franklin_def14a-112307.htm
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SCHEDULE
14A
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Franklin
Wireless Corp.
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Filing Party:
FRANKLIN
WIRELESS CORP.
9823
PACIFIC HEIGHTS BLVD. SUITE J
SAN
DIEGO, CA 92121
To
the
Shareholders of Franklin Wireless Corp.:
On
behalf
of the Board of Directors of Franklin Wireless Corp. (the "Company"), I am
writing to you to solicit your consent to the following proposals:
1. The
change of our state of incorporation from California to Nevada by merger of
the
Company into our wholly owned Nevada subsidiary.
2. An
amendment to our Articles of Incorporation to effect a reverse stock split
of 1
share for each 70 shares held.
3. Establishing
the authorized capital of the Company at 50,000,000 shares of Common
Stock.
The
Board
of Directors has fixed the close of business on October 25, 2007 as the record
date for the determination of shareholders entitled to consent to the proposals,
and has set November 23, 2007 as the deadline for receipt of consents. You
are
asked to vote, sign, date, and return the enclosed Consent.
BY
ORDER
OF THE BOARD OF DIRECTORS
/s/
OC
Kim
OC
Kim
President
San
Diego, CA
November
1, 2007
FRANKLIN
WIRELESS CORP.
9823
PACIFIC HEIGHTS BLVD. SUITE J
SAN
DIEGO, CA 92121
___________________
PROXY
STATEMENT
___________________
SOLICITATION
OF CONSENTS
This
Proxy Statement is being furnished to the shareholders of Franklin Wireless
Corp., a California corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company (the "Board of Directors")
of consents from holders of outstanding shares of the Company’s Common Stock the
"Common Stock"), with respect to three proposed corporate actions:
reincorporation of the Company in Nevada, a reverse stock split, and a
change in the authorized shares of Common Stock (the
"Proposals.")
The
Proposals are set forth in the form of a Consent of Shareholder (the "Consent"),
delivered with this Proxy Statement. This Proxy Statement and the accompanying
form of Consent are first being mailed to shareholders of the Company on or
about November 8, 2007. The Company will bear all costs and expenses relating
to
the solicitation of Consents, including the costs of preparing, printing and
mailing to shareholders this Proxy Statement and accompanying materials. In
addition to the solicitation of Consents by mail, the directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit Consents personally or by telephone, facsimile transmission, or
email. Arrangements will be made with brokerage firms and other custodians,
nominees and fiduciaries representing beneficial owners of shares of the Common
Stock for the forwarding of solicitation materials to such beneficial owners,
and the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable expenses incurred by them in doing so.
VOTING
RECORD
DATE
The
Board
of Directors has fixed the close of business on October 25, 2007 as the record
date for determination of shareholders entitled to consent to, or withhold
consent from, the Proposals (the "Record Date"). As of the Record Date, there
were issued and outstanding 926,041,050 shares of Common Stock. The holders
of
record of the shares of Common Stock on the Record Date are entitled to cast
one
vote per share on each of the Proposals. Accordingly, 926,041,050 votes are
entitled to be cast on the Proposals.
CONSENTS
A
shareholder who has executed and returned a Consent may revoke it at any time,
with respect to one or more of the Proposals, prior to the time that the Company
has received enough Consents to approve the Proposals, by filing with the
Secretary of the Company, at the address first set forth above, a written notice
of revocation bearing a later date than the Consent being revoked. After enough
Consents have been received in order to approve a Proposal, the Consents
approving that Proposal shall thereafter be irrevocable. The failure to sign
and
return the Consent will have the same effect as a vote against all of the
Proposals. All Consents must be received by November 23, 2007.
REQUIRED
VOTE
Each
Proposal will be approved, in accordance with California law and the Articles
of
Incorporation of the Company, if shares representing a majority of the
outstanding shares of Common Stock consent to such Proposal. Abstentions and
broker non-votes will have the effect of being considered as votes cast against
the Proposals.
The
Board
has approved each of the Proposals and recommended approval of the Proposals
to
the shareholders. If the Proposals are approved, the officers would be
authorized to effect the transactions set forth in the proposal.
THE
PROPOSALS
PROPOSAL
ONE: APPROVAL OF REINCORPORATION IN NEVADA
GENERAL
The
Board
of Directors has approved and declared advisable a proposal to change the
Company’s state of incorporation from California to Nevada. The reincorporation
will be effected by merging the Company into a newly organized Nevada
corporation, also named Franklin Wireless Corp. (Franklin-Nevada"), in
accordance with the terms of an Agreement and Plan of Merger (the "Merger
Agreement"). A copy of the form of Merger Agreement is attached to this Proxy
Statement as Appendix A, and statements herein regarding such Agreement are
qualified by reference to the complete Merger Agreement.
The
proposed merger will effect a change in the legal domicile and other changes
of
a legal nature, the most significant of which are described below. However,
the
merger will not result in any change in our business, management, location of
our principal executive offices, assets, liabilities or net worth (other than
as
a result of the costs incident to the merger, which are immaterial). Our
management, including all directors and officers, will remain the same after
the
merger and will assume identical positions with
Franklin-Nevada.
FRANKLIN-NEVADA
Franklin-Nevada,
which will be the surviving corporation, was incorporated under Nevada law
on
October 25, 2007, exclusively for the purpose of merging with the Company.
Franklin-Nevada has no material assets or liabilities and has not carried on
any
business.
Franklin-Nevada’s
Articles of Incorporation are substantially similar to the current Articles
of
Incorporation of the Company, except for statutory references necessary to
conform to Nevada corporation laws and other differences attributable to the
differences between California and Nevada law. A copy of Franklin-Nevada’s
Articles of Incorporation is attached as Appendix B.
THE
MERGER AGREEMENT
To
effect
a change in our state of incorporation from California to Nevada,
Franklin-California and Franklin-Nevada have entered into the "Merger Agreement.
The Merger Agreement was approved by the Boards of Directors of both
Franklin-California and Franklin-Nevada (which is controlled by
Franklin-California). Under the Merger Agreement, Franklin-California will
merge
with and into Franklin-Nevada, and Franklin-Nevada will continue as the
surviving corporation. Generally, the assets and liabilities of
Franklin-California will become the assets and liabilities of Franklin-Nevada.
The outstanding shares of Franklin-California Common Stock will automatically
be
converted into shares of Common Stock of Franklin-Nevada, par value $0.001
per
share (the "Franklin-Nevada Common Stock") upon the effective date of the
merger. Assuming the reverse stock split, described below, is also approved,
then each share of Franklin-California will be converted into 1/70th of a share
of Common Stock of Franklin-Nevada. (If the reverse split is not approved,
the
ratio will be one share of Franklin-Nevada for one share of
Franklin-California).
Each
certificate representing shares of Franklin-California Common Stock will
continue to represent shares of Franklin-Nevada Common Stock.
The
Merger Agreement provides that Franklin-California will merge into
Franklin-Nevada, with Franklin-Nevada then becoming the surviving corporation.
Franklin-Nevada will assume all assets and liabilities of Franklin-California,
including obligations under our outstanding debts and contracts. Our existing
Board of Directors and officers will become the board of directors and officers
of Franklin-Nevada, for identical terms of office.
PLEASE
NOTE: Shareholders need not exchange their existing stock certificates for
stock
certificates of Franklin-Nevada. However, after consummation of the merger,
any
shareholders desiring new stock certificates representing common stock of
Franklin-Nevada may submit their stock certificates to Integrity Stock Transfer,
our transfer agent, for cancellation, and obtain new
certificates.
COMPARISON
OF SHAREHOLDER RIGHTS UNDER NEVADA AND CALIFORNIA CORPORATE LAW AND CHARTER
DOCUMENTS BEFORE AND AFTER REINCORPORATION
Although
it is not practical to compare all aspects of Nevada law and California law
as
they relate to the Company’s corporate existence, its Articles of Incorporation
or Bylaws, the following is a summary of certain pertinent aspects that we
believe may significantly affect the rights of the shareholders. This summary
is
not intended to be relied upon as an exhaustive list or a complete description
of such pertinent differences, and is qualified in its entirety by reference
to
the Nevada Revised Statutes ("NRS"), the California Corporations Code and the
Articles of Incorporation and Bylaws of Franklin-Nevada.
SIZE
OF
THE BOARD OF DIRECTORS. Under California law, changes in the number of directors
or, if set forth in the articles of incorporation or bylaws, the range in the
number of directors, must in general be approved by a majority of the
outstanding shares, but the board of directors may fix the exact number of
directors within a stated range, if authorized. Nevada law permits not only
the
stockholders but also the board of directors acting independently of the
stockholders to change the authorized number, or the range, of directors by
amendment to the bylaws, unless the directors are not authorized to amend the
bylaws or the number of directors is fixed in the articles of incorporation
(in
which case a change in the number of directors may be made only by amendment
to
the articles of incorporation following approval of such change by the
stockholders). The Articles of Incorporation of Franklin-Nevada provide that
the
number of directors shall be as specified in the Bylaws. The ability of the
Board of Directors, under Nevada law, to alter the size of the Board without
stockholder approval enables the Company to respond quickly to a potential
opportunity to attract the services of a qualified director or to eliminate
a
vacancy for which a suitable candidate is not available. If the reincorporation
is approved, the Bylaws of Franklin-Nevada will initially provide for a
five-member Board of Directors.
POWER
TO
CALL SPECIAL SHAREHOLDERS’ MEETINGS. Under California law, a special meeting of
shareholders may be called by (a) the board of directors, (b) the chairman
of
the board, (c) the president, (d) the holders of shares entitled to cast not
less than ten percent of the votes at such meeting, or (e) such additional
persons as are authorized by the articles of incorporation or the bylaws. Under
Nevada law, a special meeting of stockholders may be called as set forth in
the
bylaws. Although permitted to do so, the Bylaws of Franklin-Nevada do not
eliminate the right of stockholders to call a special meeting of stockholders;
instead, the Bylaws authorize the Board of Directors, the President or the
holders of at least ten percent of the outstanding capital stock to call a
special meeting of stockholders. Following the reincorporation, the Board of
Directors of Franklin-Nevada could (although it has no current intention to
do
so) amend the Bylaws to limit or eliminate the right of stockholders to call
a
special meeting of stockholders. The right of the stockholders to call a special
meeting is not set forth in the Articles of Incorporation of Franklin-Nevada,
which may be amended only by stockholder vote or written consent, and therefore
such right may be limited or eliminated by amendment of the Bylaws by the Board
of Directors. Any such limitation could make it more difficult for stockholders
to initiate action that is opposed by the Board of Directors. Such action on
the
part of stockholders could include the removal of an incumbent director, the
election of a stockholder nominee as a director or the implementation of a
rule
requiring stockholder ratification of specific defensive strategies that have
been adopted by the Board of Directors with respect to unsolicited takeover
bids. The ability of the Board of Directors under Nevada law to limit or
eliminate the right of stockholders to initiate action at stockholder meetings
may make it more difficult to change the existing Board of Directors and
management.
QUORUM
FOR SHAREHOLDER MEETINGS. Under the NRS, unless otherwise provided in a
corporation’s Articles of Incorporation or its Bylaws, a majority of shares
entitled to vote on a matter constitutes a quorum at a meeting of
shareholders.
SHAREHOLDER
VOTING REQUIREMENTS. Under the NRS, if a quorum is present, directors are
generally elected if they receive more votes favoring their election than
opposing it, unless a greater number of votes is required by the by-laws. With
respect to matters other than the election of directors, unless a greater number
of affirmative votes is required by the NRS, if a quorum is present, a proposal
generally is approved if the votes cast by Shareholders favoring the action
exceed the votes cast by Shareholders opposing the action. Under the NRS, and
unless otherwise provided by the NRS or a Nevada corporation’s Articles of
Incorporation or Bylaws, a proposal is approved by the affirmative vote of
a
majority of the shares represented at a meeting and entitled to vote on the
matter. As a result, abstentions under Nevada law have the effect of a vote
against most proposals.
Under
the
NRS, in the case of a merger, consolidation or a sale, lease or exchange of
all
or substantially all of the assets of a corporation, the affirmative vote of
the
holders of a majority of the issued and outstanding shares entitled to vote
are
generally required.
CUMULATIVE
VOTING. California law generally provides that if any shareholder has given
notice of his or her intention to cumulate votes for the election of directors,
any other shareholder of the corporation is also entitled to cumulate his or
her
votes at such election. Under Nevada law, cumulative voting is not mandatory,
and cumulative voting rights must be provided in a corporation’s articles of
incorporation if stockholders are to be entitled to cumulative voting rights.
The Articles of Incorporation of Franklin-Nevada do not provide for cumulative
voting. California law permits a corporation that is listed on a national
securities exchange, or that is listed on the Nasdaq National Market and has
at
least 800 stockholders as of the record date for the corporation’s most recent
annual meeting of shareholders, to amend its articles or bylaws to eliminate
cumulative voting by approval of the board of directors and of the outstanding
shares voting together as a class.
BUSINESS
COMBINATIONS. In recent years, a number of states, including Nevada, have
adopted special laws designed to make certain kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of
its
significant stockholders, more difficult.
Sections
78.411 to 78.444 of the Nevada General Corporation Law prohibit a Nevada
corporation from engaging in a "combination" with an "interested stockholder"
for three years following the date that such person becomes an interested
stockholder and place certain restrictions on such combinations even after
the
expiration of the three-year period. With certain exceptions, an interested
stockholder is a person or group that owns 10% or more of the corporation’s
outstanding voting power (including stock with respect to which the person
has
voting rights and any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement, or understanding or upon the exercise of conversion
or
exchange rights) or is an affiliate or associate of the corporation and was
the
owner of 10% or more of such voting stock at any time within the previous three
years.
For
purposes of Sections 78.411 to 78.444, the term "combination" is defined broadly
to include mergers of the corporation or its subsidiaries with the interested
stockholder; sales or other dispositions to the interested stockholder of assets
of the corporation or a subsidiary equal to 5% of the aggregate value of all
assets of the corporation, equal to 5% of the value of all outstanding shares
of
the corporation, or representing 10% of the corporation’s earning power or net
income; the issuance or transfer by the corporation or a subsidiary of shares
equal to 5% of the value of all outstanding shares of the corporation to the
interested stockholder (except under the exercise of warrants or rights to
purchase shares offered or in a pro rata distribution); and a variety of other
similar transactions.
The
three-year moratorium imposed on business combinations by Sections 78.411 to
78.444 does not apply if, prior to the date on which such stockholder becomes
an
interested stockholder, the board of directors approves either the business
combination or the transaction that resulted in the person becoming an
interested stockholder.
Even
after expiration of the three-year period, the moratorium on combinations
continues to apply unless one of the following requirements is met: (i) prior
to
the date on which such stockholder becomes an interested stockholder the board
of directors approves either the business combination or the transaction that
resulted in the person becoming an interested stockholder; (ii) the combination
is approved by a majority of the voting power not beneficially owned by the
interested stockholder or its affiliates or associates at a meeting called
for
that purpose; or (iii) the combination satisfies certain provisions concerning
fair price.
Sections
78.411 to 78.444 only apply to Nevada corporations that have 200 or more
stockholders and, unless the articles of incorporation provide otherwise, have
a
class of voting shares registered under Section 12 of the Securities Exchange
Act of 1934 (as the Common Stock of Franklin-Nevada would be upon consummation
of the reincorporation). A Nevada corporation may elect not to be governed
by
Sections 78.411 to 78.444 by a provision in its original certificate of
incorporation or an amendment thereto, which amendment must be approved by
a
majority of the outstanding voting power, although such amendment is not
effective until 18 months after the vote. Franklin-Nevada has not elected,
and
does not intend to elect, not to be governed by these Sections; therefore,
Sections 78.411 to 78.444 will apply to Franklin-Nevada.
Sections
78.411 to 78.444 should encourage any potential acquirer to negotiate with
the
Company’s Board of Directors. These Sections also have the effect of limiting
the ability of a potential acquirer to make a two-tiered bid for the Company
in
which stockholders would be treated unequally. Shareholders should note that
the
application of these Sections to the Company will confer upon the Board the
power to reject a proposed business combination, even though a potential
acquirer may be offering a substantial premium for the Company’s shares over the
then-current market price. These Sections should also discourage certain
potential acquirers unwilling to comply with their provisions.
CONTROL
SHARES. Nevada law further seeks to impede "unfriendly" corporate takeovers
by
providing in Sections 78.378 to 78.3793 of the Nevada General Corporation Law
that an "acquiring person" shall only obtain voting rights in the "control
shares" purchased by such person to the extent approved by the other
stockholders at a meeting. With certain exceptions, an acquiring person is
one
who acquires or offers to acquire a "controlling interest" in the corporation,
defined as one-fifth or more of the voting power. Control shares include not
only shares acquired or offered to be acquired in connection with the
acquisition of a controlling interest, but also all shares acquired by the
acquiring person within the preceding 90 days. The statute covers not only
the
acquiring person but also any persons acting in association with the acquiring
person. California does not have a control shares statute.
Under
Sections 78.378 to 78.3793, a Nevada corporation may, if so provided in the
articles of incorporation or bylaws of the corporation in effect on the tenth
day following acquisition of a controlling interest, call for redemption of
not
less than all of the control shares at the average price paid for the control
shares if (i) the acquiring person has not delivered an offeror’s statement to
the corporation within ten days after acquisition of the control shares or
(ii)
the other stockholders do not accord full voting rights to the control
shares.
Unless
otherwise provided in the articles of incorporation or bylaws in effect on
the
tenth day following acquisition of a controlling interest, if the control shares
are accorded full voting rights and the acquiring person has acquired a majority
of the voting power, then any stockholder of record who did not vote in favor
of
authorizing such voting rights is entitled to demand payment for the fair value
of such stockholder’s shares.
REMOVAL
OF DIRECTORS. Under California law, any director or the entire board of
directors may be removed, with or without cause, by the affirmative vote of
a
majority of the outstanding shares entitled to vote; however, no individual
director may be removed (unless the entire board is removed) if the number
of
votes cast against such removal, or not consenting in writing to removal, would
be sufficient to elect the director under cumulative voting. Under Nevada law,
any director may be removed from office by the vote of stockholders representing
not less than two-thirds of the voting power of the class or series of stock
of
the Company entitled to elect such director, unless the articles of
incorporation provide for cumulative voting or a larger percentage of voting
stock. If a Nevada corporation’s articles of incorporation provide for
cumulative voting, a director may not be removed except upon the vote of
stockholders owning sufficient voting power to have prevented such director’s
election in the first instance. The Articles of Incorporation of Franklin-Nevada
do not provide for cumulative voting, and do not specify any larger percentage
for removal; therefore, two-thirds of the voting power of the class or series
of
stock entitled to elect a director may remove such director.
FILLING
VACANCIES ON THE BOARD OF DIRECTORS. Under California law, unless the articles
of incorporation or bylaws provide otherwise, any vacancy on the board of
directors not created by removal of a director may be filled by the board.
If
the number of directors is less than a quorum, a vacancy may be filled by the
unanimous written consent of the directors then in office, by the affirmative
vote of a majority of the directors at a meeting held pursuant to notice or
waivers of notice, or by a sole remaining director. Unless the articles of
incorporation or bylaws otherwise provide, a vacancy created by removal of
a
director may be filled only by approval of the shareholders. Franklin’s Bylaws
permit directors to fill vacancies; however, if the vacancy was created by
the
removal of a director by the vote or written consent of the shareholders or
by
court order, the vacancy may be filled only by the affirmative vote of a
majority of shares represented and voting at a duly held meeting at which a
quorum is present, or by the unanimous written consent of all the shares
entitled to vote thereon. Under Nevada law, unless a corporation’s articles of
incorporation provide otherwise, any vacancy on the board of directors,
including one created by removal of a director or an increase in the number
of
authorized directors, may be filled by the majority of the remaining directors,
even if such number constitutes less than a quorum. Nevada law would thus enable
the Board of Directors to respond quickly to opportunities to attract the
services of qualified directors; but it would also diminish control of the
Board
by the shareholders of the Company between meetings.
LOANS
TO
OFFICERS AND EMPLOYEES. Under California law, any loan to or guarantee for
the
benefit of a director or officer of a corporation or its parent requires
approval of the shareholders, not counting any shares owned by the relevant
director or officer, unless such loan or guaranty is provided under an employee
benefit plan approved by shareholders owning a majority of the outstanding
shares of the corporation. In addition, under California law shareholders of
any
corporation with 100 or more shareholders of record may approve a bylaw
authorizing the board of directors alone, not counting the vote of any
interested director, to approve loans or guarantees to or on behalf of officers
(whether or not such officers are directors) if the board determines that any
such loan or guaranty may reasonably be expected to benefit the corporation.
These specific provisions of California law dealing with loans and guarantees
would no longer apply after the reincorporation.
LIMITATION
OF LIABILITY AND INDEMNIFICATION. California and Nevada have similar laws
respecting indemnification by a corporation of its officers, directors,
employees, and other agents. The laws of both states also permit corporations
to
adopt a provision in their articles of incorporation eliminating the liability
of a director to the corporation or its shareholders for monetary damages for
breach of the director’s fiduciary duty of care. There are nonetheless certain
differences between the laws of the two states respecting indemnification and
limitation of liability.
The
Articles of Incorporation of Franklin-California eliminate the liability of
directors to the fullest extent permissible under California law. California
law
permits eliminating or limiting the personal liability of a director for
monetary damages in an action brought by or in the right of the corporation
(a
"derivative suit") for breach of a director’s duties to the corporation and its
shareholders; provided, however, that the corporation may not eliminate or
limit
liability for (i) intentional misconduct or knowing and culpable violation
of
law; (ii) acts or omissions that a director believes to be contrary to the
best
interests of the corporation or its shareholders, or that involve the absence
of
good faith on the part of the director; (iii) receipt of an improper personal
benefit; (iv) acts or omissions that show reckless disregard for the director’s
duty to the corporation or its shareholders, where the director in the ordinary
course of performing a director’s duties should be aware of a risk of serious
injury to the corporation or its shareholders; (v) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of
the director’s duty to the corporation or its shareholders; (vi) interested
transactions between the corporation and a director in which a director has
a
material financial interest; and (vii) liability for improper distributions,
loans, or guarantees.
The
Articles of Incorporation of Franklin-Nevada eliminate the liability of both
directors and officers to the fullest extent permissible under Nevada law,
as
such law exists currently or as it may be amended in the future. Under Nevada
law, such provision may not eliminate or limit director or officer monetary
liability for (i) acts or omissions involving intentional misconduct, fraud,
or
a knowing violation of law or (ii) the payment of certain prohibited
distributions. Such limitation of liability provision also may not limit a
director’s or officer’s liability for violation of, or otherwise relieve
Franklin Nevada or its directors or officers from the necessity of complying
with, federal or state securities laws, or affect the availability of
nonmonetary remedies such as injunctive relief or rescission.
California
law permits indemnification of expenses incurred in derivative or third-party
actions, except that, with respect to derivative actions, (a) no indemnification
may be made when a person is adjudged liable to the corporation in the
performance of that person’s duty to the corporation and its shareholders unless
a court determines such person is entitled to indemnity for expenses, and then
such indemnification may be made only to the extent that such court shall
determine, and (b) no indemnification may be made in respect of amounts paid
in
settling or otherwise disposing of a pending action, or expenses incurred in
defending a pending action that is settled or otherwise disposed of, without
court approval. Indemnification is permitted by California law only for acts
taken in good faith and believed to be in the best interests of the corporation
and its shareholders, as determined by a majority vote of a disinterested quorum
of the directors, independent legal counsel (if a quorum of independent
directors is not obtainable), a majority vote of a quorum of the shareholders
(excluding shares owned by the indemnified party), or the court handling the
action.
California
law requires indemnification when the individual has successfully defended
the
action on the merits (as opposed to Nevada law, which requires indemnification
relating to a successful defense on the merits or otherwise). Nevada law
generally permits indemnification of expenses incurred in the defense or
settlement of a derivative or third-party action, provided that, unless a court
orders indemnification or the corporation is bound to advance expenses as they
are incurred, there is a determination by a disinterested quorum of the
directors, by independent legal counsel, or by the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests
of
the corporation. Without court approval, however, no indemnification may be
made
in respect of any derivative action in which such person is adjudged liable
to
the corporation. Nevada law requires indemnification of expenses when the
individual being indemnified has successfully defended any action, claim, issue,
or matter therein, whether on the merits or otherwise.
Nevada
law states that the indemnification provided by statute shall not be deemed
exclusive of any other rights under the articles of incorporation, any bylaw,
agreement, vote of stockholders or disinterested directors, or otherwise. The
current officer and director of the Company has not and does not intend to
enter
into an indemnification agreement with Franklin-Nevada, but in the future such
an indemnification agreement may be adopted that conforms to Nevada law and
includes within its purview future changes in Nevada law that expand the
permissible scope of indemnification of directors and officers of Nevada
corporations.
Nevada
law provides that the articles of incorporation or bylaws or an agreement made
by a corporation may provide that the expenses of directors and officers
incurred in defending an action must be paid by the corporation as they are
incurred and in advance of the final disposition of the action upon receipt of
an undertaking by or on behalf of the director or officer to repay the amount
if
the court ultimately determines that such person is not entitled to
indemnification. The Articles of Incorporation and the Bylaws of Franklin-Nevada
provide that the Company shall indemnify directors and officers to the fullest
extent permitted under Nevada law, and that the Company shall pay all expenses
incurred in defending an action in advance. The Bylaws of Franklin-Nevada also
permit
such indemnification of and advancement of expenses to employees and agents
of
the Company.
Nevada
law further provides that a corporation may purchase and maintain insurance
or
make other financial arrangements on behalf of any director, officer, employee,
or agent of the corporation (or person who is serving in such capacity with
another enterprise at the request of the corporation), whether or not the
corporation has the authority to indemnify such person. These other financial
arrangements may include a trust fund, self-insurance, securing the
corporation’s obligation by granting a security interest or other lien, or
establishing a letter of credit, guaranty, or surety, although no financial
arrangement may provide protection for intentional misconduct, fraud, or a
knowing violation of law except with respect to the advancement of expenses
or
unless ordered by a court. In the absence of fraud, the decision of the board
of
directors as to the propriety of any insurance or other financial arrangement
is
conclusive, and the insurance or other financial arrangement is not void or
voidable and does not subject any director approving it to personal liability
even if such director is a beneficiary of the insurance or other financial
arrangement. The Bylaws of Franklin-Nevada permit the Company to purchase and
maintain insurance and make such other financial arrangements.
INSPECTION
OF SHAREHOLDER LISTS AND BOOKS AND RECORDS. California law allows any
shareholder to inspect the shareholder list, the accounting books and records,
and the minutes of board and shareholder proceedings for a purpose reasonably
related to such person’s interest as a shareholder. California law provides, in
addition, for an absolute right to inspect and copy the corporation’s
shareholder list by persons who hold an aggregate of five percent or more of
a
corporation’s voting shares or who hold one percent or more of such shares and
have filed a Schedule 14A with the Securities and Exchange
Commission.
Nevada
law allows inspection of a stockholder list only upon five days’ notice by
either a person who has been a stockholder of record at least six months or
a
person holding, or authorized in writing by the holder of, five percent of
the
corporation’s outstanding shares. In addition, the corporation may deny such
inspection rights if the stockholder requesting disclosure refuses to sign
an
affidavit to the effect that (i) the inspection is not desired for a purpose
that is in the interest of a business or object other than the business of
the
corporation and (ii) the stockholder has not at any time sold or offered for
sale any list of stockholders of any corporation or aided and abetted any other
person for such purpose. To inspect the accounting and financial books and
records of a corporation, a stockholder must hold or have the written
authorization of the holders of at least 15% of all issued and outstanding
shares, and a corporation may demand an affidavit to the effect that such
inspection is not desired for any purpose not related to such person’s interest
in
the
corporation as a stockholder. No right to inspect the accounting and financial
books and records applies to any corporation listed and traded on a recognized
stock exchange or which furnishes detailed annual financial statements to its
stockholders.
Lack
of
access to stockholder records, even though unrelated to the stockholder’s
interests as a stockholder, could result in impairment of the stockholder’s
ability to coordinate opposition to management proposals, including proposals
with respect to a change in control of the Company. However, California law
provides that California provisions concerning the inspection of shareholder
lists apply not only to California corporations but also to corporations
organized under the laws of other states that have their principal executive
offices in California or customarily hold meetings of the board in California,
and that the California provisions concerning accounting books and records
and
the minutes of board and shareholder proceedings apply to any such foreign
corporation that has its principal executive offices in California. For so
long
as the Company continues to have its principal executive offices in California
and to hold board of directors meetings in California, and to the extent such
provisions applicable to foreign corporations are enforceable, the Company
will
need to comply with California law concerning shareholder
inspections.
DIVIDENDS
AND REPURCHASES OF SHARES. Under California law, a corporation may not make
any
distribution (including dividends, whether in cash or other property, and
repurchases of its shares) unless, immediately prior to the proposed
distribution, the corporation’s retained earnings equal or exceed the amount of
the proposed distribution or, immediately after giving effect to such
distribution, the corporation’s assets (exclusive of goodwill, capitalized
research and development expenses, and deferred charges) would be at least
equal
to 125% of its liabilities (not including deferred taxes, deferred income,
and
other deferred credits) and the corporation’s current assets would be at least
equal to its current liabilities (or 125% of its current liabilities if the
average pre-tax and pre-interest expense earnings for the preceding two fiscal
years were less than the average interest expense for such years). California
also prohibits any distribution if the corporation or subsidiary making the
distribution is or would be likely to be unable to meet its liabilities.
California also prohibits making any distribution to a class or series of shares
junior to another class or series with respect to a liquidation preference
unless after giving effect to the distribution the excess of assets over
liabilities is at least equal to the liquidation preference of all such shares
or, in the case of a dividend preference, retained earnings prior to the
distribution at least equal the proposed distribution plus cumulative dividends
in arrears on all such shares.
Nevada
law prohibits a distribution (including dividends, purchases, redemptions or
other acquisition of shares, distributions of indebtedness, or otherwise) if,
after giving effect to the distribution, (i) the corporation would not be able
to pay its debts as they become due in the usual course of business or (ii)
except as provided in the articles of incorporation, the corporation’s total
assets would be less than the sum of its total liabilities plus the amount
that
would be needed, if the corporation were to be dissolved at the time of
distribution, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights are superior to those receiving the
distribution.
To
date,
the Company has not paid cash dividends on its capital stock. It is the present
policy of the Board of Directors to retain earnings for use in the Company’s
business, and the Company does not anticipate paying cash dividends on its
capital stock in the foreseeable future.
SHAREHOLDER
VOTING. Both California and Nevada law generally require that a majority of
shareholders of both the acquiring and target corporations approve statutory
mergers. Nevada law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
articles of incorporation) if (i) the merger agreement does not amend the
existing articles of incorporation of the surviving corporation, (ii) each
stockholder of the surviving corporation whose shares were outstanding before
the merger will hold the same number of shares with identical designations,
preferences, limitations, and relative rights after the merger, and (iii) the
number of shares outstanding after the merger plus the number of shares issued
as a result of the merger, either by conversion or exercise of securities issued
pursuant to the merger, will not exceed by more than 10% the number of shares
of
the surviving corporation outstanding immediately prior to the merger.
California law contains a similar exception to its voting requirements for
reorganizations where shareholders or the corporation itself, or both,
immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than five-sixths of the
voting power of the surviving or acquiring corporation or its parent entity.
Both California and Nevada law also require that a sale of all or substantially
all of the assets of a corporation be approved by a majority of the voting
shares of the corporation transferring such assets. With certain exceptions,
California law also requires that mergers, reorganizations, certain sales of
assets, and similar transactions be approved by a majority vote of each class
of
shares outstanding. By contrast, Nevada law generally does not require class
voting, except in certain transactions involving an amendment to the articles
of
incorporation that differentially affects a specific class of shares. As a
result, stockholder approval of such transactions may be easier to obtain under
Nevada law for companies that have more than one class of shares
outstanding.
California
law also requires that, except in a short-form merger or a merger of a parent
corporation into its subsidiary in which it owns at least 90% of the outstanding
shares, if a constituent corporation in the merger or its parent owns at least
50% of another constituent corporation in the merger, the non-redeemable common
shares of a constituent corporation may be converted only into nonredeemable
common shares of the surviving corporation or a parent party unless all
shareholders of the class consent. This provision of California law may have
the
effect of making a "cash-out" merger by a majority shareholder more difficult
to
accomplish. Although Nevada law does not parallel California law in this
respect, under some circumstances Sections 78.411 to 78.444 (business
combinations with interested stockholders) and Sections 78.378 to 78.3793(voting
rights of acquiring person’s control shares) of the Nevada General Corporation
Law do provide similar protection against coercive two- tiered bids for a
corporation in which the stockholders are not treated equally.
California
law provides that, except in certain circumstances, when a tender offer or
a
proposal for a reorganization or for a sale of assets is made by an interested
party (generally a controlling or managing party of the target corporation),
an
affirmative opinion in writing as to the fairness of the consideration to be
paid to the shareholders must be delivered to the shareholders. This fairness
opinion requirement does not apply to a corporation that does not have shares
held of record by at least 100 persons or to a transaction that has been
qualified under California state securities laws. Furthermore, if a tender
of
shares or vote is sought pursuant to an interested party’s proposal and a later
proposal is made by another party at least ten days prior to the date of
acceptance of the interested party proposal, the shareholders must be informed
of the later offer and be afforded a reasonable opportunity to withdraw any
vote, consent, or to withdraw any tendered shares. Nevada law has no comparable
provision.
INTERESTED
DIRECTOR TRANSACTIONS. Under both California and Nevada law, certain contracts
or transactions in which one or more of a corporation’s directors have an
interest are not void or voidable because of such interest provided that certain
conditions, such as obtaining the required approval and fulfilling the
requirements of good faith and full disclosure, are met. With certain
exceptions, the conditions are similar under California and Nevada law. Under
California and Nevada law, either (i) the shareholders or the board of directors
must approve any such contract or transaction after full disclosure of the
material facts and, in the case of board approval, the contract or transaction
must also be "just and reasonable" (in California) to the corporation19 or
(ii)
the contract or transaction must have been "just and reasonable" (in California)
or "fair" (in Nevada) to the corporation at the time it was approved. In the
latter case, California law explicitly places the burden of proof on the
interested director. If board approval is sought, the contract or transaction
must be approved by a majority vote of a quorum of the directors, without
counting the vote of any interested directors (except that interested directors
may be counted for purposes of establishing a quorum). Under California law,
if
shareholder approval is sought, the interested director is not entitled to
vote
such director’s shares at a shareholder meeting with respect to any action
regarding such contract or transaction, whereas Nevada law requires that such
director’s votes be counted for such purpose. Nevada law also provides that the
transaction is not void or voidable if the fact of the common directorship,
office, or financial interest at issue is not disclosed or known to the director
at the time the transaction is brought before the board for action. Nevada
law
addresses not only interested directors but also transactions with interested
officers.
DISSENTERS’
RIGHTS. Under Nevada law, dissenters’ (or appraisal) rights are not available in
a merger or share exchange if the shares held by the stockholders prior to
the
share exchange or merger were either listed on a national securities exchange
or
held by at least 2,000 stockholders of record, unless the articles of
incorporation of the corporation provide for dissenters’ rights or the
stockholders are required to accept under the plan of merger or share exchange
anything other than cash, shares of the surviving corporation, shares of a
publicly traded or widely held corporation, or a combination of
these.
The
limitations on the availability of appraisal rights under California law are
different from those under Nevada law. Shareholders of a California corporation
whose shares are listed on a national securities exchange or on a list of
over-the-counter margin stocks issued by the Board of Governors of the Federal
Reserve System generally do not have such appraisal rights unless the holders
of
at least five percent of the class of outstanding shares claim the right or
unless the corporation or any law restricts the transfer of such shares.
Appraisal rights are also unavailable if the shareholders of a corporation
or
the corporation itself, or both, immediately prior to the reorganization will
own immediately after the reorganization equity securities constituting more
than five-sixths of the voting power of the surviving or acquiring corporation
or its parent entity (as will be the case under the reincorporation). Appraisal
or dissenters’ rights are, therefore, not available to shareholders of Franklin
with respect to the reincorporation.
POSSIBLE
APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA AFTER THE
REINCORPORATION.
Under
Section 2115 of the California General Corporation Law, certain foreign
corporations (i.e., corporations not organized under California law) are placed
in a special category if they have characteristics of ownership and operation
indicating that they have certain significant business contacts with California
and more than one half of their voting securities are held of record by persons
having addresses in California. So long as a Nevada or other foreign corporation
is in this special category, and it does not qualify for one of the statutory
exemptions, it may be subject to a number of key provisions of the California
General Corporation Law applicable to corporations incorporated in California.
Among the more important provisions are those relating to the election and
removal of directors, cumulative voting, prohibition of classified boards of
directors in privately held corporations, standards of liability and
indemnification of directors, distributions, dividends and repurchases of
shares, shareholder meetings, approval of certain corporate transactions,
dissenters’ and appraisal rights, and inspection of corporate
records. An exemption from Section 2115 is provided for a corporation
whose shares are listed on a major national securities exchange, or are traded
on the Nasdaq National Market and has 800 or more shareholders as of the record
date for its most recent annual meeting of shareholders. As Franklin-Nevada
will
have not have its shares listed on a major national securities exchange for
the
foreseeable future, the Company will not qualify for the exemption from 2115
described above.
REASONS
FOR THE REINCORPORATION
We
believe that the reincorporation in Nevada will give us more flexibility and
simplicity in various corporate transactions. Nevada has adopted corporate
laws
that that includes by statute many concepts created by judicial rulings in
other
jurisdictions, which provide a less burdensome business and corporate
environment than California laws. It should be noted, however, that many of
the
provisions of Nevada law have not yet received extensive scrutiny and
interpretation. Nevertheless, the Board of Directors believes that Nevada law
will provide the Company with the comprehensive flexible structure which it
needs to operate effectively.
PROPOSAL
TWO: REVERSE STOCK SPLIT
The
Board
of Directors has approved, subject to shareholder approval, a reverse stock
split under which each outstanding share of Common Stock will be converted
into
1/70th of one share. If approved by the shareholders, the reverse stock split
will be implemented in connection with the reincorporation, under which the
shareholders will receive one share of Franklin-Nevada for each 70 shares held
in Franklin-California.
The
purpose of the reverse split is to reduce the number of outstanding shares,
in
an effort to increase the market value of the remaining outstanding shares.
In
approving the reverse split, the Board of Directors considered that the
Company’s Common Stock may not appeal to brokerage firms that are reluctant to
recommend lower priced securities to their clients. Investors may also be
dissuaded from purchasing lower priced stocks because the brokerage commissions,
as a percentage of the total transaction, tend to be higher for such stocks.
Moreover, analysts at many brokerage firms do not monitor the trading activity
or otherwise provide coverage of lower priced stocks. The Board of Directors
also believes that most investment funds are reluctant to invest in lower priced
stocks.
When
the
trading price of the Company’s Common Stock is below $5.00 per share, the Common
Stock is considered to be "penny stock," which is subject to rules promulgated
by the Commission (Rule 15-1 through 15g-9) under the Exchange Act. These rules
impose significant requirements on brokers under these circumstances, including:
(a) delivering to customers the Commission’s standardized risk disclosure
document; (b) providing to customers current bid and offers; (c) disclosing
to
customers the broker-dealer and sales representatives’ compensation; and (d)
providing to customers monthly account statements. These rules can have a
negative effect on the price of stocks subject to the rules.
The
Board
of Directors proposed the reverse split as one method to attract investors
as
well as gain negotiating leverage in using the Common Stock of the Company
with
regard to existing and new business opportunities. The Company believes that
the
reverse split may improve the price level of the Company’s Common Stock and that
this higher share price could help generate additional interest in the
Company.
POTENTIAL
RISKS OF THE REVERSE SPLIT
There
can
be no assurance that the price of the Company’s Common Stock will continue at a
level in proportion to the reduction in the number of outstanding shares
resulting from the reverse split, that the reverse split will result in a per
share price that will increase its ability to attract corporate and investment
opportunities or that the market price of the post-split Common Stock can be
maintained. The market price of the Company’s Common Stock will also be based on
its financial performance, market condition, the market perception of its future
prospects and the Company’s industry as a whole, as well as other factors, many
of which are unrelated to the number of shares outstanding. If the market price
of the Company’s Common Stock declines after the reverse split, the percentage
decline as an absolute number and as a percentage of the Company’s overall
capitalization may be greater than would occur in the absence of a reverse
split. The possibility exists that the reduced number of outstanding shares
will
adversely affect the market for the Common Stock by reducing the relative level
of liquidity. In addition, the reverse split may increase the number of
Shareholders who own odd lots, or less than 100 shares. Shareholders who own
odd
lots typically find it difficult to sell their shares and frequently find odd
lot sales more expensive than round lot sales of 100 shares or
more.
EFFECT
ON
AUTHORIZED AND OUTSTANDING SHARES.
There
are
926,041,050 shares of Common Stock issued and outstanding as of the record
date.
As a result of the reverse split, the number of shares of Common Stock issued
and outstanding will be reduced to the number of shares of Common Stock issued
and outstanding immediately prior to the effectiveness of the reverse split,
divided by seventy, or approximately 13,229,158.
With
the
exception of the number of shares issued and outstanding, the rights and
preferences of the shares of Common Stock prior and subsequent to the reverse
split will remain the same. It is not anticipated that the Company’s financial
condition, the percentage of ownership of management, the number of
shareholders, or any aspect of the Company’s business would materially change,
solely as a result of the reverse split. Upon its effectiveness, the reverse
split will be effectuated simultaneously for all of the Company’s Common Stock
and the exchange ratio will be the same for all shares of the Company’s common
stock. The reverse split will affect all of the Shareholders uniformly and
will
not affect any shareholder’s percentage ownership interests in the Company or
proportionate voting power, except to the extent that the reverse split results
in any Shareholders owning a fractional share and the resulting nominal change
of ownership percentage resulting from rounding up.
The
Company’s Common Stock is currently registered under Section 12(g) of the
Exchange Act and as a result, is subject to periodic reporting and other
requirements. The Company will continue to be subject to the periodic reporting
requirements of the Exchange Act. The reverse split is not intended as, and
will
not have the effect of, a "going private transaction" covered by Rule 13e-3
under the Exchange Act.
TAX
EFFECTS OF REVERSE SPLIT
The
following discussion summarizing material federal income tax consequences of
the
reverse split is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the applicable Treasury Regulations promulgated thereunder, judicial
authority and current administrative rulings and practices in effect on the
date
this Information Statement was first mailed to Shareholders. This discussion
does not discuss consequences that may apply to special classes of taxpayers
(e.g., non-resident aliens, broker-dealers, or insurance companies).
Shareholders should consult their own tax advisors to determine the particular
consequences to them.
The
receipt of the Common Stock following the effective date of the reverse split,
solely in exchange for the Common Stock held prior to the reverse split, will
not generally result in recognition of gain or loss to the shareholders. The
conversion of seventy shares of the currently issued and outstanding Common
Stock into one (1) share of new Common Stock should be a tax-free
transaction under the Code, and the holding period and tax basis of the
currently issued and outstanding Common Stock will be transferred to the new
Common Stock received in exchange therefor. Although the issue is not free
from
doubt, additional shares received in lieu of fractional shares, including shares
received as a result of the rounding up of fractional ownership, should be
treated
in the same manner. The adjusted tax basis of a shareholder in the Common Stock
received after the reverse split will be the same as the adjusted tax basis
of
the Common Stock held prior to the reverse split exchanged therefor, and the
holding period of the Common Stock received after the Reverse Split will include
the holding period of the Common Stock held prior to the reverse split exchanged
therefor.
No
gain
or loss will be recognized by the Company as a result of the reverse split.
The
Company’s views regarding the tax consequences of the reverse split are not
binding upon the Internal Revenue Service or the courts, and there can be no
assurance that the Internal Revenue Service or the courts would accept the
positions expressed above.
This
discussion should not be considered as tax or investment advice, and the tax
consequences of the Reverse split may not be the same for all Shareholders.
Shareholders should consult their own tax advisors to know their individual
Federal, state, local and foreign tax consequences.
PROPOSAL
THREE: CHANGE IN AUTHORIZED CAPITALIZATION
The
Company currently has 1,200,000,000 authorized shares of Common Stock, of which
926,041,050 shares were outstanding on October 25, 2007. The Company currently
has 10,000,000 authorized shares of Preferred Stock, of which no shares are
outstanding.
Franklin-Nevada,
the newly organized Nevada corporation into which the Company will merge to
accomplish its change of domicile, if approved by the stockholders, is
authorized to issue 50,000,000 shares of Common Stock, par value $0.001 and
10,000,000 shares of Preferred Stock. The effect of the merger will be to change
the number of authorized common shares which may be issued by the Company from
1,200,000,000 (pre-reverse split) to 50,000,000. The authorized
number
of
shares of Preferred Stock will be unchanged.
If
the 1
for 70 reverse stock split were to be applied to the authorized shares, it
would
reduce the number of authorized shares to 17,142,857. Since this would not
be
sufficient to meet anticipated needs in the immediate future, the Board
considers it desirable that the Company have the flexibility to issue an
additional amount of Common Stock without further stockholder action, unless
otherwise required by law or other regulations. The availability of these
additional shares will enhance the Company’s flexibility in connection with any
possible acquisition or merger, stock splits or dividends, financings and other
corporate purposes and will allow such shares to be issued without the expense
and delay of a special stockholders’ meeting, unless such action is required by
applicable law or rules of any stock exchange on which the Company’s securities
may then be listed. The Board may issue the Common Stock for such consideration
as may be fixed by the Board and for any corporate purpose without further
action by the stockholders, except as may be required by law. Each share of
Common Stock has equal dividend rights and participates equally upon
liquidation. The Company has no obligations or commitments to issue any of
these
shares.
ACTION
BY
WRITTEN CONSENT
Pursuant
to Section 603 of the California General Corporation Law ("CGCL"), any action
which may be taken at any meeting of the Shareholders may also be taken without
a meeting and without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled
to
vote thereon were present and voted (here, a majority of the outstanding shares
of Common Stock of the Company) and delivered to the Company.
The
Company’s Bylaws provide that the Board of Directors may fix, in advance, a date
not more than sixty nor less than ten days before the date then fixed for the
holding of any meeting of the Shareholders of the Company (or before the last
day on which the consent of the shareholders may be effectively expressed for
any purpose without a meeting), as the time as of which the
shareholders
entitled to notice of and to vote as such meeting or whose consent is required
or may be expressed for any purpose, as the case may be, shall be determined,
and all persons who were Shareholders of record of Common Stock at such time,
and no others, shall be entitled to notice of and to vote at such meeting or
to
express their consent, as the case may be.
SECURITY
OWNERSHIP
The
following table sets forth certain information regarding the beneficial
ownership of the Company’s Common Stock as of June 30, 2007 by each director and
executive officer of the Company, each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, and all
directors and executive officers of the Company as a group. Except as otherwise
indicated below, each person has sole voting and investment power
with
respect
to the shares owned, subject to applicable community property laws.
|
Name
and Address
|
|
Number
|
|
Percent
|
| |
|
|
|
|
|
OC
Kim
|
|
104,943,534
|
|
11.33%
|
|
9823
Pacific Heights Blvd. Suite J
|
|
|
|
|
|
San
Diego, CA 92121
|
|
|
|
|
| |
|
|
|
|
|
Gary
Nelson
|
|
23,917,500
|
|
2.58%
|
|
9823
Pacific Heights Blvd. Suite J
|
|
|
|
|
|
San
Diego, CA 92121
|
|
|
|
|
| |
|
|
|
|
|
Nick
Lim
|
|
34,174,300
|
|
3.80%
|
|
9823
Pacific Heights Blvd. Suite J
|
|
|
|
|
|
San
Diego, CA 92121
|
|
|
|
|
| |
|
|
|
|
|
Taejin
Kim
|
|
54,968,889
(1)
|
|
5.90%
|
|
9823
Pacific Heights Blvd. Suite J
|
|
|
|
|
|
San
Diego, CA 92121
|
|
|
|
|
| |
|
|
|
|
|
David
Kim
|
|
88,805,746
(2)
|
|
9.59%
|
|
9823
Pacific Heights Blvd. Suite J
|
|
|
|
|
|
San
Diego, CA 92121
|
|
|
|
|
| |
|
|
|
|
|
James
Lee
|
|
110,000,000
(3)
|
|
11.87%
|
|
9823
Pacific Heights Blvd. Suite J
|
|
|
|
|
|
San
Diego, CA 92121
|
|
|
|
|
| |
|
|
|
|
|
All
directors and executive officers of
|
|
|
|
|
|
the
Company as a group (6 persons)
|
|
416,809,969
|
|
45.00%
|
___________________
(1)
Consists of shares owned by iPacific Partners, of which Taejin Kim is an
officer.
(2)
Consists of shares owned by Westech Korea, of which David Kim is an
officer.
(3)
Consists of shares owned by C-Motech Co. Ltd., of which James Lee is an
officer.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock shown
as
beneficially owned by them. Shares of Common Stock subject to securities
currently convertible, or convertible within 60 days after June 30, 2007, are
deemed to be outstanding in calculating the percentage ownership of a person
or
group but are not deemed to be outstanding as to any other person or
group.
Appendix
A
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER, dated as of ________________ ____, 2007 (the
"Plan"), by and between Franklin Wireless Corp., a California corporation
("Franklin-California") and Franklin Wireless Corp., a Nevada corporation and
wholly-owned subsidiary of Franklin-California ("Franklin-Nevada");
RECITALS:
A.
Franklin-California and Franklin-Nevada desire to enter into this Plan providing
for the merger of Franklin-California into Franklin-Nevada;
B.
The
authorized capital stock of Franklin-Nevada consists of one hundred fifty
million (150,000,000) shares of Common Stock, par value $.001 per share (the
"Franklin-Nevada Shares"), one hundred (100) of which are owned of record and
beneficially by Franklin-California, and ten million shares of Preferred Stock,
par value $.001 per share, none of which are issued or outstanding;
C.
The
authorized capital stock of Franklin-California consists of 1,200,000,000 shares
of Common Stock, without par value (the "Franklin-California Shares"), of which
926,040,050 shares are outstanding on the date hereof, and ten million shares
of
Preferred Stock, without par value, none of which are issued or outstanding;
and
D.
The
merger will have no effect or change on the nature of the business or management
of the resulting business operating through the surviving
corporation.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants contained
herein and other valuable consideration, the receipt and adequacy of which
are
hereby acknowledged, the parties do hereby covenant and agree as
follows:
SECTION
1. THE MERGER.
1.1
THE
MERGER. (i) On the Effective Date (as defined below), Franklin-California shall
be merged (the "Merger") with and into Franklin-Nevada in accordance with the
California General Corporation Law and the Nevada Revised Statutes, whereupon
the separate existence of Franklin-California shall cease, and Franklin-Nevada
shall be the surviving corporation (the "Surviving Corporation".
1.2.
FILING. As soon as practicable after the execution of this Plan,
Franklin-California and Franklin-Nevada will file a copy of this plan of merger
with the Secretary of State of the State of Nevada and make all other filings
or
recordings required by Nevada and California law in connection with the Merger.
The Merger shall become effective at such time (the "Effective Date") as the
certificate of merger is duly filed with the Secretary of State of the State
of
Nevada.
1.3
EFFECT OF MERGER. From and after the Effective Date, the Surviving Corporation
shall possess all the rights, powers, privileges and franchises and be subject
to all of the obligations, liabilities, restrictions and disabilities of
Franklin-California and Franklin-Nevada, all as provided under the General
Corporation Law of the State of Nevada.
1.4.
COMMON STOCK. On the Effective Date, by virtue of the Merger and without any
further action on the part of the corporation or their shareholders, (i) each
share of Common Stock of Franklin-California issued and outstanding immediately
prior thereto shall be converted into shares of fully paid and nonassesssable
shares of the Common Stock of Franklin-Nevada at a ratio of 1 for 70, and (ii)
each share of Common Stock of Franklin-Nevada issued and outstanding immediately
prior thereto shall be canceled and returned to the status of authorized but
unissued shares.
1.5.
STOCK CERTIFICATES. On and after the Effective Date, all of the outstanding
certificates which prior to that time represented shares of the Common Stock
of
Franklin-California shall be deemed for all purposes to evidence ownership
of
and to represent the shares of Franklin-Nevada into which the shares of
Franklin-California represented by such certificates have been converted as
herein provided and shall be so registered on the books and records of the
Surviving Corporation or its transfer agents. The registered owner of any such
outstanding stock certificate shall, until such certificate shall have been
surrendered for transfer or conversion or otherwise accounted for to the
Surviving Corporation or its transfer agent, have and be entitled to exercise
any voting and other rights with respect to and to receive any dividend and
other distributions upon the shares of Franklin-Nevada evidenced by such
outstanding certificate as above provided.
1.6
TAX-FREE REORGANIZATION. It is intended by the Parties hereto that the Merger
shall constitute a tax-free reorganization within the meaning of Section 368
of
the Internal Revenue Code of 1986, as amended, and that this Plan shall
constitute a plan of reorganization within the meaning of the regulations
thereunder.
SECTION
2. THE SURVIVING CORPORATION.
2.1
ARTICLES OF INCORPORATION. The Articles of Incorporation of Franklin-Nevada
shall be the Articles of Incorporation of the Surviving
Corporation.
2.2
BY-LAWS. The By-Laws of Franklin-Nevada in effect on the Effective Date shall
be
the By-Laws of the Surviving Corporation until amended in accordance with
applicable law.
2.3
DIRECTORS AND OFFICERS. From and after the Effective Date, until successors
are
duly elected or appointed and qualified in accordance with applicable law,
(i)
the directors of Franklin-California as of the Effective Date shall be the
directors of the Surviving Corporation and (ii) the officers of
Franklin-California as of the Effective Date shall be the officers of the
Surviving Corporation.
SECTION
3. MISCELLANEOUS
3.1
AMENDMENTS; NO WAIVERS. Any provision of this Plan may be amended or waived
prior to the Effective Date if, but only if, such amendment or waiver is in
writing and is signed, in the case of an amendment, by each party to this Plan
or, in the case of a waiver, by each party against whom the waiver is to be
effective. No failure or delay by any party in exercising any right, power
or
privilege hereunder shall operate as a waiver thereof, nor shall any single
or
partial exercise thereof preclude any other or further exercise thereof or
the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any right or remedies provided
by law.
3.2
SUCCESSORS AND ASSIGNS. The provisions of this Plan shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and
assigns, provided that no party may assign, delegate or otherwise transfer
any
of its rights or obligations under this Plan without the prior written consent
of the other parties hereto.
3.3
GOVERNING LAW. This Plan shall be governed by and construed in accordance with
the internal laws of the State of Nevada.
3.4
ENTIRE AGREEMENT. This Plan constitutes the entire agreement among the Parties
with respect to the subject matter of this Plan and supersedes all prior
agreements and understandings, both oral and written, among the parties with
respect to the subject matter of this Plan.
3.5
SEVERABILITY. If any term, provision, covenant or restriction of this Plan
is
held by a court of competent jurisdiction or other authority to be invalid,
void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Plan shall remain in full force and effect and shall in
no
way be affected, impaired or invalidated. Upon such a determination, the Parties
shall negotiate in good faith to modify this Plan so as to effect the original
intent of the Parties as closely as possible in an acceptable manner so that
the
transactions contemplated hereby shall be consummated as originally contemplated
to the fullest extent possible.
3.6
CONDITIONS TO MERGER. The obligations of the Parties to effect the transactions
contemplated hereby is subject to satisfaction of the following conditions
(any
or all of which may be waived by either of the Parties in its sole discretion
to
the extent permitted by law): the Merger shall have been approved by the
shareholders of Franklin-California in accordance with applicable provisions
of
the California General Corporation Law; and Franklin-California, as sole
shareholder of Franklin-Nevada, shall have approved the Merger in accordance
with the Nevada Revised Statutes, and any and all consents, permits,
authorizations, approvals, and orders deemed in the sole discretion of
Franklin-California to be material to consummation of the Merger shall have
been
obtained.
3.7
ABANDONMENT OR DEFERRAL. At any time before the Effective Date, this Plan may
be
terminated and the Merger may be abandoned by the Board of Directors of either
Franklin-California or Franklin-Nevada or both, notwithstanding the approval
of
this Plan by the shareholders of Franklin-Nevada, or the consummation of the
Merger may be deferred for a reasonable period of time if, in the opinion of
the
Boards of Directors of Franklin-California and Franklin-Nevada, such action
would be in the best interest of such corporations. In the event of termination
of this Plan, this Plan shall become void and of no effect and there shall
be no
liability on the part of either Party or its Board of Directors or shareholders
with respect thereto or Franklin-Nevada.
IN
WITNESS WHEREOF, each of the parties has caused this Plan to be executed by
an
authorized signature as of the date first written above.
Franklin
Wireless Corp.,
a
California corporation
By:
__________________________
President
Franklin
Wireless Corp.,
a
Nevada
corporation
By:
__________________________
President
Appendix
B
ARTICLES
OF INCORPORATION
OF
FRANKLIN
WIRELESS CORP.
The
undersigned, being the original incorporator herein named, for the purpose
of
forming a corporation under the general corporation laws of the State of Nevada,
does make and file these Articles declaring and certifying that the facts herein
stated are true.
ARTICLE
I: NAME
The
name
of the corporation shall be "Franklin Wireless Corp."
ARTICLE
II: TERM
The
term
of the corporation shall be perpetual.
ARTICLE
III: RESIDENT AGENT & REGISTERED OFFICE
The
registered agent for service of process is GKL Resident Agents/Filings, Inc.,
1000 East William Street, Suite 204, Carson City, NV 89701. The corporation
may
maintain offices for the transaction of any business at such places within
or
without the State of Nevada as it may from time to time determine. Corporate
business of every kind and nature may be conducted, and meetings of directors
and stockholders held, outside the State of Nevada with the same effect as
if
within the State of Nevada.
ARTICLE
IV: CAPITAL STOCK
The
amount of the total authorized capital stock of the corporation Fifty Million
(50,000,000) shares of Common Stock, par value $.001 per share, and Ten Million
(10,000,000) shares of Preferred Stock, par value $.001 per share. The
characteristics distinguishing Preferred Stock from Common Stock shall be
described in a resolution or resolutions of the Board of Directors adopted
prior
to issuance of any Preferred Stock. All stock shall be fully paid and
nonassessable, and shall be issued for such consideration as may be fixed from
time to time by the Board of Directors. The Board of Directors may issue such
shares of Common Stock and Preferred Stock in one or more series, at such price
and in such number of each series as may be stated in the resolution(s) adopted
by the Board. No stockholder of the corporation shall have preemptive
rights.
ARTICLE
V: BOARD OF DIRECTORS
The
Board of Directors shall initially be comprised of four members. The specific
number of directors may from time to time be increased or decreased in
accordance with the bylaws of the corporation; provided, however, that the
number of directors shall in no event be less than one nor more than fifteen.
The initial directors, and their addresses, are as follows:
|
Name
|
|
Address
|
| |
|
|
|
OC
Kim
|
|
9823
Pacific Heights Blvd. Suite J
|
| |
|
San
Diego, CA 92121
|
| |
|
|
|
Gary
Nelson
|
|
9823
Pacific Heights Blvd. Suite J
|
| |
|
San
Diego, CA 92121
|
| |
|
|
|
David
Kim
|
|
9823
Pacific Heights Blvd. Suite J
|
| |
|
San
Diego, CA 92121
|
| |
|
|
|
Taejin
Kim
|
|
9823
Pacific Heights Blvd. Suite J
|
| |
|
San
Diego, CA 92121
|
No
stockholder of the corporation shall be entitled to cumulative voting of his
or
her shares for the election of directors or otherwise.
ARTICLE
VI: DIRECTORS’ AND OFFICERS’ LIABILITY
The
personal liability of the directors of the Corporation is hereby eliminated
to
the fullest extent permitted under the Nevada Revised Statutes, as amended
or
supplemented ("NRS"). No amendment or repeal of this Article VI shall deprive
a
director of the benefits hereof with respect to any act or omission occurring
prior to such amendment or repeal.
ARTICLE
VII: INDEMNITY
The
Corporation shall indemnify each person who at any time is, or shall have been,
a director or officer of the Corporation, and is threatened to be or is made
a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the
fact
that he is, or was, a director or officer of the Corporation, or served at
the
request of the Corporation as a director, officer, employee, trustee, or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement incurred in connection with any such action, suit or proceeding
to
the maximum extent permitted by the NRS as the same exists or hereafter may
be
amended. The foregoing right of indemnification shall in no way be exclusive
of
any other rights of indemnification to which any such director or officer may
be
entitled, under any bylaw, agreement, vote of directors or stockholders or
otherwise.
ARTICLE
VIII: REPEAL AND CONFLICTS
Any
repeal or modification of Articles VI or VII above approved by the stockholders
of the corporation shall be prospective only, and shall not adversely affect
any
limitation on the liability of a director or officer of the corporation existing
as of the time of such repeal or modification. In the event of any conflict
between Articles VI or VII and any other Article of the corporation’s Articles
of Incorporation, the terms and provisions of Articles VI or VII shall
control.
ARTICLE
IX: AMENDMENT
This
corporation reserves the right to amend, alter, change or repeal any provision
contained in these Articles of Incorporation in the manner provided by statute,
and all rights conferred upon the stockholders are granted subject to the
foregoing reservation.
ARTICLE
X: ADDITIONAL POWERS
10.1
Subject to the limitations and exceptions, if any, contained in the bylaws
of
the Corporation (the "Bylaws"), the Bylaws may be adopted, amended or repealed
by the Board.
10.2
Elections of directors need not be by written ballot.
10.3
Subject to any applicable requirements of law, the books of the Corporation
may
be kept outside the State of Nevada at such location as may be designated by
the
Board or in the Bylaws.
IN
WITNESS WHEREOF these Articles of Incorporation have been duly executed
this
24th
day of October, 2007.
| |
/s/
Robert J.
Zepfel
Robert
J. Zepfel, Incorporator
500
Newport Center Drive, Suite 580
Newport
Beach, CA 92660
|
B-3