As filed with the Securities and Exchange Commission on May 12, 2000
Registration No. 333-96039
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 23-2498715
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(State or other jurisdiction of (I.R.S. Employer
incorporation organization) Identification No.)
1735 Market Street
Mellon Bank Center, Suite 1300
Philadelphia, Pennsylvania 19103
(215) 979-3600
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
PETER S. PELULLO, President
1735 Market Street
Mellon Bank Center, Suite 1300
Philadelphia, Pennsylvania 19103
(215) 979-3600
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(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
DAVID S. ROSENTHAL, ESQ.
Swidler Berlin Shereff Friedman, LLP
405 Lexington Avenue
New York, New York 10174
(212) 758-9500
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
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]
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
=============================================================================
Proposed Proposed
Title of each Maximum Maximum
class of Amount to be Offering Aggregate Amount of
securities to registered Price Offering registration
be registered per share Price fee(2)(3)(9)
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Common Stock, 115,268,388(1)(2) $2.01(6) $229,655,901(2) $60,629
$0.001 par (3)(4) (3)
value per 4,160,000 $2.02(7) 8,403,200 2,218
share 8,833,333(1)(5) $3.00(8) 26,499,999 6,996
3,483,333(1)(5) $4.00(8) 13,933,332 3,679
1,060,000(1)(5) $3.03(8) 3,211,800 848
640,000(1)(5) $5.00(8) 3,200,000 845
250,000(1)(5) $2.38(8) 595,000 157
200,000(1)(5) $2.63(8) 526,000 139
100,000(1)(5) $2.72(8) 272,000 72
100,000(1)(5) $2.47(8) 247,000 65
25,000(1)(5) $3.25(8) 81,250 21
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Totals 134,120,054 $286,625,482 $75,669
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(1) Includes additional number of shares that may become issuable by reason of
anti-dilution provisions of common stock purchase warrants pursuant to Rule
416 under the Securities Act of 1933, as amended (the "Securities Act").
(2) Pursuant to Rule 429 under the Securities Act, this Registration Statement
includes 250,000 shares of common stock issuable upon exercise of common
stock purchase warrants, 100,000 of which were originally registered on
Form S-2, File No. 333-31691 declared effective on August 18, 1997, and
150,000 of which were originally registered on Form S-2, File No. 333-52921
declared effective on August 6, 1998. We previously paid registration fees
totaling $128.79 to register the aforesaid securities.
(3) Pursuant to Rule 429 under the Securities Act, this Registration Statement
includes 761,721 shares of common stock which were originally registered on
Form S-2, File No. 333-52921 declared effective on August 6, 1998. We
previously paid registration fees totaling $346.24 to register the
aforesaid securities.
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(4) Includes 1,800,000 shares of common stock issuable upon exercise of
outstanding warrants, excluding the 250,000 shares described in footnote 2
above.
(5) Represents shares of common stock issuable upon exercise of outstanding
warrants.
(6) Common stock price per share calculated in accordance with Rule 457(c)
under the Securities Act using the average of the closing bid and ask
prices for the common stock on February 1, 2000. These shares were
included in the Calculation of Registration Fee table in the registration
statement on Form S-3 filed on February 2, 2000.
(7) Common stock price per share calculated in accordance with Rule 457(c)
under the Securities Act using the average of the closing bid and ask
prices for the common stock on May 10, 2000.
(8) Price per share of common stock underlying warrants calculated in
accordance with Rule 457(g) under the Securities Act based upon the warrant
exercise price.
(9) We previously paid $67,784 of these registration fees as further detailed
in the Calculation of Registration Fee table in the registration statement
on Form S-3 filed on February 2, 2000.
______________________
As permitted by Rule 429(a), the Prospectus included herein also relates to
Registration Statement Nos. 333-31691 and 333-52921.
______________________
We hereby amend this Registration Statement on such date or dates as may
be necessary to delay its effective date until we file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a), may
determine.
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[TO BE INSERTED ALONG LEFTHAND SIDE OF THIS PROSPECTUS COVER PAGE]
[RED HERRING LEGEND]
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated May 12, 2000
PROSPECTUS
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CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
134,120,054 Shares of
Common Stock
We are furnishing this document to you to allow the selling security
holders named in this document to sell:
- up to 117,378,388 shares of common stock from time to time; and
- up to 16,741,666 shares of common stock upon the exercise of outstanding
common stock purchase warrants.
We will not receive any proceeds from the resale by the selling security
holders of their shares of common stock. We will receive proceeds of
$52,569,216 if all of the warrants to purchase 16,741,666 shares of common
stock are exercised.
All costs, expenses and fees in connection with the registration of the
shares of common stock will be paid by us, except that each selling security
holder will pay his, her or its own selling commissions and fees.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"CLRI". On May 10, 2000, the closing bid price was $2.00 per share of
common stock.
WE URGE YOU TO READ CAREFULLY THE "RISK FACTORS" SECTION BEGINNING ON PAGE 8,
WHERE WE DESCRIBE SPECIFIC RISKS ASSOCIATED WITH THESE SECURITIES, TOGETHER
WITH THIS DOCUMENT, BEFORE YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is _________________
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TABLE OF CONTENTS
PROSPECTUS SUMMARY 3
RISK FACTORS 8
USE OF PROCEEDS 21
SELLING SECURITY HOLDERS 21
PLAN OF DISTRIBUTION 27
DESCRIPTION OF SECURITIES TO BE REGISTERED 29
LEGAL MATTERS 30
EXPERTS 30
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 30
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 32
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PROSPECTUS SUMMARY
The following summary highlights information from this prospectus,
including information incorporated by reference in this prospectus. Because
this is a summary, it does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus, including the "Risk Factors" section, the financial statements and
the notes to those financial statements.
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
We are positioning our business to be a supplier of a broad line of
telecommunications products and services utilizing Internet Protocol, also
known as IP, traditional circuit switched and wireless technologies. We plan
to offer our products and services through wholesale and retail distribution
channels in the United States and internationally.
The current focus of our business is in the following two industry
segments: telephony/Internet services and wireless voice messaging services.
Our telephony/Internet business utilizes both IP and circuit switched
technologies, and includes the following services:
- prepaid and post paid phone cards;
- residential and business long distance services;
- fax services; and
- turnkey Internet solutions including traditional dial-up access, web
hosting, co-location and e-commerce services.
Our wireless voice messaging division is developing a wireless
telecommunications technology that utilizes FM radio frequencies.
Description of Internet Protocol Telephony
The telecommunications industry has historically transmitted voice and
data over separate networks using different technologies. Traditional
telecommunications carriers have built telephone networks based on circuit
switching technology. Circuit switching technology establishes and maintains a
dedicated path for each call until the call is terminated. When a telephone
call is placed, a circuit is established and the circuit remains dedicated to
the call being transmitted. The circuit remains unavailable to transmit any
other call until the original call is terminated.
IP technology was designed to utilize transmission capacity more
efficiently over a telecommunications network. IP technology divides data and
voice signals into digital packets that are transmitted over different channels
of a network to a final destination where they are reassembled in the original
order in which they were transmitted. The packets of data may be transmitted
over the public Internet or a privately managed IP network, such as our IP
network. When a call is placed over an IP network, the voice signals are
packetized at an IP switch and the packets of data are sent via the Internet
or a privately managed network over different channels or paths. An IP switch
is a strategically located computer system that uses IP technology to packetize
and reassemble data and voice signals. When the packets of data reach the IP
switch closest to the destination of the call, the IP switch reassembles the
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data to its original order and delivers it to the intended destination so that
the person receiving the call hears the message as it was originally
transmitted. IP packet switching uses capacity in a network more efficiently
because the network does not need to establish dedicated circuits for each
transmission. As a result, more data can be transmitted over an IP network
compared to a circuit switched network.
IP or packet switching technology allows service providers to combine
their traditional voice and data networks to more efficiently utilize their
networks by carrying voice, fax and data traffic over the same network. In
addition, the cost of building an IP network is substantially lower than
building a traditional circuit switched network. We believe that a typical
voice over IP switch costs approximately 80% less than a standard telecom
circuit switch.
Improved efficiencies of IP technology create network savings that can be
passed to the consumer in the form of lower long distance rates. In addition,
international telephone calls switched via IP technology are less expensive
because they currently are not included in the international settlement
process, which represents a significant portion of traditional international
long distance tariffs. IP technology also offers the opportunity to develop
various other applications that may be sold in the future.
Our Telephony/Internet Services Business
Our telephony/Internet services business currently offers prepaid phone
cards, residential and business long distance, and fax services through IP and
traditional circuit switching technologies. Also, as a domestic Internet
service provider, we offer turnkey Internet solutions including traditional
dial-up access, web hosting, co-location and e-commerce services. Our
telephony/Internet services business has been built through the acquisitions of
several companies.
In May 1999, we acquired MegaHertz-NKO, Inc., a company formed in January
1999 to succeed to the operations of MegaHertz Communications Corp., an
Internet service provider, and NKO, Inc., a provider of enhanced
telecommunications and IP telephony services, which include voice, data, fax
and video services. We changed the name of the MegaHertz-NKO business to
Clariti IP Services. In October 1999, we acquired NKA Pty, Ltd., an Australian
based provider of IP telephony to corporate clients. We changed the name of
the NKA business to Clariti IP Asia. These acquisitions have provided us with
an operating base upon which we plan to build a global network using IP
technology over a privately managed network. In addition, Clariti IP Services
offers nationwide Internet access for individuals, businesses and
organizations.
In December 1999, we acquired Tekbilt World Communications, Inc., a
telecommunications company doing business under the name TWC Direct. We
changed the name of TWC Direct to Clariti Telecom. Clariti Telecom offers long
distance and toll-free services, prepaid calling cards, postpaid calling cards,
prepaid cellular and e-commerce telecommunications services, through both
retail and wholesale distribution channels. This acquisition added
approximately 47,000 established points of distribution for our products and
services. Clariti Telecom presently utilizes both IP and traditional circuit
switched technologies.
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Description of Our Privately Managed IP Network
We use IP technology over a privately managed IP network to transmit some
of our customers' calls. This privately managed network is interconnected with
circuit switched telephone networks and provides connections to telephones
worldwide. Because no other traffic may be transmitted over our IP network
without our permission, we believe the voice quality of our transmissions is
comparable to that of conventional switched technology, but without the high
cost of conventional circuit switching hardware. In addition, we believe the
voice quality of our transmissions is higher than those of other Internet
telephony companies who use the public Internet to transmit their calls. The
quality of calls transmitted over the public Internet is currently lower
because it is more difficult to manage the flow of information over the
Internet, which is a public network, than a privately managed network. We are
in the process of building a global private network for our IP telephony
business. We currently have domestic IP switches located in Florida and New
York, as well as internationally in Peru, Australia, Bulgaria and Israel. We
expect to increase the number of our IP switches as call traffic and market
conditions warrant, which should have the effect of further decreasing
transmission costs. Our IP switches are connected by a network of various
types of telecommunication lines that we lease from third parties.
Our Wireless Voice Messaging Business
We are presently developing a wireless voice messaging system. The system
utilizes our proprietary protocol, which is called ClariCAST(TM) to transmit
digitally encoded voice messages over the FM-SCA channels of a designated FM
radio station. FM-SCA channels are the sideband of an FM radio station's
broadcasting frequency. When the system has been completed and rolled out
commercially, a subscriber to the system will purchase a handheld voice message
player, sold by us, and pay a monthly subscription fee for wireless message
service. We currently plan to subcontract out the manufacturing of our
handheld voice message player. Callers can leave voice messages for the
subscriber by calling the system's central phone number and entering the
subscriber's personal identification number. The calling party's message is
then digitized, compressed and transmitted by the radio station's FM
transmitter to the specific subscriber. The wireless voice messaging system
provides messages that coexist, but do not interfere, with the FM radio
station's existing commercial broadcasts.
The use of FM-SCA channels, which are available on FM radio stations
throughout the world, means that our wireless voice messaging system will
require significantly less investment to establish a network and deploy the
necessary hardware than a traditional paging or cellular system. In addition,
the existence of the FM radio station's transmission infrastructure and the
simplicity of our wireless voice messaging system will allow for more rapid
installation of the system.
In April 1998, we successfully tested a prototype of our digital wireless
voice messaging system in Philadelphia, Pennsylvania. We also successfully
tested the prototype of our system in Brazil, Canada, and two other cities in
the United States. We are now in the process of completing development of a
wireless voice messaging player, the components to the wireless voice messaging
system, finalizing the software and testing the entire system as a finished
product. We expect to launch our commercial wireless voice messaging service
during the Year 2000.
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Marketing
We rely primarily on agents, resellers and retailers focused principally
on sales of our prepaid calling cards and other telephony services. Our
Internet service provider services are marketed directly to consumers through
advertising via the Internet, newspapers and other media.
We plan to market our wireless voice messaging system in the United States
and internationally. We believe that, possibly, the most significant
opportunities for the system are in emerging markets, including China and
Brazil. We are in the process of developing a marketing and distribution
strategy for our wireless voice messaging system. We plan to explore all
avenues of distribution, including sales through independent distributors,
resellers and direct marketers and entering into joint ventures for the
distribution of our system. In April 1999, we signed a memorandum of
understanding with Acme Paging, whose subsidiary, Conectel, is the largest
paging company in Latin America. Pursuant to the terms of the memorandum of
understanding, we plan to form a partnership with Conectel to offer our
wireless voice messaging service in Brazil. We are currently involved in
discussions for partnership opportunities in countries other than Brazil.
Competition
Our telephony business competes with those of numerous well-established
companies such as AT&T, MCI Worldcom and Sprint, all of which have
substantially greater financial, technical, personnel and other resources than
we do, and have established reputations for success in the telephony business.
Certain of these competitors may also have the financial resources necessary to
enable them to withstand substantial price competition or downturns in the
market for telephony services. We also compete with many smaller service
providers, including IP telephony and Internet telephony companies such as
DeltaThree.com, Net2Phone and ITXC. Likewise, our Internet service provider
business also competes with those of numerous well-established companies such
as America Online, all of which have substantially greater financial,
technical, personnel and other resources than us, and have established
reputations for success in the Internet service provider business.
We expect our wireless messaging system will compete with those of
numerous well-established companies which design, manufacture or market pagers,
cellular phones, wireless communications systems and paging and cellular
service, such as Motorola, AT&T, Sprint PCS and Pagenet. All of these
companies have substantially greater financial, technical, personnel and other
resources than we have and have established reputations for success in the
development, licensing and sale of their products and services. Our wireless
messaging system will also compete with the wireless voicemail systems
developed by Cue Corporation and Omnivoice Technologies, Inc., both of which
are relatively new systems.
History of Clariti
Prior to October 1999, our primary business was to provide international
telephony services in the United Kingdom and France, which was conducted
through our wholly-owned subsidiaries, GlobalFirst Holdings, Ltd., Mediatel
Global Communications, Ltd., and their subsidiaries. We acquired GlobalFirst
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in December 1998 and Mediatel in March 1999. Our international telephony
services consisted of international long-distance services in the United
Kingdom and France, including prepaid phone cards, provided by GlobalFirst and
Mediatel. On October 11, 1999, GlobalFirst, Mediatel and their subsidiaries
filed for voluntary liquidation in the United Kingdom and all of their
operations ceased as of that date.
We were originally formed in February 1988 as the successor to a music and
recording studio business owned and operated by Peter Pelullo, our current
Chairman of the Board and President. We became a publicly held company upon a
merger in January 1991 with an inactive public company incorporated in Nevada.
The surviving corporation changed its name to "Sigma Alpha Entertainment Group,
Ltd." and was subsequently reincorporated in Delaware. In March 1998, we
changed our name to Clariti Telecommunications International, Ltd. Our offices
are located at 1735 Market Street, Mellon Bank Center, Suite 1300,
Philadelphia, Pennsylvania 19103. Our telephone number is (215) 979-3600.
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RISK FACTORS
The securities being offered are highly speculative in nature and involve
a high degree of risk. They should be purchased only by persons who can afford
to lose their entire investment. Therefore, you should, prior to purchasing
shares of common stock, consider very carefully the following risk factors, as
well as all other information set forth in this prospectus.
We Need to Obtain Financing in Order to Continue Our Operations
To date, we have funded our operations through private equity funding.
Due to operating losses and our expansion, we remain undercapitalized.
On a prospective basis, we will require both short-term financing for
operations and longer-term capital to fund our expected growth. We have no
existing bank lines of credit and have not established any sources for
additional financing. Our ability to acquire additional operations and
facilities to grow will be dependent upon our ability to raise longer-term
capital or otherwise finance our acquisitions. Based on our current operating
plan, we have enough cash to sufficiently meet our anticipated cash
requirements through December 2000. We currently do not have arrangements with
respect to, or sources of, additional financing. Additional financing may not
be available to us, or if available, may not be available upon terms and
conditions acceptable to us. If adequate funds are not available, we may be
required to delay, reduce or eliminate product development or marketing
programs. The telecommunications industry is rapidly evolving. Our inability
to take advantage of opportunities in the industry because of capital
constraints may have a material adverse effect our business and our prospects.
We Have a Limited Operating History Upon Which to Base an Evaluation of Our
Performance
We were formed in February 1988 as the successor to a music and recording
studio business. In January 1991, we became a publicly held company upon a
merger with an inactive public company incorporated in Nevada. In early 1995,
we were introduced to the concept of voice paging using FM radio frequencies,
our wireless division. In May 1999, we acquired MegaHertz-NKO, Inc. (now known
as Clariti IP Services), our providers of Internet services and enhanced
telecommunications and IP telephony services. In October 1999, we acquired NKA
Communications Pty, Ltd. (now known as Clariti IP Asia), our Australian based
provider of IP telephony products to corporate clients. In December 1999,
we acquired Tekbilt World Communications, Inc. (now known as Clariti Telecom),
our provider of long distance and toll-free services, prepaid calling cards,
postpaid calling cards and prepaid cellular and e-commerce telecommunications
services, both through retail and wholesale distribution channels. As an early
stage company in the new and rapidly evolving telecommunications industry, we
face numerous risks and uncertainties. In addition, we have had only a limited
operating history in the telecommunications industry upon which investors may
base an evaluation of our performance.
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We Have a History of Losses and Expect that Losses Will Continue in the Future
Since our inception, we have incurred significant losses, including net
losses of $220,412,000 and $4,248,000 for the years ended June 30, 1999 and
1998, respectively, and net loss before extraordinary item of $11,989,000 for
the six months ended December 31, 1999. The $220,412,000 net loss for the year
ended June 30, 1999 included a $152,214,000 write-off of goodwill related to
the liquidation of certain foreign subsidiaries. For the six months ended
December 31, 1999 and the years ended June 30, 1999 and 1998, we spent
$1,510,000, $2,465,000, $1,188,000, respectively, on research and development,
primarily for the development of our wireless voice messaging system. We expect
that research and development, marketing and operating expenses will increase
significantly during the next several years. In order to achieve
profitability, we will need to generate significant revenue. We cannot assure
you that we will generate sufficient revenue to achieve profitability. We
currently project that we will continue to generate operating losses and
negative cash flow from operations at least through 2000. We cannot assure you
that we will ever achieve, or if achieved, maintain, profitability. If revenue
grows more slowly than we anticipate or if research and development, marketing
and operating expenses exceed our expectations or cannot be adjusted
accordingly, our business, results of operation and financial condition will be
materially adversely affected.
We Expand Through Acquisitions Which May Cause Dilution of our Common Stock and
Additional Debt and Expenses
We regularly pursue opportunities to expand through acquisitions. We plan
on continuing to seek acquisitions and joint ventures that complement our
services, broaden our consumer base and improve our operating efficiencies.
Acquisitions may result in potentially dilutive issuances of equity securities,
the incurrence of additional debt and the amortization of expenses related to
goodwill and other intangible assets, all of which could have a material
adverse effect on us. Acquisitions also involve numerous additional risks,
including difficulties in the assimilation of the operations, services,
products and personnel of acquired companies, which could result in charges to
earnings or otherwise adversely affect our operating results. There can be no
assurance that acquisition or joint venture opportunities will continue to be
available, that we will have access to the capital required to finance
potential acquisitions, that we will continue to acquire businesses or that any
acquired businesses will be profitable.
We Have Recently Acquired Several Companies and We May Not be Able to
Successfully Integrate Our Operations Which Could Slow Our Growth
We recently acquired MegaHertz-NKO, Inc. (now known as Clariti IP
Services), NKA Communications Pty, Ltd. (now known as Clariti IP Asia) and
Tekbilt World Communications, Inc. (now known as Clariti Telecom). Our
strategy is to become an international integrated telecommunications provider.
We have limited experience operating our businesses, individually or on an
integrated basis. Integration of our existing and acquired business involves
certain risks, including, among other things:
- we may encounter difficulties integrating our acquired businesses,
assimilating new employees, and integrating the acquired operations,
services and products which may slow our revenue growth;
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- we may not be able to fund the operations of acquired businesses if
operating losses continue;
- we may not be able to successfully incorporate acquired technology and
rights into our service offerings and maintain uniform standards,
controls, procedures and policies which may prevent us from realizing
operating efficiencies; and
- the combination of our businesses may not be successful.
We Are in Competition With Companies That Are Larger, More Established and
Better Capitalized Than We Are
The telecommunications industry is highly competitive, rapidly evolving
and subject to constant technological change. Other telecommunications
providers currently offer one or more of each of the products and services we
offer. Currently, there are numerous companies offering IP telephony products
and services and many have substantial presence in this market. Some of our
competitors in the telephony market include AT&T, MCI Worldcom and Sprint. We
also compete with many smaller service providers, including IP telephony and
Internet telephony companies such as DeltaThree.com, Net2Phone and ITXC. We
expect competition to increase in the future. Our Internet service provider
business also competes with well-established companies including America
Online. We also expect that our wireless voice messaging products and services
will compete with those of numerous well-established companies, including
Motorola, AT&T, Sprint PCS and Pagenet, which design, manufacture or market
pagers, cellular phones, wireless communications systems and cellular service.
We will also compete with companies such as Cue Corporation and Omnivoice
Technologies, Inc., which offer wireless voicemail messaging services. Many
of our competitors have:
- greater financial, technical, engineering, personnel and marketing
resources;
- longer operating histories;
- greater name recognition; and
- larger consumer bases than us.
These advantages afford our competitors pricing flexibility.
Telecommunications services companies may compete for consumers based on
price, quality of service and brand recognition, with the dominant providers
conducting extensive advertising campaigns in order to capture market share.
Competitors with greater financial resources may also be able to provide more
attractive incentive packages to retailers in order to encourage them to carry
products that compete with our products and services. In addition, competitors
with greater resources than ours may be better situated to negotiate favorable
contracts with retailers. We believe that existing competitors are likely to
continue to expand their service offerings to appeal to retailers and their
consumers. Moreover, because there are few, if any, substantial barriers to
entry, we expect that new competitors are likely to enter the
telecommunications market and attempt to market telecommunications services
similar to our services which would result in greater competition. We cannot
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be certain that we will be able to compete successfully in the developing IP
telephony market, Internet service provider market or the wireless messaging
market.
Our Success Is Largely Dependent Upon Our Key Executive Officers and Other Key
Personnel
Our success is largely dependent upon our key executive officers, the loss
of one or more of whom could have a material adverse effect on us. We believe
that our continued success will depend to a significant extent upon the efforts
and abilities of our executive officers and our ability to retain them.
Although we believe that we would be able to locate suitable replacements for
our executives if their services were lost, there can be no assurance we would
be able to do so.
In addition, our future operating results will substantially depend upon
our ability to attract and retain highly qualified management, financial,
technical and administrative personnel. Competition for highly trained
technical personnel is intense. We cannot assure you that we will be able to
attract and retain the personnel necessary for the development of our business.
Independent Distributors Are a Significant Element of Our Growth Strategy
We rely, and will rely with respect to our wireless messaging system, on
independent distributors to distribute a significant portion of our products
and services. A significant element of our growth strategy is to increase our
sales and distribution of our products and services by expanding our presence
in our current markets and by extending this network into new markets either by
internal growth, acquisition or both. We may not be able to develop, recruit,
maintain, motivate, retain and control a network of independent distributors.
In addition, we have little control over the resources that independent
distributors will devote to marketing our products and the amount of our
competitors products that our independent distributors choose to market.
Rapid Technological Change Makes Our Success Unpredictable
The telecommunications services industry is characterized by rapid
technological change, new product introduction and evolving industry standards.
Our success will depend, in significant part, on our ability to make timely and
cost-effective enhancements and additions to our technology and introduce new
services that meet consumer demands. We expect new products and services, and
enhancements to existing products and services, will be developed and
introduced in order to compete with our services. We are in the process of
completing the development of technology that will permit us to market and
deliver our wireless voice messaging system. The proliferation of new
telecommunications technologies may reduce demand for wireless voice messaging
products. There can be no assurance that we will have the financial resources
to or will be successful in developing and marketing new services or
enhancements to services that respond to these or other technological changes
or evolving industry standards. In addition, we may experience difficulties
that could delay or prevent the successful development, introduction and
marketing of our existing services, or our new services or enhancements may not
adequately meet the requirements of the marketplace and achieve market
acceptance. Delay in the introduction of new services or enhancements, our
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inability to develop new services or enhancements or the failure of such
services or enhancements to achieve market acceptance could have a material
adverse effect on our business, financial condition and results of operations.
We Are Dependent Upon Telecommunications Providers
While we own some IP switches and traditional circuit switches, we do not
own any transmission lines. As such, we depend primarily on other carriers for
transmission and switching of our customers' calls. We will also depend on
other carriers for transmissions of messages to our wireless voice messaging
system. Further, we are dependent upon local exchange carriers for call
origination and termination. Our ability to maintain and expand our business
depends, in part, on our ability to continue to obtain telecommunications
services on favorable terms from long distance carriers and other network
suppliers, as well as the cooperation of both interexchange and local exchange
carriers in originating and terminating service for our consumers in a timely
manner. We may not be able to obtain long distance services in the future at
favorable prices. In addition, a material increase in the price at which we
obtain long distance service could have a material adverse effect on our
operating margins.
We depend on a small number of domestic long distance carriers to provide
our phone card users access to cost-effective long distance service. We have
agreements with these carriers to acquire long distance service for resale
through our switching facilities. Failure to maintain continuous access to
transmission facilities and long distance networks would materially adversely
affect our business, including possibly requiring us to significantly curtail
or cease our operations. Carriers frequently experience equipment failures and
service interruptions, which could adversely affect customer confidence, our
business operations and our reputation. Further, because we deduct minutes
from our prepaid phone cards at fixed per-minute rates, any service
interruption that forces us to re-route calling traffic through more expensive
carriers could reduce our operating margins. Any increase in rates charged by
our carriers also could reduce our operating margins.
We Are Subject to Uncertain Government Regulation
We are subject to varying degrees of foreign, federal, state and local
rules and regulations. The rules and regulations could change at any time in
an unpredictable manner, which could have a material impact on our activities
and our operating results.
Traditional Telecommunications Services
For our traditional circuit switched services, including prepaid and other
long distance services, we will be required to file interstate and
international tariffs with the Federal Communications Commission and intrastate
tariffs with the relevant state public utility commissions listing the rates,
terms and conditions of certain services. In most states, we are required to
obtain certification from the relevant state public utility commissions before
providing service. Any failure to maintain proper federal and state tariffing
or state certification, or non-compliance with federal or state laws or
regulations could have a material adverse effect on us.
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IP Telephony Services
United States. IP telephony is a recent development. We believe that,
under United States law, the Internet-related services that we provide
constitute information services (as opposed to telecommunications services)
and, as such, are not currently actively regulated by the Federal
Communications Commission or any U.S. state public utility commission. Thus,
for instance, our rates and terms and conditions of service for IP services are
not regulated. Nevertheless, aspects of our operations may be subject to state
or federal regulation, including regulations governing universal service
funding, disclosure of confidential communications, copyright and excise tax
issues. The FCC is considering whether or not to impose surcharges or
additional regulations upon providers of IP telephony. In April 1998, the FCC
issued its report to Congress concerning its implementation of the universal
service provisions of the Telecommunications Act. In the report, the FCC
indicated that it would examine the question of whether certain forms of
"phone-to-phone" Internet protocol telephony should be classified for
regulatory purposes as "information services" or "telecommunications services."
The FCC did not have, as of the date of the report, an adequate record on which
to make any definitive pronouncements, but did suggest that certain forms of
phone-to-phone Internet telephony appear to have the same functionality as non-
Internet protocol telecommunications services and lack the characteristics that
would render them information services. Some regional Bell operating companies
have advised Internet and IP telephony providers that they would like to impose
access charges on Internet and IP telephony traffic. It is uncertain at this
time whether these companies will actually be permitted to impose access
charges and, if so, when such charges will become effective. In addition, one
of these regional Bell operating companies filed a petition with the FCC
seeking the imposition of access charges on phone-to-phone Internet and IP
telephony services. The FCC has not acted upon this petition. If the FCC were
to determine that certain services are subject to FCC regulations as
telecommunications services, the FCC may find it reasonable to require payment
of universal service contributions or access charges or to subject these
services to traditional common carrier regulation. If Congress, the FCC, state
regulatory agencies, foreign governments or supranational bodies begin to
regulate IP telephony, we cannot be certain that any such regulation will not
materially adversely affect our business, financial condition or results of
operations. Application of new regulatory restrictions or requirements to us
could increase our costs of doing business and prevent us from delivering our
services by our current arrangements. If that were to occur, we would search
for alternative arrangements for providing our services, including obtaining
required regulatory approvals. Regulations could limit our service offerings,
increase our costs and restrict our pricing flexibility and potentially limit
our ability to compete effectively. In addition, regulations that affect the
Internet could affect our ability to provide our services.
International. The regulatory treatment of IP telephony outside of the
United States varies widely from country to country. A number of countries
that currently prohibit competition in the provision of voice telephony also
prohibit IP telephony. Other countries permit but regulate IP telephony. Some
countries will evaluate proposed IP telephony service on a case-by-case basis
and determine whether it should be regulated as a voice service or as another
telecommunications service. In many countries, Internet and IP technology has
not yet been addressed by legislation or regulatory action. Increased
regulation of the Internet or IP providers or the prohibition of IP telephony
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in one or more countries could materially adversely affect our business,
financial condition, operating results and future prospects. The European
Union, for example, distinguishes between voice telephony, which may be
regulated by the Member States, and other telecommunications services, which
are fully liberalized. With regard to IP telephony, the European Commission
concluded in a Communication to the Member States that at present IP telephony
should not be considered voice telephony and thus should not be regulated as
such by the Member States. However, the Commission noted that providers of IP
telephony whose services satisfied the European Union's definition of voice
telephony could be considered providers of voice telephony and could be
regulated by the Member States. Moreover, European Commission Communications
are not binding on the Member States. Therefore, we cannot assure you that the
services provided by us in the European Union will not be deemed voice
telephony and, accordingly, subject to heightened regulation by one or more
European Union countries in the future. France is currently conducting an
investigation of how IP telephony should be regulated. China limits
competition in the telecommunications industry to several government-owned
companies. At present, IP telephony is permitted on an experimental basis only
by China Unicom, China Telecom, and Jitong Communications. It is uncertain
whether IP telephony will continue to be permitted when the trial period ends.
Similarly, we provide our services in other countries in which the
regulatory state of IP telephony is unclear or in the process of development,
and in countries in which regulatory processes are not as transparent as in the
United States and Europe. Changes in the regulatory regimes of these countries
that have the effect of limiting or prohibiting IP telephony, or that impose
new or additional regulatory requirements on providers of such services, may
result in our being unable to provide service to one or more countries in which
we currently operate. That result could have a material adverse effect on our
business, financial condition and results of operations.
Wireless Messaging
Our wireless voice messaging technology utilizes FM-SCA channels available
on nearly all FM radio stations worldwide. In the United States, the FCC
considers FM-SCA channels to be part of the total FM frequency allocated to a
radio station and therefore regulates only the FM licensee, and does not
require a separate license for the contractual use of FM-SCA channels. There
can be no assurance that Congress, the FCC, state regulatory agencies, foreign
governments or supranational bodies will not in the future require us to obtain
a license to operate our business or impose other requirements on radio
stations that may limit our ability to operate. Regulators in most of the
foreign markets we plan to enter may take a similar position in their countries
to that of the FCC regarding the licensing and regulation of FM-SCA channels.
There can be no assurance that foreign regulatory agencies will allow us to
operate our services.
A Billing Dispute with a Third Party May Affect Our Financial Position and the
Price of Our Common Stock
On or about June 17, 1999, we, together with Mediatel, GlobalFirst and
Chadwell Hall Holdings Limited (formerly the owner of record of a majority of
our stock), filed a Demand for Arbitration with the American Arbitration
Association against Frontier concerning obligations arising under a March 4,
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1999 agreement entered into by and among Frontier and Mediatel, GlobalFirst,
Chadwell Hall and us. The parties entered into the March 4 agreement for the
purpose of resolving certain billing disputes between Frontier on the one part
and GlobalFirst and Mediatel on the other part. Under the March 4 agreement,
we paid $3,000,000 to Frontier during March 1999 in payment of amounts
allegedly due Frontier by Mediatel and/or GlobalFirst. Additionally, we issued
to Frontier 5,000,000 shares of our common stock as security for the remaining
balance, if any, due Frontier by Mediatel and/or GlobalFirst. The amount due
Frontier by Mediatel and Global First as agreed to by the parties or as
determined by arbitration is referred to in the March 4 agreement as the
"account balance."
The terms of the March 4 agreement provide in part that Chadwell Hall is
liable for and guarantees payment in full of the account balance and, further,
shall be obligated to purchase the 5,000,000 shares of our common stock from
Frontier for an amount equal to the account balance. At any time prior to the
purchase of the 5,000,000 shares of our common stock by Chadwell Hall, we may
purchase any portion or all of the 5,000,000 shares of our common stock for an
amount equal to the account balance. In the event of a default under the March
4, 1999 agreement, Frontier may, at its option, sell a sufficient amount of the
5,000,000 shares of our common stock in order to satisfy the account balance.
If Frontier sells all 5,000,000 shares of our common stock for less than the
account balance, Global First, Mediatel and Chadwell Hall are liable to pay
Frontier the remaining account balance due to Frontier. Once Frontier collects
the account balance (whether by sale of the 5,000,000 shares of our common
stock or payment made by any of the parties), Frontier must surrender to us any
remaining shares of our common stock.
Frontier, in its recent filing with the American Arbitration Association,
has alleged that (i) the account balance is at least $14,000,000; (ii) we
fraudulently failed to disclose material information to Frontier at the time of
signing the March 4 agreement; (iii) we, together with GlobalFirst, Mediatel
and Chadwell Hall, breached the March 4 agreement and (iv) we, together with
GlobalFirst, Mediatel and Chadwell Hall, are liable to Frontier for an amount
to be determined by the Arbitrators, but at least $14,000,000.
We dispute these allegations of Frontier. Further, we believe that (i)
the account balance determined by Frontier is incorrect, (ii) our liability
under the March 4 agreement is limited to the delivery of the 5,000,000 shares
of our common stock to Frontier as collateral (which has already been
accomplished) and that we have no obligation for the account balance, and (iii)
the allegation of Frontier that we fraudulently failed to disclose material
information to Frontier is incorrect.
If Frontier is successful in its position, we would have a significant
obligation to Frontier if the value of the 5,000,000 shares of our common stock
is less than the account balance. Further, if neither we nor Chadwell Hall
purchase the 5,000,000 shares of our common stock from Frontier and Frontier is
then able to sell a significant amount of such shares in the open market, the
market price of our common stock may decline.
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Operating Internationally May Expose Us to Additional and Unpredictable Risks
We intend to enter into international markets to expand sales of our IP
telephony products and market our wireless voice messaging system.
International operations are subject to inherent risks, including:
- potentially weaker intellectual property rights;
- difficulties in obtaining foreign licenses;
- changes in regulatory requirements;
- political instability;
- unexpected changes in regulations and tariffs;
- fluctuations in exchange rates;
- varying tax consequences; and
- uncertain market acceptance and difficulties in marketing efforts due to
language and cultural differences.
Our Common Stock Is Illiquid
Our common stock is currently traded on the OTC Bulletin Board and, as
such, our common stock is relatively illiquid. There can be no assurance that
an active public trading market for our common stock will be sustained.
The Exercise or Conversion of Our Outstanding Warrants, Options May Dilute the
Percentage Ownership of Our Stockholders and the Value of Our Common Stock
As of May 1, 2000, there were outstanding warrants and options to
purchase an aggregate of 32,305,166 shares of our common stock. The exercise
or conversion of outstanding stock options or warrants and any resulting
issuance of additional shares of common stock would dilute the percentage
ownership of our stockholders. Further, the terms upon which we will be able
to obtain additional equity capital may be adversely affected since the holders
of the outstanding warrants or options can be expected to exercise them at a
time when we would, in all likelihood, be able to obtain any needed capital on
terms more favorable to us than those provided by the outstanding warrants and
options.
If outstanding warrants and options are exercised in the future at prices
below the price paid by purchasers of the shares of common stock offered under
this prospectus, those purchasers will experience dilution of those shares.
Possible Depressive Effect of Future Sales of Common Stock Subject to Rule 144
As of May 1, 2000,we had 142,834,067 shares of common stock
outstanding (175,139,233 shares if we assume all of our outstanding warrants
and options had been exercised). When the Registration Statement of which this
prospectus forms a part is declared effective by the Securities and Exchange
Commission, 133,496,658 shares of common stock, or 93% of our common stock
(150,238,324 shares, or 86% if we assume all of our outstanding warrants and
options had been exercised), will be freely tradable without restriction under
the Securities Act of 1933, as amended, subject to the lock-up restrictions on
transfer referred to below. The remaining 9,337,409 shares, or 7% of our
common stock (24,900,909 shares, or 14% if we assume all of our outstanding
warrants and options had been exercised), were issued by us in private
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transactions, are treated as "restricted securities" as defined under the
Securities Act and in the future may be sold in compliance with Rule 144 under
the Securities Act or pursuant to a registration statement filed under the
Securities Act. Rule 144 generally provides that a person holding restricted
securities for a period of one year may sell every three months in brokerage
transactions or market-maker transactions an amount equal to the greater of (1)
one percent (1%) of our issued and outstanding common stock or (2) the average
weekly trading volume of the common stock during the four calendar weeks prior
to such sale. Rule 144 also permits, under certain circumstances, the sale of
shares without any quantity limitation by a person who is not an affiliate of
Clariti and who has satisfied a two-year holding period. The sale of
substantial numbers of such shares, whether pursuant to Rule 144 or pursuant to
a registration statement, may have a depressive effect on the market price of
our common stock.
As of May 1, 2000, 83,974,321 shares (including 81,701,988
shares covered by this prospectus), or 60% of our common stock (83,974,321
shares, or 48%, if we assume all of our outstanding warrants and options had
been exercised), were subject to lock-up agreements. The parties to the lock-
up agreements are not permitted to sell their shares until the expiration of
the lock-up period without our prior consent. Current lock-up agreements have
expiration dates ranging from June 2000 to March 2002. The expiration of a
particular lock-up period could have a depressive effect on the market price of
our common stock.
Future Issuances of Preferred Stock May Dilute the Rights of Common
Stockholders
Our Board of Directors has the authority to issue up to two million shares
of a new series of preferred stock and to determine the price, privileges and
other terms of such shares. The Board may exercise this authority without the
approval of the stockholders. The rights of the holders of common stock may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future. In addition, the issuance of preferred stock may make
it more difficult for a third party to acquire control of Clariti.
SPECIFIC RISKS ASSOCIATED WITH OUR TELEPHONY AND INTERNET PRODUCTS AND SERVICES
Our Growth as an IP Telephony Service Provider Depends on the Success and
Increased Use and Acceptance of IP Technology
The IP telephony services market is new and rapidly evolving. The demand
and market acceptance of our products is uncertain and subject to a high degree
of risk. In order for our IP telephony products to be successfully accepted in
the marketplace, IP telephony technology must be accepted as a viable
alternative to traditional telephony services. Because this market is new and
evolving, it is difficult to predict the size of the market and its growth
rate. If the IP telephony market fails to develop or develops more slowly than
we anticipate, we will not be able to generate revenues from our IP telephony
services at the rate we anticipate.
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The Operation of our Managed Network Is Dependent Upon Our Ability to Protect
Equipment and Data at Our Facilities
The operation of our managed network is dependent upon our ability to
protect the equipment and data at our IP and circuit switches against damage
that may be caused by fire, power loss, technical failures, viruses,
unauthorized intrusion, natural disasters, sabotage and other similar events.
Although we have taken precautions to protect ourselves and our customers from
events that could interrupt delivery of services, our systems are vulnerable to
fire, acts of sabotage, technical failure, viruses, human errors, natural
disasters or similar events beyond our control. Any of these events might
damage or cause our system to fail. Any damage to or failure of our system or
operations could result in the reduction or termination of our services.
We maintain business interruption insurance providing for coverage of
certain of our business operations. There can be no assurance that we will be
able to maintain our insurance, that insurance would continue to be available
at reasonable prices and on favorable terms or that insurance would be
sufficient to compensate us for losses we experience due to our inability to
provide services to our consumers. We do not currently maintain business
interruption insurance at Clariti IP Asia.
We Face Risks of Loss from Returned Transactions, Fraud, Bad Debt and Theft of
Services
We utilize national credit card clearance systems for electronic credit
card settlement. We generally bear the same credit risks normally assumed by
other users of these systems arising from returned transactions caused by
closed accounts, frozen accounts, unauthorized use, disputes, theft or fraud.
Our relationships with providers of merchant card services such as VISA and
MasterCard could be adversely affected by excessive uncollectibles.
Termination of our ability to offer recharges through merchant card services
would have a material adverse effect on us.
From time to time, persons have obtained services without rendering
payment to us by unlawfully utilizing our access numbers and personal
identification numbers (PINs). Although we have not experienced material
losses due to such unauthorized use of access numbers and customized PINs, we
cannot assure you that we will not incur future material losses due to
unauthorized use. Although we attempt to manage these credit, theft and fraud
risks through our internal controls, monitoring and blocking systems, our
measures may not be sufficient to effectively limit all of our exposure to
fraud in the future.
Our Growth as an Internet Service Provider Depends on the Success and Increased
Use of the Internet
The Internet service market is new and rapidly evolving. The demand and
market acceptance of our products is uncertain and subject to a high degree of
risk. In order for our Internet products and services to be successfully
accepted in the marketplace, the Internet must be accepted as a viable
alternative to traditional telephony services. Because this market is new and
evolving, it is difficult to predict the size of the market and its growth
rate. If the market for our Internet products and services fails to develop or
develops more slowly than we anticipate, we will not be able to generate
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revenues from our Internet services at the rate we anticipate. In addition, if
Internet usage grows too quickly, Internet infrastructure may not be able to
support the demands placed on it by its growth and its performance and
reliability may decline.
SPECIFIC RISKS ASSOCIATED WITH OUR WIRELESS VOICE MESSAGING SYSTEM
Consumers May Not Accept our Wireless Voice Messaging System
The acceptance of our wireless voice messaging system is a key element to
our success and profitability. As with all new products, there is a risk that
consumers may not accept our product. We may not be able to demonstrate the
benefits of our product to consumers to sufficiently convince them to purchase
our system. The development of new voice messaging services is evolving and
highly competitive. Other companies may develop products in response to
technological changes that make our system noncompetitive, especially if the
development, introduction and marketing of our product is delayed.
We May Not Be Able to Develop Our Wireless Voice Messaging System
Although we have successfully tested a prototype of our digital wireless
voice messaging system in selected areas, we may not be able to successfully
develop a commercially viable production model. New product development
efforts are subject to many inherent risks, including unanticipated delays,
expenses, market acceptance, technical problems or difficulties, as well as
possible insufficiency of funding to complete development. We cannot be
certain when our wireless voice messaging system will be completed, that our
products can be developed within a reasonable development schedule, if at all,
or that they can be produced at a reasonable cost.
We Depend Upon Other Companies to Assist in the Engineering, Development and
Manufacturing of Our Wireless Voice Messaging System
We have contracted with other companies to engineer and develop portions
of our wireless voice messaging system. In addition, we plan to contract with
other companies to manufacture our voice messaging player, SCA generator
or related components. We will depend on the ability of other companies to
engineer, develop, manufacture and assemble certain components of our system in
accordance with our specifications. These companies may be unable to meet our
specifications or may experience delays in delivering our products to us.
We Have No Experience in Marketing or Distributing Our Wireless Voice Messaging
System
While members of management have many years of marketing and distribution
experience in the wireless messaging market, we have no way to determine
whether traditional sales and marketing techniques will be effective in
marketing and distributing our wireless voice messaging system. Establishing a
sales and marketing capability in our target markets will require substantial
efforts and significant resources.
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We May Be Dependent Upon Third Parties to Market and Distribute Our Wireless
Voice Messaging System
We intend to distribute our wireless products primarily through third
party distributors. The success of our wireless voice messaging system depends
upon our ability to seek out partners who are experienced with marketing and
distributing wireless products in their respective geographic areas. We have
executed a Memorandum of Understanding with Conectel, the largest paging
company in Latin America. We will need additional arrangements to distribute
our wireless voice messaging system. We may not be able to maintain our
arrangement with Conectel or enter into additional distribution arrangements.
In addition, we have little control over the resources that our distributors
will devote to marketing our system.
We May Be Dependent Upon Third Parties To Provide FM-SCA Channels in Areas in
Which We Intend to Operate Our Wireless Voice Messaging System
In markets where we intend to distribute and operate our wireless voice
messaging system, we will be required to enter into contractual arrangements
with FM radio stations in order to secure the use of FM radio subcarrier
frequencies to operate our wireless voice messaging system. We may not be able
to enter into these arrangements or we may not be able to obtain sufficient
radio frequency coverage in our target market. In addition, FM radio station
owners may develop other uses for their subcarrier frequencies which would
limit our ability to enter into these arrangements. If we are unable to enter
into arrangements with a significant number of FM radio stations, or to do so
on economically advantageous terms, our ability to commercialize our wireless
voice messaging system and our profitability, if any, will be limited.
We Have Limited Protection of Proprietary Rights and Technology
Our intellectual property rights include patents, copyrights, trade
secrets, trademarks and exclusive and non-exclusive licenses. We have been
granted a U.S. patent dealing with FM Subcarrier Digital Voice Paging. Patents
on this invention have also been granted in South Africa and Taiwan and are
pending in 10 additional countries. We have also filed for patent protection in
the United States and multiple foreign countries on a number of additional
inventions. Our pending patent applications include:
- aspects of our proprietary wireless protocol ClariCast(TM);
- a unique interference-reduction technique; and
- the overall design of our wireless voice messaging player.
We cannot be certain that any patent applications will result in the
issuance of a patent or that our patents will withstand any challenges by third
parties.
We Face Risks of Infringement Claims
We may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others, even though we take steps to
assure that neither our employees nor our contractors knowingly incorporate
unlicensed copyrights or trade secrets into our products. It is possible that
third parties may claim that our current or future products may infringe upon
their patent, copyright, trademark or trade secret rights. Any such claims,
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regardless of their merit, could be time consuming, expensive, cause delays in
introducing new or improved products or services, require us to enter into
royalty or licensing agreements or require us to stop using the challenged
intellectual property. Successful infringement claims against us may
materially disrupt the conduct of our business or affect profitability. There
are currently no legal proceedings or claims for infringement of intellectual
property rights pending against us.
Unauthorized Use of Our Intellectual Property and Trade Secrets May Affect our
Market Share and Profitability
We rely on our patents, copyrights, trademarks, trade secrets, know how
and continuing technological advancement to establish a competitive position in
the marketplace. We attempt to protect our proprietary technology through an
employee handbook and agreements with our employees. Other companies may
independently develop or otherwise acquire similar technology or gain access to
our proprietary technology. Despite our precautions, there can be no assurance
that we will be able to adequately protect our technology from competitors in
the future. The enforcement of patent rights often requires the institution of
litigation against infringers. This litigation is often costly and time
consuming.
USE OF PROCEEDS
We will not receive proceeds from any sale of shares of common stock by
the selling security holders. We will receive approximately $52,569,216 if all
of the warrants to purchase 16,741,666 shares of common stock are exercised.
We intend to use proceeds from the possible exercise of the warrants for
general corporate purposes. Pending use of the proceeds, they will be invested
in short term, interest bearing securities or money market funds.
SELLING SECURITY HOLDERS
This prospectus relates to the proposed resale by the selling security
holders of shares of common stock. This table sets forth as of May 1, 2000
certain information with respect to the persons for whom we are registering
shares of common stock for sale to the public, except as disclosed in the
footnotes below. None of these persons has had a material relationship with or
has held any position or office with us or any of our affiliates within three
years, other than as disclosed in the footnotes below. We will not receive any
proceeds from the sale of the shares of common stock. We will, however,
receive proceeds from the exercise of any warrants. See "Use of Proceeds"
above. The percentage of the common stock to be beneficially owned after the
completion of the offering by each selling security holder will be zero or less
than one percent.
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Number of Shares Number of Shares
Of Common Stock Of Common Stock
Beneficially Offered for
Owned as of Account of
Name of Selling Security Holder May 1, 2000(1) Beneficial Owner
- ------------------------------- ---------------- ----------------
Ansteed Investment Ltd.(2) 52,607,603 52,607,603
ABC Corporation(3) 10,552,783 10,052,783
Corporate and Legal
Nominees L acc Staff 5,427,336 5,427,336
Atlantic Communications
International, Ltd. 5,148,046 4,528,571
Frontier Corporation(4) 5,000,000 5,000,000
World Web Communications Ltd. 4,692,706 4,692,706
Mandalay Holding Company, Inc. 4,657,636 4,657,636
Perdell Holdings Ltd. 3,791,354 3,791,354
First Investments Company Ltd. 3,791,353 3,791,353
Corporate and Legal Nominees
L acc 036 3,104,472 3,104,472
Zandano and Partners SA(5) 3,060,000 3,060,000
Vitalex International Ltd. 2,960,930 2,960,930
Beresford Ltd. 1,772,165 1,772,165
Brannigan Developments Ltd. 1,767,671 1,767,671
Curtis Division Ltd. 1,767,671 1,767,671
NKO, Inc. 1,688,400 1,688,400
Ansbacher (Isle of Man) Ltd. 1,662,804 1,662,804
Cathkin International SA 1,616,095 1,616,095
Banca Popolare Commercio
e Industria 1,500,000 1,500,000
Daniel McDuffie(6) 1,416,095 1,116,095
Elfin Trust Company Ltd.
- acc Willow 1,281,140 1,281,140
MegaHertz Communications Corp. 980,279 736,703
Peter Schuitemaker 806,808 806,808
Applied Telecommunications
Technologies NV 800,000 800,000
Arnold Berlin and Myra Berlin 724,382 724,382
Chadwell Hall Holdings Ltd acc HP 689,885 689,885
Maross Holdings Ltd. 674,218 674,218
Tajine Investments Ltd. 673,924 467,727
Pennsylvania Merchant Group Ltd.(7) 609,831 80,721
BSI SA(8) 600,000 600,000
Banca Leonardo 575,000 575,000
Corporate and Legal Nominees L acc AC 569,431 569,431
Parikh Investments Ltd. 550,000 550,000
Anthony M. Collura(9)(10) 505,000 445,000
Corangamite Pty Ltd., Trustee 504,774 504,774
Jana Emanuel 500,000 500,000
BNL Gestioni SGR p.A. - Fondo
Investire America 425,000 425,000
Elfin Trust Company Ltd.
- acc Keurboom 402,500 402,500
Consortium Communications Int'l.
Pty Ltd., Trustee 401,956 401,956
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Number of Shares Number of Shares
Of Common Stock Of Common Stock
Beneficially Offered for
Owned as of Account of
Name of Selling Security Holder May 1, 2000(1) Beneficial Owner
- ----------------------------------- ---------------- ----------------
BNL Gestioni SGR p.A. - Fondo
Investire Internazionale 400,000 400,000
SG Ruegg Bank Ltd.(11) 400,000 400,000
Banca Commerciale Italiana (Suisse) 350,000 350,000
Coutts (Jersey) Limited 300,000 300,000
Alan R. Davidson(12) 249,500 200,000
EFM Associates (13) 241,667 225,000
Lahard Systems Ltd. 230,000 230,000
Banca Adamas 225,000 225,000
Banca Sella SpA 200,000 200,000
SCF Societa Di Consulenza(14) 200,000 200,000
BNL Gestioni SGR p.A. - Fondo BNL Trend 175,000 175,000
Doron Nevo(15) 174,255 174,255
Lord Simon Clanmorris(16) 171,958 71,958
Yes Telecom Ltd. 170,000 170,000
Archangel Associates Ltd. 150,000 150,000
O. Varol 150,000 150,000
McAndrews Held & Malloy, Ltd.(17) 150,000 150,000
Fred C. Applegate Trust 150,000 50,000
Ronald Schuitemaker 126,600 126,600
Winston Clarke 125,000 125,000
Tony Ford 125,000 125,000
Stuart Gimbel 121,500 46,000
First Global Technologies Corp. 115,000 115,000
Chadwell Hall Holdings Ltd. acc BJ 113,542 113,542
Poppylock Investments 100,032 100,032
SCA Data Systems, Inc.(18) 100,000 100,000
Bay Park Medical PC 100,000 100,000
Grovearch Ltd. 100,000 100,000
Tanya Christopher 100,000 50,000
Bernard Kobrovsky, Trustee 100,000 30,000
Barracuda Solutions Ltd. 95,000 95,000
Bay Park Medical Pension Trust 81,865 81,865
Showtime Investment Ltd.(19) 80,000 80,000
Harry Berman 80,000 25,000
Paul Chernis(10) 77,500 77,500
Ronald A. Balzano(10) 77,500 77,500
Lawrence J. Karr (18) 75,000 75,000
Phillip Kamp 72,040 72,040
Olaf Cordt 72,040 72,040
Amberjack Marketing Ltd. 66,666 66,666
Corporate and Legal Nominees L acc SC 60,000 60,000
Corporate and Legal Nominees L acc West 60,000 60,000
Alfred Sussman 55,000 25,000
Isabella Marie Ball 50,000 50,000
Lascar SA 50,000 50,000
The Siruss Trust 40,000 40,000
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Number of Shares Number of Shares
Of Common Stock Of Common Stock
Beneficially Offered for
Owned as of Account of
Name of Selling Security Holder May 1, 2000(1) Beneficial Owner
- ----------------------------------- ---------------- ----------------
Australia Communication Brokers Pty Ltd. 40,000 40,000
BNP Jersey Nominees Company 40,000 40,000
LaHougue Holdings Ltd. 31,686 31,686
Treblemore Investments Ltd. 31,686 31,686
Jack Berlin 28,650 28,650
Barbara Bromilow 22,837 22,837
Simon Sharpe 20,000 20,000
Corporate and Legal Nominees L acc JH 16,500 16,500
Toga Developments Pty Ltd. 15,871 15,871
Masterlink Investments Pty Ltd. 15,814 15,814
Howard Stover(18) 12,500 12,500
D.V. Fogarty and A. H. Fogarty 11,133 11,133
Mirater Pty Ltd. 11,076 11,076
Alix White 10,000 10,000
Kevin Murphy(18) 7,500 7,500
R. Van Gass 6,907 6,907
Consutel Pty Ltd. 6,228 6,228
Steve Szilagyi 5,000 5,000
Stefanie Szilagyi 5,000 5,000
Susan Baillie 4,739 4,739
Nelius Ltd. 4,739 4,739
Greg Faul 3,500 3,500
John Kelly 2,800 2,800
Victoria Catlin(18) 2,500 2,500
Mark Medow(18) 2,500 2,500
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of common stock which such person has
the right to acquire within 60 days of May 1, 2000. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, we believe based on information supplied by such
persons, that the persons named in this table have sole voting and
investment power with respect to all shares of common stock which they
beneficially own.
(2) Includes an aggregate of 8,333,333 shares of common stock underlying
common stock purchase warrants exercisable through September 30, 2000, at
an exercise price of $3.00 per share. Shares underlying these warrants
are being offered under this prospectus.
(3) Includes an aggregate of 3,333,333 shares of common stock underlying
common stock purchase warrants exercisable through September 30, 2000, at
an exercise price of $4.00 per share. Shares underlying these warrants
are being offered under this prospectus.
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(4) These shares are subject to restrictions on transferability and purchase
options as set forth in the agreement entered into by and among Frontier,
GlobalFirst, Mediatel, Chadwell Hall Holdings and Clariti, as further
described above under "Risk Factors - A Billing Dispute with a Third Party
May Affect the Price of Our Common Stock."
(5) Zandano and Partners SA served as a financial and investment banking
consultant beginning in July 1999. Pursuant to a consulting agreement, we
paid Zandano and Partners consulting fees of $210,000 during the nine
months ended March 31, 2000. In April 2000 we also paid Zandano and
Partners $1,164,625 for commission on the sale our common stock. Zandano
and Partners holds warrants to purchase:
- 500,000 shares of common stock through July 1, 2002, at an exercise
price of $3.00 per share,
- 1,500,000 shares of common stock through July 1, 2001, at an
exercise price of $2.00 per share, and
- 1,060,000 shares of common stock through May 9, 2003, at an
exercise price of $3.025 per share.
Shares of common stock underlying these all of these warrants are being
offered under this prospectus.
(6) Daniel McDuffie is a Senior Vice President of Clariti Telecommunications
International, Ltd. Shares beneficially owned include options to purchase
300,000 shares of common stock, 125,000 of which have not yet vested.
(7) Pennsylvania Merchant Group formerly served as a financial and business
planning consultant. No consulting fees were paid to Pennsylvania
Merchant Group during the year ended June 30, 1999 or the nine months
ended March 31, 2000. We paid Pennsylvania Merchant Group consulting fees
of $75,600 and $89,900 during the fiscal years ended June 30, 1998 and
1997, respectively.
(8) Includes an aggregate of 300,000 shares of common stock underlying common
stock purchase warrants exercisable through September 30, 2000, at an
exercise price of $5.00 per share. Shares underlying these warrants are
being offered under this prospectus.
(9) Mr. Collura served as a consultant pursuant to a twelve-month consulting
agreement providing for the payment of $10,000 per month and the issuance
of 250,000 common stock purchase warrants exercisable at $2.38 per share
expiring on January 4, 2002. Includes the 250,000 shares of common stock
underlying these warrants as well as shares underlying additional warrants
to purchase an aggregate of 195,000 shares (70,000 of which are
exercisable through August 31, 2000 at $2.00 per share, 25,000 of which
are exercisable through June 4, 2001 at $2.1875 per share, 50,000 of which
are of which are exercisable through June 4, 2001 at $3.50 per share and
50,000 of which are exercisable through June 4, 2001 at $1.75 per share)
which are all being offered under this prospectus. We paid Mr. Collura
$60,000 during the fiscal year ended June 30, 1999 and another $60,000
during the nine months ended March 31, 2000.
(10) These individuals are members of the law firm Silverman, Collura, Chernis
& Balzano, P.C., our former securities counsel. Includes an aggregate of
77,500 common stock purchase warrants issued to each of Mr. Chernis and
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Mr. Balzano, respectively (15,000 of which are exercisable through August
31, 2000 at $2.00 per share, 25,000 of which are exercisable through June
4, 2001, at an exercise price of $3.50 per share, 12,500 of which are
exercisable through June 4, 2001, at an exercise price of $2.1875 per
share, and 25,000 of which are exercisable through October 14, 2001, at an
exercise price of $1.75 per share). Shares of common stock underlying
these warrants are being offered under this prospectus.
(11) Includes an aggregate of 200,000 shares of common stock underlying common
stock purchase warrants exercisable through June 15, 2000, at an exercise
price of $5.00 per share. Shares underlying these warrants are being
offered under this prospectus.
(12) Alan R. Davidson has served as a consultant since August 27, 1999 pursuant
to a consulting agreement, which agreement provides for the issuance of
common stock purchase warrants to purchase an aggregate of 200,000 shares
of common stock through August 27, 2002, at an exercise price of $2.625
per share. Includes shares of common stock underlying these warrants
which are being offered under this prospectus.
(13) The principals of EFM Associates are partners in the law firm of our
current corporate counsel, Eizen Fineburg & McCarthy LLP. This amount
represents an aggregate of 225,000 shares of common stock underlying
common stock purchase warrants, 25,000 of which are exercisable through
July 2, 2001, at an exercise price of $3.25 per share, 100,000 of which
are exercisable through October 14, 2001, at an exercise price of $1.75
per share, and 100,000 of which are exercisable through October 4, 2002,
at an exercise price of $2.4688 per share. Shares underlying these
warrants are being offered under this prospectus.
(14) Includes an aggregate of 100,000 shares of common stock underlying common
stock purchase warrants exercisable through September 30, 2000, at an
exercise price of $5.00 per share. Shares underlying these warrants are
being offered under this prospectus.
(15) Doron Nevo serves as a consultant to us pursuant to a three-year
consulting agreement effective May 7, 1999 providing for the payment of
$10,250 per month plus reimbursement of business travel expenses. We paid
Mr. Nevo $109,081 during the nine months ended March 31, 2000.
(16) Lord Simon Clanmorris served as a member of our Board of Directors from
December 1998 until his resignation in October 1999. We paid Lord
Clanmorris $8,000 in directors fees during that period of time. Shares
beneficially owned include options to purchase 100,000 shares of common
stock.
(17) McAndrews Held & Malloy, Ltd. serves as our patent counsel. Includes
150,000 shares of common stock underlying warrants, exercisable through
February 9, 2003 at an exercise price of $4.00 per share, issued as payment
of legal fees amounting to $110,274. Shares underlying these warrants are
being offered under this prospectus.
(18) SCA Data Systems, Inc. has served as an engineering consultant since
January 1998 pursuant to a consulting agreement, which provides for the
issuance of common stock purchase warrants to purchase an aggregate of
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200,000 shares of common stock through June 28, 2004. Of this amount, the
exercise price of 100,000 warrants will be determined when certain
performance milestones are achieved by SCA Data Systems. The remaining
100,000 warrants have an exercise price of $2.7188 per share, and were
assigned to the following employees of SCA Data Systems: Lawrence J.
Carr, Howard Stover, Kevin Murphy, Victoria Catlin and Mark Medow. Shares
of common stock underlying all of these warrants are included in the
amounts set forth opposite each such individual and are being offered
under this prospectus. We paid SCA Data Systems $320,000 during the
fiscal year ended June 30, 1999 and another $130,000 during the nine
months ended March 31, 2000.
(19) Includes an aggregate of 40,000 shares of common stock underlying common
stock purchase warrants exercisable through June 15, 2000, at an exercise
price of $5.00 per share. Shares underlying these warrants are being
offered under this prospectus.
PLAN OF DISTRIBUTION
The selling security holders may offer and sell shares of common stock
from time to time at their discretion:
- in the over-the-counter market; or
- other than in the over-the-counter market.
Such transactions may be:
- at prices and at terms then prevailing; or
- at prices related to the then current market price; or
- at negotiated prices.
The distribution of the shares of common stock may be effected from time
to time in one or more transactions including, without limitation:
- a block trade in which the broker-dealer so engaged will attempt to sell
the common stock as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
- face-to-face or other direct transactions between the selling security
holders and purchasers without a broker-dealer or other intermediary.
In effecting sales, broker-dealers or agents engaged by the selling
security holders may arrange for other broker-dealers or agents to participate.
From time to time, one or more of the selling security holders may pledge,
hypothecate or grant a security interest in some or all of the common stock
owned by them, and the pledgees, secured parties or persons to whom such
securities have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be selling security holders hereunder. In addition, the
27
<PAGE>
selling security holders may from time to time sell short our common stock, and
in such instances, this prospectus may be delivered in connection with such
short sale and the common stock offered hereby may be used to cover such short
sale.
Sales of selling security holders' common stock may also be made pursuant
to Rule 144 under the Securities Act, where applicable. The selling security
holders' shares may also be offered in one or more underwritten offerings, on a
firm commitment or best efforts basis. We will receive no proceeds from the
sale of common stock by the selling security holders. To the extent required
under the Securities Act, the aggregate amount of selling security holders'
common stock being offered and the terms of the offering, the names of any such
agents, brokers, dealers or underwriters and any applicable commission with
respect to a particular offer will be set forth in an accompanying prospectus
supplement. Any underwriters, dealers, brokers or agents participating in the
distribution of the common stock may receive compensation in the form of
underwriting discounts, concessions, commissions or fees from a selling
security holder and/or purchasers of selling security holders' shares of common
stock, for whom they may act. In addition, all sellers of selling security
holders' shares of common stock, including the selling security holders
themselves, may be deemed to be underwriters under the Securities Act and any
profits on the sale of selling security holders' shares of common stock by them
may be deemed to be underwriting discounts or commissions under the Securities
Act. Selling security holders may have other business relationships with us
and our subsidiaries or affiliates in the ordinary course of business. From
time to time each of the selling security holders may transfer, pledge, donate
or assign their shares of common stock to lenders, family members and others
and each of such persons will be deemed to be a "selling security holder" for
purposes of this prospectus. The number of selling security holders' shares of
common stock beneficially owned by those selling security holders who so
transfer, pledge, donate or assign selling security holders' shares of common
stock will decrease as and when they take such actions. The plan of
distribution for selling security holders' shares of common stock sold
hereunder will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be selling security holders
hereunder.
Including, and without limiting the foregoing, in connection with
distributions of the common stock, a selling security holder may enter into
hedging transactions with broker-dealers and the broker dealers may engage in
short sales of the common stock in the course of hedging the positions they
assume with such selling security holder. A selling security holder may also
enter into options or other transactions with broker dealers that involve the
delivery of the common stock to the broker-dealers, who may then resell or
otherwise transfer such common stock. A selling security holder may also loan
or pledge the common stock to a broker dealer and the broker dealer may sell
the common stock so loaned or upon default may sell or otherwise transfer the
pledged common stock.
Each selling security holder will be subject to applicable provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including, without limitation, Regulation M which provisions may
limit the timing of purchases and sales of shares of our common stock by such
selling security holder.
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We are bearing all costs relating to the registration of the shares of
common stock, other than fees and expenses, if any, of counsel or other
advisors to the selling security holders. Any commissions, discounts or other
fees payable to broker-dealers in connection with any sale of the shares of
common stock will be borne by the selling security holder selling such shares
of common stock.
Stockholders holding an aggregate of 81,701,988 shares of common stock
offered under this prospectus have contractually agreed with us not to sell or
otherwise dispose of any of their shares. These lock-up agreements have
expiration dates ranging from June 2000 to March 2002.
DESCRIPTION OF SECURITIES TO BE REGISTERED
We are authorized to issue 300,000,000 shares of common stock, $.001 par
value per share, and 2,000,000 shares of preferred stock, $.001 par value per
share. As of May 1, 2000, we had 142,834,067 shares of common stock
outstanding and no preferred stock outstanding. Our Board of Directors retired
the Series A and C Preferred Stock designations in February 1997, retired the
Series B Preferred Stock designation in September 1999 and retired our Series D
Preferred Stock designation in February 1998.
Common Stock
Each holder of common stock is entitled to one vote per share on all
matters to be voted upon by our stockholders. Stockholders do not have
cumulative voting rights in the election of directors. Subject to preferences
that may be applicable to any shares of preferred stock, the holders of common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by our Board of Directors out of funds legally
available therefore. We have not paid, and do not presently intend to pay,
dividends on our common stock. If we liquidate, dissolve or wind up, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of holders
of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the common stock. All
outstanding shares of common stock are validly authorized and issued and are
fully paid and non-assessable.
Common Stock Purchase Warrants
Included in the shares of common stock represented hereunder are
16,741,666 shares issuable upon exercise of warrants. The shares issuable upon
exercise of the warrants are subject to adjustments upon certain events,
including the declaration of a stock split, reclassification, subdivision or
combination of outstanding shares of common stock into a greater or lesser
number of shares. In such event, the exercise price of the warrants may be
adjusted accordingly.
The warrants may be exercised, in whole or in part, upon surrender of the
certificate representing the warrants on or prior to the expiration date of the
warrant accompanied by payment of the exercise price of the warrants. The
holders of the warrants will not have the rights or privileges of holders of
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common shares until the warrants are exercised. We have agreed to register the
shares of common stock underlying the warrants under the Securities Act. The
shares of common stock included herein to be issued upon exercise of warrants
are validly authorized and, when issued and paid for in accordance with
warrants, will be issued, fully paid and non-assessable.
LEGAL MATTERS
The legality of the common stock included in this prospectus is being
passed upon for us by Swidler Berlin Shereff Friedman, LLP, 405 Lexington
Avenue, New York, New York 10174.
EXPERTS
The annual financial statements incorporated by reference onto this
Registration Statement have been audited by Cogen Sklar LLP independent
certified public accountants, for the periods and to the extent as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
reports and upon the authority of said firm as experts in accounting and
auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this prospectus may be deemed to include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, that involve risk and uncertainty, such as information
relating to expected capital expenditures and expected trends in operating
losses and cash flows, as well as our ability to successfully do any or all of
the following:
- Lease SCA channels from FM radio stations for our wireless messaging
system;
- Develop and select partners to help market, sell and distribute our
wireless messaging system;
- Develop a marketing strategy of our wireless messaging system;
- Complete the development of our wireless messaging system;
- Gain market acceptance of our wireless messaging system;
- Develop manufacturing and distribution channels for the wireless
messaging system;
- Manage the progress and costs of additional research and development of
our wireless voicemail system;
- Manage the risks, restrictions and barriers of conducting business
internationally;
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- Reduce future operating losses and negative cash flow;
- Manage the integration of our acquisitions;
- Achieve our goal of becoming an international integrated
telecommunications provider of a broad line of telecommunications
products;
- Obtain financing for operations and expansion;
- Compete effectively in the markets we choose to enter;
- Manage the effect on operating margins of changing long distance rates;
- Manage the effect of events that interrupt delivery of services such as
equipment failures;
- Develop new products and services and enhance our current products and
services;
- Stimulate demand for our wireless voicemail messaging system; and
- Manage the effect of the liquidation of Global First and Mediatel
In addition, certain statements may involve risk and uncertainty if they
are preceded by, followed by, or that include the words "intends," "estimates,"
"believes," "expects," "anticipates," "should," "could," or similar
expressions, and other statements contained herein regarding matters that are
not historical facts. Although we believe that our expectations are based on
reasonable assumptions, we can give no assurance that our expectations will be
achieved. The important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include, without
limitation, risks:
- associated with our operating losses;
- relating to our development and expansion and possible inability
to manage growth;
- relating to our significant capital requirements;
- relating to competition and regulatory developments;
- relating to implementing local and enhanced services;
- relating to our long distance business;
- relating to the development and marketing of our Wireless
Messaging System; and
- related to securing an appropriate number of FM radio subcarrier
frequencies
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All subsequent written and oral forward-looking statements attributable to
Clariti or persons acting on our behalf are expressly qualified in their
entirety by these cautionary statements. We do not undertake any obligation to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of the prospectus or to reflect the
occurrence of unanticipated events.
We have discussed these factors and other risks and uncertainties
affecting us under the heading "Risk Factors" beginning on page 8 of this
document and in other filings by us with the SEC.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We file reports, and other information with the SEC. Our SEC filings can
be inspected and copied at the SEC's public reference facilities at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices at Room
1204, Everett McKinley Dirksen Building, 219 South Dearborn Street, Chicago,
Illinois 60604; and 7 World Trade Center, Suite 1300, New York, New York 10048.
You can also obtain copies of the documents at prescribed rates by writing to
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference facilities. Our SEC filings are also
available to the public over the Internet at the SEC's web site at
http://www.sec.gov.
We "incorporate by reference" into this prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus and information that we later file with
the SEC will automatically update this prospectus. We incorporate by reference
the documents listed below and any filings we make with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the
initial filing of the registration statement that contains this prospectus and
until the time that all the shares offered by this prospectus are sold.
- Current Report on Form 8-K dated April 17, 2000, filed with the SEC on
April 17, 2000
- Quarterly Report on Form 10-QSB for the period ended December 31, 1999,
filed with the SEC on February 14, 2000
- Current Report on Form 8-KA dated December 14, 1999, filed with the SEC
on December 14, 1999
- Quarterly Report on Form 10-QSB for the period ended September 30, 1999,
filed with the SEC on November 22, 1999
- Amendment to Annual Report on Form 10-KSB for the year ended June 30,
1999, filed with the SEC on November 22, 1999
We will provide to each person, including any beneficial owner, to whom
this document is delivered, a copy of any or all the information that has been
incorporated by reference in this document, without charge, upon written or
oral request to:
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Clariti Telecommunications International, Ltd.
1735 Market Street
Mellon Bank Center, Suite 1300
Philadelphia, Pennsylvania 19103
Attention: Chief Accounting Officer
(215) 979-3600
You should rely only on the information contained in this document or that
we have referred you to. We have not authorized anyone to provide you with
information that is different. This prospectus does not constitute an offer to
sell, or a solicitation or an offer to buy, the securities offered hereby to
any person in any state or other jurisdiction in which such offer or
solicitation is unlawful. The delivery of this prospectus or any sale made
hereunder at any time does not imply that information contained herein is
correct as of any time subsequent to its date. This prospectus does not
constitute an offer or solicitation 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 anyone to whom it is
unlawful to make such offer or solicitation.
33
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 75,731
Printing 2,500
Legal Fees and Expenses 50,000
Accounting Fees and Expenses 5,000
Miscellaneous 5,000
--------
Total $138,231
--------
All of these expenses will be paid by Clariti.
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") and Article XII of our Amended and Restated By-Laws contain provisions
for indemnification of our officers, directors, employees and agents against
expenses (including attorneys' fees), as well as judgments, fines and
settlements, actually and reasonably incurred in connection with the defense of
any civil, criminal, administrative or investigative action (other than an
action by or in the right of Clariti), suit or proceeding in which they or any
of them were or are made parties or are threatened to be made parties by reason
of their serving or having served in such capacity. Our Amended and Restated
By-Laws and the DGCL require us to indemnify such persons in any proceeding if
such person acted in good faith and in a manner which such person reasonably
believed to be in, or not opposed to, our best interest, and in the case of a
criminal action, such person must have had no reasonable cause to believe his
or her conduct was unlawful. In addition, the DGCL does not permit
indemnification in an action or suit by or in the right of the corporation,
where such person has been adjudged liable to the corporation unless and only
to the extent that the Delaware Court of Chancery or the court in which the
action was brought determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of the
liability adjudication. Indemnification (including attorneys' fees) is
mandatory to the extent a claim, issue or matter has been successfully
defended.
Our Amended and Restated Bylaws also provide that our Board of Directors
may cause us to purchase and maintain insurance on behalf of any present or
past director or officer insuring against any liability asserted against such
person incurred in the capacity of director or officer or arising out of such
status, whether or not we would have the power to indemnify such person. We
have directors' and officers' liability insurance.
Our Amended Certificate of Incorporation limits the liability of directors
and officers to the maximum extent permitted by the DGCL. The DGCL and our
Amended Certificate of Incorporation provide that directors of a corporation
II-1
<PAGE>
will not be personally liable for monetary damages for breach of their
fiduciary duties as directors, including gross negligence, except liability for
(i) breach of the directors' duty of loyalty; (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
the law; (iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption; and (iv) any transaction from which the director derives an
improper personal benefit. The DGCL does not permit a corporation to eliminate
a director's duty of care, and this provision of our Amended and Restated
Certificate of Incorporation has no effect on the availability of equitable
remedies, such as injunction or rescission, based upon a director's breach of
the duty of care.
Item 16. Exhibits
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP, special counsel for
the Registrant, as to the legality of the securities being registered
23.1 Consent of Independent Auditor
23.2 Consent of Swidler Berlin Shereff Friedman, LLP (included in the
opinion filed as Exhibit 5.1)
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(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.
Notwithstanding the forgoing, any increase or decrease in volume
of securities offered (if total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission, or the Commission,
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and prices represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
and
(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.
II-2
<PAGE>
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by us pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act, 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.
(4) That, for the purpose of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Act, may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the 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 proceedings) 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, we certify
that we have reasonable grounds to believe that we meet all of the requirements
of filing on Form S-3 and have duly caused this registration statement to be
signed on our behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, State of Pennsylvania on the 12th day of May, 2000.
CLARITI TELECOMMUNICATIONS INTERNATIONAL, LTD.
By: s/ Peter S. Pelullo
-------------------
Peter S. Pelullo
Chairman of the Board,
President and
Chief Financial Officer
Pursuant to 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.
NAME AND SIGNATURE TITLE DATE
- ------------------ ----------------------- ------------
s/Peter S. Pelullo Chairman of the Board, May 12, 2000
- ------------------ President and Chief
Peter S. Pelullo Financial Officer
(Principal Financial
Officer)
s/Ronald R. Grawert Chief Executive Officer May 12, 2000
- ------------------- (Principal Executive
and Director)
s/James M. Boyd, Jr. Vice President of May 12, 2000
- -------------------- Finance and Chief
James M. Boyd, Jr. Accounting Officer
* Co-Vice Chairman May 12, 2000
- --------------- of the Board
Louis C. Golm and Director
* Co-Vice Chairman May 12, 2000
- ------------------- of the Board
Michael H. Jordan and Director
II-4
<PAGE>
* Director May 12, 2000
- ----------------
Abraham Carmel
* Director May 12, 2000
- ---------------------
John N. D'Anastasio
* Director May 12, 2000
- -----------------------
Hans Georg Hinderling
* Director May 12, 2000
- -------------------
Chester John Hunt
* Director May 12, 2000
- --------------------
Robert J. Sannelli
* By: s/ Peter S. Pelullo
-------------------
Attorney-In-Fact
II-5
May 12, 2000
Clariti Telecommunications International, Ltd.
1735 Market Street
Mellon Bank Center
Suite 1300
Philadelphia, PA 19103
Ladies and Gentlemen:
On the date hereof, Clariti Telecommunications International, Ltd., a
Delaware corporation (the "Company"), intends to transmit for filing with the
Securities and Exchange Commission a registration statement under the
Securities Act of 1993, as amended, on Form S-3 (the "Registration Statement")
which relates to 134,120,054 shares (the "Shares") of the Company's common
stock, par value $.001 per share (the "Common Stock"), which includes
16,741,666 shares of Common Stock underlying Common Stock Purchase Warrants
(collectively, the "Shares"), which are being offered for sale by the selling
stockholders named in the Registration Statement (the "Selling Stockholders").
This opinion is an exhibit to the Registration Statement.
We have acted as special counsel to the Company in connection with the
proposed offer and sale of the Shares as contemplated by the Registration
Statement. However, we are not general counsel to the Company and would not
ordinarily be familiar with or aware of matters relating to the Company unless
they are brought to our attention by representatives of the Company. In
connection with this opinion, we have examined and are familiar with originals
or copies, certified or otherwise identified to our satisfaction, of: (i) the
Company's Certificate of Incorporation, as amended to date; (ii) the Company's
Amended and Restated By-Laws, as presently in effect; (iii) the Company's
minutes and other instruments evidencing actions taken by its directors and
stockholders; and (iv) such other documents and instruments relating to the
Company and the proposed offering as we have deemed necessary under the
circumstances.
In our examination of all such agreements, documents, certificates and
instruments, we have assumed the genuineness of all signatures and the
authenticity of all agreements, documents, certificates and instruments
submitted to us as originals and the conformity with the originals of all
agreements, documents, certificates and instruments submitted to us as
certified, conformed or photostatic copies. Insofar as this opinion relates to
securities to be issued in the future, we have assumed that all applicable
laws, rules and regulations in effect at the time of such issuance are the same
as such laws, rules and regulations in effect as of the date hereof.
This opinion does not relate to 1,011,721 shares of Common Stock, which
include 250,000 shares of Common Stock underlying Common Stock Purchase
Warrants, the legality of the issuance of which was passed upon by the law firm
of Silverman, Collura, Chernis & Balzano, P.C. ("SCCB") as set forth in the
letters from SCCB to the Company dated (i) June 29, 1998 which was filed as
Exhibit 5.1 to the Company's Registration Statement on Form S-2 on June 29,
1998, and (ii) July 23, 1998, which was filed as Exhibit 5.1 to the Company's
Amendment No. 2 to Registration Statement on Form S-2 on July 23, 1998.
<PAGE>
Clariti Telecommunications International, Ltd.
May 12, 2000
Page 2
Except as expressly set forth in the next sentence, we express no opinion
on the laws of any jurisdiction other than the laws of the State of New York,
the federal laws of the United States and, to the extent set forth in the
succeeding sentence, the laws of the State of Delaware. This opinion, insofar
as it relates to the laws of the State of Delaware, is based solely upon our
reading of standard compilations of the Delaware General Corporation Law, as
presently in effect. We express no opinion as to the application of the
securities or "blue sky" laws of any state, including the State of Delaware or
the State of New York, to the offer and sale of the Shares.
Based on the foregoing, and subject to and in reliance on the accuracy and
completeness of the information relevant thereto provided to us, it is our
opinion that the Shares have been duly authorized and (subject to the
effectiveness of the Registration Statement and compliance with applicable
state securities laws) are or, when issued and paid for in accordance with the
terms of the Common Stock Purchase Warrants relating thereto, will be legally
and validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as an exhibit to any filing made by the Company
under the securities or other laws of any state of the United States which
relates to the offer and sale of the Shares which is the subject of this
opinion and to the reference to this firm appearing under the heading "Legal
Matters" in the prospectus which is contained in the Registration Statement.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose, except as expressly provided in the
preceding paragraph, without our express written consent, and no party other
than you is entitled to rely on it. This opinion is rendered to you as of the
date hereof and we undertake no obligation to advise you of any change, whether
legal or factual, after the date hereof.
Yours truly,
s/SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
--------------------------------------
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in this registration statement of
Clariti Telecommunications International, Ltd. on Form S-3 of our report dated
October 8, 1999, appearing in the annual report on Form 10-KSB/A of Clariti
Telecommunications International, Ltd. for the year ended June 30, 1999 and to
the reference to us under the heading "EXPERTS" in the Prospectus, which is a
part of this registration statement.
s/COGEN SKLAR LLP
-----------------
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
May 12, 2000
