-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HQqeppOY3pfa15tSEkYCONEiCyR05qzse0Rmf4EuPz/YUQBurJgxqkLG3GmSdNVn eqT++Y7vHDAYsWC5dfkqag== 0001095811-00-000490.txt : 20000310 0001095811-00-000490.hdr.sgml : 20000310 ACCESSION NUMBER: 0001095811-00-000490 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TELECOMMUNICATIONS CORP CENTRAL INDEX KEY: 0000722572 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 953733534 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-32060 FILM NUMBER: 564770 BUSINESS ADDRESS: STREET 1: 733 LAKEFIELD RD CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 BUSINESS PHONE: 8053738688 MAIL ADDRESS: STREET 1: 733 LAKEFIELD ROAD CITY: WESTLAKE VILLAGE STATE: CA ZIP: 91361 FORMER COMPANY: FORMER CONFORMED NAME: ABM COMPUTER SYSTEMS DATE OF NAME CHANGE: 19870317 FORMER COMPANY: FORMER CONFORMED NAME: AUTOMATED BUSINESS MACHINES INC DATE OF NAME CHANGE: 19830802 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FRANKLIN TELECOMMUNICATIONS CORP. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 3670 95-3733534 - ------------------------------- ---------------------------- ---------------------- (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
733 LAKEFIELD ROAD, WESTLAKE VILLAGE, CALIFORNIA 91361 (805) 373-8688 - -------------------------------------------------------------------------------- (ADDRESS AND TELEPHONE NUMBER, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) FRANK W. PETERS 733 LAKEFIELD ROAD, WESTLAKE VILLAGE, CALIFORNIA 91361 (805) 373-8688 - -------------------------------------------------------------------------------- (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) COPY TO: ROBERT J. ZEPFEL, ESQ. HADDAN & ZEPFEL LLP 4675 MACARTHUR COURT, SUITE 710 NEWPORT BEACH, CALIFORNIA 92660 (949) 752-6100 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Amendment to Registration Statement is declared effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE ================================================================================ Title of each Proposed Proposed Class of Maximum Maximum Securities Securities Offering Aggregate Amount of to be to be Price Per Offering Registration Registered Registered Unit Price Fee - -------------------------------------------------------------------------------- Common Stock 5,947,766(1) $2.00 $11,895,532 $888.64 ================================================================================ (1) All of the securities registered pursuant to Registrant's Registration Statement on Form S-3 (File No. 333-87551), consisting of 4,264,736 shares, are being carried forward in the combined prospectus included herein. A filing fee of $3,331.52 was paid in connection with the filing of that Registration Statement. Pursuant to Rule 416 under the Securities Act of 1933, there are also being registered such indeterminate number of additional shares of common stock as may be issuable upon the exercise of the common stock purchase warrants described herein pursuant to the antidilution provisions thereof. The proposed maximum offering price per share and maximum aggregate offering price for the shares being registered hereby is calculated in accordance with Rule 457(c) under the Securities Act. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 2 PROSPECTUS 5,947,766 SHARES FRANKLIN TELECOMMUNICATIONS CORP. COMMON STOCK These shares of common stock are being offered by Crescent International Ltd., one of our current shareholders. We issued the shares, or reserved the shares for issuance, to Crescent International, Ltd. in connection with investments made in the Company in August and September 1999 and in February 2000. The selling shareholder may sell the shares covered by this Prospectus on the American Stock Exchange and in ordinary brokerage transactions, in negotiated transactions or otherwise, at prevailing market prices at the time of sale or at negotiated prices, and may engage a broker or dealer to sell the shares. For additional information on the selling shareholder's possible methods of sale, you should refer to the section of this prospectus entitled "Plan of Distribution." The selling shareholder may be deemed to be an "underwriter" within the meaning of the Securities Act in connection with the sale of its shares. We will not receive any proceeds from the sale of the shares, but will bear the costs relating to the registration of the shares. Our common stock is traded on American Stock Exchange under the symbol "FCM." The shares offered in this prospectus involve a high degree of risk. You should carefully consider the "Risk Factors" beginning on page 2 in determining whether to purchase shares of our common stock. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS MARCH , 2000. 3 You should rely only on information contained or incorporated by reference in this prospectus. See "Information Incorporated by Reference" on page 11. Neither we nor the selling shareholder have authorized any other person to provide you with information different from that contained in this prospectus. The information contained in this prospectus is correct only as of the date on the cover, regardless of the date this prospectus was delivered to you or the date on which you acquired any of the shares. FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements." These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, competition, expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described above and elsewhere in this prospectus. THE BUSINESS Franklin Telecommunications Corp. designs, builds and sells Internet Telephony equipment and other high speed communications products and subsystems. Our products are marketed through Original Equipment Manufacturers ("OEMs") and distributors, as well as directly to end users. In addition, through our majority-owned subsidiary, FNet Corp., we provide Internet Protocol telephony services and Internet access to businesses and individuals. Franklin was formed in 1981. Our address is 733 Lakefield Road, Westlake Village, California 91361, and our telephone number is (805) 373-8688. RISK FACTORS You should carefully consider the following factors and other information in this prospectus before deciding to invest in the shares. You should not purchase any of the shares unless you can afford a complete loss of your investment. WE HAVE A HISTORY OF OPERATING LOSSES. We have incurred operating losses in each of the last three fiscal years, and have a significant accumulated deficit. Our operating losses have resulted from a number of factors, including reduced demand for original hardware products, higher expenses for the development of new hardware products and for installing the infrastructure for the Internet telephony and Internet services business of FNet, and increasing sales and marketing expenses to promote new products and services. Much of the operating capital during this period has been derived from equity financings, rather than from operations. We have been dependent on these equity financings to sustain our ongoing operations. Thus, an investment in the shares is highly speculative and we cannot assure you that you will realize any return on your investment or that you will not lose your entire investment. THE ARRANGEMENTS WITH THE SELLING SHAREHOLDER COULD CAUSE DILUTION OF EXISTING SHAREHOLDERS As described in "The Selling Shareholder," we have entered into a Stock Purchase Agreement with Crescent International Ltd. under which we can, at our option, issue shares of our Common Stock to Crescent for a total purchase price of $6,500,000. The purchase price per share under the Agreement is equal to 92% to the average of the lowest three consecutive bid prices of our Common Stock during the 22 trading days preceding the date of issuance. To date, we have issued 2,773,883 shares under this Agreement, for a total purchase price of $3,500,000. 2 4 In addition to the built-in discount, the transaction may be dilutive of existing shareholders if the market price of the Common Stock decreases, because the purchase price under the Stock Purchase Agreement decreases as well. Under the Stock Purchase Agreement, the Company cannot issue additional shares during any period that the market price of the Common Stock is below $2.00 per share. If the market price were to fall to $2.00 per share, and the Company were to elect to issue additional shares under the Agreement, the purchase price per share would be $1.84 per share, and the maximum number of shares issuable for the remaining $3,000,000 would be 2,445,652. In addition, Crescent International Ltd.. holds two warrants issued in connection with the transactions. The first is a five-year warrant that permits Crescent International Ltd. to purchase up to 400,000 shares at an exercise price of $1.5525 per share. The other warrant, issued in connection with an issuance of shares in February 2000, permits Crescent to purchase shares at $.01 per share if the market price of the Common Stock is less than $1.7825 per share on the date the Registration Statement (of which this prospectus is a part) is declared effective by the Securities and Exchange Commission. The number of shares issuable under this Warrant is based on a formula designed to ensure that the total market value of the 841,515 shares issued under the Agreement in February 2000 for $1,500,000, when increased by the value of any shares issuable upon exercise of the warrant, equals $1,500,000 on the date the Registration Statement (of which this prospectus is a part) is declared effective by the Securities and Exchange Commission. Thus, for example, if the market price of the Company's Common Stock were to decline by 25% from the original $1.7825 purchase price, to a market price of $ 1.337 per share, the warrant would be exercisable to purchase 280,400 shares. (See "The Selling Shareholder"). However, under the terms of the Warrant, it may not be exercised to acquire shares to the extent the exercise would result in the Selling Shareholder beneficially owning more than 4.9% of the outstanding shares. The issuance of these shares of Common Stock, as well as subsequent sales of shares of Common Stock in the open market, may cause the market price of the Common Stock to fall and might impair our ability to raise additional capital through sales of equity or equity-related securities. OUR SUBSIDIARY, FNET, POSES CERTAIN RISKS. Several years ago we organized FNet, which offers Internet Protocol telephony services and Internet access. We have devoted significant resources and management time to the organization and development of FNet. We currently own approximately 70% of the common stock of FNet, with the balance owned by members of management, including Franklin's CEO, and certain investors. We believe that the growth of FNet will benefit Franklin through increased demand for our communications hardware as well as the value of our interest in FNet. However, FNet may adversely affect our principal business in the short term due to competing demands on our resources and management. Also, the fact that members of Franklin's management, including our CEO, hold a direct interest in FNet may pose conflicts of interest. FNet is a relatively new business venture, and it can be expected that its operations will be subject to many of the expenses, delays and risks inherent in the establishment of a new business. WE DEPEND ON SEVERAL MAJOR CUSTOMERS. Our sales have been concentrated in a relatively small number of customers, who account for a significant portion of our revenues. During the fiscal year ended June 30, 1999, a single customer represented 76% of sales. The loss of any major customer could adversely affect the Company. The Company has no ongoing supply contracts with any of its major customers. WE MAY HAVE DIFFICULTIES IN MANAGING OUR GROWTH. Our growth has placed a significant strain on our personnel and systems. To accommodate our current size and manage growth, we must improve our operational, financial and information systems, and expand, train and manage our employee base. This problem may be more serious if we acquire additional businesses, as each such business must then be integrated into our operations and systems. 3 5 As we expand our customer base, we will experience greater demands on our network infrastructure, technical staff and resources. If such demand results in difficulties satisfying the needs of our customers, it could negatively affect us by causing subscribers or potential subscribers to utilize competitive long distance telephone service providers and Internet service providers. We believe that our ability to provide timely access for customers, and adequate customer and technical support, will mainly depend on our ability to attract, train, integrate and retain qualified employees. IT IS LIKELY WE WILL REQUIRE ADDITIONAL CAPITAL. All of the proceeds of this offering will be received by the selling shareholder. While we may receive cash from the exercise of warrants covered by this Prospectus, we can't be sure that we will derive any specific amount from this offering. We may require additional capital to sustain our business as presently operated, and developments in our business and possible expansion into other markets could indicate that we need to raise additional capital. OUR QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY. Our quarterly operating results may vary significantly due to a variety of factors, including the availability and cost of materials and components, the introduction of new products, the timing of our marketing efforts, pricing pressures, general economic and industry conditions that affect customer demand, and other factors. OUR FUTURE GROWTH DEPENDS UPON AN INCREASE IN THE USE OF INTERNET PROTOCOL TELEPHONY AS A MEDIUM FOR VOICE COMMUNICATIONS. The Internet Protocol telephony business has little operating history, and is evolving rapidly. Until very recently, the sound quality of Internet telephony calls was poor, and the technology is still in the early stages of development. As the industry has grown, substantial improvements to sound quality have been made but technological impediments still need to be overcome. In addition, the capacity constraints of the public Internet network could hinder further development of Internet telephony if callers experience delays, errors in transmissions or other difficulties. We have attempted to reduce this risk by utilizing private leased lines, international private lines, Frame Relay lines and T-1 lines for voice traffic, while using the Internet primarily for fax and data traffic and only secondarily for voice traffic. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for our services are subject to a high level of uncertainty and risk. In particular, the Internet must be accepted as a viable alternative to traditional telephony service. Customers that have already invested substantial resources in integrating traditional telephony service with their operations may be particularly reluctant or slow to adopt a new technology that makes their existing infrastructure obsolete. Because this market is new and evolving, it is difficult to predict the size of this market and its growth rate. If the Internet telephony market fails to develop, develops more slowly than we expect or becomes saturated with competitors, then our business, results of operations and financial condition will be materially adversely affected. OUR BUSINESS IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID TECHNOLOGICAL CHANGES. The Internet telephony, data communications and telecommunications industry is extremely competitive. Our principal competitors in the manufacture of communications hardware are Lucent Technologies, Nokia, HyperCom, Clarent, Ascend Communications and Cisco Systems. Most of these companies have substantially greater marketing, financial, technical and field support resources. In addition, we could face strong competition from a number of established computer and telecommunications firms which may enter the market in the future. 4 6 The fields of Internet telephony and data communications are marked by rapid changes in technology, which can cause products to become obsolete over very short time frames. Thus, our performance will depend on our ability to develop and market new hardware products and services to meet changing technology, pricing considerations and other market factors. The business could be severely impacted if the Company were to experience delays in developing new hardware products and services or enhancements. The market for Internet telephony services has been extremely competitive, and is expected to be so for the foreseeable future. Many companies offer Internet telephony products and services, and many of these companies have a substantial presence in this market. Most of the current Internet telephony products permit voice communications over the Internet between two parties that are both connected to the Internet with sound-equipped personal computers and where both parties are using identical Internet telephony software products. Current product offerings include VocalTec Communications' Internet Phone, QuarterDeck's WebPhone and Microsoft's NetMeeting. In addition, a number of large telecommunications providers and equipment manufacturers, such as Cisco, Lucent, Northern Telecom and Dialogic, have announced that they intend to offer server-based products. These products are expected to allow voice communications over the Internet between parties using a personal computer and a telephone and between two parties using telephones. Cisco Systems has also taken a further step by recently acquiring two companies that produce devices that help Internet service providers transition voice and data traffic to cell and packet networks while maintaining traditional phone usage and infrastructure. Internet telephony service providers, such as ICG Communications, IPVoice.com, ITXC, RSL Communications (through its Delta Three subsidiary) and VIP Calling, route Internet telephony traffic to destinations on a worldwide basis. In addition, major long distance providers, such as AT&T, Deutsche Telekom, Frontier, MCI WorldCom, and Qwest Communications, as well as other major companies such as Motorola and Intel, have all entered or plan to enter the Internet telephony market. Many of our competitors are larger than and have substantially greater financial, distribution and marketing resources than we do. We cannot be certain that we will be able to compete successfully in the developing Internet telephony market. The entry of new participants from these categories and the potential entry of competitors from other categories (such as computer hardware manufacturers) would result in substantially greater competition. The ability of these competitors or others to bundle services and products with Internet connectivity services could place FNet at a significant competitive disadvantage. In addition, competitors in the telecommunications industry may be able to provide customers with reduced communications costs in connection with their long distance telephone and Internet access services, reducing the overall cost of telephone and Internet access and significantly increasing pricing pressures on FNet. WE FACE PRICING PRESSURES, PARTICULARLY IN THE INTERNET TELEPHONY MARKET. The success of our current product and service offerings is based on our ability to provide discounted voice communications by taking advantage of cost savings achieved through Internet telephony. In recent years, the price of traditional domestic and international long distance calls has been declining. In response to these declines, many Internet telephony providers have lowered the price of their service offerings. Should prices of traditional long distance calls decline to a point where we no longer have a price advantage over our competitors, we would lose a significant competitive advantage and would have to rely on factors other than price to differentiate our product and service offerings. If we fail to do so, our business could be materially adversely affected. 5 7 OUR BUSINESS DEPENDS ON OUR NETWORK INFRASTRUCTURE AND CAPACITY, AND MAY BE SUBJECT TO SYSTEM FAILURE AND SECURITY RISKS. The future success of FNet's business will depend on the capacity, reliability and security of its network infrastructure. FNet will be required to expand and improve this infrastructure as the number of customers and the amount and type of information its customers communicate over the Internet increases, and the means by which customers connect to the Internet evolve. Such expansion and improvement may require substantial financial, operational and managerial resources. Capacity constraints have occurred at many Internet Service Providers, both at the level of particular "points of presence" ("POPs") (affecting only customers attempting to use that particular POP) and in connection with systemwide services (such as e-mail and news services, which can affect all customers). From time to time, FNet has experienced delayed delivery from suppliers of new telephone lines, modems, servers and other equipment used by FNet in providing its services. Any severe shortage of new telephone lines, modems, servers or other equipment could result in incoming access lines becoming full during peak times, causing busy signals for customers who are trying to connect to the Internet. Similar problems may occur if FNet is unable to expand the capacity of its various network, e-mail, World Wide Web and other servers quickly enough to keep pace with demand from our expanding customer base. If the capacity of such servers is exceeded, customers will experience delays when trying to use a particular service. Further, if FNet does not maintain sufficient capacity in its network connections, customers will experience a general slowdown of all services on the Internet. Any of these events could cause customers to terminate use of FNet's services. Accordingly, our business would be damaged if we failed to expand or enhance our network infrastructure on a timely basis, or failed to adapt it to an expanding customer base, changing customer requirements or evolving industry standards. FNet's operations are dependent on its ability to protect its telecommunications and computer equipment against damage from fire, earthquake, power loss, telecommunication failure and similar events. The occurrence of a natural disaster or another unanticipated problem at our headquarters and network hub or at POPs through which customers connect to the Internet could cause interruptions in the services provided by FNet. In addition, failure of FNet's telecommunications providers to provide the data communications capacity required by FNet as a result of a natural disaster, operational disruption or for any other reason could cause interruptions in the services provided by FNet. FNet's network infrastructure may be vulnerable to computer viruses and other similar disruptive problems caused by its customers, other Internet users or other third parties. Computer viruses and other problems could lead to interruptions, delays in or cessation of service to FNet's customers, as well as corruption of FNet's or its customers' computer systems. Inappropriate use of the Internet by third parties could also potentially jeopardize the security of confidential information stored in the computer systems of FNet or those of its customers, which may cause losses to FNet or its customers, or deter certain persons from using FNet's services. We expect that FNet's customers may increasingly use the Internet for commercial transactions in the future. Any network malfunction or security breach could cause these transactions to be delayed, not completed or completed with compromised security. Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may cause interruptions, delays or cessation in service to FNet's customers. Customers or others could assert claims of liability against us as a result of such events. FNet does not presently maintain redundant or backup Internet services or backbone facilities or other redundant computing and telecommunications facilities. OUR BUSINESS DEPENDS ON OUR ABILITY TO PROTECT ITS TECHNOLOGY. Our success will depend in part on protecting our proprietary technology. While we have patents covering certain of our products, we rely principally on copyright law for protection of our hardware and software designs, as well as trade secret law, confidentiality agreements and our technical abilities and responsiveness to the demands of customers to protect our proprietary rights. 6 8 THE TELECOMMUNICATIONS BUSINESS IS HEAVILY REGULATED, AND REGULATORY CHANGES COULD DISRUPT OUR BUSINESS. Some of our products are subject to regulations of the Federal Communications Commission. Certain regulations require that products which reside on a customer's premises and interconnect the public switched network meet certain standards to prevent harm to the network. Other regulations limit the levels of electromagnetic radiation which may emanate from an electronic device located on a customer's premises. We currently comply with these regulations and we foresee no problem in complying with these regulations in the future. The use of the Internet to provide telephone service is a recent market development. The Federal Communications Commission is considering whether to impose surcharges or additional regulations on certain providers of Internet telephony. In April of 1998 the FCC issued a report on the implementation of the universal service provisions of the Telecommunications Act. The report indicates that the FCC plans to examine the question of whether certain forms of "phone-to-phone" Internet telephony are information services or telecommunications services. The FCC noted that it did not have, as of the date of the Report, an adequate record on which to make a definitive pronouncement, but that the record suggested that certain forms of phone-to-phone Internet telephony appear to have the same functionality as non-Internet telecommunications services and lack the characteristics that would render them information services. If the FCC were to determine that certain services are subject to FCC regulation as telecommunications services, the FCC may require providers of Internet telephony services to make universal service contributions, pay access charges or be subject to traditional common carrier regulation. In addition, the FCC sets the access charges on traditional telephony traffic and if it reduces these access charges, the cost of traditional long distance telephone calls will probably be lowered, thereby decreasing our competitive pricing advantage. In September 1998, two regional Bell operating companies, US West and BellSouth, advised Internet telephony providers that the regional companies would impose access charges on Internet telephony traffic. In addition, US West has petitioned the FCC for a declaratory ruling that providers of interstate Internet telephony must pay federal access charges, and has petitioned the public utilities commissions of two states for similar rulings concerning payment of access charges for intrastate Internet telephone calls. It is not known whether these companies, US West and BellSouth, will actually impose access charges or when such charges will become effective. If these companies succeed in imposing access charges that may reduce the cost savings of using Internet telephony as compared to traditional telephone service, the existence of such access charges could adversely affect the development of the Company's Internet telephony business. In February 1999, the FCC adopted an order concerning payment of reciprocal compensation that provides support for a possible finding by the FCC that providers of Internet telephony must pay access charges for at least some portions of Internet telephony services. If the FCC were to make such a finding, the payment of access charges could adversely affect the Company=s business. Many of our competitors are lobbying the FCC for the imposition of access charges on Internet telephony traffic. To our knowledge, there are currently no domestic and few foreign laws or regulations that prohibit voice communications over the Internet. State public utility commissions may retain jurisdiction to regulate the provision of intrastate Internet telephony services. A number of countries that currently prohibit competition in the provision of voice telephony have also prohibited Internet telephony. Other countries permit but regulate Internet telephony. If Congress, the FCC, state regulatory agencies or foreign governments begin to regulate Internet telephony, such regulation may interfere with our business. 7 9 WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS. We anticipate that a substantial portion of FNet's business will be based outside of the United States, and international expansion is a significant component of our strategy. We cannot assure you that we will be successful in expanding into additional international markets. In addition to the uncertainty regarding our ability to generate revenue from foreign operations and expand our international presence, there are certain risks inherent in conducting a telecommunications business on an international basis, including uncertain and changing legal and regulatory requirements, political instability, and subscriber fraud. AS AN INTERNET SERVICE PROVIDER, FNET MAY BE SUBJECT TO SPECIALIZED RISKS. The law relating to the liability of Internet Service Providers and online service companies for information carried on or disseminated through their networks has not yet been definitively established. Several private lawsuits seeking to impose such liability upon Internet Service Providers and online services companies are currently pending. Although no such claims have been asserted against FNet to date, there can be no assurance that such claims will not be asserted in the future, or if asserted, will not be successful. The Telecommunications Act imposes fines on any entity that knowingly (i) uses any interactive computer service or telecommunications device to send obscene or indecent material to minors; (ii) makes obscene or indecent material available to minors via an interactive computer service; or (iii) permits any telecommunications facility under such entity's control to be used for the purposes detailed above. As the law in this area develops, the potential imposition of liability upon FNet for information carried on and disseminated through its network could require it to implement measures to reduce its exposure to such liability. The implementation of such measures could require the expenditure of substantial resources or the discontinuation of certain service offerings. Any costs that are incurred as a result of such expenditure, contesting any such asserted claims or the imposition of liability could have a material adverse effect on FNet. Due to the increasing use of the Internet, it is possible that additional laws and regulations may be adopted with respect to the Internet covering issues such as content, user privacy, pricing, libel, intellectual property protection and infringement and technology export and other controls. Changes in the regulatory environment relating to the Internet services industry, including regulatory changes that directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition, could affect us. OUR NETWORK DEPENDS ON UNRELATED TELECOMMUNICATIONS CARRIERS. We depend on other telecommunications carriers to route our telephone traffic. All of the telephone calls made by FNet's customers are connected at least in part through leased transmission facilities. In many of the foreign jurisdictions in which FNet conducts or plans to conduct business, the primary provider of transmission facilities is a governmental telephone monopoly. Accordingly, we may be required to lease transmission capacity at artificially high rates from a single provider. These rates may prevent us from generating a profit on those calls. In addition, national telephone companies may not be required by law to allow us to lease necessary transmission lines. In any event, we may encounter delays in negotiating leases and interconnection agreements, which would delay commencement of operations. In the United States, the providers of local exchange transmission facilities are generally the incumbent local exchange carriers, including the regional Bell operating companies. The permitted pricing of local exchange facilities in the United States is subject to uncertainties. The Federal Communications Commission issued an order requiring existing local exchange carriers to price those facilities at total element long-run incremental cost, and the United States Supreme Court recently upheld the FCC's jurisdiction to set a pricing standard for incumbent local exchange carrier facilities provided to competitors. However, the local exchange carriers could challenge the FCC's total element long-run incremental cost standard and, if they succeed, the result may be to increase the cost of local exchange carrier facilities obtained by us. 8 10 Many of the international telephone calls made by our customers are transported via transmission facilities that we lease from our current and potential competitors. We lease facilities from local exchange carriers that are our competitors, such as the regional Bell operating companies. We generally lease lines on a fixed-cost basis. These include leases of transmission capacity for point-to-point circuits on a monthly or longer-term fixed-cost basis. THE SELLING SHAREHOLDER In August of 1999 the Company entered into a Stock Purchase Agreement with Crescent International Ltd., a Bermuda-based investment company. Under the Stock Purchase Agreement, the Company can, at its option from time to time, require Crescent International Ltd. to purchase shares of the Company's Common Stock at prices determined in accordance with a formula, up to a maximum amount of $6,500,000. However, the Company may not require Crescent to purchase shares if, after giving effect to the purchase, Crescent would beneficially own more than 4.9% of the outstanding shares. Upon execution of the Stock Purchase Agreement Crescent purchased 966,184 shares of Common Stock at a purchase price of $1.035 per share, and on September 14, 1999 it purchased an additional 966,184 shares at the same purchase price. On February 8, 2000, Crescent purchased 841,515 shares at a purchase price of $1.7825 per share. As provided in the Stock Purchase Agreement, in each instance the purchase price was determined by applying 92% to the average of the lowest three consecutive bid prices during the preceding 22 trading days. The aggregate number of shares purchased to date is 2,773,883, and the aggregate purchase price was $3,500,000. The shares remaining available under the Stock Purchase Agreement, with an aggregate purchase price of $3,000,000, may be issued by the Company in increments of $200,000 to $300,000 at minimum 22-day intervals for a period ending in August 2001. The ability of the Company to issue shares under the Stock Purchase Agreement is subject to a number of conditions (none of which are within the control of Crescent), including requirements that (i) the bid price for the Company's Common Stock for the preceding seven days must be $2.00 or more, (ii) the average daily trading value of the Common Stock for the 22 days preceding the issuance must be $160,000 or more, and (iii) the resale of the shares must have been registered under the Securities Act of 1933. The purchase price per share for these issuances is determined by the same formula as the original draws, applying 92% to the average of the lowest three consecutive bid prices during the 22 trading days immediately preceding the issuance. As part of the transaction, the Company also issued two warrants to Crescent. The February Put Warrant is a warrant to purchase an indeterminate number of shares at an exercise price of $.01 per share. The number of shares is determined by reference to the market price of the Company's Common Stock on the date the registration statement of which this Prospectus is a part is declared effective, as compared to $1.7825 per share, the purchase price for the shares acquired by Crescent in February 2000. Thus, if the market price on the date this Registration Statement becomes effective exceeds $1.7825 per share, no shares are issuable upon exercise of the warrant. The purpose of this Warrant is to protect Crescent against decreases in the market value of the shares between the dates the shares were acquired and the date the Registration Statement is declared effective, although it remains subject to liquidity risks associated with the relatively low trading volume of the Company's Common Stock, and risks of bankruptcy or insolvency due to the Company's history of operating losses and significant accumulated deficit. If the market price of the Company's Common Stock were to fall below $1.7825 on the date the Registration Statement is declared effective, the effect of this Warrant would be dilutive to existing shareholders, as it would involve the issuance of shares of Common Stock at $.01 per share, provided that the issuance does not increase Crescent's beneficial ownership of the Company's Common Stock above 4.9% at the time of issuance. On September 24, 1999, the Selling Shareholder filed a Schedule 13D with the Securities and Exchange Commission disclosing ownership of 1,932,368 shares, constituting 7.17% of the shares then outstanding. Accordingly, until the Selling Shareholder disposes of enough shares to fall below the 4.9% threshold, the Company is unable to exercise its right to issue shares to Crescent. 9 11 The Incentive Warrant is a warrant to purchase up to 400,000 shares at an exercise price of $1.5525 per share. This exercise price is subject to adjustment under certain circumstances in the event of stock splits, stock dividends, recapitalizations, reclassifications, and similar events. The Company is also required to register the resale of all of the shares issuable under the Stock Purchase Agreement, including the shares issuable upon exercise of the Warrants. The Company had no prior dealings with Crescent International Ltd., except that a company associated with Crescent participated in an offering of Series C Preferred Stock by the Company in 1998 through its banker, Banque Franck, S.A. Crescent has advised us that the purchase was in the ordinary course of its business, which is purchasing securities. Crescent has also advised us that at the time the Shares were acquired it had no understandings or arrangements to dispose of the Shares. The following table sets forth certain information as of February 15, 2000, regarding the ownership of the common stock by the selling shareholder and as adjusted to give effect to the sale of the shares offered in this prospectus.
Shares Owned Prior Shares Owned To Offering (1) After Offering (1) --------------------------------------- -------------------- Selling Shares Shareholder Number Percentage Offered (1) Number Percentage - --------------- --------- ---------- ----------- ------ ---------- Crescent Inter- national, Ltd. 5,947,766 16.5% 5,947,766 -0- -0-
- --------------------- (1) The number of shares is an estimated one, based on 200% of 2,773,883, the shares of Common Stock issued to Crescent International Ltd., plus 400,000 shares issuable upon exercise of a Warrant. The additional shares are intended to cover shares issuable upon exercise of a separate warrant in which the number of shares issuable is based upon a formula relating to the market price of the Common Stock. The selling shareholder and its officers and directors have not held any positions or office or had any other material relationship with the Company or any of its affiliates within the past three years. PLAN OF DISTRIBUTION The shares of common stock are being offered on behalf of the selling shareholder, and we will not receive any proceeds from the offering. The shares of common stock may be sold or distributed from time to time by the selling shareholder, or by pledgees, donees or transferees of, or other successors in interest to, the selling shareholder, directly to one or more purchasers (including pledgees) or through brokers, dealers or underwriters who may act solely as agent or may acquire such shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices, or at fixed prices, which may be subject to change. The sale of the shares of common stock may be effected through one or more of the following methods: (i) ordinary brokers' transactions; (ii) transactions involving cross or block trades or otherwise on the American Stock Exchange; (iii) purchases by brokers, dealers or underwriters as principal and resale by such purchasers for their own accounts pursuant to this prospectus; (iv) "at the market" to or through market makers or into established trading markets, including direct sales to purchasers or sales effected through agents; and (v) any combination of the foregoing, or by any other legally available means. The selling shareholder also may 10 12 enter into option or other transactions with broker-dealers that require the delivery by such broker-dealers of the shares of common stock, which shares of common stock may be resold thereafter pursuant to this prospectus. We cannot be certain that all or any of the shares of common stock will be sold by the selling shareholder. Brokers, dealers, underwriters or agents participating in the sale of the shares of common stock as agents may receive compensation in the form of commissions, discounts or concessions from the selling shareholder and/or purchasers of the common stock for whom such broker-dealers may act as agent, or to whom they may sell as principal, or both (which compensation to a particular broker-dealer may be less than or in excess of customary commissions). The selling shareholder and any broker-dealers or other persons who act in connection with the sale of the common stock may be deemed to be "underwriters" within the meaning of the Securities Act, and any commission they receive and proceeds of any sale of such shares may be deemed to be underwriting discounts and commissions under the Securities Act. Neither the Company nor the selling shareholder can presently estimate the amount of such compensation. The Company knows of no existing arrangements between the selling shareholder and any other shareholders, broker, dealer, underwriter or agent relating to the sale or distribution of the shares of common stock. The selling shareholder and any other persons participating in the sale or distribution of the common stock will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the timing of purchases and sales of any of the common stock by the selling shareholder or any other such persons. The foregoing may affect the marketability of the common stock. We will pay substantially all of the expenses incidental to the registration, offering and sale of the common stock to the public, other than any commissions or discounts of underwriters, broker-dealers or agents. We and the selling shareholder have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. INFORMATION INCORPORATED BY REFERENCE AND OTHER AVAILABLE INFORMATION This prospectus is part of a Registration Statement on Form S-3 that we filed with the SEC. Certain information in the Registration Statement has been omitted from this prospectus in accordance with SEC rules. We file annual, quarterly and special reports and other information with the SEC. You may read and copy the Registration Statement and any other document that we file at the SEC's public reference rooms located at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to you free of charge at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" certain of our publicly-filed documents into this prospectus, which means that information included in those documents is considered part of this prospectus. Information that we file with the SEC subsequent to the date of this prospectus will automatically update and supersede this information. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until the selling shareholder has sold all the shares. 11 13 The following documents filed with the SEC are incorporated by reference in this prospectus: (1) Our Annual Report on Form 10-K for the year ended June 30, 1999; and (2) Our Quarterly Reports on Form 10-Q for the three months ended September 30, 1999 and December 31, 1999; and (3) The description of our common stock set forth under the caption "Description of Common Stock" in our Registration Statement on Form S-1 (File No. 333-24791) as originally filed with the Securities and Exchange Commission on April 9, 1997, or as subsequently amended (the "Registration Statement"). We will furnish without charge to you, on written or oral request, a copy of any or all of the documents incorporated by reference, other than exhibits to such documents. You should direct any requests for documents to Secretary, Franklin Telecommunications Corp, 733 Lakefield Road, Westlake Village, California 91361. The information relating to the Company contained in this prospectus is not comprehensive and should be read together with the information contained in the incorporated documents. EXPERTS The financial statements incorporated in this prospectus by reference from our Annual Report on Form 10-K for the year ended June 30, 1999, have been so incorporated in reliance on the report of Singer Lewak Goldstein & Greenbaum LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. LEGAL MATTERS Certain legal matters with respect to the legality under California law of the shares of Common Stock offered hereby will be passed upon for the Company by Haddan & Zepfel LLP, Newport Beach, California. 12 14 NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------------- TABLE OF CONTENTS --------------------------- PAGE Forward-Looking Statements...........................2 The Business.........................................2 Risk Factors.........................................2 The Selling Shareholder..............................9 Plan of Distribution................................10 Information Incorporated by Reference and Other Available Information....................11 Experts.............................................12 Legal Matters.......................................12 5,947,766 SHARES COMMON STOCK FRANKLIN TELECOMMUNICATIONS CORP. - ---------- PROSPECTUS - ---------- MARCH , 2000 15 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The expenses incurred or to be incurred by the Company in connection with the preparation and filing of this Registration Statement are estimated to be as follows: Printing and duplication expenses........................... $ 3,000 Registration fee............................................ 889 Legal fees and expenses..................................... 4,500 Accounting fees and expenses................................ 2,000 Transfer Agent fees......................................... 300 Miscellaneous............................................... 811 ------- Total............................................. $11,500 ======= ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Bylaws provide that the Company may indemnify its officers and directors, and may indemnify its employees and other agents, to the fullest extent permitted by California law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to officers, directors or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 16. EXHIBITS The following exhibits are filed with this Registration Statement: EXHIBIT NUMBER DESCRIPTIONS ------- ------------ 3.1* Restated Articles of Incorporation of Franklin Telecommunications Corp. 3.2* Bylaws of Franklin Telecommunications Corp. 5.1 Opinion of Haddan & Zepfel LLP 10.1* Employment Agreement, dated March 1, 1993 between Franklin Telecommunications Corp. and Frank W. Peters. 10.2+ Stock Purchase Agreement, dated August 30, 1999, between Registrant and Crescent International Ltd. 10.3+ Warrant, dated August 30, 1999, issued To Crescent International Ltd. (Incentive Warrant) 10.4+ Registration Rights Agreement, dated August 30, 1999, between the Registrant and Crescent International Ltd. 10.5+ Amendment to Stock Purchase Agreement, dated September 15, 1999 between Registrant and Crescent International Ltd. 10.6+ Amendment to Registration Rights Agreement, dated September 15, 1999, between Registrant and Crescent International Ltd. 10.7+ Letter Agreement, dated September 15, 1999, between Registrant and Crescent International Ltd. 10.8 Second Amendment to Stock Purchase Agreement, dated February 8, 2000, between Registrant and Crescent International Ltd. 10.9 Second Amendment to Registration Rights Agreement, dated February 8, 2000, between Registrant and Crescent International Ltd. 10.10 Warrant, dated February 8, 2000, issued to Crescent International Ltd. (February Put Warrant) 23.1 Consent of Singer, Lewak, Greenbaum & Goldstein LLP 23.2 Consent of Haddan & Zepfel LLP (included as part of Exhibit 5.1). - ------------- * Incorporated by reference from Registrant's Registration Statement on Form S-1 (No. 333-24791), filed with the Commission on April 9, 1997, and incorporated herein by reference. + Incorporated by reference from Registrant's Registration Statement on Form S-3 (No. 333-87551), filed with the Commission on September 22, 1999, and incorporated herein by reference. II-2 16 Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by Section l0(a)(3) of the Securities Act of l933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, including (but not limited to) any addition or deletion of a managing underwriter. (2) That, for the purpose of determining any liability under the Securities Act of l933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of l933 may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 17 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Westlake Village, State of California, on March 9, 2000. FRANKLIN TELECOMMUNICATIONS CORP. By /s/ FRANK W. PETERS ----------------------------------- Frank W. Peters President POWER OF ATTORNEY The registrant and each person whose signature appears below hereby authorizes the agent for service named in this Registration Statement, with full power to act alone, to file one or more amendments (including post-effective amendments) to this Registration Statement, which amendments may make such changes in this Registration Statement as such agent for service deems appropriate, and the Registrant and each such person hereby appoints such agent for service as attorney-in-fact, with full power to act alone, to execute in the name and in behalf of the Registrant and any such person, individually and in each capacity stated below, any such amendments to this Registration Statement. In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- (1) Principal Executive Officer /s/ FRANK W. PETERS Chief Executive Officer and a March 9, 2000 - -------------------------------------- Director Frank W. Peters (2) Principal Financial and Accounting Officer /s/ THOMAS RUSSELL Chief Financial Officer and a March 9, 2000 - -------------------------------------- Director Thomas Russell (3) Directors /s/ ROBERT S. HARP Director March 9, 2000 - -------------------------------------- Robert S. Harp /s/ HERB MITCHELL Director March 9, 2000 - --------------------------------------- Herb Mitchell
II-4 18 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTIONS ------- ------------ 3.1* Restated Articles of Incorporation of Franklin Telecommunications Corp. 3.2* Bylaws of Franklin Telecommunications Corp. 5.1 Opinion of Haddan & Zepfel LLP 10.1* Employment Agreement, dated March 1, 1993 between Franklin Telecommunications Corp. and Frank W. Peters. 10.2+ Stock Purchase Agreement, dated August 30, 1999, between Registrant and Crescent International Ltd. 10.3+ Warrant, dated August 30, 1999, issued To Crescent International Ltd. (Incentive Warrant) 10.4+ Registration Rights Agreement, dated August 30, 1999, between the Registrant and Crescent International Ltd. 10.5+ Amendment to Stock Purchase Agreement, dated September 15, 1999 between Registrant and Crescent International Ltd. 10.6+ Amendment to Registration Rights Agreement, dated September 15, 1999, between Registrant and Crescent International Ltd. 10.7+ Letter Agreement, dated September 15, 1999, between Registrant and Crescent International Ltd. 10.8 Second Amendment to Stock Purchase Agreement, dated February 8, 2000, between Registrant and Crescent International Ltd. 10.9 Second Amendment to Registration Rights Agreement, dated February 8, 2000, between Registrant and Crescent International Ltd. 10.10 Warrant, dated February 8, 2000, issued to Crescent International Ltd. (February Put Warrant) 23.1 Consent of Singer, Lewak, Greenbaum & Goldstein LLP 23.2 Consent of Haddan & Zepfel LLP (included as part of Exhibit 5.1). - ------------- * Incorporated by reference from Registrant's Registration Statement on Form S-1 (No. 333-24791), filed with the Commission on April 9, 1997, and incorporated herein by reference. + Incorporated by reference from Registrant's Registration Statement on Form S-3 (No. 333-87551), filed with the Commission on September 22, 1999, and incorporated herein by reference. EX-5.1 2 OPINION OF HADDAN & ZEPFEL LLP 1 EXHIBIT 5.1 [LETTERHEAD OF HADDAN & ZEPFEL LLP] March 9, 2000 Franklin Telecommunications Corp. 733 Lakefield Road Westlake Village, California 91361 Dear Sirs: You have requested our opinion with respect to certain matters in connection with the filing by Franklin Telecommunications Corp. (the "Company") of a Registration Statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission, covering the registration of up to 1,683,030 shares of the Company's Common Stock, without par value (the "Shares"), for issuance pursuant to a Stock Purchase Agreement, dated as of August 30,1999 between the Company and Crescent International Ltd., as amended by an Amendment to Stock Purchase Agreement dated September 15, 1999, and a Second Amendment to Stock Purchase Agreement dated February 8, 2000 (the "Stock Purchase Agreement"), and upon exercise of Stock Purchase Warrants issued pursuant to the Stock Purchase Agreement (the "Warrants"). In connection with this opinion, we have examined and relied upon the Registration Statement, the Company's Amended and Restated Articles of Incorporation and Amended and Restated Bylaws, the Stock Purchase Agreement, as amended, the Warrants, and the originals or copies certified to our satisfaction of such records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. We have assumed the genuineness and authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof. On the basis of the foregoing, and in reliance thereon, we are of the opinion that the Shares, when sold and issued in accordance with the Stock Purchase Agreement, as amended, and the Warrants, are or will be validly issued, fully paid, and nonassessable shares of Common Stock of the Company. We consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ Haddan & Zepfel LLP ----------------------------- Haddan & Zepfel LLP EX-10.8 3 SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.8 SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT This is the second amendment (the "Amendment"), dated February 8, 2000, by and between CRESCENT INTERNATIONAL LIMITED (the "Investor"), an entity organized and existing under the laws of Bermuda, and FRANKLIN TELECOMMUNICATIONS CORP. (the "Company"), a corporation organized and existing under the laws of the State of California, to the Stock Purchase Agreement, dated August 30, 1999, as amended by the Amendment to Stock Purchase Agreement, dated September 14, 1999 (the "Agreement"), by and between the Investor and the Company. All capitalized terms used and not otherwise defined herein shall have the same meanings as when used in the Agreement. WHEREAS, pursuant to the terms of the Agreement, the Investor has purchased and the Company has issued and sold shares of Common Stock through the Early Put for an Investment Amount of $2,000,000; WHEREAS, the Company and the Investor wish to amend further the Agreement to provide for the Investor to purchase and the Company to issue and sell additional shares of Common Stock through the February Put, as defined below, for an Investment Amount of $1,500,000; and NOW, THEREFORE, the parties agree as follows: 1. Section 1.27 of the Agreement is amended and restated in its entirety to read as follows: "Outstanding" when used with reference to Common Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as of which the number of such Shares is to be determined, all issued and outstanding Shares, and shall include all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that "Outstanding" shall not refer to any such Shares then directly or indirectly owned or held by or for the account of the Company. 2. Section 1.31 of the Agreement is amended and restated in its entirety to read as follows: "Put" shall mean the Early Put, the February Put and each occasion the Company elects to exercise its right to require the Investor to purchase a discretionary amount of the Company's Common Stock, subject to the terms and conditions of this Agreement. 3. Section 1.38 of the Agreement is amended and restated in its entirety to read as follows: "Registration Rights Agreement" shall mean the Registration Rights Agreement, dated August 30, 1999, as amended by the Amendment to Registration Rights Agreement, dated September 14, 1999, and as further amended by the Second Amendment to Registration Rights Agreement, dated the date hereof, by and between the Investor and the Company. 2 4. Section 1.50 of the Agreement is amended and restated in its entirety to read as follows: "Warrants" shall mean the Early Put Warrant, the February Put Warrant and the Incentive Warrant. 5. Section 1.51 of the Agreement is amended and restated in its entirety to read as follows: "Warrant Shares" shall mean the Early Put Warrant Shares, the February Put Warrant Shares and the Incentive Warrant Shares. 6. Section 2.1(c) of the Agreement is amended and restated in its entirety to read as follows: (c) Early Put, February Put. The Company shall issue and sell and the Investor shall purchase, (i) on the Subscription Date, shares of the Common Stock for an Investment Amount of $1,000,000 at the Purchase Price on the Subscription Date, (ii) on September 14, 1999, shares of the Common Stock for an Investment Amount of $1,000,000 at the Purchase Price on the Subscription Date (the transactions described in clauses (i) and (ii) are collectively referred to as the "Early Put," and all shares described in clauses (i) and (ii) are collectively referred to herein as the "Early Put Shares") and (iii) on February 8, 2000, 841,515 shares of the Common Stock for an Investment Amount of $1,500,000 at the Purchase Price of $1.7825 per share (the "February Put," and all such shares are referred to as the "February Put Shares"). For the purpose only of the Early Put and the February Put, the Investor waives the requirements of Section 2.2, and the conditions set forth in paragraphs (a), (b), (i), (j), (k) and (m) of Section 7.2 hereof. Notwithstanding anything to the contrary set forth herein, for the purposes of Section 2.3, a Put Notice shall be deemed to have been delivered with respect to the February Put with an Investment Amount indicated thereon of $1,500,000, and the Closing Date for the February Put shall be February 8, 2000 (the "February Put Closing Date"). The Company's independent counsel shall deliver to the Investor on the February Put Closing Date an opinion relating to the February Put in the form of Exhibit D. 7. Section 2.1(d) of the Agreement is amended and restated in its entirety to read as follows: (d) Early Put Warrants, February Put Warrants. In addition to the Incentive Warrant (as defined hereinafter), (i) on the Subscription Date, the Company shall issue to the Investor an Early Put Warrant with an exercise price of $0.01 for each share of Common Stock, and (ii) on February 8, 2000, the Company shall issue to the Investor a warrant in the form of Exhibit G hereto (the "February Put Warrant"), with an exercise price of $0.01 for each share of Common stock (such shares of Common Stock issued or issuable pursuant to the exercise of the February Put Warrant being the "February Put Warrant Shares"). 8. Section 2.4 of the Agreement is amended and restated in its entirety to read as follows: Section 2.4 Termination of Agreement and Investment Obligation. The Company shall have the right to terminate this Agreement at any time upon thirty 2 3 (30) days' written notice to the Investor. The Investor shall have the right to immediately terminate this Agreement (including with respect to any Put, notice of which has been given but the applicable Closing Date has not yet occurred) in accordance with Section 6.12 or in the event that: (i) the Registration Statement with respect to Registrable Securities relating to the Early Put is not effective within ninety-seven (97) days following the Subscription Date, (ii) a Registration Statement with respect to Registrable Securities relating to the February Put is not effective by June 7, 2000, (iii) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of thirty (30) Trading Days during the Commitment Period and (iv) the Company shall at any time fail to comply with the requirements of Section 6.2, 6.3, 6.4, 6.5, 6.6, 6.8 or 6.9. 9. The preamble to Article IV of the Agreement is amended and restated in its entirety to read as follows: The Company represents and warrants to the Investor that on the Subscription Date, each Effective Date, the February Put Closing Date and each subsequent Closing Date: 10. Section 7.2(a) of the Agreement is amended and restated in its entirety to read as follows: (a) Registration of the Registrable Securities with the SEC. As set forth in the Registration Rights Agreement, the Company shall have filed with the SEC either: (i) a Registration Statement covering the resale of the Registrable Securities relating to the Early Put that shall have been declared effective by the SEC in no event later than ninety-seven (97) days after the Subscription Date, a Registration Statement covering the resale of Registrable Securities relating to the February Put that shall have been declared effective by the SEC in no event later than June 7, 2000, and a Registration Statement covering the resale of Registrable Securities relating to all subsequent Puts that shall have been declared effective by the SEC prior to any subsequent Put; or (ii) a Combined Registration Statement (as defined in the Registration Rights Agreement) that shall have been declared effective by the SEC in no event later than ninety-seven (97) days after the Subscription Date. 11. Section 7.2(b) of the Agreement is amended and restated in its entirety to read as follows: (b) Effective Registration Statement. As set forth in the Registration Rights Agreement, the Registration Statement(s) shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has 3 4 issued or intends to issue a stop order with respect to a Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of a Registration Statement, either temporarily or permanently, or intends or has threatened to do so (unless the SEC's concerns have been addressed and the Investor is reasonably satisfied that the SEC no longer is considering or intends to take such action), (ii) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist, (iii) with respect to each Put subsequent to the February Put, the Company shall have notified the Investor in accordance with Section 6.8 that each Registration Statement covering the Registrable Securities relating to the Early Put and the February Put have been declared effective by the SEC, and (iv) at least 30 days shall have elapsed since the Initial Registration Statement (as defined in the Registration Rights Agreement) has been declared effective by the SEC. 12. Copies of any notices, demands, requests, consents, approvals and other communications required to be sent to Rogers & Wells LLP pursuant to Section 10.4 shall instead be sent to Clifford Chance Rogers & Wells LLP, 200 Park Avenue, 52nd Floor, New York, NY 10166, Attention: Sara Hanks, Esq./Earl S. Zimmerman, Esq., Telephone: (212) 878-8000, Facsimile: (212) 878-8375 IN WITNESS WHEREOF, this Amendment has been entered into on the day and year first herein written. CRESCENT INTERNATIONAL LIMITED By: /s/ Mel Craw /s/ Maxi Brezzi -------------------------------- Name: Mel Craw Maxi Brezzi Title: FRANKLIN TELECOMMUNICATIONS CORP. By: /s/ Tom Russell -------------------------------- Name: Tom Russell Title: VP - CFO 4 EX-10.9 4 SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.9 SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT This is the second amendment (the "Amendment"), dated February 8, 2000, by and between CRESCENT INTERNATIONAL LIMITED (the "Investor"), an entity organized and existing under the laws of Bermuda, and FRANKLIN TELECOMMUNICATIONS CORP. (the "Company"), a corporation organized and existing under the laws of the State of California, to the Registration Rights Agreement, dated August 30, 1999, as amended by the Amendment to Registration Rights Agreement, dated September 14, 1999 (the "Agreement") by and between the Investor and the Company. All capitalized terms used and not otherwise defined herein shall have the same meanings as when used in the Stock Purchase Agreement, dated August 30, 1999, as amended by the Amendment to Stock Purchase Agreement dated September 14, 1999, and as further amended by the Second Amendment to Stock Purchase Agreement, dated as of the date hereof (as amended, the "Stock Purchase Agreement"). WHEREAS, pursuant to the terms of the Stock Purchase Agreement, the Investor purchased and the Company issued and sold shares of Common Stock through the Early Put for an Investment Amount of $2,000,000; WHEREAS, on the date hereof the Investor is purchasing and the Company is issuing and selling additional shares of Common Stock through the February Put for an Investment Amount of $1,500,000; and WHEREAS, the Investor and the Company desire to amend the Agreement to reflect their current agreements concerning registration for resale of Registrable Securities relating to the February Put; NOW, THEREFORE, the parties agree as follows: 1. The first WHEREAS clause of the Agreement is amended and restated in its entirety to read as follows: WHEREAS, the Company and the Investor have entered into that certain Stock Purchase Agreement, dated as of August 30, 1999, as amended by that certain Amendment to Stock Purchase Agreement, dated as of September 14, 1999, and as further amended by that certain Second Amendment to Stock Purchase Agreement, dated as of the date hereof (as amended, the "Stock Purchase Agreement"), pursuant to which the Company will issue, from time to time, to the Investor up to $6,500,000 worth of shares of Common Stock, no par value per share, of the Company (the "Common Stock"); 2. Section 1.1(a) of the Agreement is amended and restated in its entirety to read as follows: a. Filing of Registration Statements. The Company shall register for resale all Put Shares issued or issuable to the Investor pursuant to the Stock Purchase Agreement and all Warrant Shares issued or issuable upon full exercise of the Warrants. Subject to the terms and conditions of this Agreement, the Company shall effect such registration in the manner 2 provided in either (i) or (ii) below. The Company shall file with the SEC either: (i) on or before September 22, 1999, a registration statement (the "Initial Registration Statement") on such form promulgated by the SEC for which the Company qualifies, that counsel for the Company shall deem appropriate and which form shall be available for the sale of the shares of Common Stock purchased by the Investor pursuant to the Early Put (the "Initial Shares"), the Incentive Warrant Shares and the Early Put Warrant Shares. The aggregate number of shares to be registered under the Initial Registration Statement shall be equal to two hundred percent (200%) of the number of Initial Shares, plus the number of Incentive Warrant Shares. No later than March 9, 2000, the Company shall file with the SEC a registration statement (the "February Put Registration Statement") on such form promulgated by the SEC for which the Company qualifies, that counsel for the Company shall deem appropriate and which form shall be available for the sale of Registrable Securities relating to the February Put. The aggregate number of shares of Common Stock to be registered under the February Put Registration Statement shall be equal to two hundred percent (200%) of the number of February Put Shares. Prior to any Put subsequent to the February Put, the Company shall file with the SEC a registration statement (the "Subsequent Registration Statement" and together with the Initial Registration Statement and the February Put Registration Statement, the "Registration Statements" and each a "Registration Statement") on such form promulgated by the SEC for which the Company qualifies, that counsel for the Company shall deem appropriate and which form shall be available for the sale of the shares of Common Stock to be purchased by the Investor and any Warrant Shares which have not previously been registered. The aggregate number of shares to be registered under the Subsequent Registration Statement shall be equal to 125% of (X-Y)/Z, where X is the Maximum Commitment Amount, Y is the sum of the Investment Amount of the Early Put and the Investment Amount for the February Put and Z is 92% of the Minimum Bid Price; or (ii) on or before March 9, 2000, a registration statement (the "Combined Registration Statement") on such form promulgated by the SEC for which the Company qualifies, that counsel for the Company shall deem appropriate and which form shall be available for the sale of all Put Shares issued or issuable, and which have not already been registered, pursuant to the terms of the Stock Purchase Agreement and all Warrant Shares issued or issuable, and which have not already been registered, upon full exercise of the Warrants, including, without limitation, the February Put Shares and the February Put Warrant Shares. The aggregate number of shares to be registered under the Combined Registration Statement shall be equal to 150% of (A-B)/C, where A is the Maximum Commitment Amount, B is the Investment Amount of the Early Put and C is 92% of the Minimum Bid Price. 2 3 3. Section 1.1(b) of the Agreement is amended and restated in its entirety to read as follows: b. Effectiveness of the Registration Statements. The Company shall use its best efforts either: (i) to have the Initial Registration Statement declared effective by the SEC in no event later than ninety-seven (97) calendar days after the Subscription Date, and to have the February Put Registration Statement declared effective by the SEC no later than June 7, 2000, and to have the Subsequent Registration Statement declared effective by the SEC in no event later than June 7, 2000 or (ii) to have the Combined Registration Statement declared effective by the SEC in no event later than June 7, 2000. The Company shall ensure that all Registration Statements remain in effect for a period ending 180 days following the earlier of termination of the Commitment Period and termination of the Investor's obligations pursuant to Section 2.4 of the Stock Purchase Agreement; provided that such period shall be extended one day for each day after the applicable Effective Date that any Registration Statement covering Registrable Securities is not effective during the period such Registration Statement is required to be effective pursuant to this Agreement; and provided further that the Company shall not be required to ensure that any Registration Statement covering Registrable Securities remain in effect for such 180 day period if the shares registered thereunder shall have become freely tradable pursuant to Rule 144(k) of the Securities Act or have otherwise been sold. 4. Section 1.1(e) of the Agreement is amended and restated in its entirety to read as follows: e. Failure to Register Sufficient Number of Shares. (i) If the Early Put Warrant shall become exercisable for a number of shares in excess of the number of Early Put Warrant Shares included in the Initial Registration Statement ("Excess Shares"), then the Company shall immediately amend such Registration Statement (or file a new Registration Statement) to cover the Excess Shares (such amended or new Registration Statement is referred to herein as an "Excess Registration Statement") and the Company shall pay to the Investor in immediately available funds into an account designated by the Investor an amount equal to one and a half percent (1.5%) of the product of (x) the number of Excess Shares multiplied by (y) the Bid Price of the Common Stock on the applicable Effective Date, for each calendar month and for each portion of a calendar month, pro rata, during the period from the Effective Date of the applicable Registration Statement and the Effective Date of the applicable Excess Registration Statement. (ii) If the February Put Warrant shall become exercisable for a number of shares in excess of the number of February Put Warrant Shares included in the February Put Registration Statement ("February Excess Shares"), then the Company shall immediately amend such Registration Statement (or file a new Registration Statement) to cover the February Excess Shares (such amended or new Registration Statement is referred to herein as a "February Excess Registration Statement") and the Company shall pay to the Investor in immediately available funds into an account designated by the Investor an amount equal to one and a half percent (1.5%) of the product of (x) the number of February Excess Shares multiplied by (y) the 3 4 Bid Price of the Common Stock on the Effective Date of the February Put Registration Statement, for each calendar month and for each portion of a calendar month, pro rata, during the period from the Effective Date of the February Put Registration Statement until the Effective Date of the February Excess Registration Statement. 5. Section 4.9 of the Agreement is amended and restated in its entirety to read as follows: Section 4.9. GOVERNING LAW. This Agreement shall be construed under the laws of the State of New York. 6. Copies of any notices, demands, requests, consents, approvals and other communications required to be sent to Rogers & Wells LLP pursuant to Section 4.8 shall instead be sent to Clifford Chance Rogers & Wells LLP, 200 Park Avenue, 52nd Floor, New York, NY 10166, Attention: Sara Hanks, Esq./Earl S. Zimmerman, Esq., Telephone: (212) 878-8000, Facsimile: (212) 878-8375 4 5 IN WITNESS WHEREOF, this Amendment has been entered into on the day and year first herein written. CRESCENT INTERNATIONAL LIMITED By: /s/ Mel Craw /s/ Maxi Brezzi -------------------------------- Name: Mel Craw Maxi Brezzi Title: FRANKLIN TELECOMMUNICATIONS CORP. By: /s/ Tom Russell -------------------------------- Name: Tom Russell Title: VP - CFO 5 EX-10.10 5 WARRANT, DATED FEBRUARY 8, 2000 1 EXHIBIT 10.10 WARRANT THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A STOCK PURCHASE AGREEMENT, DATED AS OF AUGUST 30, 1999, AS AMENDED BY THE AMENDMENT TO STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 14, 1999, AND AS FURTHER AMENDED BY THE SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY 8, 2000, BETWEEN FRANKLIN TELECOMMUNICATIONS CORP. AND CRESCENT INTERNATIONAL LTD. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM FRANKLIN TELECOMMUNICATIONS CORP.'S EXECUTIVE OFFICES. February 8, 2000 Warrant to Purchase Shares of Common Stock of Franklin Telecommunications Corp. (hereinafter this "February Put Warrant"), up to a total number determined in accordance with Section 2(b) hereof. Franklin Telecommunications Corp., an entity organized and existing under the laws of the State of California (the "Company"), hereby agrees that Crescent International Ltd. (the "Investor") or any other Warrant Holder is entitled, on the terms and conditions set forth below, to purchase from the Company at any time during the Exercise Period (hereinafter defined), up to a total number, determined in accordance with Section 2(b) hereof, of fully paid and nonassessable shares of Common Stock, no par value per share, of the Company (the "Common Stock"), as the same may be adjusted from time to time pursuant to Section 7 hereof, at the Exercise Price (hereinafter defined), as the same may be adjusted pursuant to Section 7 hereof. The resale of the shares of Common Stock or other securities issuable upon exercise or exchange of this February Put Warrant is subject to the provisions of the Registration Rights Agreement (as defined below). Section 1. Definitions. "Aggregate Exercise Price" shall mean, with respect to any exercise (in whole or in part) of this February Put Warrant, the Exercise Price multiplied by the total number of shares of Common Stock for which this February Put Warrant is being exercised. 2 "Agreement" shall mean the Stock Purchase Agreement, dated as of August 30, 1999, as amended by the Amendment to Stock Purchase Agreement, dated as of September 14, 1999, and as further amended by the Second Amendment to Stock Purchase Agreement, dated as of the date hereof, between the Company and the Investor. "Capital Shares" shall mean the Common Stock and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of earnings and assets of the Company. "Cash-Out Price" shall mean, with respect to any exercise (in whole or in part) of this February Put Warrant, the product of (x) the Bid Price of one share of Common Stock on the Trading Day immediately preceding the Exercise Date multiplied by (y) the number of shares of Common Stock for which the Company elects the Cash-Out Option. "Exercise Date" shall mean, with respect to any exercise (in whole or in part) of this February Put Warrant, either (i) the date this February Put Warrant, the Exercise Notice and the Aggregate Exercise Price are received by the Company or (ii) the date a copy of the Exercise Notice is sent by facsimile to the Company, provided that this February Put Warrant, the original Exercise Notice, and the Aggregate Exercise Price are received by the Company within five (5) Trading Days thereafter, and provided further that if this February Put Warrant, the original Exercise Notice and the Aggregate Exercise Price are not received within five (5) Trading Days in accordance with clause (ii) above, the Exercise Date for this clause (ii) shall be the date this February Put Warrant, the original Exercise Notice and the Aggregate Exercise Price are received by the Company. "Exercise Notice" shall mean, with respect to any exercise (in whole or in part) of this February Put Warrant, the exercise form attached hereto as Exhibit A duly executed by the Warrant Holder. "Exercise Period" shall mean the period beginning on the Effective Date applicable to the February Put Closing and continuing until the two-year period thereafter; provided that such period shall be extended one day for each day after such Effective Date that the February Put Registration Statement is not effective during the period the February Put Registration Statement is required to be effective pursuant to the Registration Rights Agreement. "Exercise Price" as of the date hereof shall mean $0.01 per share of Common Stock, subject to the adjustments provided for in Section 7 of this February Put Warrant. "February Put Closing" shall mean the closing of the purchase and sale of 841,515 shares of Common Stock for an investment amount equal to $1,500,000, which occurred on the date hereof, and the issuance of this February Put Warrant. "Per Share February Put Warrant Value" shall mean, with respect to any exercise (in whole or in part) of this February Put Warrant, the difference resulting from subtracting the Exercise Price from the Bid Price of one share of Common Stock on the Trading Day immediately preceding the Exercise Date. "Registration Rights Agreement" shall mean the Registration Rights Agreement, dated as of August 30, 1999, as amended by the Amendment to Registration Rights Agreement, dated as of September 14, 1999, and as further amended by the Second Amendment to Registration Rights Agreement, dated as of the date hereof, between the Company and the Investor. 2 3 "Warrant Holder" shall mean the Investor or any assignee or transferee of all or any portion of this February Put Warrant. Other capitalized terms used but not defined herein shall have their respective meanings set forth in the Agreement. Section 2. Exercisability. (a) Timing. If the Purchase Price on the Effective Date applicable to the February Put Closing is lower than $1.7825, this February Put Warrant shall become immediately exercisable, subject to clause (c) below. (b) Number of Shares. The number of shares of Common Stock for which this February Put Warrant is exercisable (the "February Put Warrant Shares") shall be determined by subtracting (x) the Investment Amount divided by $1.7825 from (y) the Investment Amount divided by the Purchase Price on the Effective Date applicable to the February Put Closing. (c) Cash Payment in Lieu of Issuance of Shares. In the event that the Warrant Holder exercises this February Put Warrant (in whole or in part) in accordance with Section 3 hereof, then the Company may, in lieu of issuing shares of Common Stock pursuant to such exercise, pay to the Investor the Cash-Out Price for any or all of the shares of Common Stock purchasable by the Investor through the exercise of this February Put Warrant (such payment, the "Cash-Out Option"). For avoidance of doubt, the Company may elect such Cash-Out Option in the event that, inter alia, the number of February Put Warrant Shares plus the number of February Put Shares exceeds the number of shares registered pursuant to Section 1.1(a) of the Registration Rights Agreement. (d) Notice of Cash Payment in Lieu of Issuance of Shares. In the event that the Company elects the Cash-Out Option, the Company shall promptly give notice to the Investor of such election on the Trading Day following surrender of the items described in Section 3(a)(i) or delivery by facsimile of the Exercise Notice described in Section 3(a)(ii). Such notice from the Company shall set forth the number of shares of Common Stock for which the Company elects the Cash-Out Option. (e) Method of Cash-Out; Effect of Cash-Out. In the event that the Company elects the Cash-Out Option, then in lieu of delivering stock certificates as provided in Section 5 hereof, the Company shall deliver by wire transfer of immediately available funds, to an account designated by the Investor, as soon as practicable after delivery by the Company of notice of its election of the Cash-Out Option, and in any event within two (2) Trading Days thereafter, the Cash-Out Price for any and all shares of Common Stock for which the Company elects the Cash-Out Option. 3 4 Section 3. Exercise; Cashless Exercise. (a) Method of Exercise. This February Put Warrant may be exercised in whole or in part (but not as to a fractional share of Common Stock), at any time and from time to time during the Exercise Period, by the Warrant Holder by (i) the surrender of this February Put Warrant, the Exercise Notice and the Aggregate Exercise Price to the Company at the address set forth in Section 12 hereof or (ii) the delivery by facsimile of an executed and completed Exercise Notice to the Company and delivery to the Company within five (5) Trading Days thereafter of this February Put Warrant, the original Exercise Notice and the Aggregate Exercise Price. (b) Payment of Aggregate Exercise Price. Subject to paragraph (c) below, payment of the Aggregate Exercise Price shall be made by check or bank draft payable to the order of the Company or by wire transfer to an account designated by the Company. If the amount of the payment received by the Company is less than the Aggregate Exercise Price, the Warrant Holder will be notified of the deficiency and shall make payment in that amount within five (5) Trading Days of such notice. In the event the payment exceeds the Aggregate Exercise Price, the Company will refund the excess to the Warrant Holder within three (3) Trading Days of both the receipt of such payment and the knowledge of such excess. (c) Cashless Exercise. As an alternative to payment of the Aggregate Exercise Price in accordance with Section 3(b) above, the Warrant Holder may elect to effect a cashless exercise by so indicating on the Exercise Notice and including a calculation of the number of shares of Common Stock to be issued upon such exercise in accordance with the terms hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, the Warrant Holder shall surrender this February Put Warrant for that number of shares of Common Stock determined by (i) multiplying the number of February Put Warrant Shares for which this February Put Warrant is being exercised by the Per Share February Put Warrant Value and (ii) dividing the product by the Bid Price of one share of the Common Stock on the Trading Day immediately preceding the Exercise Date. (d) Replacement February Put Warrant. In the event that the February Put Warrant is not exercised in full, the number of February Put Warrant Shares shall be reduced by the number of such February Put Warrant Shares for which this February Put Warrant is exercised, and the Company, at its expense, shall forthwith issue and deliver to the Warrant Holder a new February Put Warrant of like tenor in the name of the Warrant Holder or as the Warrant Holder may request, reflecting such adjusted number of February Put Warrant Shares. Section 4. Ten Percent Limitation. The Warrant Holder may not exercise this February Put Warrant such that the number of February Put Warrant Shares to be received pursuant to such exercise aggregated with all other shares of Common Stock then owned by the Warrant Holder beneficially or deemed beneficially owned by the Warrant Holder would result in the Warrant Holder owning more than 9.9% of all of such Common Stock as would be outstanding on such Exercise Date, as determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. As of any date prior to the Exercise Date, the aggregate number of shares of Common Stock into which this February Put 4 5 Warrant is exercisable, together with all other shares of Common Stock then beneficially owned (as such term is defined in Rule 13(d) under the Exchange Act) by such Warrant Holder and its affiliates, shall not exceed 9.9% of the total outstanding shares of Common Stock as of such date. Section 5. Delivery of Stock Certificates. (a) Subject to the terms and conditions of this February Put Warrant, as soon as practicable after the exercise of this February Put Warrant in full or in part, and in any event within five (5) Trading Days thereafter, the Company at its expense (including, without limitation, the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the Warrant Holder, or as the Warrant Holder may lawfully direct, a certificate or certificates for the number of validly issued, fully paid and non-assessable February Put Warrant Shares to which the Warrant Holder shall be entitled on such exercise, together with any other stock or other securities or property (including cash, where applicable) to which the Warrant Holder is entitled upon such exercise in accordance with the provisions hereof; provided, however, that any such delivery to a location outside of the United States shall also be made within five (5) Trading Days after the exercise of this February Put Warrant in full or in part. (b) This February Put Warrant may not be exercised as to fractional shares of Common Stock. In the event that the exercise of this February Put Warrant, in full or in part, would result in the issuance of any fractional share of Common Stock, then in such event the Warrant Holder shall receive in cash an amount equal to the Bid Price of such fractional share within five (5) Trading Days. Section 6. Representations, Warranties and Covenants of the Company. (a) The Company shall take all necessary action and proceedings as may be required and permitted by applicable law, rule and regulation for the legal and valid issuance of this February Put Warrant and the February Put Warrant Shares to the Warrant Holder. (b) At all times during the Exercise Period, the Company shall take all steps reasonably necessary and within its control to insure that the Common Stock remains listed or quoted on the Principal Market. (c) The February Put Warrant Shares, when issued in accordance with the terms hereof, will be duly authorized and, when paid for or issued in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable. (d) The Company has authorized and reserved for issuance to the Warrant Holder the requisite number of shares of Common Stock to be issued pursuant to this February Put Warrant. The Company shall at all times reserve and keep available, solely for issuance and delivery as February Put Warrant Shares hereunder, such shares of Common Stock as shall from time to time be issuable as February Put Warrant Shares, and shall accordingly adjust the number of such shares of Common Stock promptly upon the occurrence of any of the events specified in Section 7 hereof. 5 6 Section 7. Adjustment of the Exercise Price. The Exercise Price and, accordingly, the number of February Put Warrant Shares issuable upon exercise of the February Put Warrant, shall be subject to adjustment from time to time upon the happening of certain events as follows: (a) Reclassification, Consolidation, Merger; Mandatory Share Exchange; Sale, Transfer or Lease of Assets. If the Company, at any time while this February Put Warrant is unexpired and not exercised in full, (i) reclassifies or changes its Outstanding Capital Shares, (ii) consolidates, merges or effects a mandatory share exchange with or into another corporation (other than a merger or mandatory share exchange (x) with another corporation in which the Company is a continuing corporation and that does not result in any reclassification or change, or (y) as a result of a subdivision or combination of Outstanding Capital Shares issuable upon exercise of this February Put Warrant) or (iii) sells, transfers or leases all or substantially all of its assets, then in any such event the Company, or such successor or purchasing corporation, as the case may be, shall, without payment by the Warrant Holder of any additional consideration therefor, amend this February Put Warrant or issue a new warrant providing that the Warrant Holder shall have rights not less favorable to the Warrant Holder than those then applicable to this February Put Warrant and to receive upon exercise under such amended February Put Warrant or new warrant, in lieu of each share of Common Stock theretofore issuable upon exercise of this February Put Warrant hereunder, the kind and amount of shares of stock, other securities, money or property receivable upon such reclassification, change, consolidation, merger, mandatory share exchange, lease, sale or transfer by the holder of one share of Common Stock issuable upon exercise of this February Put Warrant had this February Put Warrant been exercised immediately prior to such reclassification, change, consolidation, merger, mandatory share exchange, lease, sale or transfer (without giving effect to the limitation on ownership set forth in Section 4 hereof), and an appropriate provision for the foregoing shall be made by the Company as part of any such event. Such amended February Put Warrant or new warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 7. The provisions of this Section 7(a) shall similarly apply to successive reclassifications, changes, consolidations, mergers, mandatory share exchanges, sales, transfers and leases. (b) Subdivision or Combination of Shares; Stock Dividends. If the Company, at any time after the Effective Date relating to this February Put Warrant, and while this February Put Warrant is unexpired and not exercised in full, shall (x) subdivide its Common Stock, (y) combine its Common Stock, or (z) pay a dividend in its Capital Shares or make any other distribution of its Capital Shares, then the Exercise Price shall be adjusted, as of the date the Company shall take a record of the holders of its Capital Shares for the purpose of effecting such subdivision, combination or dividend or other distribution (or if no such record is taken, as of the effective date of such subdivision, combination, dividend or other distribution), to that price determined by multiplying the Exercise Price in effect immediately prior to such subdivision, combination, dividend or other distribution by a fraction: (i) the numerator of which shall be the total number of Outstanding Capital Shares immediately prior to such subdivision, combination, dividend or other distribution, and (ii) the denominator of which shall be the total number of Outstanding Capital Shares immediately after such subdivision, combination, dividend or other distribution. The provisions of this subsection (b) shall not apply under any of the circumstances for which an adjustment is made pursuant to subsection (a). 6 7 (c) Liquidating Dividends, Etc. If the Company, at any time while this February Put Warrant is unexpired and not exercised in full, makes a distribution of its assets or evidences of indebtedness to the holders of its Capital Shares as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Company's assets (other than under the circumstances provided for in the foregoing subsections (a) and (b)) while an exercise is pending, then the Warrant Holder shall be entitled to receive upon such exercise of the February Put Warrant in addition to the February Put Warrant Shares receivable in connection therewith, and without payment of any consideration other than the Exercise Price, an amount in cash equal to the value of such distribution per Capital Share multiplied by the number of February Put Warrant Shares that, on the record date for such distribution, are issuable upon such exercise of the February Put Warrant (without giving effect to the limitation on ownership set forth in Section 4 hereof), and an appropriate provision therefor shall be made by the Company as part of any such distribution. No further adjustment shall be made following any event that causes a subsequent adjustment in the number of February Put Warrant Shares issuable. The value of a distribution that is paid in other than cash shall be determined in good faith by the Board of Directors of the Company. (d) Adjustment of Number of Shares. Upon each adjustment of the Exercise Price pursuant to any provisions of this Section 7, the number of February Put Warrant Shares issuable hereunder at the option of the Warrant Holder shall be calculated, to the nearest one hundredth of a whole share, multiplying the number of February Put Warrant Shares issuable prior to an adjustment by a fraction: (i) the numerator of which shall be the Exercise Price before any adjustment pursuant to this Section 7; and (ii) the denominator of which shall be the Exercise Price after such adjustment. (e) Other Action Affecting Capital Shares. In the event after the date hereof the Company shall take any action affecting the number of Outstanding Capital Shares, other than an action specifically described in any of the foregoing subsections (a) through (c) hereof, inclusive (including, without limitation, a subdivision or combination of Common Stock, or the payment of a dividend in its Capital Shares, or any other distribution in its Capital Shares, between the date hereof and the Effective Date relating to the February Put Warrant Closing), that in the reasonable opinion of the Warrant Holder would have a materially adverse effect upon the rights of the Warrant Holder at the time of exercise of the February Put Warrant, the Exercise Price shall be adjusted in such manner and at such time as the Board of Directors on the advice of the Company's independent public accountants shall in good faith determine to be equitable in the circumstances. 7 8 (f) Notice of Certain Actions; Notice of Adjustments. (i) In the event the Company shall, at a time while this February Put Warrant is unexpired and outstanding, take any action pursuant to subsections (a) through (e) of this Section 7 that may result in an adjustment of the Exercise Price, the Company shall notify the Warrant Holder of such action ten (10) days in advance of its effective date in order to afford to the Warrant Holder an opportunity to exercise this February Put Warrant prior to such action becoming effective. (ii) Whenever the Exercise Price or number of February Put Warrant Shares shall be adjusted pursuant to Section 7 hereof, the Company shall promptly deliver by facsimile, with the original delivered by express courier service in accordance with Section 12 hereof, a certificate, which shall be signed by the Company's President or a Vice President and by its Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary, setting forth in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Company's Board of Directors made any determination hereunder), and the Exercise Price and number of February Put Warrant Shares purchasable at that Exercise Price after giving effect to such adjustment. Section 8. No Impairment. The Company will not, by amendment of its Articles of Incorporation or By-Laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this February Put Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrant Holder against impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any February Put Warrant Shares above the amount payable therefor on such exercise, and (b) will take all such action as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable February Put Warrant Shares on the exercise of this February Put Warrant. Section 9. Rights As Stockholder. Prior to exercise of this February Put Warrant and except as provided in Section 7 hereof, the Warrant Holder shall not be entitled to any rights as a stockholder of the Company with respect to the February Put Warrant Shares, including (without limitation) the right to vote such shares, receive dividends or other distributions thereon or be notified of stockholder meetings. However, in the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each Warrant Holder, at least ten (10) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 8 9 Section 10. Replacement of February Put Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of the February Put Warrant and, in the case of any such loss, theft or destruction of the February Put Warrant, upon delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such February Put Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new February Put Warrant of like tenor. Section 11. Restricted Securities. (a) Registration or Exemption Required. This February Put Warrant has been issued in a transaction exempt from the registration requirements of the Securities Act in reliance upon the provisions of Section 4(2) promulgated by the SEC under the Securities Act. This February Put Warrant and the February Put Warrant Shares issuable upon exercise of this February Put Warrant may not be resold except pursuant to an effective registration statement or an exemption to the registration requirements of the Securities Act and applicable state laws. (b) Legend. Any replacement February Put Warrants issued pursuant to Section 2 hereof and any February Put Warrant Shares issued upon exercise hereof, shall bear the following legend: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION WHICH IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF THE COMPANY SET FORTH IN A STOCK PURCHASE AGREEMENT, DATED AS OF August 30, 1999, AS AMENDED BY AN AMENDMENT TO STOCK PURCHASE AGREEMENT DATED AS OF SEPTEMBER 14, 1999, AND AS FURTHER AMENDED BY A SECOND AMENDMENT TO STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY 8, 2000, BETWEEN Franklin Telecommunications Corp. AND CRESCENT INTERNATIONAL LTD. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM Franklin Telecommunications Corp.'S EXECUTIVE OFFICES." 9 10 Removal of such legend shall be in accordance with the legend removal provisions in the Agreement. (c) No Other Legend or Stock Transfer Restrictions. No legend other than the one specified in Section 11(b) has been or shall be placed on the share certificates representing the February Put Warrant Shares and no instructions or "stop transfer orders," so called, "stock transfer restrictions" or other restrictions have been or shall be given to the Company's transfer agent with respect thereto other than as expressly set forth in this Section 11. (d) Assignment. Assuming the conditions of Section 11(a) above regarding registration or exemption have been satisfied, the Warrant Holder may sell, transfer, assign, pledge or otherwise dispose of this February Put Warrant, in whole or in part. The Warrant Holder shall deliver a written notice to the Company substantially in the form of the assignment form attached hereto as Exhibit B (the "Assignment Notice"), indicating the person or persons to whom this February Put Warrant shall be assigned and the respective number of warrants to be assigned to each assignee. The Company shall effect the assignment within ten (10) days of receipt of such Assignment Notice, and shall deliver to the assignee(s) designated by the Warrant Holder a February Put Warrant or February Put Warrants of like tenor and terms for the specified number of shares. (e) Investor's Compliance. Nothing in this Section 11 shall affect in any way the Investor's obligations under any agreement to comply with all applicable securities laws upon resale of the Common Stock. Section 12. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and shall be deemed duly given (i) upon delivery if hand delivered at the address designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received), (ii) on the fifth business day after deposit into the mail, if deposited in the mail, registered or certified, return receipt requested, postage prepaid, addressed to the address designated below, (iii) upon delivery if delivered by reputable express courier service to the address designated below, or (iv) upon confirmation of transmission if transmitted by facsimile to the facsimile number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received). The addresses and facsimile numbers for such communications shall be: if to the Company: Franklin Telecommunications Corp. 733 Lakefield Road Westlake Village, CA 91361 Attention: Frank W. Peters Telephone: (805) 373-8688 Facsimile: (805) 373-7373 10 11 with a copy (which shall not constitute notice) to: Hadden & Zepfel LLP 4675 MacArthur Court, Suite 710 Newport Beach, CA 92660 Attention: Robert J. Zepfel, Esq. Telephone: (949) 752-6100 Facsimile: (949) 752-6161 if to the Investor: Crescent International Ltd. c/o GreenLight (Switzerland) SA 84, av Louis-Casai, P.O. Box 42 1216 Geneva, Cointrin Switzerland Attention: Mel Craw/Maxi Brezzi Telephone: +41 22 791 72 56 Facsimile: +41 22 929 53 94 with a copy (which shall not constitute notice) to: Clifford Chance Rogers & Wells LLP 200 Park Avenue New York, NY 10166 Attention: Sara Hanks, Esq./Earl S. Zimmerman, Esq. Telephone: (212) 878-8000 Facsimile: (212) 878-8375 Either party hereto may from time to time change its address or facsimile number for notices under this Section 12 by giving at least ten (10) days' prior written notice of such changed address or facsimile number to the other party hereto. Section 13. Miscellaneous. This February Put Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. The headings in this February Put Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 11 12 IN WITNESS WHEREOF, this February Put Warrant was duly executed by the undersigned, thereunto duly authorized, as of the date first set forth above. Franklin Telecommunications Corp. By: /s/ Tom Russell --------------------------------------- Name: Tom Russell Title: VP - CFO Attested: By: /s/ Helen West --------------------------------------- Name: Helen West Title: Secretary 12 13 EXHIBIT A TO THE FEBRUARY PUT WARRANT EXERCISE FORM Franklin Telecommunications Corp. The undersigned (the "Registered Holder") hereby irrevocably exercises the right to purchase __________________ shares of Common Stock of Franklin Telecommunications Corp., a corporation organized and existing under the laws of the State of California (the "Company"), evidenced by the attached February Put Warrant, and herewith makes payment of the Exercise Price with respect to such shares in full in the form of (check the appropriate box) (i) Y cash or certified check in the amount of $________; (ii) Y wire transfer to the Company's account at __________________, _________, _________ (Account No.:_________); or (iii) Y ______ February Put Warrant Shares, which represent the amount of February Put Warrant Shares as provided in the attached February Put Warrant to be canceled in connection with such exercise, all in accordance with the conditions and provisions of said February Put Warrant. The undersigned requests that stock certificates for such February Put Warrant Shares be issued, and a February Put Warrant representing any unexercised portion hereof be issued, pursuant to this February Put Warrant in the name of the Registered Holder and delivered to the undersigned at the address set forth below. Dated: ---------------------------------- - ----------------------------------------- Signature of Registered Holder - ----------------------------------------- Name of Registered Holder (Print) - ----------------------------------------- Address A-1 14 NOTICE The signature to the foregoing Exercise Form must correspond to the name as written upon the face of the attached February Put Warrant in every particular, without alteration or enlargement or any change whatsoever. A-2 15 EXHIBIT B TO THE FEBRUARY PUT WARRANT ASSIGNMENT (To be executed by the registered Warrant Holder (the "Registered Holder") desiring to transfer the February Put Warrant, in whole or in part). FOR VALUED RECEIVED, the undersigned Warrant Holder of the attached February Put Warrant hereby sells, assigns or transfers unto the person(s) named below (the "Assignee") the right to purchase ______________ shares of the Common Stock of Franklin Telecommunications Corp. evidenced by the attached February Put Warrant and does hereby irrevocably constitute and appoint ______________________ (attorney) to transfer the number of shares specified of the said February Put Warrant on the books of the Company, with full power of substitution in the premises. The undersigned requests that such February Put Warrant be issued, and a February Put Warrant representing any unsold, unassigned or non-transferred portion hereof be issued, pursuant to this February Put Warrant in the name of the Registered Holder and delivered to the undersigned at the address set forth below. Dated: ----------------------------------------- - ----------------------------------------------- Signature of Registered Holder - ----------------------------------------------- Name of Registered Holder (Print) - ----------------------------------------------- Address of Registered Holder - ----------------------------------------------- Name of Assignee (Print) - ----------------------------------------------- Address of Assignee (including zip code number) B-1 16 NOTICE The signature to the foregoing Assignment must correspond to the name as written upon the face of the attached February Put Warrant in every particular, without alteration or enlargement or any change whatsoever. B-2 EX-23.1 6 CONSENT OF SINGER,LEWAK,GREENBAUM & GOLDSTEIN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report, dated August 20, 1999, which appears in the Annual Report on Form 10-K of Franklin Telecommunications Corp. and subsidiaries for the year ended June 30, 1999. We also consent to the reference to our Firm under the caption "Experts" in the aforementioned Registration Statement. SINGER LEWAK GREENBAUM & GOLDSTEIN LLP Los Angeles, California March 9, 2000 -----END PRIVACY-ENHANCED MESSAGE-----