC Electronic Bulletin Board. On
July 6, 1999 the average bid and asked price of the common stock was $12.75 per
share.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 5
Where You Can Find More Information........................................................................ 7
Use of Proceeds............................................................................................ 7
Capitalization............................................................................................. 7
Selected Financial Data.................................................................................... 8
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 9
Market Information......................................................................................... 10
Business................................................................................................... 11
Management................................................................................................. 15
Execution Compensation..................................................................................... 16
Certain Transactions....................................................................................... 18
Principal and Selling Stockholders......................................................................... 18
Plan of Distribution....................................................................................... 20
Description of Securities.................................................................................. 21
Legal Matters.............................................................................................. 22
Experts.................................................................................................... 22
Offering Information....................................................................................... 22
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary does not contain all of the information that may be important.
You should read the detailed information appearing elsewhere in this prospectus.
OUR BUSINESS
Teltran International Group, Ltd. through our wholly owned subsidiary
Teltran International, Inc. is primarily engaged in the international
telecommunication business. We were a development stage company until April 1998
when we commenced services for an internet telephony system. In October 1998 we
entered into additional arrangements which included the ability to sell internet
telephony time. Thus far we have entered into initial agreements for this
service and began this service in June 1999.
We were formerly known as Spectratek Incorporated, and were incorporated in
July 1983 in Utah. Teltran Group acquired all of the outstanding shares of
International on May 1, 1996, by issuing shares of our common stock in an amount
that resulted in the original stockholders of International receiving
approximately 66% of the then outstanding shares of the Company. For financial
reporting purposes, the transaction was recorded as a recapitalization of
International. International is the continuing, surviving, entity for accounting
purposes, but Teltran Group is the continuing entity for legal purposes.
On October 6, 1997, Spectratek was reincorporated in the State of Delaware
by merger into its subsidiary Teltran International Group, Ltd.
References to the "Teltran", "we", "our" or "us", unless otherwise
indicated by the context refer to the Teltran International Group, Ltd. and
Teltran International, Inc. Our offices are located at One Penn Plaza, New York,
New York 10119 and our telephone number is 212-643-1283.
THE OFFERINGS
The number of shares offered and shares outstanding after the offering as
indicated below include:
o shares subject to outstanding options and warrants which are not
presently exercisable
o The maximum number shares which the Company may require to be purchased
by investors pursuant to existing agreements
o The maximum number shares which should be issued as adjustment to certain
investors if the price of our stock should fall.
The number of shares presently outstanding excludes all of the ahove.
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<S> <C>
Securities offered by the selling
stockholders............................ 10,638,206 shares of Common Stock.
Common stock outstanding before the
Offering................................ 12,741,318 shares
Common stock to be outstanding after the
offering................................ 16,348,025 shares.
Use of proceeds........................... Except upon exercise of options we will not receive proceeds. Any
such proceeds will be used for working capital purposes.
Symbol for common stock................... TLTG Our shares are currently listed for trading on the Electronic
Bulletin Board. Application has been made on our behalf to have our
stock listed on the American Stock Exchange. There is no assurance
that this may be accomplished.
</TABLE>
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDING THREE MONTHS
DECEMBER 31, ENDING MARCH 31
--------------------- ---------------------
1997 1998 1998 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Consolidated revenues............................................ $ -0- $ 535,197 $ 41,690 $ 83,459
Cost of sales.................................................... -0- 244,832 -- 122,311
Expenses......................................................... 827,780 709,357 156,145 363,691
Income (loss) from operations.................................... (827,780) (418,992) (114,455) (402,543)
Net income (loss)................................................ (828,244) (449,339) (114,843) (418,788)
Income (loss) per share.......................................... $ (.90) $ (.06) $ (.13) $ (.05)
-------- --------- -------- ---------
Shares used in computing net income (loss) per share............. 915,637 7,697,295 915,637 8,955,146
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................. $ (81,923) $(280,880) $ (97,975) $ 75,789
Total assets.............................. 44,137 157,168 82,639 268,214
Total long-term debt...................... 260,880 -0- 359,641 1,245
--------- --------- ---------- ----------
Total stockholders' equity (deficit)...... $(302,312) $(244,439) $ (417,155) $ 111,529
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk. In addition to the other information contained in this prospectus, the
following risk factors should be considered carefully before purchasing the
securities offered hereby. You should be in a position to risk the loss of your
entire investment.
WE HAVE INCURRED RECENT LOSSES AND SUCH LOSSES MAY CONTINUE. Until April
1998 Teltran Group was a development stage company and derived no revenues. We
sustained net losses of ($828,244) during 1997 and ($449,339) during 1998 and
($418,788) for the quarter ending March 31, 1999 we have an accumulated deficit
of ($2,673,283) as at March 31, 1999. There is no assurance that we will be
profitable.
OUR BUSINESS IS VERY DEPENDENT ON OZEMAIL. Commencing in June 1999 we
began selling communication time through international internet telephony. We
believe our immediate future success will depend upon this business. The
prospects of our success must be considered in light of risks, expenses and
difficulties frequently encountered by companies in entering into a new line of
business. We have entered into an Interconnectivity and Support Agreement with
OzEmail which permits us to sell communication time over OzEmail's internet
networks. Our agreement with OzEmail expires in May 2002. We believe that
revenues from that arrangement will comprise a substantial portion of total
revenues. Any termination of, reduction or interruption of these services could
have a material adverse affect on our business or financial condition or results
of operations.
OUR REVENUE UNDER NEW ARRANGEMENTS FOR INTERNET TELEPHONY MAY BE POSTPONED
DUE TO FACTORS BEYOND OUR CONTROL. To commence an arrangement for the sale of
Internet voice telephony we must obtain equipment for the arrangement and
complete testing of the voice delivery system to the mutual satisfaction of the
calling parties. We must also make appropriate arrangements in every country
into which our calls will be sent, including arrangements with the local
telephone carrier in such "terminating country" to receive the calls. We have
recently experienced delays in commencing our Internet voice telephony service
due to the inadequacy of equipment in various terminating countries, the
incompatibility of third party equipment that forced us to modify our equipment,
and failure on the part of certain terminating countries', local telephone
companies to act in a timely fashion or to give us their cooperation. All of
these problems were resolved but we believe that we may, in these circumstances,
experience delays in timely commencing any arrangements entered into in the
future.
THERE IS A CHANCE TECHNOLOGICAL CHANGES WILL MAKE OUR BUSINESS
OBSOLETE. There can be no assurance that research and discoveries by others
will not render our operations noncompetitive or obsolete. Our business strategy
is subject to the risks inherent in the development of new products using new
technologies and approaches. There can be no assurance that unforeseen problems
will not develop with these technologies or applications, or that we will be
able to successfully address technological the challenges we encounter by
entering into alternatives for generating revenues.
WE FACE STRONG COMPETITION. Currently, we compete with numerous other long
distance resellers and providers. We believe our significant competition will be
from other independent resellers and providers of competing voice telephony
systems. Many of our competitors are significantly larger and have substantially
greater market presence, as well as greater financial, technical, operational,
marketing and other resources and experience than we do. Some of these
competitors may include large carriers such as AT&T, MCI/WorldCom and Sprint.
Still more competition may come from providers of international long distance
services such as STAR Telecommunications, Inc., or from corporate alliances that
provide wholesale carrier services, such as "Global One". In addition, our
affiliate arrangement with OzEmail is non-exclusive. Therefore, OzEmail is free
to appoint other affiliates which may result in our facing substantial
competition.
WE MUST RETAIN AND RECRUIT KEY PERSONNEL. Our operations are dependent
upon the services of Byron Lerner and James Tubbs. The loss of these individuals
could have a material adverse effect on our business. Our success also depends
upon our ability to attract and retain highly-skilled management and other
personnel. Competition for such personnel is intense, and the inability to
attract and retain additional qualified employees, or the loss of current key
employees, could materially and adversely affect our business, operating results
and financial condition.
OUR DIRECTORS ENJOY LIMITED LIABILITY. Teltran Group's Certificate of
Incorporation provides that a director of Teltran Group will not be personally
liable to the Company or its stockholders for monetary
5
<PAGE>
damages for breach of the fiduciary duty of care as a director, including
breaches which constitute gross negligence, subject to certain limitations
imposed by the Delaware General Corporation Law. Thus, under certain
circumstances, neither Teltran Group nor it's the stockholders will be able to
recover damages even if our directors take actions which harm them.
THE MARKET PRICE OF OUR SHARES AS A TELECOMMUNICATIONS COMPANY IS
UNPREDICTABLE. There has been volatility in the market price of securities of
telecommunications companies. Future announcements concerning Teltran Group or
its competitors, including variations in financial results, changes in general
market conditions, governmental regulations or other developments may have a
significant impact on the market price of our common stock and could cause the
market price of our common stock to fluctuate significantly. In addition, broad
market fluctuations and general economic or political conditions may adversely
affect the market price of each of the Company's securities, regardless of our
actual performance.
OUR BOARD CAN ISSUE PREFERRED STOCK IN ITS DISCRETION. Our Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of Preferred Stock
with designation, rights and preferences determined from time to time by our
Board of Directors. Accordingly, our Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. In the event of issuance,
the Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control.
OUR BUSINESS IS SUBJECT TO RISKS BEYOND OUR CONTROL. We believe we will
generate a substantial portion of our revenues by providing international
telecommunications services to our customers on a wholesale basis. The
international nature of our operations involves certain risks, such as changes
in U.S. and foreign government regulations and telecommunications standards,
dependence on foreign partners, tariffs, taxes and other trade barriers,
economic downturns and political instability in foreign countries. Our business
could also be adversely affected by a reversal in the current trend toward
deregulation.
THERE ARE SEVERAL FACTORS WHICH INFLUENCE OPERATING RESULTS, INCLUDING
REVENUES, COSTS AND MARGINS. Our revenues, costs and expenses may fluctuate in
the future as a result of numerous factors. Our revenues in any given period can
vary due to factors such as call volume fluctuations, particularly in regions
with relatively high per minute rates; the addition or loss of major customers,
whether through competition, merger, consolidation or otherwise; and financial
difficulties of major customers; pricing pressure resulting from increased
competition. Technical difficulties or failures of portions of the OzEmail
system may impact our ability to provide service to our customers by preventing
us from delivering call traffic. Additionally, technical difficulties with the
network may cause loss.
GOVERNMENT REGULATIONS COULD POTENTIALLY ADVERSELY EFFECT OUR
BUSINESS. Our business is subject to various U.S. and foreign laws,
regulations, agency actions and court decisions. Our U.S. international
telecommunications service offerings are subject to regulation by the FCC. The
FCC requires international carriers to obtain authorizations under Section 214
of the Communications Act of 1934, as amended, prior to acquiring international
facilities by purchase or lease, or providing international service to the
public. We have obtained the necessary licensure to conduct our business. We may
be adversely affected by regulations of foreign governments as we seek to
establish OzEmail affiliates outside of the United States. Foreign regulations
may also affect affiliates which complete calls on behalf of our clients.
WE MAY BE UNABLE TO DECLARE DIVIDENDS. While we have adopted a policy to
pay semiannual dividends, there is no assurance we will be able to do so in the
future. See "Dividend Policy."
NO ASSURANCE OF ACTIVE MARKET. Our common stock is quoted on the OTC
Bulletin Board. There can be no assurance that an active market in the Common
Stock will develop. In the absence of an active public trading market, you may
be unable to liquidate your investment.
FORWARD LOOKING INFORMATION MAY NOT BE REALIZED. To the extent that the
information presented in this prospectus discusses financial projections,
information or expectations about our products or markets, or otherwise makes
statements about future events, such statements are forward-looking. Although we
believe that the expectations reflected in these forward-looking statements are
based on reasonable assumptions, there
6
<PAGE>
are a number of risks and uncertainties that could cause actual results to
differ materially from such forward-looking statements. These include, among
others:
o The acceptance of our telephonic products and services by consumers;
o price pressures and other competitive factors leading to a decrease in
anticipated revenues and gross profit margins;
o the establishment and continuation of relationships with local telephone
carriers Internet service providers and other third parties upon whom our
business depends;
o a downturn in general economic conditions; and
o a change in regulations.
WHERE YOU CAN FIND MORE INFORMATION
The Company recently became obligated to file annual, quarterly and special
reports, proxy statements, and other information with the SEC. We anticipate our
first filing will be the quarterly report for the quarter ended March 31, 1999.
Our SEC filings are available to the public over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our periodic reports, proxy statements, and other
information can be inspected at the offices of Nasdaq at 1735 K Street, NW,
Washington, DC 20006.
You may obtain a copy of any of our future filings, without charge, by
writing or calling us at:
Teltran International Group, Ltd.
One Penn Plaza, Suite 4632
New York, NY 10019
(212) 643-1283
If you would like to request these filings from us, please do so at least
five business days before you have to make an investment decision.
USE OF PROCEEDS
We will not receive proceeds from the sale of the shares offered hereby.
Any proceeds received upon exercise of warrants or options will be utilized as
working capital.
CAPITALIZATION
The following table sets forth our actual capitalization at March 31, 1999.
This section should be read in conjunction with our financial statements and
related notes appearing elsewhere in this Prospectus.
<TABLE>
<S> <C>
Preferred Stock, $.001 par value; 5,000,000 shares authorized; none issued
and outstanding..................................................................... --
Common Stock, $.001 par value; 50,000,000 shares, authorized; 9,679,828 shares issued
and outstanding..................................................................... $ 9,679
Additional paid-in capital............................................................. 2,775,133
Accumulated deficit.................................................................... (2,673,283)
-----------
Total stockholders' equity............................................................. $ 111,529
-----------
-----------
</TABLE>
- ------------------
The above information does not reflect
o the issuance of shares upon exercise of options or warrants
o the five percent stock dividend to be issued to stockholders of record as of
June 3, 1999
o shares which were issued subsequent to March 31, 1999
o additional shares which may be issued to private placement purchasers after
the effective date of this prospectus or as a result of any adjustment to the
purchase price paid by these investors.
7
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SELECTED FINANCIAL DATA
The following selected financial is derived from our audited financial
statements.
You should also read our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements of the Company
which are included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER THREE MONTHS
31, ENDING MARCH 31,
----------------------- ------------------------------------
1997 1998 1998 1999
--------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Consolidated revenues....................................... $ -- $ 535,197 $ 41,690 $ 83,459
Cost of sales............................................... -- 244,832 -- 122,311
Expenses.................................................... 827,780 709,357 156,145 363,691
Income (loss) from operations............................... (827,780) (418,992) (114,455) (402,543)
Net income (loss)........................................... (828,244) (449,339) (114,843) (418,788)
Income (loss) per share(1).................................. $ (0.90) $ (0.06) $ (0.13) $ (0.05)
--------- ---------- ---------- ----------
Shares used in computing net income (loss) per share........ 915,637 7,697,295 915,637 8,955,146
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 MARCH 31, 1998 MARCH 31, 1999
----------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................. $ (81,923) $(280,880) $ (97,975) $ 75,789
Total assets.............................. 44,137 157,168 82,639 268,214
Total long-term debt...................... 260,880 -- 359,641 1,245
--------- --------- ---------- --------
Total stockholders' equity (deficit)...... $(302,312) $(244,439) $ (417,155) $111,529
--------- --------- ---------- --------
--------- --------- ---------- --------
</TABLE>
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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 we were essentially a start-up venture. During 1998
most of our revenues were derived from acting as an OzEmail refile hub in the
United States. During 1999 these revenues were diminishing and we devoted our
efforts to promoting our affiliate arrangements with OzEmail as well as
establishing businesses for our web portal. Therefore comparisons between 1998
and 1999 will be of limited value.
During the balance of 1999 and early 2000 our 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. We
have already entered into three agreements to provide such services, two of
which commenced in June and the third is scheduled to commence in July
1999. We are negotiating additional similar arrangements. Each of these
arrangements requires us 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 us 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. We are seeking
to finalize our arrangement in Pakistan. We are also negotiating to acquire
an entity in England which will enable us to become an affiliate in the
United Kingdom and Ireland.
o develop our portal and provide other related businesses utilizing
our portal. These including offering advertising on the Internet developing
additional sales affiliate arrangements on the Internet. We also plan
through our proposed joint venture to operate a website for the sale of
music.
o continue to augment other aspects of our telecommunications business
as well.
We cannot assure you that we will be able to successfully implement our
plan.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
Our revenues were approximately $83,459 for the first quarter of 1999 while
the Company had revenues of approximately $41,690 in the comparable quarter in
1998. This increase was due to our generation of sales of our services as an
affiliate in the OzEmail system.
In spite of increased sales, we 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. The increase was primarily due to an increase in
salaries, professional and other expenses which were associated with the OzEmail
affiliate business. Unless we obtain additional customers, or otherwise expand
our revenue base, our accounts receivable and revenues may be concentrated with
one or two customers.
YEAR ENDED 1998 COMPARED TO YEAR ENDED 1997
Our revenues were approximately $535,000 for 1998 while we 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.
Our operating expenses during 1998 were approximately $709,400 compared to
approximately $827,800 during the prior year. The reduced expenses were
primarily attributable to a decline in salary expense in 1998 resulting from a
reduction in staff.
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Since we did not commence income producing operations until 1998, we do not
believe that either 1997 or 1998 are any indication of our future operations. We
anticipate that the year 1999 will be the first full year of operations and that
our revenues will be derived from businesses not conducted in 1998.
Our monthly charges for the balance of the year under new agreements will
exceed all our revenues earned in 1998. Based on these agreements and other
activities we believe that we will have substantially increased revenues in 1999
as we begin to derive revenues from our voice telephony operations.
LIQUIDITY
We had a working capital of approximately $75,700 as at March 31, 1999
compared to a negative working capital of approximately ($98,000) as at
March 31, 1998. The increase was primarily attributable to increased reduction
of debt resulting from conversion of debt in 1999. Also during 1998 we financed
a portion of our receivables through a factoring arrangement. Since
December 31, 1998 we 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 we 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 we are aware of only two possible substantial capital
expenditures. We may have to purchase VINs at $9,000 per VIN to enable us to
perform future affiliate arrangements. All affiliate arrangements require us to
pay fees to connect various segments of the call. We also may have to contribute
up to $300,000 as our contribution to the proposed joint venture with Antra
Music Group.
Additional funds may be required when we form joint ventures to establish
foreign OzEmail affiliations and to pay for salaries under employment agreements
with management. We believe funds obtained and to be obtained from the sale of
shares and cash flow from operations will be sufficient for working capital
purposes until June 30, 1999.
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..................................... $2.597 $ .597
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 our
common stock, although we believe that there are more than five hundred
beneficial owners of our common stock.
We plan to retain most future earnings for use in our business.
Nevertheless we have adapted 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 our Board of Directors and will depend,
among other factors, upon our earnings, financial condition and capital
requirements.
10
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BUSINESS
INTRODUCTION GENERAL
Since 1998 our primary business is acting as a seller of telecommunications
time. In 1999 we began operations of an Internet portal. Prior to 1998 we were
engaged in attempts to develop our business and did not receive any significant
revenues.
INDUSTRY BACKGROUND
During the last fifteen years international telecommunications have changed
dramatically. Deregulation has resulted in the end of monopolies 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 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 end. 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
also helped to alleviate capacity 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 we intended to concentrate our efforts on establishing and
operating a global messaging business. Pursuant to that strategy we intended to
provide our 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
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enterprise. As an adjunct to our global messaging service we also intended to
provide enhanced fax services including fax broadcasting. We postponed our
efforts to provide global messaging services because of our then inability to
obtain financing for equipment and due to the new opportunities in the industry
presented by Internet telephony. We derived insignificant revenues from the
provision of global messaging services for clients through April 1998. After
April 1998, we focused our 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" 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 node
or VIN. The VIN contains OzEmail's proprietary software and is installed for the
receipt of the voice transmission, its conversion to digital data and routing
over the Internet. The VIN is also utilized to reconnect the digital data to
voice transmission on receipt. The equipment is also called a gateway.
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 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.
OZEMAIL/TELTRAN
In 1998 we were appointed as a refile hub for OzEmail in the United States
for calls terminating in countries without OzEmail affiliates. As a refile hub,
we received calls for the OzEmail system and directed them through the least
expensive routing to countries which have no OzEmail Internet termination. We
derived revenues from this activity in 1998 but believe 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 we were appointed a non-exclusive OzEmail affiliate
in the United States. This enables us 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"), our 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. We have purchased twelve VINs for an aggregate
cost of $108,000 to service our existing clients. All are installed at a
technical facility operated by an unaffiliated party located close to our
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office in New York City. Prior to June 1999 we did not derive significant
revenues from our affiliate operations. We entered into arrangements prior to
June 1999 to provide services to Netherlands Antilles and South Africa. It took
us or our client a substantial period of time to complete testing, obtain
compatible equipment and software and complete arrangements with local telephone
companies. In June 1999 the Company began service to Netherlands Antilles and
South Africa. Additional services are to commence to these countries in July
1999. As an affiliate, we also provide termination services in the United
States. Service began in April 1999. Up to June 1999 we derived little or no
revenues from this service. We have also, subject to final approval of
contracts, received permission from OzEmail to act as an affiliate in Pakistan,
Israel, Bangladesh and the United Kingdom. This will enable us to originate
calls over the OzEmail System in the United States and complete the call itself
in these countries. This will provide us with the ability to receive revenues
from both ends of a call. In most instances we contemplate entering into
arrangements with a local partner to implement foreign affiliate arrangements.
OZEMAIL AGREEMENTS
Our affiliate arrangements consist of two, three-year agreements each
expiring May 19, 2002. The Interconnectivity and Support Agreement enlists us,
as a non-exclusive affiliate into OzEmail's international consortium of
companies. As an affiliate, we are authorized to operate the OzEmail system in
the United States and to transmit Internet telephony calls worldwide over
OzEmail's interconnected systems. We must purchase the necessary VINs from
OzEmail to provide the service and are 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 us, for calls
originating through us, and by OzEmail to us for termination services. The USA
Intellectual Property License Agreement grants us 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 us to pay
royalties to OzEmail based on the services performed as an affiliate. We also
entered into a Telecommunications Service Agreement permitting us to act as an
OzEmail refile hub. This agreement expires in October 2000 unless terminated
sooner.
GOVERNMENT REGULATION
We are licensed as an international reseller pursuant to Section 214 of the
Federal Communication Act. This regulation does not impose significant
restrictions on our daily operations. We however are also affected by foreign
regulators or foreign government owned telephone systems. We or our affiliates
may be required to obtain permission in connection with our client contracts. We
will also be subject to foreign regulation if we are able to establish
affiliates in foreign countries.
MARKETING/CUSTOMERS
We will market our resale service as part of the OzEmail network to other
carriers, wholesalers, call centers, international phone card providers and
others. During 1998 our principal customer was OzEmail pursuant to the refile
arrangement. During 1998 we received approximately 79.3% of its revenues from
OzEmail. We do not anticipate that we will derive significant refile revenues
from OzEmail in the future. As a result of resale arrangements entered into by
us, we do not believe we are dependent upon OzEmail as a refile customer. We
derived 17.1% of our revenues in 1998 from Telecom 2000 for providing it with
domestic long distance capacity. This arrangement has terminated.
We market our service through our executive officers, one of whom is the
Vice President of Sales and Marketing. We have also entered into non-exclusive
arrangements with agents who will receive a commission from the revenues
generated any of our customers introduced by an agent.
COMPETITION
Currently, we compete with numerous other long distance resellers and
providers. We believe our significant competition will be 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, as
well as other providers of international long distance services such as STAR
Telecommunications, Inc.,
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and corporate alliances that provide wholesale carrier services, such as "Global
One". In addition, we have a non-exclusive affiliate arrangement with OzEmail,
therefore OzEmail is free to appoint other affiliates which may result our
facing substantial competition from within the OzEmail system. Many of our
competitors are likely to be significantly larger and have substantially greater
market presence, as well as greater financial, technical, operational, marketing
and other resources and experience than we do.
We compete 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 us 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 we obtain, or are able to offer other
incentives to existing and potential customers.
EMPLOYEES
We have six full-time employees, five of whom are engaged in executive and
technical functions and one of whom is a clerical employee. We also employ a
bookkeeper on a part-time basis. We also utilize consultants.
TECHNICAL FACILITY
We have an oral arrangement with an unaffiliated party pursuant to which
our 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 us and our customers and
overseas providers are located at this facility. We utilize the owner's switches
to effect these connections.
OMNICOM
In May 1999 we 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. We believe this acquisition
will increase our capacity to deliver telecommunications services to our
customers.
INTERNET PORTAL
Because it presented an opportunity which could be accomplished
inexpensively, in February 1999 we 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. We believe that maintaining an
Internet portal will assist us in establishing a presence as an Internet service
provider. While maintaining a website is not related to our Internet telephony
business, we believe creating an Internet environment will enhance the brand
recognition of the "Teltran" name and could potentially establish us as a well
regarded Internet brand. Our Internet portal contains direct links to many
commerce sites, including Amazon.com the Internet bookseller. Recently, we
provided access to brokerage firms through the portal and anticipate receiving
payment from brokerage firms utilizing this service based on customers' business
introduced to the brokerage firm through the portal. We have affiliate
arrangements with retailers pursuant to which we will receive a percentage of
revenues generated by consumers accessing the site through our portal. We
propose to sell advertising on our 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 we have determined to offer advertisements on our
portal commencing in the third quarter. We believe, therefore, we will achieve
the proposed number of "hits" by late summer or early fall.
We are also engaged in additional activity through its web portal. We are
finalizing an arrangement with Antra Music Group Ltd., a subsidiary of a
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.
DESCRIPTION OF PROPERTY
Our executive offices are located at One Penn Plaza, New York, New York
10119, 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.
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Our telecommunication equipment is located and maintained at a separate
facility owned by a third party in New York City near our offices.
LEGAL PROCEEDINGS
In June 1999 an action was commenced against us in the United States
District Court for the Southern District of New York. The plaintiffs claim that
they suffered damages as a result of alleged fraudulent and negligent
misrepresentations made in 1996 concerning the Company's prospects. We did not
believe we have any liability to the plaintiffs and will vigorously defend this
action. Our Company is not aware of any legal proceedings, or pending legal
proceedings, to which we are party or to which our property is subject. A claim
however has been made by a corporation for $304,000 representing amounts
advanced on our behalf to a potential reseller of telecommunications time to us.
Such amount was to be held in escrow until commencement of the contract between
ourselves and the reseller by an agent appointed by the potential reseller. 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 our
communications for the past several months.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Byron R. Lerner............... 55 President, Chief Executive Officer and Director
James E. Tubbs................ 39 Executive Vice President, Chief Operating Officer and 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 Brent Musburger, 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. Musburger.
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. and was a 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 advisor of foreign investors.
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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 compensation paid to our Chief Executive Officer during the fiscal year
ending December 31, 1998 is set forth below. No other executive officer's
compensation exceeded $100,000 during such year.
Summary Compensation Table
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY UNDERLYING OPTIONS
--------------------------- ---- ------- -------------------
<S> <C> <C> <C>
Byron E. Lerner 1998 $88,000 472,500 shares
President and Chief Executive Officer.................................. 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.
Option Plan
We have adopted a 1998 Stock Option Plan for our officers, employees and
consultants and for those of any of our subsidiaries. The option plan authorizes
the grant of options to purchase 3,150,000 shares of our 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 option plan will be exercisable in such installments as may be
provided in the grant.
Options granted to employees may be either incentive stock options or ISOs
under the Internal Revenue Code 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% or 110% in the case of ISOs granted to holders of 10% of the voting
power of our stock) of the fair market value of our 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 option plan as the Board
of Directors may impose. Each option, unless sooner terminated, shall expire no
later than ten (10) years (five years in the case of ISOs granted to holders of
10% of the voting power of our stock) from the date of the grant, as the Board
of Directors may determine. The Board of Directors has the right to amend,
suspend or terminate the option plan at any time, provided, however, that unless
ratified by our stockholders no amendment or change in the option plan will be
effective for limited matters including increase in the total number of shares
which may be issued under the option plan or extending the term of the option
plan.
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OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTION GRANT EXERCISE PRICE EXPIRATION 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>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR
END OPTION VALUES
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 IN
UNEXERCISED OPTIONS AT 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 472,500 None $29,000
</TABLE>
The value of the in-the-money options is based on the market price of our
common stock on December 31, 1998.
On January 31, 1999 we 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, one of our directors. In May 1999 we granted options to purchase an
additional 1,050,000 shares of our 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 the options granted in 1999 vested immediately.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Byron Lerner to serve as
our president and chief executive officer. 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 us.
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CERTAIN TRANSACTIONS
Information in this section is retroactively adjusted to reflect the five
percent stock dividend to holders of record on June 3, 1999.
All information in this section reflects our 5% stockholders dividends to
recordholders as of June 3, 1999. During and prior to 1998 an affiliate of Byron
Lerner and James Tubbs each advanced $50,000 to us. In 1998 all these advances
were converted into 525,000 shares of our 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, we and Antra Holding Group Inc. exchanged shares of our
respective company's shares. We own 2,000,000 shares of Antra's common stock and
Antra owns 2,100,000 shares of our 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.
We have 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 our shares are
trading less than 20% below the market price of the other parties' shares, the
party whose shares are trading lower must issue additional shares to the other
party.
We are also completing arrangements to form a joint venture corporation
with a subsidiary of Antra to market records with Antra through a website to be
established on the Internet using our portal. This new corporation will be owned
equally by Antra and ourselves and we 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 we acquired all the shares of Omni Communications Inc. This
company is an authorized agent of UniDial Communications, which operates as an
independent network of telecommunications resellers. Mr. James Tubbs received
105,000 of common shares of the Company. Mr. Tubbs is an officer and director of
our company.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of June 15, 1999, information concerning
the beneficial ownership of the Company's Common Stock and as adjusted by any
sale by
o each person who beneficially owns more than five percent of our
outstanding Common Stock,
o each of our directors,
o each of the executive officers named in the Summary Compensation Table,
o all our directors and executive officers as a group and
o each selling stockholder:
Information in the table and footnotes reflects our recent 5% stockholders
dividend to holders of record on June 3, 1999. Share ownership includes both
shares beneficially owned and shares a person has the right to acquire pursuant
to any option or warrant which is presently exercisable or which may be
exercised within
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sixty days. In the case of the ownership of holders who are not officers or
directors or 5% owners, the table may not include free trading shares which the
holders may acquire.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
--------------------------- ------------------------------
SHARES PERCENT OF SHARES PERCENT OF
IDENTITY OF STOCKHOLDER BENEFICIALLY SHARES SHARES BENEFICIALLY SHARES
OR GROUP OWNED OUTSTANDING OFFERED OWNED(3) OUTSTANDING(3)
----------------------- ------------ ----------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Byron Lerner............................... 1,139,600 8.4% 1,052,100(1) 262,500 1.6%
James Tubbs................................ 1,179,501 8.7 992,001(1) 362,500 2.2
Martin Miller.............................. 513,000 3.9 265,500 262,500 1.6
Peter Biagioli............................. 252,000 1.9 147,000(1) 105,000 .64
Mitchell Hershkowitz....................... 168,000 1.3 63,000(1) 105,000 .64
Michael Neville............................ 105,000 0.82 105,000(1) -- --
Darrell Lerner............................. 105,000 0.82 26,250 78,750 0.47
Broadford Limited.......................... 219,450 1.7 219,450 -- --
Staffin Limited............................ 219,450 1.7 219,450 -- --
Southern Provinces, Ltd. .................. 219,450 1.7 219,450 -- --
Fir Enterprises Limited.................... 341,250 2.7 341,250 -- --
Percival Investments Ltd. ................. 341,250 2.7 341,250 -- --
Birch Enterprises Limited.................. 341,250 2.7 341,250 -- --
World Telecom Ltd. ........................ 341,250 2.7 341,250 -- --
Calgary Limited............................ 315,000 2.5 315,000 -- --
Montaque Securities International Ltd. .... 267,488 2.1 267,488 -- --
Sumburgh Limited........................... 219,450 1.7 219,450 -- --
Salen Limited.............................. 288,750 2.3 288,750 -- --
Coastal Provinces Ltd. .................... 262,500 2.1 262,500 -- --
Aran Limited............................... 166,950 1.3 166,950 -- --
Callanish Limited.......................... 315,000 2.5 315,000 -- --
Carbost Limited............................ 341,250 2.7 341,250 -- --
Carlowey Limited........................... 341,250 2.7 341,250 -- --
Craignure Limited.......................... 210,000 1.6 210,000 -- --
Sleat Limited.............................. 204,750 1.6 204,750 -- --
Newco Management Services Ltd. ............ 210,000 1.6 210,000 -- --
Brodick Limited............................ 341,250 2.7 341,250 -- --
Austost Anstalt Schaan(2).................. 312,500 2.4 312,500 -- --
Balmore Funds S.A.(2)(3) .................. 1,118,980 8.1 1,118,980 -- --
Nesher, Inc.(2) ........................... 50,000 0.40 50,000 -- --
United Securities.......................... 37,500 0.30 37,500 -- --
Berkeley Group Ltd.(2) .................... 100,000 0.80 100,000 -- --
Libra Finance S.A.(3) ..................... 21,560 .16 21,560 -- --
J. Hayut(3)................................ 28,875 .23 28,875 -- --
Hyett Capital Ltd.(3) ..................... 131,199 1.0 131,199 -- --
Talbiya B. Investments Ltd.(3) ............ 104,632 0.8 104,632 -- --
Antra Holding Group Inc. .................. 2,100,000 16.5 -- 2,100,000 13
All Officers and Directors
(4 persons).............................. 3,084,101 20.4% 2,456,601 992,500 5.7%
</TABLE>
- ------------------
* Less than one percent.
(1) Includes shares subject to options not exercisable within sixty days and
therefore not reflected in prior columns.
(2) Including the number of shares set forth in column A purchased at $4.00 per
share after each person's name. Each person may be required by us to
purchase additional shares at a price to be determined after this date. The
shares listed in column B represent the projected maximum number of shares
which may
(Footnotes continued on next page)
19
<PAGE>
(Footnotes continued from previous page)
be issued to each person. Column C represents shares which may be issued to
each person subsequent to this date as an adjustment if the price of our
common stock falls below a specified price. If additional shares are not
purchased or the number of shares sold is less than the number of shares
listed in column B the balance of these shares will be returned to us. If
there is no adjustment or an adjustment for a fewer number of shares, the
number of shares listed in column C, or the balance thereof, will be
returned to us.
<TABLE>
<CAPTION>
A B C
<S> <C> <C> <C>
Autostat Anstalt Schaan...................................... 110,294 91,912 110,394
Balmore Funds S.A............................................ 110,294 91,912 110,394
Nesher, Inc.................................................. 17,647 14,706 17,647
Berkely Group Ltd............................................ 35,294 29,412 35,294
</TABLE>
(3) Includes, in the case of each person listed below, shares of our common
stock to be issued pursuant to warrants and shares issued as fees with the
financing referred to in footnote 2. The above also includes shares of our
common stock listed in column B subject to warrants to be granted if we sell
more shares to the investor listed in footnote 2. The shares listed in
column C represent additional shares that will be issued if we sell more
shares to these investors. If we do not sell additional shares, none of the
shares referred to in column B and C will be issued.
<TABLE>
<CAPTION>
A B C
<S> <C> <C> <C>
Balmore Funds S.A............................................ 569,280 237,200 --
J. Hayut..................................................... 17,647 7,353 1,140
Hyett Capital Ltd............................................ 91,068 37,945 643
Talbiya B. Investments Ltd................................... 85,534 18,973 --
Libra Finance S.A............................................ 20,000 -- 400
- ---------------------------------------------------------------------------------------------
</TABLE>
The above assumes all of the shares being offered will be sold. Because the
selling stockholders may sell all, some or none of the Shares that he, she or it
holds, the actual number of shares that will be held by the selling stockholders
upon or prior to termination of this offering may vary.The selling stockholders
may have sold, transferred or otherwise disposed of all or a portion of their
Shares since the date on which they provided the information regarding their
common stock in transactions exempt from the registration requirements of the
Securities Act. Additional information concerning the selling stockholders may
be set forth from time to time in prospectus supplements to this prospectus.
PLAN OF DISTRIBUTION
Sales of the Shares may be made from time to time by the selling
stockholders, or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. These sales may be made on the
over-the-counter market or foreign securities exchange, in privately negotiated
transactions or otherwise or in a combination of transactions at prices and at
terms then prevailing or at prices related to the then current market price, or
at privately negotiated prices. In addition, any Shares covered by this
prospectus which qualify for sale pursuant to Section 4(1) of the Securities Act
or Rule 144 promulgated thereunder may be sold under such provisions rather than
pursuant to this Prospectus. Without limiting the generality of the foregoing,
the Shares may be sold in one or more of the following types of transactions:
o a block trade in which the broker-dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this Prospectus;
o an exchange distribution in accordance with the rules of such exchange;
20
<PAGE>
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Stockholders may arrange for other brokers or dealers to
participate in the resales.
In connection with distributions of the Shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares registered hereunder in the course of hedging the positions they
assume with the selling stockholders. The selling stockholders may also sell
Shares short and deliver the Shares to close out such short positions. The
selling stockholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the Shares
registered hereunder, which the broker-dealer may resell pursuant to this
prospectus. The selling stockholders may also pledge the Shares registered
hereunder to a broker or dealer and upon a default, the broker or dealer may
effect sales of the pledged Shares pursuant to this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders in amounts
to be negotiated in connection with the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Information as to whether underwriters who may be selected by the selling
stockholders, or any other broker-dealer, is acting as principal or agent for
the selling stockholders, the compensation to be received by underwriters who
may be selected by the selling stockholders, or any broker-dealer, acting as
principal or agent for the selling stockholders and the compensation to be
received by other broker-dealers, in the event the compensation of such other
broker-dealers is in excess of usual and customary commissions, will, to the
extent required, be set forth in a supplement to this prospectus. Any dealer or
broker participating in any distribution of the Shares may be required to
deliver a copy of this prospectus, including a prospectus supplement, if any, to
any person who purchases any of the Shares from or through such dealer or
broker.
Each of the selling shareholders has executed an agreement pursuant to
which they confirm the method of distribution set forth herein, agree not to
sell the shares if the registration statement is not current.
We have advised the selling stockholders that during if at any time they
may be engaged in a distribution of the shares they are required to comply with
Regulation M promulgated under the Exchange Act. The selling shareholders have
acknowledged such advice by separate agreement and agree therein to comply with
such regulation. In general, Regulation M precludes the selling stockholders,
any affiliated purchasers and any broker-dealer or other person who participates
in such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. A "distribution" is
defined in the rules as an offering of securities that is distinguished from
ordinary trading activities and depends on the "magnitude of the offering and
the presence of special selling efforts and selling methods." Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security.
It is anticipated that the selling stockholders will offer all of the
Shares for sale. Further, because it is possible that a significant number of
Shares could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the common stock.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 50,000,000 shares of our common stock, par value
$0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per
share. As of June 15, 1999 12,741,318 shares of common stock were outstanding
(after giving effect to our five (5%) stock dividends.) No shares of preferred
stock are currently outstanding.
21
<PAGE>
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 our liquidation, dissolution or the winding up of our
business, 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
Our 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 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 we currently do not intend to issue any shares of preferred
stock, there can be no assurance that we 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.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon for
the Company by Parker Duryee Rosoff & Haft, A Professional Corporation, New
York, New York.
EXPERTS
Our financial statements as at December 31, 1997 and December 31, 1998
included in this prospectus, have been audited by Liebman Goldberg & Drogin LLP,
independent certified public accountants as set forth in their report thereon
appearing elsewhere herein. Such financial statements are included herein and in
the registration statement in reliance upon such report and upon the authority
of said firm as experts in auditing and accounting.
OFFERING INFORMATION
You should rely only on the information contained in this prospectus. To
understand this offering fully, you should read this entire prospectus
carefully, including the financial statements and notes. We have included a
brief overview of the most significant aspects of the offering itself in the
Prospectus Summary. However, individual sections of the prospectus are not
complete and do not contain all of the information that you should consider
before investing in our common stock. We have not authorized anyone to provide
you with information different from that contained in this prospectus. We are
offering to sell, and seeking offers to buy, shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or of any sale of the common stock.
22
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report..................................................... F-1
Financial Statements:
Consolidated Balance Sheets.................................................... F-2
Consolidated Statements of Operations.......................................... F-3
Consolidated Statements of Stockholders' Deficit............................... F-4
Consolidated Statements of Cash Flows.......................................... 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>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Accountants' Compilation Report....................................................................... F-1
Financial Statements:
Consolidated Balance Sheets at March 31, 1999 and 1998.............................................. F-2
Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998............ F-3
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1999 and 1998... F-4
Consolidated Statements of Cash Flows for three months ended March 31, 1999 and 1998................ F-5
Notes to Consolidated Financial Statements.......................................................... F-6--F-8
</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
The Board of Directors
Teltran International Group, Ltd. and Subsidiaries
We have compiled the accompanying consolidated balance sheets of Teltran
International Group, Ltd. and Subsidiaries as of March 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the three months then ended in accordance with Statements on Standards
for Accounting and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
May 19, 1999
Garden City, New York
F-1
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash.............................................................................. $ 172,644 $ 3,604
Accounts receivable............................................................... 53,603 23,908
Prepaid expenses.................................................................. 4,982 14,666
----------- -----------
Total current assets........................................................... 231,229 42,178
----------- -----------
Other Assets:
Goodwill--net of amortization..................................................... 36,917 40,273
Organization expense--net of amortization......................................... 68 188
----------- -----------
Total other assets............................................................. 36,985 40,461
----------- -----------
Total assets................................................................... $ 268,214 $ 82,639
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loan payable...................................................................... $ 50,000 $ 50,000
Accounts payable, accrued expenses and taxes payable.............................. 105,440 76,845
Customer deposits................................................................. -- 12,432
Corporation taxes payable......................................................... -- 876
----------- -----------
Total current liabilities...................................................... 155,440 140,153
----------- -----------
Long-Term Liabilities:
Loan payable...................................................................... -- 290,000
Loans payable--stockholders'...................................................... 1,245 69,641
----------- -----------
Total long-term liabilities.................................................... 1,245 359,641
----------- -----------
Total liabilities.............................................................. 156,685 499,794
----------- -----------
Commitments and Contingencies
Stockholders' Equity:
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
9,679,828 and 915,637 shares issued and outstanding, respectively.............. 9,679 916
Additional paid in capital in excess of par value................................. 2,775,133 1,501,928
Deficit........................................................................... (2,673,283) (1,919,999)
----------- -----------
Total stockholders' equity (deficit)........................................... 111,529 (417,155)
----------- -----------
Total liabilities and stockholders' equity..................................... $ 268,214 $ 82,639
----------- -----------
----------- -----------
</TABLE>
See accountants' compilation report and notes.
F-2
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Sales................................................................................. $ 83,459 $ 39,976
Miscellaneous......................................................................... -- 1,714
--------- ---------
83,459 41,690
Cost of Sales:
Purchases............................................................................. 122,311 --
--------- ---------
Gross profit............................................................................ (38,852) 41,690
--------- ---------
Expenses:
Salaries.............................................................................. 113,301 --
Outside services...................................................................... 31,770 77,605
Professional fees..................................................................... 31,960 4,000
Fees--other........................................................................... 63,488 --
Payroll taxes......................................................................... 10,310 --
Leasing expense....................................................................... 4,780 --
Travel................................................................................ 18,641 7,759
Insurance............................................................................. 13,009 7,190
Rent.................................................................................. 46,350 3,398
Office.expense........................................................................ 1,502 5,510
Miscellaneous......................................................................... 599 --
Telephone............................................................................. 6,483 50,683
Contributions......................................................................... 1,000 --
Amortization expense.................................................................. 20,498 --
--------- ---------
Total expenses..................................................................... 363,691 156,145
--------- ---------
Loss from operations.................................................................... (402,543) (114,455)
Interest expense...................................................................... 15,465 --
--------- ---------
Loss before provision for income taxes.................................................. (418,008) (114,455)
Provision for income taxes.............................................................. 780 388
--------- ---------
Net loss................................................................................ $(418,788) $(114,843)
--------- ---------
--------- ---------
Net loss per share of common stock based upon 8,955,146 and 915,637 (weighted average)
shares issued......................................................................... $ (0.05) $ (0.13)
--------- ---------
--------- ---------
</TABLE>
See accountants' compilation report and notes
F-3
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999 and 1998
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL
------------------- IN EXCESS OF
]SHARES AMOUNT PAR VALUE DEFICIT
--------- ------ ------------ -----------
<S> <C> <C> <C> <C>
Balance--January 1, 1998...................................... 915,637 $ 916 $1,501,928 $(1,805,156)
Net loss for the period....................................... -- -- -- (114,843)
--------- ------ ---------- -----------
Balance--March 31, 1998....................................... 915,637 $ 916 $1,501,928 $(1,919,999)
--------- ------ ---------- -----------
--------- ------ ---------- -----------
Balance--January 1, 1999...................................... 7,697,295 $7,697 $2,002,359 $(2,254,495)
Issuance of shares re: conversion of debt..................... 1,835,033 1,835 674,484 --
Issuance of shares re: warrants............................... 147,500 147 98,290 --
Net loss for the period....................................... -- -- -- (418,788)
--------- ------ ---------- -----------
Balance--March 31, 1999....................................... 9,679,828 $9,679 $2,775,133 $(2,673,283)
--------- ------ ---------- -----------
--------- ------ ---------- -----------
</TABLE>
See accountants' compilation report and notes.
F-4
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................................................ $(418,788) $(114,843)
Adjustment to reconcile net loss to net cash (used in) operating activities:
Amortization expense.................................................................. 20,498 30
Decrease (increase) in accounts receivable............................................ 40,693 (23,908)
(Increase) in prepaid expenses........................................................ (4,982) (14,666)
Cash advances from factor (net of repayments)......................................... (65,193) --
Increase in customer deposits......................................................... -- 12,432
Increase in accounts payable, accrued expenses and taxes payable...................... 759 42,152
--------- ---------
Net cash (used in) operating activities............................................ (427,013) (98,803)
--------- ---------
Cash Flows from Investing Activities:
Loans from stockholders and others.................................................... -- 58,761
--------- ---------
Cash Flows from Financing Activities:
(Decrease) of convertible debentures payable.......................................... (180,488) --
Conversion of convertible debenture--stock issued..................................... 550,000 --
(Decrease) in notes payable........................................................... (550,000) --
Cash received as advances from investors.............................................. 774,756 40,000
--------- ---------
Net cash provided by financing activities.......................................... 594,268 40,000
--------- ---------
Net increase (decrease) in cash......................................................... 167,255 (42)
Cash--January 1,........................................................................ 5,389 3,646
--------- ---------
Cash--March 31,......................................................................... $ 172,644 $ 3,604
--------- ---------
--------- ---------
Supplemental Disclosures:
Income tax............................................................................ -- --
--------- ---------
--------- ---------
Interest paid......................................................................... $ 749 --
--------- ---------
--------- ---------
</TABLE>
See accountants' compilation report and notes.
F-5
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 May 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
At March 31, 1999, the Company has a net operating loss carryforward of
approximately $2,673,000 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 this
period was 8,995,146 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 fact of the income statement.
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)
MARCH 31, 1999
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
Telecommunications revenues from services provided are recognized and
billed as services performed.
Major Customer
During the period ended March 31, 1999, approximately 70% of the
company's revenue was from one customer. Also, 97% of accounts receivable are
from the same customer.
Goodwill
Goodwill is stated at cost and is amortized on a straight line basis
over a life of 15 years. Amortization expense is $671 for the period ended
March 31, 1999.
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. In February 1999, the Company
terminated the factoring agreement and paid the outstanding balance in full.
NOTE 5--NOTES PAYABLE
In January 1999, the Company issued $550,000 of convertible debentures due
January 14, 2000 to non-related parties. Interest at 10% was forgiven. Shortly
thereafter, all the debentures were converted to 1,104,444 shares of the
Company's common stock. Financing costs related to these debentures were
expensed.
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 have
been fully amortized as the convertible debentures were fully converted to
999,747 shares of common stock at March 31, 1999 (including prior conversion).
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 indebtedness. In
June 1998, the Company issued an aggregate of 6,000,000 shares to these
investors in consideration of the termination of the joint venture.
NOTE 6--COMMITMENTS AND CONTINGENCIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which contemplates
continuation of the Company as a going concern. 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
$2,673,283 at March 31, 1999 and incurred a net loss of $418,788 during the
period ended March 31, 1999. Subsequent to June 30, 1998, the Company is no
longer a development stage company since revenues are continuing.
F-7
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1999
NOTE 6--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
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>
2000.......................................................... $ 90,500
2001.......................................................... 90,500
2002.......................................................... 98,644
2003.......................................................... 98,644
--------
$378,288
--------
--------
</TABLE>
NOTE 7--STOCK COMPENSATION PLAN
During the year 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.
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/canceled.................................... 0 --
Granted............................................. 0 --
---------
Outstanding--December 31, 1998...................... 1,180,000 1.69
---------
---------
Exercisable--December 31, 1998...................... 497,500 1.69
---------
---------
</TABLE>
F-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering. Other than
the SEC registration fee amounts set forth below are estimates:
<TABLE>
<S> <C>
SEC registration fee.........................................
Printing and engraving expenses..............................
Legal fees................................................... *
Accounting fees..............................................
Miscellaneous expenses.......................................
---------
$
---------
---------
</TABLE>
ITEM 26. 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. 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.
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 September, 1998 the Company issued 500,000 to an affiliate of Byron
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 Holding Group Inc. in exchange for 2,000,000
shares of that corporation's shares. The
II-1
<PAGE>
Company believes that the transaction was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2).
In June 1999 the Company issued 316,499 shares of its common stock to
several investors pursuant to a transaction exempt from the registration
requirements pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 27. 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 Teltran International Group,
Ltd.*
3.3 -- Amendment to Certificate of Incorporation*
4. -- By-Laws(a)
5.1 -- Opinion of Parker Duryee Rosoff & Haft(b)
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(a)
10.3 -- USA Interconnectivity and Support Agreement dated October 12, 1999*
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 -- Subscription Agreement dated June 10, 1999
10.8 -- Memorandum Agreement dated as of between Registrant and Antra Holding Group Inc.
21.1 -- Subsidiary List*
23 -- Consent of Leibman Goldberg & Drogin LLP
23.1 -- Consent of Parker Duryee Rosoff & Haft
27 -- Selected Financial Data Schedule*
</TABLE>
* Previously filed with the Company's Form 10-SB on March 24, 1999
(a) Filed amendment to the Company's Form 10-SB
(b) Filed with Company's Amendment 1 to its Form SB-2
ITEM 28. UNDERTAKINGS
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
II-2
<PAGE>
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to Item 24 of this Part II to the Registration Statement, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a director, officer or controlling
person of Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against the public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON THE DAY OF JULY, 1999.
TELTRAN INTERNATIONAL GROUP, INC.
By: /s/ BYRON LERNER
----------------------------------
Byron Lerner
Chief Executive Officer
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ BYRON LERNER Chairman of the Board, Chief Executive Officer, July 14, 1999
- ------------------------------------------ Director (Principal Executive, Financial and
Byron Lerner Accounting Officer)
/s/ JAMES TUBBS Director July 14, 1999
- ------------------------------------------
James Tubbs
/s/ MARTIN MILLER Director July 14, 1999
- ------------------------------------------
Martin Miller
</TABLE>
II-4
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Teltran International Group, Ltd.
We hereby consent to the use in the Registration Statement on Form SB-2 of our
report dated February 22, 1999, relating to the audited financial statements of
Teltran International Group, Ltd. and any reference to our firm under the
caption "Experts" in the Registration Statement.
LIEBMAN GOLDBERG & DROGIN LLP
JULY 12, 1999
GARDEN CITY, NY
II-5
<PAGE>
SUBSCRIPTION AGREEMENT
----------------------
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Teltran
International Group, Ltd., a Delaware corporation (the "Company") hereby agrees
to issue and to sell to the Subscriber, the number of shares of the Company's
$.001 par value common stock (the "Company Shares") for the consideration as set
forth on the signature page hereof ("Purchase Price"). (The Company Shares are
sometimes referred to herein as the "Shares" or "Common Stock"). The Company
Shares, Commission Shares and Common Stock Purchase Warrants issuable to the
Placement Agents ("Placement Warrants"), identified on Schedule A hereto, and
the Common Stock issuable upon exercise of the Placement Warrants, the
Additional Shares, and the Put Securities (as hereinafter defined) are
collectively referred to herein as, the "Securities"). Upon acceptance of this
Agreement by the Subscriber, the Company shall issue and deliver to the
Subscriber the Company Shares against payment, by federal funds (U.S.) wire
transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished with
and has read the Company's Form SB-2 filed on or about April 8, 1999 with the
U.S. Securities and Exchange Commission (the "Commission") (hereinafter referred
to as the "Reports"). In addition, the Subscriber has received from the Company
such other information concerning its operations, financial condition and other
matters as the Subscriber has requested, and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities (such information in writing is collectively, the "Other Written
Information").
(b) Information on Subscriber. The Subscriber is an "accredited
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended, is experienced in investments and
business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to utilize
the information made available by the Company to evaluate the merits and risks
of and to make an informed investment decision with respect to the proposed
<PAGE>
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.
(c) Purchase of Company Shares. On the Closing Date, the Subscriber
will purchase the Company Shares for its own account and not with a view to any
distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands and
agrees that the Securities have not been registered under the Securities Act of
1933, as amended (the "1933 Act") by reason of their issuance in a transaction
that does not require registration under the 1933 Act, and that such Securities
must be held unless a subsequent disposition is registered under the 1933 Act or
is exempt from such registration. The Subscriber will comply with all relevant
rules and regulations of the Securities Exchange Act of 1934, as amended, as
they relate to short sales of the Securities. The Subscriber will not engage in
any short sales of the Company's common stock until the sooner of (i) the per
share closing bid price of the common stock is $10.00 or more as reported by the
NASD OTC Bulletin Board or other exchange or market where the common stock is
listed or traded, or (ii) the Subscriber has resold all the Company Shares and
Put Shares purchased pursuant to this Subscription Agreement.
(e) Company Shares Legend. The Company Shares, Commission Shares
and the shares of Common Stock issuable upon the exercise of the Placement
Warrants shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
TELTRAN INTERNATIONAL GROUP LTD.. THAT SUCH REGISTRATION IS
NOT REQUIRED."
(f) Warrants Legend. The Placement Warrants shall bear the
following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
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<PAGE>
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO TELTRAN INTERNATIONAL GROUP LTD.
THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or solicited
or invited to attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.
(h) Correctness of Representations. The Subscriber represents that
the foregoing representations and warranties are true and correct as of the date
hereof and, unless the Subscriber otherwise notifies the Company prior to the
Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. Subject to the Reports and
Other Written Information, the Company represents and warrants to and agrees
with the Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted. The Company and each of its subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
each jurisdiction where the nature of the business conducted or property owned
by it makes such qualification necessary, other than those jurisdictions in
which the failure to so qualify would not have a material adverse effect on the
business, operations or prospects or condition (financial or otherwise) of the
Company.
(b) Outstanding Stock. All issued and outstanding shares of capital
stock of the Company and each of its subsidiaries has been duly authorized and
validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this
3
<PAGE>
Agreement and to perform its obligations hereunder and all other agreements
entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
preemptive or similar rights affecting the Company's common stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of any
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates, the NASD, NASDAQ or the Company's
Shareholders is required for execution of this Agreement, and all other
agreements entered into by the Company relating thereto, including, without
limitation issuance and sale of the Securities, and the performance of the
Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles of incorporation, charter or bylaws of the Company, or any of its
affiliates, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company, or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the properties
or assets of the Company, or any of its affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company, or any of its affiliates is a party, by which
the Company, or any of its affiliates is bound, or to which any of the
properties of the Company, or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any lien, charge
or encumbrance upon the Securities or any of the assets of the Company, or any
of its affiliates.
4
<PAGE>
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and on
the date of issuance and on the Closing Date, as hereinafter defined, the
Effective Date, as hereinafter defined, and the date the Placement Warrants are
exercised, will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted);
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal liability
by reason of being such holders; and
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under this Agreement, and
all other agreements entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly- held company
whose common stock is registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The Company's common stock is
trading on the NASD OTC Bulletin Board. Pursuant to the provisions of the 1934
Act, the Company has timely filed all reports and other materials required to be
filed thereunder with the Securities and Exchange Commission during the
preceding twelve months except as disclosed in the Other Written Information.
(j) No Market Manipulation. The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the common stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued.
(k) Information Concerning Company. The Reports and Other Written
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be
5
<PAGE>
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information, there has been
no material adverse change in the Company's business, financial condition or
affairs not disclosed in the Reports. The Reports and Other Written Information
do not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(l) Dilution. The number of Shares issuable upon Reset (as
hereinafter defined) may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to the Effective Date. The Company's
executive officers and directors have studied and fully understand the nature of
the Securities being sold hereby and recognize that they have a potential
dilutive effect. The board of directors of the Company has concluded, in its
good faith business judgment, that such issuance is in the best interests of the
Company. The Company specifically acknowledges that its obligation to issue the
Additional Shares upon Reset and exercise of the Placement Warrants is binding
upon the Company and enforceable, except as otherwise described in this
Subscription Agreement, regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
(m) Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer order
or other order impeding the sale and delivery of the Securities at such time as
the Securities are registered for public sale or an exemption from registration
is available.
(n) Defaults. Neither the Company nor any of its subsidiaries is in
violation of its Articles of Incorporation or Bylaws. Neither the Company nor
any of its subsidiaries is (i) in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company, (ii) in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge in violation of any statute, rule or regulation of any governmental
authority material to its business.
(o) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under
6
<PAGE>
circumstances that would cause the offering of the Securities pursuant to this
Agreement to be integrated with prior offerings by the Company for purposes of
the 1933 Act which would prevent the Company from selling the Securities under
Section 4(2) of the 1933 Act, or any applicable stockholder approval provisions.
Nor will the Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated with
other offerings.
(p) Use of Proceeds. The proceeds of the Subscriber funds to be
released to the Company will be used for working capital and for expenses of
this offering.
(q) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Securities.
(r) Listing. The Company's common stock is listed for trading on
NASD OTC Bulletin Board. The Company has not received any notice that its common
stock will be delisted from the OTC Bulletin Board or that the common stock does
not meet all requirements for the continuation of such listing.
(s) Correctness of Representations. The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof in all material respects and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit B. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the issuance of the Additional Shares and exercise of the
Placement Warrants.
4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to dispose of
such Securities pursuant to Rule 144(k) under the Act, or (b) upon resale
subject
7
<PAGE>
to an effective registration statement after the Securities are registered under
the Act. The Company agrees to cooperate with the Subscriber in connection with
all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions
necessary to allow such resales provided the Company and its counsel receive
reasonably requested certifications from the Subscriber and selling broker, if
any.
5. Redemption. The Company may not redeem the Securities without the
consent of the holder of the Securities.
6. Legal Fees/Commissions. The Company shall pay to counsel to the
Subscriber its fee of $20,000 for services rendered to the Subscriber in
reviewing this Agreement and other subscription agreements for the aggregate
subscription amounts of up to $1,200,000 and acting as escrow agent. The Company
will pay a cash commission, in the aggregate, of six percent (6%) of the
Purchase Price designated on the signature page hereto to certain Placement
Agents identified on Schedule A hereto ("Cash Commissions"). The Cash
Commissions and legal fees will be payable out of funds held pursuant to a Funds
Escrow Agreement to be entered into by the Company, Subscriber and an Escrow
Agent. The Company will also issue and deliver to the Placement Agents as
additional compensation, the Commission Shares and Placement Warrants designated
on Schedule A hereto. The Cash Commissions, Commission Shares and Placement
Warrants will be issued to the Placement Agents only when, as, and if the
corresponding subscription amount is released from escrow to the Company. All
the representations, covenants, warranties, undertakings, and indemnification
including but not limited to registration rights made or granted to or for the
benefit of the Subscriber are hereby also made and granted to the Placement
Agents in respect of the Commission Shares, Placement Warrants and Company
Shares issuable upon exercise of the Placement Warrants. The Placement Warrants
will all be exercisable immediately upon issue and until three years after the
Closing Date. One Million (1,000,000) "A" Placement Warrants will be issued
proportionately for each $1,700,000 of Purchase Price and Put Consideration.
Eight Thousand Five Hundred (8,500) Commission Shares and Twenty-Five Thousand
(25,000) "B" Placement Warrants will be issued proportionately for each
$1,700,000 of Purchase Price and Put Consideration. Forms of "A" and "B"
Placement Warrants have been delivered to the Placement Agents.
7.1. Covenants of the Company. The Company covenants and agrees with
the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of
8
<PAGE>
the suspension of the qualification of the common stock of the Company for
offering or sale in any jurisdiction, or the initiation of any proceeding for
any such purpose.
(b) The Company shall promptly secure the listing of the Company
Shares, and Common Stock issuable upon the exercise of the Placement Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of common stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of common
stock shall be so listed. The Company will use its best efforts to maintain the
listing and trading of its common stock on the NASD OTC Bulletin Board, and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will provide the
Subscriber copies of all notices it receives notifying the Company of the
threatened and actual delisting of the common stock on any exchange or quotation
system on which the common stock is listed.
(c) The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and Placement Agents and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the Effective Date, as
defined in Section 10.1(iv) hereof, the Company will (i) cause its common stock
to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act,
(ii) comply in all respects with its reporting and filing obligations under the
Exchange Act, and (iii) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will not take any action
or file any document (whether or not permitted by the Act or the Exchange Act or
the rules thereunder) to terminate or suspend such registration or to terminate
or suspend its reporting and filing obligations under said Acts until the later
of (i) two (2) years after the Effective Date, or (ii) the sale by the
Subscribers and Placement Agents of all the Company Shares and Commission Shares
issuable by the Company pursuant to this Agreement. Until at least two (2) years
after the Placement Warrants have been exercised, the Company will use its
commercial best efforts to continue the listing or trading of its common stock
on NASD OTC Bulletin Board and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the NASD
and NASDAQ, as appropriate.
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<PAGE>
(e) The Company undertakes to use the proceeds of the Subscriber's
funds for working capital and expenses of this offering.
8. Covenants of the Company and Subscriber Regarding
Indemnifications.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber, Subscriber's officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber which results, arises out of or
is based upon (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
Reports or other Written Information; or (ii) any breach or default in
performance by Company of any covenant or undertaking to be performed by Company
hereunder, or any other agreement entered into by the Company and Subscribers
relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
9.1. Reset.
(a) The amount of Company Shares issuable to the Subscriber shall
be redetermined from time to time as described herein (the "Reset") and if
appropriate, additional shares of Common Stock (the "Additional Shares") will be
issued and delivered to the Subscriber as provided herein. The original purchase
price set forth on the signature page of this Subscription Agreement (the
"Purchase Price") shall be deemed the purchase price of all the shares of Common
Stock to be delivered pursuant to this Subscription Agreement including the
Additional Shares. Provided the Additional Shares are issued after the effective
date of the Registration Statement described in Section 10.1(iv) hereof, such
Additional Shares will be free-trading on the books and records of the Company
and issued without restrictive legend.
(b) The Reset shall be determined on the thirtieth (30th), sixtieth
(60th), and ninetieth (90th) days after the date the registration statement
described in Section 10.1(iv) hereof is declared effective by the Commission, or
if such registration
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<PAGE>
statement has not been declared on or before the Effective Date then, at the
Subscriber's election, the thirtieth (30th), sixtieth (60th), and ninetieth
(90th) days after the Effective Date, (each a "Reset Date"). In the event the
Company elects to defer a Reset pursuant to Section 9.1(f) hereof, then the
final Reset determination shall be made on the 120th day after declaration of
effectiveness described above or Effective Date, as the case may be. The
Subscriber may elect to Reset up to one-third (1/3) of the Purchase Price on
each Reset Date ("Designated Portion"). A Subscriber may not Reset a portion of
the Purchase Price for which the Subscriber has sold, prior to a Reset Date, the
Common Shares Purchased (as identified on the signature page hereto) in
connection therewith. The Subscriber may, in the Subscriber's sole and absolute
discretion, determine and designate the source of any of the Company's common
shares sold by the Subscriber as being Company Shares received hereunder, or
Additional Shares, Put Shares or common shares obtained from any other source
other than pursuant to this Subscription Agreement.
(c) If the closing bid price of the common stock on the NASD OTC
Bulletin Board or such other principal exchange or market where the common stock
is listed for trading, on such Reset Date is less than $4.50 (subject to
adjustment for stock splits, stock dividends and similar events), then on each
Reset Date a number of Company Shares will be calculated for the Designated
Portion of the Purchase Price by dividing the Designated Portion of the Purchase
Price by a number equal to eighty-seven and one-half percent (87.5%) of the
average of the three lowest closing bid prices for the common stock on the NASD
OTC Bulletin Board, or on any securities exchange or other securities market on
which the common stock was listed, traded or quoted for the fifteen (15) trading
days immediately preceding the Reset Date (the "Reset Price"). If the Reset
Price is less than $4.00, then the Company will issue to the Subscriber the
number of shares of Common Stock obtained by subtracting (y) the number of
shares obtained by dividing the Designated Portion of Purchase Price by $4.00
from (z) the number of shares obtained by dividing the Designated Portion of
Purchase Price by the Reset Price.
(d) In no event will the Subscriber be required to return any
Company Shares to the Company. Each Reset calculation shall be made independent
of all other Reset calculations.
(e) The Company agrees to deliver the Additional Shares to the
Subscriber in hand, or Redemption Amount (as defined herein) if such payment of
the Redemption Amount is required hereunder, no later than ten (10) business
days after notice from the Subscriber ("Reset Notice") of the Designated Portion
(the "Delivery Date"). A Reset Notice must be given to the Company within 20
days of the Reset Date. The Company understands that a delay in the delivery of
either the Additional Shares or failure to timely deliver the Redemption Amount
described in Section 9.2
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<PAGE>
beyond the Delivery Date could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay as
liquidated damages payments to the Subscriber for late delivery of Additional
Shares or Redemption Amount beyond the Delivery Date, in the amount of $100 per
business day after the Delivery Date for each $10,000 of Designated Portion of
Purchase Price for which a Reset has been calculated. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
The late payment charges described in this Section 9.1(g) shall be payable
through the date the Additional Shares or Redemption Amount is received in hand
by the Subscriber.
(f) The Company may elect to defer a Reset in relation to one Reset
Date ("Reset Deferral"). Such Reset Deferral must be made for all Subscribers
entering into subscription agreements similar to this Subscription Agreement in
connection with $1,200,000 of Purchase Price, in the aggregate. The Company's
Reset Deferral election must be communicated in writing to all of the above
described Subscribers within three business days after the Reset Date for which
the Company elects a Reset Deferral. In the event the Company elects a Reset
Deferral, the Subscriber shall have the option of electing the Reset Price in
effect on any subsequent Reset Date on which a Reset may be determined pursuant
to 9.1(c) above or an alternative Reset Price ("Alternative Reset Price") for
the amount of Purchase Price subject to the Reset Deferral. The Alternative
Reset Price, if any, shall be the average of the Reset Price in effect on the
Reset Date for which the Reset Deferral has been elected and the Reset Price on
the Reset Date for which a Reset Notice is given in relation to a portion of the
Purchase Price which was the subject of a Reset Deferral.
(g) Securities and Company Shares as defined and employed in this
Subscription Agreement shall include Additional Shares for all purposes
including but not limited to Section 10 of this Subscription Agreement.
(h) Nothing contained herein or in any document referred to herein
or delivered in connection herewith shall be deemed to establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest or dividends
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Subscriber and thus refunded to the Company.
9.2. Mandatory Redemption. In the event the Company does not issue and
deliver Additional Shares on a Delivery Date for any reason, then at the
Subscriber's election in lieu of delivering such Additional Shares the Company
must pay to the Subscriber
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<PAGE>
immediately after request, a sum of dollars equal to the number obtained by
multiplying the Additional Shares otherwise deliverable by the closing bid price
of the common stock on the NASD OTC Bulletin Board or such other principal
exchange or market where the common stock is listed for trading on the Reset
Date ("Redemption Amount").
9.3. Reset Limitation. The Company and Subscriber agree that the
Subscriber and Company shall not be entitled to Reset on a Reset Date that
amount of the Purchase Price in connection with that number of shares of common
stock which would be in excess of the sum of (i) the number of shares of common
stock beneficially owned by the Subscriber and its affiliates on such Reset
Date, and (ii) the number of shares of common stock issuable upon such Reset
with respect to which the determination of this proviso is being made on such
Reset Date, which would result in beneficial ownership by the Subscriber and its
affiliates of more than 9.99% of the outstanding shares of common stock of the
Company on such Reset Date. For the purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13d-3 thereunder. Subject to the foregoing, the Subscriber shall not be
prohibited from receiving Additional Shares in connection with the Reset of an
aggregate 100% of the Purchase Price provided the 9.99% limitation described
above is not violated on the date the Subscriber notifies the Company that it is
permitted to receive such previously undelivered Additional Shares. Subscriber
may revoke the restriction described in this paragraph upon seventy-five (75)
days prior written notice to the Company.
9.4. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon Reset by the Delivery Date and if after the Delivery Date the
Subscriber purchases (in an open market transaction or otherwise) shares of
common stock to deliver in satisfaction of a sale by such Subscriber of the
common stock which the Subscriber anticipated receiving upon such Reset (a
"Buy-In"), then the Company shall pay in cash to the Subscriber (in addition to
any remedies available to or elected by the Subscriber) the amount by which (A)
the Subscriber's total purchase price (including brokerage commissions, if any)
for the shares of common stock so purchased exceeds (B) the corresponding
proportional amount of Designated Amount for which Additional Shares were not
timely delivered, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if the Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to an attempted Reset
of $10,000 of Designated Amount, the Company shall be required to pay the
Subscriber $1,000, plus interest. The Subscriber shall provide
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the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
9.5. Injunction - Posting of Bond. In the event a Subscriber shall
exercise its Reset Rights, the Company may not refuse conversion based on any
claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, unless, an injunction from
a court, on notice, restraining and/or enjoining the exercise of the
Subscriber's Reset Rights shall have been obtained and the Company posts a
surety bond for the benefit of such Subscriber in the amount of 130% of the
amount of the Designated Amount, which is subject to the injunction, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Subscriber to the
extent it obtains judgment.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 46 days after the
Closing Date, but not later than three years after the Closing Date, the
Company, upon a written request therefor from any record holder or holders of
more than 50% of the aggregate of the Company's Shares issued in connection with
the $1,100,000 aggregate offering to which this Subscription Agreement relates
(the Securities, Additional Shares and securities issued or issuable by virtue
of ownership of the Securities, and the Put Securities defined in Section 11
hereof, if actually issued, being, the "Registrable Securities"), shall prepare
and file with the SEC a registration statement under the Act covering the
Registrable Securities which are the subject of such request, unless such
Registrable Securities are the subject of an effective registration statement.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other record holders of the Registrable Securities that
such registration statement is to be filed and shall include in such
registration statement Registrable Securities for which it has received written
requests within 10 days after the Company gives such written notice. Such other
requesting record holders shall be deemed to have exercised their demand
registration right under this Section 10.1(i). As a condition precedent to the
inclusion of Registrable Securities, the holder thereof shall provide the
Company with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one registration
statement.
(ii) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable
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Securities for sale to the public, provided the Registrable Securities are not
otherwise registered for resale by the Subscriber or Holder pursuant to an
effective registration statement, each such time it will give at least 30 days'
prior written notice to the record holder of the Registrable Securities of its
intention so to do. Upon the written request of the holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of the Registrable Securities, the Company will cause such
Registrable Securities as to which registration shall have been so requested to
be included with the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent required to permit the
sale or other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller"). In the event that any
registration pursuant to this Section 10.1(ii) shall be, in whole or in part, an
underwritten public offering of common stock of the Company, the number of
shares of Registrable Securities to be included in such an underwriting may be
reduced by the managing underwriter if and to the extent that the Company and
the underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the forgoing provisions, the Company may
withdraw any registration statement referred to in this Section 10.1(ii) without
thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account, such written request shall
be deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii) except that the Company or
underwriter, if any, may not withdraw such registration or limit the amount of
Registrable Securities included in such registration.
(iv) The Company shall file with the Commission within 45 days
of the Closing Date (the "Filing Date"), and use its reasonable commercial
efforts to cause to be declared effective an amendment to the Form SB-2
registration statement filed with the Commission on or about April 8, 1999, (or
such other form that it is eligible to use) within 120 days of the Closing Date
in order to register the Registrable Securities for resale and distribution
under the Act. The registration statement described in this paragraph must be
declared effective by the Commission on or before October 1, 1999 ("Effective
Date"). The Company will register not less than 12,500 shares of common stock in
the aforedescribed
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registration statement for each $25,000 of Purchase Price and Put Consideration
set forth on the signature page hereto, one share of common stock for each Put
Commission Share (as defined herein) and one share of Common Stock for each
common share issuable upon exercise of the Placement Warrants and Put Commission
Warrants (as defined herein). The Registrable Securities shall be reserved and
set aside exclusively for the benefit of the Subscriber and Placement Agents, as
the case may be, and not issued, employed or reserved for anyone other than the
Subscriber and Placement Agents. Such registration statement will be promptly
amended or additional registration statements will be promptly filed by the
Company as necessary to register additional Company Shares to allow the public
resale of all common stock included in and issuable by virtue of the Registrable
Securities.
10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
not less than 6 months after the longest exercise period of any common stock
purchase warrant included in the Registrable Securities and comply with the
provisions of the Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration statement
for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose
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be required to qualify generally to transact business as a foreign corporation
in any jurisdiction where it is not so qualified or to consent to general
service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non- confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
10.3. Provision of Documents.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In the event of a firm commitment underwritten public offering in
which the Registrable Securities are so included, the lockup, if any, requested
by the managing underwriter may not exceed ninety (90) days after the effective
date thereof.
(b) In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written
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agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 60 days after request by
the Holder and not declared effective by the Commission within 120 days after
such request [or the Filing Date and Effective Date, respectively, in reference
to the Registration Statement on Form SB-2 or such other form described in
Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such request, or is not declared effective by the Commission on or prior to
the date that is 120 days after such request, or (ii) the registration statement
on Form SB-2 or such other form described in Section 10.1(iv) is not filed on or
before the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within five days of receipt by the Company of a communication
from the Commission that the registration statement described in Section
10.1(iv) will not be reviewed, or (iii) any registration statement described in
Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to three (3%) percent for
each thirty (30) days or part thereof, of the Purchase Price set forth on the
signature page hereto, and the aggregate amount of the exercise prices of the
Placement Warrants, whether or not exercised, then owned of record by such
holder as of the occurrence of such Non-Registration Event. Payments to be made
pursuant to this Section 10.4 shall be due and payable immediately upon demand
in immediately available funds. In the event a Mandatory Redemption payment is
received from the Company by the Subscriber pursuant to Section 9.2 of this
Subscription Agreement, then the Liquidated Damages described in this Section
10.4 shall no longer accrue on the portion of Purchase Price underlying the
Mandatory Redemption Payment, from and after the date the Holder receives the
Mandatory Redemption Payment. It shall also be deemed a Non- Registration Event
to the extent any Additional Shares issuable are
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not included in an effective registration statement as of and after the
Effective Date at the Conversion Price in effect from and after the Effective
Date.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable counsel
fees) incurred in connection with complying with state securities or "blue sky"
laws, fees of the National Association of Securities Dealers, Inc., transfer
taxes, fees of transfer agents and registrars, fee of one counsel, if any, to
represent all the Sellers, and costs of insurance are called "Registration
Expenses". All underwriting discounts and selling commissions applicable to the
sale of Registrable Securities, including any fees and disbursements of any
special counsel to the Seller, are called "Selling Expenses". The Seller shall
pay the fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection with
the registration statement under Section 10. All Selling Expenses in connection
with each registration statement under Section 10 shall be borne by the Seller
and may be apportioned among the Sellers in proportion to the number of shares
sold by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the Seller,
each underwriter of such Registrable Securities thereunder and each other
person, if any, who controls such Seller or underwriter within the meaning of
the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim,
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damage, liability or action; provided, however, that the Company will not be
liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by any such Seller, the underwriter or any such
controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such
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indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c) if and to the extent the
indemnifying party is prejudiced by such omission. In case any such action shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake the
defense thereof with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to such indemnified party under this Section 10.6(c) for any legal
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison with
counsel so selected, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties shall have the right to select one separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the reasonable expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in the
event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the
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registration statement bears to the public offering price of all securities
offered by such registration statement, provided, however, that, in any such
case, (A) the Seller will not be required to contribute any amount in excess of
the public offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
11.1. Obligation To Purchase.
(a) The Subscriber agrees to purchase from the Company additional
Company Shares ("Put Shares") for up to the Maximum Put Consideration designated
on the signature page hereto. Collectively the Put Shares and Put Commissions
(as hereinafter defined) are referred to as the "Put Securities".) The Holders
of the Put Securities are granted all the rights, remedies and indemnification
granted to the Subscriber in connection with the Securities, including but not
limited to, the registration rights described in Section 10 hereof, and the
Reset Rights described in Section 9 hereof.
(b) The agreement to purchase the Put Shares is contingent on the
following (unless waived by the Subscriber):
(i) The timely filing and timely effectiveness of the
registration statement described in Section 10.1(iv) hereof relating to all the
Registrable Securities.
(ii) As of the Put Date and Put Closing Date (as defined
hereinafter), the Company will be a full reporting company with the class of
Shares registered pursuant to Section 12(g) of the Securities Exchange Act of
1934.
(iii) The closing bid price of the Company's common stock on
the NASD OTC Bulletin Board or such other securities exchange or market where
the Company's common stock is listed for trading ("Closing Bid Price") for each
of the five trading days prior to the effective date of the registration
statement described in Section 10.1(iv) hereof and until to the Put Closing Date
will not be less than $2.00.
(iv) No material adverse change in the Company's business or
business prospects shall have occurred after the date of the most recent
financial statements included in the Reports. Material adverse change is defined
as any effect on the business, operations, properties, prospects, or financial
condition of the Company that is material and adverse to the Company and its
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subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any other agreement entered into or to be entered into in
connection herewith, in any material respect.
(v) The execution and delivery to the Subscriber of a
certificate signed by its chief executive officer representing the truth and
accuracy of all the Company's representations and warranties contained in this
Subscription Agreement as of the Put Date and the Put Closing Date and
confirming the undertakings contained herein, and representing the satisfaction
of all contingencies and conditions required for the exercise of the Put.
(vi) The Company's compliance after the date hereof with the
listing requirements of the NASD OTC Bulletin Board, and the Company's not
having received notice from the NASD OTC Bulletin Board (and any principal
market on which the Company's Common Stock is listed for trading) that the
Company is not in compliance with the requirements for continued listing.
(vii) The execution by the Company and delivery to the
Subscriber of all documents reasonably necessary to memorialize the rights and
obligations of each of the parties in relation to the Put.
(viii) A Closing shall have occurred on an aggregate of
$1,200,000 on the same terms and conditions described in this Subscription
Agreement.
(c) The exercise of the Put is further contingent on the
non-occurrence of any of the following events, each an Event of Default:
(i) The Company shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for a substantial part of its property or business; or such a receiver
or trustee shall otherwise be appointed.
(ii) Any money judgment, writ or similar process shall be
entered or filed against Company or any of its property or other assets for more
than $50,000, and shall remain unvacated, unbonded or unstayed for a period of
forty-five (45) days.
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(iii) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Company.
(iv) Delisting of any of the Company's securities from the NASD
OTC Bulletin Board or such other principal exchange on which such security was
listed for trading, or receipt by the Company of notice from NASDAQ or such
other principal exchange that the Company is not in compliance with its listing
requirements.
(v) A concession by the Company or a default by the Company
under any one or more obligations in an aggregate monetary amount in excess of
$50,000.
(vi) An SEC stop trade order or NASDAQ trading suspension for a
period of ten or more days.
(vii) Any representation or warranty of the Company made in
this Subscription Agreement or in connection herewith, or in any agreement,
statement or certificate given in writing pursuant hereto or in any other
agreement to which the Company and Subscriber are parties, or in connection
herewith or therewith shall be materially false or misleading.
(viii) The occurrence of a Non-Registration Event.
(ix) Any material default by the Company of any covenant or
undertaking described in this Subscription Agreement or any document delivered
in connection herewith or under any other agreement to which the Company and
Subscriber are parties.
(d) The exercise of the Put is expressly contingent on the
declaration of effectiveness by the Securities and Exchange Commission and the
continued effectiveness of the Registration Statement on Form SB-2 or such other
form as described in Section 10.1(iv) hereof relating to the Registrable
Securities and the Company's ability to issue Common Stock on the Put Closing
Date pursuant to an effective registration statement, with such Common Stock,
upon resale, being unlegended freely transferable Common Stock.
11.2. Exercise of Put.
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(a) The Company's right to exercise the Put expires two weeks after
the effective date of the registration statement described in Section 10.1(iv)
hereof ("Put Exercise Period").
(b) The Put may be exercised by the Company by the giving to the
Subscriber of a written notice of exercise ("Put Notice") during the Put
Exercise Period in relation to all the subject Put Securities. The date a Put
Notice is given is a Put Date. Each Put Notice must be accompanied by the (i)
officer's certificate described in Section 11.1(b)(viii) above; (ii) a copy of
the filed registration statement; (iii) notice of declaration of effectiveness;
(iv) five copies of the final prospectus; and (v) a legal opinion relating to
the Put Securities in form reasonably acceptable to Subscriber.
(c) Unless otherwise agreed to by the Subscribers, Put Notices must
be given to all Subscribers in proportion to the amounts agreed to be purchased
by all Subscribers undertaking to purchase Put Shares in the $1,200,000 offering
to which this Subscription Agreement relates. The aggregate amount of all such
Put Notices may not exceed $500,000. In the event the Company does not exercise
the Put during the Put Exercise Period, then the Subscriber may exercise the Put
on behalf of the Company, by giving notice to the Company of such exercise
during the fourteen (14) business days following the Put Exercise Period. Only
one Put Notice may be given to the Subscriber.
(d) Payment by the Subscriber in relation to a Put Notice relating
to the Put must be made within 10 days of receipt of a Put Notice. Payment will
be made against delivery to the Subscriber or an escrow agent to be agreed upon
by the Company and Subscriber, of the Put Shares and items set forth in Section
11.2(b) above, and delivery to the Placement Agents of the Put Commissions
relating to the Put being exercised.
11.3. Put Price. If the average Closing Bid Price for the 15 trading
days prior to the effective date of the registration statement described in
Section 10.1(iv) hereof is $4.00 or more, then the price for each Put Share
shall be $4.00 ("Put Price"). If the average Closing Bid Price during such
period is less than $4.00, then the Put Price shall be 87.5% of the average of
the three lowest Closing Bid Prices during such 15 day period.
11.4. Put Commission Warrants. The Put Commission Warrants (as defined
herein) payable in connection with the Put will be identical to the Placement
Warrants and issued in the same proportions as the Placement Warrants except
that such Put Warrants
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will be exercisable commencing on the Put Closing Date and for three years
thereafter at a purchase price of the lesser of $4.00 per share or the closing
bid price of the common stock as reported on the NASD OTC Bulletin Board or such
other principal market or exchange where the common stock is listed for trading,
on the thirtieth day following the effective date of the registration statement
described in Section 10.1(iv) of this Subscription Agreement.
11.5. Put Commissions. The Placement Agents identified on Schedule A
hereto shall receive aggregate cash, stock and warrants as commissions in
connection with the closing of the Put in exactly the same proportions as set
forth in Section 6 hereof. The aggregate Put Commissions are set forth on
Schedule A hereto. Put Commissions shall be payable only in connection with the
Put Purchase Price actually paid by a Subscriber. The attorney for the
Subscriber shall receive a payment at the Put Closing equal to one and one-half
(1.5%) percent of the Put Consideration.
11.6. Adjustments. The Put Price and number of Common Shares to be
issued pursuant to this Section shall be subject to adjustment from time to time
upon the happening of certain events while the Put right remains outstanding, as
follows:
(a) Stock Splits, Combinations and Dividends. If the shares of
common stock are subdivided or combined into a greater or smaller number of
shares of common stock, or if a dividend is paid on the common stock in shares
of common stock, the Put Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of common stock outstanding immediately after such event bears to the
total number of shares of common stock outstanding immediately prior to such
event.
(b) Share Issuance. Subject to the provisions of this Section, if
the Company at any time shall issue any shares of common stock prior to Put
Closings on up to $500,000 [otherwise than as provided in Section 11.6(a) or
this subparagraph 11.6(b) or int he Other Written Information] for a
consideration less than the Put Price that would be in effect at the time of
such issue, then, and thereafter successively upon each such issue, the Put
Price shall be reduced as follows: (i) the number of shares of common stock
outstanding immediately prior to such issue shall be multiplied by the Put Price
in effect at the time of such issue and the product shall be added to the
aggregate consideration, if any, received by the Company upon such issue of
additional shares of common stock; and (ii) the sum so obtained shall be divided
by the number of shares of common stock outstanding immediately after such
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issue. The resulting quotient shall be the adjusted Put Price. For purposes of
this adjustment, the issuance of any security of the Company carrying the right
to convert such security into shares of common stock or of any warrant, right or
option to purchase common stock shall result in an adjustment to the Put Price
upon the issuance of shares of common stock upon exercise of such conversion or
purchase rights.
11.7. The Company and Subscriber agree that the Company and Subscriber
may not exercise the Put in connection with that number of shares of common
stock which would be in excess of the sum of (i) the number of shares of common
stock beneficially owned by the Subscriber and its affiliates on the Closing
Date, and (ii) the number of shares of common stock issuable upon the exercise
of the Put with respect to which the determination of this proviso is being made
on a Put Date, which would result in beneficial ownership by the Subscriber and
its affiliates of more than 9.99% of the outstanding shares of common stock of
the Company. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder, except as otherwise provided in clause (i) of such proviso. Any
conflict between this Section 11.7 and Section 9.3 hereof or the potential
application of this Section 11.7 and Section 9.3 at the same time shall be
resolved by the Subscriber at the Subscriber's election, provided that the
aggregate maximum amount of common shares that may be issued is not exceeded.
The Subscriber may revoke the restriction described in this paragraph upon
seventy-five (75) days prior written notice to the Company.
11.8. Put Reset Rights. The Subscriber is hereby granted identical
Reset Rights in relation to the Put Shares and aggregate Put Consideration as
described in Section 9 of this Subscription Agreement.
12. (a) Right of First Refusal. Until 180 days after the effective date
of the Registration Statement described in Section 10.1(iv) hereof, the
Subscriber shall be given not less than ten (10) business days prior written
notice of any proposed sale by the Company of its common stock or other
securities or debt obligations except as disclosed in the Reports or Other
Written Information. The Subscriber shall have the right during the ten (10)
business days following the notice to agree to purchase an amount of common
shares or other securities in the same proportion as the Company Shares being
purchased in the aggregate offering to which this Subscription Agreement relates
(i.e. $1,100,000 in the aggregate), of those securities proposed to be issued
and sold, in accordance with the terms and conditions set forth in the notice of
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sale. In the event such terms and conditions are modified during the notice
period, the Subscriber shall be given prompt notice of such modification and
shall have the right during the original notice period or for a period of ten
(10) business days following the notice of modification, whichever is longer, to
exercise such right. In the event the right of first refusal described in this
Section is exercised by the Subscriber and the Company thereby receives net
proceeds from such exercise, then commissions and fees will be paid by the
Company to the Placement Agents in the same amounts as specified in the notice
of sale.
(b) Offering Restrictions. Except with respect to securities
otherwise disclosed in the Reports or Other Written Information, the Company
will not issue any equity, convertible debt or other securities prior to 120
days after the Effective Date.
13. Miscellaneous.
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Teltran International Group Ltd., 1 Penn Plaza, New York, New York 10019,
telecopier number: (212) 643-1997, with a copy by telecopier only to Parker
Duryee Rosoff & Haft, 529 Fifth Avenue, New York, New York 10017-4608, Attn:
Michael DiGiovanna, Esq., telecopier number: (212) 972-9487, and (ii) if to the
Subscriber, to the name, address and telecopy number set forth on the signature
page hereto, with a copy by telecopier only to Grushko & Mittman, 277 Broadway,
Suite 801, New York, New York 10007, telecopier number: (212) 227-5865. Any
notice that may be given pursuant to this Agreement, or any document delivered
in connection with the foregoing may be given by the Subscriber on the first
business day after the observance dates in the United States of America by
Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two days of the Feast of
Tabernacles, Shemini Atzeret Simchat Torah, the first two and final two days of
Passover and Pentecost, with such notice to be deemed given and effective, at
the election of the Subscriber on a holiday date that precedes such notice. Any
notice received by the Subscriber on any of the aforedescribed holidays may be
deemed by the Subscriber to be received and effective as if such notice had been
received on the first business day after the holiday.
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(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Mittman, 277 Broadway, Suite
801, New York, New York 10007, upon the satisfaction of all conditions to
Closing set forth in this Agreement. The closing date shall be the date that
subscriber funds representing the net amount due the Company from the Purchase
Price are transmitted by wire transfer to the Company (the "Closing Date"). The
closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Consideration are
transmitted to or on behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. No right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals executing
this Agreement and other agreements on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to
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prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof or thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
Subject to Section 13(e) hereof, each of the Company and Subscriber hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(g) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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MEMORANDUM AGREEMENT dated as of April 1999 between TELTRAN INTERNATIONAL
GROUP, LTD. ("Teltran") and ANTRA HOLDINGS GROUP, INC. ("Antra").
On this data Teltran agreed to issue 2,000,000 shares of its common
stock "Teltran Shares") for 2,000,000 shares of common stock of Antra ("Antra
Shares").
The parties agree that an assumption of the aforesaid exchange is that
the price in the shor term of the Teltran Shares and Antra Shares are
approximately equivalent. The parties further agree that both the Teltran Shares
and the Antra Shares shall be valued again at January 3, 2000 "Valuation Date".
If on the Valuation Date the aggregate Market Value (as hereinafter
defined) of the shares ("Issuer Shares") issued by either party ("Issuer") is
less than eighty (80%) percent of the Market Value of the shares received
("Recipient Shares") by the Issuer from the other party ("Other Party") then the
Issuer shall issue to the Other Party additional Issuer Shares. The number of
additional Issuer Shares shall be such number of shares as shall have an
aggregate market value on the Valuation Date equal to the difference between
eighty (80%) percent of the Market Value of the Recipient Shares on such date
and the aggregate Market Value of the Issuer Shares initially issued on the
Valuation Date.
For purposes of this Agreement the Market Value of a parties securities
on a particular date shall be equal to the average market price of such
securities during the fifteen business days prior to such date. The market price
of a security on a particular day shall refer to the closing bid price if the
stock is traded primarily in the over-the-counter market and is listed for
trading or is traded on either the electronic bulletin board or other NASDAQ
market. If the shares are traded in the over-the-counter market and not quoted
electronically then that average bid price set forth in quotations listed by the
National Quotation Bureaus shall be the market price. If the shares are
primarily traded on an Exchange then the market price shall be the closing
price.
Each of Teltran and Antra represent to the other that the shares of the
other party receives hereby has been acquired for investment and not for public
distribution. Each agree that the respective shares received by them will not be
sold or transferred except pursuant (i) to an effective registration statement
under the Securities Act of 1933, as amended, or (ii) an opinion of Company's
counsel that such transfer is made pursuant to an exemption from such
registration requirements. The certificates representing the shares shall have a
legend reflecting the foregoing and shall be subject to a stop transfer order.
TELTRAN INTERNATIONAL GROUP LTD. ANTRA HOLDINGS GROUP, INC.
By: /s/ By: /s/
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