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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 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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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
4685 MACARTHUR COURT, SUITE 220
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(2) Price Fee
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Common Stock 6,274,001(1) $1.32 $8,281,681 $2,186.36
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(1) 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.
(2) Based on the closing price of the Common Stock on the American Stock
Exchange on April 24, 2000.
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
6,274,001 SHARES
FRANKLIN TELECOMMUNICATIONS CORP.
COMMON STOCK
These shares of common stock are being offered by certain of our
current shareholders. We issued the shares, or reserved the shares for issuance,
to the shareholders in connection with investments made in the Company in March
2000.
The selling shareholders 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 brokers or dealers to sell the
shares. For additional information on the selling shareholders' possible methods
of sale, you should refer to the section of this prospectus entitled "Plan of
Distribution." The selling shareholders may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with the sale of their
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 , 2000.
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You should rely only on information contained or incorporated by
reference in this prospectus. See "Information Incorporated by Reference."
Neither we nor the selling shareholders 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 SHAREHOLDERS COULD CAUSE DILUTION OF EXISTING
SHAREHOLDERS
As described in "The Selling Shareholders," we entered into a
Securities Purchase Agreement under which the selling shareholders purchased
units, with each unit consisting of 10,000 shares and a Term Warrant to purchase
2,500 shares. The price per Unit was $15,000. The exercise price of the Term
Warrants is $2.50 per share.
In addition, the selling shareholders were issued Protective Warrants
in connection with the transactions. The Protective Warrants provide that if the
market price of the Common Stock is less than $1.50 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 selling shareholders
are entitled to purchase a
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certain number of shares at $.01 per share, based on a formula. The formula
designed to ensure that the total market value of the shares issued under the
Securities Purchase Agreement, when increased by the value of any shares
issuable upon exercise of the warrant, equals the initial purchase price of the
units, subject to certain adjustments. Thus, the number of shares issuable under
the Protective Warrant is determined by subtracting the selling shareholder's
original investment, divided by 1.5, from 75% of the price on the effective date
(but in no event lower than $1.00) Thus, for example, for an investor who paid
$100,000 for the Units, if the market price of the Company's Common Stock were
to decline to $1.40 per share, the investor's Protective Warrant would be
exercisable to purchase 28,571 shares. (See "The Selling Shareholders"). 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.
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.
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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.
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
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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.
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.
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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.
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.
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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.
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
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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.
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 SHAREHOLDERS
In March of 2000 the Company entered into a Securities Purchase
Agreement with a group of investors introduced to the Company by LBE Capital,
LLC, a broker-dealer located in Atlanta, Georgia. Under the Securities Purchase
Agreement, the investors purchased 402.27 units, each unit consisting of 10,000
shares and a Term Warrant to purchase 2,500 shares at an exercise price of $2.50
per share. The purchase price per Unit was $15,000, for total gross proceeds of
$6,033,985.
In addition to the Term Warrants, the investors received Protective
Warrants, which are warrants to purchase an indeterminate number of shares at an
exercise price of $.01 per share. The purpose of these Warrants is to protect
the investors 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 they remain 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. 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 $1.50 per share. Thus, if the market price on the date this Registration
Statement becomes effective exceeds $1.50 per share, no shares are issuable upon
exercise of the warrant. If the market price of the Company's Common Stock were
to fall below $1.50 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.
In connection with the transaction, the Company also issued Agency
Warrants to purchase 200,000 shares to persons associated with LBE Capital, LLC,
also at an exercise price of $2.50, as a portion of the commission payable in
the transaction.
The Company is also required to register the resale of all of the
shares issuable under the Securities Purchase Agreement, including the shares
issuable upon exercise of the Term Warrants and the Protective Warrants, and to
register the shares issuable upon exercise of the Agency Warrants.
8
<PAGE> 10
The following table sets forth certain information as of March 31,
2000, regarding the ownership of the common stock by the selling shareholders
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
Selling ------------------------- Shares -----------------------
Shareholder Number Percentage Offered(1) Number Percentage
----------- --------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Crescent International, Ltd. 2,013,579 5.8% 1,250,000 763,579 2.2
B. Morgan Pridemore 1,220,000 3.5 1,220,000 -0- -0-
Merced Partners Limited Partnership 833,334 2.4 833,334 -0- -0-
Lakeshore International, Ltd. 416,666 1.2 416,666 -0- -0-
Gundyco in Trust for RRSP 550-98866-19 412,500 1.2 412,500 -0- -0-
Jack C. Blankenship and Kristin Peters 333,334 * 333,334 -0- -0-
Frank G. Mauro 325,000 * 315,000 10,000 *
Ellis A.G. 187,500 * 187,500 -0- -0-
C.H. Woodward 125,000 * 125,000 -0- -0-
Enigma Investments Limited 125,000 * 125,000 -0- -0-
David Kern Peteler 10,000 * 10,000 -0- -0-
</TABLE>
- ------------------
* Less than 1%
(1) Includes 4,022,667 shares issued and outstanding and 1,205,667 shares
issuable upon exercise of Term Warrants. The Registration Statement of which
this Prospectus is a part includes an additional 1,046,267 shares intended
to cover shares, if any, issuable upon exercise of Protective Warrants, in
which the number of shares issuable is based upon a formula relating to the
market price of the Common Stock.
Neither the selling shareholders nor any of their officers or directors
have 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
shareholders, 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
shareholders, or by pledgees, donees or transferees of, or other successors in
interest to, the selling shareholders, 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
9
<PAGE> 11
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 shareholders also may 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 shareholders 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 shareholders 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
shareholders can presently estimate the amount of such compensation. The Company
knows of no existing arrangements between the selling shareholders and any other
shareholders, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares of common stock.
The selling shareholders 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 shareholders 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 shareholders 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
10
<PAGE> 12
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.
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.
11
<PAGE> 13
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 Shareholders.............................8
Plan of Distribution.................................9
Information Incorporated by Reference
and Other Available Information....................10
Experts.............................................11
Legal Matters.......................................11
6,274,001 SHARES
COMMON STOCK
FRANKLIN TELECOMMUNICATIONS CORP.
----------
PROSPECTUS
----------
, 2000
<PAGE> 14
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.......................................... 2,186
Legal fees and expenses................................... 4,500
Accounting fees and expenses.............................. 2,000
Transfer Agent fees....................................... 300
Miscellaneous............................................. 514
-------
Total....................................................$12,500
=======
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 Form of Securities Purchase Agreement, dated as of March 16,
2000, between Registrant and the investors
10.3 Form of Protective Warrant
10.4 Form of Term Warrant
10.5 Registration Rights Agreement, dated as of March 16, 2000
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.
II-1
<PAGE> 15
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-2
<PAGE> 16
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 April
27, 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 Director April 27, 2000
- ----------------------------------
Frank W. Peters
(2) Principal Financial and
Accounting Officer
/s/ THOMAS RUSSELL Chief Financial Officer and a Director April 27, 2000
- ----------------------------------
Thomas Russell
(3) Directors
/s/ ROBERT S. HARP Director April 27, 2000
- ----------------------------------
Robert S. Harp
/s/ HERB MITCHELL Director April 27, 2000
- ----------------------------------
Herb Mitchell
</TABLE>
II-3
<PAGE> 17
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 Form of Securities Purchase Agreement, dated as of March 16,
2000, between Registrant and the investors
10.3 Form of Protective Warrant
10.4 Form of Term Warrant
10.5 Registration Rights Agreement, dated as of March 16, 2000
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.
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF HADDAN & ZEPFEL LLP]
April 27, 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 6,274,001
shares of the Company's Common Stock, without par value (the "Shares"), for
issuance pursuant to a Securities Purchase Agreement, dated as of March 16, 2000
between the Company and the investors named therein (the "Securities Purchase
Agreement"), and upon exercise of Stock Purchase Warrants issued pursuant to the
Securities 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 Securities 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 Securities
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 10.2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement is entered into as of March 16,
2000, by and among Franklin Telecommunications Corp., a California corporation
(the "COMPANY"), and the purchasers (the "PURCHASERS") set forth on the
execution pages hereof (the "EXECUTION PAGES").
RECITALS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. Each Purchaser desires to purchase, severally and not jointly,
subject to the terms and conditions stated in this Agreement, (i) shares of the
Company's common stock, without par value (the "COMMON STOCK"), (ii) warrants in
the form attached hereto as Exhibit A (including any warrants issued in
replacement thereof, the "TERM WARRANTS"), to acquire shares of Common Stock,
and (iii) warrants in the form attached hereto as Exhibit B (including any
warrants issued in replacement thereof, the "PROTECTIVE WARRANTS" and, together
with the Term Warrants, the "WARRANTS"). The shares of Common Stock issuable
upon exercise of or otherwise pursuant to the Warrants are referred to herein as
the "WARRANT SHARES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. CERTAIN DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them as provided below:
"EFFECTIVE DATE" shall mean March 16, 2000 or such other date as the
Company and the Purchaser may agree.
"INVESTMENT AMOUNT" shall mean the dollar amount to be invested in the
Company at the Closing pursuant to this Agreement by a Purchaser, as set forth
on the Execution Page hereto executed by such Purchaser.
"MATERIAL ADVERSE EFFECT" shall mean any material adverse effect on (i)
the Securities, (ii) the ability of the Company to perform its obligations
hereunder (including the issuance of the Shares and the Warrants), under the
Warrants (including the issuance of the Warrant Shares) or under the
Registration Rights Agreement or (iii) the business, operations, properties,
prospects or financial condition of the Company and its subsidiaries, if any,
taken as a whole.
<PAGE> 2
"SECURITIES" shall mean the Shares, the Warrants and the Warrant
Shares.
"SHARES" shall mean the shares of Common Stock to be issued and sold by
the Company and purchased by the Purchaser at the Closing (as defined below).
"TRADING DAY" shall mean a day on which the Common Stock trades on the
principal United States securities exchange or trading market on which such
security is listed or traded as reported by Bloomberg.
"UNIT" shall mean (i) 10,000 Shares, (ii) a Warrant to purchase 2,500
shares, at an initial exercise price of $2.50 per Share, and (iii) a Protective
Warrant.
2. PURCHASE AND SALE OF UNITS.
2.1 Generally. The Purchaser shall purchase the number of Units
specified on the Execution Page, and the Company shall issue and sell such
number of Shares and Warrants to each Purchaser for such Purchaser's Investment
Amount as provided below.
2.2 Purchase Price; Number of Shares and Warrants; Form of Payment;
Closing Date.
2.2.1 The Company shall sell and each Purchaser shall buy the
number of Units as may be purchased with the Investment Amount set forth on the
Execution Page, and each Purchaser shall pay the Company an amount equal to such
Purchaser's Investment Amount. The purchase price per Unit shall be $15,000.
2.2.2 Each Purchaser shall pay its Investment Amount by wire
transfer to the trust account of Robert J. Zepfel of Haddan & Zepfel, counsel
for the Company, in accordance with the Company's written wiring instructions
against delivery of certificates representing the Shares and duly executed
Warrants being purchased by such Purchaser, and the Company shall deliver such
Shares and Warrants against delivery of the such Purchaser's Investment Amount.
2.2.3 Subject to the satisfaction (or waiver) of the conditions
thereto set forth in Section 6 and Section 7 below, the date and time of the
sale of the Shares and the Warrants pursuant to this Agreement (the "CLOSING")
shall be 10:00 a.m., California Time on the Effective Date, or such other date
or time as the parties may mutually agree (the "CLOSING DATE"). The Closing
shall occur at the offices of the Company, 733 Lakefield Road, Westlake Village,
California 91361, or at such other place as the parties may otherwise agree.
2
<PAGE> 3
3. PURCHASER'S REPRESENTATIONS AND WARRANTIES.
Each Purchaser severally and not jointly represents and warrants to the
Company as follows:
3.1 Purchase for Own Account. The Purchaser is purchasing the
Securities for the Purchaser's own account and not with a present view towards
the distribution thereof. Notwithstanding anything in this Section 3(a) to the
contrary, by making the foregoing representation, the Purchaser does not agree
to hold the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption from registration under the Securities
Act and any applicable state securities laws.
3.2 Information. The Purchaser has been furnished all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested by
the Purchaser. The Purchaser has been afforded the opportunity to ask questions
of the Company and has received what the Purchaser believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by the Purchaser or its counsel or any of its
representatives shall modify, amend or affect the Purchaser's right to rely on
the Company's representations and warranties contained in Section 4 below.
3.3 Authorization; Enforcement. The Purchaser has the requisite power
and authority to enter into and perform its obligations under this Agreement and
to purchase the Shares and the Warrants in accordance with the terms hereof.
This Agreement has been duly and validly authorized, executed and delivered on
behalf of the Purchaser and is a valid and binding agreement of the Purchaser
enforceable against the Purchaser in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws affecting creditors' rights and remedies generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity).
3.4 Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless (a) subsequently registered thereunder, or (b)
the Purchaser shall have delivered to the Company an opinion of counsel
reasonably acceptable to the Company (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that the Securities to be sold or transferred may be sold or transferred
under an exemption from such registration, or (c) sold under Rule 144
promulgated under the Securities Act (or a successor rule), or (d) sold or
transferred to an affiliate of the Purchaser pursuant to an exemption under the
Securities Act; and (ii) neither the Company nor any other person is under any
obligation to register such Securities under the Securities Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder, in each case, other than pursuant to the Registration Rights
Agreement.
3
<PAGE> 4
3.5 Legends. Purchaser understands that the Shares and the Warrants
and, until such time as the Shares, Warrants and Warrant Shares have been
registered under the Securities Act (including registration pursuant to Rule 416
thereunder) as contemplated by the Registration Rights Agreement or otherwise
may be sold by Purchaser under Rule 144, the Warrants and the certificates for
the Shares and Warrant Shares may bear a restrictive legend in substantially the
following form:
The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or the securities laws of
any state of the United States or any other jurisdiction. The
securities represented hereby may not be offered or sold in the
absence of an effective registration statement for the securities
under applicable securities laws unless offered, sold or
transferred pursuant to an available exemption from the
registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Securities upon which it
is stamped, if, unless otherwise required by state securities laws, (a) the sale
of such Securities is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder), or (b) such holder provides the
Company with reasonable assurances that such Securities can be sold under Rule
144(k). Purchaser agrees to sell all Securities, including those represented by
a certificate(s) from which the legend has been removed, pursuant to an
effective registration statement or under an exemption from the registration
requirements of the Securities Act. In the event the above legend is removed
from any Securities and thereafter the effectiveness of a registration statement
covering such Securities is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance notice to Purchaser the Company may require that the
above legend be placed on any such Securities and Purchaser shall cooperate in
the prompt replacement of such legend.
3.6 Accredited Investor Status. Purchaser is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser as follows:
4.1 Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary and where the failure so to qualify would have a Material Adverse
Effect.
4.2 Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Shares and the Warrants in accordance with the terms hereof and to
issue the Warrant Shares upon exercise of the Warrants in
4
<PAGE> 5
accordance with the terms of the Warrants; (ii) the execution, delivery and
performance of this Agreement, the Warrants and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Shares and the issuance of the Warrants, and
the reservation for issuance and issuance of the Warrant Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required by applicable law; (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and, upon
execution and delivery by the Company of the Registration Rights Agreement and
the Warrants, such agreements will constitute, valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other laws affecting creditors' rights and remedies
generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding at law or in equity).
4.3 No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company,
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the reservation for issuance and
issuance of the Shares and the Warrant Shares and the issuance of the Warrants)
will not (i) conflict with or result in a violation of the Articles of
Incorporation or By-laws of the Company, or (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which any property or asset of the Company or
any of its subsidiaries is bound or affected (except, with respect to clause
(ii), for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its subsidiaries
is in default (and no event has occurred which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for actual or possible violations, defaults or
rights as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for actual or possible violations, if any, the sanctions for
which either singly or in the aggregate would not have a Material Adverse
Effect. Except as specifically contemplated by this Agreement and as required
under the Securities Act and any applicable state securities laws, the Company
is not required to obtain any consent, approval, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement (including, without
limitation, the issuance and sale of the Shares and Warrants as provided
hereby), or the Warrants (including the issuance of the Warrant Shares), in each
case in accordance with the terms hereof or thereof.
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4.4 SEC Documents; Financial Statements. Since January 1, 1997 the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and has filed all
registration statements and other documents required to be filed by it with the
SEC pursuant to the Securities Act (the "SEC DOCUMENTS"). As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any statements made in any such SEC Documents that are or were
required to be updated or amended under applicable law have been so updated or
amended. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal and recurring year-end audit
adjustments). Except as set forth in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of such SEC Documents and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in such SEC Documents, which liabilities and obligations referred
to in clauses (i) and (ii), individually or in the aggregate, would not have a
Material Adverse Effect.
4.5 Absence of Certain Changes. Except as disclosed in the SEC
Documents, there has been no change or development which individually or in the
aggregate has had or would have a Material Adverse Effect.
4.6 Absence of Litigation. Except as disclosed in the SEC Documents,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board, government agency, self-regulatory organization or body
pending or threatened against or affecting the Company, or any of its
subsidiaries, or any of their respective directors or officers in their
capacities as such which would have a Material Adverse Effect or which would
adversely affect the validity, enforceability of, or the authority or ability of
the Company to perform its obligations under this Agreement (including the
issuance of the Shares and the Warrants), the Registration Rights Agreement, the
Warrants (including the issuance of the Warrant Shares) or any other agreement
or document delivered pursuant hereto or thereto.
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4.7 Disclosure. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchaser pursuant to Section 3.2
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading.
4.8 No Brokers. Other than LBE Capital, LLC, the Company has not
engaged any person to which or to whom brokerage commissions, finder's fees,
financial advisory fees or similar payments are or will become due in connection
with this Agreement or the transactions contemplated hereby.
4.9 Form S-3 Eligibility. The Company is currently eligible to register
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Rights
Agreement).
5. COVENANTS.
5.1 Reporting Status. So long as the Purchaser beneficially owns any
Securities or has the right to acquire any Securities pursuant to this
Agreement, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and shall not terminate its status as an
issuer required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination.
5.2 Use of Proceeds. The Company shall use $2,500,000 of the net
proceeds from the sale of the Shares and the Warrants to retire outstanding
indebtedness, and shall use the balance for working capital purposes.
5.3 Expenses. At the Closing, the Company shall (i) pay LBE Capital,
LLC an amount equal to 6% of the proceeds of the sales of the Securities by the
Purchasers, of which 4% shall be a fee and 2% shall be a nonaccountable expense
allowance, and (ii) shall issue to LBE Capital warrants equivalent to 6% of the
Term Warrants.
5.4 Reservation of Shares. The Company has and shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the issuance of the maximum number of
Shares as provided in Section 2 hereof and the full exercise of the Warrants and
the issuance of the Warrant Shares in connection therewith and as otherwise
required hereby and by the Warrants. The Company shall not reduce the number of
shares reserved for issuance hereunder or upon the full exercise of the Warrants
(except as a result of any such issuance hereunder or exercise of Warrants)
without the consent of the Purchaser.
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5.5 Listing. The Company shall secure the listing or quotation, as the
case may be, of the Shares and Warrant Shares, in each case, upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or quoted (subject to official notice of issuance)
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all Shares from time to time issuable hereunder and all
Warrant Shares from time to time issuable upon exercise of the Warrants. The
Company will use its best efforts to continue the listing and trading of its
Common Stock on the American Stock Exchange and any other exchange on which such
common stock is currently or in the future listed (the "APPLICABLE EXCHANGE").
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell Shares and
Warrants to a Purchaser at the Closing hereunder is subject to the satisfaction,
at or before the Closing Date, of each of the following conditions thereto;
provided, however, that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion.
6.1 Execution. The applicable Purchaser shall have executed the
signature page to this Agreement and the Registration Rights Agreement, and
delivered the same to the Company.
6.2 Payment. The applicable Purchaser shall have delivered such
Purchaser's Investment Amount in accordance with Section 2.2 above.
6.3 Accuracy of Representations and Warranties. The representations and
warranties of the applicable Purchaser shall be true and correct as of the date
when made and as of the Closing Date as though made at that time, and the
applicable Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the Closing Date.
6.4 No Conflicts. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. Conditions to Each Purchaser's Obligation to Purchase Shares And Warrants.
The obligation of each Purchaser hereunder to purchase Shares and
Warrants to be purchased by it hereunder is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions, provided that
these conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in such Purchaser's sole discretion:
7.1 Execution. The Company shall have executed the signature pages to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Purchaser.
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7.2 Certificates. The Company shall have delivered to the Purchaser
duly executed certificates representing the number of Shares and duly executed
Warrants as provided in Section 2(b) above.
7.3 Accuracy of Representations and Warranties. The representations and
warranties of the Company shall be true and correct as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date.
7.4 No Conflicts. No statute, rule, regulation, executive order,
decree, ruling, injunction, action, proceeding or interpretation shall have been
enacted, entered, promulgated, endorsed or adopted by any court or governmental
authority of competent jurisdiction or any self-regulatory organization, or the
staff of any thereof, having authority over the matters contemplated hereby
which questions the validity of, or challenges or prohibits the consummation of,
any of the transactions contemplated by this Agreement.
7.5 Opinion of Counsel. The Purchaser shall have received an opinion of
the Company's counsel, dated as of the Closing Date, in substantially the form
of Exhibit D attached hereto.
7.6 No Material Changes. From the date of this Agreement through the
Closing Date, there shall not have occurred any Material Adverse Effect.
8. MISCELLANEOUS.
8.1 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of California applicable
to contracts made and to be performed in the State of California.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
8.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
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<PAGE> 10
8.5 Entire Agreement; Amendments; Waiver. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Purchaser.
8.6 Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Telephone No.: (805) 373-8688
Facsimile No.: (805) 373-8383
Attention: Chief Financial Officer
If to the Purchaser, to the address set forth under the Purchaser's name on the
Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
8.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers.
8.8 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by any other person.
8.9 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
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8.10 Termination. In the event that the Closing Date shall not have
occurred on or before March 27, 2000, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
COMPANY:
FRANKLIN TELECOMMUNICATIONS CORP.
By:
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Name:
-----------------------------
Title:
---------------------------
PURCHASER:
--------------------------------------
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Address:
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Telephone No.:
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Fax No.:
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Investment Amount $
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EXHIBIT 10.3
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR
SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
FRANKLIN TELECOMMUNICATIONS CORP.
PROTECTIVE WARRANT
THIS CERTIFIES THAT, for value received, ___________ , or registered
assigns ("Holder"), is entitled to purchase from Franklin Telecommunications
Corp.,a California corporation (the "Company"), at any time or from time to
time during the Exercise Period (as defined in Section 1 hereof), up to a total
number, determined in accordance with Section 2.2 hereof, of fully paid and
nonassessable shares of Common Stock, without par value, 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.
SECTION 1. DEFINITIONS.
"Agreement" shall mean the Securities Purchase Agreement, dated 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.
"Effective Date" shall mean the date on which the Registration
Statement required to be filed under Section 2.1 of the Registration Rights
Agreement is declared effective by the Securities and Exchange Commission.
"Exercise Date" shall mean the date this Protective Warrant, the
Exercise Notice and the Aggregate Exercise Price are received by the Company.
"Exercise Notice" shall mean 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
and continuing for a sixty-day period thereafter
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<PAGE> 2
"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
Protective Warrant.
"Per Share Protective Warrant Value" shall mean the difference
resulting from subtracting the Exercise Price from the closing 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 the date hereof between the Company and the Investor.
"Subscription Date" shall mean the date on which the Agreement is
executed and delivered by the parties hereto.
"Warrant Holder" shall mean the Investor or any assignee or transferee
of all or any portion of this Protective Warrant.
Other capitalized terms used but not defined herein shall have their
respective meanings set forth in the Agreement.
SECTION 2. EXERCISABILITY.
2.1 Timing. If the closing price of the Company's Common Stock on
the American Stock Exchange, or such other principal securities market or
exchange on which the Company's Common Stock is traded, is lower than $1.50 per
share on the Effective Date (the "Effective Date Price"), this Protective
Warrant shall become immediately exercisable as provided herein. If the
Effective Date Price is $1.50 or greater, than this Warrant shall expire on the
Effective Date.
2.2 Number of Shares. The number of shares of Common Stock, if any,
for which this Protective Warrant is exercisable (the "Protective Warrant
Shares") shall be determined by subtracting (x) the Investment Amount divided by
1.50 from (y) the Investment Amount divided by the greater of (A) 75% of the
Effective Date Price, or (B) $1.00.
SECTION 3. EXERCISE.
3.1 Method of Exercise. This Protective 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 Protective Warrant, the Exercise Notice and the aggregate
Exercise Price to the Company , or (ii) the delivery by facsimile of an executed
and completed Exercise Notice to the Company and delivery to the Company within
three business days thereafter of this Protective Warrant, the original Exercise
Notice and the Aggregate Exercise Price.
3.2 Payment of Aggregate Exercise Price. Subject to Section 3.2
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.
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<PAGE> 3
3.3 Cashless Exercise. As an alternative to payment of the
aggregate Exercise Price in accordance with Section 3.2. 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 Protective Warrant for that number of shares of Common Stock
determined by (i) multiplying the number of Protective Warrant Shares for which
this Protective Warrant is being exercised by the Per Share Protective Warrant
Value and (ii) dividing the product by the closing price of one share of the
Common Stock on the Trading Day immediately preceding the Exercise Date.
3.4 Replacement Protective Warrant. In the event that the
Protective Warrant is not exercised in full, the number of Protective Warrant
Shares shall be reduced by the number of such Protective Warrant Shares for
which this Protective Warrant is exercised, and the Company, at its expense,
shall forthwith issue and deliver to the Warrant Holder a new Protective Warrant
of like tenor in the name of the Warrant Holder or as the Warrant Holder may
request, reflecting such adjusted number of Protective Warrant Shares.
SECTION 4. DELIVERY OF STOCK CERTIFICATES.
4.1 Subject to the terms and conditions of this Protective Warrant,
as soon as practicable after the exercise of this Protective Warrant in full or
in part, and in any event within five 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
Protective 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 seven Trading Days after the exercise of this Protective Warrant in full
or in part.
4.2 This Protective Warrant may not be exercised as to fractional
shares of Common Stock. In the event that the exercise of this Protective
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 closing price of such fractional share within five
Trading Days.
SECTION 5. REPRESENTATIONS, ADDITIONAL WARRANTIES AND COVENANTS OF THE
COMPANY.
5.1 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 Protective Warrant and the Protective Warrant
Shares to the Warrant Holder.
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<PAGE> 4
5.2 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 American Stock Exchange.
5.3 The Protective 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.
5.4 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 Protective Warrant. The Company shall at all times reserve and
keep available, solely for issuance and delivery as Protective Warrant Shares
hereunder, such shares of Common Stock as shall from time to time be issuable as
Protective Warrant Shares.
SECTION 6. ADJUSTMENT OF THE EXERCISE PRICE. The Exercise Price and,
accordingly, the number of Protective Warrant Shares issuable upon exercise of
the Protective Warrant, shall be subject to adjustment from time to time upon
the happening of certain events as follows:
6.1 Reclassification, Consolidation, Merger or Mandatory Share
Exchange. If the Company, at any time between the date of issuance of this
Warrant and the Effective Date (i) reclassifies or changes its Capital Shares or
(ii) consolidates, merges or effects a mandatory share exchange with or into
another corporation (other than a merger or mandatory share exchange with
another corporation in which the Company is a continuing corporation and that
does not result in any reclassification or change, or as a result of a
subdivision or combination of Capital Shares issuable upon exercise of this
Protective Warrant), then in any such event the Company, or such successor or
purchasing corporation, as the case may be, shall, without payment of any
additional consideration therefore, amend this Protective Warrant or issue a new
warrant providing that the Warrant Holder shall have rights not less favorable
to the holder than those then applicable to this Protective Warrant and to
receive upon exercise under such amendment of this Protective Warrant or new
warrant, in lieu of each share of Common Stock theretofore issuable upon
exercise of this Protective 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, sale
or transfer by the holder of one share of Common Stock issuable upon exercise of
this Protective Warrant had this Protective Warrant been exercised immediately
prior to such reclassification, change, consolidation, merger, mandatory share
exchange or sale or transfer. Such amended warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 6. The provisions of this Section 6.1 shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.
6.2 Subdivision or Combination of Shares. If the Company, at any
time between the date of issuance of this Warrant and the Effective Date, shall
subdivide its Common Stock, the number of shares of Common Stock issuable to the
Investor hereunder shall be proportionately increased as of the effective date
of such subdivision, or, if the Company shall take a record of holders of its
Common Stock for the purpose of so subdividing, as of such record
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<PAGE> 5
date, whichever is earlier. If the Company, at any time between the date of
issuance of this Warrant and the Effective Date, shall combine its Common Stock,
the number of shares of Common Stock issuable to the Investor hereunder shall be
proportionately decreased as of the effective date of such combination, or, if
the Company shall take a record of holders of its Common Stock for the purpose
of so combining, as of such record date, whichever is earlier.
6.3 Stock Dividends. If the Company, at any time while this
Protective Warrant is unexpired and not exercised in full, shall 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 receiving such
dividend or other distribution (or if no such record is taken, as at the date of
such payment or other distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or other distribution
by a fraction:
(i) the numerator of which shall be the total number of
Outstanding Capital Shares immediately prior to such dividend or distribution,
and
(ii) the denominator of which shall be the total number of
Outstanding Capital Shares immediately after such dividend or distribution. The
provisions of this subsection c. shall not apply under any of the circumstances
for which an adjustment is provided in subsections a. or b.
6.4 Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to any provisions of this Section 6, the number of
Protective 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 Protective 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 6; and
(ii) the denominator of which shall be the Exercise Price after
such adjustment.
6.5 Liquidating Dividends, Etc. If the Company, at any time while
this Protective 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 while an
exercise is pending, then the Warrant Holder shall be entitled to receive upon
such exercise of the Protective Warrant in addition to the Protective 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
Protective Warrant Shares that, on the record date for such distribution, are
issuable upon such exercise of the Protective
5
<PAGE> 6
Warrant (with no further adjustment being made following any event which causes
a subsequent adjustment in the number of Protective Warrant Shares issuable),
and an appropriate provision therefor shall be made a part of any such
distribution. 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.
6.6 Other Provisions Applicable to Adjustments Under this Section.
The following provisions will be applicable to the making of adjustments in any
Exercise Price hereinabove provided in this Section 6:
(i) Other Action Affecting Capital Shares. In case after the
date hereof the Company shall take any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing subsections a. through e. hereof, inclusive, which in the opinion of
the Company's Board of Directors would have a materially adverse effect upon the
rights of the Warrant Holder at the time of exercise of the Protective 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
may in good faith determine to be equitable in the circumstances.
(ii) Notice of Certain Actions. In the event the Company shall,
at a time while the Incentive Warrant is unexpired and outstanding, take any
action which may result in an adjustment of the Exercise Price, the Company
shall give to the Warrant Holder at its last address known to the Company
written notice of such action ten days in advance of its effective date in order
to afford to the Warrant Holder an opportunity to exercise the Incentive Warrant
prior to such action becoming effective.
(iii) Notice of Adjustments. Whenever the Exercise Price or
number of Incentive Warrant Shares shall be adjusted pursuant to Section 6
hereof, the Company shall promptly make a certificate signed by its Chief
Financial Officer, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Exercise Price and number of Protective Warrant Shares
purchasable at that Exercise Price after giving effect to such adjustment, and
shall promptly cause copies of such certificate to be mailed (by first class and
postage prepaid) to the Warrant Holder.
SECTION 7. 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 Protective 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 Protective
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
Protective Warrant Shares on the exercise of this Protective Warrant.
6
<PAGE> 7
SECTION 8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Protective
Warrant, the Warrant Holder shall not be entitled to any rights as a stockholder
of the Company with respect to the Protective 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 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.
SECTION 9. REPLACEMENT OF PROTECTIVE WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Protective Warrant and, in the case of any such loss, theft or
destruction of the Protective 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 Protective
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Protective Warrant of like tenor.
SECTION 10. NOTICES. Any notices required or permitted to be given
under the terms of this Warrant shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Telephone No.: (805) 373-8688
Facsimile No.: 805-373-7373
If to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as such holder furnishes by
notice given in accordance with this Section 10.
SECTION 11. GOVERNING LAW; JURISDICTION. This Warrant shall be governed
by and construed in accordance with the laws of the State of California
applicable to contracts made and to be performed in the State of California.
7
<PAGE> 8
SECTION 12. MISCELLANEOUS.
12.1 Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
12.2 Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Franklin Telecommunications Corp.
Date: March 16, 2000 By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
8
<PAGE> 9
EXHIBIT A TO THE PROTECTIVE 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 CALIFORNIA CORPORATION (THE "COMPANY"), EVIDENCED BY
THE ATTACHED PROTECTIVE 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) CASH OR CERTIFIED CHECK IN THE AMOUNT OF $________; (II) WIRE TRANSFER
TO THE COMPANY'S ACCOUNT; OR (III) THROUGH THE "CASHLESS EXERCISE" PROVISIONS
THEREOF.
THE UNDERSIGNED REQUESTS THAT STOCK CERTIFICATES FOR SUCH PROTECTIVE
WARRANT SHARES BE ISSUED, AND A PROTECTIVE WARRANT REPRESENTING ANY UNEXERCISED
PORTION HEREOF BE ISSUED, PURSUANT TO THIS PROTECTIVE 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
<PAGE> 10
NOTICE
THE SIGNATURE TO THE FOREGOING EXERCISE FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THE ATTACHED PROTECTIVE WARRANT IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR
SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
FRANKLIN TELECOMMUNICATIONS CORP.
TERM WARRANT
THIS CERTIFIES THAT, for value received, ____________, or registered
assigns ("Holder"), is entitled to purchase from Franklin Telecommunications
Corp., a California corporation (the "Company"), at any time or from time to
time during the Exercise Period specified in Section 2 hereof, ____________
(_______ ) fully paid and nonassessable shares of the Company's Common Stock,
without par value (the "Common Stock"), at an exercise price (the "Exercise
Price") of $2.50 per share, subject to adjustment as provided herein. The
number of shares of Common Stock purchasable hereunder (the "Warrant Shares")
and the Exercise Price are subject to adjustment as provided in Section 4
hereof. The term "Warrants" means this Warrant, and any warrants issued in
replacement hereof, issued pursuant to a Securities Purchase Agreement, dated
as of March 16, 2000, by and between the Company and Holder (the "Securities
Purchase Agreement").
This Warrant is subject to the following terms, provisions and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised at any time during
the Exercise Period (as defined below) by the holder hereof, in whole or in
part, by the surrender of this Warrant, together with a completed exercise
agreement in the form attached hereto (the "Exercise Agreement"), to the Company
by 5:00 p.m. California time on any business day at the Company's principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof) and payment to the Company in cash, by
certified or official bank check or by wire transfer for the account of the
Company, of the Exercise Price for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered and the completed Exercise Agreement shall have been delivered and
payment shall have been made for such shares as set forth above or, if such day
is not a business day, on the next succeeding business day. The Warrant Shares
so purchased, representing the aggregate number of shares specified in the
Exercise Agreement, shall be delivered to the holder hereof within seven
business days after this Warrant shall have been so exercised (the "Delivery
Period"). If the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program, and so long as
the certificates therefor do not bear a legend and the holder is not obligated
to return such certificate for the placement of a legend thereon,
<PAGE> 2
the Company shall cause its transfer agent to electronically transmit the
Warrant Shares so purchased to the holder by crediting the account of the holder
or its nominee with DTC through its Deposit Withdrawal Agent Commission system
("DTC Transfer"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Company shall deliver to the holder physical certificates
representing the Warrant Shares so purchased. Further, the holder may instruct
the Company to deliver to the holder physical certificates representing the
Warrant Shares so purchased in lieu of delivering such shares by way of DTC
Transfer. Any certificates so delivered shall be in such denominations as may be
requested by the holder hereof, shall be registered in the name of such holder
or such other name as shall be designated by such holder and, following the date
on which the Warrant Shares have been registered under the Securities Act
pursuant to that certain Registration Rights Agreement, dated as of March 16,
2000, by and between the Company and Holder (the "Registration Rights
Agreement") or otherwise may be sold by the holder pursuant to Rule 144
promulgated under the Securities Act (or a successor rule), shall not bear any
restrictive legend. If this Warrant shall have been exercised only in part,
then, unless this Warrant has expired, the Company shall, at its expense, at the
time of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
2. Period of Exercise. This Warrant may be exercised at any time or
from time to time during the period (the "Exercise Period") beginning on (a)
March 16, 2001 and ending (b) at 5:00 p.m., California time, on March 15, 2005.
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
3.1 Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid and
nonassessable and free from all taxes, liens, claims and encumbrances.
3.2 Reservation of Shares. During the period beginning on the date
of initial issuance hereof and ending upon the expiration of the Exercise
Period, the Company shall at all times have authorized, and reserved for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Common Stock to provide for the exercise in full of this Warrant.
3.3 Listing. The Company shall secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon the American Stock
Exchange and each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed or become listed (subject
to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of the
same class shall be listed on such national securities exchange or automated
quotation system.
2
<PAGE> 3
3.4 Certain Actions Prohibited. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issuance or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the economic benefit inuring to the holder hereof
and the exercise privilege of the holder of this Warrant against dilution or
other impairment, consistent with the tenor and purpose of this Warrant.
3.5 Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all of the Company's assets.
4. Adjustments to Exercise Price The Exercise Price shall be subject to
adjustment from time to time as follows:
4.1 Stock Splits In the event the Company should at any time or from
time to time fix a record date for the effectuation of a split or subdivision of
the outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Exercise Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on exercise hereof shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding.
4.2 Reverse Stock Splits. If the number of outstanding shares of
Common Stock is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Exercise Price
shall be appropriately increased so that the number of shares of Common Stock
issuable on exercise hereof shall be decreased in proportion to such decrease in
outstanding shares.
4.3 Recapitalizations If at any time or from time to time there
shall be a recapitalization of the Common Stock, provision shall be made so that
the holder hereof shall thereafter be entitled to receive upon exercise of this
Warrant the number of shares of stock or other securities or property of the
Company or otherwise, to which a holder of Common Stock deliverable upon
exercise would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this paragraph with respect to the rights of the holder hereof after the
recapitalization to the end that the provisions of this paragraph (including
adjustment of the Exercise Price then in effect and the number of shares
purchasable upon exercise hereof) shall be applicable after that event as nearly
equivalent as may be practicable.
4.4 Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a partial liquidating dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or distribution to the
Company's shareholders of cash or shares (or rights to acquire shares)
3
<PAGE> 4
of capital stock of a subsidiary) (a "Distribution"), then, upon exercise of
this Warrant for the purchase of any or all of the shares of Common Stock
subject hereto, the holder of this Warrant shall be entitled to receive its
pro-rata amount of such assets (or such rights) as would have been payable to
the holder had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
4.5 Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares issuable upon exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
5. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
6. Transfer, Exchange, Redemption and Replacement of Warrant.
6.1 Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company, provided, however, that any
transfer or assignment shall be subject to the conditions set forth in this
Section 6 and to the provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 7 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
6.2 Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the offices
of the, for new Warrants of like tenor of different denominations representing
in the aggregate the right to purchase the number of shares of Common Stock
which may be purchased hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by the holder
hereof at the time of such surrender.
6.3 Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
4
<PAGE> 5
6.4 Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 6, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 6. The Company shall indemnify
and reimburse the holder of this Warrant for all losses and damages arising as a
result of or related to any breach by the Company of the terms of this Warrant,
including costs and expenses (including legal fees) incurred by such holder in
connection with the enforcement of its rights hereunder.
6.5 Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
6.6 Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance reasonably
acceptable to the Company and (iii) that the transferee be an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act;
provided that no such opinion, letter, or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act.
7. Notices. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier, or by confirmed telecopy, in each case addressed to a party. The
addresses for such communications shall be:
If to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Telephone No.: (805) 373-8688
Facsimile No.: 805-373-7373
If to the holder, at such address as such holder shall have provided in writing
to the Company, or at such other address as such holder furnishes by notice
given in accordance with this Section 9.
5
<PAGE> 6
8. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California.
9. Miscellaneous.
9.1 Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
9.2 Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
9.3 Business Day. For purposes of this Warrant, the term "business
day" means any day, other than a Saturday or Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law,
regulation or executive order to close.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
Franklin Telecommunications Corp.
Date: March 16, 2000 By:
-------------------------------
Name:
-------------------------
Title:
-------------------------
6
<PAGE> 7
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
To: Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Telephone No.: (805) 373-8688
Facsimile No.: (805) 373-7373
The undersigned hereby irrevocably exercises the right to purchase
__________ shares of the Common Stock of Franklin Telecommunications Corp., a
California corporation (the "Company"), evidenced by the attached Warrant and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
[ ] The undersigned requests that the Company cause its transfer agent to
electronically transmit the Common Stock issuable pursuant to this Exercise
Agreement to the account of the undersigned or its nominee (which is
_________________) with DTC through its Deposit Withdrawal Agent Commission
System ("DTC TRANSFER").
[ ] In lieu of receiving the shares of Common Stock issuable pursuant to this
Exercise Agreement by way of DTC Transfer, the undersigned hereby requests
that the Company cause its transfer agent to issue and deliver to the
undersigned physical certificates representing such shares of Common Stock.
The undersigned requests that a Warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant, in the name of the Holder and
delivered to the undersigned at the address set forth below:
Dated:
-------------------- ------------------------------------
Signature of Holder
------------------------------------
Name of Holder (Print)
Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE> 8
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the attached Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____
In the presence of
- -----------------------------------
Name:
----------------------------------
Signature:
-----------------------
Title of Signing Officer or Agent
(if any):
-------------------------
Address:
-------------------------
-------------------------
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
<PAGE> 1
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement is entered into as of the 16th day
of March, 2000, by and among Franklin Telecommunications Corp., a California
corporation (the "Company"), and the investor specified on the signature page
hereof (the "Investor");
RECITALS:
A. The Company and the Investor have entered into a Securities Purchase
Agreement dated as of March 16, 2000 (the "Securities Purchase Agreement");
B. In connection with the Securities Purchase Agreement, the Company
has agreed, upon the terms and subject to the conditions contained therein, to
issue and sell to the Investor (i) shares of the Company's common stock, without
par value (the "Common Stock"), (ii) a Term Warrant, in the form of Exhibit A to
the Securities Purchase Agreement ( the "Term Warrant"), and (iii) a Protective
Warrant, in the form of Exhibit B to the Securities Purchase Agreement, all in
the amounts specified on the signature page hereof. The shares of Common Stock
issuable upon exercise of the Term Warrant and the Protective Warrant are
referred to herein as the "Warrant Shares".
C. To induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Company and the Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "INVESTORS" means the Initial Investor and any transferees or
assignees who agree to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
1.2 "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("RULE 415"), if applicable, and the declaration or ordering of
effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the "SEC").
<PAGE> 2
1.3 "REGISTRABLE SECURITIES" means (i) the Shares, (ii) the Warrant
Shares and (iii) any shares of capital stock issued or issuable, from time to
time (with any adjustments), as a distribution on or in exchange for or
otherwise with respect to any of the foregoing, whether as default payments or
otherwise.
1.4 "REGISTRATION STATEMENT" means one or more registration
statements of the Company under the Securities Act registering all of the
Registrable Securities.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION
2.1 Mandatory Registration. The Company shall file with the United
States Securities and Exchange Commission ("SEC"), within thirty days of the
date hereof (the "FILING DATE") a Registration Statement on Form S-3 (or, if
Form S-3 is not then available, on such form of Registration Statement as is
then available to effect a registration of the issuance and/or the resale of all
of the Registrable Securities, covering the resale of at least 120% of
Registrable Securities, which Registration Statement, to the extent allowable
under the Securities Act and the Rules promulgated thereunder (including Rule
416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon exercise of the Warrants to prevent dilution resulting from stock splits,
stock dividends or similar transactions.
2.2 Payments by the Company. The Company shall use its best efforts
to cause the Registration Statement required to be filed pursuant to Section 2.1
hereof to become effective as soon as practicable, but in no event later than
the 120th day after the Closing Date (the "OUTSIDE DATE OF REGISTRATION"). In
the event (i) the Company fails for any reason to obtain the effectiveness of
the Registration Statement by the Outside Date of Registration, (ii) the Company
fails for any reason to maintain the effectiveness of the Registration Statement
as provided herein (unless the Registrable Securities covered by such
Registration Statement shall have become freely tradable pursuant to Rule 144(k)
of the Securities Act or have been otherwise sold, or (iii) the Common Stock is
not listed or included for quotation on Nasdaq, the Nasdaq Small Cap Market ,
the Nasdaq National Market, the New York Stock Exchange or the American Stock
Exchange, then, for any period of such ineffectiveness (an "INEFFECTIVE
PERIOD"),the Company shall pay to the Investor in immediately available funds
into an account designated by the Investor an amount equal to two percent (2.0%)
of the aggregate Purchase Price of all of the Registrable Securities then held
by the Investor for each calendar month and for each portion of a calendar
month, pro rata, during an Ineffective Period. Such payments shall be made on
the first Trading Day after the earliest to occur of (i) the expiration of the
applicable Ineffective Period and (ii) the last day of each calendar month
during an Ineffective Period. Such amounts shall be paid in cash or, at the
Company's option, may be convertible into that number of shares of Common Stock
computed by dividing the amount of such payment by the Market Price determined
as of the first day of the period when such payment becomes due. Any shares of
Common Stock issued upon conversion of such amounts shall be Registrable
Securities.
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2.3 Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the SEC a Registration Statement relating to an offering for its own account or
the account of others under the Securities Act of any of its equity securities
(other than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity securities issuable in connection with stock option or
other employee benefit plans) and the Company is not prohibited from including
such Registrable Securities on such Registration Statement, the Company shall
send to each Investor who is entitled to registration rights under this Section
2.3 written notice of such determination and, if within fifteen days after the
date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights (except to the extent any existing agreements otherwise provide). If an
offering in connection with which an Investor is entitled to registration under
this Section 2.3 is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
2.4 Eligibility for Form S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Investor of the Registrable Securities and the Company shall file
all reports required to be filed by the Company with the SEC in a timely manner
so as to maintain such eligibility for the use of Form S-3.
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3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare and file with the SEC the Registration
Statement required by Section 2.1 and cause such Registration Statement relating
to Registrable Securities to become effective as soon as practicable after such
filing (but in no event later than the Outside Date of Registration), and keep
the Registration Statement effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which all of the Registrable
Securities (in the reasonable opinion of counsel to the Investor) may be
immediately sold to the public without registration or restriction pursuant to
Rule 144(k) under the Securities Act (the "REGISTRATION PERIOD"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
therein) (i) shall comply in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC promulgated thereunder
and (ii) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading. The financial statements of the Company
included in the Registration Statement or incorporated by reference therein will
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC applicable with
respect thereto. Such financial statements will be prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed on
summary statements and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
immaterial year-end adjustments).
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement.
3.3 The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel,
upon written request, (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy of the
Registration Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto, and, in the case of the
Registration Statement referred to in Section 2.1, each letter written by or on
behalf of the Company to the SEC or the staff of the SEC (including, without
limitation, any request to accelerate the effectiveness of any Registration
Statement or amendment thereto), and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion, if any, thereof which contains information for which
the Company has sought confidential treatment), (ii) on the date of
effectiveness of the
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<PAGE> 5
Registration Statement or any amendment thereto, a notice stating that the
Registration Statement or amendment has been declared effective, and (iii) such
number of copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as such Investor may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
3.4. The Company shall use its best efforts to (i) register and qualify
the Registrable Securities covered by the Registration Statement under such
other securities or "blue sky" laws of such jurisdictions in the United States
as each Investor who holds Registrable Securities being offered reasonably
requests, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3.4, (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
3.5 In the event the Investors who hold a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
3.6. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor by telephone and facsimile of the happening
of any event, of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request.
3.7 The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable moment (including in each case by amending or supplementing
such Registration Statement) and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
(and if such Registration Statement is supplemented or amended, deliver such
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request).
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3.8. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (b) the release of such
Records is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction, or (c) the information in such
Records has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into confidentiality agreements (in
form and substance satisfactory to the Company) with the Company with respect
thereto, substantially in the form of this Section 3.8. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. Nothing herein shall be deemed to
limit the Investors' ability to sell Registrable Securities in a manner which is
otherwise consistent with applicable laws and regulations.
3.9. At the request of any Investor, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement or, if necessary, a new Registration Statement
in order to change the plan of distribution set forth in such Registration
Statement, or otherwise in order to permit the sale by any Investor of its
Registrable Securities.
3.10. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the Securities Act and the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by the SEC).
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4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
4.1 It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least three business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
4.2 Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
4.3 Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3 above,
such Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
prospectus contemplated thereby and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
4.4. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses incurred by the Company or the Investors in
connection with registrations, filings or qualifications pursuant to Sections 2
and 3 above, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, shall be borne by the Company. In addition, the Company
shall pay all of the Investors' costs and expenses (including legal fees)
incurred in connection with the enforcement of the rights of the Investors
hereunder.
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6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
and (ii) the directors, officers, partners, members, employees and agents of
such Investor and each person who controls any Investor within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), if any, (each, an "INDEMNIFIED
PERSON"), against any joint or several losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced or threatened, in
respect thereof, "CLAIMS") to which any of them may become subject insofar as
such Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
other law, including, without limitation, any state securities law, or any rule
or regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6.3 with respect to the number of legal counsel, the Company shall reimburse
the Investors and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.1: (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by such Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made available by the
Company hereof, and the Indemnified Person was promptly advised in writing not
to use the incorrect prospectus prior to the use giving rise to a Violation
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<PAGE> 9
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
6.2. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6.1, the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and each
person, if any, who controls the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim to which any of them may become subject, under the Securities
Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and subject to Section 6.3 such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6.2 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the
prior written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Agreement (including this Section 6.2 and Section 7) for only that amount
as does not exceed the net proceeds actually received by such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.2 with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
6.3. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to made against any indemnifying
party under this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that such indemnifying party shall not be entitled
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to assume such defense and an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
or Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are in conflict with those
available to such indemnifying party. The indemnifying party shall pay for only
one separate legal counsel for the Indemnified Persons or the Indemnified
Parties, as applicable, and such legal counsel shall be selected by Investors
holding a majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates, if the Investor is entitled
to indemnification hereunder, or by the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Warrants or the Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company after such assignment, (ii)
the Company is furnished with written notice of (a) the name and address of such
transferee or assignee and (b) the
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<PAGE> 11
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act and applicable state securities laws, (iv) the transferee or
assignee agrees in writing with the Company to be bound by all of the provisions
contained herein, and (v) such transfer shall have been made in accordance with
the applicable requirements of the Securities Purchase Agreement. In addition,
and notwithstanding anything to the contrary contained in this Agreement, the
Securities Purchase Agreement or the Warrants, the Securities may be pledged,
and all rights of the Investors under this Agreement or any other agreement or
document related to the transaction contemplated hereby may be assigned, without
further consent of the Company, to a bona fide pledgee in connection with an
Investor's margin or brokerage accounts.
9. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, and
Investors who hold a majority in interest of the Registrable Securities or, in
the case of a waiver, with the written consent of the party charged with the
enforcement of any such provision. Any amendment or waiver effected in
accordance with this Section 9 shall be binding upon each Investor and the
Company.
10. MISCELLANEOUS.
10.1. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Telephone: (805) 373-8688
Facsimile: (805) 373-8383
If to an Investor, at such address as such Investor shall have provided
in writing to the Company or such other address as such Investor furnishes by
notice given in accordance with this Section 10.1
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10.2. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
10.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of California applicable to contracts made and to be
performed in the State of California.
10.4 This Agreement, the Securities Purchase Agreement and the Warrants
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement and the Warrants supersede all prior agreements
and understandings among the parties hereto and thereto with respect to the
subject matter hereof and thereof.
10.5. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
10.6. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
10.7 This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
10.8. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
Franklin Telecommunications Corp.
By:
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Name:
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Its:
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Investor:
By:
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Name:
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Title:
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<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
April 27, 2000
