As filed with the Securities and Exchange Commission on December 9, 1998.
Registration No. 333-
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3698386
- ------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification
Number)
10 Stow Road, Suite 200
Marlton, NJ 08053
(609) 797-3434
(Address and telephone number of principal executive offices)
Shelly Finkel
Chairman of the Board
Global Telecommunication Solutions, Inc.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
(609) 797-3434
(Name, address and telephone number of agent for service)
Copies to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
(212) 818-8800
(212) 818-8881 - Facsimile
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
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 statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate
Title of Each Class of Amount to be Offering Price Offering Amount Of
Securities to be Registered Registered Per Unit(1) Price(1) Registration Fee
- ------------------------------ ------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
common stock, $.01 par value 2,870,019 $1.062 $3,047,960.18 $847.33
- ------------------------------ ------------ -------------- ------------- -------------
common stock, $.01 par value, 250,000(3) $1.062 $265,500.00 $73.81
underlying warrants(2) 130,000(4) $1.062 $138,060.00 $38.38
100,000(5) $1.062 $106,200.00 $29.52
178,571(6) $1.062 $189,642.40 $52.72
- ------------------------------ ------------ -------------- ------------- -------------
TOTAL FEE.................................................................................................$1,041.76
</TABLE>
(1) Based upon the market price of the common stock, as reported by the OTC
Bulletin Board on December 4, 1998, in accordance with Rule 457(c) of
the Securities Act of 1933.
(2) Pursuant to Rule 416, there are also being registered additional shares
of common stock as may become issuable pursuant to the antidilution
provisions in the instruments governing the warrants pursuant to which
the shares of common stock registered hereon are issuable.
(3) Represents the resale of shares of common stock underlying an option
acquired by GKN Securities Corp. and its designees in connection with
the Company's public offering consummated in July 1997.
(4) Represents the resale of shares of common stock underlying warrants
acquired by Pennsylvania Merchant Group, Ltd. in July 1997 and October
1998 in consideration of investor and public relations services
rendered to the Company.
(5) Represents the resale of shares of common stock underlying warrants
acquired by Wien Securities ("Wien") in April 1998 in connection with
Wien's commitment to purchase $2,000,000 of common stock or other
securities until December 31, 1998 (if requested by the Company).
(6) Represents the resale of shares of common stock underlying warrants
purchased in a private placement (together with certain other
securities) consummated in April 1998.
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 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
The information in this prospectus is incomplete and may be changed. The Selling
Securityholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale of these securities is not
permitted.
Subject to Completion, dated December 9, 1998
PROSPECTUS
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
3,528,590 Shares of Common Stock
This prospectus relates to up to 3,528,590 shares of common stock, par
value $.01 per share, of Global Telecommunication Solutions, Inc., a Delaware
corporation ("Company"), that may be offered for resale for the account of
certain holders of the Company's securities ("Selling Securityholders") as set
forth in this prospectus under the heading "Selling Securityholders."
Of the 3,528,590 shares being offered for resale by the Selling
Securityholders, (i) 2,870,019 are currently outstanding, which include (a)
505,618 shares issued in connection with the Company's acquisition in February
1998 of Networks Around the World, Inc. ("NATW"), (b) 1,198,000 shares issued in
connection with the Company's private placement consummated in October 1998
("October 1998 Private Placement"), (c) 353,393 shares issued in connection with
the Company's acquisition in February 1998 of Centerpiece Communications, Inc.
("CCI") and subsequently sold in November 1998 to certain investors, and (d)
813,008 shares issued in November 1998 to certain investors in connection with
the conversion of a $1,000,000 principal amount promissory note ("CCI Note")
originally issued by the Company in connection with the Company's acquisition of
CCI; (ii) 250,000 shares are issuable upon exercise of an option ("Underwriter
Warrants") granted to GKN Securities Corp. ("GKN") and its designees as
representative of the underwriters of the Company's public offering consummated
in July 1997; (iii) 130,000 shares are issuable upon exercise of common stock
purchase warrants ("PMG Warrants") issued to Pennsylvania Merchant Group, Ltd.
("PMG") in connection with providing financial public relations consulting
services in July 1997 and October 1998 to the Company; (iv) 178,571 shares are
issuable upon exercise of common stock purchase warrants ("April 1998 Warrants")
issued in connection with a private placement consummated by the Company in
April 1998 ("April 1998 Private Placement"); and (v) 100,000 shares are issuable
upon exercise of common stock purchase warrants ("Wien Warrants") issued to Wien
Securities ("Wien") in April 1998 in connection with its commitment ("$2,000,000
Commitment") to purchase up to $2,000,000 of the Company's common stock or other
securities until December 31, 1998 at the Company's request.
All of the shares being offered by this prospectus are offered on
behalf of the respective Selling Securityholders, and may be offered or sold at
any time. The Company will not receive any of the proceeds from the sale of
these securities by the Selling Securityholders. Of the 3,528,590 shares offered
hereby, an aggregate of 658,571 shares are issuable upon exercise of the
Underwriter Warrants, April 1998 Warrants, PMG Warrants and Wien Warrants. If
all of these securities are exercised, the Company will receive up to an
aggregate of $4,479,997 in gross proceeds. All proceeds received by the Company,
if any, will be used for working capital and general corporate purposes. See
"Use of Proceeds" and "Selling Securityholders."
The Company is responsible for all costs, expenses and fees incurred in
registering the shares offered by this prospectus, which are estimated to be
$50,000. The Selling Securityholders will pay all brokerage commissions and
discounts attributable to the sale of the shares.
The common stock is traded on the OTC Bulletin Board under the symbol
GTST. On December 4, 1998, the last reported sale price of the common stock was
$1.062. The common stock also is listed on the Boston Stock Exchange under the
symbol GTL.
The securities offered hereby are speculative and involve a high degree of risk
and should not be purchased by investors who cannot afford the loss of their
entire investment. See "RISK FACTORS" on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
-------------------------------------------------
The date of this Prospectus is December 9, 1998.
<PAGE>
You should rely only on the information contained in this prospectus or that is
incorporated by reference. We have not authorized anyone to give you any other
or different information. You should not take the delivery of this prospectus or
any sale made under this prospectus to mean that there has been no change in the
affairs of the Company since the date hereof or since the date of any documents
incorporated by reference. This prospectus does not constitute an offer or
solicitation in any state to any person to whom it is unlawful to make such
offer in such state.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................2
DOCUMENTS INCORPORATED BY REFERENCE.....................................3
RISK FACTORS............................................................4
THE COMPANY.............................................................10
RECENT DEVELOPMENTS.....................................................10
USE OF PROCEEDS.........................................................11
SELLING SECURITYHOLDERS.................................................12
PLAN OF DISTRIBUTION....................................................15
LEGAL MATTERS...........................................................15
EXPERTS.................................................................16
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission
("Commission"), in Washington, D.C., a Registration Statement on Form S-3 under
the Securities Act of 1933, as amended with respect to the shares offered
hereby. This prospectus does not contain all of the information set forth in the
registration statement and its exhibits. For further information about the
Company, the Selling Securityholders and the shares, you should read the
registration statement and its exhibits. The statements contained in this
prospectus concerning the contents of any contract or other document filed as an
exhibit are not complete and any description of such contract or document is
qualified in its entirety by reference to such contract or document. The
registration statement, together with the exhibits, may be inspected at the
Commission's principal office in Washington, D.C. and copies may be obtained
upon payment of the fees prescribed by the Commission.
The Company files annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy any
materials the Company files with the Commission at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Commission maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The address of
the Commission's Internet site is http://www.sec.gov.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this prospectus:
1. Current Report on Form 8-K dated February 6, 1998 and amendment
thereto on Form 8-K/A, filed with the Commission on February 23,
1998 and April 24, 1998, respectively;
2. Current Report on Form 8-K dated February 6, 1998 and amendment
thereto on Form 8-K/A, filed with the Commission on February 23,
1998 and April 24, 1998, respectively;
3. Annual Report on Form 10-KSB for the year ended December 31, 1997
and amendment thereto on Form 10-KSB/A, filed with the Commission
on April 15, 1998 and April 30, 1998, respectively;
4. Quarterly Report on Form 10-QSB for the quarter ended March 31,
1998, filed with the Commission on May 15, 1998;
5. Proxy Statement dated June 5, 1998;
6. Quarterly Report on Form 10-QSB for the quarter ended June 30,
1998, filed with the Commission on August 14, 1998;
7. Quarterly Report on Form 10-QSB for the quarter ended September
30, 1998, filed with the Commission on November 23, 1998; and
8. The description of the Company's common stock that is contained
in the Company's Registration Statement on Form 8-A, which was
declared effective by the Commission on December 14, 1994.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended after the date of this prospectus and prior to the termination of this
offering shall be deemed to be incorporated by reference into this prospectus.
Any statement contained in a document incorporated by reference in this
prospectus and filed with the Commission prior to the date of this prospectus
shall be deemed to be modified or superseded for purposes of this prospectus to
the extent that a statement contained herein, or in any other subsequently filed
document which is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
prospectus.
The Company will provide without charge to each person to whom this
prospectus has been delivered, upon written or oral request of any such person,
a copy of any or all of the above documents incorporated by reference into this
prospectus (other than exhibits to such documents that are not specifically
incorporated by reference into the information covered by this prospectus).
Written or telephone requests should be directed to the Company at 10 Stow Road,
Suite 200, Marlton, New Jersey 08053, Attention: Investor Relations (telephone
number: (609) 797-3434).
3
<PAGE>
RISK FACTORS
History of Significant Losses; Need for Additional Financing. Since
inception, the Company has incurred significant losses, including net losses of
$1,946,526, $2,970,121, $6,920,222 and $25,535,939 for the years ended December
31, 1994, 1995, 1996 and 1997. The net loss for 1997 included an impairment loss
of approximately $13 million in connection with the reduction of goodwill to its
estimated fair value arising from the Company's acquisition of Global Link
Telecom Corporation in 1996. In addition, the Company incurred a net loss of
$12,216,185 for the nine months ended September 30, 1998 and has continued to
incur losses at a comparable rate since September 30, 1998. As of September 30,
1998, the Company had an accumulated deficit of $50,158,628 and a working
capital deficit of $21,132,536. Due in part to the NATW and CCI mergers, and a
continuation of negative cash flow from operations through September 30, 1998,
the Company's cash balance has declined to approximately $1,300,000 at November
20, 1998. Further, management's current projections indicate that the Company
will continue to generate operating losses and negative cash flow from
operations through the remainder of 1998, which has made it necessary for the
Company to raise capital continuously to satisfy its obligations as they become
due. To that end, the Company completed the April 1998 Private Placement, which
generated net proceeds of approximately $1,135,000, obtained the $2,000,000
Commitment and completed the October 1998 Private Placement which generated net
proceeds of approximately $1,850,000. In addition, the Company converted the
$1,000,000 CCI Note into common stock during the fourth quarter of 1998 and has
obtained deferrals of certain other promissory notes aggregating $3,400,000
payable in the fourth quarter of 1998 to the first quarter of 1999. The Company
believes that the proceeds from the April 1998 Private Placement, the deferrals
of certain promissory notes and the proceeds from the October 1998 Private
Placement, together with the conversion of the CCI Note into common stock, will
enable the Company to continue its operations through the end of 1998 and into
the first quarter of 1999. However, the Company has significant loan payments
due in the first quarter of 1999, which it will not be able to satisfy unless it
obtains additional financing or further loan conversion or payment deferrals.
The Company does not have any other arrangements with respect to, or sources of,
additional financing and there can be no assurance that additional financing
will be available to the Company on commercially reasonable terms, or at all.
The failure to obtain such financing could have a material adverse effect on the
Company.
Notice of Delisting of Securities from the Boston Stock Exchange. The
Company's common stock and publicly-traded warrants ("Public Warrants") were
delisted from the Nasdaq SmallCap Market on September 16, 1998. As a result of
such delisting, an investor may find it more difficult to dispose of the
Company's securities. The Company's securities currently are traded on the
Boston Stock Exchange and on the OTC Bulletin Board. On December 2, 1998, the
Boston Stock Exchange notified the Company that it currently does not meet the
Boston Stock Exchange's $500,000 stockholders' equity maintenance requirement.
The Company is exploring ways in which it will be able to meet such requirement.
The Company must provide the Boston Stock Exchange with a written response by
December 30, 1998, or the Boston Stock Exchange will suspend trading of the
common stock and Public Warrants and file for delisting with the Commission. If
the common stock were to become delisted from trading on the Boston Stock
Exchange, since the trading price of the common stock is below $5.00 per share,
trading in the common stock would be subject to the requirements of certain
rules promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, equity security not quoted on Nasdaq or traded on a
national securities exchange that has a market price of less than $5.00 per
share, subject to certain exceptions). Such rules require the delivery, prior to
any penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith, and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally institutions). For
these types of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage them from effecting
transactions in the Company's securities, which could severally limit the
liquidity of the Company's securities and the ability of holders to sell such
securities in the secondary market.
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<PAGE>
Intense Competition. The prepaid phone card segment of the
telecommunications services industry is intensely competitive, rapidly evolving
and subject to constant technological change. Analysts estimate that the number
of prepaid phone card companies has increased from approximately 75 in 1994 to
more than 400 companies in 1997. Further, the Company's prepaid phone cards
compete with any medium by which a consumer places a telephone call away from
the home or office, including credit calling cards, collect calling services,
hotel telephones, public pay telephones and other long distance services. Many
of these products and services are marketed by well-established, successful
companies that possess greater financial, marketing, distribution, personnel and
other resources than the Company. Such resources allow these companies to
implement extensive advertising and promotional campaigns, both generally and in
response to specific marketing efforts by competitors, to enter into new markets
rapidly and to introduce new products and services. Competitors with greater
financial resources than the Company also may be able to provide more attractive
incentive packages to retailers to encourage them to carry products that compete
with the Company's products. There can be no assurance that the Company will be
able to compete successfully in its markets, which could have a material adverse
effect on the Company.
Dependence on Long Distance Carriers; Possible Service Interruptions
and Equipment Failures. The Company depends on a small number of domestic and
international long distance carriers to provide its card users access to
cost-effective long distance service. The Company has agreements or arrangements
with these carriers whereby it acquires large volumes of long distance service
for resale through its switching facilities. Failure to obtain continuing access
to transmission facilities and long distance networks would have a material
adverse effect on the Company, including possibly requiring it to significantly
curtail or cease its operations. The Company's operations require that its
carriers' long distance networks operate on a continual basis, but carriers
frequently experience lengthy equipment failures and service interruptions.
Service interruptions and equipment failures could adversely affect customer
confidence, the Company's business operations and its reputation. Further,
because the Company deducts minutes from its cards at fixed per-minute rates,
any service interruption that forces the Company to re-route calling traffic
through alternate routes or more expensive carriers could have a material
adverse effect on the Company's operating margins. Additionally, any increase in
the rates charged by the Company's carriers could materially adversely affect
the Company's operating margins. The Company's carrier agreement with Sprint
requires the Company to satisfy certain minimum monthly usage requirements to
receive the most favorable pricing available under the agreement. Failure to
meet these minimum requirements would obligate the Company to pay
underutilization charges, which could have a material adverse effect on the
Company.
In February 1998, Access Telecom, Inc., a primary provider of
telecommunications services to NATW and CCI prior to and after their respective
mergers into subsidiaries of the Company, ceased providing such services for the
prepaid phone cards that it had sold to each of NATW and CCI, despite receiving
payment for substantially all of these services. To offset the loss of service
for these phone cards, the Company purchased approximately $2 million of
telecommunications services from other providers through December 1, 1998.
Although it is pursuing recovery of all losses from Access Telecom, there can be
no assurance that the Company will be successful.
Dependence on Major Customers; Non-recurring Revenues. The Company
depends heavily on a small number of traditional phone card customers, the loss
of any of which could have a material adverse effect on the Company. One of
these customers was responsible for approximately 14.0% and 9.9% of the
Company's net sales for the year ended December 31, 1997 and the nine months
ended September 30, 1998, respectively. In addition, sales of promotional cards
to business customers usually generate non-recurring revenues. For the year
ended December 31, 1997 and the nine months ended September 30, 1998,
approximately 10.2% and less than 1%, respectively, of the Company's net sales
were derived from sales of promotional cards to a limited number of these
customers.
Rapid Technological Change and Product Obsolescence. The
telecommunication services industry is characterized by rapid technological
change, new product and service introductions, new sales channels and evolving
industry standards. The Company's success will depend largely upon its ability
to make timely and cost-effective enhancements and additions to its technology
and to introduce products and services that meet consumer demand. The Company
expects its competitors to develop and introduce new products and services, and
enhancements to existing products and services. New telecommunications
technology, including personal communication services and voice communication
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<PAGE>
over the Internet, may reduce demand for long distance services, including
prepaid phone cards. The Company cannot guarantee that it will respond
successfully to these or other technological changes, evolving industry
standards or to new products and services offered by its current and future
competitors. Inability to respond to these changes could have a material adverse
effect on the Company.
Dependence on Manufacturers of Switching Facilities; Damage, Failure
and Downtime. The Company's switching platforms are manufactured by National
Applied Computer Technology, Inc. ("NACT"). The Company and NACT have entered
into agreements pursuant to which NACT licenses software to the Company and
provides technical support and platform maintenance. Termination of these
agreements could materially adversely affect the Company's business until other
arrangements were secured. The Company cannot guarantee that it could make
similar arrangements with other switch manufacturers. The Company's operations
depend upon the protection of its equipment and data at its switching facilities
against damage caused by fire, power loss, technical failures, unauthorized
intrusion, natural disasters, sabotage and other events. There can be no
assurance that such an event will not result in a service outage having a
material adverse effect on the Company. Although the Company maintains business
interruption insurance providing for aggregate coverage of approximately $1.0
million per occurrence, there can be no assurance that the Company will be able
to maintain this insurance, that this insurance would continue to be available
at reasonable prices, that this insurance would cover all such losses or that
this insurance would be sufficient to compensate the Company for losses
experienced due to inability to provide services.
Unauthorized Access to Services. The Company has experienced
unauthorized access to its switching services by unauthorized disclosure of
Personal Identification Numbers and unauthorized activation of prepaid phone
cards, which have resulted in its inability to recover the long distance service
and switching charges associated with the use of such PINs and cards. Any
unauthorized access to the Company's services for a prolonged period of time
could have a material adverse effect on the Company's operations.
Regulation. Long distance telecommunications services are subject to
regulation by the Federal Communications Commission ("FCC") and by state
regulatory authorities. Among other things, these authorities impose regulations
governing the rates, terms and conditions for interstate and intrastate
telecommunications services. Changes in existing laws and regulations,
particularly as a result of the Telecommunications Act of 1996, which provides
for greater competition among providers of telecommunications services, may have
a material impact on the Company's activities and operating results. The Company
also is subject to Federal Trade Commission regulation and other federal and
state laws relating to the promotion, advertising, labeling and packaging of its
products. The Company has obtained, or is in the process of obtaining, all
licenses, tariffs and approvals necessary for the conduct of its business. There
can be no assurance, however, that the Company will be able to obtain required
licenses or approvals in the future or that the FCC or state regulatory
authorities will not require the Company to comply with more stringent
regulatory requirements. New statutes and regulations could require the Company
to alter methods of operation, at costs which could be material, or otherwise
limit the types of services offered by the Company.
Many states regulate prepaid phone card providers by requiring them to
apply for certification. While the Company either has obtained or has applied
for certification in Florida, New York, California, Texas and New Jersey (where
the Company conducts a substantial part of its business), the Company cannot
guarantee that state regulators will grant it all required authorizations. Many
states, including Florida, California and Texas, have implemented or are
considering implementing other rules that specifically regulate prepaid phone
card providers. There can be no assurance that the implementation of these rules
will not materially adversely affect the Company's operations.
In September 1996, the FCC adopted new rules governing the pay telephone
industry that, among other things, established a means by which all pay
telephone service providers are compensated for every interstate and intrastate
call completed from their pay telephones, including calls that utilize toll-free
access and access codes ("Dial Around Compensation"). On July 1, 1997, the
United States Court of Appeals for the District of Columbia Circuit remanded to
the FCC for further consideration certain rules which could have a material
6
<PAGE>
adverse effect on the Company, finding that the FCC's determination setting
compensation was unjustified and that it acted arbitrarily and capriciously in
establishing an interim compensation plan. The Court of Appeals upheld the FCC's
determination that interexchange carriers should track compensable calls and
compensate pay telephone providers for toll free and access code calls.
Additionally, the Court of Appeals upheld interexchange carriers' rights to
charge long distance resellers or customers that own toll free access numbers or
access codes (such as the Company) for any such compensable calls. In October
1997, the FCC adopted new rules governing Dial Around Compensation, pursuant to
which each pay telephone owner is entitled to be compensated $0.284 for each
dial around call originating from a pay telephone, but the Court of Appeals
subsequently found that the FCC's explanation of the derivation of this rate was
inadequate and remanded the rule back to the FCC for further explanation. Also
in October 1997, the FCC issued an order waiving certain obligations of the
local exchange carrier regarding the reporting of telephone calls originating
from pay telephones until March 9, 1998. The Company, along with other phone
card companies and the International Telecard Association, filed a petition
requesting that the FCC reconsider its decision to grant the waiver. The FCC
denied the request and extended the waiver through October 1998 for most local
exchange carriers. The resolution of this matter is uncertain. While the Company
believes that it has adequately provided for Dial Around Compensation, it is
possible that the FCC may enact regulations concerning Dial Around Compensation
in a manner which could result in additional material liabilities.
On May 8, 1997, the FCC issued an order to implement the provisions of
the Telecommunications Act relating to the preservation and advancement of
universal telephone service ("Universal Service Order"). The Universal Service
Order requires all telecommunications carriers providing interstate
telecommunications services to contribute to universal service by contributing
to a fund ("Universal Service Fund"). Universal Service Fund contributions will
be assessed based upon intrastate, interstate and international "end-user" gross
telecommunications revenue effective January 1, 1998. Although the FCC has not
yet finally determined the contribution assessment rate, the Company estimates
the assessment could be as much as 4% of such revenue for the calendar year
1998, and could increase or decrease in subsequent years. While the Company
believes it has adequately provided for its contribution to the Universal
Service Fund, it is possible that the FCC may enact regulation concerning the
Universal Service Fund in a manner which could result in additional material
liabilities.
In May 1996, the Federal Reserve Board published proposed rules
governing "stored value cards" with a maximum value of $100 or more. If the
rules are adopted and the Company permits more than $100 to be credited to its
prepaid phone cards, the Company would become subject to the new requirements,
including those related to the provision of transaction receipts and limitation
of consumers' responsibility for unauthorized transactions. Currently, virtually
all of the Company's prepaid phone cards have a maximum value of $100 or less.
Possible Federal Excise Tax and State Sales and Use Tax Liabilities.
The sale of long distance services through the use of prepaid phone cards has
been deemed a taxable event by the Internal Revenue Service and most state
taxing authorities. In November 1997, Congress enacted legislation that
specifically addressed the application of the 3% federal telecommunications
excise tax to the sale of prepaid phone cards. Accordingly, since that time, the
Company began filing federal excise tax returns. Additionally, the Company
believes that the sale of prepaid phone cards is subject to state sales and use
taxes. However, taxation of prepaid phone cards is evolving and has not been
specifically addressed in certain states in which the Company does business. The
Company has not filed any state sales and use tax returns nor has it remitted
any such taxes to state taxing authorities. While the Company believes that it
has adequately provided for such taxes and related compliance costs, it is
possible that certain states may enact legislation or interpret current laws in
a manner that could result in additional tax liabilities, which could be
material.
Year 2000 Compliance. The Company has reviewed its critical computer
systems and other computer-based operational equipment to identify how the
Company may be impacted by the Year 2000 problem. The Year 2000 problem arises
because many computer systems may not recognize the correct date at the rollover
of the two-digit year value to 00. This could cause systems to fail or process
transactions incorrectly, thus causing disruptions to operations or an inability
of the Company to provide services to its customers. The Company has contacted
the suppliers of its computer-based systems and has received written
confirmation from its suppliers that its critical computer software and hardware
is Year 2000 compliant. The Company estimates the costs of its Year 2000
compliance issues will be less than $100,000, which is not expected to be
material to the Company's financial position, cash flow or results of
operations.
7
<PAGE>
As part of the Company's Year 2000 compliance review, the Company is in
the process of contacting its primary vendors and customers to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their Year 2000 compliance issues. The Company is in the early stages
of this phase of its Year 2000 review and will continue to contact its
significant vendors and customers as part of its Year 2000 compliance review.
However, there can be no guarantee that the systems of the companies on which
the Company's business relies will be timely converted or that failure to
convert by another company will not have a material adverse effect on the
Company and its operations.
The Company believes that the risks associated with the Year 2000
issues primarily relate to the failure of its suppliers and key customers to
timely address their Year 2000 issues. Such failure could result in significant
disruption to the Company's daily operations. While the Company believes that
its Year 2000 compliance review procedures will adequately address the Company's
internal Year 2000 issues, until the Company receives responses from its
significant vendors and customers, the overall risks associated with the Year
2000 issue remain difficult to accurately describe and quantify, and there can
be no guarantee the Year 2000 issue will not have a material adverse effect on
the Company's business, operating results and financial position.
The Company currently has not implemented a Year 2000 contingency plan.
The Company intends to devote the resources necessary to assure that Year 2000
compliance issues are resolved. The Company plans to develop and implement a
contingency plan by the end of April 1999 in the event the Company's Year 2000
compliance initiatives, particularly those that relate to third parties, fall
behind schedule.
Possible Inability to Recognize Deferred Revenue. The sale of long
distance telecommunications service through prepaid phone cards may be subject
to "escheat" laws in various states. These laws generally provide that payments
or deposits received in advance or in anticipation of the provision of utility
(including telephone) services that remain unclaimed for a specific period of
time after the termination of such services are deemed to be "abandoned
property" and must be remitted to the state. Although the Company is not aware
of any case in which these laws have been applied to the sale of prepaid phone
cards, and does not believe that such laws are applicable, in the event that
such laws are deemed to be applicable, the Company may be unable to recognize
the portion of its deferred revenue remaining upon the expiration of the cards
with unused calling time. In this event, the Company may be required to deliver
such amounts to certain states in accordance with these laws, which could have a
material adverse effect on the Company. For the year ended December 31, 1997 and
the nine months ended September 30, 1998, approximately 7% and 8%, respectively,
of the Company's net sales were derived from the recognition of deferred revenue
upon card expiration or, in the case of promotional cards, during the period the
program is executed.
Goodwill Recoverability. The assessment of goodwill recoverability,
which is heavily dependent on projected financial information and the goodwill
amortization period, are significant accounting estimates as contemplated by the
American Institute of Certified Public Accountants' Statement of Position 94-6,
"Disclosure of Certain Significant Risks and Uncertainties." Further, the
Company operates in an industry which is rapidly evolving and extremely
competitive and continues to generate significant net losses and negative cash
flow. It is reasonably possible that the Company's accounting estimates with
respect to the useful life and ultimate recoverability of goodwill could change
in the near term and that the effect of such changes on the financial statements
could be material. While management currently believes that the recorded amount
of goodwill was appropriate at September 30, 1998, there can be no assurance
that the Company's future results will confirm this assessment or that an
additional write-down or write-off of goodwill will not be required in the
future.
Dependence on Key Personnel. The Company's success is largely dependent
on the personal efforts of Shelly Finkel, its Chairman of the Board, Randolph
Cherkas, its President, and other key personnel. The loss of services of either
Mr. Finkel or Mr. Cherkas could have a material adverse effect on the Company's
business and prospects. The Company's employment agreement with Mr. Finkel
requires him to devote only 50% of his business time to the Company's affairs.
In addition, the Company has experienced significant turnover with respect to
its executive officers. To successfully implement and manage its growth, the
Company is dependent upon, among other things, recruiting and retaining
8
<PAGE>
qualified management, marketing, sales, technical and creative personnel with
experience in the business activities conducted by the Company. There can be no
guarantee that the Company will be able to retain existing employees or that it
will be able to find, attract and retain additional qualified personnel on
acceptable terms.
Litigation. The Company is involved from time to time in litigation
incidental to its business. Such litigation can be expensive and time consuming
to prosecute or defend and could cause the Company's customers to delay or
cancel purchase orders until such lawsuits are resolved. The Company believes
that its pending litigation matters, in the aggregate, could have a material
adverse effect on the Company's operating results and financial condition if
resolved against the Company.
Shares Eligible for Future Sale; Outstanding Warrants, Options and
Convertible Securities; Potential Adverse Effect on Market Price of Common
Stock. Substantially all of the Company's currently outstanding shares of common
stock have been or will be registered for sale under the Securities Act or are
eligible for sale under an exemption therefrom. Additionally, as of the date of
this prospectus, the Company has reserved an aggregate of 4,919,555 shares of
common stock for issuance upon exercise or conversion of outstanding warrants,
options and convertible securities. Sale of substantially all of the shares of
common stock underlying such securities has been registered under the Securities
Act. To the extent that the outstanding warrants, options and convertible
securities are exercised or converted, dilution of the percentage ownership of
the Company's stockholders will occur, and any sales in the public market of the
common stock underlying such warrants, options and convertible securities may
materially adversely affect the prevailing market price for the common stock.
Moreover, the terms upon which the Company will be able to obtain additional
equity capital may be materially adversely affected because the holders of the
outstanding warrants, options and convertible securities can be expected to
exercise these securities at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the outstanding warrants, options and convertible securities.
Dividends Unlikely. The Company has never declared or paid dividends on
its common stock and does not intend to pay dividends in the foreseeable future.
The payment of dividends in the future will be at the discretion of the Board of
Directors.
Issuance of Preferred Stock; Anti-Takeover Provisions. Pursuant to its
Certificate of Incorporation, the Company has an authorized class of 1,000,000
shares of preferred stock which may be issued by the Board of Directors on such
terms and with such rights, preferences and designations, including, without
limitation, restricting dividends on the common stock, dilution of the voting
power of the common stock and impairing the liquidation rights of the holders of
common stock, as the Board may determine without any vote of the stockholders.
Issuance of such preferred stock, depending upon its rights, preferences and
designations may obstruct or prevent a change in control of the Company. In
addition, certain "anti-takeover" provisions of the Delaware General Corporation
Law, among other things, may restrict the ability of the stockholders to
authorize a merger, business combination or change of control of the Company.
9
<PAGE>
THE COMPANY
The Company is a facilities-based provider of prepaid phone cards that
allows users to access reliable, convenient and cost-effective domestic and
international telecommunications services. The Company seeks to provide reliable
service and support to its prepaid phone card customers by combining experience
with innovation and technology. The Company's core product line consists of
traditional prepaid phone cards, as well as custom-designed prepaid phone cards
for business promotional use.
The Company markets its telecommunications and other products in four
lines: (i) traditional prepaid phone cards marketed domestically through
distributors and retail establishments, such as convenience stores,
supermarkets, drug stores and mass merchandisers; (ii) traditional prepaid phone
cards marketed internationally to business and leisure travelers destined for
the United States; (iii) custom-designed promotional phone cards for businesses
to enhance the marketing of their products and services; and (iv) specialty
products marketed through retail establishments.
The Company was incorporated under the laws of the state of Delaware in
December 1992. The Company's principal executive offices are located at 10 Stow
Road, Suite 200, Marlton, New Jersey 08053 and its telephone number is (609)
797-3434.
RECENT DEVELOPMENTS
Notice of Boston Stock Exchange Delisting. On December 2, 1998, the
Boston Stock Exchange notified the Company that it currently does not meet the
Boston Stock Exchange's $500,000 stockholders' equity maintenance requirement.
The Company is exploring ways in which it will be able to meet such requirement.
The Company must provide the Boston Stock Exchange with a written response by
December 30, 1998, or the Boston Stock Exchange will suspend trading of the
Company's common stock and Public Warrants and file for delisting with the
Commission.
Debt Restructuring. In November 1998, J. Mark Rubenstein ("JMR")
resigned as a director and officer of the Company. JMR was the former
shareholder of CCI who joined the Company in February 1998 when CCI merged with
the Company. In connection with his departure from the Company and in full
satisfaction of the Company's and JMR's obligations to each other, JMR sold to
certain investors (the "Investors"), including Shelly Finkel, Chairman of the
Board of the Company, Michael Hoppman, Chief Financial Officer of the Company
and Barry Rubenstein and Eli Oxenhorn, principal stockholders, an aggregate of
353,393 shares of common stock and the $1,000,000 CCI Note previously issued by
the Company to him in the CCI merger for an aggregate purchase price of
$575,000. JMR also contributed back to the Company 47,891 shares of common stock
with a fair market value of $69,867 in consideration of $298,364 that he owed to
the Company relating to Access Telecom. The reserve for the loss on the
settlement of $229,497 was provided for in the Company's financial statements
for the nine months ended September 30, 1998.
In November 1998, the Company offered the Investors the opportunity to
convert the CCI Note into shares of common stock at a conversion rate of $1.23
per share (such price being equal to the average closing price of a share of
common stock during October 1998). The Investors accepted the conversion offer
and converted the CCI Note into an aggregate 813,008 shares common stock. The
Investors forgave interest of $60,000 due on the CCI Note. There was no gain or
loss recognized by the Company on the conversion of the CCI Note.
10
<PAGE>
October 1998 Private Placement. In October 1998, the Company
consummated the October 1998 Private Placement from which it derived net
proceeds of $1,846,750 through the sale of 1,198,000 shares of common stock for
a purchase price of $1.625 per share. The Company used a portion of the proceeds
to repay $1,250,000 aggregate principal amount of promissory notes ("April 1998
Notes") plus interest accrued thereon issued in the April 1998 Private
Placement.
Nasdaq Delisting. On September 16, 1998, Nasdaq notified the Company
that its securities were delisted from the Nasdaq SmallCap Market at the close
of business on such date for failure to meet the Nasdaq listing maintenance
requirements. The Company's common stock currently is traded on the Boston Stock
Exchange and the OTC Bulletin Board.
New President. On August 5, 1998, the Company and Robert Bogin, the
Company's President, entered into an amendment to Mr. Bogin's employment
agreement pursuant to which, as of August 31, 1998, Mr. Bogin's term as
President ended. Pursuant to this amended agreement, the Company agreed to pay
Mr. Bogin one-half of his annual salary through December 31, 1999 and to extend
the period in which certain options granted to Mr. Bogin may be exercised to
December 2001.
Randolph Cherkas, the Company's Chief Operating Officer and a director
since February 1998, became President as of September 1, 1998. In February 1994,
Mr. Cherkas founded NATW and served as its President until February 1998, when
NATW was acquired by the Company. From July 1993 to February 1994, Mr. Cherkas
served as an account executive for Network Equipment Technologies, a company
that designs and sells network solutions to Fortune 500 companies. From July
1984 to July 1993, Mr. Cherkas served as an account executive for IBM. Mr.
Cherkas's employment agreement provides for a term through December 31, 2000,
for a base annual salary of $180,000 (subject to annual increases and bonuses at
the discretion of the Board of Directors) and for options to purchase 50,000
shares at an exercise price of $6.375, which vest in two equal installments on
February 6, 1999 and February 6, 2000.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
by the Selling Securityholders. Of the 3,528,590 shares offered hereby, an
aggregate of 658,571 shares are issuable upon exercise of the Underwriter
Warrants, April 1998 Warrants, PMG Warrants and Wien Warrants. If these
securities are fully exercised, the Company will receive up to an aggregate of
$4,479,997 in gross proceeds. However, the exercise price of all of these
warrants is currently above the market price of the common stock and,
accordingly, it is unlikely that the Company will receive any proceeds from the
exercise of these securities in the near term. All proceeds received by the
Company, if any, will be used for working capital and general corporate
purposes. Pending application of the proceeds, the Company intends to place the
funds in interest-bearing investments such as bank accounts, certificates of
deposit and United States government obligations.
11
<PAGE>
SELLING SECURITYHOLDERS
The following table provides certain information with respect to the
Selling Stockholders' beneficial ownership of the Company's common stock as of
December 1, 1998, and as adjusted to give effect to the sale of all of the
shares offered hereby. See "Plan of Distribution." Except as otherwise
indicated, the number of shares reflected in the table has been determined in
accordance with Rule 13d-3 promulgated under the Exchange Act. Under this rule,
each Selling Securityholder is deemed to own beneficially the number of shares
issuable upon exercise of warrants or options it holds that are exercisable
within 60 days from the date of this prospectus. For purposes of presentation,
it is assumed that the Selling Securityholders will exercise all of the warrants
or options and then resell all of the shares received as a consequence of such
exercise. Unless otherwise indicated, each of the Selling Securityholders
possesses sole voting and investment power with respect to the securities shown.
<TABLE>
<CAPTION>
Before Offering After Offering
--------------- ----------------
Number of Number of Number of
Name Shares(1) Percentage Shares Offered Shares(1) Percentage
- ----------------------- -------------- ---------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C>
GKN Securities Corp. 75,625 * 75,625 -- *
David M. Nussbaum 28,959(2) * 20,625 8,334 *
Roger N. Gladstone 20,625 * 20,625 -- *
Robert Gladstone 28,959(2) * 20,625 8,334 *
Barington Capital Group, L.P. 112,500 1.4% 112,500 -- *
Randolph Cherkas 433,387(3) 5.4% 433,387 -- *
Gary Liguori 72,231(4) * 72,231 -- *
Pennsylvania Merchant Group Ltd. 130,000 1.6% 130,000 *
Wien Securities 100,000 1.2% 100,000 -- *
Phillip Bloom 25,710(5) * 7,143 18,567 *
Amir L. Ecker 14,286 * 14,286 -- *
Gerald J. Josephson 42,857 * 42,857 -- *
Losty Capital Management 14,286 * 14,286 -- *
Peter S. Rawlings 7,143 * 7,143 -- *
Jeffrey Rubinstein 14,286 * 14,286 -- *
Alan Silverman 27,143 * 7,143 20,000 *
Coutts (Jersey) Limited 379,121 4.7% 379,121 -- *
Donaldson, Lufkin & Jenrette
Securities Corp. Custodian FBO
Frank J. Campbell, III 25,000 * 25,000 -- *
Joanne Edwards 12,500 * 12,500 -- *
Joseph E. Gallo TTEE FBO 33,333 * 33,333 -- *
Stephanie A. Gallo 1987 Non-
exempt Family Trust
Joseph E. Gallo TTEE FBO Ernest 33,333 * 33,333 -- *
J. Gallo 1987 Non-exempt Family
Trust
Joseph E. Gallo TTEE FBO Joseph 33,334 * 33,334 -- *
C. Gallo 1987 Non-exempt
Family Trust
Irving L. Mazer, Esq. Special Account 5,000 * 5,000 -- *
Irving L. Mazer, Esq. 15,000 * 15,000 -- *
Larry Martin 120,308 1.5% 120,308 -- *
Leonide Prince 12,500 * 12,500 -- *
Wheatley Partners, L.P. 1,414,805(6) 16.6% 553,138 861,667 10.1%
Wheatley Foreign Partners, L.P. 101,862(7) 1.3% 46,862 55,000 *
David Corigliano 20,265 * 20,265 __ *
Drummer Partners, L.P. 101,427 1.3% 101,427 -- *
Shelly Finkel 624,099(8) 7.7% 202,853 421,246 5.2%
Mary Ellen Gunther 20,285 * 20,285 -- *
Michael Hoppman 42,785(9) * 20,285 22,500 *
David Jacobs 40,571 * 40,571 -- *
JEB Partners 171,567(10) 2.1% 111,567 60,000 *
Eli Oxenhorn 567,272(11) 7.0% 319,492 247,780 3.1%
Barry Rubenstein 2,474,276(12) 28.1% 319,492 2,154,784 24.4%
Steven Schulman 10,144 * 10,144 -- *
</TABLE>
12
<PAGE>
* Less than 1%.
(1) Assumes exercise of the Underwriter Warrants, the April 1998 Warrants, the
PMG Warrants and the Wien Warrants.
(2) Includes 8,334 shares underlying warrants ("December 1996 Warrants") issued
in a private placement consummated by the Company in December 1996
("December 1996 Private Placement"). Does not include shares issuable upon
conversion of promissory notes ("December 1996 Notes") issued in the
December 1996 Private Placement.
(3) Does not include 30,000 shares underlying options, 10,000 of which become
exercisable in each of February 1999, January 2000 and January 2001. Mr.
Cherkas is the President and a director of the Company.
(4) Does not include 12,999 shares underlying options, 4,613 of which become
exercisable in February 1999, 2,386 of which become exercisable in March
1999, and 3,000 of which become exercisable on each of January 2000 and
January 2001. Mr. Liguori is a Vice President of the Company.
(5) Includes 10,000 shares held jointly with Mr. Bloom's wife.
(6) Includes 313,333 shares underlying December 1996 Warrants and 235,000
shares underlying Public Warrants. Does not include shares issuable upon
conversion of December 1996 Notes.
(7) Includes 20,000 shares underlying December 1996 Warrants and 15,000 shares
underlying Public Warrants. Does not include shares issuable upon
conversion of December 1996 Notes.
(8) Includes (i) 16,667 shares underlying December 1996 Warrants, (ii) 123,334
shares underlying currently exercisable options and (iii) 30,873 shares
underlying Public Warrants. Does not include 30,000 shares underlying
options, 10,000 of which become exercisable in each of February 1999,
January 2000 and January 2001. Also does not include shares issuable upon
conversion of December 1996 Notes. Mr. Finkel is Chairman of the Board of
the Company.
(9) Includes 22,500 shares underlying currently exercisable options. Does not
include 48,500 shares underlying options, 7,000 of which vest in February
1999, 12,500 of which vest in May 1999, 10,000 of which vest in August
1999, 7,000 of which vest in January 2000, 5,000 of which vest in August
2000 and 7,000 of which vest in January 2001. Mr. Hoppman is Vice President
and Chief Financial Officer of the Company.
(10) Includes 60,000 shares underlying currently exercisable options.
(11) Includes 56,334 shares of common stock and 334 shares issuable upon
exercise of Public Warrants owned by Mr. Oxenhorn's children, of which he
disclaims beneficial ownership, 31,390 shares underlying Public Warrants
and 108,334 shares underlying currently exercisable options. Mr. Oxenhorn
is a principal stockholder of the Company.
(12) Includes 10,334 shares owned by The Marilyn and Barry Rubenstein Family
Foundation, a tax exempt organization of which Mr. Rubenstein is a trustee,
and 26,667 shares owned by Marilyn Rubenstein, Mr. Rubenstein's spouse. Mr.
Rubenstein disclaims beneficial ownership over all such shares. Also
includes 151,667 shares (including 13,334 shares underlying Public Warrants
and 66,667 shares underlying December 1996 Warrants) owned by Woodland
Partners, a New York general partnership of which Mr. Rubenstein is a
partner. Also includes 108,334 shares (including 33,334 shares underlying
December 1996 Warrants) owned by the Woodland Venture Fund, a New York
limited partnership of which Mr. Rubenstein is a general partner. Also
includes 33,334 shares underlying December 1996 Warrants owned by Seneca
Ventures, a New York limited partnership of which Mr. Rubenstein is a
general partner. Also includes 1,414,805 shares (including 313,333 shares
underlying December 1996 Warrants and 235,000 shares underlying Public
Warrants) owned by Wheatley Partners, L.P. ("Wheatley"). Also includes
101,862 shares (including 20,000 shares underlying December 1996 Warrants
and 15,000 shares underlying Public Warrants) owned by Wheatley Foreign
Partners, L.P. ("Wheatley Foreign"). Mr. Rubenstein is a member and officer
13
<PAGE>
of Wheatley Partners LLC, a Delaware limited liability company which is the
general partner of Wheatley, and also a general partner of Wheatley
Foreign. Mr. Rubenstein disclaims beneficial ownership of the securities
owned by Woodland Partners, Woodland Venture Fund, Seneca Ventures,
Wheatley and Wheatley Foreign except to the extent of his equity interest
therein. Also includes 10,000 shares owned by the Rubenstein Family LP, a
New York limited partnership of which Mr. Rubenstein is a general partner.
Also includes 68,057 shares owned individually by Barry Rubenstein, 103,333
shares held in his IRA Rollover account, 18,057 shares underlying Public
Warrants and 108,334 shares issuable upon exercise of currently exercisable
options. Mr. Rubenstein is a principal stockholder of the Company.
On July 9, 1997, the Company consummated a public offering of 2,875,000
shares. In connection with this offering, the Company issued to GKN and its
designees (including David M. Nussbaum, Roger N. Gladstone, Robert Gladstone and
Barington Capital Group, L.P.), options to purchase an aggregate of 250,000
shares until July 8, 2002 at an exercise price of $9.075 per share.
On July 30, 1997, the Company entered into a one-year consulting
agreement with PMG, pursuant to which PMG provided financial public relations
consulting services to the Company. Under this agreement, the Company paid PMG a
monthly fee of $25,000 and issued PMG warrants to purchase 100,000 shares until
January 2001 at an exercise price of $7.00 per share. In lieu of compensating
PMG for acting as placement agent of the October 1998 Private Placement, the
Company reduced the exercise price of these warrants to $1.625 per share.
Additionally, in October 1998, the Company issued to PMG warrants to purchase an
additional 30,000 shares at an exercise price of $1.625 per share in lieu of
payment for the balance of monthly fees owed to PMG, which aggregated
approximately $78,000.
In February 1998, the Company acquired, through a merger, all of the
outstanding capital stock of NATW for a purchase price comprised of (i)
$2,000,000 in cash, (ii) an aggregate of 505,618 shares (433,387 of which were
issued to Randolph Cherkas, the Company's President and 72,231 of which were
issued to Gary Liguori, a Vice President of the Company) and (iii) $1,000,000
aggregate principal amount of promissory notes, secured by substantially all of
the assets of NATW.
In April 1998, the Company entered into an agreement with Wien pursuant
to which Wien agreed to purchase up to $2,000,000 of the Company's securities at
a discount to the market price of such securities. The Company can require Wien
to purchase the securities on thirty days' written notice until December 31,
1998. In consideration of Wien's commitment, the Company issued Wien warrants to
purchase 100,000 shares at an exercise price of $7.50 per share. The warrants
are exercisable until April 13, 2001.
Also in April 1998, the Company consummated the April 1998 Private
Placement from which it derived net proceeds of $1,135,000 through the sale of
an aggregate of $1,250,000 of April 1998 Notes and warrants to purchase 178,571
shares of common stock ("April 1998 Warrants"). Each April 1998 Warrant is
exercisable through April 6, 2001 at an initial exercise price of $7.00 per
share. The April 1998 Notes were repaid from the proceeds of the October 1998
Private Placement. PMG served as the placement agent in connection with the
April 1998 Private Placement and received a $100,000 commission and $10,000 for
reimbursement of expenses. The persons or entities listed below participated in
the April 1998 Private Placement and received April 1998 Warrants:
Phillip Bloom
Amir L. Ecker
Gerald J. Josephson
Losty Capital Management
Peter S. Rawlings
Jeffrey Rubinstein
Alan Silverman
Coutts (Jersey) Limited
In October 1998, the Company consummated the October 1998 Private
Placement from which it derived net proceeds of $1,846,750 through the sale of
1,198,000 shares at a price of $1.625 per share. PMG served as the placement
agent in this financing without receiving any commission (but was reimbursed for
all reasonable expenses up to an aggregate of $100,000). The persons or entities
listed below participated in the October 1998 Private Placement:
14
<PAGE>
Coutts (Jersey) Limited
Donaldson, Lufkin & Jenrette Securities Corp. Custodian FBO
Frank J. Campbell, III
Joanne Edwards
Joseph E. Gallo TTEE FBO Stephanie A. Gallo 1987 Non-Exempt Family Trust
Joseph E. Gallo TTEE FBO Ernest J. Gallo 1987 Non-Exempt Family Trust
Joseph E. Gallo TTEE FBO Joseph C. Gallo 1987 Non-Exempt Family Trust
Irving L. Mazer, Esq. Special Account
Irving L. Mazer, Esq.
Larry Martin
Leonide Prince
Wheatley Partners, L.P.
Wheatley Foreign Partners, L.P.
In November 1998, JMR sold to the persons or entities listed below
(collectively, the "Investors") an aggregate of 353,393 shares of common stock
and the CCI Note for an aggregate purchase price of $575,000. The Company
offered the Investors the opportunity to convert the entire CCI Note into shares
of common stock at a conversion rate of $1.23 per share. The Investors accepted
the conversion offer and converted the CCI Note into an aggregate 813,008 shares
of common stock. The Investors are:
David Corigliano
Drummer Partners, L.P.
Shelly Finkel
MaryEllen Gunther
Michael Hoppman
David Jacobs
JEB Partners
Eli Oxenhorn
Barry Rubenstein
Steven Schulman
PLAN OF DISTRIBUTION
The shares offered by the Selling Securityholders may be sold from time
to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices which maybe changed, at market prices
prevailing at the time of sale, or at negotiated prices. None of the Selling
Securityholders have entered into agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares. The
Selling Securityholders may effect transactions by selling their shares directly
to purchasers or to or through broker-dealers (including GKN, Barington Capital
Group, L.P., PMG, Wien and any of their successors), which may act as agents or
principals and receive in excess of customary commissions. The Selling
Securityholders and any broker-dealers that act in connection with the sale of
the shares might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act. The Selling Securityholders may agree to indemnify
any agent, dealer or broker-dealer that participates in transactions involving
sales of the securities against certain liabilities, including liabilities
arising under the Securities Act.
The Company is responsible for all costs, expenses and fees incurred in
registering the shares offered hereby. The Selling Securityholders are
responsible for brokerage commissions, if any, attributable to the sale of such
securities.
LEGAL MATTERS
The legality of the securities being offered hereby has been passed
upon by Graubard Mollen & Miller, New York, New York.
15
<PAGE>
EXPERTS
The consolidated financial statements of Global Telecommunication
Solutions, Inc. and subsidiaries as of December 31, 1997 and 1996, and for the
years then ended have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all
expenses payable by the registrant in connection with the registration of the
common stock offered hereby, other than underwriting discounts and commissions:
SEC filing fee..................................................... $ 1,041.76
Boston Stock Exchange fee for listing additional shares...............5,000.00
Legal fees and expenses............................................. 25,000.00
Accounting fees and expenses.........................................15,000.00
Miscellaneous........................................................ 3,958.24
----------
Total......................................................$50,000.00
==========
ITEM 15. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that all directors,
officers, employees and agents of the registrant shall be entitled to be
indemnified by the Company to the fullest extent permitted by law.
Section 145 of the Delaware General Corporation Law concerning
indemnification of officers, directors, employees and agents is set forth below.
"Section 145. Indemnification of officers, directors, employees and
agents; insurance.
(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
II-1
<PAGE>
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
II-2
<PAGE>
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section."
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers, and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in a 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 Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 16. Exhibits
Exhibit
Number Description
- ------- -----------
3.1 A Certificate of Incorporation
3.2 A Amendment to Certificate of Incorporation
3.3 A By-Laws
3.4 C Certificate of Merger of Merger Sub into Global Link
3.5 H Certificate of Merger - NATW into NATW Acquisition Corp.
3.6 I Certificate of Merger - CCI into CCI Acquisition Corp.
4.1 A Form of Common Stock Certificate
4.2 A Form of Redeemable Warrant Certificate
4.3 A Warrant Agreement between the Company and Whale Securities Co.,
L.P. ("Whale")
4.4 A Underwriter's Warrant issued to Whale
4.5 D Placement Agent Warrant dated May 10, 1996 issued to Whale
4.6 F Warrant Agreement dated April 15, 1995 between the Company and
Craig Shapiro
4.7 F Warrant Agreement dated October 26, 1995 between the Company and
Frog Hollow Partners
4.8 F Warrant Agreement dated January 22, 1996 between Company and
Whale
4.9 E Form of Subscription Agreement for December 1996 Private
Placement
4.10 E Form of Warrant issued in the December 1996 Private Placement
4.11 E Form of Promissory Note issued in the December 1996 Private
Placement
5.1 * Opinion of Graubard Mollen & Miller (including consent)
10.1 A Sublease for 342 Madison Avenue, New York, New York
10.2 A Sublease for additional space at 342 Madison Avenue, New York,
New York
10.3 A Employment Agreement between the Company and Shelly Finkel
II-3
<PAGE>
Exhibit
Number Description
- -------- -----------
10.4 A Employment Agreement between the Company and Maria Bruzzese
10.5 A Stock Option Agreement between the Company and Shelly Finkel
10.6 A Stock Option Agreement between the Company and Paul Silverstein
10.7 A Stock Option Agreement between the Company and James Koplik
10.8 B Stock Option Agreement between the Company and John McCabe
10.9 A 1994 Performance Equity Plan
10.10 A Service Agreement between the Company and MCI Telecommunications
Corporation
10.11 A Service Agreement between the Company and Sprint Corporation
10.12 A Service Agreement between Independent Properties Sales
Corporation ("IPSC") and Metromedia Communications Corporation
("Metromedia," which was later acquired by WorldCom)
10.13 A Consent between IPSC and Metromedia allowing the assignment to
the Company of IPSC's right to receive services from Metromedia
10.14 B Employment Agreement between the Company and John McCabe
10.15 B Consulting Agreement between the Company and Barry Rubenstein
10.16 B Consulting Agreement between the Company and Eli Oxenhorn
10.17 C Merger Agreement by and among the Company, Merger Sub and Global
Link
10.18 C Directors Voting Agreement
10.19 C Peoples Agreement, together with the Company's Guaranty of
Peoples Second Payment
10.20 C Ancillary Agreement between Global Link and Peoples regarding
payment of the Peoples Accounts Receivable, together with
Holding Corp's Guaranty of such payment
10.21 C Amended and Restated Securities Purchase Agreement
10.22 C The Company's Guaranty of Debentures
10.23 C Employment Agreement between the Company and Gary Wasserson
10.24 C Employment Agreement between the Company and David Tobin
10.25 C Stock Option Agreement between the Company and Gary Wasserson
10.26 C Stock Option Agreement between the Company and David Tobin
10.27 A Sublease for space at 40 Elmont Road, Elmont, New York
10.28 D Form of Registration Rights Agreement for May 1996 Private
Placement
10.29 D Agency Agreement between the Company and Whale for May 1996
Private Placement
10.30 D Placement Agent Warrant Agreement for May 1996 Private Placement
10.31 F Consulting Agreement dated January 22, 1996 between the Company
and Whale
10.32 F First Amendment to Peoples Agreement, dated August 14, 1996
10.33 F Second Amendment to Peoples Agreement, dated November 27, 1996
II-4
<PAGE>
Exhibit
Number Description
- --------- -----------
10.34 E Finder's fee agreement between the Company and Whale relating to
the December 1996 Private Placement
10.35 G Extension of Consulting Agreement between the Company and Barry
Rubenstein
10.36 G Extension of Consulting Agreement between the Company and Eli
Oxenhorn
10.37 H Merger Agreement by among The Company, NATW Acquisition Corp.,
NATW, Randolph Cherkas and Gary Liguori
10.38 H Employment Agreement between the Company and Randolph Cherkas
10.39 H Employment Agreement between the Company and Gary Liguori
10.40 I Merger Agreement by and among the Company, CCI Acquisition
Corp., CCI and J. Mark Rubenstein
10.41 I Employment Agreement between the Company and J. Mark Rubenstein
10.42 K Amendment to Employment Agreement between the Company and David
Tobin
10.43 K Amendment to Employment Agreement between the Company and Shelly
Finkel
10.44 K Amendment to Employment Agreement between the Company and Robert
Bogin
10.45 L Amendment to Employment Agreement between the Company and David
Tobin
10.46 L Amendment to Merger Agreement by and among the Company, CCI and
J. Mark Rubenstein
10.47 L Agreement between the Company and J. Mark Rubenstein
10.48 L Termination of Employment Agreement between the Company and J.
Mark Rubenstein
10.49 * Financial Consulting Agreement between the Company and PMG
21 J Subsidiaries of the Company
23.1 * Consent KPMG Peat Marwick LLP
23.2 * Consent of Graubard Mollen & Miller (filed as part of Exhibit
5.1)
- -----------------------------
* Filed herewith.
A Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 33-85998).
B Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1994.
C Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on March 15, 1996.
D Incorporated by reference to Post-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 on Form S-3 (No. 33-85998).
E Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on December 26, 1996.
II-5
<PAGE>
F Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 333-19005).
G Incorporated by reference to the Company's Registration Statement on Form
SB-2 (No. 333-25389).
H Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the Commission on February 23, 1998.
I Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on February 23, 1998.
J Incorporated by reference to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
K Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1998.
L Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1998.
II-6
<PAGE>
ITEM 17. Undertakings.
(a) 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 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy 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 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 Marlton, State of New Jersey on December 4, 1998.
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
By: /s/ Shelly Finkel
----------------------------------------
Shelly Finkel, Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Shelly Finkel his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him person and in his name, place and stead, in any and all capacities, to
sign any or all amendments to this registration statement, including
post-effective amendments, and to file the same, with all exhibits thereto, and
all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------- ------------------- --------------
<S> <C> <C>
/s/ Shelly Finkel Chairman of the Board December 4, 1998
- ---------------------------------------
Shelly Finkel
/s/ Randolph Cherkas President and Director December 4, 1998
- ---------------------------------------
Randolph Cherkas
/s/ Alan Kaufman Director December 4, 1998
- ---------------------------------------
Alan Kaufman
/s/ Donald Ptalis Director December 4, 1998
- ---------------------------------------
Donald Ptalis
/s/ Jack Tobin Director December 4, 1998
- ---------------------------------------
Jack Tobin
/s/ Michael Hoppman Chief Financial Officer (and December 4, 1998
- --------------------------------------- principal accounting officer)
Michael Hoppman
</TABLE>
II-8
<PAGE>
EXHIBIT 5.1
GRAUBARD MOLLEN & MILLER
600 THIRD AVENUE
NEW YORK, NEW YORK 10016
December 9, 1998
Global Telecommunication Solutions, Inc.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-3
("Registration Statement") filed by Global Telecommunication Solutions, Inc.
("Company") under the Securities Act of 1933, as amended ("Act"), with respect
to an aggregate of 3,528,590 shares of common stock, par value $.01 per share
("Common Stock"), including (i) 2,870,019 shares of Common Stock currently
issued and outstanding and owned by certain persons listed in the Registration
Statement as Selling Securityholders ("Selling Securityholders") and (ii)
658,571 shares of Common Stock to be issued by the Company to certain of the
Selling Securityholders upon exercise of Common Stock purchase warrants
("Warrants") issued by the Company.
We have examined such documents and considered such legal
matters as we have deemed necessary and relevant as the basis for the opinion
set forth below. With respect to such examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as reproduced or certified copies, and the authenticity of the originals of
those latter documents. As to questions of fact material to this opinion, we
have, to the extent deemed appropriate, relied upon certain representations of
certain officers and employees of the Company.
Based upon the foregoing, it is our opinion that (i) the
shares of Common Stock currently outstanding and owned by certain of the Selling
Securityholders and being registered on the Registration Statement have been
duly authorized and legally issued, and are fully paid and non-assessable and
(ii) the shares of Common Stock being registered on the Registration Statement
to be issued by the Company to certain of the Selling Securityholders upon
exercise of the Warrants have been duly authorized and, when sold to the Selling
Securityholders and paid for in the manner provided in the Registration
Statement and the various agreements and instruments governing the Warrants of
the Selling Securityholders and the Company, will be legally issued, fully paid
and non-assessable.
In giving this opinion, we have assumed that all certificates
for the Company's shares of Common Stock have been or, prior to their issuance,
will be duly executed on behalf of the Company by the Company's transfer agent
and registered by the Company's registrar, if necessary, and will conform,
except as to denominations, to specimens which we have examined.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement, to the use of our name as your counsel, and to all
references made to us in the Registration Statement and in the Prospectus
forming a part thereof. In giving this consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act, or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ Graubard Mollen & Miller
----------------------------
GRAUBARD MOLLEN & MILLER
<PAGE>
Pennsylvania Merchant Group Ltd
July 30, 1997
PERSONAL & CONFIDENTIAL
Mr. Shelly Finkel
Chairman of the Board
Global Telecommunication Solutions, Inc.
c/o Shelly Finkel Management
60 East 42nd Street, Suite 464
New York, NY 10165
Dear Shelly:
Based on your discussions to date with PMG, we are pleased to propose that
Global Telecommunication Solutions, Inc. ("GTS" or the "Company") retain
Pennsylvania Merchant Group Ltd. ("PMG") as its financial advisor and investment
banker. The principal elements of the agreement ("Agreement") between PMG and
the Company in connection with the performance of our financial advisory and
investment banking services are as follows:
1. Services to be Rendered. The services that PMG will render to the Company
under the terms of this Agreement will include, but not be limited to, the
following:
(i) PMG will perform a due diligence review of the business, operations,
properties, financial condition and prospects of the Company;
(ii) Rendering advice and assistance in connection with the preparation of
annual and interim reports and press releases;
(iii) Assisting in the Company's financial public relations;
(iv) Arranging, on behalf of the Company, at appropriate times, meetings
with securities analysts;
(v) Rendering advice with regard to internal operations, including:
(a) the formation of corporate goals and their implementation;
(b) the Company's financial structure and its divisions or
subsidiaries;
(c) securing, when and if necessary and possible, additional
financing through banks and/or insurance companies; and
(d) corporate organization and personnel; and
(vi) Rendering advice with regard to any of the following corporate finance
matters:
(a) changes in the capitalization of the Company;
(b) changes in the Company's corporate structure;
(c) redistribution of shareholdings of the Company's stock;
(d) offerings of ecurities in public and private transactions;
(e) alternative uses of corporate assets;
(f) structure and use of debt; and
(g) sales of stock by insiders pursuant to Rule 144 or
otherwise.
<PAGE>
(vii)PMG will assist the Company through the preparation of various
financial analyses, including valuation analyses;
(viii) PMG will assist the Company in the preparation of materials designed
to reflect the true value of the Company to interested parties;
(ix) PMG will assist in identifying, qualifying and contacting (subject to
prior approval of the Company), on a highly confidential basis,
entities with which the Company would entertain prospective business
combinations, including mergers and acquisitions by the Company, and a
sale by the Company of its business (any transactions being referred
to as a "Transaction");
(x) PMG will assist and advise the Company with respect to structuring any
Transaction, including the evaluation of various types of
consideration, such as cash, debt and common stock, to be received or
paid by the Company in the Transaction;
(xi) PMG will advise the Company regarding the strategy and tactics to be
used during the negotiating process for any Transaction;
(xii)PMG will assist the Company in implementing the strategy developed
above; and
(xiii) At the request of the Board of Directors of the Company, PMG will
furnish to the Company a Fairness Opinion Letter ("Fairness Opinion"),
containing our opinion, as investment bankers, as to the fairness,
strictly from a financial point of view, to the Company's shareholders
of any Transaction.
2. Fees. As compensation for providing the Advisory Services, hereunder, PMG's
fees will be as follows:
(i) a Retainer of $25,000 per month, for a minimum of twelve months. The
first month the Retainer will be paid for is August 1997.
(ii) 100,000 warrants to purchase GTS common stock. The warrants will be
exercisable commencing January 25, 1998 at $7.00 per share. The
warrants will be subject to standard anti-dilutive adjustments for
stock splits and dividends and the like, and will be exercisable for a
period of three years. The form of warrant will contain appropriate
and customary cashless exercise and piggyback registration rights
provisions.
(iii)a Transaction Fee equal to 0.5% of the fair value of any Transaction
which entails the sale of the Company's business (the "Transaction
Fee"), payable in cash on the closing date of the Transaction. The
term "Fair Value" shall mean an amount equal to the aggregate value of
any cash or debt paid to the Company and any common stock issued to
the Company in the Transaction, as valued on the date in which the
Transaction is closed. The fee for any other type of Transaction will
be separately negotiated by us. Any Retainer fees paid at the time of
any closing of the Transaction will be credited towards any fee with
respect to such Transaction;
(iv) in the event the Company enters into a Transaction which entails the
sale of the Company's business within 12 months after the termination
of this Agreement, the Company will pay PMG the Transaction Fee; and
(v) the Company will reimburse PMG, on a monthly basis, its reasonable
out-of-pocket expenses; provided that no expenses in excess of $1,500
will be incurred without the Company's consent.
3. Term of Agreement. This Agreement shall commence, subject to necessary
approval by the Company's Board of Directors, as of the date of this letter
and shall continue for a period of one year, or until the closing of a
Transaction. After one year, if we both then agree, it shall remain in
effect until terminated by either PMG or the Company. The Termination shall
become effective 30 days after written notice of termination is received by
<PAGE>
the other party, subject to those provisions of this Agreement which have
application subsequent to the termination of this Agreement.
4. Indemnity. The Company agrees to indemnify and hold harmless PMG, including
any affiliated companies, and their respective officers, directors,
controlling persons and employees and any persons retained in connection
with a proposed Transaction (whether or not consummated) (the
"Indemnitees"), from and against all claims, damages, losses, liabilities
and expenses as the same are incurred (including any legal or other
expenses reasonably incurred in connection with investigating or defending
against any such loss, claim, damage or liability or any action in respect
thereof), related to or arising out of its activities hereunder.
Notwithstanding the foregoing, the Company shall not be liable for
indemnity under this Agreement in respect of any loss, claim, damage,
liability or expense arising from PMG's gross misconduct or negligence in
performing the services described above. This provision shall survive any
termination of PMG's engagement as well as the consummation or abandonment
of any Transaction.
5. Entire Agreement and Governing Law. This Agreement may not be amended or
modified except in writing, and shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
6. Our retention by you shall be kept confidential by us and not disclosed to
anyone without your prior consent.
If the foregoing correctly sets forth your understanding, please so indicate by
signing and returning to us the enclosed copy of this letter.
Sincerely,
PENNSYLVANIA MERCHANT GROUP LTD
BY: /s/ Richard A. Hansen
- --------------------------------
Richard A. Hansen
President
Accepted and Agreed to
this 31st day of July, 1997
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
BY: /s/ Shelly Finkel
- ----------------------------------------
Shelly Finkel
Chairman of the Board
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Global Telecommunication Solutions, Inc. and subsidiaries
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
- --------------------------
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
December 4, 1998
