<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1999
REGISTRATION NO. 333-75885
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELTRAN INTERNATIONAL GROUP, LTD.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<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) 643-1600
(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) 643-1600
(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]
------------------------
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
8,965,116 SHARES
TELTRAN INTERNATIONAL GROUP, LTD.
COMMON STOCK
------------------------
This is an offering of up to 8,965,116 shares of our common stock made by
those of our shareholders who are named under the caption "Principal and Selling
Stockholders."
INVESTING IN TELTRAN'S COMMON STOCK IS RISKY. SEE "RISK FACTORS P. 5"
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Our common stock is quoted on the OTC Electronic Bulletin Board. On
November 10, 1999 the average bid and asked price of the common stock was $8.50
per share.
We have retained no underwriters in connection with this offering.
November 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 5
Where You Can Find More Information........................................................................ 6
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......................................................................................... 12
Business................................................................................................... 13
Management................................................................................................. 22
Executive Compensation..................................................................................... 24
Certain Transactions....................................................................................... 26
Principal and Selling Stockholders......................................................................... 27
Plan of Distribution....................................................................................... 30
Description of Securities.................................................................................. 32
Legal Matters.............................................................................................. 33
Experts.................................................................................................... 33
Offering Information....................................................................................... 33
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
TELTRAN INTERNATIONAL GROUP, INC.
We are primarily engaged in the international telecommunications business
through our wholly owned subsidiary Teltran International, Inc. We currently
provide international long distance telephone services to customers in the
United States as an affiliate in the OzEmail System and are in the process of
obtaining the right within the OzEmail system to provide services for customers
in other countries as well. We also operate an Internet portal website at
http://www.Teltran.com and, through a joint venture, intend to operate an
additional website for the sale of music and related paraphernalia. Information
contained on our websites is not part of this prospectus.
Our executive offices are located at One Penn Plaza, Suite 4632, New York,
NY 10119 and our telephone number is (212) 643-1600.
SUMMARY OF THE OFFERING
The numbers indicated below representing the number of shares offered by
the selling stockholders and the number of shares of common stock to be
outstanding after the offering include:
o shares subject to outstanding options and warrants including options and
warrants which are not presently exercisable
o The maximum number of shares that we may require to be purchased by
investors under existing agreements
o The maximum number of shares which should be issued as an adjustment to
particular investors if the price of our stock should fall.
The number indicated below representing shares outstanding before the
offering excludes all of the above.
<TABLE>
<S> <C>
Securities offered by the selling
stockholders........................... 8,965,116 shares of common stock
Common stock outstanding before the
offering............................... 13,378,383
Common stock to be outstanding after the
offering............................... 14,962,426 shares
Use of proceeds........................... Except upon exercise of options, we will not receive proceeds. Any
proceeds from this source will be used for working capital purposes.
Symbol for common stock................... TLTG.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Market for common stock................... 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. We cannot guarantee that
this may be accomplished, however.
</TABLE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- ------------------------
1997 1998 1998 1999
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Consolidated revenues........................... $ -0- $ 535,197 $ 449,304 $ 2,815,908
Cost of sales................................... -0- 244,832 220,383 420,000
Expenses........................................ 827,780 709,357 394,536 1,198,750
Income (loss) from operations................... (827,780) (418,992) (165,615) 197,149
Net income (loss)............................... (828,244) (449,339) (183,705) 157,923
Income (loss) per share......................... $ (.90) $ (.06) $ (.03) $ .01
--------- ---------- ---------- -----------
Shares used in computing net income (loss) per
share........................................ 915,637 7,697,295 6,929,082 11,698,334
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (81,923) $(280,880) $ (168,444) $8,033,454
Total assets............... 44,137 157,168 347,446 8,657,632
Total long-term debt....... 260,880 1,245 19,196 1,245
--------- --------- ---------- ----------
Total stockholders' equity
(deficit)............... $(302,312) $(244,439) $ (187,640) $8,032,209
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. Before
investing in our common stock you should carefully consider the following risk
factors and the other information in this prospectus.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO ACHIEVE
PROFITABILITY. Until April 1998 we were a development stage company and
derived no revenues. We sustained net losses of $828,244 during 1997 and
$449,339 during 1998. Even though we had net income of $157,923 during the
nine-month period ended September 30, 1999, there can be no assurance that we
will remain profitable.
OUR BUSINESS IS PRESENTLY VERY DEPENDENT ON OZEMAIL. Commencing in June
1999 we began selling international communication time through Internet
telephony provided by OzEmail. We believe our immediate future success will
depend upon this 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. Although alternative Internet telephone providers are
available, any termination of, reduction or interruption of these services could
have a material adverse effect on our business, financial condition or results
of operations.
TELTRAN HAS EXPERIENCED AND MAY IN THE FUTURE EXPERIENCE DELAYS,
POSTPONEMENTS AND INTERRUPTIONS IN SERVICE UNDER NEW ARRANGEMENTS. To provide
Internet voice telephony we must obtain equipment so that our delivery system
satisfies each of the parties on a call. We must also make arrangements with the
local telephone carriers in each country into which our calls are sent to
receive and terminate the calls. We have recently experienced delays in
commencing our first two Internet voice telephony service contracts due to
inadequate equipment in various terminating countries, the incompatibility of
third party equipment that forced us to modify our equipment, and failure on the
part of some 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 in the future we may, in similar circumstances, experience
delays in timely commencing any arrangements entered into. In addition, the
inability of affiliates in receiving countries to handle call volume at high
levels, through lack of equipment or otherwise, may reduce the volume we send
into those countries. Finally, clients may postpone or interrupt services, as
has recently occurred with a new client.
5
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We recently became obligated to file annual, quarterly and special reports,
proxy statements, and other information with the SEC. We have filed quarterly
reports for the fiscal quarters ended March 31, 1999, June 30, 1999 and
September 30, 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) 643-1600
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.
6
<PAGE>
USE OF PROCEEDS
We will not receive proceeds from the sale of the shares offered by means
of this prospectus. We will use any proceeds we receive from the exercise by
holders of warrants or options as working capital.
CAPITALIZATION
The following table sets forth our actual capitalization at September 30,
1999. You should read this section 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; 13,371,283 shares
issued and outstanding.......................................................... $ 13,371
Additional paid-in capital........................................................ 22,484,841
Accumulated deficit............................................................... (14,466,003)
-----------
Total stockholders' equity........................................................ $ 8,032,209
-----------
-----------
</TABLE>
- ------------------
The above information does not reflect
o the issuance of shares upon exercise of options or warrants
o shares which were issued subsequent to September 30, 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
<PAGE>
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 our financial statements which are
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------- -----------------------------------
1997 1998 1998 1999
--------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Consolidated revenues.............................. $ -- $ 535,197 $ 449,304 $2,815,908
Cost of sales...................................... -- 244,832 220,383 420,000
Expenses........................................... 827,780 709,357 394,536 1,198,750
Income (loss) from operations...................... (827,780) (418,992) (165,615) 197,149
Net income (loss).................................. (828,244) (449,339) (183,705) 157,923
Income (loss) per share(1)......................... $ (0.90) $ (0.06) $ (.03) $ .01
--------- ---------- ---------- ----------
Shares used in computing net income (loss) per
share........................................... 915,637 7,697,295 6,929,082 11,698,334
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............... $ (81,923) $(280,880) $ (168,444) $8,033,454
Total assets............... 44,137 157,168 347,446 8,657,632
Total long-term debt....... 260,880 1,245 19,196 1,245
--------- --------- ---------- ----------
Total stockholders' equity
(deficit)............... $(302,312) $(244,439) $ (187,640) $8,032,209
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the financial statements and related notes contained elsewhere in this
prospectus.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
various known and unknown risks and uncertainties and Teltran cautions you that
any forward-looking information provided by or on behalf of Teltran is not a
guarantee of future performance. Our actual results could differ from those
anticipated by the forward-looking statements due to a number of factors, some
of which are beyond Teltran's control. These include: (i) the volatile and
competitive nature of the telecommunications and Internet industry,
(ii) changes in domestic and foreign economic and market conditions, (iii) the
effect of federal, state and foreign regulation on Teltran's business in general
and on the telecommunications and Internet industries, (iv) failure of Teltran,
its vendors or other third parties to achieve Year 2000 compliance, (v) changes
in technology, (vi) reduced telecommunication rates, (vii) delays of third
parties in commencing service and (viii) the impact of recent and future
acquisitions on Teltran's business and financial condition. Teltran does not
undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any statement is made or
to reflect the occurrence of unanticipated events.
PLAN OF OPERATIONS
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 fully replaced by our successful
efforts of promoting our Teltran Internet telephony service 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
throughout the world with Internet telephony. We have already entered
into several agreements to provide these services and others are
scheduled to commence in the fourth quarter. 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 have recently finalized agreements to originate and terminate
traffic in Pakistan. We have also become an affiliate in the United
Kingdom and Ireland through ChannelNet, our newly acquired entity in
England.
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o utilize ChannelNet switching to reduce the costs of worldwide
terminations.
o develop marketing strategies with Norweb, a national telecom network
operator in the UK, and utilize our alliance with them to expand our
Internet telephony network.
o enhance our portal by providing additional related business services.
These including offering banner ads, sponsorship agreements and other
types of advertising. We will also develop additional sales affiliate
arrangements on our portal and continue to run live Internet chats on a
monthly basis.
o operate our joint venture, RecordsToGo.com, for the sale an auction of
music. The venture is in the process of obtaining partner/affiliate
agreements with a variety of music and non-music websites and will be
marketing RecordsToGo.com worldwide.
o promote and market our new Internet service provider service through our
web portal, www.Teltran.com. The service will be competitively priced and
will offer unlimited Internet access, free e-mail and free home pages to
all users.
o expand our sales staff to resell our UniDial services to commercial
accounts. UniDial operates as an independent network of
telecommunications resellers. UniDial services will also be marketed to
individuals via our www.Teltran.com web portal.
o promote and market our new "Fax over IP" service to our customers. This
service allows users to send and receive faxes over the Internet at a
reduced cost.
o hire new employees and obtain additional office facilities and equipment
as needed because of increased activity.
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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998 (UNAUDITED)
Our revenues were approximately $2,800,000 for the nine months ended
September 30, 1999 while we received $449,000 for the nine months ended
September 30, 1998. The increase in revenues is attributed to telecommunication
services provided by our domestic subsidiary and recently acquired U.K.
subsidiary. In late June 1999 we commenced services as an OzEmail affiliate to
two domestic customers. We anticipate increased revenues from our OzEmail system
as a result of commencement of affiliate services by our UK subsidiary, recently
concluded arrangements in Pakistan and the continuing services to our principal
domestic customers.
Our operating expenses during the nine months ended September 30, 1999 were
approximately $1,199,000 compared to approximately $394,000 during the
comparable period in 1998. The increased expenses were primarily attributable to
an increase in salary expense and rent due to expanding our staff and office
space. In addition, our professional fees increased due to our overseas
acquisitions and increased filing requirements.
LIQUIDITY
We had a working capital of approximately $7,800,000 as of September 30,
1999 compared to a negative working capital of approximately $208,000 as of
September 30, 1998. The increase in capital resulted from receipt of proceeds
from our placements totaling $1,890,000 and an increase in receivables and
prepaid expenses in 1999. 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
10
<PAGE>
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.
In most instances capital requirements of our core business are not
significant. To commence any new service, we will be required to purchase voice
interface nodes, presently costing $9,000 each. Additional interface nodes may
be required based on call volume after commencement of service, but these will
only be purchased if revenues justify the purchase. There are additional
start-up costs for each new contract. In most instances we believe that costs
associated with these capital expenditures may be obtained from funds available
and from cash flow. There may be instances, however, where a new contract or
service because of its size may require significant capital expenditures. In
those instances we may have to seek debt or equity funding. There is no
assurance that we will be able to obtain funding on terms favorable to us. We
also may have to contribute up to $300,000 as our contribution to the joint
venture with Antra Holding Group. We have to make minimum cash payments of
approximately $185,000 to our two principal executive officers.
We may have to pay additional costs when we form joint ventures to
establish foreign OzEmail affiliations and to pay for the salaries of executives
to manage and operate such ventures.
A substantial portion of our current assets consist of shares of Antra
Holding Group, Inc. valued at $6,000,000 at the time of acquisition. These
shares may only be sold in transactions exempt from the registration
requirements of securities laws beginning in April 2000.
We believe funds obtained and to be obtained from the sale of shares under
present arrangements and cash flow from operations will be sufficient for
working capital purposes through the year 2000.
YEAR 2000 DISCLOSURE
With the new millennium approaching, many businesses and institutions are
reviewing and modifying their computer systems to ensure they accurately process
transactions relating to the Year 2000 and beyond, This effort is necessary
because many existing computer systems and microprocessors with date functions,
including those in non-information technology equipment and systems, use only
two digits to identify a year in the date field and assume that the first two
digits of the year are always "19." Consequently, on January 1, 2000, computers
that are not Year 2000 compliant may read the year as 1900. Computer systems
that calculate, compare or sort using the incorrect date may malfunction causing
disruption of operations, including a temporary inability to process
transactions, send invoices or engage in other normal business activities. Our
failure to address potential Year 2000 malfunctions in our computer and
non-information technology equipment and systems could have resulted in our
suffering business interruptions, financial loss, harm to our reputation and
legal liability.
We have completed a thorough audit of our Year 2000 state of readiness
including seeking and receiving representations from OzEmail and our Internet
service providers. As
11
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a result we have determined that our business is fully Year 2000 compliant.
Although we cannot predict with complete accuracy, we nevertheless anticipate no
potential liabilities or stoppages in our business as a result of the new
millennium.
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.
The 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>
September 30, 1999............................................... $16.50 $6.312
June 30, 1999.................................................... 9.687 1.75
March 31, 1999................................................... 2.597 .597
December 31, 1998................................................ 1.19 .4325
September 30, 1998............................................... 1.00 .75
June 30, 1998.................................................... 2.94 1.88
March 31, 1998................................................... 3.13 .4325
December 31, 1997................................................ .125 .125
September 30, 1997............................................... .18 .11
June 30, 1997.................................................... .33 .22
March 31, 1997................................................... .65 .40
</TABLE>
As of November 10, 1999, there were approximately 270 recordholders of our
common stock, although we believe that there are more than five hundred
beneficial owners of our common stock.
DIVIDEND POLICY
We plan to retain most future earnings for use in our business.
Nevertheless we have adopted a semiannual dividend policy commencing in 2000 to
make a cash or stock distribution to holders of record as of March 31 and
September 30. We have declared a 5% stock dividend to holders of record on
September 1, 1999 to be distributed October 15. Payment of dividends is within
the discretion of our board of directors and cash dividends will depend, among
other factors, upon our earnings, financial condition and capital requirements.
12
<PAGE>
BUSINESS
GENERAL
In July 1983, we were incorporated in Utah as Spectratek Incorporated and
we subsequently incorporated as Teltran International Group Ltd in Delaware on
October 6, 1997. In 1993 we formed a wholly owned subsidiary, Teltran
International, Inc. and we use Teltran International to engage in our
international telecommunications business. Since 1998 our primary business is
acting as a seller of telecommunications time. In 1999 we began operating an
Internet portal. Prior to 1998 we were engaged in attempts to develop our
business and did not receive any significant revenues. References to "we", "us",
or "our" include Teltran International as well.
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 has changed adding to the overall
efficiency of telecommunication services and increasing both call volume
capacity and the quality of sound. 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 to achieve this 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 several long distance
carriers and resellers before being terminated to a local telephone user by a
carrier in the country of termination. Re-filing has caused the emergence of
alternative international providers that rely 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.
The advent and proliferation of Internet Protocol, the computer language
protocol used to transmit data over the Internet and managed networks, has added
to the options available for the delivery of 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 personal computer to another. Subsequently,
software was introduced which allowed personal computer users to place
international calls via the Internet to other personal computer users for the
price of a local call. Initially, the growth of Internet
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Telephony was constrained due to the poor sound quality of the calls and because
calls were mainly limited to those placed from one personal computer 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. The total cost of an Internet telephone call
is based only on the local calls to and from the gateways of the respective
Internet providers. As a result the call bypasses the international settlements
process which requires using the more expensive transoceanic fiber networks of
traditional carriers.
FACTORS THAT AFFECT THE TELECOMMUNICATIONS INDUSTRY
There is a chance technological changes in the telecommunications industry
will make our business obsolete. We cannot guarantee that research and
developments by others will not render our operations noncompetitive or
obsolete. Our business strategy is subject to the risks inherent in the
marketing of new services using new technologies and approaches in a rapidly
evolving commercial environment. We cannot assure that unforeseen problems will
not develop with these technologies or applications, or that we will be able to
successfully address the technological challenges we encounter by entering into
alternative arrangements for generating revenues.
Our success in the international telecommunications business may depend on
factors beyond our control including the influence of domestic and foreign
governments on our industry. 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 particular risks. These include changes in 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, or upon a change in the
business affairs of OzEmail. In addition, our business is subject to various
U.S. and foreign laws, regulations, agency actions and court decisions. Our U.S.
international telecommunications services are subject to regulation by the FCC.
The FCC requires international carriers to obtain authorizations under
Section 214 of the Communications Act of 1934 prior to purchasing or leasing
international facilities, 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 that complete calls on behalf of our clients.
There are several factors unique to the telecommunications industry that
may negatively influence our 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 including call volume
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<PAGE>
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 or other provider 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.
BUSINESS HISTORY
Initially we intended to concentrate our efforts on establishing and
operating a global messaging business. By pursuing 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 an 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 inability at the time to obtain financing for equipment and due
to the new telecommunications opportunities 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, an Internet provider in Australia.
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 service worldwide. "Voice over Internet Protocol" is the name of OzEmail's
version of Internet telephony. It is comprised of the proprietary hardware and
software technology developed by OzEmail for the transmission, routing and
connection of communications, including voice telephony, fax and other
transmissions, through the Internet and other conventional systems including the
public switched networks. The proprietary hardware consists of equipment known
as a voice interface node or gateway. The interface node contains OzEmail's
proprietary software and is installed for the receipt of voice transmissions,
the conversion of these transmissions to digital data and the routing of the
transmissions over the Internet. The interface node is also used to reconnect
the digital data to voice transmission on receipt.
OzEmail licenses the proprietary software, gateways and other trade secrets
to affiliates to provide or establish a network in the country in which an
affiliate is located. OzEmail joins affiliates in various countries to provide
international service. Each affiliate primarily furnishes origination services
in its area of affiliation but also furnishes termination service in its
territory enabling affiliates in other countries to route calls into its
territory for termination through the local affiliate over conventional public
switched telephone networks. The local affiliate receives a termination fee for
this. Each affiliate is required to market the OzEmail service in its territory
offering origination calling services through OzEmail systems. Each local
affiliate is required to pay a fee to OzEmail for all international services of
the affiliate's customers routed through the OzEmail network. The
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<PAGE>
heart of the system is the gateway, each of which is capable of handling up to
twenty-four simultaneous calls. Each affiliate is required to purchase
sufficient gateways from OzEmail to service its customers. As a gateway can only
handle a finite number of calls, several gateways may be required for each
customer. Generally, the customer of an affiliate is a telecom wholesaler or a
pre-paid calling card service calling center or other entity seeking to provide
international calling to its customers.
The typical structure of a call placed through the OzEmail system is as
follows:
o the client of an affiliate's customers originates a local call to our
facility;
o the call is digitized into Internet Protocol and delivered to the
Internet through our gateway;
o on the Internet, the call connects to a gateway of an affiliate
located in a foreign country where it is converted to analog in the
foreign domestic local telephone network; and
o the call is received by the individual in the foreign country.
All the calls are processed by the control node of OzEmail which is also
used for billing, rating and verification purposes. If no affiliate 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 approximately $535,200 in revenues from this activity in 1998 but this
source has declined to $93,600 through the first six months of 1999. The decline
resulted from the utilization by OzEmail of a related party as a refile hub and
to a lesser extent from an increase in affiliates.
In October 1998 we were appointed a non-exclusive OzEmail affiliate in the
United States. This designation enables us to sell international voice telephone
availability through the OzEmail Internet system utilizing OzEmail technology
and protocols to clients in the United States. In this capacity, our main focus
has been the wholesaling of Internet telephony capacity from North America to
other locations around the world within the OzEmail network.
In the first quarter of 1999, we entered agreements to serve as a United
States affiliate to provide call connection services from the United States to
the Netherlands Antilles and South Africa. Prior to June 1999, we did not derive
significant revenues from our affiliate operations. It took us, or our clients,
a substantial period of time to complete testing, obtain compatible equipment
and software and to complete arrangements with local telephone companies. In
June 1999 we began service to Netherlands Antilles and South Africa for two
clients. The provision of affiliate services to an additional customer in the
United States to the Netherlands Antilles and South Africa have already been
contracted for although we have yet to provide service under that contract due
to delays requested by our
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<PAGE>
customer. We have also, subject to final approval of written contracts, received
permission from OzEmail to act as an affiliate in Pakistan, Israel, Bangladesh
and the United Kingdom. If these contracts are finalized, we will be able,
subject to local legislation, to originate outgoing, and terminate incoming,
calls through the OzEmail system in these countries. If we become an affiliate
to any of these countries, because we are also an affiliate in the United
States, it is possible that we will be able to both originate and terminate
calls over the OzEmail system among these countries. We recently became an
affiliate in Pakistan and have entered into arrangements to acquire
telecommunications time for resale into Pakistan. This would 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 requires its affiliates to purchase a sufficient number of gateways
to provide their services and to test them over a period of several weeks to
determine the quality of service to the particular destination. We have
purchased twelve gateways for an aggregate cost of $108,000 to service our
existing United States clients at present levels. We believe our twelve gateways
will be sufficient to handle the call volumes we currently handle. If, however
the volume of calls we handle from our contracts grows to projected levels, or
we initiate call services under additional contracts, we will need to purchase
additional gateways. New gateways presently cost approximately $9,000 per unit.
We house all of our gateways at a technical facility operated by an unaffiliated
party located close to our office in New York City.
OZEMAIL AGREEMENTS
Our affiliate arrangements consist of two three-year agreements, each
expiring May 19, 2002. The first agreement is the Interconnectivity and Support
Agreement which enlists us as a non-exclusive United States affiliate into
OzEmail's international consortium of companies. As a United States affiliate,
we are authorized to operate the OzEmail system in the United States and to
transmit calls over the Internet worldwide through OzEmail's interconnected
systems. As an affiliate we must purchase the necessary gateways from OzEmail to
provide that service. OzEmail collects a service fee equal to 9% of the call
origination fee charged by an originating affiliate to its customer. Affiliates
in the OzEmail system are also obligated to provide termination services to
other OzEmail affiliates in other countries. Affiliates providing termination
services charge originating affiliates a fee based on the rate the terminating
affiliate has negotiated with the local carrier to terminate the call in the
jurisdiction of its affiliation. OzEmail collects the fees from the originating
affiliate and, after deducting a service charge, remits the fee to the
terminating affiliate. The second agreement is the USA Intellectual Property
License Agreement which 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 a 1% royalty to OzEmail for use of
its software. We also entered into a Telecommunications Service Agreement
permitting us to act as an OzEmail refile hub.
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OTHER POSSIBLE ARRANGEMENTS
Teltron regards itself as a telecommunications reseller and may enter into
arrangements for the resale of telecommunications time not involving OzEmail
network. Future arrangments may involve entirely different providers or a
combination of OzEmail and other providers.
GOVERNMENT REGULATION
We are licensed as an international reseller under 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. For example, some foreign countries may limit
the orgination or termination of calls to and from their jurisdictions. The
United Kingdom regulates the award of premium-rate telephone services.
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 under the refile
arrangement. During 1998 we received approximately 79.3% of our 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 by 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 telephone carriers like AT&T, MCI/WorldCom and
Sprint, as well as other providers of international long distance services like
STAR Telecommunications, Inc., and corporate alliances that provide wholesale
carrier services, like "Global One". In addition, we have a non-exclusive
affiliate arrangement with OzEmail, therefore OzEmail is free to appoint other
affiliates which may result in 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.
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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 our prices and profit margins if
our 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 seven full-time employees in New York, six of whom are engaged in
executive and technical functions and one of whom is a clerical employee. We
also have five full time employees in the United Kingdom as a result of our
Channelnet acquisition. We also utilize consultants.
TECHNICAL FACILITY
We have an oral arrangement with an unaffiliated party by which our
technical equipment is housed and maintained at this party's colocation facility
in New York City located on the same block as our 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 equipment to
effect these connections.
OMNICOM
In May 1999 we acquired all the shares of Omni Communications, Inc. Since
it was formed in May 1994, "Omnicom" has been an authorized agent of UniDial
Communications located in New York City. Omnicom had nominal assets and minimal
annual revenues. UniDial is a telecommunications reseller. Resellers buy
wholesale services from major carriers like IXC, Sprint, Internet Service
Networks and local Bell companies to provide a spectrum of services to
customers. We believe that the acquisition of OmniCom will complement our line
of telecomunications products and accelerate our entry into the area of switched
and dedicated phone services. These include 1+ outbound and toll free inbound
calls, networking, frame relay, wireless phones and service, Internet access,
debit cards, billing software, multi-media conferencing and network marketing
services. We also plan to feature UniDial services on our website,
http://www.teltran.com, in order to attract more small to mid-size businesses to
our retail marketplace. Omnicom was acquired for 126,788 shares of our common
stock. Even though the principal shareholder of Omnicom was an officer of
Teltran, we believe the acquisition was made on arm's length terms. Omnicom
presently utilizes our offices.
ANTRA/RECORDSTOGO.COM
In April 1999, we exchanged 2,000,000 of our shares for 2,000,000 shares of
Antra Holding Group Inc. As a result of the transaction Antra may be deemed a
principal stockholder of Teltran. Antra is a public company engaged through
subsidiaries in the music business. We made the exchange because we intended to
enter into ventures with Antra and because we thought that their stock was of
comparable value. To protect each party, there will be an adjustment in the
number of shares owned by an entity if there is a disparity in the relative
market value of the two entities. Antra and we have formed a
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corporation to establish a website for the sale of music recordings. We each
will be equal owners in the new corporation, although we will grant a minority
interest to a supplier. The corporation has completed the basic design of the
website and contemplates beginning sales by December 1999.
CHANNELNET
We acquired all of the outstanding shares of ChannelNet Ltd. common stock
on August 16, 1999, effective as of June 1, 1999. ChannelNet was incorporated in
May 1999 under the laws of England and Wales and is located in Manchester in the
United Kingdom. ChannelNet provides premium rate telecommunications services to
customers in the United Kingdom. Premium rate services are the United Kingdom
equivalent of "900" number services in the United States. The dominant services
are or will be provided primarily for Tarot card readings, voice messages,
charitable solicitations and other non-adult services. ChannelNet had
insubstantial assets and liabilities. A primary reason for the acquisition was
ChannelNet's potential as an affiliate of the OzEmail network. ChannelNet is an
affiliate of OzEmail in the United Kingdom and Ireland. It has also received
indication that upon presentation of a proper plan, it will be appointed an
affiliate in Turkey, Greece, Cyprus, Turkish Republic of North Cyprus, and
India. We entered into an agreement with the former stockholder of ChannelNet to
purchase telecommunications equipment that is necessary for the operation of the
ChannelNet business. Under that arrangement we will use the equipment in our
operation of the ChannelNet business but will not acquire title to it until we
complete making payments of approximately $535,000 in the aggregate by
February 2001.
In consideration of our acquisition of the ChannelNet stock, we issued to
the former shareholder of ChannelNet 94,500 shares of our common stock and we
will be obligated to issue additional shares based upon earnings generated by
the acquired ChannelNet business operations during the period of September 1999
through February 2001. In addition, we entered into an employment agreement with
the key employee of ChannelNet for the operation of the ChannelNet business.
This agreement provides in part that we will issue to that individual shares of
our common stock based on the future earnings of the ChannelNet business.
NORWEB
Teltran has entered into an agreement with Norweb Telecom, a national
telecommunications network operator in the United Kingdom. As a result of this
relationship, traffic can originate in the United Kingdom and Ireland for
worldwide distribution over Teltran's Internet telephony network. Furthermore,
traffic originating in other parts of the world can also be terminated in the
U.K. Teltran and Norweb are exploring additional ways to take joint advantage of
their geographic reach, technical expertise and distribution capabilities to
offer additional services and to reach additional customers.
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INTERNET PORTAL
Because it presented an opportunity that 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, therefore 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
commercial sites. 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 under 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 current level of hits, we believe we will achieve the proposed number
of "hits" by early winter.
Teltran now offers unlimited Internet access service for retail customers
via the www.Teltran.com web portal. Customers may sign up for a personal dial-up
Internet account which includes unlimited Internet usage, an e-mail account, a
personal home page and other features. Customers may also sign up for dedicated
connection accounts featuring high-speed access to the Internet. Advanced
features also include custom web site design and development services, web
hosting, and e-commerce solutions. Teltran will also offer Internet fax
capability.
We are also engaged in additional activity through our web portal. We have
finalized an arrangement with Antra Music Group Ltd., a subsidiary of a
principal shareholder, to establish a website, http:// www.recordstogo.com, for
the sale of music. Initially this website will be utilized as a vehicle to sell
records belonging to an unaffiliated third party. We expect www.recordstogo.com,
to increase our revenues through the sale of records, advertisements and music
merchandise and to also attract more traffic to our web portal through cross
linking.
SEASONALITY
Our Internet telephony business is not subject to seasonal variations in
volume of calls. However, our Internet portal experienced a decline in traffic
during the summer of 1999, as compared to the preceding months. Management
believes that the decline is due largely to the increased amount of time many
Internet users spend outdoors during the warmer weather.
DESCRIPTION OF PROPERTY
Our executive offices are located at One Penn Plaza, New York, New York
10119, where we lease approximately 2,400 square feet through February 28, 2003.
The annual base rental for this space is approximately $90,000. ChannelNet
occupies an office at Enterprise House, 15 Whitworth Street West, in Manchester,
U.K. The facility is leased by
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the former stockholder of ChannelNet, which is obtaining an assignment of the
lease for the premises to ChannelNet.
LEGAL PROCEEDINGS
In June 1999 an action was commenced against us in the United States
District Court for the Southern District of New York entitled: Silverman et.al.
v. Spectratek, Inc. et. al. The plaintiffs included, Steven Silverman, Joseph P.
Mallon, Scott Broadbent. The defendants included Spectratek, Inc., one of our
predecessors, and Byron Lerner, our chief executive officer.
The plaintiffs claim that Spectratek issued and caused to be issued
misleading statements concerning the status of various contracts Spectratek was
prepared to enter into. As a result of these statements, the plaintiffs
purchased 156,000 shares of Spectratek's stock and suffered damages of an
unspecified amount. Teltran denies all liabilitiy since it had actually entered
into arrangements that were not consummated due to its financial condition at
the time. We do not believe we have any liability to the plaintiffs and will
vigorously defend this action. We have made a motion to dismiss this action,
which was granted in October 1999. The plaintiffs have been granted leave to
file an amended complaint.
We are not aware of any other legal proceedings, or pending legal
proceedings, to which we are party or to which our property is subject. However,
in an unrelated matter, a claim has been made by a corporation for $304,000
representing amounts advanced on our behalf to a potential reseller of
telecommunications time to us. This 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
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................. 59 Director
</TABLE>
Byron R. Lerner has been chief executive officer and president of Teltran
since June 1997 and one of our directors since May 1996. Mr. Lerner was
Teltran's chief financial officer between May 1996 and June 1997. Between 1993
and 1995, Mr. Lerner was president of International GlobalCom, a firm he founded
which engaged in the resale of
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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 our executive vice president and a director since
May 1996. Between 1994 and 1995, Mr. Tubbs was president of OmniCom, a reseller
subsidiary 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 our vice president of sales and marketing since
1997. From February 1988 to January 1997 Mr. Biagioli was vice president of
worldwide commercial development for the Manifest Division TNT Express
Worldwide. 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 Teltran director 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
We have retroactively adjusted the information in this section to reflect
the five percent stock dividends to holders of record on June 3, 1999 and
September 1, 1999.
Our chief executive officer received the below listed compensation during
the fiscal year ended December 31, 1998. No other executive officer's
compensation exceeded $100,000 during that 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 $88,000 496,127 shares
President and Chief Executive Officer............................ 1997 37,500 --
</TABLE>
All of our directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. The board
of directors annually elects executive officers 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 our 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 3,307,500 shares of our common stock after
giving effect to our stock dividends. Options to purchase all 3,307,500 shares
have been granted.
The option plan is administered by the board of directors. In general, the
board, or a committee of the board, is empowered to select the persons to whom
options would be granted and to determine, subject to the terms of the option
plan, the number, the exercise period and other provisions of the options. The
options granted under the option plan are exercisable in however many
installments as may be provided in the grant.
Options granted to employees may either qualify as incentive stock options
under the Internal Revenue Code or be non-qualified options. The board may
determine the exercise price provided that, in the case of qualified options,
the price may not be less than 100% of the fair market value of our common stock
at the date of grant. In the case of qualified options granted to holders of 10%
of or more the voting power of our stock, the price may not be less than 110% of
the fair market value of our common stock at the date of grant. The aggregate
fair market value, determined at the time the option is granted, of stock with
respect to which qualified options 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 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 years or, in the case of qualified options granted to holders of
10% or more of the voting power of our
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stock, five years 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.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING OPTION GRANT EXERCISE PRICE EXPIRATION DATE
----------------------- -------------- ----------------
<S> <C> <C> <C>
Byron Lerner................................ 220,500 $ .33 December 8, 2008
91,877 1.51 December 8, 2008
91,875 2.59 December 8, 2008
91,875 4.31 December 8, 2008
James Tubbs................................. 220,500 $ .33 December 8, 2008
91,877 1.51 December 8, 2008
91,875 2.59 December 8, 2008
91,875 4.31 December 8, 2008
</TABLE>
AGGREGATE 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 496,125 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 876,488
shares of common stock at $.51 per share exercisable immediately. Of these
options 275,625 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 1,102,500 shares of our common stock at $3.49 per share. Of these,
options to purchase 275,625 shares were issued to each of Byron Lerner, James
Tubbs and Martin Miller. All the options granted in 1999 vested immediately.
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<PAGE>
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 later year, 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. After that, the salary increases 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 percent (6%) of the pool. Mr. James Tubbs, Teltran's
executive vice president and chief operating officer, has entered into an
identical agreement with us.
CERTAIN TRANSACTIONS
Information in this section is retroactively adjusted to reflect the five
percent stock dividend to holders of record on June 3, 1999 and September 1,
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 551,250
shares of our common stock. All these advances were interest free. Mr. Lerner
has advanced approximately an additional $13,000 to us in 1998 and received an
additional 71,662 shares of common stock.
In April 1999, we and Antra Holding Group Inc. exchanged shares of each
other's stock. We own 2,000,000 shares of Antra's common stock and Antra owns
2,205,000 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 Teltran.
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 party's 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. 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. We issued 126,788
shares of our common stock to the sellers, of which James Tubbs received 110,250
shares. Mr. Tubbs is an officer and director of Teltran. We did not obtain a
fairness opinion.
26
<PAGE>
RECENT SECURITIES TRANSACTIONS
On August 16, 1999, in exchange for 94,500 shares of our common stock, we
acquired all of the outstanding shares of Channelnet Ltd. common stock,
effective June 1, 1999. Channelnet has been providing premium-rate
telecommunications services to customers in the United Kingdom as well as being
an OzEmail affiliate in the United Kingdom and Ireland. It has also received
indication that upon presentation of a proper plan, it will be appointed an
affiliate in Turkey, Greece, Cyprus, Turkish Republic of North Cyprus, and
India. Upon the closing of the acquisition, Byron Lerner and James Tubbs,
officers and directors of Teltran, became directors of ChannelNet.
In June 1999 we issued a total of 332,324 shares of common stock in
connection with a private placement of our securities. Five investors acquired
326,024 shares at $3.81 per share. If the price of our common stock is selling
below specified levels after the offering, we may have to issue additional
shares to these investors. The purchasers of 286,650 of the shares are required
to purchase an additional number of shares after this registration statement is
declared effective provided that there is no material change in our company. An
additional 6,300 shares were issued to a finder and an additional 815,355
warrants to purchase our common stock at $5.71 per share were issued to finders.
In April, 1999 we agreed to issue options to purchase shares of our common
stock to Corrie Ltd. and Craighouse Ltd. if their assistance proved
successful in obtaining international communication arrangements. These options,
if issued, may entitle the holder or holders to purchase an aggregate maximum of
551,250 shares of common stock. While the conditions for these options have not
occurred, we believe there is a strong possibility that these options will be
issued. Neither of these entities or their principals are related to Teltran.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of November 10, 1999, information
concerning the beneficial ownership of our 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 reflects our recent 5% dividends to stockholders
of record on June 3, 1999 and September 1, 1999. Share ownership includes both
shares beneficially owned and shares a person has the right to acquire under any
option or warrant which is presently exercisable or which may be exercised
within 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.
27
<PAGE>
In the following table:
o the number reported in the column headed "shares offered" credited to
each of Byron Lerner, James Tubbs and Peter Biagioli includes shares
subject to options not exercisable within sixty days, which is why these
shares are not included in the column reporting "shares beneficially
owned."
o the number of shares reported as "beneficially owned" by each of Autostat
Anstalt Schaan, Balmore Funds, Nesher, Inc. and Berkeley Group Ltd.
includes the number of shares set forth in column A, below, which were
purchased by each of them at $4.00 per share. The "beneficially owned"
numbers also include additional shares we may require each of these
people to purchase at a price to be determined after this date. The
shares listed below in column B represent the maximum number of shares
that we could issue to each person. In addition, the table includes
shares that may be issued to each of these persons subsequent to this
date as an adjustment if the price of our common stock falls below a
specified price. These shares are indicated in column C below.
<TABLE>
<CAPTION>
A B C
---------- --------- ----------
<S> <C> <C> <C>
Autostat Anstalt Schaan.................................... 115,809 96,508 115,914
Balmore Funds S.A.......................................... 115,809 96,508 115,914
Nesher, Inc................................................ 18,529 15,441 18,529
Berkeley Group Ltd......................................... 37,059 30,883 37,058
</TABLE>
If additional shares are not purchased, however, or the number of shares
sold is less than the number of shares listed in column B, the balance of the
shares will be returned to us. Likewise, if there is no adjustment or an
adjustment for a fewer number of shares is made, the shares listed in column C,
or any lesser balance of them, will be returned to us.
o with regard to the shares reported as "beneficially owned" by each of
Balmore Funds S.A., J. Hayut, Hyett Capital Ltd, Talbiya B. Investments
Ltd. and Libra Finance S.A., the reported numbers include shares of
common stock we may issue under warrants and shares issued as fees in
connection with the transaction described above. The numbers of shares
included are set forth in column A below. The values in the "beneficially
owned" column also include the shares of common stock listed in column B,
below, which are subject to warrants to be granted if we sell more shares
to the investor in the transaction described in the previous bullet
point. The shares listed in column C below, 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 columns B
and C will be issued.
<TABLE>
<CAPTION>
A B C
-------- -------- --------
<S> <C> <C> <C>
Balmore Funds S.A............................................... 567,744 249,060 --
J. Hayut........................................................ 18,529 7,721 1,197
Hyett Capital Ltd............................................... 95,621 39,842 675
Talbiya B. Investments Ltd...................................... 89,811 19,922 --
Libra Finance S.A............................................... 21,000 -- 420
</TABLE>
28
<PAGE>
Despite its potential ownership of over eight percent (8%) of Teltran's
common stock Balmore Funds S.A. has entered into an agreement which limits the
number of it may own or acquire at one time to 4.99% of Teltran's outstanding
shares.
<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 OUTSTANDING
- ----------------------------------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Byron Lerner
(President, Director)........... 1,148,805 8.6% -- 1,148,805 7.68%
James Tubbs
(Executive Vice President,
Director)....................... 1,201,726 9.0 -- 1,201,726 8.03%
Martin Miller
(Director)...................... 538,650 4.0 -- 538,650 3.60%
Peter Biagioli
(Vice President of
Sales & Marketing).............. 264,600 2.0 -- 264,600 1.77%
Broadford Limited.................. 230,423 1.7 230,423 -- --
Staffin Limited.................... 230,423 1.7 230,423 -- --
Southern Provinces, Ltd. .......... 230,423 1.7 230,423 -- --
Fir Enterprises Limited............ 358,313 2.7 358,313 -- --
Percival Investments Ltd. ......... 358,313 2.7 358,313 -- --
Birch Enterprises Limited.......... 358,313 2.7 358,313 -- --
World Telecom Ltd. ................ 358,313 2.7 358,313 -- --
Calgary Limited.................... 330,750 2.5 330,750 -- --
Montaque Securities International
Ltd. ........................... 280,862 2.1 280,862 -- --
Sumburgh Limited................... 230,423 1.7 230,423 -- --
Salen Limited...................... 330,188 2.5 330,188 -- --
Coastal Provinces Ltd. ............ 275,625 2.1 275,625 -- --
Aran Limited....................... 175,298 1.3 175,298 -- --
Callanish Limited.................. 330,750 2.5 330,750 -- --
Carbost Limited.................... 358,313 2.7 358,313 -- --
Carlowey Limited................... 358,313 2.7 358,313 -- --
Craignure Limited.................. 220,500 1.6 220,500 -- --
Sleat Limited...................... 214,987 1.6 214,987 -- --
Newco Management Services Ltd. .... 220,500 1.6 220,500 -- --
Brodick Limited.................... 358,313 2.7 358,313 -- --
Austost Anstalt Schaan............. 328,125 2.5 328,125 -- --
Balmore Funds S.A. ................ 1,174,929 8.8 1,174,929 -- --
Trident Chambers, P.O. Box 146
Road Town Tortola
British Virgin Islands
Nesher, Inc. ...................... 52,500 0.4 52,500 -- --
United Securities.................. 56,250 0.4 56,250 -- --
Berkeley Group Ltd. ............... 105,000 0.8 105,000 -- --
Libra Finance S.A. ................ 22,638 0.2 22,638 -- --
J. Hayut........................... 30,319 0.2 30,319 -- --
</TABLE>
29
<PAGE>
<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 OUTSTANDING
- ----------------------------------- ------------ ----------- ----------- ------------ -----------
Hyett Capital Ltd. ................ 137,759 1.0 137,759 -- --
<S> <C> <C> <C> <C> <C>
Talbiya B. Investments Ltd. ....... 109,864 0.8 109,864 -- --
Antra Holding Group Inc. .......... 2,205,000 16.5 -- 2,205,000 14.74%
1515 Locust Street,
Philadelphia, PA 19102..........
All Officers and Directors
(4 persons)..................... 3,238,306 24.2 -- 3,238,306 21.64%
</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
The selling stockholders, or, subject to applicable law, their pledgees,
donees, distributees, transferees or other successors in interest may sell the
shares from time to time. 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 in compliance with Section 4(1) of the Securities Act or
Securities and Exchange Commission Rule 144 may be sold under those provisions
rather than by means of this prospectus. Among other ways, 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 that broker or
dealer for its account by means of this prospectus;
o an exchange distribution in accordance with the rules of an exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
30
<PAGE>
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 these transactions, broker-dealers may engage in short sales of
the shares registered in connection with this prospectus 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
their 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 in connection with this prospectus, which
the broker-dealer may resell by means of this prospectus. The selling
stockholders may also pledge the shares registered in connection with this
prospectus to a broker or dealer and upon a default, the broker or dealer may
effect sales of the pledged shares by means of 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. These 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 these 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 these 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 that dealer or
broker.
Each of the selling shareholders has executed an agreement according to
which they confirm the method of distribution set forth in this prospectus and
agree not to sell the shares if the associated 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 under the Exchange Act. The selling shareholders have acknowledged
this advice by separate agreement in which they have agreed to comply with that
regulation. In general, Regulation M precludes the selling stockholders, any
affiliated purchasers and any broker-dealer or other person who participates in
a 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. What constitues 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
31
<PAGE>
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 by means of this prospectus, those sales,
or the possibility of them, may have a depressive effect on the market price of
our 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 November 10, 1999, 13,378,383 shares of common stock were
outstanding after giving effect to our five percent (5%) stock dividends. No
shares of preferred stock are currently outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of common stock are entitled to receive
dividends when, as and if declared by the board of directors out of funds
legally available for those dividends.
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 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 whatever designation, rights and preferences as may be
determined from time to time by our 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 particular circumstances, as a method
of discouraging, delaying or preventing a change in control. Although we
currently do not intend to issue any shares of preferred stock, there can be no
assurance that we will not do so.
32
<PAGE>
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 by means of this prospectus
will be passed upon for us by Parker Duryee Rosoff & Haft, A Professional
Corporation, New York, New York. Michael D. DiGiovanna, a shareholder in Parker
Duryee Rosoff & Haft, has been elected to serve as a member of our Board of
Directors subject to our qualifying for listing on the American Stock Exchange.
There can be no assurance that we will be listed on that exchange.
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 appearing
elsewhere in this prospectus. The financial statements are included in this
prospectus and in the registration statement in reliance upon that report and
upon the authority of that firm as experts in auditing and accounting.
The financial statements of our subsidiary, ChannelNet, Ltd., included in
this prospectus, have been audited by David Nugent & Co., independent certified
chartered accountants, as set forth in their report appearing elsewhere in this
prospectus. These financial statements are included in this prospectus and
registration statement in reliance upon that report and upon the authority of
that 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.
33
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
PART I FINANCIAL INFORMATION
Report of Independent Auditors................................................................ F-1
Consolidated Balance Sheets at December 31, 1998 and 1997..................................... F-2
Consolidated Statements of Operations for the years
ended December 31, 1998 and 1997........................................................... F-3
Consolidated Statements of Stockholders' Deficit for the years
ended December 31, 1998 and 1997........................................................... F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and 1997........................................................... F-5
Notes to Consolidated Financial Statements.................................................... F-6--F-11
Consolidated Balance Sheets at September 30, 1999 and 1998.................................... F-12
Consolidated Statements of Operations for the nine months
ended September 30, 1999 and 1998.......................................................... F-13
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998.......................................................... F-14
Notes to Consolidated Financial Statements.................................................... F-15
Notes to Unaudited Pro Forma Consolidated Statement of Operations............................. F-16
Unaudited Pro Forma Consolidated Statement of Operations...................................... F-17
</TABLE>
34
<PAGE>
CHANNELNET LIMITED
FINANCIAL STATEMENTS
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999
CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Company Information.............................................................................. F-18
Directors' Report................................................................................ F-19
Director's Responsibilities...................................................................... F-20
Auditors' Report................................................................................. F-21
Profit and Loss Account.......................................................................... F-22
Balance Sheet.................................................................................... F-23
Notes............................................................................................ F-24--F-25
</TABLE>
The following page does not form part of the statutory accounts
<TABLE>
<CAPTION>
<S> <C>
Detailed trading and profit and loss account.................................................... Appendix 1
</TABLE>
35
<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
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)
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.
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.
F-7
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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 May 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 May, 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. The
loan was from a non-related party (Fiscal Concepts, Inc.) and the note stated
that no interest was to be paid. During 1998, the repayment due date was
extended. The loan is due upon notification from the maker or upon the
anniversary date of the renegotiation. Since it is anticipated that this loan
will be repaid within one year and there is not interest due; imputed interest
in accordance with APB#21 has not been calculated.
F-8
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 5--NOTES PAYABLE:--(CONTINUED)
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 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.
F-9
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 7--COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
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.
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>
The Company recognizes compensation for stock options granted to employees
in accordance with APB#25. The Intrinsic value method does not recognize
compensation cost in the financial statements when options are granted. Had the
Company determined
F-10
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1998
NOTE 8--STOCK COMPENSATION PLAN:--(CONTINUED)
compensation based on the fair value at the grant date for its stock options,
the Company's net loss would have been increased to the pro-forma amounts
indicated below:
<TABLE>
<CAPTION>
Net Loss:
<S> <C>
As reported..................................... $ (449,339)
-------------
Pro-forma....................................... $ (553,514)
-------------
Net loss per share:
As reported..................................... $ (0.06)
-------------
Pro-forma....................................... $ (0.07)
-------------
</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-11
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash....................................................................... $ 498,048 $ 28,297
Accounts receivable........................................................ 1,715,707 223,413
Investment................................................................. 6,000,000 --
Prepaid expenses........................................................... 163,350 8,278
Loans and exchanges........................................................ 29,200 --
Deferred financing costs--net of amortization.............................. -- 47,057
------------- -----------
Total current assets.................................................... 8,406,305 307,045
------------- -----------
Fixed Assets:
Machinery & equipment, net of accumulated depreciation..................... 29,138 --
------------- -----------
Other Assets:
Goodwill--net of amortization.............................................. 222,166 40,273
Organization expense--net of amortization.................................. 23 128
------------- -----------
Total other assets...................................................... 222,189 40,401
------------- -----------
Total assets............................................................ $ 8,657,632 $ 347,446
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Convertible debentures payable............................................. $ -- $ 290,000
Loan payable............................................................... 50,000 50,000
Accounts payable, accrued expenses and taxes payable....................... 574,078 82,042
Due to factor.............................................................. -- 93,748
Corporation taxes payable.................................................. 100 100
------------- -----------
Total current liabilities............................................... 624,178 515,890
------------- -----------
Long-Term Liabilities:
Loans payable--stockholders'............................................... 1,245 19,196
------------- -----------
Total long-term liabilities............................................. 1,245 19,196
------------- -----------
Total liabilities....................................................... 625,423 535,086
------------- -----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.001 par value per share, 5,000,000 shares authorized and
-0- issued and outstanding
Common stock, $.001 par value per share, 50,000,000 shares authorized
13,371,283 and 6,929,082 issued and outstanding, respectively........... 13,371 6,929
Additional paid in capital in excess of par value.......................... 22,484,841 1,794,292
Deficit.................................................................... (14,466,003) (1,988,861)
------------- -----------
Total stockholders' equity (deficit).................................... 8,032,209 (187,640)
------------- -----------
Total liabilities and stockholders' equity.............................. $ 8,657,632 $ 347,446
------------- -----------
------------- -----------
</TABLE>
F-12
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Revenues:
Sales........................................................................... $ 2,807,749 $ 449,304
Miscellaneous................................................................... 8,159 --
----------- ---------
2,815,908 449,304
Cost of Sales:
Purchases....................................................................... 1,420,009 220,383
----------- ---------
Gross profit....................................................................... 1,395,899 228,921
----------- ---------
Expenses:
Salaries........................................................................ 545,746 56,787
Professional fees............................................................... 227,746 137,486
Fees other...................................................................... 70,039 2,800
Payroll taxes................................................................... 18,102 5,756
Leasing expense................................................................. 8,397 8,259
Travel.......................................................................... 86,013 87,825
Insurance....................................................................... 27,886 16,411
Rent............................................................................ 102,049 41,292
Office expense.................................................................. 21,861 21,032
Miscellaneous................................................................... 12,538 1,915
Registration fees............................................................... 12,469 --
Business development............................................................ 2,923 --
Telephone....................................................................... 52,724 7,688
Contributions................................................................... 1,450 --
Advertising..................................................................... 6,505 --
Amortization expense............................................................ 2,302 7,285
----------- ---------
Total expenses............................................................... 1,198,750 394,536
----------- ---------
Income (loss) from operations................................................... 197,149 (165,615)
Interest expense............................................................. 36,753 17,703
----------- ---------
Income (loss) before provision for income taxes................................. 160,396 (183,318)
Provision for income taxes...................................................... 2,473 387
Net income (loss)............................................................... $ 157,923 $(183,705)
----------- ---------
----------- ---------
Net income (loss) per share of common stock based upon 11,698,334 and 6,929,082
(weighted average) shares issued, respectively................................ $ 0.01 $ (0.03)
----------- ---------
----------- ---------
</TABLE>
F-13
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss)................................................................. $ 157,923 $(183,705)
Adjustment to reconcile net income (loss) to net cash (used in) operating
activities:
Amortization expense........................................................... 2,302 7,285
(Increase) in accounts receivable.............................................. (1,619,216) (223,413)
(Increase) in loans and exchanges.............................................. (29,200) --
(Increase) in prepaid expenses................................................. (163,350) (8,278)
Decrease (increase) in deferred financing costs................................ 19,797 (55,875)
Cash (repayments) received--factor............................................. (65,193) 93,748
Increase in accounts payable, accrued expenses and taxes payable............... 469,497 46,573
----------- ---------
Net cash (used in) operating activities..................................... (1,227,440) (323,665)
----------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets....................................................... (29,138) --
----------- ---------
Cash Flows from Financing Activities:
(Decrease) Increase of convertible debentures payable.......................... (180,488) 290,000
(Decrease) in notes payable.................................................... -- (250,000)
Loans from stockholders and others............................................. -- 8,316
Conversion of convertible debenture--stock issued.............................. 676,319 10,000
Exercise of warrants........................................................... 244,937 290,000
Private placement.............................................................. 1,008,469 --
----------- ---------
Net cash provided by financing activities................................... 1,749,237 348,316
----------- ---------
Net increase in cash.............................................................. 492,659 24,651
Cash January 1.................................................................... 5,389 3,646
----------- ---------
Cash September 30,................................................................ $ 498,048 $ 28,297
----------- ---------
----------- ---------
Supplemental Disclosures:
Income tax..................................................................... $ 780 --
----------- ---------
----------- ---------
Interest paid.................................................................. $ 749 --
----------- ---------
----------- ---------
</TABLE>
F-14
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the nine month period ended September 30,
1999 is not necessarily indicative of the results to be expected for the full
year.
2. MATERIAL EVENTS
During the nine months ended September 30, 1999, the following events
occurred:
In the six months ended June 30, 1999, the company issued 1,835,033 shares
of common stock which represented the conversion of $850,000 of convertible
debentures issued August 1, 1998 and due August 1, 1999. Relating to the same
transaction, the company issued 167,500 shares when warrants that were issued as
part of the convertible debenture transaction were exercised.
In June 1999 the company issued 316,499 shares in a private placement
transaction; the net proceeds to the company were $1,154,969.
In April, 1999, Teltran and Antra Holding Group Inc. exchanged shares of
their company's shares. Teltran owns 2,000,000 shares of Antra's common stock
and Antra owns 2,205,000 shares of our common stock (based upon two 5% stock
dividends in June and September 1999). 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 Teltran.
The agreement with Antra 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 party's shares, the party whose shares are trading
lower must issue additional share to the other party.
Both Companies 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 the Teltran portal. The new
corporation will have equal ownership by Antra and Teltran after granting a
minority interest to a supplier. 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.
In a transaction effective June 1, 1999, the Company issued 94,500 common
shares to acquired 100% of Channel Net, Ltd.
585,000 common shares, representing a previously declared 5% stock
dividend, were issued during the quarter ended June 30, 1999.
675,456 common shares, representing a declared 5% stock dividend, were
issued during the quarter ended September 30, 1999.
F-15
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated financial statement of
operations for Teltran International Group, Ltd. and Subsidiaries consists of
actual operating results for the nine months ended September 30, 1999 for
Teltran and four months ended September 30, 1999 for ChannelNet (acquisition
date June 1, 1999 to September 30, 1999). Since the transaction was effected
within the quarter ended June 30, 1999, the balance sheet of Teltran includes
actual historical financial information of ChannelNet, Ltd. and only a pro forma
statement of operations is required.
In a transaction effective June 1, 1999, Teltran issued 94,500 shares of
its common stock to acquire 100% of ChannelNet, Ltd. Teltran will be obligated
to issue additional shares based upon earnings generated by the acquired
subsidiary during the period September, 1999 through February, 2001.
The purchase price was determined as follows:
94,500 common shares @ $2.00 per share = $189,000 (fair market value)
The purchase price was allocated as follows:
<TABLE>
<S> <C>
In U. S. Dollars
Accounts receivable...................................................... $ 8,795
Accounts payable......................................................... (6,598)
------------
Net assets............................................................ 2,197
Purchase price........................................................... 189,000
------------
Goodwill................................................................. $ 186,803
------------
------------
</TABLE>
(a) Amortization of Goodwill:
$186,803 over a 40 year life = $389/month
F-16
<PAGE>
TELTRAN INTERNATIONAL GROUP, LTD. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ------------------------
TELTRAN CHANNEL NET ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales.......................................... $ 420,399 $ 2,387,350 $ -- $2,807,749
Miscellaneous.................................. 8,159 8,159
----------- ----------- ------- ----------
428,558 2,387,350 -- 2,815,908
Cost of Sales:
Purchases...................................... 354,621 1,016,388 1,420,009
----------- ----------- ------- ----------
Gross profit...................................... 73,937 1,370,962 -- 1,395,899
----------- ----------- ------- ----------
Expenses:
Salaries....................................... 416,421 129,325 -- 545,746
Professional fees.............................. 217,246 10,500 -- 227,746
Fees--other.................................... 70,039 -- -- 70,039
Payroll taxes.................................. 18,102 -- -- 18,102
Leasing expense................................ 8,397 -- -- 8,397
Travel......................................... 81,762 4,251 -- 86,013
Insurance...................................... 27,886 -- -- 27,886
Rent........................................... 102,049 -- -- 102,049
Office expense................................. 11,687 10,174 -- 21,861
Miscellaneous.................................. 9,144 1,197 2,197 12,538
Registration fees.............................. 12,469 -- -- 12,469
Business development........................... 2,923 -- -- 2,923
Telephone...................................... 101,724 -- -- 52,724
Contributions.................................. 1,450 -- -- 1,450
Advertising.................................... 6,505 -- -- 6,505
Amortization expense........................... 746 -- 1,556(a) 2,302
----------- ----------- ------- ----------
Total expenses.............................. 1,088,550 155,447 3,753 1,198,750
----------- ----------- ------- ----------
Income (loss) from operations..................... (1,014,613) 1,215,515 (3,753) 197,149
Interest expense............................ 36,753 -- -- 36,753
----------- ----------- ------- ----------
Income (loss) before provision
for income taxes............................... (1,051,366) 1,215,515 (3,753) 160,396
Provision for income taxes........................ 2,473 -- -- 2,473
----------- ----------- ------- ----------
Net income (loss)................................. $(1,053,839) $ 1,215,515 $(3,753) $ 157,923
----------- ----------- ------- ----------
----------- ----------- ------- ----------
</TABLE>
F-17
insert o files
<PAGE>
CHANNELNET LIMITED
COMPANY INFORMATION
31.5.1999
Incorporated in England on 13th May 1999
Number 3772561
<TABLE>
<S> <C>
DIRECTORS B. Lerner Esq. (appointed 16.08.99)
J. Tubbs Esq. (appointed 16.08.99)
M. Thompson Esq. (appointed 09.08.99)
REGISTERED OFFICE Enterprise House
15 Whitworth Street West
MANCHESTER
M1 5GS
BANKERS Whiteway Laidlaw
ACCOUNTANTS Darent Business Services
Accountants
51 Leigh Road
Boothstown Worsley
MANCHESTER
M28 1HP
AUDITORS David Nugent & Co.
Chartered Certified Accountants
& Registered Auditors
51 Leigh Road
Boothstown Worsley
MANCHESTER
M28 1HP
</TABLE>
F-18
<PAGE>
CHANNELNET LIMITED
DIRECTORS' REPORT
31.5.1999
The directors present their report and the financial statements for the
period ended 31.5.1999.
PRINCIPAL ACTIVITY
The principal activity of the company is the supply of telecommunications
services.
YEAR 2000
Our business depends on a computerised accounting system to record the
transactions. We can confirm that our system has been guaranteed as being year
2000 compliant. However we could be at risk if other parties do not adequately
deal with the issue.
We have assessed the possibility of related failures in our significant
suppliers and customers all of whom inform us that they are dealing with the
problem. It is impossible to guarantee that no year 2000 problems will remain.
However the directors feel that they will be able to deal promptly with any
failures that may occur.
DIRECTORS
The directors of the company during the period 13th May 1999 to 31st May
1999 and their interests in the shares of the company as recorded in the
register of directors interests were as follows
<TABLE>
<CAPTION>
31.5.1999
ORDINARY
SHARES
----------
<S> <C>
B. Lerner Esq. (appointed 16.08.99).............................. --
J. Tubbs Esq. (appointed 16.08.99)............................... --
M. Thompson Esq. (appointed 09.08.99)............................ --
</TABLE>
AUDITORS
David Nugent & Co were appointed as Auditors of the company of 7th August
1999 and have agreed to offer themselves for re-appointment as auditors of the
company.
SMALL COMPANY EXEMPTIONS
This report has been prepared in accordance with the special provisions of
Part VII of the Companies Act 1985 relating to small companies.
applicable to small companies.
On behalf of the board
Director
Enterprise House
15 Whitworth Street West
MANCHESTER
11 5GS
9th August 1999
F-19
<PAGE>
CHANNELNET LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
We are required under company law to prepare financial statements for each
financial period which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements we are required to:
o select suitable accounting policies and apply them consistently;
o make reasonable and prudent judgements and estimates;
o prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company will continue in
business.
We are also responsible for:
o keeping proper accounting records;
o safeguarding the company's assets;
o taking reasonable steps for the prevention and detection of fraud.
On behalf of the board
Director
19th August 1999
F-20
<PAGE>
CHANNELNET LIMITED
AUDITORS' REPORT
AUDITORS' REPORT TO THE MEMBERS OF
CHANNELNET LIMITED
We have audited the financial statements on pages 5-8 which have been
prepared under the accounting policies set out on page 7.
RESPECTIVE RESPONSIBLITIES OF DIRECTORS AND AUDITORS
As described on page 3, the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material missatatement, whether caused by fraud or error or other
irregularity. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the company's affairs as at 31.5.1999 and of its profit for the period
13th May 1999 to 31st May 1999 and have been properly prepared in accordance
with the provisions of the Companies Act 1985 applicable to small companies.
David Nugent & Co.
Chartered Certified Accountants
& Registered Auditors
MANCHESTER
19th August 1999
F-21
<PAGE>
CHANNELNET LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999
<TABLE>
<CAPTION>
1999
NOTE pounds
---- ---------
<S> <C> <C>
Turnover 2 4,678
Net operating expenses
Administrative expenses (3,155)
---------
Profit on ordinary activities
before taxation 1,523
Taxation 4 (152)
---------
Profit on ordinary activities
after taxation 1,371
retained for the 13th May 1999 to 31st May 1999 9
---------
---------
</TABLE>
Movements in reserves are shown in note 9.
None of the company's activities were acquired or discontinued during the above
financial period.
There are no recognised gains and losses in 1999 other than the profit for the
period 13th May 1999 to 31st May 1999.
F-22
<PAGE>
CHANNELNET LIMITED
BALANCE SHEET
AT 31.5.1999
<TABLE>
<CAPTION>
1999
-----------------
NOTE pounds pounds
---- ------- -------
<S> <C> <C> <C>
Current assets
Debtors 5 5,497
-------
5,497
Creditors: amounts falling due
within one year 6 (4,125)
-------
Net current assets 1,372
-------
Total assets less current liabilities 1,372
-------
-------
Capital and reserves
Called up share capital 8 1
Profit and loss account 9 1,371
-------
Total shareholders' funds 7 1,372
-------
-------
</TABLE>
These accounts have been prepared in accordance with:
(a) The special provisions of Part VII of the Companies Act 1985: and
(b) The Financial Reporting Standard for Smaller Entities.
The accounts were approved by the board of Directors on 19th August 1999.
Director
F-23
<PAGE>
CHANNELNET LIMITED
NOTES ON FINANCIAL STATEMENTS
31.5.1999
1. ACCOUNTING POLICIES
Basis of accounting
The financial statements have been prepared under the historical cost
accounting rules.
The company has taken advantage of the exemption from preparing a cash flow
statement conferred by Financial Reporting Standard No. 1 on the grounds that it
is entitled to the exemptions available in Section 246 to 247 of the Companies
Act 1985 for small companies.
Deferred taxation
Deferred taxation is provided on the liability method in respect of the
taxation effect of all timing differences to the extent that tax liabilities are
likely to crystallise in the foreseeable future.
2. TURNOVER
Turnover represents the amount derived from the provision of goods and
services which fall within the company's ordinary activities stated net of value
added tax.
In the opinion of the directors, none of the turnover of the company is
attributable to geographical markets outside the UK. (1999 nil)
3. OPERATING PROFIT
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Operating profit is stated after charging
Auditors' remuneration........................................................... 250
-----
-----
</TABLE>
4. TAXATION
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Corporation tax on profit on ordinary activities at 10%.......................... 152
-----
-----
</TABLE>
5. DEBTORS
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Amounts falling due within one year
Other debtors.................................................................... 5,497
-----
5,497
-----
-----
</TABLE>
F-24
<PAGE>
6. CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Other creditors.................................................................. 4,125
-----
4,125
-----
-----
</TABLE>
7. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Profit for the financial period 13th May 1999 to 31st May 1999................... 1,371
New share capital subscribed..................................................... 1
-----
Net addition to shareholders' funds.............................................. 1,372
Opening shareholders' funds...................................................... --
-----
Closing shareholders' funds...................................................... 1,372
-----
-----
</TABLE>
8. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1999
------------------
NUMBER OF
SHARES POUNDS
--------- -----
<S> <C> <C>
Authorised........................................................ 1,000 1,000
----- -----
----- -----
Allotted called up and fully paid
Ordinary Shares of pounds 1 each.................................. 1 1
----- -----
----- -----
</TABLE>
9. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1999
POUNDS
-----
<S> <C>
Retained profit for the period 13th May 1999 to 31st May 1999.................... 1,371
-----
-----
</TABLE>
F-25
<PAGE>
APPENDIX 1
CHANNELNET LIMITED
TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE PERIOD 13TH MAY 1999 TO 31ST MAY 1999.
<TABLE>
<CAPTION>
1999
-------------
pounds pounds
----- -----
<S> <C> <C>
Turnover
Sales....................................................................................... 4,678
Less overheads
Salaries and wages.......................................................................... 2,805
Auditors' remuneration...................................................................... 250
Accountants' fees........................................................................... 100
-----
3,155
-----
Net profit for the year 1,523
-----
-----
</TABLE>
A-1
<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........................................ $ 13,079
Printing and engraving expenses............................. 7,500
Legal fees.................................................. 35,000
Accounting fees............................................. 10,000
Miscellaneous expenses...................................... 2,000
----------
$ 67,579
----------
----------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all of our unregistered
securities sold by us 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, we 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 we issued 158,333 shares of our common stock in accordance
with Regulation 504 of the Securities Act of 1933 for approximately $950,000.
In September, 1998 we issued 250,000 shares each to an affiliate of Byron
Lerner and to another officer and director in satisfaction of indebtedness of
$100,000. We believe the issuance of such shares is exempt from the registration
requirements pursuant to Section 4(2) of the Securities Act.
In May 1998 we issued 6,000,000 shares of our common stock to twenty
unaffiliated entities which collectively had the right to participate in our
future earnings pursuant to agreement. These investors acquired the shares for
investment. We believe the issuance of such shares is exempt from the
registration requirements pursuant to Section 4(2) of the Securities Act.
In August 1998 and February 1999 we issued convertible notes in the
aggregate principal amount of $850,000 to several foreign investors in a
transaction exempt pursuant to Rule 504. We obtained proceeds of $300,000 in the
August 1998 offering and $550,000 in February 1999 offering. In connection with
the transaction we issued warrants exercisable to $1.25 per share in August to
purchase 30,000 shares of common stock. In February 1999 we issued warrants
exercisable at $.625 per share to purchase an aggregate of 137,500 shares of
common stock. All of the notes have been converted and the corresponding shares
issued. All such warrants have
II-1
<PAGE>
been exercised prior to April 8, 1999. We received gross proceeds of
approximately $975,000 from the sale of notes and exercise of warrants.
In April 1999 we 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
Company believes that the transaction was exempt from the registration
requirements of the Securities Act pursuant to Section 4(2).
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. We issued 115,000 shares of
our common stock to the sellers, of which James Tubbs received 100,000 shares.
Mr. Tubb is an officer and director of our company. The Company believes the
issuance of these shares is exempt from the registration requirements of the
Securities Act of 1933 pursuant to Section 4(2) thereof. We have been advised
that the only issuance of this company's shares were to the three sellers, all
of whom were accredited investors.
In August 1999 the Company issued 94,500 shares of common stock to the sole
stockholder of ChannelNet,Ltd. The Company believes the issuance of these shares
is exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof. Prior to this acquisition by us, ChannelNet in 1999 issued
its shares to its sole stockholder in an offshore transaction. No other
ChannelNet shares were issued.
The Company issued an aggregate of 3,000,000 options between December 1998
and May 1999, all pursuant to the Company's stock plans. All of these options
were issued to officers, directors, employees and consultants to the Company all
of whom were finally familiar with the Company's operation. Of the options
issued 1,180,000 options in December 1998 with the balance issued between
January and May 1999.
In June 1999 the Company issued a total of 316,499 shares of its common
stock in connection with a private placement of its securities. An additional
6,000 shares were issued to a finder and an additional 776,529 warrants to
purchase our common stock at $6.00 per share were issued to finders. The
purchasers of the shares were accredited investors and the Company believes this
transactions is exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
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(e)
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(d)
10.7 -- Subscription Agreement dated June 10, 1999(b)
10.8 -- Memorandum Agreement between Registrant and Antra Holdings Group Inc.(b)
10.9 -- (i) Exchange Agreement dated as of July 15, 1999 between Barclay Brydon Limited and Teltran
International Group, Ltd., as amended by the Closing Memorandum dated August 16, 1999(c)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
(ii) Memorandum of Closing between and among Barclay Brydon Limited and Teltran International
Group, Ltd., dated August 16, 1999(c)
10.10 -- Stockholders' Agreement dated as of September 30, 1999 among Teltran International Group, Ltd.,
Antra Group Holdings, Inc., and Recordstogo.com Inc.(e)
10.11 -- Telecommunications Services Agreement between Teltran International, Inc. and Pacific Gateway
Exchange(e)
10.12 -- Telecommunications Services Agreement between Teltran International, Inc. and North American
Gateway, Inc.(e)
10.13 -- Exchange Agreement among Teltran International Group, Inc. and the Sellers named on Schedule A.(e)
21.1 -- Subsidiary List(d)
23.1 -- Consent of Liebman Goldberg & Drogin LLP(e)
23.2 -- Consent of David Nugent & Co.(e)
23.3 -- Consent of Parker Duryee Rosoff & Haft (included as part of Exhibit 5.1)
27 -- Financial Data Schedule*
</TABLE>
* Previously filed with the Company's Form 10-SB on March 24, 1999
(a) Filed with the Company's Amendment 1 to its Form 10-SB
(b) Filed with the Company's Amendment 1 to its Form SB-2
(c) Filed with the Company's Form 8-K, dated August 16, 1999.
(d) Filed with the Company's Amendment 2 to its Form SB-2.
(e) Filed herewith.
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;
(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.
II-3
<PAGE>
(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-4
<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 NOVEMBER 12, 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
- ----------------------------------------- ------------------------------------------- ------------------
<C> <S> <C>
/s/ BYRON LERNER President, Chief Executive Officer, November 12, 1999
- ---------------------------------------- Director (Principal Executive, Financial
Byron Lerner and Accounting Officer)
/s/ JAMES TUBBS Director November 12, 1999
- ----------------------------------------
James Tubbs
/s/ MARTIN MILLER Director November 12, 1999
- ----------------------------------------
Martin Miller
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------------------------- -----------
<C> <C> <S> <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(e)
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(d)
10.7 -- Subscription Agreement dated June 10, 1999(b)
10.8 -- Memorandum Agreement between Registrant and Antra Holdings Group Inc.(b)
10.9 -- (i) Exchange Agreement dated as of July 15, 1999 between Barclay Brydon Limited and
Teltran International Group, Ltd., as amended by the Closing Memorandum dated
August 16, 1999(c)
(ii) Memorandum of Closing between and among Barclay Brydon Limited and Teltran
International Group, Ltd., dated August 16, 1999(c)
10.10 -- Stockholders' Agreement dated as of September 30, 1999 among Teltran International
Group, Ltd., Antra Group Holdings, Inc., and Recordstogo.com Inc.(e)
10.11 -- Telecommunications Services Agreement between Teltran International, Inc. and Pacific
Gateway Exchange(e)
10.12 -- Telecommunications Services Agreement between Teltran International, Inc. and North
American Gateway, Inc.(e)
10.13 -- Exchange Agreement among Teltran International Group, Inc. and the Sellers named on
Schedule A.(e)
21.1 -- Subsidiary List(d)
23.1 -- Consent of Liebman Goldberg & Drogin LLP(e)
23.2 -- Consent of David Nugent & Co.(e)
23.3 -- Consent of Parker Duryee Rosoff & Haft (included as part of Exhibit 5.1)
27 -- Financial Data Schedule*
</TABLE>
* Previously filed with the Company's Form 10-SB on March 24, 1999
(a) Filed with the Company's Amendment 1 to its Form 10-SB
(b) Filed with the Company's Amendment 1 to its Form SB-2
(c) Filed with the Company's Form 8-K, dated August 16, 1999.
(d) Filed with the Company's Amendment 2 to its Form SB-2.
(e) Filed herewith.
<PAGE>
Exhibit 5.1
November 11, 1999
Teltran International Group, Ltd.
One Penn Plaza - Suite 4632
New York, New York 10119
Re: Registration Statement on Form SB-2 under the Securities Act of 1933
--------------------------------------------------------------------
Ladies and Gentlemen:
In our capacity as counsel to Teltran International Group, Ltd. (the
"Company"), a Delaware corporation, we have been asked to render this opinion in
connection with a Registration Statement on Form SB-2, being filed
contemporaneously herewith by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, covering an aggregate
of 8,965,116 shares (the "Shares") of Common Stock, par value $0.001 per share.
Of such number of Shares, 7,381,073 Shares are presently outstanding
(the"Outstanding Shares") and 1,584,043 Shares are subject to options, warrants
and other agreements (the"Unissued Shares").
In connection with, and as the basis for, the opinion we render herein, we
have examined the Certificate of Incorporation and the By-Laws of the Company,
both as amended to date, the Registration Statement, corporate proceedings of
the Company and such other instruments and documents as we have deemed relevant
under the circumstances.
In making the aforesaid examinations, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
us as original or photostatic copies. We have also assumed that the corporate
records furnished to us by the Company include all corporate proceedings taken
by the Company to date.
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
(1) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(2) The Outstanding Shares are duly and validly authorized and fully paid
and non- assessable.
(3) The Unissued Shares, when duly issued in accordance with the respective
agreements to which such Unissued Shares are subject, will be duly and validly
authorized and fully paid and non-assessable.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
/s/ PARKER DURYEE ROSOFF & HAFT, P.C.
<PAGE>
RECORDStogo.com, Inc.
STOCKHOLDERS' AGREEMENT
AGREEMENT, dated as of September 30, 1999, by and among TELTRAN
INTERNATIONAL GROUP, LTD. ("Teltran"), a Delaware corporation with its principal
address at One Penn Plaza, Suite 4632, New York, New York 10119, ANTRA GROUP
HOLDINGS, INC., a Delaware corporation with its principal address at 1515 Locust
Street, Philadelphia, Pennsylvania 19102("Antra"), and RECORDSTOGO.COM, Inc., a
Delaware corporation with its principal address at One Penn Plaza, Suite 4632,
New York, New York 10119 (the "Corporation"). Teltran and Antra may each be
referred to herein as a "Stockholder" and sometimes collectively referred to
herein as the "Stockholders."
INTRODUCTION
Teltran is in the telecommunications business and has created a web portal,
and Antra is in the urban music business. The Corporation was formed on July 29,
1999 to serve as the corporate vehicle for a joint venture between the two
Stockholders to sell various music and other entertainment products on the
Internet. The authorized capital stock of the Corporation consists of 50,000,000
shares of common stock, $.001 par value per share (the "Common Shares"), and
5,000,000 shares of preferred stock, $.001 par value per share (the "Preferred
Shares"; and with the Common Shares, sometimes collectively referred to herein
as the "Shares"). Teltran and Antra each own fifty (50%) percent of the
outstanding Common Shares. There are no Preferred Shares currently outstanding.
The Stockholders believe that in order to promote their mutual interests
and the interests of the Corporation, it is advisable to set forth herein
certain understandings with respect to the future disposition of any Shares and
the management of the business and affairs of the Corporation.
Accordingly, in consideration of the foregoing and of the mutual promises
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Management and Internal Affairs.
1.1 Contributions and Contributions of Services Capital by Stockholders.
1.1.1 Initial Capital Contributions. As of the date of the execution
and delivery of this Agreement, the parties have agreed to each contribute
$255,000 to the Corporation as an initial capital contribution ("Initial Capital
Contribution"), of which $12,500 will constitute payment for the Shares owned by
each of them and will be paid in cash. In addition, as of the date
<PAGE>
hereof, Teltran and Antra have each contributed the sum of $2,500 to the
Corporation in the form of payment of the legal fee advance required in order to
form and properly organize the Corporation. The Initial Capital Contribution of
each Stockholder, minus the $12,500 cash payment for the Shares and the $2,500
already contributed to the Corporation in the form of payment of the legal
advance, shall be paid in the form of a three-year promissory note made by each
of them (together, the "Stockholder Notes") in the name of the Corporation,
which Stockholder Notes shall each be in substantially the form to be agreed
upon and to be annexed hereto as Exhibit A.
1.1.2 Budget and Plan of Operations. Not less often than
annually, the Board (as such term is defined in subsection 1.2.1 below) shall
cause to be prepared and shall approve a budget (the "Budget") for the
Corporation, which sets forth the estimated receipts and expenditures of the
Corporation for the period covered thereby, and a plan of operations (the
"Plan") for the Corporation, which sets forth the projected business goals and
methods of achieving such goals of the Corporation for the period covered
thereby. The Board (as such term is defined in subsection 1.2.1 below) shall
meet periodically to discuss the results of the business operations of the
Corporation and to evaluate the Plan and the Budget, and may, as it deems in the
best interest of the Corporation, update a Budget during a year as frequently as
it wishes, in light of its evaluations of the business operations and Plan of
the Corporation for such year. Concurrently with the execution and delivery of
this Agreement, the Board (as such term is defined in subsection 1.2.1 below)
has approved an initial Budget and Plan for the Corporation. Upon approval of a
Budget (including any update thereof) and Plan for the Corporation, the officers
of the Corporation shall adhere to the Plan and the Budget and are only
authorized to expend funds and incur liabilities on behalf of the Corporation as
therein set forth.
1.1.3 Additional Advances. The Stockholders shall make
additional advances to or on behalf of the Corporation as required by the
Budget. Additional advances shall be made equally by each of them.
1.1.4 No Other Capital Contributions. Except as set forth in
subsection 1.1.3 above, the Stockholders shall not be obligated to make any
additional capital contributions to the Corporation.
1.2 Board of Directors.
1.2.1 The number of directors constituting the entire Board of
Directors of the Corporation (the "Board") shall be two (2). Each Stockholder
agrees during the term of this Agreement, to nominate and to vote their
respective shares for one nominee designated by Teltran and one nominee
designated by Antra. The initial designee of each Stockholder is as set forth on
Schedule A annexed hereto.
1.2.2 The Stockholders may change any or all of their respective
designees from time to time by notice to the other Stockholders, and the
Stockholders agree to vote to elect or
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appoint such new designees as Directors as set forth in such notice. In the
event that any designee shall fail to continue to serve as a Director, the
Stockholder appointing such designee shall have the right to designate a
replacement for such Director, and the Stockholders agree to vote to elect or
appoint such designee as a Director.
1.2.3 The right to designate Directors for election to the Board,
shall remain in place for as long as the so empowered Stockholders remain
Stockholders of the Company. Upon the cessation for any reason of a
Stockholder's authority to designate a Director, those seats on the Board
formerly controlled by such Stockholder shall be filled by election of the
Stockholders without restriction in accordance with the relevant terms of the
General Corporation Law of the State of Delaware.
1.3 Quorum and Voting Requirements of the Board of Directors.
1.3.1 The presence in person or telephonically of all of the Directors
shall be required for any meeting of the Board. The unanimous vote or written
consent of all of the Directors shall be required for any action taken by the
Board.
1.3.2 Actions taken by written consent shall have the same effect as
actions voted on at meetings of the Board of Directors.
1.4 Officers. The Stockholders agree to use their best efforts to secure
the election and continuation in office at the person set forth in Schedule 1.4.
1.5 No Prohibition Against Other Business Ventures. Except as prohibited
by the provisions of subsection 7.2 hereof, the Stockholders, as well as any
persons or entities which own and/or control a Stockholder, may engage and hold
interests in other business ventures of every kind and description for their own
account. Neither the Corporation nor any of the Stockholders shall have any
rights in or to such business ventures by virtue of the Stockholder (or a person
owning or controlling such Stockholder) engaging in such venture being a
Stockholder (or owning or controlling a Stockholder) of the Corporation.
1.6 Responsibilities of the Stockholders. The Stockholders have each
agreed to supply the Corporation with the following items or services. Except as
expressly set forth in this subsection 1.6 and in subsection 1.1.3, a
Stockholder shall have no other financial responsibility, liability or
obligation to the Corporation.
1.6.1 Responsibilities of Teltran. Teltran, through its
representatives will provide the Corporation with the services set forth in
Schedules 1.6.1.
1.6.2 Responsibilities of Antra. Antra, through its representatives
will provide the Corporation with services set forth in Schedules 1.6.2.
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1.6.3 Reimbursement by the Corporation. The parties acknowledge that
the services to be provided to the Corporation by both of the Teltran
Representative and the Antra Representative shall be an expense of the
Corporation and the respective party shall be reimbursed therefor by the
Corporation.
1.7 Default by a Stockholder. In the event that a Stockholder defaults in
the performance of any of its obligations contained in subsection 1.1.3 or 1.6
hereof (as the case may be), the non-defaulting Stockholder shall have the right
to give the defaulting Stockholder a notice specifically setting forth the
nature of such default and stating that the defaulting Stockholder shall have
twenty (20) days within which to cure such default. If the default is not cured
within such time, the non-defaulting Stockholder and the Corporation shall each
have the following rights, options and remedies which shall be cumulative and
may be exercised concurrently or independently in the sole and absolute
discretion of the non-defaulting Stockholder:
1.7.1 The right to bring an action at law by or on behalf of the
Corporation or the non-defaulting Stockholder in order to recover the amounts
owed, if any, and any incidental or consequential damages arising from such
default (including, without limitation, reasonable attorneys' fees and
disbursements incurred by the Corporation or the non-defaulting Stockholder, as
the case may be, in prosecuting any such action).
1.7.2 The non-defaulting Stockholder may advance any amount owed to
the Corporation by the defaulting Stockholder. Such amount shall bear interest
at the rate of interest provided for in the Stockholder Notes and shall be a
joint and several obligation of the defaulting Stockholder and the Corporation.
In addition, all distributions from the Corporation that would otherwise be made
to the defaulting Stockholder (whether before or after liquidation of the
Corporation) shall, instead, be paid to the non-defaulting Stockholder, or
retained by the Corporation to the extent it made any payments to the
non-defaulting Stockholder, until such amount and all interest accrued thereon
has been repaid in full.
1.7.3 For purposes of voting or giving any consents or approvals under
any provisions of this Agreement, the right to deny the defaulting Stockholder
any of its voting, consent or approval rights under this Agreement.
1.7.4 The option to purchase all of the Shares of the defaulting
Stockholder shall be at purchase price and pursuant to terms set forth in
Schedules 1.74.
2. General Transfer Restrictions.
2.1 Prohibition of Transfers. Neither Stockholder shall sell, assign,
pledge, hypothecate or otherwise alienate, encumber or otherwise dispose of, in
any manner, whether or not for consideration (hereinafter referred to as a
"Transfer"), any of the Shares, except as expressly permitted by the terms of
this Agreement. Any attempted issue or Transfer of Shares or other
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securities of the Corporation in violation of this Agreement shall not be
recognized and shall be deemed void ab initio. The foregoing provisions shall
not, however, apply to any sale by a Stockholder in connection with the sale of
all such Stockholder's assets to an entity or person not a party to this
Agreement or to a wholly owned subsidiary of such Stockholder, provided such
purchasing party agrees in writing to be bound by the terms and conditions
hereof.
2.2 General Conditions Upon Waiver of Prohibition. In addition to and not
in limitation of any of the foregoing restrictions and conditions, but except as
otherwise herein provided, no Shares shall hereafter be issued or transferred
unless (i) such transaction is in compliance with all applicable Federal and
state securities laws as counsel of the Corporation shall determine, and (ii)
any certificate issued at any time representing any of the Shares shall have an
endorsement written, printed or stamped upon the face thereof which reflects the
foregoing and the fact that such Shares are subject to the terms, conditions and
restrictions of this Agreement.
3. Rights of First Refusal.
3.1 Right of First Refusal Generally. If at any time, or from time to
time, a Stockholder receives a bona fide offer from a person or entity not a
party to this Agreement (an "Offeror") to purchase all of its Shares (the "Third
Party Offer"), prior to the acceptance thereof, such Stockholder (the "Offering
Stockholder") shall give notice thereof to the other Stockholder in accordance
with the terms of this Section. Such notice (the "Offering Notice") shall
contain a copy of the Third Party Offer, including, but not limited to, the name
and address of the Offeror and the price at which and terms upon which such
Shares (the "Offered Shares") are proposed to be transferred. The Offering
Notice shall be deemed to be an offer by the Offering Stockholder to sell all
Offered Shares to the other Stockholders in accordance with the terms of the
Offering Notice and subject to the terms of this Agreement. The Stockholders
receiving the Offering Notice shall have the following options to accept such
offer:
3.1.1 The Offered Shares first shall be offered to the other
Stockholder, who shall have thirty (30) days in which to accept all or
any part of the Offered Shares at the purchase price and other terms
and conditions set forth in the Third Party Offer.
3.1.2 If any of the Offered Shares offered pursuant to the
foregoing offer are not accepted, the remaining Offered Shares shall
be offered to the Corporation, which shall have thirty (30) days in
which to accept any or any part of such Offered Shares at the purchase
price and other terms and conditions set forth in the Third Party
Offer.
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3.1.3 All acceptances of Offered Shares shall be effected by
notice (the "Acceptance Notice") given to the Offering Stockholder
within the applicable time limits hereinabove specified.
3.1.4 If all of the Offered Shares are not accepted pursuant to
the foregoing clauses of this subsection 3.1 then all, but not less
than all, of the remaining Offered Shares may be transferred by the
Offering Stockholder, at any time within thirty (30) days after the
last Acceptance Notice was permitted to have been given, to the
Offeror named in the Offering Notice at the price and upon the other
terms and conditions set forth in the Offering Notice; provided,
however, that the Offering Stockholder is able to certify and
certifies to the other parties hereto that the transfer of the Offered
Shares is to the Offeror named in the Offering Notice and pursuant to
the terms and conditions set forth in the Offering Notice.
3.1.5 Irrespective of the provisions of this Agreement, Teltran
or Antra, at any time, may buy any or all or the Shares owned by the
other at such price and upon such terms as they may agree.
3.1.6 The offer made in any Offering Notice shall be deemed to be
a firm non-withdrawable offer for the applicable periods hereinabove
provided.
3.1.7 Except as otherwise expressly provided in this Agreement,
the closing, price and other terms and conditions of a Transfer made
pursuant to any of the provisions of this subsection 3.1 shall be as
provided in Section 5 hereof.
3.1.8 The Offering Stockholder transferring all of its Shares
pursuant to this subsection 3.1 shall cause its designee to the Board
of Directors and any officers nominated thereby to tender his
resignation from all such positions simultaneously with the closing of
the transfer of its Shares, and the other parties hereto shall
forthwith do all acts necessary to modify all applicable documents
filed by the Corporation with various regulatory authorities.
3.1.9 During any period beginning on the giving of an Offering
Notice and ending upon the closing of the Transfer of any Shares
offered thereunder, such Shares shall not be voted and the holder
thereof shall not exercise any of the rights attendant to ownership
thereof.
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4. Bankruptcy of a Stockholder.
4.1 Affected Stockholder. Anything in this Agreement to the contrary
notwithstanding, if any Stockholder becomes bankrupt or its Shares become
subject to attachment (a "Triggering Event"), then neither such Stockholder (an
"Affected Stockholder") nor its trustee or transferee (a "Legal Substitute")
shall be entitled thereafter to be offered or to purchase any Shares pursuant to
any of the provisions of this Agreement, and such Stockholder's interests shall
be disregarded for all such purposes hereof; provided, however, that such
Stockholder or its Legal Substitute, in such an event, shall be bound, with
respect to such Shares, to all of the restrictions and obligations imposed under
this Agreement. Notice of the bankruptcy or attachment of the Affected
Stockholder (the "Triggering Event Notice") shall be given promptly after its
occurrence (which shall be within ten (10) days of any event constituting
bankruptcy) by the Affected Stockholder to the Corporation and to the other
Stockholder.
4.2 Call Privilege. Irrespective of the provisions of subsection 2.2
hereof, a Triggering Event Notice shall constitute the granting of an option to
purchase all of the Affected Stockholder's Shares (hereinafter referred to as a
"Call") at a purchase price determined in accordance with subsection 4.3 below,
which Call shall be available to and may be exercised by the other Stockholder
and/or the Corporation in the same proportions, order of priorities and manner,
within the same time limits and subject to the same general conditions as
provided for a right of first refusal in subsection 3.1 hereof, except that (i)
any or all of the Affected Shares may be purchased pursuant thereto, and (ii)
the terms "Affected Stockholder" and "Triggering Event Notice" shall be
substituted for the terms "Offering Stockholder" and "Offering Notice",
respectively, as used therein.
4.3 Valuation. If at any time a Stockholder is deemed to have offered
to sell its Shares pursuant to this Section 4 without having received a valid
Third Party Offer valuing the Shares, the initial purchase price of the Offered
Shares shall be the "Net Book Value" per Share. "Net Book Value" of a Share
shall mean the per share book value of the Corporation as of the last day of the
calendar month immediately preceding the date upon which the Corporation
receives notice of the bankruptcy or? of the Affected Stockholder, as determined
in accordance with generally accepted accounting principles applied on a basis
consistent with prior periods by the Corporation's regularly employed certified
public accountants.
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5. General Conditions to Purchase.
5.1 Corporate Repurchase. In the case of any repurchase of Shares
required to be made by the Corporation pursuant to any of the provisions hereof,
the Stockholders shall do all things (including, but not limited to, the casting
of their votes) appropriate and necessary to cause the Corporation to effect
such repurchase, but the Stockholders shall not be required to contribute
additional capital to the Corporation or lend it funds. In the event that the
Corporation's funds legally available for the repurchase of such Shares are
insufficient to pay the full purchase price due therefor, as and when it becomes
due (or at such sooner date as is required by applicable laws), and such
obligation is not assumed by the Stockholders under such terms as they shall
agree among themselves, then the Corporation and the Stockholders shall promptly
take all action necessary to reduce the stated capital of the Corporation to the
extent required to make funds available for said purpose; and if such funds
cannot be made available as a result thereof within the time specified, the,
within sixty (60) days thereafter, the Stockholders shall vote their Shares so
as to cause the immediate dissolution and liquidation of the Corporation and
shall take all other necessary action to promptly liquidate the Corporation
including the filing of an appropriate Certificate of Dissolution.
5.2 Closing and Payment.
5.2.1 Except as otherwise provided herein, the closing of any
purchase by the Corporation and/or a Stockholder pursuant to this
Agreement shall take place on the "Closing Date" at the offices of
Parker Duryee Rosoff & Haft, P.C., 529 Fifth Avenue, 8th Floor, New
York, New York, 10017. The Closing Date shall be the first business
day following the thirtieth calendar day after the last Acceptance
Notice is given.
5.2.2 At such closing, and except as otherwise provided herein:
(i) The selling Stockholder (or his or its Legal
Substitute) shall deliver to the purchasing party certificates
representing the Shares to be purchased, duly endorsed, free and clear
of all liens, claims or encumbrances, with evidence of payment of all
transfer taxes and fees, if any.
(ii) The purchasing party shall deliver:
(A) A down-payment (by certified or bank cashier's
check) in an amount equal to (x) in the case of a sale pursuant to the
terms of subsection 3.1 hereof, the down-payment required by the terms
of the Third Party Offer; or (y) in the case of a sale pursuant to
Section 4 hereof, thirty (30%) percent of the purchase price
determined in accordance with subsection 4.3 hereof.
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(B) A promissory note, in negotiable form, in the
principal amount of the remainder of the price stated in the Offering
Notice or the purchase price determined in accordance with subsection
4.3 hereof, as the case may be, bearing interest at the prime rate per
annum in effect from time to time at a bank to be designated in New
York, New York, but in no event higher than the highest applicable
rate permitted by law. Such Note shall be payable in two equal
six-month installments of principal together with all interest accrued
thereon to the date of such payment, the first such payment to be due
and payable six (6) months following the Closing Date. Such Note shall
be collateralized by a pledge to the selling Stockholder or his or its
Legal Substitute of the purchased Shares and of the Shares held by the
purchasing Stockholder, or if the Corporation is the purchaser by a
lien on all of the assets of the Corporation.
(C) The Corporation and all Stockholders and their
Legal Substitutes shall do all things necessary and appropriate to
consummate such closing.
6. Books of Account.
Books and records of account of the Corporation shall be maintained at
its principal office, and true and accurate entries of all transactions had by
and on behalf of the Corporation shall be set down therein. Such books and
records, accounts and all other documents of the Corporation, at all times
during normal business hours, shall be open to the inspection of the
Stockholders and their authorized designees, who shall be entitled to make
copies therefrom and to take extracts thereof. Notwithstanding whether any of
the parties hereto remains a Stockholder, all such records and books of account,
together with all files and documents prepared on behalf of the Corporation,
shall remain in the exclusive possession of the Corporation.
7. Covenants of Stockholders.
7.1 Confidentiality. Each Stockholder agrees that it shall not, during the
term of this Agreement or at any time thereafter, use for its own benefit, nor
divulge, furnish or make accessible to anyone (otherwise than in the regular
course of the business of the Corporation) any confidential or secret knowledge
or information with respect to the business of the Corporation.
7.2 Non-Competition. Each Stockholder agrees that it shall not, while it
is a Stockholder, compete with the Corporation with respect to the sale of music
products on the Internet in any business then conducted or under development by
the Corporation, directly or indirectly, nor shall it be, directly or
indirectly, a partner or stockholder of any proprietorship, partnership or
corporation which so competes with the Corporation. Notwithstanding the
foregoing restrictions, the parties acknowledge that Teltran, through its web
portal, provides Internet access to entities who are engaged in the business of
Internet music sales and they hereby agree that such activity does not and shall
not constitute a breach of this subsection 7.2.
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7.3 Non-Solicitation. Each Stockholder agrees that, for so long as it is a
Stockholder of any of the Corporation and for a period of one (1) year
thereafter, it shall not directly or indirectly, (i) seek to persuade any
director, officer, employee or consultant of any of the Corporation to
discontinue that individual's status of employment by, or affiliation with, the
Corporation, (ii) solicit or hire, or cause to be solicited or hired, any such
officer, employee or consultant whether on its own behalf or on the behalf of
any third party; or (iii) solicit any client of the Corporation or solicit any
business which was being solicited by the Corporation or was under contract with
the Corporation during the period in which it was a Stockholder of the
Corporation.
7.4 Investment. Nothing in this Agreement shall preclude a Stockholder
from investing its corporate assets in securities of any corporation or other
business entity which is engaged in a business competitive with the Corporation,
if such securities are regularly traded on a national stock exchange or
over-the-counter and if such purchase shall not result in its holding
beneficially, at any time, more than two (2%) percent of the equity securities
of such competitor.
7.5 Equitable remedies. The parties hereto agree that the remedy at law
for any breach of this Section 7 shall be inadequate and that, in the event of
any such breach, the non-breaching parties shall be authorized and entitled to
obtain from any court of competent jurisdiction preliminary and permanent
injunctive relief, as well as an equitable accounting of all profits or benefits
arising from such breach, which rights and remedies shall be cumulative and in
addition to any other rights and remedies to which the non-breaching parties may
be entitled. The provisions of this subsection 7.5 shall be enforceable
notwithstanding the existence of any claim or cause of action of the breaching
party against any of the non-breaching parties, whether predicated on this
Agreement or otherwise.
8. Obligations of the Corporation; Conflict with By-Laws.
The parties hereto agree that all of the terms, covenants and
conditions of this Agreement shall supplement the By-Laws of the Corporation,
and, in the event of conflict therewith, shall prevail. The Corporation shall
not be deemed a party to, nor be directly obligated with respect to, any of the
voting, consent or approval provisions hereof; provided, however, that nothing
in this Section 8 or elsewhere set forth shall affect the rights and obligations
of the Stockholders among themselves under any of the provisions of this
Agreement. Wherever in any section of this Agreement reference is made to any
action to be taken or not be taken by the Corporation or otherwise or in
accordance with specified procedures, such reference shall be deemed to mean
that the Stockholders shall cast their votes and take such other action as
reasonably may be necessary or desirable or otherwise appropriate to cause the
Corporation to take or not to take such action or otherwise to effectuate such
provisions and in accordance with the procedures therein specified.
9. Binding Agreement; Assignment; Survival.
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Except to the extent otherwise expressly provided herein, this
Agreement shall be binding upon the present and future parties hereto, their
respective successors, assigns, heirs, legatees and Legal Substitutes and all
persons and other entities who otherwise may derive any rights or interests
hereunder from or through any of the parties hereto, regardless, in any event,
of whether any certificate representing shares of Common Stock bears the legend
provided for in subsection 2.3 hereof. Except to the extent otherwise expressly
provided herein, this Agreement shall inure to the benefit of the present and
future parties hereto, their respective heirs and legatees and, to the extent
that a transfer of their shares of Common Stock is effected pursuant to the
provisions of this Agreement, their assigns. All agreements, covenants,
representations, and warranties made herein shall survive the execution and
delivery of this Agreement and the agreements made pursuant hereto or referred
to herein.
10. Communications.
All notices, demands, requests, offers, approvals, consents,
acceptances, waivers, reports and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been duly given,
received and dated when delivered personally or, if sent by overnight courier,
three days after being deposited with such courier addressed to the parties at
their addresses respectively set forth above or at such other address as any
party may give by notice. Any party may change its address by sending notice
thereof to the other parties in the manner prescribed above, except that notice
of change of address shall not be effective until actually received.
11. Construction; Headings; Word Meanings.
This Agreement, and all related agreements, instruments and documents,
shall be construed and enforced in accordance with the laws of the State of New
York without giving effect to the principles of conflict of laws. Headings and
titles are for convenience of reference only and shall not control the
construction or interpretation of any provision hereof.
12. Choice of Forum.
All disputes that may arise under this Agreement shall be submitted to
hearing in the Courts of the State of New York, County of New York and the
parties hereto irrevocable waive any defenses or claims as to improper
jurisdiction, inconvenient forum and improper venue with regard to such courts.
13. No Third Party Beneficiaries.
Nothing in this Agreement shall be construed as conferring upon any
person or other entity, other than the parties hereto and their Legal
Substitutes (to the extent provided herein), any right, remedy or claim under or
by reason of this Agreement.
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14. Entire Agreement; Modification; Consents; Waivers.
This Agreement and the agreements and instruments referred to herein
represent the entire agreement of the parties with respect to the subject matter
hereof and no interpretation, change, termination or waiver of or extension of
time for performance under, any provision of the Agreement shall be binding upon
any party unless in writing and signed by the party intended to be bound
thereby. Any provision of this Agreement can be modified if consented to by all
of the parties hereto. Receipt by any party of money or other consideration due
under this Agreement, with or without knowledge of breach, shall not constitute
a waiver of such breach or of any provision of this Agreement. Except as
otherwise provided herein, no waiver of or other failure to exercise any right
under, or default or extension of time for performance under, any of the
provisions of this Agreement shall affect the right of any party to exercise any
subsequent right under or otherwise enforce said provision or any other
provision hereof or to exercise any right or remedy in the event of any other
default, whether or not similar. Without limitation to the generality of the
foregoing and except as otherwise provided herein, the failure of any party to
exercise any right of first refusal or any Put or Call hereunder (hereinafter
collectively referred to as "said rights") shall not in any way constitute a
waiver of or otherwise affect such party's right to exercise any of the other
said rights or to exercise any subsequent said rights to which such party may
otherwise be entitled hereunder.
15. Severability.
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect any of the other provisions hereof and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
were omitted.
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement of RECORDSTOGO.COM Inc. as of September30, 1999.
TELTRAN INTERNATIONAL GROUP, LTD.
By:
-----------------------------------------
Name:
Title:
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ANTRA GROUP HOLDINGS, INC.
By:
-----------------------------------------
Name:
Title:
13
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EXHIBIT A
Form of Stockholder Notes
-------------------------
[To Be Attached]
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SCHEDULE A
INITIAL DESIGNEES TO THE BOARD OF DIRECTORS
-------------------------------------------
Teltran Designee - James E. Tubbs
Antra Designee - Joseph Marone
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TELECOMMUNICATIONS SERVICES AGREEMENT
This Agreement is made by and between Teltran International, Inc. ("Teltran"), a
Delaware corporation with its principal offices at One Penn Plaza, Suite 4632,
New York, NY 10119, and Pacific Gateway Exchange ("Customer") with its principal
offices at 500 Airport Boulevard, Burlingame, CA 94010. This Agreement will
become effective on the date it is executed by both parties.
WHEREAS, Customer desires to purchase telecommunications services from Teltran
and Teltran desires to sell such services to Customer. NOW, THEREFORE, intending
to be legally bound, the parties agree as follows:
1. Services Provided: In accordance with the terms and conditions of this
Agreement, Teltran shall provide telecommunication services (the "Services") to
Customer. Services can be accessed via DS-1 or DS-3 type access or by other
means agreeable to Teltran. Obtaining access to Teltran's facilities is the
responsibility of Customer. Services shall be at the rates, terms or upon the
conditions described in Schedule A annexed hereto and shall be limited to those
countries set forth on said Schedule A unless otherwise agreed. Teltran shall
have the right to change the rates and countries set forth on Schedule A and
annexed hereto upon seven days written notice to Customer ("Change of Rate
Notice").
2. Service Term: The Service Term shall begin after Customer has tested the
Service and begins to send live traffic ("Start of Service") and shall be
provided hereunder for a period of one-year from the Start of Service. The term
shall be automatically renewed on a month to month basis after the initial
service-term unless written notice is provided otherwise 30 days prior to the
expiration of the Service Term.
3. Commitment: Customer agrees to use and accept the services at the rates and
upon the terms and conditions set forth in Schedule A.
4. Service Interconnection - Technical Requirements In order to utilize the
Service, a connection between Customer's network ("Customer Location") and the
Teltran network at the Teltran designated point-of-presence facilities ("Teltran
POP") may need to be established ("Service Interconnection"). If necessary,
Customer shall be responsible for establishing each Service Interconnection over
facilities subject to Teltran approval. If a Service Interconnection is proposed
to be made via a local exchange carrier, Teltran may direct Customer to utilize
Teltran's local serving arrangement and Customer will be subject to a
non-discriminatory charge therefore from Teltran.
4.1 Service Interconnection - Loading Teltran will provide space at their POP's
for Customer to connect the necessary service interconnections. If available,
Teltran also agrees to provide additional interconnection capacity as needed by
Customer.
5. Billing; Payment Due Dates; Restriction Or Disconnection of Services;
Collection Charges; Interest: Customer is liable for all amounts due Teltran
hereunder, subject to the following. Teltran will calculate the length of each
Service call based upon rounding to the next higher six seconds with a minimum
billing period of thirty seconds, except to Mexico or where rates are listed on
Schedule A based upon one minute billing periods, in which case the length of
the Service call will be rounded to the next higher one minute interval.
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5.1 Surety: Prepaid Billing, Cash Deposit, Letter of Credit: Customer hereby
agrees, upon verification that each service interconnection is completed and
successfully provides Services, to deposit an irrevocable Stand-by Letter of
Credit for an estimated two weeks of traffic, 48 hours prior to turning on the
connections and transporting live traffic, all pursuant to the terms and
conditions of this Agreement. Unpaid traffic cannot surpass the value of the
Letter of Credit ("hereinafter referred to as 'Surety'"). In the event that
services have not commenced within 30 business days of deposit of the Surety,
Customer shall have the right to demand return of the full amount of its Surety
and upon return of such Surety neither Customer nor Teltran shall have any
further obligations to the other under this Agreement. The non-prevailing party
shall reimburse the prevailing party for reasonable attorney's fees and other
costs associated with collecting delinquent payments from Customer. Teltran's
banking details are attached as Schedule B.
5.2 Weekly Billing: Commencing after the end of the first week of Services and
continuing every week thereafter, Teltran shall deliver via facsimile or e-mail
transmission an invoice and weekly traffic report to the Customer, which invoice
and report shall set forth the actual amount and cost of Services rendered to
Customer during the immediately preceding week according to Teltran's records.
The billing cycle shall begin 00:00 on Monday.
Such invoice may also contain any appropriate debits or credits to previous
invoices rendered to Customer. Upon receipt of the invoice the Customer shall,
within three (3) business days, deliver the undisputed invoice amount via wire
transfer for deposit in Teltran's account. Any disputed portions of invoices
will be addressed per Section 5.3; however, non-disputed portions of invoices
shall be payable within three (3) business days per the above. In the event that
the amount of unpaid traffic exceeds the Surety amount, the Customer shall
within forty-eight (48) hours of written notification from Teltran, deliver to
Teltran an increase to the Surety for a sum equal to the difference between the
invoice amount and the previous Surety. Should the actual usage regularly exceed
the Surety amount, Customer will have the option to make more frequent payments
to obviate the requirement of increasing the amount of the Surety. Teltran
reserves the right to immediately discontinue Service should unpaid traffic
exceed the value of the Surety with prior written notice to Customer.
5.3 Billing Disputes: Any billing discrepancies shall be presented by the
Customer to Teltran in reasonable detail, in writing, within 60 days of the date
of the invoice in question. Teltran shall not be obligated to consider any
customer notice of discrepancies that are received by Teltran more than 60 days
following the date of the invoice in question. If Teltran fails to reply in
writing regarding the customer dispute within 30 days, the disputed amount shall
be deemed valid and accepted by Teltran. Both parties shall endeavor to resolve
all disputes within 30 days of Customer's written notification.
5.4 Arbitration: Both parties agree to act in good faith to resolve billing
disputes between each other. If within thirty (30) days a dispute is not
resolved, both parties agree to immediately resolve disputes with binding
arbitration with respect to any and all proceedings. Any such proceeding shall
be pursuant to the rules of the American Arbitration Association as they are
applicable to the immediate resolution of disputes brought forward. One
arbitrator, who must be knowledgeable in the telecommunications industry, will
be utilized in any proceedings. The arbitrator shall be empowered to promptly
adjudicate and determine each proceeding in law and/or in equity, and must
determine who the prevailing Party is within ten (10) days after a notice of
dispute has been sent by one Party to the other Party. Judgment upon the award
will be final and may be entered in any Federal or State Court having
jurisdiction thereof. Both Parties agree to immediately comply with the
judgement having been entered and/or confirmed.
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6. Termination by Customer: Customer may terminate this Agreement by giving
written notice to Teltran thirty (30) days prior to Customers desired
termination date. If Customer terminates this Agreement before expiration of the
Services Term, Customer will be billed for and shall pay within ten (10)
business days after such Termination the total outstanding charges due.
Nothing herein contained shall be construed as preventing Customer from
canceling this agreement without further liability in the event Teltran fails to
provide the service on a regular basis consistent with the standards of Voice
over Internet Protocol (VoIP) providers in the industry as to technical quality.
The parties agree that because of the nature of the technology and Networks, the
call quality of calls placed over the Network may be less than that from the
normal use of the PSTN.
Customer may test the Service before purchasing and if the quality of the
service does not meet their requirements, this contract may be cancelled
immediately and a return of all Surety will be made without further liability.
7. Termination by Teltran: Teltran may terminate this agreement by giving
written notice to Customer thirty (30) days prior to its intention to do so. If
Teltran terminates this Agreement or the Services provided pursuant to this
Agreement due to Customer's breach of any of the covenants, representations and
warranties herein, the termination may be immediate and the Customer will be
billed for and shall pay within ten (10) business days the total outstanding
charges due.
8. Representations and Warranties of the Parties: The rates, terms and
conditions herein are expressly conditioned upon the following representations
and warranties by the Customer:
8.1 Each party has obtained the required operating authority in all states in
which it conducts business, as well as authority required by the FCC for the
sale of telecommunications services, including but not limited to authority
required pursuant to Section 214 of the Communications Act of 1934, 47 U.S.C.
214.
8.2 Each party complies and will continue to comply at all times with all
federal and state laws and regulations applicable to the sale and provision of
service to its users and end-users, including but not limited to those laws and
regulations applicable to the authorization and proof of authorization necessary
to convert an end-user's former service to Customer's service as the end-user's
Primary Interexchange Carrier.
9. Disclaimer of Warranties; Limitation of Liability: Teltran (including its
subsidiaries, affiliates, predecessors, successors and assigns) makes no
warranties, express or implied, and specifically disclaims any warranty of
merchantability or fitness for a particular purpose with respect to services or
products provided pursuant to this Agreement. In no event shall Teltran be
liable for consequential, special or indirect damages or lost profits sustained
by reason of its performance of this Agreement, or for any failure, breakdown,
or interruption of service, whatever shall be the cause, or however long it
shall last, and regardless of whether any one has been advised of the
possibility of such damages. Teltran shall have no liability for damages caused
(a) by Customer's failure to perform its responsibilities under this agreement,
or (b) by the acts of third parties (including without
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limitation Customer's users or end users). This limitation of liability shall
apply regardless of the form of action, whether in contract, tort, warranty,
strict liability, or negligence (including without limitation active and passive
negligence). This Agreement does not create any claim or right of action, nor is
it intended to confer any benefit on any third party, including but not limited
to any user or end-user of Customer. The limitations of liability set forth in
this Agreement shall survive termination of this Agreement. Teltran's sole
liability and obligation to Customer, except in the case of claims arising out
of intentional wrongful acts of Teltran, shall be to use commercially reasonable
efforts to investigate and, to the extent reasonably practicable and within the
reasonable control of Teltran, correct the circumstances that caused such
errors.
10. Duty to Indemnify and Defend: The parties shall indemnify, defend and hold
harmless each other and its directors, employees, agents, parent, subsidiaries,
successors, and assigns from all claims, damages and expenses (including
reasonable attorneys' fees) arising out of or resulting from, in whole or in
part, the acts or omissions of the other party or its End-users, their
employees, agents or contractors affiliated companies and their employees,
agents or contractors, including but not limited to claims for libel, slander,
invasion of privacy, or infringement arising form combining or using facilities
or equipment furnished by the party in connection with facilities or equipment
furnished by others. The parties shall also indemnify, defend and hold each
other harmless from all causes of action, claims, liabilities or expenses
asserted or incurred by any of the other party's Users of End-users arising out
of any failure, breakdown, or interruption of service provided to the other
party by the party or to End-users by the other party. The parties shall
indemnify, defend and hold each other harmless from all causes of action,
claims, liabilities or expenses asserted or incurred by the other party's
End-users due to the other party's marketing efforts, including but not limited
to the other party's violation of laws and regulations applicable to the
authorization and proof of authorization necessary to convert an End-user's
former service to the other party's service as the End-user's Primary
Interexchange Carrier.
11. Confidentiality: Since each Party may have access to the other Party's
confidential, sensitive, and/or proprietary information including, without
limitation, financial information, rates, supply and service information,
technical data and specifications, marketing information, customer and personnel
information, and dialing patterns ("Proprietary Information"); therefore, during
the Term and thereafter, neither Party shall disclose any terms of this
Agreement, including pricing, or Proprietary Information of the other Party
except as required by law. Any disclosure hereof required by legal process shall
only be made after providing the non-disclosing party with notice thereof in
order to permit the non-disclosing party to seek an appropriate protective order
or exemption. Proprietary Information shall remain the property of the
disclosing Party. A Party receiving Proprietary Information shall: (i) use or
reproduce such information only when necessary to perform this Agreement; (ii)
provide at least the same care to avoid disclosure or unauthorized use of such
information as it provides to protect its own Proprietary Information; (iii)
limit access to such information to its employees or agents who need such
information to perform this Agreement; and (iv) return or destroy all such
information, including copies, after the need for it has expired, upon request
of the disclosing Party, or upon termination of this Agreement. Because of the
unique nature of Proprietary Information, a breach of this paragraph may cause
irreparable harm for which monetary damages may be inadequate compensation.
Accordingly, in addition to other available remedies, a Party may seek
injunctive relief to enforce this paragraph. The parties to this Agreement also
acknowledge that no effort shall be made to circumvent its terms in an attempt
to gain customers, commissions, fees, remuneration, rates or considerations to
the benefit of any of the parties of this Agreement, while excluding equal or
agreed to benefits to the other party.
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12. Taxes: Upon execution hereof, Customer shall provide Teltran with a
properly executed Certificate of Exemption for all foreign, federal, state,
county and local taxes and fees (if any) and shall be responsible for the
collection of all applicable end-users taxes and fees and the remittance of such
taxes and fees to the relevant government authority. Teltran shall pass through
to Customer and Customer shall pay all taxes that may be so passed on to
Customer by law.
13. Interfacing And Communicating With End-Users: Interfacing and communicating
with end-users shall be the sole responsibility of Customer with respect to any
use that Customer may make of the Service provided pursuant to this Agreement to
in turn provide service to other persons or entities. Such interfacing and
communicating shall include without limitation installation of service,
termination of service, placing of orders, billing and billing inquiries,
reporting of service outages and problems, collection of charges and handling
and resolution of all disputes.
14. Customer's Use of Service: Customer may use the Services provided pursuant
to this Agreement for any lawful purpose consistent with the transmission and
switching parameters of the telecommunications network, and may resell its use
(or the use of any part thereof) to a third party in the normal course of the
Customer's business, subject to the following:
14.1 Abuse - The abuse of Service is prohibited. The following activities
constitute abuse:
o Knowingly using Service to make calls that might reasonable be
expected to frighten, abuse, torment, or harass another, or
o Knowingly using Service in such a way that it interferes unreasonably
with the use of Service or Teltran's network by others.
14.2 Fraudulent Use - The fraudulent use of or the intended or attempted
fraudulent use of, Service is prohibited. The following activities constitute
fraudulent use:
o Knowingly using Service to transmit any message or code, locate a
person, or otherwise give or obtain information, without payment for
Service, or
o Knowingly using or attempting to use Service with the intent to avoid
the payment, either in whole or in part, of any charges by any means
or device.
In any instance in which Teltran believes in good faith that there is fraudulent
use of Service as set forth above, Teltran may immediately upon notice to
Customer, and without liability on the part of Teltran, restrict, suspend, or
discontinue providing Service.
15. Assignment: Customer may not assign this Agreement in whole or in part
without the prior written consent of Teltran which shall not be unreasonably
withheld or delayed. Teltran may, in its discretion, condition its consent to
such assignment upon the posting of an appropriate deposit by the assignee.
Teltran reserves the right to deny or revoke its consent to such assignment at
any time if the assignee proves unwilling or unable to comply with the
representations and warranties set forth in this Agreement, in which event the
Customer shall remain or again become responsible for performance of all terms
of this Agreement. This provision shall not affect the Customer's right to
resell Service. Further, any resale or assignment shall not release the original
Customer from its obligations under this Agreement.
16. Independent Parties: The relationship established by the Agreement shall in
no way constitute Teltran (or its agents or employees) as a partner, agent or
fiduciary of Customer.
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The relationship established by this Agreement shall in no way constitute the
Customer (or its agents or employees) as a partner, agent or fiduciary of
Teltran. The provision of service described in this agreement does not establish
any joint undertaking, joint venture or fiduciary relationship between Teltran
and Customer.
17. Force Majeure: Neither party nor its affiliates, subsidiaries,
subcontractors or agents shall be liable in any way for delay, failure in
performance, loss or damage due to any of the following: fire, strike, embargo,
explosion, power blackout, earthquake, volcanic action, flood, war, water, the
elements, labor disputes, civil or military authority, act of God, acts of the
public enemy, inability to secure raw materials, inability to secure products,
acts or omissions of carriers, or other causes beyond its reasonable control,
whether or not similar to the foregoing.
18. Severability: If any portion of this Agreement shall be found to be invalid
or unenforceable, such portion shall be void and have no effect, but the
remainder of the Agreement shall continue in full force unless the Agreement
fails in its essential purpose without the voided portion.
19. Notices: All notice, identifications, formal requests or other formal
communications required or desired to be given in connection with this
agreement, shall be in writing and shall be effective when delivered in person,
mailed by registered or certified post of sent by telex or facsimile ("fax") to
the recipient party, unless the parties otherwise agree in writing. Notice shall
be addressed to the following:
If to Teltran: If to Customer:
-------------- ---------------
Mr. Peter Biagioli Mr. Stephen Wood
Vice President - Sales & Marketing Vice President, Network Service
Teltran International, Inc. Pacific Gateway Exchange, Inc.
One Penn Plaza, Suite 4632 500 Airport Boulevard, Suite 340
New York, NY 10119 Burlingame, CA 94010
Phone: 212-643-1283 Phone: 650-375-6700
Fax: 212-643-1997 Fax: 650-375-6799
E-mail: [email protected] E-mail: [email protected]
---------------
20. Compliance with laws: Each party is responsible for its own compliance with
all laws and regulations affecting its business, including but not limited to
the collection and remittance of all taxes and other levies imposed by law.
21. Choice of Law: The domestic law of the State of New York, except its
conflict-of-laws rules, shall govern the construction, interpretation and
performance of this agreement.
22. Limitations: Except for the warranties explicitly set forth within, Teltran
specifically excludes and disclaims all warranties, express or implied,
including any warranties of merchantability and fitness for a particular
purpose. In no event shall Teltran have any liability to Customer, nor may this
agreement be cancelled, for any reasonable interruption of service involving the
network or the access lines (failure of the underlying carrier circuits, power
failure, flood, riot, etc.), nor shall Teltran be liable in any way to Customer
for any delay, failure in performance, or loss or damage due to any conditions
beyond its reasonable control.
Customer may test the Service before executing this Agreement and/or providing
Surety and if the quality of the service does not meet their requirements, this
contract may be cancelled immediately and a return of all Surety will be made
without further liability.
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23. Jurisdiction: Each party hereby irrevocably consents to the jurisdiction of
the courts of the State of New York in connection with all disputes (not
including billing disputes which is subject to Section 5.4 - Arbitration),
controversies, claims and actions arising in connection with or relating to this
agreement and agrees that such courts shall be sole and exclusive jurisdiction
of such disputes, controversies, claims and action. Each party hereby waives
personal service of any summons, complaint or other process and agrees that the
service thereof may be made by certified or registered mail directed to such
party at the address for notice pursuant to Paragraph 18 above.
IN WITNESS WHEREOF, the parties have executed this Telecommunications Service
Agreement on the date written below.
TELTRAN INTERNATIONAL, INC. PACIFIC GATEWAY EXCHANGE, INC.
By: By:
--------------------------- --------------------------------
Byron R. Lerner Stephen A. Wood
President & CEO Vice President, Network Services
Date: Date:
------------------------- ------------------------------
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TELECOMMUNICATIONS SERVICES AGREEMENT
This Agreement is made by and between Teltran International, Inc. ("Teltran"), a
Delaware corporation with its principal offices at One Penn Plaza, Suite 4632,
New York, NY 10119, and North American Gateway, Inc. ("Customer") a Canadian
corporation with its principal offices at 207 Queen's Quay West, Suite 890,
Toronto, Ontario, M5J 1A7. This Agreement will become effective the date it is
executed by both parties.
WHEREAS, Customer desires to purchase telecommunications services from Teltran
and Teltran desires to sell such services to Customer. NOW, THEREFORE, intending
to be legally bound, the parties agree as follows:
1. Services Provided: In accordance with the terms and conditions of this
Agreement, Teltran shall provide telecommunication services (the "Services") to
Customer. Services can be accessed via DS-1 or DS-3 type access or be other
means agreeable to Teltran. Obtaining access to Teltran's facilities is the
responsibility of Customer. Services shall be at the rates, terms or upon the
conditions described in Schedule A annexed hereto and to the countries set forth
on said Schedule A. Services to be provided shall be limited to those countries
set forth on said Schedule A unless otherwise agreed. Teltran shall have the
right to change the rates and countries set forth on Schedule A and annexed
hereto upon seven days written notice to Customer ("Change of Rate Notice").
Customer may terminate traffic to a country affected by a rate change by giving
seven day written notice to Teltran.
2. Service Term: The Service Term shall begin after Customer has tested the
Service and begins to send live traffic ("Start of Service") and shall be
provided hereunder for a period of one-year from the Start of Service. The term
shall be automatically renewed on a month to month basis after the initial
service-term unless written notice is provided otherwise 60 days prior to the
expiration of the Service Term.
3. Commitment: Customer agrees to use and accept the services at the rates and
upon the terms and conditions set forth in Schedule A.
4. Service Interconnection - Technical Requirements In order to utilize the
Service, a connection between Customer's network ("Customer Location") and the
Teltran network at the Teltran designated point-of-presence facilities ("Teltran
POP") may need to be established ("Service Interconnection"). If necessary,
Customer shall be responsible for establishing each Service Interconnection over
facilities subject to Teltran approval. If a Service Interconnection is proposed
to be made via a local exchange carrier, Teltran may direct Customer to utilize
Teltran local serving arrangement and Customer will, with prior notice, be
subject to a non-discriminatory charge therefore from Teltran.
4.1 Service Interconnection - Loading Teltran will provide space at their POP's
for Customer to connect the necessary service interconnections. If available,
Teltran also agrees to provide additional interconnection capacity as needed by
Customer.
5. Billing; Payment Due Dates; Restriction Or Disconnection of Services;
Collection Charges; Interest: Customer is liable for all amounts due Teltran
hereunder, subject to the following. Teltran will calculate the length of each
Service call based upon rounding to the next higher six seconds with a minimum
billing period of thirty seconds, except to Mexico or where
<PAGE>
rates are listed on Schedule A based upon one minute billing periods in which
case the length of the Service call will be rounded to the next higher one
minute interval.
5.1 Weekly Billing: Commencing after the end of the first week of Services and
continuing every week thereafter, Teltran shall deliver via facsimile or e-mail
transmission an invoice and weekly traffic report to the Customer, which invoice
and report shall set forth the actual amount and cost of Services rendered to
Customer during the immediately preceding week according to Teltran's records.
The billing cycle shall begin 00:00 on Monday.
Such invoice may also contain any appropriate debits or credits to previous
invoices rendered to Customer. Upon receipt of the invoice the Customer shall,
within three (3) business days, deliver the undisputed invoice amount without
any deductions or offsets of any kind via wire transfer for deposit in Teltran's
account. Teltran reserves the right to immediately discontinue Service should an
undisputed invoice amount remain unpaid by the close of business (5:00 pm EST)
on the fourth day after Customer's receipt of the weekly invoice. Teltran's
banking details are attached as Schedule B.
5.2 Billing Disputes: Any billing discrepancies shall be presented by the
Customer to Teltran in reasonable detail, in writing, within 45 days of the date
of the invoice in question. Teltran shall not be obligated to consider any
customer notice of discrepancies that are received by Teltran more than 45 days
following the date of the invoice in question. If Teltran fails to reply in
writing regarding the customer dispute within 45 days, the disputed amount shall
be deemed valid and accepted by Teltran. Both parties shall endeavor to resolve
all disputes within 45 days of Customer's written notification.
5.4 Arbitration: Both parties agree to act in good faith to resolve billing
disputes between each other. If within forty-five (45) days a dispute is not
resolved, both parties agree to immediately resolve disputes with binding
arbitration with respect to any and all proceedings. Any such proceeding shall
be pursuant to the rules of the American Arbitration Association as they are
applicable to the immediate resolution of disputes brought forward. One
arbitrator, who must be knowledgeable in the telecommunications industry, will
be utilized in any proceedings. The arbitrator shall be empowered to promptly
adjudicate and determine each proceeding in law and/or in equity, and must
determine who the prevailing Party is within ten (10) days after a notice of
dispute has been sent by one Party to the other Party. Judgment upon the award
will be final and may be entered in any Federal or State Court having
jurisdiction thereof. Both Parties agree to immediately comply with the
judgement having been entered and/or confirmed.
6. Termination by Customer: Customer may terminate this Agreement by giving
written notice to Teltran thirty (30) days prior to Customers desired
termination date. If Customer terminates this Agreement before expiration of the
Services Term, Customer will be billed for and shall pay within ten (10)
business days after such Termination the total outstanding charges due.
7. Termination by Teltran: Teltran may terminate this agreement by giving
written notice to Customer thirty (30) days prior to its intention to do so. If
Teltran terminates this Agreement or the Services provided pursuant to this
Agreement due to Customer's breach of any of the covenants, representations and
warranties herein, the termination may be immediate and the Customer will be
billed for and shall pay within ten (10) business days the total outstanding
charges due.
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8. Representations and Warranties of the Parties: The rates, terms and
conditions herein are expressly conditioned upon the following representations
and warranties by Customer:
8.1 Each party has obtained the required operating authority in all states in
which it conducts business, as well as authority required by the FCC for the
sale of telecommunications services, including but not limited to authority
required pursuant to Section 214 of the Communications Act of 1934, 47 U.S.C.
214.
8.2 Each party complies and will continue to comply at all times with all
federal and state laws and regulations applicable to the sale and provision of
service to its users and end-users, including but not limited to those laws and
regulations applicable to the authorization and proof of authorization necessary
to convert an end-user's former service to Customer's service as the end-user's
Primary Interexchange Carrier.
9. Disclaimer of Warranties; Limitation of Liability: Teltran (including its
subsidiaries, affiliates, predecessors, successors and assigns) makes no
warranties, express or implied, and specifically disclaims any warranty of
merchantability or fitness for a particular purpose with respect to services or
products provided pursuant to this Agreement. In no event shall Teltran be
liable for consequential, special or indirect damages or lost profits sustained
by reason of its performance of this Agreement, or for any failure, breakdown,
or interruption of service, whatever shall be the cause, or however long it
shall last, and regardless of whether any one has been advised of the
possibility of such damages. Teltran shall have no liability for damages caused
(a) by Customer's failure to perform its responsibilities under this agreement,
or (b) by the acts of third parties (including without limitation Customer's
users or end users). This limitation of liability shall apply regardless of the
form of action, whether in contract, tort, warranty, strict liability, or
negligence (including without limitation active and passive negligence). This
Agreement does not create any claim or right of action, nor is it intended to
confer any benefit on any third party, including but not limited to any user or
end-user of Customer. The limitations of liability set forth in this Agreement
shall survive termination of this Agreement.
10. Duty to Indemnify and Defend: Customer shall indemnify, defend and hold
harmless Teltran and its directors, employees, agents, parent, subsidiaries,
successors, and assigns from all claims, damages and expenses arising out of or
resulting from, in whole or in part, the acts or omissions of Customer or its
End-users, their employees, agents or contractors affiliated companies and their
employees, agents or contractors, including but not limited to claims for libel,
slander, invasion of privacy, or infringement arising form combining or using
facilities or equipment furnished by Teltran in connection with facilities or
equipment furnished by others. Customer shall also indemnify, defend and hold
Teltran harmless form all causes of action., claims, liabilities or expenses
asserted or incurred by any of Customer's Users of End-users arising out of any
failure, breakdown, or interruption of service provided to Customer by Teltran
or to End-users by Customer. Customer shall indemnify, defend and hold Teltran
harmless from all causes of action, claims, liabilities or expenses asserted or
incurred by Customer's End-users due to Customer's marketing efforts, including
but not limited to Customer's violation of laws and regulations applicable to
the authorization and proof of authorization necessary to convert an End-user's
former service to Customer's service as the End-user's Primary Interexchange
Carrier.
11. Confidentiality: Since each Party may have access to the other Party's
confidential, sensitive, and/or proprietary information including, without
limitation, financial
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information, rates, supply and service information, technical data and
specifications, marketing information, customer and personnel information, and
dialing patterns ("Proprietary Information"); therefore, during the Term and
thereafter, neither Party shall disclose any terms of this Agreement, including
pricing, or Proprietary Information of the other Party except as required by
law. Any disclosure hereof required by legal process shall only be made after
providing the non-disclosing party with notice thereof in order to permit the
non-disclosing party to seek an appropriate protective order or exemption.
Proprietary Information shall remain the property of the disclosing Party. A
Party receiving Proprietary Information shall: (i) use or reproduce such
information only when necessary to perform this Agreement; (ii) provide at least
the same care to avoid disclosure or unauthorized use of such information as it
provides to protect its own Proprietary Information; (iii) limit access to such
information to its employees or agents who need such information to perform this
Agreement; and (iv) return or destroy all such information, including copies,
after the need for it has expired, upon request of the disclosing Party, or upon
termination of this Agreement. Because of the unique nature of Proprietary
Information, a breach of this paragraph may cause irreparable harm for which
monetary damages may be inadequate compensation. Accordingly, in addition to
other available remedies, a Party may seek injunctive relief to enforce this
paragraph. The parties to this Agreement also acknowledge that no effort shall
be made to circumvent its terms in an attempt to gain customers, commissions,
fees, remuneration, rates or considerations to the benefit of any of the parties
of this Agreement, while excluding equal or agreed to benefits to the other
party.
12. Taxes: Upon execution hereof, Customer shall provide Teltran with a
properly executed Certificate of Exemption for all foreign, federal, state,
county and local taxes and fees (if any) and shall be responsible for the
collection of all applicable end-users taxes and fees and the remittance of such
taxes and fees to the relevant government authority. Teltran shall pass through
to Customer and Customer shall pay all taxes that may be so passed on to
Customer by law.
13. Interfacing And Communicating With End-Users: Interfacing and communicating
with end-users shall be the sole responsibility of Customer with respect to any
use that Customer may make of the Service provided pursuant to this Agreement to
in turn provide service to other persons or entities. Such interfacing and
communicating shall include without limitation installation of service,
termination of service, placing of orders, billing and billing inquiries,
reporting of service outages and problems, collection of charges and handling
and resolution of all disputes.
14. Customer's Use of Service: Customer may use the Services provided pursuant
to this Agreement for any lawful purpose consistent with the transmission and
switching parameters of the telecommunications network, and may resell its use
(or the use of any part thereof) to a third party in the normal course of the
Customer's business, subject to the following:
14.1 Abuse - The abuse of Service is prohibited. The following activities
constitute abuse:
o Using Service to make calls that might reasonable be expected to
frighten, abuse, torment, or harass another, or
o Using Service in such a way that it interferes unreasonably with the
use of Service or Teltran's network by others.
14.2 Fraudulent Use - The fraudulent use of or the intended or attempted
fraudulent use of, Service is prohibited. The following activities constitute
fraudulent use:
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o Using Service to transmit any message or code, locate a person, or
otherwise give or obtain information, without payment for Service, or
o Using or attempting to use Service with the intent to avoid the
payment, either in whole or in part, of any charges by any means or
device.
In any instance in which Teltran believes in good faith that there is fraudulent
use of Service as set forth above, Teltran may immediately upon notice to
Customer, and without liability on the part of Teltran, restrict, suspend, or
discontinue providing Service.
15. Assignment: Customer may not assign this Agreement in whole or in part
without the prior written consent of Teltran which shall not be unreasonably
withheld or delayed. Teltran may, in its discretion, condition its consent to
such assignment upon the posting of an appropriate deposit by the assignee.
Teltran reserves the right to deny or revoke its consent to such assignment at
any time if the assignee proves unwilling or unable to comply with the
representations and warranties set forth in this Agreement, in which event the
Customer shall remain or again become responsible for performance of all terms
of this Agreement. This provision shall not affect the Customer's right to
resell Service. Further, any resale or assignment shall not release the original
Customer from its obligations under this Agreement.
16. Independent Parties: The relationship established by the Agreement shall in
no way constitute Teltran (or its agents or employees) as a partner, agent or
fiduciary of Customer. The relationship established by this Agreement shall in
no way constitute the Customer (or its agents or employees) as a partner, agent
or fiduciary of Teltran. The provision of service described in this agreement
does not establish any joint undertaking, joint venture or fiduciary
relationship between Teltran and Customer.
17. Force Majeure: Neither party nor its affiliates, subsidiaries,
subcontractors or agents shall be liable in any way for delay, failure in
performance, loss or damage due to any of the following: fire, strike, embargo,
explosion, power blackout, earthquake, volcanic action, flood, war, water, the
elements, labor disputes, civil or military authority, act of God, acts of the
public enemy, inability to secure raw materials, inability to secure products,
acts or omissions of carriers, or other causes beyond its reasonable control,
whether or not similar to the foregoing.
18. Severability: If any portion of this Agreement shall be found to be invalid
or unenforceable, such portion shall be void and have no effect, but the
remainder of the Agreement shall continue in full force unless the Agreement
fails in its essential purpose without the voided portion.
19. Notices: All notice, identifications, formal requests or other formal
communications required or desired to be given in connection with this
agreement, shall be in writing and shall be effective when delivered in person,
mailed by registered or certified post of sent by telex or facsimile ("fax") to
the recipient party, unless the parties otherwise agree in writing. Notice shall
be addressed to the following:
If to Teltran: If to Customer:
-------------- ---------------
Mr. Peter Biagioli Janis Lo
Vice President - Sales & Marketing Director, Carrier Services
Teltran International, Inc. North American Gateway, Inc.
One Penn Plaza, Suite 4632 207 Queen's Quay West, Suite 890
New York, NY 10119 Toronto, Ontario M5J 1A7
Phone: 212-643-1283 Phone: 416-364-8046
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<PAGE>
Fax: 212-643-1997 Fax: 416-364-9482
E-mail: [email protected] E-mail: [email protected]
---------------
20. Compliance with laws: Each party is responsible for its own compliance with
all laws and regulations affecting its business, including but not limited to
the collection and remittance of all taxes and other levies imposed by law.
21. Choice of Law: The domestic law of the State of New York, except its
conflict-of-laws rules, shall govern the construction, interpretation and
performance of this agreement.
22. Limitations: Except for the warranties explicitly set forth within, Teltran
specifically excludes and disclaims all warranties, express or implied,
including any warranties of merchantability and fitness for a particular
purpose. In no event shall Teltran have any liability to Customer, nor may this
agreement be cancelled, for any reasonable interruption of service involving the
network or the access lines (failure of the underlying carrier circuits, power
failure, flood, riot, etc.), nor shall Teltran be liable in any way to Customer
for any delay, failure in performance, or loss or damage due to any conditions
beyond its reasonable control.
Nothing herein contained shall be construed as preventing the Customer from
canceling this agreement without further liability in the event Teltran fails to
provide the service on a regular basis consistent with the standards Voice over
Internet Protocol (VoIP) providers in the industry as to technical quality. The
parties agree that because of the nature of the VoIP technology and Networks,
the call quality of calls placed over the Network may be less than that from the
normal use of the PSTN. Customer may test the Service before purchasing and if
the quality of the service does not meet their requirements, this contract may
be cancelled immediately and a return of all Surety will be made without further
liability.
23. Jurisdiction: Each party hereby irrevocably consents to the jurisdiction of
the courts of the State of New York in connection with all disputes,
controversies, claims and actions arising in connection with or relating to this
agreement and agrees that such courts shall be sole and exclusive jurisdiction
of such disputes, controversies, claims and action. Each party hereby waives
personal service of any summons, complaint or other process and agrees that the
service thereof may be made by certified or registered mail directed to such
party at the address for notice pursuant to Paragraph 18 above.
IN WITNESS WHEREOF, the parties have executed this Telecommunications Service
Agreement on the date written below.
TELTRAN INTERNATIONAL, INC.: NORTH AMERICAN GATEWAY INC.
By: By:
-------------------------- ------------------------
Byron R. Lerner Name:
President & CEO ----------------------
Title:
---------------------
Date: Date:
------------- ----------------------
<PAGE>
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT ("Agreement"), entered into as of this ____ day of May
1999 by and among the Sellers named on Schedule A hereto (collectively ,
"Sellers"), and Teltran International Group, Inc. ("Purchaser").
R E C I T A L S
WHEREAS, the Sellers are the registered and beneficial owners of all of the
issued and outstanding common stock of OmniCom of New York, Inc., a New York
corporation (the "Corporation");
WHEREAS, the Sellers wish to sell and the Purchaser wish to purchase all of
such shares, on and subject to the terms and conditions of this Agreement;
NOW THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained in this Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement to Purchase and Sell; Purchase Price
Subject to the terms of this Agreement, the Sellers hereby sell,
assign, transfer and deliver to the Purchaser, and the Purchaser hereby purchase
from the Sellers all of the issued and outstanding shares of common stock of the
Corporation (the "Purchased Shares"). The aggregate purchase price for the
Purchased Shares shall be One Hundred Fifteen Thousand (115,000) shares of the
common stock of the Purchaser (the "Teltran Shares").
1.2 Deliveries by the Parties
(a) The Purchaser shall deliver to the Sellers certificates for the Teltran
Shares in the amounts listed on Schedule A hereto and registered in the name of
each person or entity set forth next to such amounts. Such certificates shall
bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR
(iii) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
<PAGE>
(b) Sellers shall deliver to the Purchaser stock certificates representing
the Purchased Shares being sold by the Sellers, duly endorsed in blank and
otherwise in form acceptable for transfer on the books of the Corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
Each of the Sellers hereby jointly and severally represent and warrant to
the Purchaser as follows:
2.1 Execution, Delivery and Performance of Agreement. The execution and
delivery of this Agreement by the Sellers, and all other documents contemplated
hereby, and the performance of their respective obligations hereunder and
thereunder are within the respective powers of each of the Sellers.
2.2 Enforceability. This Agreement constitutes, when executed and
delivered by the Sellers in accordance herewith, the valid and binding
obligations of the Sellers enforceable in accordance with its terms, subject to
general principles of equity and bankruptcy or other laws relating to or
affecting the rights of creditors generally.
2.3 Sellers' Ownership of Shares. Sellers own the Purchased Shares being
sold hereunder free and clear of any liens or encumbrances.
2.4 Organization and Standing. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority, and all authorizations, licenses, permits and certifications
necessary to own its properties and assets and to carry on its business as it is
now being conducted and proposed to be conducted. The Corporation is duly
qualified to transact business and is in good standing in each jurisdiction in
which the character of the properties owned or leased by it or the nature of its
businesses makes such qualification necessary.
2.5 No Untrue Statements. Neither this Agreement nor any of the
"Disclosure Documents", as hereinafter defined, delivered by Sellers contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading in the light of the circumstances under which such statements are
made. There exists no fact or circumstances which, to the knowledge of the
Sellers, materially and adversely affects the business, properties, assets, or
conditions, financial or otherwise, of the Corporation, which has not been set
forth in this Agreement or disclosed in such documents.
2
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
Purchaser hereby represents and warrants to the Sellers as follows:
3.1 Execution, Delivery and Performance of Agreement; Authority. The
execution and delivery of this Agreement by the Purchaser, and all other
agreements and documents contemplated hereby, and the performance of their
respective obligations hereunder and thereunder are within the respective powers
of the Purchaser, having been duly authorized.
3.2 Enforceability. This Agreement constitutes, when executed and
delivered by the Purchaser in accordance herewith, the valid and binding
obligations of the Purchaser enforceable in accordance with its terms, subject
to general principles of equity and bankruptcy or other laws relating to or
affecting the rights of creditors generally.
3.3 Organization and Standing. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority, and all
authorizations, licenses, permits and certifications necessary to own its
properties and assets and to carry on its business as it is now being conducted
and proposed to be conducted. Purchaser is duly qualified to transact business
and is in good standing in each jurisdiction in which the character of the
properties owned or leased by it or the nature of its businesses makes such
qualification necessary.
2.5 No Untrue Statements. Neither this Agreement nor any of the
"Disclosure Documents", as hereinafter defined, delivered by Purchaser contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading in the light of the circumstances under which such statements are
made. There exists no fact or circumstances which, to the knowledge of the
Purchaser, materially and adversely affects the business, properties, assets, or
conditions, financial or otherwise, of the Purchaser, which has not been set
forth in this Agreement or disclosed in such documents.
ARTICLE IV
MISCELLANEOUS PROVISIONS
4.1 Headings. The inclusion of headings in this Agreement is for
convenience of reference only and shall not affect the construction or
interpretation hereof.
4.2 Entire Agreement; Waiver. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter of this
Agreement. There are no warranties, representations or other agreements between
the parties in connection with such subject matter except as specifically set
forth or referred to in this Agreement. No amendment, waiver or termination of
this Agreement shall be binding unless executed in writing by the party to be
3
<PAGE>
bound thereby. No waiver of any provision of this Agreement shall constitute a
continuing waiver unless otherwise expressly provided.
4.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
4.4 Assignment. No party may assign its rights or benefits under this
Agreement and any such purported assignment or transfer is hereby declared null
and void.
4.5 Cooperation; Further Assurances.. The parties shall cooperate fully
and in good faith with each other and their respective legal advisers,
accountants and other representatives in connection with any steps required to
be taken as part of their respective obligations under this Agreement. Each of
the parties shall promptly do, make, execute, deliver, or cause to be done,
made, executed or delivered, all such further acts, documents and things as the
other parties hereto may reasonably require from time to time for the purpose of
giving effect to this Agreement and the transactions contemplated by this
Agreement and shall use reasonable efforts and take all such steps as may be
reasonably within its power to implement the provisions of this Agreement to its
full extent.
4.6 Counterparts. This Agreement may be signed in counterparts and each
such counterpart shall constitute an original document and such counterparts,
taken together, shall constitute one and the same instrument.
4.7 Disclosure Documents. The term "Disclosure Documents" shall mean all
the information and other documents, including financial statements, that one of
the parties hereto has delivered to the other party in connection with the
transaction contemplated hereby or previously filed with any governmental
agency.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first set forth above.
PURCHASER: SELLERS:
TELTRAN INTERNATIONAL
GROUP, INC.
------------------------
By:
-------------------------
Byron Lerner, President
------------------------
4
<PAGE>
EXHIBIT 23.1
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
NOVEMBER 11, 1999
GARDEN CITY, NY
<PAGE>
EXHIBIT 23.2
[DAVID NUGENT & CO. LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED CHARTERED ACCOUNTANT
CHANNELNET LIMITED
We hereby consent to the use of our Certified Financial Statements dated August
19th 1999 and to all references to our firm included in or made part of this
form SB-2.
/s/ DAVID NUGENT & CO.
-----------------------------------------------------------------------------
David Nugent & Co.
Chartered Certified Accountants
& Registered Auditors
November 11, 1999
Manchester
England
