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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FRANKLIN TELECOMMUNICATIONS CORP.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 3670 95-3733534
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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733 LAKEFIELD ROAD, WESTLAKE VILLAGE, CALIFORNIA 91361 (805) 373-8688
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(ADDRESS AND TELEPHONE NUMBER, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FRANK W. PETERS
733 LAKEFIELD ROAD, WESTLAKE VILLAGE, CALIFORNIA 91361
(805) 373-8688
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(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPY TO:
ROBERT J. ZEPFEL, ESQ.
HADDAN & ZEPFEL LLP
4675 MACARTHUR COURT, SUITE 710
NEWPORT BEACH, CALIFORNIA 92660
(949) 752-6100
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Amendment to Registration Statement is declared effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, 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 of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
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 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. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Unit Price Fee
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Common Stock 5,947,766(1) $2.00 $11,895,532 $888.64
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(1) All of the securities registered pursuant to Registrant's Registration
Statement on Form S-3 (File No. 333-87551), consisting of 4,264,736 shares,
are being carried forward in the combined prospectus included herein. A
filing fee of $3,331.52 was paid in connection with the filing of that
Registration Statement. Pursuant to Rule 416 under the Securities Act of
1933, there are also being registered such indeterminate number of
additional shares of common stock as may be issuable upon the exercise of
the common stock purchase warrants described herein pursuant to the
antidilution provisions thereof. The proposed maximum offering price per
share and maximum aggregate offering price for the shares being registered
hereby is calculated in accordance with Rule 457(c) under the Securities
Act.
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 l933 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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PROSPECTUS
5,947,766 SHARES
FRANKLIN TELECOMMUNICATIONS CORP.
COMMON STOCK
These shares of common stock are being offered by Crescent
International Ltd., one of our current shareholders. We issued the shares, or
reserved the shares for issuance, to Crescent International, Ltd. in connection
with investments made in the Company in August and September 1999 and in
February 2000.
The selling shareholder may sell the shares covered by this Prospectus
on the American Stock Exchange and in ordinary brokerage transactions, in
negotiated transactions or otherwise, at prevailing market prices at the time of
sale or at negotiated prices, and may engage a broker or dealer to sell the
shares. For additional information on the selling shareholder's possible methods
of sale, you should refer to the section of this prospectus entitled "Plan of
Distribution." The selling shareholder may be deemed to be an "underwriter"
within the meaning of the Securities Act in connection with the sale of its
shares. We will not receive any proceeds from the sale of the shares, but will
bear the costs relating to the registration of the shares.
Our common stock is traded on American Stock Exchange under the symbol
"FCM."
The shares offered in this prospectus involve a high degree of risk.
You should carefully consider the "Risk Factors" beginning on page 2 in
determining whether to purchase shares of our common stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH , 2000.
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You should rely only on information contained or incorporated by
reference in this prospectus. See "Information Incorporated by Reference" on
page 11. Neither we nor the selling shareholder have authorized any other person
to provide you with information different from that contained in this
prospectus.
The information contained in this prospectus is correct only as of the
date on the cover, regardless of the date this prospectus was delivered to you
or the date on which you acquired any of the shares.
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." These
forward-looking statements include, without limitation, statements about our
market opportunity, our strategies, competition, expected activities and
expenditures as we pursue our business plan, and the adequacy of our available
cash resources. Actual results could differ materially from those expressed or
implied by these forward-looking statements as a result of various factors,
including the risk factors described above and elsewhere in this prospectus.
THE BUSINESS
Franklin Telecommunications Corp. designs, builds and sells Internet
Telephony equipment and other high speed communications products and subsystems.
Our products are marketed through Original Equipment Manufacturers ("OEMs") and
distributors, as well as directly to end users. In addition, through our
majority-owned subsidiary, FNet Corp., we provide Internet Protocol telephony
services and Internet access to businesses and individuals. Franklin was formed
in 1981. Our address is 733 Lakefield Road, Westlake Village, California 91361,
and our telephone number is (805) 373-8688.
RISK FACTORS
You should carefully consider the following factors and other
information in this prospectus before deciding to invest in the shares. You
should not purchase any of the shares unless you can afford a complete loss of
your investment.
WE HAVE A HISTORY OF OPERATING LOSSES.
We have incurred operating losses in each of the last three fiscal
years, and have a significant accumulated deficit. Our operating losses have
resulted from a number of factors, including reduced demand for original
hardware products, higher expenses for the development of new hardware products
and for installing the infrastructure for the Internet telephony and Internet
services business of FNet, and increasing sales and marketing expenses to
promote new products and services. Much of the operating capital during this
period has been derived from equity financings, rather than from operations. We
have been dependent on these equity financings to sustain our ongoing
operations. Thus, an investment in the shares is highly speculative and we
cannot assure you that you will realize any return on your investment or that
you will not lose your entire investment.
THE ARRANGEMENTS WITH THE SELLING SHAREHOLDER COULD CAUSE DILUTION OF EXISTING
SHAREHOLDERS
As described in "The Selling Shareholder," we have entered into a Stock
Purchase Agreement with Crescent International Ltd. under which we can, at our
option, issue shares of our Common Stock to Crescent for a total purchase price
of $6,500,000. The purchase price per share under the Agreement is equal to 92%
to the average of the lowest three consecutive bid prices of our Common Stock
during the 22 trading days preceding the date of issuance. To date, we have
issued 2,773,883 shares under this Agreement, for a total purchase price of
$3,500,000.
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In addition to the built-in discount, the transaction may be dilutive
of existing shareholders if the market price of the Common Stock decreases,
because the purchase price under the Stock Purchase Agreement decreases as well.
Under the Stock Purchase Agreement, the Company cannot issue additional shares
during any period that the market price of the Common Stock is below $2.00 per
share. If the market price were to fall to $2.00 per share, and the Company were
to elect to issue additional shares under the Agreement, the purchase price per
share would be $1.84 per share, and the maximum number of shares issuable for
the remaining $3,000,000 would be 2,445,652.
In addition, Crescent International Ltd.. holds two warrants issued in
connection with the transactions. The first is a five-year warrant that permits
Crescent International Ltd. to purchase up to 400,000 shares at an exercise
price of $1.5525 per share. The other warrant, issued in connection with an
issuance of shares in February 2000, permits Crescent to purchase shares at $.01
per share if the market price of the Common Stock is less than $1.7825 per share
on the date the Registration Statement (of which this prospectus is a part) is
declared effective by the Securities and Exchange Commission. The number of
shares issuable under this Warrant is based on a formula designed to ensure that
the total market value of the 841,515 shares issued under the Agreement in
February 2000 for $1,500,000, when increased by the value of any shares issuable
upon exercise of the warrant, equals $1,500,000 on the date the Registration
Statement (of which this prospectus is a part) is declared effective by the
Securities and Exchange Commission. Thus, for example, if the market price of
the Company's Common Stock were to decline by 25% from the original $1.7825
purchase price, to a market price of $ 1.337 per share, the warrant would be
exercisable to purchase 280,400 shares. (See "The Selling Shareholder").
However, under the terms of the Warrant, it may not be exercised to acquire
shares to the extent the exercise would result in the Selling Shareholder
beneficially owning more than 4.9% of the outstanding shares. The issuance of
these shares of Common Stock, as well as subsequent sales of shares of Common
Stock in the open market, may cause the market price of the Common Stock to fall
and might impair our ability to raise additional capital through sales of equity
or equity-related securities.
OUR SUBSIDIARY, FNET, POSES CERTAIN RISKS.
Several years ago we organized FNet, which offers Internet Protocol
telephony services and Internet access. We have devoted significant resources
and management time to the organization and development of FNet. We currently
own approximately 70% of the common stock of FNet, with the balance owned by
members of management, including Franklin's CEO, and certain investors. We
believe that the growth of FNet will benefit Franklin through increased demand
for our communications hardware as well as the value of our interest in FNet.
However, FNet may adversely affect our principal business in the short term due
to competing demands on our resources and management. Also, the fact that
members of Franklin's management, including our CEO, hold a direct interest in
FNet may pose conflicts of interest. FNet is a relatively new business venture,
and it can be expected that its operations will be subject to many of the
expenses, delays and risks inherent in the establishment of a new business.
WE DEPEND ON SEVERAL MAJOR CUSTOMERS.
Our sales have been concentrated in a relatively small number of
customers, who account for a significant portion of our revenues. During the
fiscal year ended June 30, 1999, a single customer represented 76% of sales. The
loss of any major customer could adversely affect the Company. The Company has
no ongoing supply contracts with any of its major customers.
WE MAY HAVE DIFFICULTIES IN MANAGING OUR GROWTH.
Our growth has placed a significant strain on our personnel and
systems. To accommodate our current size and manage growth, we must improve our
operational, financial and information systems, and expand, train and manage our
employee base. This problem may be more serious if we acquire additional
businesses, as each such business must then be integrated into our operations
and systems.
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As we expand our customer base, we will experience greater demands on
our network infrastructure, technical staff and resources. If such demand
results in difficulties satisfying the needs of our customers, it could
negatively affect us by causing subscribers or potential subscribers to utilize
competitive long distance telephone service providers and Internet service
providers. We believe that our ability to provide timely access for customers,
and adequate customer and technical support, will mainly depend on our ability
to attract, train, integrate and retain qualified employees.
IT IS LIKELY WE WILL REQUIRE ADDITIONAL CAPITAL.
All of the proceeds of this offering will be received by the selling
shareholder. While we may receive cash from the exercise of warrants covered by
this Prospectus, we can't be sure that we will derive any specific amount from
this offering. We may require additional capital to sustain our business as
presently operated, and developments in our business and possible expansion into
other markets could indicate that we need to raise additional capital.
OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY.
Our quarterly operating results may vary significantly due to a variety
of factors, including the availability and cost of materials and components, the
introduction of new products, the timing of our marketing efforts, pricing
pressures, general economic and industry conditions that affect customer demand,
and other factors.
OUR FUTURE GROWTH DEPENDS UPON AN INCREASE IN THE USE OF INTERNET PROTOCOL
TELEPHONY AS A MEDIUM FOR VOICE COMMUNICATIONS.
The Internet Protocol telephony business has little operating history,
and is evolving rapidly. Until very recently, the sound quality of Internet
telephony calls was poor, and the technology is still in the early stages of
development. As the industry has grown, substantial improvements to sound
quality have been made but technological impediments still need to be overcome.
In addition, the capacity constraints of the public Internet network could
hinder further development of Internet telephony if callers experience delays,
errors in transmissions or other difficulties. We have attempted to reduce this
risk by utilizing private leased lines, international private lines, Frame Relay
lines and T-1 lines for voice traffic, while using the Internet primarily for
fax and data traffic and only secondarily for voice traffic. As is typical in
the case of a new and rapidly evolving industry, demand and market acceptance
for our services are subject to a high level of uncertainty and risk. In
particular, the Internet must be accepted as a viable alternative to traditional
telephony service. Customers that have already invested substantial resources in
integrating traditional telephony service with their operations may be
particularly reluctant or slow to adopt a new technology that makes their
existing infrastructure obsolete. Because this market is new and evolving, it is
difficult to predict the size of this market and its growth rate. If the
Internet telephony market fails to develop, develops more slowly than we expect
or becomes saturated with competitors, then our business, results of operations
and financial condition will be materially adversely affected.
OUR BUSINESS IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID TECHNOLOGICAL CHANGES.
The Internet telephony, data communications and telecommunications
industry is extremely competitive. Our principal competitors in the manufacture
of communications hardware are Lucent Technologies, Nokia, HyperCom, Clarent,
Ascend Communications and Cisco Systems. Most of these companies have
substantially greater marketing, financial, technical and field support
resources. In addition, we could face strong competition from a number of
established computer and telecommunications firms which may enter the market in
the future.
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The fields of Internet telephony and data communications are marked by
rapid changes in technology, which can cause products to become obsolete over
very short time frames. Thus, our performance will depend on our ability to
develop and market new hardware products and services to meet changing
technology, pricing considerations and other market factors. The business could
be severely impacted if the Company were to experience delays in developing new
hardware products and services or enhancements.
The market for Internet telephony services has been extremely
competitive, and is expected to be so for the foreseeable future. Many companies
offer Internet telephony products and services, and many of these companies have
a substantial presence in this market. Most of the current Internet telephony
products permit voice communications over the Internet between two parties that
are both connected to the Internet with sound-equipped personal computers and
where both parties are using identical Internet telephony software products.
Current product offerings include VocalTec Communications' Internet Phone,
QuarterDeck's WebPhone and Microsoft's NetMeeting.
In addition, a number of large telecommunications providers and
equipment manufacturers, such as Cisco, Lucent, Northern Telecom and Dialogic,
have announced that they intend to offer server-based products. These products
are expected to allow voice communications over the Internet between parties
using a personal computer and a telephone and between two parties using
telephones. Cisco Systems has also taken a further step by recently acquiring
two companies that produce devices that help Internet service providers
transition voice and data traffic to cell and packet networks while maintaining
traditional phone usage and infrastructure. Internet telephony service
providers, such as ICG Communications, IPVoice.com, ITXC, RSL Communications
(through its Delta Three subsidiary) and VIP Calling, route Internet telephony
traffic to destinations on a worldwide basis. In addition, major long distance
providers, such as AT&T, Deutsche Telekom, Frontier, MCI WorldCom, and Qwest
Communications, as well as other major companies such as Motorola and Intel,
have all entered or plan to enter the Internet telephony market. Many of our
competitors are larger than and have substantially greater financial,
distribution and marketing resources than we do. We cannot be certain that we
will be able to compete successfully in the developing Internet telephony
market.
The entry of new participants from these categories and the potential
entry of competitors from other categories (such as computer hardware
manufacturers) would result in substantially greater competition. The ability of
these competitors or others to bundle services and products with Internet
connectivity services could place FNet at a significant competitive
disadvantage. In addition, competitors in the telecommunications industry may be
able to provide customers with reduced communications costs in connection with
their long distance telephone and Internet access services, reducing the overall
cost of telephone and Internet access and significantly increasing pricing
pressures on FNet.
WE FACE PRICING PRESSURES, PARTICULARLY IN THE INTERNET TELEPHONY MARKET.
The success of our current product and service offerings is based on
our ability to provide discounted voice communications by taking advantage of
cost savings achieved through Internet telephony. In recent years, the price of
traditional domestic and international long distance calls has been declining.
In response to these declines, many Internet telephony providers have lowered
the price of their service offerings. Should prices of traditional long distance
calls decline to a point where we no longer have a price advantage over our
competitors, we would lose a significant competitive advantage and would have to
rely on factors other than price to differentiate our product and service
offerings. If we fail to do so, our business could be materially adversely
affected.
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OUR BUSINESS DEPENDS ON OUR NETWORK INFRASTRUCTURE AND CAPACITY, AND MAY BE
SUBJECT TO SYSTEM FAILURE AND SECURITY RISKS.
The future success of FNet's business will depend on the capacity,
reliability and security of its network infrastructure. FNet will be required to
expand and improve this infrastructure as the number of customers and the amount
and type of information its customers communicate over the Internet increases,
and the means by which customers connect to the Internet evolve. Such expansion
and improvement may require substantial financial, operational and managerial
resources.
Capacity constraints have occurred at many Internet Service Providers,
both at the level of particular "points of presence" ("POPs") (affecting only
customers attempting to use that particular POP) and in connection with
systemwide services (such as e-mail and news services, which can affect all
customers). From time to time, FNet has experienced delayed delivery from
suppliers of new telephone lines, modems, servers and other equipment used by
FNet in providing its services. Any severe shortage of new telephone lines,
modems, servers or other equipment could result in incoming access lines
becoming full during peak times, causing busy signals for customers who are
trying to connect to the Internet. Similar problems may occur if FNet is unable
to expand the capacity of its various network, e-mail, World Wide Web and other
servers quickly enough to keep pace with demand from our expanding customer
base. If the capacity of such servers is exceeded, customers will experience
delays when trying to use a particular service. Further, if FNet does not
maintain sufficient capacity in its network connections, customers will
experience a general slowdown of all services on the Internet. Any of these
events could cause customers to terminate use of FNet's services. Accordingly,
our business would be damaged if we failed to expand or enhance our network
infrastructure on a timely basis, or failed to adapt it to an expanding customer
base, changing customer requirements or evolving industry standards.
FNet's operations are dependent on its ability to protect its
telecommunications and computer equipment against damage from fire, earthquake,
power loss, telecommunication failure and similar events. The occurrence of a
natural disaster or another unanticipated problem at our headquarters and
network hub or at POPs through which customers connect to the Internet could
cause interruptions in the services provided by FNet. In addition, failure of
FNet's telecommunications providers to provide the data communications capacity
required by FNet as a result of a natural disaster, operational disruption or
for any other reason could cause interruptions in the services provided by FNet.
FNet's network infrastructure may be vulnerable to computer viruses and
other similar disruptive problems caused by its customers, other Internet users
or other third parties. Computer viruses and other problems could lead to
interruptions, delays in or cessation of service to FNet's customers, as well as
corruption of FNet's or its customers' computer systems. Inappropriate use of
the Internet by third parties could also potentially jeopardize the security of
confidential information stored in the computer systems of FNet or those of its
customers, which may cause losses to FNet or its customers, or deter certain
persons from using FNet's services. We expect that FNet's customers may
increasingly use the Internet for commercial transactions in the future. Any
network malfunction or security breach could cause these transactions to be
delayed, not completed or completed with compromised security. Alleviating
problems caused by computer viruses or other inappropriate uses or security
breaches may cause interruptions, delays or cessation in service to FNet's
customers. Customers or others could assert claims of liability against us as a
result of such events. FNet does not presently maintain redundant or backup
Internet services or backbone facilities or other redundant computing and
telecommunications facilities.
OUR BUSINESS DEPENDS ON OUR ABILITY TO PROTECT ITS TECHNOLOGY.
Our success will depend in part on protecting our proprietary
technology. While we have patents covering certain of our products, we rely
principally on copyright law for protection of our hardware and software
designs, as well as trade secret law, confidentiality agreements and our
technical abilities and responsiveness to the demands of customers to protect
our proprietary rights.
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THE TELECOMMUNICATIONS BUSINESS IS HEAVILY REGULATED, AND REGULATORY CHANGES
COULD DISRUPT OUR BUSINESS.
Some of our products are subject to regulations of the Federal
Communications Commission. Certain regulations require that products which
reside on a customer's premises and interconnect the public switched network
meet certain standards to prevent harm to the network. Other regulations limit
the levels of electromagnetic radiation which may emanate from an electronic
device located on a customer's premises. We currently comply with these
regulations and we foresee no problem in complying with these regulations in the
future.
The use of the Internet to provide telephone service is a recent market
development. The Federal Communications Commission is considering whether to
impose surcharges or additional regulations on certain providers of Internet
telephony. In April of 1998 the FCC issued a report on the implementation of the
universal service provisions of the Telecommunications Act. The report indicates
that the FCC plans to examine the question of whether certain forms of
"phone-to-phone" Internet telephony are information services or
telecommunications services. The FCC noted that it did not have, as of the date
of the Report, an adequate record on which to make a definitive pronouncement,
but that the record suggested that certain forms of phone-to-phone Internet
telephony appear to have the same functionality as non-Internet
telecommunications services and lack the characteristics that would render them
information services. If the FCC were to determine that certain services are
subject to FCC regulation as telecommunications services, the FCC may require
providers of Internet telephony services to make universal service
contributions, pay access charges or be subject to traditional common carrier
regulation. In addition, the FCC sets the access charges on traditional
telephony traffic and if it reduces these access charges, the cost of
traditional long distance telephone calls will probably be lowered, thereby
decreasing our competitive pricing advantage.
In September 1998, two regional Bell operating companies, US West and
BellSouth, advised Internet telephony providers that the regional companies
would impose access charges on Internet telephony traffic. In addition, US West
has petitioned the FCC for a declaratory ruling that providers of interstate
Internet telephony must pay federal access charges, and has petitioned the
public utilities commissions of two states for similar rulings concerning
payment of access charges for intrastate Internet telephone calls. It is not
known whether these companies, US West and BellSouth, will actually impose
access charges or when such charges will become effective. If these companies
succeed in imposing access charges that may reduce the cost savings of using
Internet telephony as compared to traditional telephone service, the existence
of such access charges could adversely affect the development of the Company's
Internet telephony business. In February 1999, the FCC adopted an order
concerning payment of reciprocal compensation that provides support for a
possible finding by the FCC that providers of Internet telephony must pay access
charges for at least some portions of Internet telephony services. If the FCC
were to make such a finding, the payment of access charges could adversely
affect the Company=s business. Many of our competitors are lobbying the FCC for
the imposition of access charges on Internet telephony traffic.
To our knowledge, there are currently no domestic and few foreign laws
or regulations that prohibit voice communications over the Internet. State
public utility commissions may retain jurisdiction to regulate the provision of
intrastate Internet telephony services. A number of countries that currently
prohibit competition in the provision of voice telephony have also prohibited
Internet telephony. Other countries permit but regulate Internet telephony. If
Congress, the FCC, state regulatory agencies or foreign governments begin to
regulate Internet telephony, such regulation may interfere with our business.
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WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.
We anticipate that a substantial portion of FNet's business will be
based outside of the United States, and international expansion is a significant
component of our strategy. We cannot assure you that we will be successful in
expanding into additional international markets. In addition to the uncertainty
regarding our ability to generate revenue from foreign operations and expand our
international presence, there are certain risks inherent in conducting a
telecommunications business on an international basis, including uncertain and
changing legal and regulatory requirements, political instability, and
subscriber fraud.
AS AN INTERNET SERVICE PROVIDER, FNET MAY BE SUBJECT TO SPECIALIZED RISKS.
The law relating to the liability of Internet Service Providers and
online service companies for information carried on or disseminated through
their networks has not yet been definitively established. Several private
lawsuits seeking to impose such liability upon Internet Service Providers and
online services companies are currently pending. Although no such claims have
been asserted against FNet to date, there can be no assurance that such claims
will not be asserted in the future, or if asserted, will not be successful. The
Telecommunications Act imposes fines on any entity that knowingly (i) uses any
interactive computer service or telecommunications device to send obscene or
indecent material to minors; (ii) makes obscene or indecent material available
to minors via an interactive computer service; or (iii) permits any
telecommunications facility under such entity's control to be used for the
purposes detailed above. As the law in this area develops, the potential
imposition of liability upon FNet for information carried on and disseminated
through its network could require it to implement measures to reduce its
exposure to such liability. The implementation of such measures could require
the expenditure of substantial resources or the discontinuation of certain
service offerings. Any costs that are incurred as a result of such expenditure,
contesting any such asserted claims or the imposition of liability could have a
material adverse effect on FNet.
Due to the increasing use of the Internet, it is possible that
additional laws and regulations may be adopted with respect to the Internet
covering issues such as content, user privacy, pricing, libel, intellectual
property protection and infringement and technology export and other controls.
Changes in the regulatory environment relating to the Internet services
industry, including regulatory changes that directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition,
could affect us.
OUR NETWORK DEPENDS ON UNRELATED TELECOMMUNICATIONS CARRIERS.
We depend on other telecommunications carriers to route our telephone
traffic. All of the telephone calls made by FNet's customers are connected at
least in part through leased transmission facilities. In many of the foreign
jurisdictions in which FNet conducts or plans to conduct business, the primary
provider of transmission facilities is a governmental telephone monopoly.
Accordingly, we may be required to lease transmission capacity at artificially
high rates from a single provider. These rates may prevent us from generating a
profit on those calls. In addition, national telephone companies may not be
required by law to allow us to lease necessary transmission lines. In any event,
we may encounter delays in negotiating leases and interconnection agreements,
which would delay commencement of operations.
In the United States, the providers of local exchange transmission
facilities are generally the incumbent local exchange carriers, including the
regional Bell operating companies. The permitted pricing of local exchange
facilities in the United States is subject to uncertainties. The Federal
Communications Commission issued an order requiring existing local exchange
carriers to price those facilities at total element long-run incremental cost,
and the United States Supreme Court recently upheld the FCC's jurisdiction to
set a pricing standard for incumbent local exchange carrier facilities provided
to competitors. However, the local exchange carriers could challenge the FCC's
total element long-run incremental cost standard and, if they succeed, the
result may be to increase the cost of local exchange carrier facilities obtained
by us.
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Many of the international telephone calls made by our customers are
transported via transmission facilities that we lease from our current and
potential competitors. We lease facilities from local exchange carriers that are
our competitors, such as the regional Bell operating companies. We generally
lease lines on a fixed-cost basis. These include leases of transmission capacity
for point-to-point circuits on a monthly or longer-term fixed-cost basis.
THE SELLING SHAREHOLDER
In August of 1999 the Company entered into a Stock Purchase Agreement
with Crescent International Ltd., a Bermuda-based investment company. Under the
Stock Purchase Agreement, the Company can, at its option from time to time,
require Crescent International Ltd. to purchase shares of the Company's Common
Stock at prices determined in accordance with a formula, up to a maximum amount
of $6,500,000. However, the Company may not require Crescent to purchase shares
if, after giving effect to the purchase, Crescent would beneficially own more
than 4.9% of the outstanding shares.
Upon execution of the Stock Purchase Agreement Crescent purchased
966,184 shares of Common Stock at a purchase price of $1.035 per share, and on
September 14, 1999 it purchased an additional 966,184 shares at the same
purchase price. On February 8, 2000, Crescent purchased 841,515 shares at a
purchase price of $1.7825 per share. As provided in the Stock Purchase
Agreement, in each instance the purchase price was determined by applying 92% to
the average of the lowest three consecutive bid prices during the preceding 22
trading days. The aggregate number of shares purchased to date is 2,773,883, and
the aggregate purchase price was $3,500,000.
The shares remaining available under the Stock Purchase Agreement, with
an aggregate purchase price of $3,000,000, may be issued by the Company in
increments of $200,000 to $300,000 at minimum 22-day intervals for a period
ending in August 2001. The ability of the Company to issue shares under the
Stock Purchase Agreement is subject to a number of conditions (none of which are
within the control of Crescent), including requirements that (i) the bid price
for the Company's Common Stock for the preceding seven days must be $2.00 or
more, (ii) the average daily trading value of the Common Stock for the 22 days
preceding the issuance must be $160,000 or more, and (iii) the resale of the
shares must have been registered under the Securities Act of 1933. The purchase
price per share for these issuances is determined by the same formula as the
original draws, applying 92% to the average of the lowest three consecutive bid
prices during the 22 trading days immediately preceding the issuance.
As part of the transaction, the Company also issued two warrants to
Crescent. The February Put Warrant is a warrant to purchase an indeterminate
number of shares at an exercise price of $.01 per share. The number of shares is
determined by reference to the market price of the Company's Common Stock on the
date the registration statement of which this Prospectus is a part is declared
effective, as compared to $1.7825 per share, the purchase price for the shares
acquired by Crescent in February 2000. Thus, if the market price on the date
this Registration Statement becomes effective exceeds $1.7825 per share, no
shares are issuable upon exercise of the warrant. The purpose of this Warrant is
to protect Crescent against decreases in the market value of the shares between
the dates the shares were acquired and the date the Registration Statement is
declared effective, although it remains subject to liquidity risks associated
with the relatively low trading volume of the Company's Common Stock, and risks
of bankruptcy or insolvency due to the Company's history of operating losses and
significant accumulated deficit. If the market price of the Company's Common
Stock were to fall below $1.7825 on the date the Registration Statement is
declared effective, the effect of this Warrant would be dilutive to existing
shareholders, as it would involve the issuance of shares of Common Stock at $.01
per share, provided that the issuance does not increase Crescent's beneficial
ownership of the Company's Common Stock above 4.9% at the time of issuance. On
September 24, 1999, the Selling Shareholder filed a Schedule 13D with the
Securities and Exchange Commission disclosing ownership of 1,932,368 shares,
constituting 7.17% of the shares then outstanding. Accordingly, until the
Selling Shareholder disposes of enough shares to fall below the 4.9% threshold,
the Company is unable to exercise its right to issue shares to Crescent.
9
<PAGE> 11
The Incentive Warrant is a warrant to purchase up to 400,000 shares at
an exercise price of $1.5525 per share. This exercise price is subject to
adjustment under certain circumstances in the event of stock splits, stock
dividends, recapitalizations, reclassifications, and similar events.
The Company is also required to register the resale of all of the
shares issuable under the Stock Purchase Agreement, including the shares
issuable upon exercise of the Warrants.
The Company had no prior dealings with Crescent International Ltd.,
except that a company associated with Crescent participated in an offering of
Series C Preferred Stock by the Company in 1998 through its banker, Banque
Franck, S.A. Crescent has advised us that the purchase was in the ordinary
course of its business, which is purchasing securities. Crescent has also
advised us that at the time the Shares were acquired it had no understandings or
arrangements to dispose of the Shares.
The following table sets forth certain information as of February 15,
2000, regarding the ownership of the common stock by the selling shareholder and
as adjusted to give effect to the sale of the shares offered in this prospectus.
<TABLE>
<CAPTION>
Shares Owned Prior Shares Owned
To Offering (1) After Offering (1)
--------------------------------------- --------------------
Selling Shares
Shareholder Number Percentage Offered (1) Number Percentage
- --------------- --------- ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
Crescent Inter-
national, Ltd. 5,947,766 16.5% 5,947,766 -0- -0-
</TABLE>
- ---------------------
(1) The number of shares is an estimated one, based on 200% of 2,773,883, the
shares of Common Stock issued to Crescent International Ltd., plus 400,000
shares issuable upon exercise of a Warrant. The additional shares are
intended to cover shares issuable upon exercise of a separate warrant in
which the number of shares issuable is based upon a formula relating to the
market price of the Common Stock.
The selling shareholder and its officers and directors have not held
any positions or office or had any other material relationship with the Company
or any of its affiliates within the past three years.
PLAN OF DISTRIBUTION
The shares of common stock are being offered on behalf of the selling
shareholder, and we will not receive any proceeds from the offering. The shares
of common stock may be sold or distributed from time to time by the selling
shareholder, or by pledgees, donees or transferees of, or other successors in
interest to, the selling shareholder, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agent or may acquire such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be subject to
change. The sale of the shares of common stock may be effected through one or
more of the following methods: (i) ordinary brokers' transactions; (ii)
transactions involving cross or block trades or otherwise on the American Stock
Exchange; (iii) purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to this prospectus;
(iv) "at the market" to or through market makers or into established trading
markets, including direct sales to purchasers or sales effected through agents;
and (v) any combination of the foregoing, or by any other legally available
means. The selling shareholder also may
10
<PAGE> 12
enter into option or other transactions with broker-dealers that require the
delivery by such broker-dealers of the shares of common stock, which shares of
common stock may be resold thereafter pursuant to this prospectus. We cannot be
certain that all or any of the shares of common stock will be sold by the
selling shareholder.
Brokers, dealers, underwriters or agents participating in the sale of
the shares of common stock as agents may receive compensation in the form of
commissions, discounts or concessions from the selling shareholder and/or
purchasers of the common stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both (which compensation to a particular
broker-dealer may be less than or in excess of customary commissions). The
selling shareholder and any broker-dealers or other persons who act in
connection with the sale of the common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission they receive and
proceeds of any sale of such shares may be deemed to be underwriting discounts
and commissions under the Securities Act. Neither the Company nor the selling
shareholder can presently estimate the amount of such compensation. The Company
knows of no existing arrangements between the selling shareholder and any other
shareholders, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares of common stock.
The selling shareholder and any other persons participating in the sale
or distribution of the common stock will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the common stock by the
selling shareholder or any other such persons. The foregoing may affect the
marketability of the common stock.
We will pay substantially all of the expenses incidental to the
registration, offering and sale of the common stock to the public, other than
any commissions or discounts of underwriters, broker-dealers or agents. We and
the selling shareholder have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
INFORMATION INCORPORATED BY REFERENCE
AND OTHER AVAILABLE INFORMATION
This prospectus is part of a Registration Statement on Form S-3 that we
filed with the SEC. Certain information in the Registration Statement has been
omitted from this prospectus in accordance with SEC rules.
We file annual, quarterly and special reports and other information
with the SEC. You may read and copy the Registration Statement and any other
document that we file at the SEC's public reference rooms located at Room 1024,
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549; 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to you free of charge at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in those documents is considered part of this prospectus. Information
that we file with the SEC subsequent to the date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the selling shareholder has sold all the shares.
11
<PAGE> 13
The following documents filed with the SEC are incorporated by
reference in this prospectus:
(1) Our Annual Report on Form 10-K for the year ended June 30, 1999;
and
(2) Our Quarterly Reports on Form 10-Q for the three months ended
September 30, 1999 and December 31, 1999; and
(3) The description of our common stock set forth under the caption
"Description of Common Stock" in our Registration Statement on Form S-1 (File
No. 333-24791) as originally filed with the Securities and Exchange Commission
on April 9, 1997, or as subsequently amended (the "Registration Statement").
We will furnish without charge to you, on written or oral request, a
copy of any or all of the documents incorporated by reference, other than
exhibits to such documents. You should direct any requests for documents to
Secretary, Franklin Telecommunications Corp, 733 Lakefield Road, Westlake
Village, California 91361.
The information relating to the Company contained in this prospectus is
not comprehensive and should be read together with the information contained in
the incorporated documents.
EXPERTS
The financial statements incorporated in this prospectus by reference
from our Annual Report on Form 10-K for the year ended June 30, 1999, have been
so incorporated in reliance on the report of Singer Lewak Goldstein & Greenbaum
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Certain legal matters with respect to the legality under California law
of the shares of Common Stock offered hereby will be passed upon for the Company
by Haddan & Zepfel LLP, Newport Beach, California.
12
<PAGE> 14
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
---------------------------
PAGE
Forward-Looking Statements...........................2
The Business.........................................2
Risk Factors.........................................2
The Selling Shareholder..............................9
Plan of Distribution................................10
Information Incorporated by Reference
and Other Available Information....................11
Experts.............................................12
Legal Matters.......................................12
5,947,766 SHARES
COMMON STOCK
FRANKLIN TELECOMMUNICATIONS CORP.
- ----------
PROSPECTUS
- ----------
MARCH , 2000
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses incurred or to be incurred by the Company in connection
with the preparation and filing of this Registration Statement are estimated to
be as follows:
Printing and duplication expenses........................... $ 3,000
Registration fee............................................ 889
Legal fees and expenses..................................... 4,500
Accounting fees and expenses................................ 2,000
Transfer Agent fees......................................... 300
Miscellaneous............................................... 811
-------
Total............................................. $11,500
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide that the Company may indemnify its
officers and directors, and may indemnify its employees and other agents, to the
fullest extent permitted by California law. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
officers, directors or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS
The following exhibits are filed with this Registration Statement:
EXHIBIT
NUMBER DESCRIPTIONS
------- ------------
3.1* Restated Articles of Incorporation of Franklin
Telecommunications Corp.
3.2* Bylaws of Franklin Telecommunications Corp.
5.1 Opinion of Haddan & Zepfel LLP
10.1* Employment Agreement, dated March 1, 1993 between Franklin
Telecommunications Corp. and Frank W. Peters.
10.2+ Stock Purchase Agreement, dated August 30, 1999, between
Registrant and Crescent International Ltd.
10.3+ Warrant, dated August 30, 1999, issued To Crescent
International Ltd. (Incentive Warrant)
10.4+ Registration Rights Agreement, dated August 30, 1999,
between the Registrant and Crescent International Ltd.
10.5+ Amendment to Stock Purchase Agreement, dated September 15,
1999 between Registrant and Crescent International Ltd.
10.6+ Amendment to Registration Rights Agreement, dated September
15, 1999, between Registrant and Crescent International Ltd.
10.7+ Letter Agreement, dated September 15, 1999, between
Registrant and Crescent International Ltd.
10.8 Second Amendment to Stock Purchase Agreement, dated February
8, 2000, between Registrant and Crescent International Ltd.
10.9 Second Amendment to Registration Rights Agreement, dated
February 8, 2000, between Registrant and Crescent
International Ltd.
10.10 Warrant, dated February 8, 2000, issued to Crescent
International Ltd. (February Put Warrant)
23.1 Consent of Singer, Lewak, Greenbaum & Goldstein LLP
23.2 Consent of Haddan & Zepfel LLP (included as part of Exhibit
5.1).
- -------------
* Incorporated by reference from Registrant's Registration Statement on Form S-1
(No. 333-24791), filed with the Commission on April 9, 1997, and incorporated
herein by reference.
+ Incorporated by reference from Registrant's Registration Statement on Form S-3
(No. 333-87551), filed with the Commission on September 22, 1999, and
incorporated herein by reference.
II-2
<PAGE> 16
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section l0(a)(3) of the
Securities Act of l933;
(ii) 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;
(iii) 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, including
(but not limited to) any addition or deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act of l933, each such post-effective amendment 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 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.
Insofar as indemnification for liabilities arising under the Securities
Act of l933 may be permitted to directors, officers and controlling persons of
the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the 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, the 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 of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Westlake Village, State of California, on
March 9, 2000.
FRANKLIN TELECOMMUNICATIONS CORP.
By /s/ FRANK W. PETERS
-----------------------------------
Frank W. Peters
President
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
authorizes the agent for service named in this Registration Statement, with full
power to act alone, to file one or more amendments (including post-effective
amendments) to this Registration Statement, which amendments may make such
changes in this Registration Statement as such agent for service deems
appropriate, and the Registrant and each such person hereby appoints such agent
for service as attorney-in-fact, with full power to act alone, to execute in the
name and in behalf of the Registrant and any such person, individually and in
each capacity stated below, any such amendments to this Registration Statement.
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 indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
(1) Principal Executive Officer
/s/ FRANK W. PETERS Chief Executive Officer and a March 9, 2000
- -------------------------------------- Director
Frank W. Peters
(2) Principal Financial and
Accounting Officer
/s/ THOMAS RUSSELL Chief Financial Officer and a March 9, 2000
- -------------------------------------- Director
Thomas Russell
(3) Directors
/s/ ROBERT S. HARP Director March 9, 2000
- --------------------------------------
Robert S. Harp
/s/ HERB MITCHELL Director March 9, 2000
- ---------------------------------------
Herb Mitchell
</TABLE>
II-4
<PAGE> 18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTIONS
------- ------------
3.1* Restated Articles of Incorporation of Franklin
Telecommunications Corp.
3.2* Bylaws of Franklin Telecommunications Corp.
5.1 Opinion of Haddan & Zepfel LLP
10.1* Employment Agreement, dated March 1, 1993 between Franklin
Telecommunications Corp. and Frank W. Peters.
10.2+ Stock Purchase Agreement, dated August 30, 1999, between
Registrant and Crescent International Ltd.
10.3+ Warrant, dated August 30, 1999, issued To Crescent
International Ltd. (Incentive Warrant)
10.4+ Registration Rights Agreement, dated August 30, 1999,
between the Registrant and Crescent International Ltd.
10.5+ Amendment to Stock Purchase Agreement, dated September 15,
1999 between Registrant and Crescent International Ltd.
10.6+ Amendment to Registration Rights Agreement, dated September
15, 1999, between Registrant and Crescent International Ltd.
10.7+ Letter Agreement, dated September 15, 1999, between
Registrant and Crescent International Ltd.
10.8 Second Amendment to Stock Purchase Agreement, dated February
8, 2000, between Registrant and Crescent International Ltd.
10.9 Second Amendment to Registration Rights Agreement, dated
February 8, 2000, between Registrant and Crescent
International Ltd.
10.10 Warrant, dated February 8, 2000, issued to Crescent
International Ltd. (February Put Warrant)
23.1 Consent of Singer, Lewak, Greenbaum & Goldstein LLP
23.2 Consent of Haddan & Zepfel LLP (included as part of Exhibit
5.1).
- -------------
* Incorporated by reference from Registrant's Registration Statement on Form S-1
(No. 333-24791), filed with the Commission on April 9, 1997, and incorporated
herein by reference.
+ Incorporated by reference from Registrant's Registration Statement on Form S-3
(No. 333-87551), filed with the Commission on September 22, 1999, and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF HADDAN & ZEPFEL LLP]
March 9, 2000
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, California 91361
Dear Sirs:
You have requested our opinion with respect to certain matters in
connection with the filing by Franklin Telecommunications Corp. (the "Company")
of a Registration Statement on Form S-3 (the "Registration Statement") with the
Securities and Exchange Commission, covering the registration of up to 1,683,030
shares of the Company's Common Stock, without par value (the "Shares"), for
issuance pursuant to a Stock Purchase Agreement, dated as of August 30,1999
between the Company and Crescent International Ltd., as amended by an Amendment
to Stock Purchase Agreement dated September 15, 1999, and a Second Amendment to
Stock Purchase Agreement dated February 8, 2000 (the "Stock Purchase
Agreement"), and upon exercise of Stock Purchase Warrants issued pursuant to the
Stock Purchase Agreement (the "Warrants").
In connection with this opinion, we have examined and relied upon the
Registration Statement, the Company's Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws, the Stock Purchase Agreement, as
amended, the Warrants, and the originals or copies certified to our satisfaction
of such records, documents, certificates, memoranda and other instruments as in
our judgment are necessary or appropriate to enable us to render the opinion
expressed below. We have assumed the genuineness and authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as copies thereof and the due execution and delivery
of all documents where due execution and delivery are a prerequisite to the
effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that the Shares, when sold and issued in accordance with the Stock
Purchase Agreement, as amended, and the Warrants, are or will be validly issued,
fully paid, and nonassessable shares of Common Stock of the Company.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Haddan & Zepfel LLP
-----------------------------
Haddan & Zepfel LLP
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
This is the second amendment (the "Amendment"), dated February 8, 2000,
by and between CRESCENT INTERNATIONAL LIMITED (the "Investor"), an entity
organized and existing under the laws of Bermuda, and FRANKLIN
TELECOMMUNICATIONS CORP. (the "Company"), a corporation organized and existing
under the laws of the State of California, to the Stock Purchase Agreement,
dated August 30, 1999, as amended by the Amendment to Stock Purchase Agreement,
dated September 14, 1999 (the "Agreement"), by and between the Investor and the
Company. All capitalized terms used and not otherwise defined herein shall have
the same meanings as when used in the Agreement.
WHEREAS, pursuant to the terms of the Agreement, the Investor has
purchased and the Company has issued and sold shares of Common Stock through the
Early Put for an Investment Amount of $2,000,000;
WHEREAS, the Company and the Investor wish to amend further the
Agreement to provide for the Investor to purchase and the Company to issue and
sell additional shares of Common Stock through the February Put, as defined
below, for an Investment Amount of $1,500,000; and
NOW, THEREFORE, the parties agree as follows:
1. Section 1.27 of the Agreement is amended and restated in its entirety to
read as follows:
"Outstanding" when used with reference to Common Stock or Capital Shares
(collectively the "Shares"), shall mean, at any date as of which the number
of such Shares is to be determined, all issued and outstanding Shares, and
shall include all such Shares issuable in respect of outstanding scrip or
any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not refer to any such Shares
then directly or indirectly owned or held by or for the account of the
Company.
2. Section 1.31 of the Agreement is amended and restated in its entirety to
read as follows:
"Put" shall mean the Early Put, the February Put and each occasion the
Company elects to exercise its right to require the Investor to purchase a
discretionary amount of the Company's Common Stock, subject to the terms
and conditions of this Agreement.
3. Section 1.38 of the Agreement is amended and restated in its entirety to
read as follows:
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated August 30, 1999, as amended by the Amendment to
Registration Rights Agreement, dated September 14, 1999, and as further
amended by the Second Amendment to Registration Rights Agreement, dated the
date hereof, by and between the Investor and the Company.
<PAGE> 2
4. Section 1.50 of the Agreement is amended and restated in its entirety to
read as follows:
"Warrants" shall mean the Early Put Warrant, the February Put Warrant and
the Incentive Warrant.
5. Section 1.51 of the Agreement is amended and restated in its entirety to
read as follows:
"Warrant Shares" shall mean the Early Put Warrant Shares, the February Put
Warrant Shares and the Incentive Warrant Shares.
6. Section 2.1(c) of the Agreement is amended and restated in its entirety to
read as follows:
(c) Early Put, February Put. The Company shall issue and sell and the
Investor shall purchase, (i) on the Subscription Date, shares of the Common
Stock for an Investment Amount of $1,000,000 at the Purchase Price on the
Subscription Date, (ii) on September 14, 1999, shares of the Common Stock
for an Investment Amount of $1,000,000 at the Purchase Price on the
Subscription Date (the transactions described in clauses (i) and (ii) are
collectively referred to as the "Early Put," and all shares described in
clauses (i) and (ii) are collectively referred to herein as the "Early Put
Shares") and (iii) on February 8, 2000, 841,515 shares of the Common Stock
for an Investment Amount of $1,500,000 at the Purchase Price of $1.7825 per
share (the "February Put," and all such shares are referred to as the
"February Put Shares"). For the purpose only of the Early Put and the
February Put, the Investor waives the requirements of Section 2.2, and the
conditions set forth in paragraphs (a), (b), (i), (j), (k) and (m) of
Section 7.2 hereof. Notwithstanding anything to the contrary set forth
herein, for the purposes of Section 2.3, a Put Notice shall be deemed to
have been delivered with respect to the February Put with an Investment
Amount indicated thereon of $1,500,000, and the Closing Date for the
February Put shall be February 8, 2000 (the "February Put Closing Date").
The Company's independent counsel shall deliver to the Investor on the
February Put Closing Date an opinion relating to the February Put in the
form of Exhibit D.
7. Section 2.1(d) of the Agreement is amended and restated in its entirety to
read as follows:
(d) Early Put Warrants, February Put Warrants. In addition to the
Incentive Warrant (as defined hereinafter), (i) on the Subscription Date,
the Company shall issue to the Investor an Early Put Warrant with an
exercise price of $0.01 for each share of Common Stock, and (ii) on
February 8, 2000, the Company shall issue to the Investor a warrant in the
form of Exhibit G hereto (the "February Put Warrant"), with an exercise
price of $0.01 for each share of Common stock (such shares of Common Stock
issued or issuable pursuant to the exercise of the February Put Warrant
being the "February Put Warrant Shares").
8. Section 2.4 of the Agreement is amended and restated in its entirety to
read as follows:
Section 2.4 Termination of Agreement and Investment Obligation. The
Company shall have the right to terminate this Agreement at any time upon
thirty
2
<PAGE> 3
(30) days' written notice to the Investor. The Investor shall have the
right to immediately terminate this Agreement (including with respect to
any Put, notice of which has been given but the applicable Closing Date has
not yet occurred) in accordance with Section 6.12 or in the event that: (i)
the Registration Statement with respect to Registrable Securities relating
to the Early Put is not effective within ninety-seven (97) days following
the Subscription Date, (ii) a Registration Statement with respect to
Registrable Securities relating to the February Put is not effective by
June 7, 2000, (iii) there shall occur any stop order or suspension of the
effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period and (iv) the Company shall at any
time fail to comply with the requirements of Section 6.2, 6.3, 6.4, 6.5,
6.6, 6.8 or 6.9.
9. The preamble to Article IV of the Agreement is amended and restated in its
entirety to read as follows:
The Company represents and warrants to the Investor that on the
Subscription Date, each Effective Date, the February Put Closing Date and
each subsequent Closing Date:
10. Section 7.2(a) of the Agreement is amended and restated in its entirety to
read as follows:
(a) Registration of the Registrable Securities with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have filed
with the SEC either:
(i) a Registration Statement covering the resale of the
Registrable Securities relating to the Early Put that shall
have been declared effective by the SEC in no event later
than ninety-seven (97) days after the Subscription Date, a
Registration Statement covering the resale of Registrable
Securities relating to the February Put that shall have been
declared effective by the SEC in no event later than June 7,
2000, and a Registration Statement covering the resale of
Registrable Securities relating to all subsequent Puts that
shall have been declared effective by the SEC prior to any
subsequent Put; or
(ii) a Combined Registration Statement (as defined in the
Registration Rights Agreement) that shall have been declared
effective by the SEC in no event later than ninety-seven (97)
days after the Subscription Date.
11. Section 7.2(b) of the Agreement is amended and restated in its entirety to
read as follows:
(b) Effective Registration Statement. As set forth in the Registration
Rights Agreement, the Registration Statement(s) shall have previously
become effective and shall remain effective on each Condition Satisfaction
Date and (i) neither the Company nor the Investor shall have received
notice that the SEC has
3
<PAGE> 4
issued or intends to issue a stop order with respect to a Registration
Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of a Registration Statement, either temporarily or
permanently, or intends or has threatened to do so (unless the SEC's
concerns have been addressed and the Investor is reasonably satisfied that
the SEC no longer is considering or intends to take such action), (ii) no
other suspension of the use or withdrawal of the effectiveness of such
Registration Statement or related prospectus shall exist, (iii) with
respect to each Put subsequent to the February Put, the Company shall have
notified the Investor in accordance with Section 6.8 that each Registration
Statement covering the Registrable Securities relating to the Early Put and
the February Put have been declared effective by the SEC, and (iv) at least
30 days shall have elapsed since the Initial Registration Statement (as
defined in the Registration Rights Agreement) has been declared effective
by the SEC.
12. Copies of any notices, demands, requests, consents, approvals and other
communications required to be sent to Rogers & Wells LLP pursuant to
Section 10.4 shall instead be sent to Clifford Chance Rogers & Wells LLP,
200 Park Avenue, 52nd Floor, New York, NY 10166, Attention: Sara Hanks,
Esq./Earl S. Zimmerman, Esq., Telephone: (212) 878-8000, Facsimile: (212)
878-8375
IN WITNESS WHEREOF, this Amendment has been entered into on the day and
year first herein written.
CRESCENT INTERNATIONAL LIMITED
By: /s/ Mel Craw /s/ Maxi Brezzi
--------------------------------
Name: Mel Craw Maxi Brezzi
Title:
FRANKLIN TELECOMMUNICATIONS CORP.
By: /s/ Tom Russell
--------------------------------
Name: Tom Russell
Title: VP - CFO
4
<PAGE> 1
EXHIBIT 10.9
SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This is the second amendment (the "Amendment"), dated February 8, 2000,
by and between CRESCENT INTERNATIONAL LIMITED (the "Investor"), an entity
organized and existing under the laws of Bermuda, and FRANKLIN
TELECOMMUNICATIONS CORP. (the "Company"), a corporation organized and existing
under the laws of the State of California, to the Registration Rights Agreement,
dated August 30, 1999, as amended by the Amendment to Registration Rights
Agreement, dated September 14, 1999 (the "Agreement") by and between the
Investor and the Company. All capitalized terms used and not otherwise defined
herein shall have the same meanings as when used in the Stock Purchase
Agreement, dated August 30, 1999, as amended by the Amendment to Stock Purchase
Agreement dated September 14, 1999, and as further amended by the Second
Amendment to Stock Purchase Agreement, dated as of the date hereof (as amended,
the "Stock Purchase Agreement").
WHEREAS, pursuant to the terms of the Stock Purchase Agreement, the
Investor purchased and the Company issued and sold shares of Common Stock
through the Early Put for an Investment Amount of $2,000,000;
WHEREAS, on the date hereof the Investor is purchasing and the Company
is issuing and selling additional shares of Common Stock through the February
Put for an Investment Amount of $1,500,000; and
WHEREAS, the Investor and the Company desire to amend the Agreement to
reflect their current agreements concerning registration for resale of
Registrable Securities relating to the February Put;
NOW, THEREFORE, the parties agree as follows:
1. The first WHEREAS clause of the Agreement is amended and restated in its
entirety to read as follows:
WHEREAS, the Company and the Investor have entered into that certain Stock
Purchase Agreement, dated as of August 30, 1999, as amended by that certain
Amendment to Stock Purchase Agreement, dated as of September 14, 1999, and
as further amended by that certain Second Amendment to Stock Purchase
Agreement, dated as of the date hereof (as amended, the "Stock Purchase
Agreement"), pursuant to which the Company will issue, from time to time,
to the Investor up to $6,500,000 worth of shares of Common Stock, no par
value per share, of the Company (the "Common Stock");
2. Section 1.1(a) of the Agreement is amended and restated in its entirety to
read as follows:
a. Filing of Registration Statements. The Company shall register for
resale all Put Shares issued or issuable to the Investor pursuant to the
Stock Purchase Agreement and all Warrant Shares issued or issuable upon
full exercise of the Warrants. Subject to the terms and conditions of this
Agreement, the Company shall effect such registration in the manner
<PAGE> 2
provided in either (i) or (ii) below. The Company shall file with the SEC
either:
(i) on or before September 22, 1999, a registration statement
(the "Initial Registration Statement") on such form promulgated by the
SEC for which the Company qualifies, that counsel for the Company
shall deem appropriate and which form shall be available for the sale
of the shares of Common Stock purchased by the Investor pursuant to
the Early Put (the "Initial Shares"), the Incentive Warrant Shares and
the Early Put Warrant Shares. The aggregate number of shares to be
registered under the Initial Registration Statement shall be equal to
two hundred percent (200%) of the number of Initial Shares, plus the
number of Incentive Warrant Shares. No later than March 9, 2000, the
Company shall file with the SEC a registration statement (the
"February Put Registration Statement") on such form promulgated by the
SEC for which the Company qualifies, that counsel for the Company
shall deem appropriate and which form shall be available for the sale
of Registrable Securities relating to the February Put. The aggregate
number of shares of Common Stock to be registered under the February
Put Registration Statement shall be equal to two hundred percent
(200%) of the number of February Put Shares. Prior to any Put
subsequent to the February Put, the Company shall file with the SEC a
registration statement (the "Subsequent Registration Statement" and
together with the Initial Registration Statement and the February Put
Registration Statement, the "Registration Statements" and each a
"Registration Statement") on such form promulgated by the SEC for
which the Company qualifies, that counsel for the Company shall deem
appropriate and which form shall be available for the sale of the
shares of Common Stock to be purchased by the Investor and any Warrant
Shares which have not previously been registered. The aggregate number
of shares to be registered under the Subsequent Registration Statement
shall be equal to 125% of (X-Y)/Z, where X is the Maximum Commitment
Amount, Y is the sum of the Investment Amount of the Early Put and the
Investment Amount for the February Put and Z is 92% of the Minimum Bid
Price; or
(ii) on or before March 9, 2000, a registration statement (the
"Combined Registration Statement") on such form promulgated by the SEC
for which the Company qualifies, that counsel for the Company shall
deem appropriate and which form shall be available for the sale of all
Put Shares issued or issuable, and which have not already been
registered, pursuant to the terms of the Stock Purchase Agreement and
all Warrant Shares issued or issuable, and which have not already been
registered, upon full exercise of the Warrants, including, without
limitation, the February Put Shares and the February Put Warrant
Shares. The aggregate number of shares to be registered under the
Combined Registration Statement shall be equal to 150% of (A-B)/C,
where A is the Maximum Commitment Amount, B is the Investment Amount
of the Early Put and C is 92% of the Minimum Bid Price.
2
<PAGE> 3
3. Section 1.1(b) of the Agreement is amended and restated in its entirety to
read as follows:
b. Effectiveness of the Registration Statements. The Company shall use
its best efforts either: (i) to have the Initial Registration Statement
declared effective by the SEC in no event later than ninety-seven (97)
calendar days after the Subscription Date, and to have the February Put
Registration Statement declared effective by the SEC no later than June 7,
2000, and to have the Subsequent Registration Statement declared effective
by the SEC in no event later than June 7, 2000 or (ii) to have the Combined
Registration Statement declared effective by the SEC in no event later than
June 7, 2000. The Company shall ensure that all Registration Statements
remain in effect for a period ending 180 days following the earlier of
termination of the Commitment Period and termination of the Investor's
obligations pursuant to Section 2.4 of the Stock Purchase Agreement;
provided that such period shall be extended one day for each day after the
applicable Effective Date that any Registration Statement covering
Registrable Securities is not effective during the period such Registration
Statement is required to be effective pursuant to this Agreement; and
provided further that the Company shall not be required to ensure that any
Registration Statement covering Registrable Securities remain in effect for
such 180 day period if the shares registered thereunder shall have become
freely tradable pursuant to Rule 144(k) of the Securities Act or have
otherwise been sold.
4. Section 1.1(e) of the Agreement is amended and restated in its entirety to
read as follows:
e. Failure to Register Sufficient Number of Shares.
(i) If the Early Put Warrant shall become exercisable for a
number of shares in excess of the number of Early Put Warrant Shares
included in the Initial Registration Statement ("Excess Shares"), then
the Company shall immediately amend such Registration Statement (or
file a new Registration Statement) to cover the Excess Shares (such
amended or new Registration Statement is referred to herein as an
"Excess Registration Statement") and the Company shall pay to the
Investor in immediately available funds into an account designated by
the Investor an amount equal to one and a half percent (1.5%) of the
product of (x) the number of Excess Shares multiplied by (y) the Bid
Price of the Common Stock on the applicable Effective Date, for each
calendar month and for each portion of a calendar month, pro rata,
during the period from the Effective Date of the applicable
Registration Statement and the Effective Date of the applicable Excess
Registration Statement.
(ii) If the February Put Warrant shall become exercisable for a
number of shares in excess of the number of February Put Warrant
Shares included in the February Put Registration Statement ("February
Excess Shares"), then the Company shall immediately amend such
Registration Statement (or file a new Registration Statement) to cover
the February Excess Shares (such amended or new Registration Statement
is referred to herein as a "February Excess Registration Statement")
and the Company shall pay to the Investor in immediately available
funds into an account designated by the Investor an amount equal to
one and a half percent (1.5%) of the product of (x) the number of
February Excess Shares multiplied by (y) the
3
<PAGE> 4
Bid Price of the Common Stock on the Effective Date of the February
Put Registration Statement, for each calendar month and for each
portion of a calendar month, pro rata, during the period from the
Effective Date of the February Put Registration Statement until the
Effective Date of the February Excess Registration Statement.
5. Section 4.9 of the Agreement is amended and restated in its entirety to
read as follows:
Section 4.9. GOVERNING LAW. This Agreement shall be construed under
the laws of the State of New York.
6. Copies of any notices, demands, requests, consents, approvals and other
communications required to be sent to Rogers & Wells LLP pursuant to
Section 4.8 shall instead be sent to Clifford Chance Rogers & Wells LLP,
200 Park Avenue, 52nd Floor, New York, NY 10166, Attention: Sara Hanks,
Esq./Earl S. Zimmerman, Esq., Telephone: (212) 878-8000, Facsimile: (212)
878-8375
4
<PAGE> 5
IN WITNESS WHEREOF, this Amendment has been entered into on the day and
year first herein written.
CRESCENT INTERNATIONAL LIMITED
By: /s/ Mel Craw /s/ Maxi Brezzi
--------------------------------
Name: Mel Craw Maxi Brezzi
Title:
FRANKLIN TELECOMMUNICATIONS CORP.
By: /s/ Tom Russell
--------------------------------
Name: Tom Russell
Title: VP - CFO
5
<PAGE> 1
EXHIBIT 10.10
WARRANT
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR
NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE
BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A STOCK PURCHASE
AGREEMENT, DATED AS OF AUGUST 30, 1999, AS AMENDED BY THE AMENDMENT TO STOCK
PURCHASE AGREEMENT DATED AS OF SEPTEMBER 14, 1999, AND AS FURTHER AMENDED BY THE
SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY 8, 2000,
BETWEEN FRANKLIN TELECOMMUNICATIONS CORP. AND CRESCENT INTERNATIONAL LTD. A COPY
OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE
OBTAINED FROM FRANKLIN TELECOMMUNICATIONS CORP.'S EXECUTIVE OFFICES.
February 8, 2000
Warrant to Purchase Shares of Common Stock of Franklin
Telecommunications Corp. (hereinafter this "February Put Warrant"), up to a
total number determined in accordance with Section 2(b) hereof.
Franklin Telecommunications Corp., an entity organized and existing
under the laws of the State of California (the "Company"), hereby agrees that
Crescent International Ltd. (the "Investor") or any other Warrant Holder is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time during the Exercise Period (hereinafter defined), up to a
total number, determined in accordance with Section 2(b) hereof, of fully paid
and nonassessable shares of Common Stock, no par value per share, of the Company
(the "Common Stock"), as the same may be adjusted from time to time pursuant to
Section 7 hereof, at the Exercise Price (hereinafter defined), as the same may
be adjusted pursuant to Section 7 hereof. The resale of the shares of Common
Stock or other securities issuable upon exercise or exchange of this February
Put Warrant is subject to the provisions of the Registration Rights Agreement
(as defined below).
Section 1. Definitions.
"Aggregate Exercise Price" shall mean, with respect to any exercise
(in whole or in part) of this February Put Warrant, the Exercise Price
multiplied by the total number of shares of Common Stock for which this February
Put Warrant is being exercised.
<PAGE> 2
"Agreement" shall mean the Stock Purchase Agreement, dated as of
August 30, 1999, as amended by the Amendment to Stock Purchase Agreement, dated
as of September 14, 1999, and as further amended by the Second Amendment to
Stock Purchase Agreement, dated as of the date hereof, between the Company and
the Investor.
"Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
"Cash-Out Price" shall mean, with respect to any exercise (in whole
or in part) of this February Put Warrant, the product of (x) the Bid Price of
one share of Common Stock on the Trading Day immediately preceding the Exercise
Date multiplied by (y) the number of shares of Common Stock for which the
Company elects the Cash-Out Option.
"Exercise Date" shall mean, with respect to any exercise (in whole
or in part) of this February Put Warrant, either (i) the date this February Put
Warrant, the Exercise Notice and the Aggregate Exercise Price are received by
the Company or (ii) the date a copy of the Exercise Notice is sent by facsimile
to the Company, provided that this February Put Warrant, the original Exercise
Notice, and the Aggregate Exercise Price are received by the Company within five
(5) Trading Days thereafter, and provided further that if this February Put
Warrant, the original Exercise Notice and the Aggregate Exercise Price are not
received within five (5) Trading Days in accordance with clause (ii) above, the
Exercise Date for this clause (ii) shall be the date this February Put Warrant,
the original Exercise Notice and the Aggregate Exercise Price are received by
the Company.
"Exercise Notice" shall mean, with respect to any exercise (in whole
or in part) of this February Put Warrant, the exercise form attached hereto as
Exhibit A duly executed by the Warrant Holder.
"Exercise Period" shall mean the period beginning on the Effective
Date applicable to the February Put Closing and continuing until the two-year
period thereafter; provided that such period shall be extended one day for each
day after such Effective Date that the February Put Registration Statement is
not effective during the period the February Put Registration Statement is
required to be effective pursuant to the Registration Rights Agreement.
"Exercise Price" as of the date hereof shall mean $0.01 per share of
Common Stock, subject to the adjustments provided for in Section 7 of this
February Put Warrant.
"February Put Closing" shall mean the closing of the purchase and
sale of 841,515 shares of Common Stock for an investment amount equal to
$1,500,000, which occurred on the date hereof, and the issuance of this February
Put Warrant.
"Per Share February Put Warrant Value" shall mean, with respect to
any exercise (in whole or in part) of this February Put Warrant, the difference
resulting from subtracting the Exercise Price from the Bid Price of one share of
Common Stock on the Trading Day immediately preceding the Exercise Date.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of August 30, 1999, as amended by the Amendment to
Registration Rights Agreement, dated as of September 14, 1999, and as further
amended by the Second Amendment to Registration Rights Agreement, dated as of
the date hereof, between the Company and the Investor.
2
<PAGE> 3
"Warrant Holder" shall mean the Investor or any assignee or
transferee of all or any portion of this February Put Warrant.
Other capitalized terms used but not defined herein shall have their
respective meanings set forth in the Agreement.
Section 2. Exercisability.
(a) Timing. If the Purchase Price on the Effective Date applicable
to the February Put Closing is lower than $1.7825, this February Put Warrant
shall become immediately exercisable, subject to clause (c) below.
(b) Number of Shares. The number of shares of Common Stock for which
this February Put Warrant is exercisable (the "February Put Warrant Shares")
shall be determined by subtracting (x) the Investment Amount divided by $1.7825
from (y) the Investment Amount divided by the Purchase Price on the Effective
Date applicable to the February Put Closing.
(c) Cash Payment in Lieu of Issuance of Shares. In the event that
the Warrant Holder exercises this February Put Warrant (in whole or in part) in
accordance with Section 3 hereof, then the Company may, in lieu of issuing
shares of Common Stock pursuant to such exercise, pay to the Investor the
Cash-Out Price for any or all of the shares of Common Stock purchasable by the
Investor through the exercise of this February Put Warrant (such payment, the
"Cash-Out Option"). For avoidance of doubt, the Company may elect such Cash-Out
Option in the event that, inter alia, the number of February Put Warrant Shares
plus the number of February Put Shares exceeds the number of shares registered
pursuant to Section 1.1(a) of the Registration Rights Agreement.
(d) Notice of Cash Payment in Lieu of Issuance of Shares. In the
event that the Company elects the Cash-Out Option, the Company shall promptly
give notice to the Investor of such election on the Trading Day following
surrender of the items described in Section 3(a)(i) or delivery by facsimile of
the Exercise Notice described in Section 3(a)(ii). Such notice from the Company
shall set forth the number of shares of Common Stock for which the Company
elects the Cash-Out Option.
(e) Method of Cash-Out; Effect of Cash-Out. In the event that the
Company elects the Cash-Out Option, then in lieu of delivering stock
certificates as provided in Section 5 hereof, the Company shall deliver by wire
transfer of immediately available funds, to an account designated by the
Investor, as soon as practicable after delivery by the Company of notice of its
election of the Cash-Out Option, and in any event within two (2) Trading Days
thereafter, the Cash-Out Price for any and all shares of Common Stock for which
the Company elects the Cash-Out Option.
3
<PAGE> 4
Section 3. Exercise; Cashless Exercise.
(a) Method of Exercise. This February Put Warrant may be exercised
in whole or in part (but not as to a fractional share of Common Stock), at any
time and from time to time during the Exercise Period, by the Warrant Holder by
(i) the surrender of this February Put Warrant, the Exercise Notice and the
Aggregate Exercise Price to the Company at the address set forth in Section 12
hereof or (ii) the delivery by facsimile of an executed and completed Exercise
Notice to the Company and delivery to the Company within five (5) Trading Days
thereafter of this February Put Warrant, the original Exercise Notice and the
Aggregate Exercise Price.
(b) Payment of Aggregate Exercise Price. Subject to paragraph (c)
below, payment of the Aggregate Exercise Price shall be made by check or bank
draft payable to the order of the Company or by wire transfer to an account
designated by the Company. If the amount of the payment received by the Company
is less than the Aggregate Exercise Price, the Warrant Holder will be notified
of the deficiency and shall make payment in that amount within five (5) Trading
Days of such notice. In the event the payment exceeds the Aggregate Exercise
Price, the Company will refund the excess to the Warrant Holder within three (3)
Trading Days of both the receipt of such payment and the knowledge of such
excess.
(c) Cashless Exercise. As an alternative to payment of the Aggregate
Exercise Price in accordance with Section 3(b) above, the Warrant Holder may
elect to effect a cashless exercise by so indicating on the Exercise Notice and
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, the Warrant Holder shall surrender this
February Put Warrant for that number of shares of Common Stock determined by (i)
multiplying the number of February Put Warrant Shares for which this February
Put Warrant is being exercised by the Per Share February Put Warrant Value and
(ii) dividing the product by the Bid Price of one share of the Common Stock on
the Trading Day immediately preceding the Exercise Date.
(d) Replacement February Put Warrant. In the event that the February
Put Warrant is not exercised in full, the number of February Put Warrant Shares
shall be reduced by the number of such February Put Warrant Shares for which
this February Put Warrant is exercised, and the Company, at its expense, shall
forthwith issue and deliver to the Warrant Holder a new February Put Warrant of
like tenor in the name of the Warrant Holder or as the Warrant Holder may
request, reflecting such adjusted number of February Put Warrant Shares.
Section 4. Ten Percent Limitation. The Warrant Holder may not exercise
this February Put Warrant such that the number of February Put Warrant Shares to
be received pursuant to such exercise aggregated with all other shares of Common
Stock then owned by the Warrant Holder beneficially or deemed beneficially owned
by the Warrant Holder would result in the Warrant Holder owning more than 9.9%
of all of such Common Stock as would be outstanding on such Exercise Date, as
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. As of any date prior to the Exercise
Date, the aggregate number of shares of Common Stock into which this February
Put
4
<PAGE> 5
Warrant is exercisable, together with all other shares of Common Stock then
beneficially owned (as such term is defined in Rule 13(d) under the Exchange
Act) by such Warrant Holder and its affiliates, shall not exceed 9.9% of the
total outstanding shares of Common Stock as of such date.
Section 5. Delivery of Stock Certificates.
(a) Subject to the terms and conditions of this February Put
Warrant, as soon as practicable after the exercise of this February Put Warrant
in full or in part, and in any event within five (5) Trading Days thereafter,
the Company at its expense (including, without limitation, the payment by it of
any applicable issue taxes) will cause to be issued in the name of and delivered
to the Warrant Holder, or as the Warrant Holder may lawfully direct, a
certificate or certificates for the number of validly issued, fully paid and
non-assessable February Put Warrant Shares to which the Warrant Holder shall be
entitled on such exercise, together with any other stock or other securities or
property (including cash, where applicable) to which the Warrant Holder is
entitled upon such exercise in accordance with the provisions hereof; provided,
however, that any such delivery to a location outside of the United States shall
also be made within five (5) Trading Days after the exercise of this February
Put Warrant in full or in part.
(b) This February Put Warrant may not be exercised as to fractional
shares of Common Stock. In the event that the exercise of this February Put
Warrant, in full or in part, would result in the issuance of any fractional
share of Common Stock, then in such event the Warrant Holder shall receive in
cash an amount equal to the Bid Price of such fractional share within five (5)
Trading Days.
Section 6. Representations, Warranties and Covenants of the Company.
(a) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation for the
legal and valid issuance of this February Put Warrant and the February Put
Warrant Shares to the Warrant Holder.
(b) At all times during the Exercise Period, the Company shall take
all steps reasonably necessary and within its control to insure that the Common
Stock remains listed or quoted on the Principal Market.
(c) The February Put Warrant Shares, when issued in accordance with
the terms hereof, will be duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable.
(d) The Company has authorized and reserved for issuance to the
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this February Put Warrant. The Company shall at all times reserve
and keep available, solely for issuance and delivery as February Put Warrant
Shares hereunder, such shares of Common Stock as shall from time to time be
issuable as February Put Warrant Shares, and shall accordingly adjust the number
of such shares of Common Stock promptly upon the occurrence of any of the events
specified in Section 7 hereof.
5
<PAGE> 6
Section 7. Adjustment of the Exercise Price. The Exercise Price and,
accordingly, the number of February Put Warrant Shares issuable upon exercise of
the February Put Warrant, shall be subject to adjustment from time to time upon
the happening of certain events as follows:
(a) Reclassification, Consolidation, Merger; Mandatory Share
Exchange; Sale, Transfer or Lease of Assets. If the Company, at any time while
this February Put Warrant is unexpired and not exercised in full, (i)
reclassifies or changes its Outstanding Capital Shares, (ii) consolidates,
merges or effects a mandatory share exchange with or into another corporation
(other than a merger or mandatory share exchange (x) with another corporation in
which the Company is a continuing corporation and that does not result in any
reclassification or change, or (y) as a result of a subdivision or combination
of Outstanding Capital Shares issuable upon exercise of this February Put
Warrant) or (iii) sells, transfers or leases all or substantially all of its
assets, then in any such event the Company, or such successor or purchasing
corporation, as the case may be, shall, without payment by the Warrant Holder of
any additional consideration therefor, amend this February Put Warrant or issue
a new warrant providing that the Warrant Holder shall have rights not less
favorable to the Warrant Holder than those then applicable to this February Put
Warrant and to receive upon exercise under such amended February Put Warrant or
new warrant, in lieu of each share of Common Stock theretofore issuable upon
exercise of this February Put Warrant hereunder, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange,
lease, sale or transfer by the holder of one share of Common Stock issuable upon
exercise of this February Put Warrant had this February Put Warrant been
exercised immediately prior to such reclassification, change, consolidation,
merger, mandatory share exchange, lease, sale or transfer (without giving effect
to the limitation on ownership set forth in Section 4 hereof), and an
appropriate provision for the foregoing shall be made by the Company as part of
any such event. Such amended February Put Warrant or new warrant shall provide
for adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7. The provisions of this Section 7(a)
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges, sales, transfers and leases.
(b) Subdivision or Combination of Shares; Stock Dividends. If the
Company, at any time after the Effective Date relating to this February Put
Warrant, and while this February Put Warrant is unexpired and not exercised in
full, shall (x) subdivide its Common Stock, (y) combine its Common Stock, or (z)
pay a dividend in its Capital Shares or make any other distribution of its
Capital Shares, then the Exercise Price shall be adjusted, as of the date the
Company shall take a record of the holders of its Capital Shares for the purpose
of effecting such subdivision, combination or dividend or other distribution (or
if no such record is taken, as of the effective date of such subdivision,
combination, dividend or other distribution), to that price determined by
multiplying the Exercise Price in effect immediately prior to such subdivision,
combination, dividend or other distribution by a fraction:
(i) the numerator of which shall be the total number of
Outstanding Capital Shares immediately prior to such subdivision, combination,
dividend or other distribution, and
(ii) the denominator of which shall be the total number of
Outstanding Capital Shares immediately after such subdivision, combination,
dividend or other distribution. The provisions of this subsection (b) shall not
apply under any of the circumstances for which an adjustment is made pursuant to
subsection (a).
6
<PAGE> 7
(c) Liquidating Dividends, Etc. If the Company, at any time while
this February Put Warrant is unexpired and not exercised in full, makes a
distribution of its assets or evidences of indebtedness to the holders of its
Capital Shares as a dividend in liquidation or by way of return of capital or
other than as a dividend payable out of earnings or surplus legally available
for dividends under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Company's assets (other
than under the circumstances provided for in the foregoing subsections (a) and
(b)) while an exercise is pending, then the Warrant Holder shall be entitled to
receive upon such exercise of the February Put Warrant in addition to the
February Put Warrant Shares receivable in connection therewith, and without
payment of any consideration other than the Exercise Price, an amount in cash
equal to the value of such distribution per Capital Share multiplied by the
number of February Put Warrant Shares that, on the record date for such
distribution, are issuable upon such exercise of the February Put Warrant
(without giving effect to the limitation on ownership set forth in Section 4
hereof), and an appropriate provision therefor shall be made by the Company as
part of any such distribution. No further adjustment shall be made following any
event that causes a subsequent adjustment in the number of February Put Warrant
Shares issuable. The value of a distribution that is paid in other than cash
shall be determined in good faith by the Board of Directors of the Company.
(d) Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to any provisions of this Section 7, the number of
February Put Warrant Shares issuable hereunder at the option of the Warrant
Holder shall be calculated, to the nearest one hundredth of a whole share,
multiplying the number of February Put Warrant Shares issuable prior to an
adjustment by a fraction:
(i) the numerator of which shall be the Exercise Price before
any adjustment pursuant to this Section 7; and
(ii) the denominator of which shall be the Exercise Price after
such adjustment.
(e) Other Action Affecting Capital Shares. In the event after the
date hereof the Company shall take any action affecting the number of
Outstanding Capital Shares, other than an action specifically described in any
of the foregoing subsections (a) through (c) hereof, inclusive (including,
without limitation, a subdivision or combination of Common Stock, or the payment
of a dividend in its Capital Shares, or any other distribution in its Capital
Shares, between the date hereof and the Effective Date relating to the February
Put Warrant Closing), that in the reasonable opinion of the Warrant Holder would
have a materially adverse effect upon the rights of the Warrant Holder at the
time of exercise of the February Put Warrant, the Exercise Price shall be
adjusted in such manner and at such time as the Board of Directors on the advice
of the Company's independent public accountants shall in good faith determine to
be equitable in the circumstances.
7
<PAGE> 8
(f) Notice of Certain Actions; Notice of Adjustments.
(i) In the event the Company shall, at a time while this
February Put Warrant is unexpired and outstanding, take any action pursuant to
subsections (a) through (e) of this Section 7 that may result in an adjustment
of the Exercise Price, the Company shall notify the Warrant Holder of such
action ten (10) days in advance of its effective date in order to afford to the
Warrant Holder an opportunity to exercise this February Put Warrant prior to
such action becoming effective.
(ii) Whenever the Exercise Price or number of February Put
Warrant Shares shall be adjusted pursuant to Section 7 hereof, the Company shall
promptly deliver by facsimile, with the original delivered by express courier
service in accordance with Section 12 hereof, a certificate, which shall be
signed by the Company's President or a Vice President and by its Treasurer or
Assistant Treasurer or its Secretary or Assistant Secretary, setting forth in
reasonable detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Company's Board of Directors made any
determination hereunder), and the Exercise Price and number of February Put
Warrant Shares purchasable at that Exercise Price after giving effect to such
adjustment.
Section 8. No Impairment. The Company will not, by amendment of its
Articles of Incorporation or By-Laws or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this February Put Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Warrant Holder against impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any February Put
Warrant Shares above the amount payable therefor on such exercise, and (b) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable February
Put Warrant Shares on the exercise of this February Put Warrant.
Section 9. Rights As Stockholder. Prior to exercise of this February
Put Warrant and except as provided in Section 7 hereof, the Warrant Holder shall
not be entitled to any rights as a stockholder of the Company with respect to
the February Put Warrant Shares, including (without limitation) the right to
vote such shares, receive dividends or other distributions thereon or be
notified of stockholder meetings. However, in the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Company shall mail to
each Warrant Holder, at least ten (10) days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
8
<PAGE> 9
Section 10. Replacement of February Put Warrant. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of the February Put Warrant and, in the case of any such loss,
theft or destruction of the February Put Warrant, upon delivery of an indemnity
agreement or security reasonably satisfactory in form and amount to the Company
or, in the case of any such mutilation, on surrender and cancellation of such
February Put Warrant, the Company at its expense will execute and deliver, in
lieu thereof, a new February Put Warrant of like tenor.
Section 11. Restricted Securities.
(a) Registration or Exemption Required. This February Put Warrant
has been issued in a transaction exempt from the registration requirements of
the Securities Act in reliance upon the provisions of Section 4(2) promulgated
by the SEC under the Securities Act. This February Put Warrant and the February
Put Warrant Shares issuable upon exercise of this February Put Warrant may not
be resold except pursuant to an effective registration statement or an exemption
to the registration requirements of the Securities Act and applicable state
laws.
(b) Legend. Any replacement February Put Warrants issued pursuant to
Section 2 hereof and any February Put Warrant Shares issued upon exercise
hereof, shall bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO,
SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY
OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A STOCK PURCHASE
AGREEMENT, DATED AS OF August 30, 1999, AS AMENDED BY AN AMENDMENT
TO STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 14, 1999, AND AS
FURTHER AMENDED BY A SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT
DATED AS OF FEBRUARY 8, 2000, BETWEEN Franklin Telecommunications
Corp. AND CRESCENT INTERNATIONAL LTD. A COPY OF THE PORTION OF THE
AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM
Franklin Telecommunications Corp.'S EXECUTIVE OFFICES."
9
<PAGE> 10
Removal of such legend shall be in accordance with the legend removal provisions
in the Agreement.
(c) No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 11(b) has been or shall be placed on the share
certificates representing the February Put Warrant Shares and no instructions or
"stop transfer orders," so called, "stock transfer restrictions" or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Section 11.
(d) Assignment. Assuming the conditions of Section 11(a) above
regarding registration or exemption have been satisfied, the Warrant Holder may
sell, transfer, assign, pledge or otherwise dispose of this February Put
Warrant, in whole or in part. The Warrant Holder shall deliver a written notice
to the Company substantially in the form of the assignment form attached hereto
as Exhibit B (the "Assignment Notice"), indicating the person or persons to whom
this February Put Warrant shall be assigned and the respective number of
warrants to be assigned to each assignee. The Company shall effect the
assignment within ten (10) days of receipt of such Assignment Notice, and shall
deliver to the assignee(s) designated by the Warrant Holder a February Put
Warrant or February Put Warrants of like tenor and terms for the specified
number of shares.
(e) Investor's Compliance. Nothing in this Section 11 shall affect
in any way the Investor's obligations under any agreement to comply with all
applicable securities laws upon resale of the Common Stock.
Section 12. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and shall be deemed duly given (i) upon delivery if hand delivered at
the address designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received), (ii) on the fifth business
day after deposit into the mail, if deposited in the mail, registered or
certified, return receipt requested, postage prepaid, addressed to the address
designated below, (iii) upon delivery if delivered by reputable express courier
service to the address designated below, or (iv) upon confirmation of
transmission if transmitted by facsimile to the facsimile number designated
below (if delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received). The addresses and facsimile numbers for such
communications shall be:
if to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Attention: Frank W. Peters
Telephone: (805) 373-8688
Facsimile: (805) 373-7373
10
<PAGE> 11
with a copy (which shall not constitute notice) to:
Hadden & Zepfel LLP
4675 MacArthur Court, Suite 710
Newport Beach, CA 92660
Attention: Robert J. Zepfel, Esq.
Telephone: (949) 752-6100
Facsimile: (949) 752-6161
if to the Investor:
Crescent International Ltd.
c/o GreenLight (Switzerland) SA
84, av Louis-Casai, P.O. Box 42
1216 Geneva, Cointrin
Switzerland
Attention: Mel Craw/Maxi Brezzi
Telephone: +41 22 791 72 56
Facsimile: +41 22 929 53 94
with a copy (which shall not constitute notice) to:
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attention: Sara Hanks, Esq./Earl S. Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 13. Miscellaneous. This February Put Warrant and any term
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. The headings in this February Put Warrant
are for purposes of reference only, and shall not limit or otherwise affect any
of the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
11
<PAGE> 12
IN WITNESS WHEREOF, this February Put Warrant was duly executed by the
undersigned, thereunto duly authorized, as of the date first set forth above.
Franklin Telecommunications Corp.
By: /s/ Tom Russell
---------------------------------------
Name: Tom Russell
Title: VP - CFO
Attested:
By: /s/ Helen West
---------------------------------------
Name: Helen West
Title: Secretary
12
<PAGE> 13
EXHIBIT A TO THE FEBRUARY PUT WARRANT
EXERCISE FORM
Franklin Telecommunications Corp.
The undersigned (the "Registered Holder") hereby irrevocably exercises
the right to purchase __________________ shares of Common Stock of Franklin
Telecommunications Corp., a corporation organized and existing under the laws of
the State of California (the "Company"), evidenced by the attached February Put
Warrant, and herewith makes payment of the Exercise Price with respect to such
shares in full in the form of (check the appropriate box) (i) Y cash or
certified check in the amount of $________; (ii) Y wire transfer to the
Company's account at __________________, _________, _________ (Account
No.:_________); or (iii) Y ______ February Put Warrant Shares, which
represent the amount of February Put Warrant Shares as provided in the attached
February Put Warrant to be canceled in connection with such exercise, all in
accordance with the conditions and provisions of said February Put Warrant.
The undersigned requests that stock certificates for such February Put
Warrant Shares be issued, and a February Put Warrant representing any
unexercised portion hereof be issued, pursuant to this February Put Warrant in
the name of the Registered Holder and delivered to the undersigned at the
address set forth below.
Dated:
----------------------------------
- -----------------------------------------
Signature of Registered Holder
- -----------------------------------------
Name of Registered Holder (Print)
- -----------------------------------------
Address
A-1
<PAGE> 14
NOTICE
The signature to the foregoing Exercise Form must correspond to the
name as written upon the face of the attached February Put Warrant in every
particular, without alteration or enlargement or any change whatsoever.
A-2
<PAGE> 15
EXHIBIT B TO THE FEBRUARY PUT WARRANT
ASSIGNMENT
(To be executed by the registered Warrant Holder (the "Registered
Holder") desiring to transfer the February Put Warrant, in whole or in part).
FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached
February Put Warrant hereby sells, assigns or transfers unto the person(s) named
below (the "Assignee") the right to purchase ______________ shares of the Common
Stock of Franklin Telecommunications Corp. evidenced by the attached February
Put Warrant and does hereby irrevocably constitute and appoint
______________________ (attorney) to transfer the number of shares specified of
the said February Put Warrant on the books of the Company, with full power of
substitution in the premises.
The undersigned requests that such February Put Warrant be issued, and
a February Put Warrant representing any unsold, unassigned or non-transferred
portion hereof be issued, pursuant to this February Put Warrant in the name of
the Registered Holder and delivered to the undersigned at the address set forth
below.
Dated:
-----------------------------------------
- -----------------------------------------------
Signature of Registered Holder
- -----------------------------------------------
Name of Registered Holder (Print)
- -----------------------------------------------
Address of Registered Holder
- -----------------------------------------------
Name of Assignee (Print)
- -----------------------------------------------
Address of Assignee (including zip code number)
B-1
<PAGE> 16
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the attached February Put Warrant in every
particular, without alteration or enlargement or any change whatsoever.
B-2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-3 of our report, dated August 20, 1999, which
appears in the Annual Report on Form 10-K of Franklin Telecommunications Corp.
and subsidiaries for the year ended June 30, 1999. We also consent to the
reference to our Firm under the caption "Experts" in the aforementioned
Registration Statement.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
March 9, 2000
