<PAGE>
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 27, 1998
To the Holders of Common Stock of Franklin Telecommunications Corp.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Franklin
Telecommunications Corp. will be held at the Hyatt Westlake Plaza Hotel, 880 S.
Westlake Blvd., Westlake Village, California 91361, on February 27, 1998, at
2:00 P.M., local time, for the following purposes:
1. To elect a board of four directors, with each director so elected to
hold office until the next Annual Meeting and until their successors
have been duly elected and qualified; and
2. To adopt the 1998 Incentive Stock Option Plan.
3. To transact such other business as may properly come before the Annual
Meeting and any continuation or adjournment thereof.
The Board of Directors has fixed the close of business on January 19, 1998
as the record date for the determination of the shareholders entitled to notice
of and to vote at the Annual Meeting, and only shareholders of record at the
close of business on that date will be entitled to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual meeting in
person. YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY IN THE ACCOMPANYING PRE-ADDRESSED, STAMPED ENVELOPE. Your proxy will not
be used if you are present at the Annual Meeting and desire to vote your shares
personally.
By Order of the Board of Directors,
Frank W. Peters, Chief Executive Officer
Westlake Village, California
January 27, 1998
IMPORTANT: IF YOU DO NOT EXPECT TO ATTEND THE MEETING IN PERSON, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED SO THAT THE PRESENCE OF A
QUORUM MAY BE ASSURED. PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY. NO POSTAGE REQUIRED IF MAILED IN THE UNITED
STATES.
<PAGE>
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
___________________
PROXY STATEMENT
___________________
ANNUAL MEETING OF SHAREHOLDERS
To Be Held February 27, 1998
This Proxy Statement is being furnished to the shareholders of Franklin
Telecommunications Corp., a California corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
for use at the Annual Meeting of Shareholders of the Company to be held at held
at the Hyatt Westlake Plaza Hotel, 880 S. Westlake Blvd., Westlake Village,
California 91361, on February 27, 1998, at 2:00 P.M., local time, and at any
continuation or adjournment thereof.
This Proxy Statement, and the accompanying Notice of Annual Meeting and
proxy card, are first being mailed on or about January 27, 1998 to shareholders
of record on January 19, 1998, the record date for the determination of the
stockholders entitled to notice of and to vote at the Annual Meeting. A copy of
the Company's Annual Report to Shareholders, which contains audited financial
statements for the fiscal year ended June 30, 1997, and proposed new 1998
Employee Incentive Stock Option Plan are concurrently being mailed to all
shareholders of record as of January 19, 1998.
The cost of soliciting proxies will be borne by the Company. In addition
to the solicitation of proxies by mail, solicitation may be made by telephone,
telegraph or personal interview by Directors, officers and other regular
employees of the Company, without extra compensation. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
soliciting material to the beneficial owners of shares and will be reimbursed
for their expenses.
VOTING RIGHTS
As of January 19, 1998, the record date for the determination of the
shareholders of the Company entitled to notice of and to vote at the Annual
Meeting, there were 16,135,183 shares of the Company's Common Stock outstanding.
Each share of Common Stock entitles the holder to one vote on each matter to
come before the Annual Meeting, except that shareholders may be entitled to
cumulative voting rights in the election of directors as describe below.
Cumulative voting rights entitle a shareholder to give one nominee that number
of votes equal to the number of directors to be elected multiplied by the number
of shares of Common Stock he or she is entitled to vote, or to distribute such
number of votes among two or more nominees in such proportion as the shareholder
may choose. The four nominees receiving the highest number of votes at the
Annual Meeting will be elected. In order for all shareholders to cumulate
votes, one shareholder must give notice to the Secretary prior to commencement
of voting that of his or her intention to cumulate his or her votes.
Properly executed and returned proxies, unless revoked, will be voted as
directed by the shareholder or, in the absence of such direction, by the persons
named therein FOR the election of the seven director nominees listed below. As
to any other business which may properly come before the Annual Meeting, the
proxy holders will vote in accordance with their best judgment. A proxy may be
revoked at any time before it is voted by delivery of written notice of
revocation to the Secretary of the Company or by delivery of a subsequently
dated proxy, or by attendance at the Annual Meeting and voting in person.
Attendance at the Annual Meeting without also voting will not in and of itself
constitute the revocation of a proxy.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information regarding the ownership of the
Company's Common Stock as of January 19, 1998, by (i) each of the current
directors and nominees for election as a director of the Company, (ii) each
person or group
2
<PAGE>
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, and (iii) all current directors and executive officers
of the Company as a group. Except as otherwise noted and subject to community
property laws where applicable, each beneficial owner has sole voting and
investment power with respect to all shares shown as beneficially owned by them.
Except as otherwise indicated, the address of each holder identified below is in
care of the Company, 733 Lakefield Road, Westlake Village, California 91361.
<TABLE>
<CAPTION>
Name and Address Shares Percent of
of Beneficial Owner Beneficially Owned(1) Class(1)
- -------------------- --------------------- ----------
<S> <C> <C>
Frank W. Peters 4,613,928(2) 29%
Thomas Russell 179,040 1%
Peter S. Buswell 130,000 1%
Robert S. Harp -0- -0-
All directors and executive officers
of the Company as a group (4 persons) 4,922,968 31%
</TABLE>
(1) In calculating beneficial and percentage ownership, all shares of Common
Stock which a named shareholder will have the right to acquire within 60
days of the record date for the Annual Meeting upon exercise of stock
options and stock purchase warrants are deemed to be outstanding for the
purpose of computing the ownership of such shareholder, but are not deemed
to be outstanding for the purpose of computing the percentage of Common
Stock owned by any other shareholder. As of January 19, 1998, an aggregate
of 16,135,183 shares of Common Stock were outstanding.
(2) Does not include shares issuable upon conversion of 50% of the balance of
notes totaling $229,000 into shares at 50% of market value.
ELECTION OF DIRECTORS
The Company's current Board of Directors has nominated four individuals, Frank
W. Peters, Peter S. Buswell, Robert S. Harp and Thomas Russell, for election as
directors of the Company at the Annual Meeting, each to serve as such until the
next annual meeting of the Company's shareholders and until their respective
successors are elected and qualified. Each of the nominees is a current member
of the Company's Board of Directors. Although it is not presently contemplated
that any nominee will decline or be unable to serve as a Director, in either
such event, the proxies will be voted by the proxy holders for such other
persons as may be designated by the present Board of Directors should any
nominee become unavailable to serve. In the event that anyone other than the
four nominees listed below should be nominated for election as a director, the
persons named in the accompanying proxy will have the authority, to be exercised
in their discretion, to vote cumulatively for less than all of the nominees. The
four nominees receiving the highest number of votes at the Annual Meeting will
be elected.
Nominees
Certain information concerning the four individuals nominated by the Company's
Board of Directors for election at the Annual Meeting to serve as directors of
the Company for the ensuing year is set forth below:
Mr. Peters has been President of the Company since its organization in 1981.
Between 1975 and 1984 he was also President of Franklin Data Systems and
Franklin Systems Corporation. From 1973 to 1975, he was Vice President of
Jacquard Systems Corporation, a computer hardware and word processing software
development marketer.
Mr. Buswell has been the Vice President of Marketing and Business Development
for Xantel, since 1996. Previously, he was Chief Marketing Officer for TAA, a
software developer engaged in the development of enterprise wide mixed media
messaging systems. During the 1980s he was manager of Strategic Planning for
the Communications Systems Group of Exxon Enterprises, the venture capital unit
of Exxon. He has also served as Director of Product Line Management at ITT and
as Manager of Program Development at Datapoint. Mr. Buswell has been a director
of the Company since 1996.
3
<PAGE>
Dr. Harp has been Chairman of Quesant Instruments, a manufacturer of scanning
probe microscopes, since 1992. Between 1987 and 1992, he was Chairman of
Vertek, a manufacturer of PC peripheral devices. He is also a founder of Vector
Graphic, Inc. Dr. Harp has been a director of the Company since 1996.
Mr. Russell has been the Chief Financial Officer and a director of the Company
since 1996. He also served as its Chief Financial Officer between 1988 and 1990.
Between 1990 and 1996 Mr. Russell owned and operated Russell Industries, a
manufacturer's representative and distribution firm. Prior to that time Mr.
Russell was a partner at Sorenson, Russell & Company, a public accounting firm,
and was employed by Peat Marwick. Mr. Russell is a certified public accountant..
Structure and Function of the Board of Directors
During the last fiscal year, the Company's Board of Directors held 7 regular and
special meetings or otherwise took action by written consent. The Board has
established both an Audit Committee and a Compensation Committee, comprised of
Messrs. Peters, Buswell and Russell. The Audit Committee meets to consult with
the Company's independent auditors concerning their engagement and audit plan,
and thereafter concerning the auditor's report and management letter and with
the assistance of the independent auditors, also monitors the adequacy of the
Company's internal accounting controls. With respect to compensation, the
Compensation Committee determines the compensation of corporate officers, and
will determine the persons entitled to participate in stock option, bonus and
other similar plans. The Board of Directors continues to meet as a whole to
nominate the individuals to be proposed by the Board of Directors for election
as directors of the Company, and has no separate nominating committee.
Each non-employee director is paid an annual retainer of $ -0- plus $ -0- per
each board meeting attended and each board committee meeting attended for each
committee of which they are a member. The Company has and will continue to pay
the expenses of its non-employee directors in attending Board meetings. No
compensation is paid to any of the employee directors.
There is no family relationship between any nominee and any other nominee or
executive officer of the Company.
Executive Officers
The executive officers of the Company are Frank W. Peters, Chief Executive
Officer, and Thomas Russell, Chief Financial Officer. Subject to the terms of
applicable employment agreement, officers serve at the pleasure of the Board of
Directors.
4
<PAGE>
Executive Compensation
The following table sets forth certain compensation paid or accrued by the
Company during the years ended June 30, 1996 and June 30, 1997 to its President
and its Chief Financial Officer (the "Named Executive Officers").
<TABLE>
<CAPTION>
All Other
---------
Annual Compensation Compensation
--------------------------------------- ------------
Name and Principal Position Year Salary Bonus
- ---------------------------------------------- ------- --------------- -----------
<S> <C> <C> <C> <C>
Frank W. Peters, President.................... 1996 $275,056(1) $100,000 -0-
1997 $291,556(1) $100,000 -0-
Thomas Russell, Chief Financial Officer(2).... 1996 -0- -0- -0-
1997 $ 60,208 $ 10,000 -0-
</TABLE>
_________
(1) Portions of these amounts were deferred. See "Transactions with
Management," below.
(2) Mr. Russell was employed by the Company beginning in October 1996.
Except as disclosed above, no compensation characterized as long-term
compensation, including restricted stock awards issued at a price below fair
market value or long-term incentive plan payouts, were paid by the Company
during the years ended June 30, 1996 and 1997 to any of the Named Executive
Officers.
Employment Agreements
The Company's President is employed pursuant to an Employment Agreement expiring
on December 31, 1997. The Employment Agreement provides for monthly compensation
at the rate of $20,000, with annual increases of 6%. The Company's Board of
Directors has approved a new six year Employment Agreement for the Company's
President, effective January 1, 1998. The new Employment Agreement provides for
compensation at the rate of $27,000 per month, with annual increases of 6%. The
Company's Chief Financial Officer is employed pursuant to Employment Agreement
for a three year period, commencing on September 2, 1997, providing monthly
compensation at the rate of $10,000 per month.
Stock Options
The Company adopted an Incentive Stock Option Plan ("Plan A") and
Nonqualified Stock Option Plan ("Plan B") (collectively the "1986 Plans").
Plan A provides for the granting of options to purchase shares of common stock
that are intended to qualify as incentive stock options within the meaning of
Section 422A of the Internal Revenue Code, and Plan B provides for the granting
of options to purchase shares of common stock that are not intended to qualify.
The 1986 Plans provide for the issuance of up to 700,000 shares in the aggregate
at fair market value.
During the year ended June 30, 1989, the Company adopted the 1988 Stock Option
Plan (the "1988 Plan"). Under the terms of the plan, options to purchase
300,000 shares of the Company's common stock are available for issuance to
employees, officers and directors. Options granted may be either incentive stock
options or non-statutory options. The exercise price of the incentive stock
options and non-statutory options may not be greater or less than 110% and 85%,
respectively, of the fair market value of the Company's common stock at the date
of grant.
During the year ended June 30, 1994, the Company adopted the 1993 Stock Option
Plan (the "1993 Plan"). The 1993 Plan provides for the granting of options to
purchase up to 600,000 shares of common stock that are intended to qualify as
incentive stock options within the meaning of Section 422A of the Internal
Revenue Code.
During the year ended June 30, 1995, the Company adopted the 1994 Stock Option
Plan (the "1994 Plan"). The 1994 Plan provides for the granting of options to
purchase up to 1,400,000 shares of common stock. Such options will be non-
statutory.
5
<PAGE>
Options granted under all four of the aforementioned plans vest in accordance
with the terms established by the Company's stock option committee. All such
options granted to date have vesting periods of between two to four years and
generally terminate at the earlier of the end of the option period or
termination of employment.
On December 13, 1996, the Company granted options to purchase 1,000,000 shares
of the Company's common stock to key management employees which were fully
vested on the date of grant. The option price was set at $1.31 per share, the
fair value of the underlying shares. The options are not included in the above.
Certain Transactions
During the year ended June 30, 1995, the Company issued notes for an
aggregate of $217,000 payable to its President, Frank W. Peters, in lieu of
compensation, included in the table above. These notes bear interest at the rate
of 9% per annum and are due and payable as follows: $12,000 due on August 20,
1995, $65,000 due on August 20, 1997, and $140,000 due on January 5, 1999. Mr.
Peters has waived any defaults or penalties with respect to the unpaid portions
of these notes. The $140,000 note is convertible into shares of the Company's
Common Stock at a conversion price of $.10 per share.
During the year ended June 30, 1995, the Company issued 2,000,000 shares to
its President, Frank W. Peters, upon exercise of options previously granted. The
exercise price was paid by the cancellation of notes in the amount of $92,000
and accrued interest in the amount of $42,000.
During the year ended June 30, 1996, the Company transferred 4,200,000 of its
shares of FNet Corp., a subsidiary of the Company, to its President, Frank W.
Peters, and to Colin Patterson, who was a director of the Company at the time,
in cancellation of notes payable and for consulting services. Management of the
Company valued the FNet shares at $.015 per share, based upon the book value of
FNet at the time of the transaction. The issuance of these shares caused the
Company's ownership percentage of FNet to decrease from 100% to 79% as of June
30, 1996.
During the year ended June 30, 1996, the Company deferred payment of $117,000
in compensation, included in the table above, to its President, Frank W. Peters,
with his permission, for an undetermined time period.
On September 20, 1995, the Company issued a promissory note for $100,000,
bearing interest at the rate of 8%, to its President, in lieu of bonus
compensation, included in the table above, for attaining certain corporate
objectives. The note is payable in twenty four equal monthly installments of
$4,523. No payments have been made to date on this Note, and the President has
waived the default provisions.
On September 20, 1996, the Company issued a $100,000 promissory note to its
President in exchange for services rendered in fiscal 1997. No compensation
expense was recorded in fiscal 1996 relating to this note. Bonus compensation
expense of $100,000 will be recorded in connection therewith in fiscal 1997. The
note bears interest at 8% per annum, and is payable in thirty-six equal monthly
installments of $3,134.
On December 13, 1996, the Company granted an option to purchase 1,000,000
shares of its Common Stock at an exercise price of $1.31 per share, the market
price as of December 13, 1996. The options were granted to key management
employees for achievement of certain goals. The options are all currently
exercisable. Of the options, 500,000 were granted to the Company's President,
Frank W. Peters, and 100,000 were granted to its Chief Financial Officer, Thomas
Russell.
During the year ended June 30, 1997, the Company deferred payment of $112,000
in compensation, included in the table above, to its President, with his
permission, for an undetermined time period.
As of June 30, 1997, the deferred compensation of $117,000 and $112,000 was
converted into two promissory notes. One half of the principal balance of the
notes is convertible into shares of the Company's Common Stock at a conversion
rate of 50% of the fair market value of the Common Stock at the date of
conversion.
On October 7, 1997, the Company's President exercised an option to purchase
1,333,695 shares of the Company's Common Stock at the exercise price of $.10
per share.
6
<PAGE>
On November 3, 1997, the Company's Chief Financial Officer exercised options
to purchase 150,000 shares of the Company's Common Stock at exercise prices
ranging from $.69 to $1.31.
Compensation Committee Report
Report on Annual Compensation of Executive Officers
- ---------------------------------------------------
It is the policy of the Company's Compensation Committee to establish
compensation levels for the executive officers, which reflect the Company's
overall performance and their performance, responsibilities and contributions to
the long-term growth and profitability of the Company. The committee determines
compensation based on its evaluation of the Company's overall performance,
including various quantitative factors, primarily the Company's financial
performance, sales and earnings against the Company's operating plan, as well as
various qualitative factors such as new product development, the Company's
product and service quality, the extent to which the executive officers have
contributed to forming a strong management team and other factors which the
committee believes are indicative of the Company's ongoing ability to achieve
its long-term growth and profit objectives.
The principal component of the compensation of the executive officers is their
base salaries. The committee also retains the discretion to award bonuses based
on corporate or individual performance. The committee evaluates the practices of
various industry groups, market data, including data obtained from time to time
from outside compensation consultants, and other economic information to
determine the appropriate ranges of base salary levels which will enable the
Company to retain and incentives the executive officers. Throughout the year,
the committee members review the corporate and individual performance factors
described above. The committee, based upon its review of performance for the
previous year and its review of the Company's operating plan, establishes salary
levels and awards any bonuses to the executive officers.
The Compensation Committee also considers grants of stock options for the
Company's key employees, including executive officers. The purpose of the stock
option program is to provide incentives to the Company's management to work to
maximize shareholder value. The option program also utilizes vesting periods to
encourage key employees to continue in the employ of the Company. Individual
amounts of annual stock option grants are derived based upon review of
competitive compensation practices with respect to the same or similar executive
positions, overall corporate performance and individual performance.
7
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and Directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership an changes in ownership (Forms 3, 4 and
5) with the Securities and Exchange Commission. Officers, directors and greater-
than-ten-percent shareholders are required to furnish the Company with copies of
all such forms which they file.
To the Company's knowledge, based solely on the Company's review of such
reports or written representations from certain reporting persons that no Forms
5 were required to be filed by those persons, the Company believes that during
the year ended December 31, 1997 filing requirements applicable to its officers,
directors, and other persons subject to Section 16 of the Exchange Act were in
compliance.
INDEPENDENT ACCOUNTANTS
Singer Lewak Greenbaum & Goldstein LLP has been retained to serve as the
Company's independent certified public accountants for the fiscal year ending
June 30, 1998. A representative of Singer Lewak Greenbaum & Goldstein LLP is
expected to be present at the Annual Meeting, and to be available to respond to
any shareholder questions directed to Singer Lewak Greenbaum & Goldstein LLP.
This representative will have an opportunity to make a statement if Singer Lewak
Greenbaum & Goldstein LLP so desires.
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the Company's proxy statement and
form of proxy relating to the Company's next annual meeting of shareholders,
proposals by the Company's shareholders intended to be presented at such annual
meeting must be received by the Company no later than ninety (90) days prior to
January 29, 1999.
ANNUAL REPORTS
The Company's 1997 Annual Report, which includes audited financial statements
for the Company's fiscal year ended June 30, 1997, is concurrently being mailed
with this proxy statement to shareholders of record on January 19, 1998.
OTHER MATTERS
The Board of Directors knows of no other matters to be presented for action at
the meeting. However, if any matters not included in this Proxy Statement
properly come before the meeting, it is the intention of the persons named in
the enclosed proxy to vote under the authority therein given in accordance with
his or their best judgment.
By Order of the Board of Directors,
Frank W. Peters, Chief Executive Officer
January 27, 1998
8
<PAGE>
[ Front of Proxy Card ]
FRANKLIN TELECOMMUNICATIONS CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Frank W. Peters and Thomas Russell, and
each of them, as attorney-in-fact and proxy for the undersigned, with full power
of substitution, to represent the undersigned and vote, as designated below, all
of the shares of Common Stock of Franklin Telecommunications Corp. (the
"Company") which the undersigned is entitled to vote at the Company's Annual
Meeting of Shareholders to be held on February 27, 1998, or at any adjournment
or continuation thereof.
1. ELECTION OF DIRECTORS:
[_] FOR ALL NOMINEES LISTED BELOW [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for the
nominees listed below
FRANK W. PETERS, PETER S. BUSWELL, ROBERT S. HARP AND THOMAS RUSSELL
(INSTRUCTION: To withhold authority to vote for any nominee, write the
nominee's name in the space provided below.)
________________________________________________________________________________
2. APPROVAL OF THE 1998 INCENTIVE STOCK OPTION PLAN
[_] FOR ADOPTION OF THE 1998 ISOP [_] WITHHOLD AUTHORITY
to vote for adoption of
the 1998 ISOP
3. In their discretion, upon such other business as may properly come before
the Annual Meeting or any adjournment or continuation thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER HEREIN
SPECIFIED BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF EACH OF THE SEVEN NOMINEES LISTED ABOVE
TO THE COMPANY'S BOARD OF DIRECTORS, AND IN ACCORDANCE WITH THE DISCRETION OF
THE PROXIES ON ANY OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING.
<PAGE>
[ Back of Proxy Card ]
Please sign exactly as name appears below, date
and return this card promptly using the
enclosed envelope. Executors, administrators,
guardians, officers of corporations, and others
signing in a fiduciary capacity should state
their full titles as such.
Dated . . . . . . . , 1998
_____________________________
Signature
_______________________
Signature (if held jointly)
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
