-----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, TmOsf6irOc1hYSevJGoisAoLPNezQCQb2dBUva1Cu8cCQrBJ6YdTbdHZU7By1Y50 2mzCS5XIoW4pD20V3Pfvsw== /in/edgar/work/0001095811-00-005005/0001095811-00-005005.txt : 20001129 0001095811-00-005005.hdr.sgml : 20001129 ACCESSION NUMBER: 0001095811-00-005005 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20001128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN TELECOMMUNICATIONS CORP CENTRAL INDEX KEY: 0000722572 STANDARD INDUSTRIAL CLASSIFICATION: [3576 ] IRS NUMBER: 953733534 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-50826 FILM NUMBER: 778184 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 a67569s-3.txt FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 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) THOMAS RUSSELL 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 4685 MACARTHUR COURT, SUITE 220 NEWPORT BEACH, CALIFORNIA 92660 (949) 752-6100 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Amendment to Registration Statement is declared effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] 2 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(2) Price Fee - --------------------------------------------------------------------------------------------- Common Stock 10,491,538(1) $.375 $3,934,327 $1,038.66 =============================================================================================
(1) Pursuant to Rule 416 under the Securities Act of 1933, there are also being registered such indeterminate number of additional shares of common stock as may be issuable upon the exercise of the common stock purchase warrants described herein pursuant to the antidilution provisions thereof. The proposed maximum offering price per share and maximum aggregate offering price for the shares being registered hereby is calculated in accordance with Rule 457(c) under the Securities Act. (2) Based on the closing price of the Common Stock on the American Stock Exchange on November 27, 2000. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ 3 PROSPECTUS 10,491,538 SHARES FRANKLIN TELECOMMUNICATIONS CORP. COMMON STOCK These shares of common stock are being offered by certain of our current shareholders. We issued the shares, or reserved the shares for issuance, to the shareholders in connection with private investments made in the Company during the past year. The selling shareholders may sell the shares covered by this Prospectus on the American Stock Exchange and in ordinary brokerage transactions, in negotiated transactions or otherwise, at prevailing market prices at the time of sale or at negotiated prices, and may engage brokers or dealers to sell the shares. For additional information on the selling shareholders' possible methods of sale, you should refer to the section of this prospectus entitled "Plan of Distribution." The selling shareholders may be deemed to be "underwriters" within the meaning of the Securities Act in connection with the sale of their shares. We will not receive any proceeds from the sale of the shares, but will bear the costs relating to the registration of the shares. Our common stock is traded on American Stock Exchange under the symbol "FCM." The shares offered in this prospectus involve a high degree of risk. You should carefully consider the "Risk Factors" beginning on page 2 in determining whether to purchase shares of our common stock. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS _______, 2000. 4 You should rely only on information contained or incorporated by reference in this prospectus. See "Information Incorporated by Reference." 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 2 5 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. 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 Chairman, 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 Chairman, 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. The loss of any major customer could adversely affect the Company. The Company has no ongoing supply contracts with any of its major customers. WE MAY HAVE DIFFICULTIES IN MANAGING OUR GROWTH. Our growth has placed a significant strain on our personnel and systems. To accommodate our current size and manage growth, we must improve our operational, financial and information systems, and expand, train and manage our employee base. This problem may be more serious if we acquire additional businesses, as each such business must then be integrated into our operations and systems. As we expand our customer base, we will experience greater demands on our network infrastructure, technical staff and resources. If such demand results in difficulties satisfying the needs of our customers, it could negatively affect us by causing subscribers or potential subscribers to utilize competitive long distance telephone service providers and Internet service providers. We believe that our ability to provide timely access for customers, and adequate customer and technical support, will mainly depend on our ability to attract, train, integrate and retain qualified employees. 3 6 IT IS LIKELY WE WILL REQUIRE ADDITIONAL CAPITAL. All of the proceeds of this offering will be received by the selling shareholders. 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 REVENUES HAVE BEEN DECLINING, AND QUARTERLY FINANCIAL RESULTS MAY FLUCTUATE SIGNIFICANTLY. Our quarterly revenues have declined over each of the past three quarters, and there can be no assurance that revenues will increase. 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 4 7 are Lucent Technologies, Nokia, HyperCom, Clarent, and Cisco Systems. Most of these companies have substantially greater marketing, financial, technical and field support resources. In addition, we could face strong competition from a number of established computer and telecommunications firms which may enter the market in the future. The fields of Internet telephony and data communications are marked by rapid changes in technology, which can cause products to become obsolete over very short time frames. Thus, our performance will depend on our ability to develop and market new hardware products and services to meet changing technology, pricing considerations and other market factors. The business could be severely impacted if the Company were to experience delays in developing new hardware products and services or enhancements. The market for Internet telephony services has been extremely competitive, and is expected to be so for the foreseeable future. Many companies offer Internet telephony products and services, and many of these companies have a substantial presence in this market. Most of the current Internet telephony products permit voice communications over the Internet between two parties that are both connected to the Internet with sound-equipped personal computers and where both parties are using identical Internet telephony software products. Current product offerings include VocalTec Communications' Internet Phone, QuarterDeck's WebPhone and Microsoft's NetMeeting. In addition, a number of large telecommunications providers and equipment manufacturers, such as Cisco, Lucent, and Northern Telecom, 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 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. 5 8 WE FACE PRICING PRESSURES, PARTICULARLY IN THE INTERNET TELEPHONY MARKET. The success of our current product and service offerings is based on our ability to provide discounted voice communications by taking advantage of cost savings achieved through Internet telephony. In recent years, the price of traditional domestic and international long distance calls has been declining. In response to these declines, many Internet telephony providers have lowered the price of their service offerings. Should prices of traditional long distance calls decline to a point where we no longer have a price advantage over our competitors, we would lose a significant competitive advantage and would have to rely on factors other than price to differentiate our product and service offerings. If we fail to do so, our business could be materially adversely affected. OUR BUSINESS DEPENDS ON OUR NETWORK INFRASTRUCTURE AND CAPACITY, AND MAY BE SUBJECT TO SYSTEM FAILURE AND SECURITY RISKS. The future success of FNet's business will depend on the capacity, reliability and security of its network infrastructure. FNet will be required to expand and improve this infrastructure as the number of customers and the amount and type of information its customers communicate over the Internet increases, and the means by which customers connect to the Internet evolve. Such expansion and improvement may require substantial financial, operational and managerial resources. Capacity constraints have occurred at many Internet Service Providers, both at the level of particular "points of presence" ("POPs") (affecting only customers attempting to use that particular POP) and in connection with systemwide services (such as e-mail and news services, which can affect all customers). From time to time, FNet has experienced delayed delivery from suppliers of new telephone lines, modems, servers and other equipment used by FNet in providing its services. Any severe shortage of new telephone lines, modems, servers or other equipment could result in incoming access lines becoming full during peak times, causing busy signals for customers who are trying to connect to the Internet. Similar problems may occur if FNet is unable to expand the capacity of its various network, e-mail, World Wide Web and other servers quickly enough to keep pace with demand from our expanding customer base. If the capacity of such servers is exceeded, customers will experience delays when trying to use a particular service. Further, if FNet does not maintain sufficient capacity in its network connections, customers will experience a general slowdown of all services on the Internet. Any of these events could cause customers to terminate use of FNet's services. Accordingly, our business would be damaged if we failed to expand or enhance our network infrastructure on a timely basis, or failed to adapt it to an expanding customer base, changing customer requirements or evolving industry standards. 6 9 FNet's operations are dependent on its ability to protect its telecommunications and computer equipment against damage from fire, earthquake, power loss, telecommunication failure and similar events. The occurrence of a natural disaster or another unanticipated problem at our headquarters and network hub or at POPs through which customers connect to the Internet could cause interruptions in the services provided by FNet. In addition, failure of FNet's telecommunications providers to provide the data communications capacity required by FNet as a result of a natural disaster, operational disruption or for any other reason could cause interruptions in the services provided by FNet. FNet's network infrastructure may be vulnerable to computer viruses and other similar disruptive problems caused by its customers, other Internet users or other third parties. Computer viruses and other problems could lead to interruptions, delays in or cessation of service to FNet's customers, as well as corruption of FNet's or its customers' computer systems. Inappropriate use of the Internet by third parties could also potentially jeopardize the security of confidential information stored in the computer systems of FNet or those of its customers, which may cause losses to FNet or its customers, or deter certain persons from using FNet's services. We expect that FNet's customers may increasingly use the Internet for commercial transactions in the future. Any network malfunction or security breach could cause these transactions to be delayed, not completed or completed with compromised security. Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may cause interruptions, delays or cessation in service to FNet's customers. Customers or others could assert claims of liability against us as a result of such events. FNet does not presently maintain redundant or backup Internet services or backbone facilities or other redundant computing and telecommunications facilities. OUR BUSINESS DEPENDS ON OUR ABILITY TO PROTECT ITS TECHNOLOGY. Our success will depend in part on protecting our proprietary technology. While we have patents covering certain of our products, we rely principally on copyright law for protection of our hardware and software designs, as well as trade secret law, confidentiality agreements and our technical abilities and responsiveness to the demands of customers to protect our proprietary rights. THE TELECOMMUNICATIONS BUSINESS IS HEAVILY REGULATED, AND REGULATORY CHANGES COULD DISRUPT OUR BUSINESS. Some of our products are subject to regulations of the Federal Communications Commission. Certain regulations require that products which reside on a customer's premises and interconnect the public switched network meet certain standards to prevent harm to the network. Other regulations limit the levels of electromagnetic radiation which may emanate from an electronic device located on a customer's premises. We currently comply with these regulations and we foresee no problem in complying with these regulations in the future. 7 10 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. 8 11 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. 9 12 In the United States, the providers of local exchange transmission facilities are generally the incumbent local exchange carriers, including the regional Bell operating companies. The permitted pricing of local exchange facilities in the United States is subject to uncertainties. The Federal Communications Commission issued an order requiring existing local exchange carriers to price those facilities at total element long-run incremental cost, and the United States Supreme Court recently upheld the FCC's jurisdiction to set a pricing standard for incumbent local exchange carrier facilities provided to competitors. However, the local exchange carriers could challenge the FCC's total element long-run incremental cost standard and, if they succeed, the result may be to increase the cost of local exchange carrier facilities obtained by us. Many of the international telephone calls made by our customers are transported via transmission facilities that we lease from our current and potential competitors. We lease facilities from local exchange carriers that are our competitors, such as the regional Bell operating companies. We generally lease lines on a fixed-cost basis. These include leases of transmission capacity for point-to-point circuits on a monthly or longer-term fixed-cost basis. THE SELLING SHAREHOLDERS In August and September of 2000 we completed a private placement with a group of private investors, many of whom were existing shareholders of the Company. We sold a total of 4,994,000 units, with each Unit consisting of one share and one warrant to purchase a Common Share at an exercise price of $3.00 per share. The price per unit was $ .50. The Warrant is a three year Warrant. No commissions were paid in connection with the transaction. The Company is required to register the resale of all of the shares issued in the private placement, including the shares issuable upon exercise of the Warrants. Each purchaser in the private placement agreed that he or she would limit the number of shares sold during a single day to a number of shares equal to 10% of the average daily trading volume of the Company's Common Stock for the preceding five trading days. In addition, this Registration Statement covers certain shares issued to investors in an offering that occurred in March 2000. In connection with that offering, the Company was obligated to effect the registration of the shares within a specified time period, with penalties due to the investors if the deadline was not met. As the deadline was not met, the Company became obligated to pay the penalties, and it had the option to pay the penalties in Common Stock. Accordingly, the Company issued a total of 503,538 shares to these investors in November 2000, which are also covered by this Prospectus. 10 13 The following table sets forth certain information as of November 17, 2000, regarding the ownership of the common stock by the selling shareholders and as adjusted to give effect to the sale of the shares offered in this prospectus.
Shares Owned Prior Shares Owned To Offering(1) After Offering Selling ---------------------- Shares ----------------------- Shareholder Number Percentage Offered Number Percentage ----------- ------- ---------- ------- ------ ---------- Abeyewardene, Diana 44,000 * 44,000 0 * Adriana L. Foundation 200,000 * 200,000 0 * Ahearn, John 20,000 * 20,000 0 * Bagley, Bryan 40,000 * 40,000 0 * Bagley, Dal 100,000 * 100,000 0 * Barkley, Byron 40,000 * 40,000 0 * Binkert, Gabriela 200,000 * 200,000 0 * Binkert-Bohler, Walter 200,000 * 200,000 0 * Bisa Trading, Inc. 400,000 .9% 400,000 0 * Callahan, Bernie 28,000 * 28,000 0 * Callaway Enterprises 40,000 * 40,000 0 * Camenisch, Reto 200,000 * 200,000 0 * Cannon, William and Cindy 90,000 * 60,000 30,000 * Cannon, Kristin 4,000 * 4,000 0 * Carden, B. Lamar 20,000 * 20,000 0 * Cerny, Joann 20,000 * 20,000 0 *
11 14
Shares Owned Prior Shares Owned To Offering(1) After Offering Selling ---------------------- Shares ----------------------- Shareholder Number Percentage Offered Number Percentage ----------- ------- ---------- ------- ------ ---------- Cipriano, Robert 80,000 * 80,000 0 * COLLAR Foundation 200,000 * 200,000 0 * Culkar, Frank 27,000 * 20,000 7,000 * Danham Ltd. 700,000 1.7% 700,000 0 * Davis, Lyle 40,000 * 40,000 0 * Dudley, Hugh 40,000 * 40,000 0 * Dudley, Rick 40,000 * 40,000 0 * Espin, Sonia 200,000 * 200,000 0 * Fisher, Joe 100,000 * 100,000 0 * Gassler, Cyrill 200,000 * 200,000 0 * Goel, Sanjiv 400,000 .9% 400,000 0 * Green Maracuya Foundation 200,000 * 200,000 0 * Hefti, Ruth 200,000 * 200,000 0 * His, Dominik 200,000 * 200,000 0 * His-Hagenbach, Sonja 200,000 * 200,000 0 * Holder, Blair 445,000 1.1% 400,000 45,000 * Hurd, Dave 100,000 * 100,000 0 * Hurd, Greg 100,000 * 100,000 0 * JIGAS Foundation 200,000 * 200,000 0 * Lasiter, Bobbie 22,700 * 22,700 0 * Lasiter, Clay 47,300 * 47,300 0 * Leonard, John 20,000 * 20,000 0 * Madison, Delana 100,000 * 100,000 0 * Mansky, Marvin 250,000 .6% 250,000 0 * Marino, Mike 625,293 1.5% 625,293 0 * Marketing Edge 16,000 * 16,000 0 * Nelson, Gary 912,000 2.2% 832,000 80,000 *
12 15
Shares Owned Prior Shares Owned To Offering(1) After Offering Selling ---------------------- Shares ----------------------- Shareholder Number Percentage Offered Number Percentage ----------- ------- ---------- --------- ------ ---------- Nelson, Gary IRA 368,000 .9% 368,000 0 0 Ogden, Steven 47,200 * 47,200 0 0 Perez, Dione 200,000 * 200,000 0 0 Perez, Franklin 200,000 * 200,000 0 0 Perez, Hanoj 200,000 * 200,000 0 0 Perez, Karem 200,000 * 200,000 0 0 Phibbs, Corbett 20,000 * 20,000 0 0 Pring, Ronald 10,000 * 10,000 0 0 Restrepo, Francisco Botero 200,000 * 200,000 0 0 Treihaft, Stasey 80,000 * 80,000 0 0 Tschirky, Lan 400,000 1.0% 400,000 0 0 Valentine, Richard 47,000 * 40,000 7,000 * Van Parys, Nicole 240,000 * 240,000 0 0 Weiser, Eva 200,000 * 200,000 0 0 Whaley, Bruce 40,000 * 40,000 0 0 Widner, Terry 50,000 * 40,000 10,000 * Winn, Jeff 200,000 * 200,000 0 0 Younkheere Marianne 200,000 * 200,000 0 0 Crescent International, Ltd. 2,453,124(2) 5.9% 125,175 2,327,949 5.6% B. Morgan Pridemore 2,394,250(2) 5.8% 122,171 2,272,079 5.5% Merced Partners Limited Partnership 1,306,933(2) 3.2% 83,450 1,223,483 2.9% Lakeshore International, Ltd. 653,465(2) 1.6% 41,725 611,740 1.5% Gundyco in Trust for RRSP 550-98866-19 646,931(2) 1.6% 41,308 605,623 1.5% Jack C. Blankenship and Kristin Peters 532,774(2) 1.3% 33,380 499,394 1.2% Frank G. Mauro 196,032(2) * 12,518 183,514 * Ellis A. G. 367,967(2) .9% 18,775 349,192 .8% C. H. Woodward 245,313(2) .6% 12,518 232,795 .6% Enigma Investments Limited 187,518(2) * 12,518 175,000 *
- ---------------- * Less than 1/2 of 1%. (1) Includes shares issuable upon exercise of warrants. (2) The shares not covered by this Registration Statement are covered by an earlier Registration Statement. Neither the selling shareholders nor any of their officers or directors have held any positions or office or had any other material relationship with the Company or any of its affiliates within the past three years. 13 16 PLAN OF DISTRIBUTION The shares of common stock are being offered on behalf of the selling shareholders, and we will not receive any proceeds from the offering. The shares of common stock may be sold or distributed from time to time by the selling shareholders, or by pledgees, donees or transferees of, or other successors in interest to, the selling shareholders, directly to one or more purchasers (including pledgees) or through brokers, dealers or underwriters who may act solely as agent or may acquire such shares as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices, or at fixed prices, which may be subject to change. The sale of the shares of common stock may be effected through one or more of the following methods: (i) ordinary brokers' transactions; (ii) transactions involving cross or block trades or otherwise on the American Stock Exchange; (iii) purchases by brokers, dealers or underwriters as principal and resale by such purchasers for their own accounts pursuant to this prospectus; (iv) "at the market" to or through market makers or into established trading markets, including direct sales to purchasers or sales effected through agents; and (v) any combination of the foregoing, or by any other legally available means. The selling shareholders also may enter into option or other transactions with broker-dealers that require the delivery by such broker- dealers of the shares of common stock, which shares of common stock may be resold thereafter pursuant to this prospectus. We cannot be certain that all or any of the shares of common stock will be sold by the selling shareholders. Brokers, dealers, underwriters or agents participating in the sale of the shares of common stock as agents may receive compensation in the form of commissions, discounts or concessions from the selling shareholders and/or purchasers of the common stock for whom such broker- dealers may act as agent, or to whom they may sell as principal, or both (which compensation to a particular broker-dealer may be less than or in excess of customary commissions). The selling shareholders and any broker-dealers or other persons who act in connection with the sale of the common stock may be deemed to be "underwriters" within the meaning of the Securities Act, and any commission they receive and proceeds of any sale of such shares may be deemed to be 14 17 underwriting discounts and commissions under the Securities Act. Neither the Company nor the selling shareholders can presently estimate the amount of such compensation. The Company knows of no existing arrangements between the selling shareholders and any other shareholders, broker, dealer, underwriter or agent relating to the sale or distribution of the shares of common stock. The selling shareholders and any other persons participating in the sale or distribution of the common stock will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, which provisions may limit the timing of purchases and sales of any of the common stock by the selling shareholders or any other such persons. The foregoing may affect the marketability of the common stock. We will pay substantially all of the expenses incidental to the registration, offering and sale of the common stock to the public, other than any commissions or discounts of underwriters, broker-dealers or agents. We and the selling shareholders have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. INFORMATION INCORPORATED BY REFERENCE AND OTHER AVAILABLE INFORMATION This prospectus is part of a Registration Statement on Form S-3 that we filed with the SEC. Certain information in the Registration Statement has been omitted from this prospectus in accordance with SEC rules. We file annual, quarterly and special reports and other information with the SEC. You may read and copy the Registration Statement and any other document that we file at the SEC's public reference rooms located at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to you free of charge at the SEC's web site at http://www.sec.gov. The SEC allows us to "incorporate by reference" certain of our publicly-filed documents into this prospectus, which means that information included in those documents is considered part of this prospectus. Information that we file with the SEC subsequent to the date of this prospectus will 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. 15 18 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, 2000; and (2) Our Quarterly Report on Form 10-Q for the three months ended September 30, 2000; 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, 2000, 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. 16 19 NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF THE COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------------------- TABLE OF CONTENTS --------------------------- Page ---- Forward-Looking Statements...................... 2 The Business.................................... 2 Risk Factors.................................... 2 The Selling Shareholders........................ 10 Plan of Distribution............................ 14 Information Incorporated by Reference and Other Available Information................ 15 Experts......................................... 16 Legal Matters................................... 16 10,491,538 SHARES COMMON STOCK FRANKLIN TELECOMMUNICATIONS CORP. ---------- PROSPECTUS ---------- _____________, 2000 20 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............................................ 1,039 Legal fees and expenses..................................... 6,000 Accounting fees and expenses................................ 2,000 Transfer Agent fees......................................... 300 Miscellaneous............................................... 661 ------- Total................................................. $13,000 ======= ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Bylaws provide that the Company may indemnify its officers and directors, and may indemnify its employees and other agents, to the fullest extent permitted by California law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to officers, directors or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ITEM 16. EXHIBITS The following exhibits are filed with this Registration Statement: EXHIBIT NUMBER DESCRIPTIONS ------- ------------ 3.1* Restated Articles of Incorporation of Franklin Telecommunications Corp. 3.2** Bylaws of Franklin Telecommunications Corp. 5.1 Opinion of Haddan & Zepfel LLP 10.1* Employment Agreement, dated March 1, 1993 between Franklin Telecommunications Corp. and Frank W. Peters. 10.2 Form of Subscription Agreement between Registrant and the investors 10.3 Form of 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 Amendment No. 2 to Registrant's Registration Statement on Form S-3 (No. 333), filed with the Commission on July 31, 2000 and incorporated herein by reference II-1 21 Item 17. Undertakings. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by Section l0(a)(3) of the Securities Act of l933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, including (but not limited to) any addition or deletion of a managing underwriter. (2) That, for the purpose of determining any liability under the Securities Act of l933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of l933 may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 22 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 November 28, 2000. FRANKLIN TELECOMMUNICATIONS CORP. By /s/ Robert S. Stewart ------------------------------ Robert S. Stewart Chief Executive Officer 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/ Robert S. Stewart Chief Executive Officer November 28, 2000 - ----------------------------- Robert S. Stewart (2) Principal Financial and Accounting Officer /s/ Thomas Russell Chief Financial Officer and November 28, 2000 - ----------------------------- Director Thomas Russell (3) Directors /s/ Frank W. Peters Chairman of the Board of Directors November 28, 2000 - ----------------------------- Frank W. Peters /s/ Robert S. Harp Director November 28, 2000 - ----------------------------- Robert S. Harp /s/ Sam P. Jaffe Director November 28, 2000 - ----------------------------- Sam P. Jaffe /s/ Ueli Burkart Director November 28, 2000 - ----------------------------- Ueli Burkart
II-3 23 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTIONS ------- ------------ 3.1* Restated Articles of Incorporation of Franklin Telecommunications Corp. 3.2** Bylaws of Franklin Telecommunications Corp. 5.1 Opinion of Haddan & Zepfel LLP 10.1* Employment Agreement, dated March 1, 1993 between Franklin Telecommunications Corp. and Frank W. Peters. 10.2 Form of Subscription Agreement between Registrant and the investors 10.3 Form of 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 Amendment No. 2 to Registrant's Registration Statement on Form S-3 (No. 333), filed with the Commission on July 31, 2000 and incorporated herein by reference EX-5.1 2 a67569ex5-1.txt EXHIBIT 5.1 1 EXHIBIT 5.1 [LETTERHEAD OF HADDAN & ZEPFEL LLP] November 28, 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 the resale of up to 10,491,538 shares of the Company's Common Stock, without par value (the "Shares"). 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 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 Subscription 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-10.2 3 a67569ex10-2.txt EXHIBIT 10.2 1 EXHIBIT 10.2 FRANKLIN TELECOMMUNICATIONS CORP. SUBSCRIPTION AGREEMENT Franklin Telecommunications Corp. SEPTEMBER __, 2000 733 Lakefield Road Westlake Village, CA 91361 Dear Sirs: The undersigned hereby applies to purchase ________ Units (a minimum purchase of 10,000 Units is required) at $.50 per Unit. A "Unit" consists of one share of the common stock of Franklin Telecommunications Corp. (hereinafter the "Company" AMEX: FCM) and a warrant to purchase one (1) share of Common Stock at $3.00 per share. The Company is a California corporation. Enclosed is a check or checks payable to the order of the Company, as tender of the purchase price for the Units subscribed to be purchased, in the aggregate amount of __________. The undersigned hereby acknowledges receipt of a copy of the Private Offering Circular of the Company, dated August 22, 2000, as well as a copy of the Company's Report on Form 10-K for the year ended June 30, 1999 and Report on Form 10-Q for the quarters ended September 30, 1999, December 31, 1999, and March 31, 2000 and acknowledges that the undersigned has carefully read and considered each of these documents. As an inducement to the Company to sell the Shares to the undersigned, the undersigned hereby makes the following representations and warranties to the Company, recognizing that the Company will rely to a material degree upon such representations, warranties and covenants: 1. All statements made in the Prospective Investor Questionnaire, which has been or is concurrently being furnished to the Company by the undersigned are true, accurate and complete as of the date hereof. 2. The undersigned has been informed and is aware that an investment in the Units involves a high degree of risk and speculation, including the risk of losing part or all of the undersigned's investment in the Shares, as well as the inability to sell or transfer the Units, or any interest therein, for an indefinite period of time or at a price which would enable the undersigned to recoup his investment. 3. The undersigned confirms that he has been advised that he should rely on, and that he has consulted and relied upon, his own accounting, legal and financial advisors with respect to this investment in the Units. The undersigned and his professional advisor(s), if any, have been afforded an opportunity to meet with the officers and directors of the Company and to ask and receive answers to any questions about this offering and the proposed business and affairs of the Company and to obtain any additional information which the Company possesses or can acquire without unreasonable effort or expense, that is necessary to verify the accuracy of information provided in the Private Offering Circular and in the public filings of the Company, and have therefore obtained, in the judgment of the undersigned and/or his, her, or its professional advisor(s), sufficient information to evaluate the merits and risks of investment in the Units. Neither the undersigned nor his or her professional advisor(s), if any, have been furnished any offering material or literature other than this Subscription Agreement, the Prospective Investor Questionnaire, and the Private Offering Circular, and the documents referenced therein, nor is the undersigned relying on any representations, statements or other information provided by the Company orally or in writing, other than as expressly set forth in the documents described above. 2 4. The undersigned understands and acknowledges that (i) no federal or state agency has made any finding or determination as to the fairness or suitability for investment in, nor any recommendation or endorsement of, the Company, or the Units, (ii) the Company's legal counsel has not independently verified the information concerning the Company included in the Private Offering Circular or the Business Plan, all of which has been provided by the Company nor has such counsel passed upon the accuracy or adequacy of any of such documents, (iii) no independent third party, such as an investment banking firm or other expert in the valuation of businesses or securities, has made an evaluation of the economic potential of the Company or the value of the Units, and (iv) the offering price of the Units have been determined solely by the Company do not necessarily bear any relationship to the Company's results of operations, net worth, prospects, or other commonly recognized criteria of value. 5. On the basis of the review of the materials and information described above, and relying solely thereon and upon the knowledge and experience of the undersigned and/or his, her or its professional advisor(s), if any, in business and financial matters, the undersigned has evaluated the merits and risks of investment in the Units and has determined that he or she is both willing and able to undertake the economic risk of this investment. 6. The Units will be acquired by the undersigned for the personal account of the undersigned for investment and not with a view to, or for resale in connection with, any distribution thereof or of any interest therein, and no one else has any beneficial ownership or interest in the Units acquired by the undersigned, nor are they to be subject to any lien or pledge. The undersigned has no present obligation, indebtedness or commitment pending, nor is any circumstance in existence that will compel the undersigned to secure funds by the sale, transfer or other distribution of any of the Units or any interest therein. The undersigned has the net worth, past income and estimated future income set forth in the Prospective Investor Questionnaire, can afford to bear the risks of an investment in the Units, including the risk of losing the entire investment, for an indefinite period of time, and has adequate means of providing for his or her current needs and personal contingencies and has no need for liquidity in this investment. The undersigned acknowledges that any certificate representing shares of the Company will bear a legend restricting their transferability, and that the Company may place a "stop-transfer" order with its transfer agent with respect to such shares. 7. The undersigned understands and acknowledges that the Units are being offered and sold pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Act"), and applicable state securities laws, the availability of which depend upon the truth and completeness of the information provided to the Company in the Prospective Investor Questionnaire and the bona fide nature of the foregoing representations and warranties. 8. The undersigned is an Accredited Investor, as defined under the Rules promulgated under the Securities Act of 1933, as amended. 9. When the shares of the Company are registered pursuant to a Registration Statement filed with the Securities and Exchange Commission, the undersigned agrees that at no time will the number of shares sold during any day exceed 10% of the Average Daily Volume of the Company's common stock. The Average Daily Volume will be determined based on the average daily volume of sales for the five preceding business days. (Example, if the Average Daily Volume of shares sold for five working days is 150,000 shares, the undersigned will sell no more than 15,000 shares per day.) 10. If, prior to the sale of any the Units to the undersigned, there is a material change in the undersigned's investment intention as expressed herein, or if there occurs any change which would make either the representations or warranties made by the undersigned herein or the information provided by the undersigned in the Prospective Investor Questionnaire materially untrue or misleading, the undersigned 3 agrees to immediately so notify the Company and any prior acceptance of the subscription of the undersigned shall be voidable at the option of the Company. 11. This Subscription Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by all parties. This Subscription Agreement shall be construed in all respects in accordance with the laws of the State of California. 12. The offering of the Shares is being made by the executive officers and directors of the Company who will determine, in their sole discretion, to whom the Units will be sold, and the number of Units (if any) to be sold to each prospective investor. This subscription may be accepted or rejected by the Company, in whole or in part, in its sole discretion, and may be reduced in any amount and to any extent whether or not pro rata reductions are made of any other prospective investor's subscription. In addition, the undersigned understands and acknowledges that the Company may for any reason, and at any time whether before or after acceptance of this Subscription Agreement, terminate the private placement and cause to be refunded to the undersigned, without interest or deduction, all amounts tendered by the undersigned. 13. The undersigned hereby acknowledges that the undersigned is not entitled to cancel, terminate or revoke this subscription. 14. The undersigned hereby indemnifies and holds harmless the Company and their respective officers, directors, shareholders, employees and agents, as the case may be, from and against any and all damages suffered and liabilities incurred by any of them (including costs of investigation and defense and attorneys' fees) arising out of any inaccuracy in the agreements, representations, and warranties made by the undersigned herein. IN WITNESS WHEREOF, the undersigned executes and agrees to be bound by this Subscription Agreement by executing the Signature Page attached hereto. 4 FRANKLIN TELECOMMUNICATIONS CORP. SUBSCRIPTION AGREEMENT SIGNATURE PAGE (All information must be completed) Date: _____________, 2000 _____________________________ $_________________ __________________________ Signature of Shareholder Purchase Price # of Units (1 FCM+1 Warrant) _____________________________ ____________________________________ Signature of Joint Owner Names(s) of Shareholder(s) (Print) (if any) ____________________________________ ____________________________________ If Joint Ownership, check one: ____________________________________ Residence Address _ Joint Tenants, with Right of Survivorship ____________________________________ City State Zip _ Tenants in Common ____________________________________ _ Community Property Social Security Number or Taxpayer I.D. No. ACCEPTED AND AGREED: FRANKLIN TELECOMMUNICATIONS CORP. By: ________________________________ Frank W. Peters, CEO Date: ________________________, 2000 EX-10.3 4 a67569ex10-3.txt EXHIBIT 10.3 1 EXHIBIT 10.3 FRANKLIN TELECOMMUNICATIONS CORP. WARRANT TO PURCHASE COMMON STOCK OF FRANKLIN TELECOMMUNICATIONS CORP. This certifies that ____________________________________ (the "Holder") and the Holder's registered successors and assigns are entitled, subject to the terms and conditions set forth below, to subscribe for and purchase from Franklin Telecommunications Corp., a California corporation (the "Company"), _______ shares of the Common Stock of the Company at the exercise price per share (the "Exercise Price") determined as provided in paragraph 2(a) below, as such may have been adjusted as of the time of exercise pursuant to the provisions of paragraph 2(b) below. The term "Warrant Shares" as used herein includes the shares of the Company's Common Stock (and such other securities or property into which such shares of Common Stock may hereafter be changed) which are at the time receivable by the Holder upon exercise of this Warrant. The term "Warrant" as used herein shall include this Warrant and any Warrant delivered in substitution or exchange herefor. 1. Exercise and Expiration. This Warrant may be exercised in whole or in part at any time or times on or after the date of original issuance hereof, but must be exercised prior to August 22, 2003, at which time this Warrant shall expire. This Warrant shall be exercisable by delivery by the holder hereof to the Company of (i) the original of this Warrant, (ii) payment in cash, in a form acceptable to the Company, of the Exercise Price of the Warrant being exercised, and (iii) written instructions as to the number of Warrant shares covered by the exercise. 2. Exercise Price. (a) The Exercise Price shall be $3.00. (b) If all or a portion of this Warrant shall be exercised subsequent to any stock dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination or exchange of shares, reorganization or liquidation of the Company occurring after the date hereof, as a result of which shares of any class shall be issued in respect of outstanding shares of Common Stock of the Company or shares of such Common Stock shall be changed into the same or a different number of shares of the same or another class or classes, the Holder exercising this Warrant shall receive, for the aggregate price paid upon such exercise, the aggregate number and class of shares which such Holder would have received in such stock dividend, stock split, reverse stock split, recapitalization, merger, consolidation, combination or exchange of shares, reorganization or liquidation if this Warrant had been exercised immediately prior to such event. 3. Transfer of Warrant. This Warrant shall be registered on the books of the Company and, subject to compliance with applicable securities laws, shall be transferable in whole or in part on such books upon surrender of this Warrant by the registered Holder hereof in person or by a duly authorized attorney. 4. Reservation of Common Stock. The Company hereby covenants and agrees that it shall at all times reserve and keep authorized and available for issuance, free of any preemptive rights or rights of first refusal, a sufficient number of Warrant Shares for the purpose of issuance upon exercise of this Warrant to permit the exercise of this Warrant in whole. 5. Securities Law Requirements. No part of the Warrant shall be exercised if counsel to the Corporation determines that any applicable requirement of Federal or state securities or "blue sky" laws has not been met. All certificates representing shares of Common Stock issuable upon the exercise of the Warrant shall 2 bear the following legend, unless counsel to the Company has determined that the shares of Common Stock can be issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, and from the registration or qualification requirements of the securities or "blue sky" laws of the state of the Holder's domicile at the time of proposed exercise, that does not require the imposition of such a legend: "THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT." 6. Miscellaneous. The Holder shall not be entitled to any rights of a shareholder of the Company prior to the exercise hereof,. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and delivered by its duly authorized officers as of August ___, 2000. Franklin Telecom By: Frank W. Peters, CEO EX-23.1 5 a67569ex23-1.txt EXHIBIT 23.1 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 30, 2000, (which includes an emphasis paragraph relating to an uncertainty as to the Company's ability to continue as a going concern) which appears in the Annual Report on Form 10-K of Franklin Telecommunications Corp. and subsidiaries for the year ended June 30, 2000. 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 November 22, 2000 -----END PRIVACY-ENHANCED MESSAGE-----