U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____________ to _____________
Commission file number 1-13478
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
----------------------------------------
(Name of Small Business Issuer in Its charter)
Delaware 13-3698386
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
317 Madison Avenue, Suite 807, New York, New York 10017
------------------------------------------------- -----
(Address of Principal Executive Offices) Zip Code)
(212) 697-6131
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
--------------------------------------
Title of Each Class
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The information required in Part III by Items 9, 10, 11 and 12 is
incorporated by reference to the issuer's proxy statement in connection with its
Annual Meeting of Stockholders which will be filed by the issuer within 120 days
after the close of its fiscal year.
The issuer's revenues for its most recent fiscal year were $306,963.
As of April 3, 2000, the aggregate market value of the issuer's Common
Stock held by non-affiliates of the issuer (based on the last sale price of such
stock) was $18,540,119. At April 3, 2000, 15,511,841 shares of the issuer's
Common Stock were outstanding.
1
<PAGE>
PART I
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases and in oral
statements made with the approval of an authorized executive officer of the
Company, the words or phrases "management believes," "the Company believes,"
"will likely result," "management expects" or "the Company expects," "will
continue," "is anticipated," "estimated" or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Readers are cautioned not to place
undue reliance on any such forward-looking statements, each of which speak only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the results of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Global Telecommunication Solutions, Inc. d/b/a Global iTechnology, Inc.
("Company") historically, through its subsidiaries, has been engaged in the
marketing and distribution of prepaid phone cards. The Company's Board of
Directors adopted a plan to discontinue and sell the prepaid phone card business
in the third quarter of 1999 as a result of the Company's subsidiaries long
history of losses in this line of business and an increasingly competitive
environment. To facilitate the possible sale of the phone card assets which are
the subject of liabilities for exceeding their fair market value, certain of the
Company's subsidiaries have filed voluntary petitions for relief with the Court
for the District of Delaware under Chapter 11 of the Bankruptcy Code. The
subsidiaries of the Company that filed for Court protection are Global Link
Telecom Corporation, GTS Holding Corp., Inc., TelTime, Inc., Network Services
System, Inc., Network Services System, L.P., GTS Marketing, Inc., Global
Telecommunication Solutions, L.P., Networks Around the World, Inc. and
Centerpiece Communications, Inc (collectively the "Debtors").
The Company intends to focus on developing, operating, and entering into
strategic relationships with companies to implement promotional and other direct
marketing services utilizing telephony, the Internet and wireless communication
technologies. The first of such investments is the Company's investment in
Enticent.com, Inc. discussed below. Additionally, the Company intends to be a
vehicle to take advantage of business opportunities that the Company's
management believes are in the best interest of the shareholders.
The Company has experienced significant cash flow difficulties during the
last several years, particularly in its efforts to expand the prepaid phone card
business. The Company's ability to implement its recently changed business
strategy is contingent upon its ability to obtain additional financing. The
Company presently is negotiating with potential financing sources in an attempt
to raise additional debt or equity capital, but to date has been unsuccessful.
For a more detailed discussion of the Company's current financial position, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company presently has significant liabilities that will not be
discharged as a result of the Debtors having filed voluntary petitions with the
Court for the District of Delaware under Chapter 11 of the Bankruptcy Code.
These liabilities aggregate approximately $5 million. The Company is currently
negotiating with these creditors in an effort to settle the amounts due at less
than the amount recorded on the balance sheet. The Company is attempting to
settle these liabilities on favorable terms to the Company.
CORPORATE BACKGROUND
The Company was incorporated under the laws of the State of Delaware in
December 1992. The Company's principal executive offices are located at 317
Madison Avenue, Suite 807, New York, New York 10017 (212) 697-6131.
In March 2000 the Board of Directors, subject to shareholder approval,
approved changing the Company's name from "Global Telecommunication Solutions,
Inc." to "Global iTechnology, Inc"
2
<PAGE>
E-COMMERCE BUSINESS
ENTICENT.COM, INC.
In February 2000, the Company's wholly owned subsidiaries Imagine Telecom,
Inc. ("Imagine") and TalkToGo.com, (TalkToGo") along with certain of their
management and strategic partners, formed Enticent.com, Inc., ("Enticent") a
startup entity. As a result of the transaction, the Company is the largest
stockholder of Enticent, owning 44 % of the outstanding issued and outstanding
shares.
Enticent is primarily an incentive marketing and promotional company that
allows businesses to communicate one-to-one with existing and potential
customers through both online and offline permission-marketing programs. The
consumer's incentive may take many forms and be delivered through different
vehicles.
OTHER
The Company presently is negotiating an investment in or strategic
relationship with several other companies. There is no assurance that the
Company will enter into any additional transactions and if entered into, there
is no assurance of the impact on the current stockholders of the Company.
SUBSIDIARY BANKRUPTCY
In September 1999, the Company's Board of Directors adopted a plan to
discontinue the operations of the phone card business and to seek an acquirer of
that business. As a result of the substantial liabilities associated with the
phone card business, a subsequent decision was made resulting in the Debtors
filing voluntary petitions with the Court for the District of Delaware under
Chapter 11 of the Bankruptcy Code on October 28, 1999. In making these filings,
the Debtors indicated to the court that a purchaser for the assets of the
Debtors was being sought, but failing that, the businesses would be liquidated
rather than reorganized. On January 31, 2000, the Debtors entered into an
agreement to sell substantially all of their assets to J D Services, Inc., a
prepaid phone card provider located in Salt Lake City, Utah ("J D Services").
Having the approval of the United States Court for the District of Delaware, it
is anticipated this sale will be consummated effective April 1, 2000. The sale
of the phone card assets is one of the final steps in the discontinuance of the
Company's legacy phone card business.
J D Services will pay a purchase price of $2.1 million as follows: (i)
forgiveness of approximately $750,000 in debtor-in-possession financing
previously provided to the Debtors and (ii) assumption of approximately $1.35
million of the Company's obligation to provide telecommunications services to
previously activated phone cards.
The Debtors intend to present a plan of reorganization to the Court to
liquidate and distribute the Debtors' remaining assets. Under the provisions of
the Bankruptcy Code, the Debtors have the exclusive right to file such plan at
any time during the 120-day period following the initial filing. The Debtors
filed a motion to extend the exclusive period to May 25, 2000 which motion was
granted by the Court. As part of the liquidation of the Debtors, the Debtors are
required to review payments made to various parties during the year prior to the
bankruptcy filing date of October 28, 1999. To be included in such review will
be any payment made by the Debtors to the Company during the year prior to the
bankruptcy filing. Should it ultimately be determined that any of these payments
were "preferential" in nature, the Company would be required to repay these
amounts to the Debtors. At March 31, 2000 no review as to the "preferential"
nature of transfers from the Debtors to the Company has been undertaken. However
given the financial condition of the Company, should any repayment to the
Debtors by the Company be required, the Company may not have sufficient assets
to make such payment and may be required to offer promissory notes and/or the
Company's equity securities in satisfaction of any such obligation.
COMPETITION
The Company intends to focus on developing, operating, and entering into
strategic relationships with third parties to implement its business plan to
provide promotional and other direct marketing services utilizing telephony, the
Internet and wireless communication technologies. To accomplish its strategy,
the Company must to raise additional capital. If the it is able to raise
additional capital necessary to achieve its objectives, it will be competing
with others desiring to invest in
3
<PAGE>
identical opportunities and many of these competitors will have longer operating
histories, greater name recognition, larger client bases and significantly
greater financial, technical and marketing resources than the Company.
Additionally, the opportunities which the Company is pursuing are in the
promotion services market, which market, especially as it relates to the
Internet, is intensely competitive. The Company expects competition in this
market to continue to intensify as a result of increasing market size, greater
visibility of the market opportunity for Internet promotion services and minimal
barriers to entry. Industry consolidation may also increase competition. The
Company competes with many types of companies, including both online and offline
promotion companies, large Internet publishers, search engine and other Internet
portal companies, a variety of Internet-based advertising networks and other
companies that facilitate the marketing of products and services on the
Internet. Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than the Company. This may allow them to compete more effectively and
be more responsive to industry and technological change than the Company. The
Company may not be able to compete successfully and competitive pressures may
reduce its revenues and result in increased losses or reduced profits.
EMPLOYEES
As of April 3, 2000, the Company had 2 full-time employees and 2 part-time
employees. None of the Company's employees is covered by a collective bargaining
agreement. The Company never has experienced an employment-related work stoppage
and considers its employee relations to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
In August 1995, the Company entered into a lease for approximately 1,930
square feet of space for its sales offices located at 60 East 42nd Street, New
York, New York. The term of the lease is 62 months and provides for an annual
rent of $45,248. In December 1998, the Company entered into an agreement with
Shelly Finkel Management ("SFM"), a company owned by Shelly Finkel, the
Company's Chairman of the Board, pursuant to which, in consideration of the
Company's $48,000 payment to SFM, SFM agreed to assume all of the obligations
under the lease and indemnify and hold the Company harmless from all losses,
costs and expenses associated with the lease arising after December 31, 1998. To
date, the Company has paid SFM $24,000.
In July 1995, the Company entered into a sublease for 9,400 square feet of
space located at 40 Elmont Road, Elmont, New York. The term of the sublease is
through July 2000 and provides for an annual rent of $145,700, including
utilities. In February 1997, the Company subleased this space through July 2000
for a current annual rent of $98,700.
In August 1998, the Company entered into a lease for 9,362 square feet of
space located at 10 Stow Road, Suite 200, Marlton, New Jersey, for its executive
offices and computer systems. The term of the lease is five years and provides
for an annual rent of $87,875 during the first year, $89,875 during the second
year, $92,683 during the third year, $95,492 during the fourth year and $98,301
during the fifth year. In connection with the sale of the Debtors' assets and
operations, J D Services has agreed to assume the Company's entire obligation
under this lease. However, as of April 3, 2000, the landlord has not granted to
the Company a release from its obligations under the lease .
In April 2000, the Company entered into a lease for approximately 400
square feet of space located at 317 Madison Avenue, New York for its executive
offices. The term of the lease is one year and provides for an annual rental of
$37,800.
The Company believes that its facilities are adequate for its present
purposes. The Company believes that as it grows, it will require additional
facilities, and that such facilities will be readily available.
ITEM 3. LEGAL PROCEEDINGS
In June 1998, IDB Worldcom Services, Inc. ("Worldcom") commenced an action
against the Company in the Court of Common Pleas of Philadelphia, Pennsylvania.
The complaint alleged that from March 1995 through March 1997, Worldcom provided
certain long distance and other telecommunications services for which it was not
paid. On September 7, 1999, the Company settled this matter with Worldcom for
$400,000 of which $300,000 is payable in cash over 22 months and the $100,000
balance was paid through this issuance of 239,045 shares of the Company's common
stock .
On February 7, 2000, Star Telecommunications Inc. ("Star") obtained a
judgment against the Company in the total amount of $233,557 in connection with
litigation styled Star Telecommunications, Inc. v. Global Telecommunication
4
<PAGE>
Solutions, Inc., Case No. -- 01001478, in the Superior Court, State of
California County of Santa Barbara, Anacapa Division. Star brought an action
against the Company for failure to pay Star for international long-distance
telecommunications services which Star provided to the Company's operating
subsidiaries under a Carrier Service Agreement entered into between Star and the
Company. The Company believes it has adequately accrued for this liability.
On March 17, 1999, Gloria Diaz, Edward Ragar and Charles Ruggieri (all
former sales people for the Company) commenced an action against the Company
claiming in the Superior Court of New Jersey, Somerset County Law Division,
docket No. L-432-99 alleging that the Company owes them approximately $62,000 in
the aggregate for salary, commissions and reimbursement for business expenses.
The Company disputes these claims and is defending this matter. The company
believes it has adequately accrued for this liability.
On December 3, 1999, MTS Communications, Inc. ("MTS") commenced an action
against the Company in the United States District for the District of New
Jersey. MTS claims that the Company owes it $368,697.55, together with interest,
in connection with operations of the Company's Canadian subsidiary. The Company
disputes MTS' claims and is defending this matter. The company believes it has
adequately accrued for this liability.
The Company also is involved in litigation incidental to its business.
Such litigation can be expensive and time consuming to prosecute or defend. The
Company believes that these pending litigation matters, in the aggregate, could
have a material adverse effect on its operating results and financial condition
if resolved against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On December 14, 1994, the Company's Common Stock and Public Warrants
commenced quotation on the Nasdaq SmallCap Market ("Nasdaq") under the symbols
GTST and GTSTW, respectively, and became listed on the Boston Stock Exchange.
The Common Stock and Public Warrants were delisted from Nasdaq on September 17,
1998 and the Boston Stock Exchange on June 9, 2000 because the Company was not
in compliance with various requirements for continued listing. The Company's
Public Warrants expired on December 14, 1999. The Common Stock currently is
traded on the OTC Bulletin Board. The following table sets forth the ranges of
bid prices for the Common Stock for the periods indicated, as reported by the
OTC Bulletin Board or Nasdaq, as the case may be, the principal trading market
for the Company's securities. The quotes represent inter-dealer prices without
adjustments or mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions.
HIGH LOW
---- ---
1998
First Quarter 8 5-7/8
Second Quarter 7-3/8 3-1/8
Third Quarter 3-5/16 1-1/4
Fourth Quarter 2 3/4
1999
First Quarter 2 11/16
Second Quarter 1 1/8 1/2
Third Quarter 13/16 3/8
Fourth Quarter 3/8 1/32
On April 3, 2000, the last sale price for the Common Stock as reported by
the OTC Bulletin Board was $1.25.
As of April 3, 2000 there were 15,561,841 shares of Common Stock
outstanding held of record by 178 holders. The Company believes that there are
in excess of 500 beneficial holders of its Common Stock.
5
<PAGE>
DIVIDENDS
The Company has never declared or paid cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to finance the
growth and development of its business and does not anticipate paying any cash
dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended December 31, 1999 and through March 31, 2000, the
Company made the following sales of unregistered securities.
<TABLE>
<CAPTION>
If Option, Warrant
Consideration Received and Exemption or Convertible
Description of Underwriting or from Security, Terms of
Other Discounts to Market Price Registration Exercise or
Date of Sale Title of Security Number Sold Afforded to Purchasers Claimed Conversion
- - ------------ ----------------- ----------- ---------------------- ------- ----------
<S> <C> <C> <C> <C> <C>
11/19/99 Common Stock 239,045 In lieu of cash for litigation 4(2)
settlement
10/26/99 Options to 10,000 Options granted-no other 4(2) Exercisable on
purchase Common consideration received by 10/26/00 and for
Stock Company until exercised five years from
date of vesting at
an exercise price
of $.14 per share
12/1/99 Options to 200,000 Options granted-no other 4(2) Exercisable on
purchase Common consideration received by 4/3/00 and for five
Stock Company until exercised years from date of
vesting at an
exercise price of
$.25 per share
12/14/99 Options to 30,000 Options granted-no other 4(2) Exercisable on
purchase Common consideration received by 3/1/00 and for five
Stock Company until exercised years from date of
vesting at an
exercise price of
$.16 per share
12/15/99 Options to 185,934 Options granted-no other 4(2) Exercisable on
purchase Common consideration received by 6/14/00 until
Stock 2/28/05 at an
exercise price s
ranging from $.50
to $2.25 per share
3/9/00 Common Stock 769,750 Conversion of notes payable to 4(2)
related party
3/10/00 Common Stock 10,000 In lieu of cash for litigation 4(2)
settlement
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements, including the notes thereto, appearing
elsewhere in this Report. The discussions of results, causes and trends should
not be construed to imply any conclusion that such results or trends will
necessarily continue in the future.
6
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
With the discontinuance of its phone card business, the Company intends to
focus on developing, operating, and entering into strategic relationships with
companies implementing promotional and other marketing services utilizing
telephony, the Internet and wireless communication technologies.
Net sales from continuing operations resulted from sales by the Company's
new start-up operations TalkToGo and Imagine, both involved in the development
and marketing of promotional programs to business customers. Subsequent to
December 31, 1999 the Company exchanged its investment in these two companies
for a 44% interest Enticent. Enticent is currently in the process of developing
joint venture relationships with third parties and expects that these
relationships will be the driving force behind future sales. The Company
believes the gross profit percentage of approximately 27% realized on the
initial sales in this market is indicative of gross profits that can be
realized.
Selling, general and administrative expenses for the year ended December
31, 1999 from continuing operations decreased by $702,056 (29%) to $1,762,275
from $2,464,331 reported in the similar period in 1998. This decline primarily
resulted from the restructuring plan implemented in the later part of 1998 as
well as cost reduction actions implemented in the fourth quarter of 1999. In
addition, during 1999, the Company substantially reduced professional fees paid
to accountants and attorneys that, in 1998, was the second largest component of
general and administrative expenses after salaries.
The loss from discontinued operations relating to the phone card business
was $11,691,874 for the year ended December 31, 1999 compared to $24,365,356 for
the prior year. The $12,673,482 decline primarily resulted from the fact that in
1999 the Company recorded $2,114,087 goodwill impairment, a decrease of
$10,676,781 from that reported in 1998. Selling, general and administrative
expenses related to the discontinued operations also declined in 1999 vs. 1998
as a result of the aforementioned restructuring plan. These declines in selling
general and administrative expenses however were offset by higher costs of sales
resulting in a negative gross margin in 1999.
In January 1999, holders of $2,524,750 aggregate principal amount of
debentures converted the debentures into 3,155,938 shares of common stock. In
connection with the conversion, the Company incurred an extraordinary loss of
$1,420,172 related to the difference between the market value of the shares on
the conversion date ($3,944,922) as compared to the carrying value of the debt.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Because the Company's continuing operations only began in late 1999,
restated 1998 and 1997 results of operations reflect no revenues or gross
profits.
General and administrative expenses for the year ended December 31, 1998
from continuing operations increased by 74(%) to $2,464,331 from $1,419,887
reported in 1997. This increase resulted from increased corporate activity as a
result of mergers in 1998 with major increases in the areas of professional and
investment banking fees and salaries.
The loss from discontinued operations was $24,365,356 for the year ended
December 31, 1998 compared to $23,729,345 for the prior year. While net sales in
the year ended December 31, 1998 increase approximately 71% to $31,178,125 from
that reported in the prior year, gross profit declined by 22% to $1,549,039 as a
result of substantially increased cost of sales. The increased loss was also
impacted by increased selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant losses and negative earnings before
interest, tax and depreciation and amortization during 1997, 1998 and 1999. In
the second half of 1998, the Company implemented a restructuring plan in an
effort to reduce administrative overhead costs and to improve the efficiency of
its operations. Specific actions taken included the consolidation of facilities,
including the closure of its Canadian operations and the termination of certain
employment contracts. In addition, the Company negotiated the conversion of
$6,574,750 of debt to equity. Notwithstanding these efforts, as of September 30,
1999, the Company had a substantial working capital deficit and its total
liabilities exceeded its total assets by approximately $21 million. As a result
of the Company's long history of losses in the prepaid phone card business,
coupled with an increasingly competitive environment, the Company elected to
exit the prepaid phone card business but continue its interactive marketing
operations. To accomplish this, the Debtors filed voluntary petitions with the
Court for the District of Delaware under Chapter 11 of the Bankruptcy Code on
October 28,
7
<PAGE>
1999. The Debtors intend to sell or liquidate the assets of the phone card
operations with the proceeds of such sale or liquidation, to be distributed to
the Debtors' creditors pursuant to a liquidating plan of reorganization
At December 31, 1999, the Company, excluding the assets and liabilities
relating to the Debtors, had cash and cash equivalents of $305,000 and a working
capital deficit of $5 million. Subsequent to December 31, 1999, the Company
continues to generate negative cash losses from operations. The Company's cash
balance has declined to approximately $200,000 at April 10, 2000.
At December 31, 1999 substantially all the Company's approximately $5
million in current liabilities relate to indebtedness incurred in connection
with the discontinued phone card business. Because of contractual obligations,
these liabilities are the obligations of the Company rather than the Debtors,
and are due to less than 10 creditors. The Company is currently negotiating with
those parties in an effort to settle the amounts due at less than the amount
recorded on the balance sheet. The Company is attempting to settle these
liabilities on favorable terms to the Company .
The Company's ability to continue in operation and execute its new
business plan is subject to various factors including, but not limited to,
resolving its aforementioned outstanding liabilities, and raising additional
capital. Management of the Company cannot presently predict the outcome of these
matters and there can be no assurance that the Company will be successful in any
of these endeavors.
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. However, absent
the Company's ability to execute its plans to increase revenues and gross
margins and arrange short-term financing, the Company may be unable to continue
as a going concern, which could significantly impact the liquidation or
settlement value of its assets and liabilities.
At December 31, 1999, the Company had net operating loss carryforwards
("NOLs") exceeding $39 million available to offset future taxable income.
Under Section 382 of the Internal Revenue Code of 1986, as amended, utilization
of prior NOLs is limited after an ownership change, as defined in this section,
to an amount equal to the value of the loss corporation's outstanding stock
immediately before the date of the ownership change, multiplied by the federal
long-term tax-exempt rate in effect during the month that the ownership change
occurred. The Company is subject to limitations on the use of its NOLs as
provided pursuant to Section 382. Accordingly, there can be no assurance that a
significant amount of existing NOLs will be utilized by the Company.
YEAR 2000 COMPLIANCE
The Company's review and preparedness programs for the Y2K concerns
yielded favorable results. The Company experienced no problems with its computer
programs or equipment. Additionally, third parties the Company relies on for
day-to-day operations experienced no problems.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto are included herewith
commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
information included in the Company's definitive proxy statement in connection
with the Annual Meeting of Stockholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information included in the Company's definitive proxy statement in connection
with the Annual Meeting of Stockholders.
8
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information included in the Company's definitive proxy statement in connection
with the Annual Meeting of Stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information included in the Company's definitive proxy statement in connection
with the Annual Meeting of Stockholders.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Filed.
See Exhibit Index appearing later in this Report.
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated October 28, 1999, filed with the
SEC on November 5, 1999, relating to certain subsidiaries of the Company filing
voluntary protection under chapter 11 of title 11 of the United States Code in
the United States Court for the District of Delaware.
9
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1999 and 1998 F-2
Consolidated Statements of Operations and Comprehensive Loss for the
Years ended December 31, 1999 and 1998 F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the Years ended
December 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Global Telecommunication Solutions, Inc:
We have audited the accompanying consolidated balance sheets of Global
Telecommunication Solutions, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and comprehensive
loss, stockholders' equity (deficit) and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global
Telecommunication Solutions, Inc. and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 1, on October 28, 1999 all but two of the Company's
domestic subsidiaries applied for protection under Chapter 11 of the Bankruptcy
Code pursuant to a Reorganization Plan that must be presented to the Court by
May 25, 2000. The accompanying consolidated financial statements do not purport
to reflect or provide for the consequences of the bankruptcy proceedings. In
particular, such consolidated financial statements do not purport to show a) as
to assets, their realizable value on a liquidation basis or their availability
to satisfy liabilities; b) as to prepetition liabilities, the amounts that may
be allowed for claims or contingencies, or the status and priority thereof; c)
as to stockholder accounts, the effect of any changes that may be made in the
capitalization of the Company; or d) as to operations, the effect of any changes
that may be made in its business.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has a significant net working capital deficiency at December
31, 1999. These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 3. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WISS & COMPANY, LLP
March 20, 2000
Livingston, New Jersey
F-1
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 305,400 $ 1,604,166
Restricted cash -- 300,000
Accounts receivable, net $ 242,826
Other assets 44,635 35,000
------------ ------------
Total current assets 592,861 1,939,166
Property and equipment, net 54,737 324,322
Assets of liquidating subsidiaries 3,705,832 7,753,840
------------ ------------
$ 4,353,430 $ 10,017,328
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,088,663 $ 210,719
Accrued license fee 1,221,979 831,684
Accrued earn-out to related party 1,200,000 634,085
Other accrued expenses 457,447 475,397
Accrued settlements 324,424 592,000
Accrued claims 601,698 368,698
Deferred revenues 101,854 --
Convertible notes payable -- 2,599,750
Notes payable to related parties -- 678,815
------------ ------------
Total current liabilities 4,996,065 6,391,148
Other liabilities:
Notes payable to related party 628,815 --
Liquidating subsidiaries' liabilities subject to compromise - third parties 23,716,888 17,957,691
------------ ------------
29,341,768 24,348,839
Commitments and Contingencies
Stockholders' Equity (Deficit)
Preferred stock - $.01 par value, authorized 1,000,000 shares;
none issued and outstanding
Common stock, $.01 par value, authorized 35,000,000 shares;
issued and outstanding 14,727,882 and 11,321,034 147,278 113,211
Additional paid-in capital 56,233,248 52,120,397
Accumulated deficit (81,322,086) (66,512,239)
Deferred compensation -- (6,102)
Accumulated other comprehensive income 23,089 23,089
Less: Treasury stock, 47,891 shares (69,867) (69,867)
------------ ------------
Total stockholders' equity (deficit) (24,988,338) (14,331,511)
------------ ------------
$ 4,353,430 $ 10,017,328
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-2
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales $ 306,963 $ --
Cost of sales (exclusive of depreciation) 223,283 --
------------ ------------
Gross profit 83,680 --
------------ ------------
Selling, general and administrative expenses 1,762,275 2,464,331
Depreciation and amortization 19,206 57,532
------------ ------------
Operating loss (1,697,801) (2,521,863)
Interest expense -- (1,682,577)
------------ ------------
Loss from continuing operations (1,697,801) (4,204,440)
Loss from discontinued operations (11,691,874) (24,365,356)
------------ ------------
Loss before extraordinary item (13,389,675) (28,569,796)
------------ ------------
Extraordinary loss on conversion of debt (1,420,172) --
------------ ------------
Net loss (14,809,847) (28,569,796)
------------ ------------
Foreign currency translation adjustment -- 11,734
------------ ------------
Comprehensive loss $(14,809,847) $(28,558,062)
============ ============
Basic and diluted loss per common share:
Loss from continuing operations $ (.12) $ (.65)
Loss from discontinued operations (.82) (3.76)
Extraordinary loss on conversion of debt (.10) --
------------ ------------
Basic and diluted loss per common share $ (1.04) $ (4.41)
============ ============
Weighted average common shares outstanding
- basic and diluted 14,305,064 6,483,659
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common stock
---------------------------- Additional
paid-in Accumulated Deferred
Shares Amount capital deficit compensation
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 5,084,870 $ 50,848 $ 39,689,698 $(37,942,443) $ (294,650)
Exercise of options 1,000 10 386 -- --
Amortization of deferred
compensation -- -- -- -- 487,148
Deferred compensation arising
from issuance of warrants -- -- 198,600 -- (198,600)
Issuance of common stock in
connection with merger 906,902 9,069 4,797,511 -- --
Issuance of warrants related to
April 1998 pirvate placement -- -- 658,927 -- --
Issuance of warrants and options --
related to financing commitment -- -- 792,000 -- --
Issuance of common stock related
to October 1998 private placement 1,198,000 11,980 1,834,770 -- --
Issuance of warrants
as compensation -- -- 78,345 -- --
Conversion of related party note
payable to common stock 813,008 8,130 1,051,870 -- --
Repurchased shares related to
receivable from related party -- -- -- -- --
Conversion of December 1996 notes
payable to common stock 3,170,912 31,711 3,018,290 -- --
Issuance of common stock in
exchange for warrants 146,342 1,463 -- -- --
Foreign currency translation -- -- -- -- --
Net loss -- -- -- (28,569,796) --
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 11,321,034 $ 113,211 $ 52,120,397 $(66,512,239) $ (6,102)
============ ============ ============ ============ ============
Exercise of options 1,865 18 1,264
Amortization of deferred
compensation 6,102
Conversion of convertible notes
payable to common stock 3,155,938 31,559 3,913,363
Conversion of trade debt to
common stock 10,000 100 5,212
Issuance of stock options for
financing fees -- -- 92,792
Issuance of stock options to sales
representatives and brokers -- -- 2,610
Conversion of trade debt to
common stock 239,045 2,390 97,610
Net loss (14,809,847)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 14,727,882 $ 147,278 $ 56,233,248 $(81,322,086) $ --
============ ============ ============ ============ ============
<CAPTION>
Accumulated
other
comprehensive Treasury
income stock Total
------------- ------------ ------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ 11,355 $ -- $ 1,514,808
Exercise of options -- -- 396
Amortization of deferred
compensation -- -- 487,148
Deferred compensation arising
from issuance of warrants -- -- --
Issuance of common stock in
connection with merger -- -- 4,806,580
Issuance of warrants related to
April 1998 pirvate placement -- -- 658,927
Issuance of warrants and options
related to financing commitment -- -- 792,000
Issuance of common stock related
to October 1998 private placement -- -- 1,846,750
Issuance of warrants
as compensation -- -- 78,345
Conversion of related party note
payable to common stock -- -- 1,060,000
Repurchased shares related to
receivable from related party -- (69,867) (69,867)
Conversion of December 1996 notes
payable to common stock -- -- 3,050,001
Issuance of common stock in
exchange for warrants -- -- 1,463
Foreign currency translation 11,734 -- 11,734
Net loss -- -- (28,569,796)
------------ ------------ ------------
Balance at December 31, 1998 $ 23,089 $ (69,867) $(14,331,511)
============ ============ ============
Exercise of options 1,282
Amortization of deferred
compensation 6,102
Conversion of convertible notes
payable to common stock 3,944,922
Conversion of trade debt to
common stock 5,312
Issuance of stock options for
financing fees 92,792
Issuance of stock options to sales
representatives and brokers 2,610
Conversion of trade debt to
common stock 100,000
Net loss (14,809,847)
------------ ------------ ------------
Balance at December 31, 1999 $ 23,089 $ (69,867) $(24,988,338)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-4
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(14,809,847) $(28,569,796)
Adjustment to reconcile net loss to net cash flows from operating activities:
Loss from discontinued operations 11,691,874 24,365,356
Depreciation and amortization 19,206 57,532
Provision for bad debts 38,200 --
Amortization of deferred compensation 6,102 487,148
Amortization of unearned discount -- 713,018
Amortization of deferred financing charges 4,995 1,672,700
Issuance of stock in exchange for warrants -- 1,463
Issuance of warrants for services rendered -- 78,345
Issuance of stock options for services 95,402 --
Loss on debt conversion 1,420,172 --
Loss on disposal of fixed assets 41,291 --
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (281,026) --
Other assets (9,635) (30,232)
Accounts payable 877,944 121,264
Accrued license fees 390,295 461,495
Accrued note and earn-out to related party 515,915 1,312,900
Accrued expenses, settlements and claims (131,642) (26,122)
Deferred revenues 101,854 --
------------ ------------
Cash used by continuing operating activities (28,900) 645,071
Cash used by discontinued operating activities (1,571,148) (8,257,053)
------------ ------------
Cash used by operating activities (1,600,048) (7,611,982)
------------ ------------
Cash flows from financing activities:
Proceeds from bridge loan -- 1,846,750
Proceeds from exercise of options 1,282 396
Payments on capital lease obligations -- (95,298)
Letter of credit 300,000 (300,000)
Payments of deferred finance fees -- (115,000)
------------ ------------
Net cash provided by financing activities 301,282 1,336,848
------------ ------------
Effects of foreign currency translation on cash -- 11,734
------------ ------------
Net change in cash (1,298,766) (6,263,400)
Cash, beginning of year 1,604,166 7,867,566
------------ ------------
Cash, end of year $ 305,400 1,604,166
============ ============
Supplemental disclosures:
Cash paid for interest $ 231,866 $ 212,249
============ ============
Deferred finance fees relating to options and warrants $ 11,838 $ 1,450,927
============ ============
Deferred compensation relating to options and warrants $ -- $ 198,600
============ ============
Conversion of convertible notes payable into common stock $ 2,524,750 $ 3,087,500
============ ============
Conversion of trade debt into common stock $ 105,312
============ ============
Conversion of note payable to related party into common stock $ -- $ 1,060,000
============ ============
Issuance of stock options for financing fees $ 92,792 $ --
============ ============
Issuance of common stock in connection with acquisition $ -- $ 4,806,580
============ ============
Issuance of notes payable in connection with acquisition $ -- $ 2,000,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) BUSINESS AND BASIS OF PRESENTATION
Global Telecommunication Solutions, Inc. (the "Company") was incorporated
on December 23, 1992 and historically, through its subsidiaries, has been
engaged in the marketing and distribution of prepaid phone cards. As a result of
the Company's subsidiaries' long history of losses in the prepaid phone card
business, coupled with an increasingly competitive environment, the Company's
Board of Directors in the third quarter of 1999 adopted a plan to discontinue
and sell the prepaid phone card business. To facilitate the possible sale of the
phone card assets, certain of the Company's subsidiaries have filed voluntary
petitions with the U.S. Bankruptcy Court for the District of Delaware ("Court")
under Chapter 11 of the U.S. Bankruptcy Code on October 28, 1999. The
subsidiaries of the Company that filed for Court protection are Global Link
Telecom Corporation, GTS Holding Corp., Inc., TelTime, Inc., Network Services
System, Inc., Network Services System, L.P., GTS Marketing, Inc., Global
Telecommunication Solutions, L.P., Networks Around the World, Inc. and
Centerpiece Communications, Inc. (collectively the "Debtors").
The Company's financial statements have been prepared in accordance with
the American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting by Entities in Reorganization ("SOP 90-7.")" The
Debtors have been operating their business as debtors-in-possession subject to
the jurisdiction of the Court.
As a result of the Company's decision to sell its phone card business and
the subsequent voluntary filing by the Debtors under Chapter 11 of the U.S.
Bankruptcy Code, the operations of that business are presented herein as
discontinued operations and the assets and liabilities of the Debtors have been
aggregated in the accompanying balance sheets.
The Company, which is not in bankruptcy, intends to focus on developing,
operating, and entering into strategic relationships with companies to implement
promotional and other direct marketing services utilizing telephony, the
Internet and wireless communication technologies.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. Investments in 20 percent to 50
percent-owned affiliates are accounted for on the equity method. All significant
intercompany balances and transactions have been eliminated in consolidation.
ESTIMATES AND UNCERTAINTEES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, revenue and expenses and
the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results, as determined at a later date, could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, accounts payable and other
liabilities of the entities not in bankruptcy approximate fair value because of
the short maturities of these amounts. The fair value of the Debtors' assets and
liabilities subject to settlement are not presently determinable as a result of
the Chapter 11 proceedings.
LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount of which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F-6
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
CASH AND RESTRICTED CASH
Cash consists of highly liquid investments with an original maturity date
of three months or less. Restricted cash at December 31, 1998 consisted of a
deposit to secure a $300,000 letter of credit required under a carrier
arrangement.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company and the Debtors
to concentration of credit risk consist primarily of cash and unsecured trade
receivables. The Company and the Debtors therein maintains cash balances in
financial institutions which are insured by the Federal Deposit Insurance
Corporation up to $100,000 each.
The Company and the Debtors periodically review their trade receivables and
establish anb allowance for uncollectible accounts. Management feels the credit
risk beyond the established allowance is limited.
REVENUE AND COST RECOGNITION
Substantially all the prepaid phone cards sold are non-refundable and have
expiration dates ranging from twelve to eighteen months after issuance or six to
twelve months after last use. The Company records the net sales price as
deferred revenue when cards are sold and recognizes revenue as the ultimate
consumer utilizes calling time, or in the case of promotional phone card
programs, during the period the program is executed. Deferred revenue relating
to unused calling time remaining at each card's expiration is recognized as
revenue upon the expiration of such card.
The primary costs of its prepaid phone cards include the cost of long
distance carrier services, regulatory fees and the design, production and
packaging of the cards. Costs are expensed as incurred, except the costs of
design and production of the card, which are included in inventory and are
expensed when the related revenue is recognized.
INVENTORY
Debtors inventory consists of phone card production and packaging costs
and is stated at the lower of cost or market, with cost determined using the
average cost method.
GOODWILL
Goodwill represents the unamortized excess of the cost over the fair
values of the net assets acquired in acquisitions. Amortization expense has
historically been computed using the straight-line method over 15 years.
The Company's policy is to evaluate the recoverability of goodwill based
on forecasted undiscounted cash flows from operations. Goodwill is assessed for
impairment whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. Impairment losses are measured as the
amount by which the carrying amount of goodwill exceeds its fair value. When
impairment is indicated, such assets are written down to estimated fair value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets.
Expenditures for maintenance and repairs are charged to operations as incurred.
The estimated useful lives used in computing depreciation of property and
equipment are as follows:
Furniture and fixtures 5 years
Switching equipment 5 years
Computers and office equipment 3 years
Assets held under capital leases and leasehold improvements are amortized
over the lives of the respective leases or the useful life of the asset,
whichever is shorter.
The property and equipment of the Debtors is included in assets of
liquidating subsidiaries and related deprecation and amortization expense is
included in loss from discontinued operations.
COMPUTER SOFTWARE
Cost related to internal development or purchased software are capitalized
and amortized on a straight-line basis over their estimated useful life.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is
F-7
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce the deferred tax asset to
the amount expected to be realized.
NET LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding. Basic and diluted net loss per
share for 1999 and 1998 were the same because potential common shares of
3,863,328 and 4,629,852, respectively, were not included in the calculation of
the net loss per share since their inclusion would be anti-dilutive.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for options granted by the Company is measured as
the excess, if any, of the quoted market price of the Company's stock at the
date of the grant over the amount an employee must pay to acquire the stock.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the current year presentation.
(3) GOING CONCERN
At December 31, 1999, the Company, excluding the assets and liabilities
relating to the Debtors, had cash of $305,400 and a working capital deficit of
$5 million. Subsequent to December 31, 1999, the Company continues to generate
negative cash losses from operations.
At December 31, 1999 substantially all the Company's current liabilities
relate to indebtedness incurred in connection with the discontinued phone card
business. These liabilities were incurred by the Company rather
than the Debtors, and are due to less than 10 entities. The Company is currently
negotiating with the various parties in an effort to reach settlements regarding
the amounts due. The Company is attempting to settle these liabilities on
favorable terms to the Company.
The Company's ability to continue in operation and execute its new
business plan is subject to various factors including, but not limited to,
resolving its aforementioned outstanding liabilities, and raising additional
capital. Management of the Company cannot presently predict the outcome of these
matters and there can be no assurance that the Company will be successful in any
of these endeavors.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business.
However, absent the Company's ability to execute the plans described in the
following paragraph, the Company may be unable to continue as a going concern,
which could significantly impact the liquidation or settlement value of its
assets and liabilities.
F-8
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) DISCONTINUED OPERATIONS AND SUBSIDIARY CHAPTER 11 FILINGS
In accordance with SOP 90-7, balance sheets and statements of
operations for the Debtors are presented below:
Statement of Operations
Year Ended
December 31,
------------
1999 1998
---- ----
Net sales $ 33,141,377 $ 31,178,125
Cost of sales 34,887,896 29,629,086
------------ ------------
Gross profit (1,746,519) 1,549,039
Selling, general and administrative expense 5,679,632 8,730,658
Depreciation and amortization 1,846,492 1,856,806
Restructuring charge -- 1,091,436
Goodwill impairment 2,144,087 12,820,868
------------ ------------
Operating loss (11,416,730) (22,950,729)
Interest income 28,560 94,617
Interest expense (303,704) (1,509,244)
------------ ------------
Net loss from discontinued operations $(11,691,874) $(24,365,356)
============ ============
Balance Sheets
December 31,
---------------------------
1999 1998
---- ----
Current Assets:
Cash $ 594,143 $ --
Accounts receivable, net 1,102,229 3,234,106
Inventory 251,776 436,883
Other assets -- 68,929
----------- -----------
Total current assets 1,948,148 3,739,918
Goodwill, net 1,952,000
Property and equipment, net 1,707,684 1,901,080
Other assets, net 50,000 160,842
----------- -----------
Total assets of liquidating subsidiaries $ 3,705,832 $ 7,753,840
=========== ===========
Pre-petition current liabilities:
Accounts payable $ 8,638,408 $ 4,969,556
Accrued regulatory fees 5,836,021 2,749,223
Other accrued expenses 430,967 1,412,788
Deferred revenues 1,963,797 3,160,958
Estimated sales tax liability 5,429,514 5,665,166
Notes payable to related party 110,000 --
----------- -----------
22,408,707 17,957,691
Post-petition liabilities (Administrative Claims) 1,308,181 --
----------- -----------
Total liquidating subsidiaries'
liabilities subject to compromise-third
parties $23,716,888 $17,957,691
=========== ===========
F-9
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1999 RESTRUCTURING
In September 1999, the Company's Board of Directors adopted a plan to
discontinue the operations of the phone card business and to seek an acquirer of
that business. As a result of the substantial liabilities associated with that
business, a decision was made resulting in the Debtors filing voluntary
petitions with the Court for the District of Delaware under Chapter 11 of the
U.S. Bankruptcy Code on October 28, 1999. In making these filings, the Debtors
indicated to the Court that a purchaser for the assets of the Debtors was being
sought, but that failing that, the businesses would be liquidated rather than
reorganized. On January 31, 2000, the Debtors entered into an agreement to sell
substantially all of their assets to J D Services, Inc., a prepaid phone card
provider located in Salt Lake City, Utah ("J D Services"). Having the approval
of the United States Court for the District of Delaware, this sale is expected
to be complete in April 2000.
As a result of the decision to discontinue the phone card operation, the
results of operations of the phone card business have been segregated from
continuing operations and reported as a separate line item on the statement of
operations. The Company has restated the prior period financial statements
included herein to present the operating results of the phone card business as a
discontinued operation.
The net assets associated with the phone card business have been
segregated in the accompanying balance sheets. Intangible assets related to the
business of approximately $2 million have been written off and have been
included in the loss from discontinued operations. The liabilities associated
with the phone card business have been segregated in the accompanying balance
sheet as "Liquidating subsidiaries' liabilities subject to compromise-third
parties." Included in that amount is approximately $270,587 in secured debt
payable with the remaining balance being unsecured liabilities due trade
creditors and vendors, estimated sales tax liabilities payable and other
regulatory fees, deferred revenue related to outstanding phone cards and the
estimated liability to various payphone owners as dial around compensation. At
December 31, 1999 debts incurred by the Debtors subsequent to the bankruptcy
filing ("Administrative Claims"), in the amount of $1,308,181 are included in
"Liquidating subsidiaries' liabilities subject to compromise-third party."
Under federal bankruptcy laws, Administrative Claims have priority over
pre-petition liabilities. Therefore, no provision for estimated losses to be
incurred during the period of liquidation or sale has been made since it is
currently anticipated that to the extent additional liabilities and/or losses
are incurred, the value of the assets available to settle subsidiary liabilities
subject to compromise will be reduced.
At December 31, 1999, the Company's investment in and receivables from the
Debtors was approximately $22.1 million. The Company does not anticipate
receiving any substantial proceeds from the Debtors' estate. Accordingly,
neither the receivable due from the Debtors nor the payable due to the Company
as a liability subject to compromise has been reflected in the accompanying
balance sheet.
1998 RESTRUCTURING
During the year ended December 31, 1998, the Company recorded a $1,091,436
restructuring charge related to the closing of its Canadian subsidiary, costs
associated with consolidating the Company's operations and the modification of
employment agreements with three of the Company's executive officers. The
Company closed its Canadian subsidiary to focus on selling its products
domestically. The Company consolidated its operations from five to two locations
with the intent of reducing operating expenses, including salaries and benefits,
by eliminating duplicate positions at the various locations. As part of this
consolidation, three executives' employment agreements were amended, which
included the termination of their employment. The components of the charge,
which is classified as a separate line item in the operating results from the
discontinued operations for the year ended December 31, 1998 are as follows:
Canadian subsidiary closing costs $ 65,111
Consolidation costs 445,111
Compensation related to amendments to
executive employment agreements 581,214
----------
$1,091,436
==========
Costs associated with the closure of the Canadian subsidiary primarily
related to severance costs associated with employees terminated. Total revenues
and net income associated with the Canadian subsidiary were not material to the
F-10
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
results of operations. Costs associated with consolidating the Company's
operations included severance costs of $26,878 associated with employees
terminated. Incremental operating costs of $95,000 associated with closing the
Company's call center and lease termination costs of $97,236 associated with
moving the Company's corporate offices. In addition, fixed assets net of salvage
costs of $225,995 were disposed of in conjunction with the Company's
consolidation. The activities incorporated in the restructuring were completed
by December 31, 1998. At December 31, 1999 $67,613 is included in accrued
expenses in the Debtors balance sheet.
(5) ACQUISITIONS AND GOODWILL RELATING TO DISCONTINUED PHONE CARD BUSINESS
ACQUISITIONS
On February 6, 1998 ("Merger Date"), the Company acquired, through a
merger, all of the outstanding capital stock of Networks Around the World, Inc.
("NATW"), for a purchase price comprised of (i) $2,000,000 in cash, (ii) an
aggregate of 505,618 shares of common stock and (iii) $1,000,000 aggregate
principal amount of promissory notes ("NATW Notes"), secured by substantially
all of the assets of NATW. In addition, the Company was required to pay an Earn
Out to $2,000,000 (the "Earn Out") in additional consideration to Randy Cherkas,
the Company's former President and a former shareholder of NATW, if certain
sales and financial objectives are achieved. Accordingly, upon occurrence of
such events the additional consideration will increase goodwill. For the year
ended December 31, 1999 and 1998, $702,455 and $838,900 respectively of the Earn
Out has been recorded as additional consideration. In April 1998, the former
shareholders agreed to defer payment of an aggregate of $1,000,000 of NATW Notes
and Earn Out from 1998 to January 1999. In December 1998, the former
shareholders of NATW preliminarily agreed to convert the NATW Notes into common
stock. The conversion of the NATW Notes into 769,750 share of Common Stock
occurred in March 2000 after deducting from the NATW Notes $376,185, which
represents a reimbursement to the Company of amounts due it under an indemnity
contained in the merger agreement (see below). From the consummation of the
NATW merger in February 1998 through the date of the Assignment Agreement, the
Company has paid Mr. Cherkas $341,355 of the aggregate amount of $1,541,355 owed
to him during that period under the Earn Out. The remaining balance due Mr.
Cherkas under the Earn Out is now payable to him in accordance with the
Assignment Agreement (See "Subsequent Events").
Also on the Merger Date, the Company acquired, through a merger, all of
the outstanding capital stock of Centerpiece Communications, Inc. ("CCI") for a
purchase price comprised of (i) $1,500,000 in cash, (ii) 401,284 shares of
common stock, of which 47,891 shares were subsequently contributed back to the
Company (see below) and (iii) a $1,000,000 aggregate principal amount promissory
note ("CCI Note"), secured by substantially all of the assets of CCI. In April
1998, the former shareholder of CCI agreed to defer payment of $250,000 of CCI
Notes, plus interest, from October 31, 1998 to January 1999. In November 1998,
the CCI Note was converted into 813,008 shares of common stock.
Each of the mergers was accounted for as a purchase. Accordingly, the
assets and liabilities were recorded at their estimated fair value at the date
of the mergers and the operating results of NATW and CCI were included in the
consolidated statement of operations from the Merger Date. The aggregate
purchase price paid for CCI and NATW was $5,019,590 and $8,089,410 respectively,
including the Earn Out related to the NATW transaction, substantially of which
was recorded as goodwill.
Pursuant to the respective merger agreements, the Company and the former
shareholders of NATW and CCI agreed to share certain costs related to any
underlying carrier's failure to provide telecommunications services to phone
cards purchased by NATW and CCI prior to the mergers. In February 1998, Access
Telecom, Inc. ("Access"), a primary provider of telecommunications services to
NATW and CCI prior to and after the respective mergers, ceased providing such
services to the prepaid phone cards that it had sold to each of NATW and CCI,
despite receiving payment for substantially all of the phone cards. The cost to
the Company of providing telecommunications services related to such cards
aggregated $1,761,097. Of this cost, $376,185 and $298,364 of the costs have
been allocated to the former shareholders pursuant to indemnification
arrangements.
In addition to the $1,761,097 indicated above, the Company paid Access
$350,000 for cards purchased subsequent to the Merger Date for which it received
no services. Additionally, the Company spent approximately $200,000 to print
cards that could only be used on Access's platform and, therefore, were of no
use to the Company. Accordingly, the total estimated aggregate carrier default
of $550,000 was recorded in cost of goods sold by the discounted operations
during the year ended December 31, 1998.
F-11
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to the respective merger agreements, the purchase price was
adjusted subsequent to the Merger Date by an amount equal to cash of the
acquired company plus the net realizable value of accounts receivable of the
acquired company minus current liabilities of the acquired company as of the
Merger Date. In November 1998, the Company and the former shareholder of CCI
reached a settlement on the amount due to the Company related to Access.
Pursuant to the terms of the merger agreement, the former shareholder
contributed back to the Company 47,891 shares of common stock issued as part of
the merger consideration with a fair market value of $69,867 in consideration of
$298,364 that he owed to the Company. The loss on the settlement of $228,497 was
recorded as a selling, general, and administrative expense in the Debtors
statement of operations for the year ended December 31, 1998.
GOODWILL
The Company has experienced significant net losses and negative cash flow
from operations subsequent to mergers in 1996 and 1998 culminating in the
Company's decision in the third quarter of 1999 to exit the phone card business.
In the third quarter of 1999 and fourth quarter of 1998, the Company reviewed
the recoverability of the carrying amount of the goodwill that had arisen
related to the mergers. In accordance with the Company's accounting policy, this
review encompassed the preparation and review of projections of undiscounted
cash flows. This review resulted in the conclusion that impairment losses of
$2,144,087 and $12,820,868 should be recognized to reduce goodwill to its
estimated fair value at December 31, 1999 and 1998 respectively. The following
table summarizes changes in the net book value of goodwill during 1999 and 1998.
Balance at December 31, 1997 $ 3,516,344
Goodwill recorded in connection with NATW and CCI mergers 12,218,740
1998 amortization expense (962,216)
Impairment charge (12,820,868)
------------
Balance at December 31, 1998 1,952,000
Additional earn-out recorded as goodwill 702,459
1999 amortization expense (510,372)
Impairment charge (2,144,087)
------------
Balance at December 31, 1999 $ --
============
Goodwill is included in assets of liquidating subsidiaries and the related
amortization expense and impairment charge is included in the loss from
discontinued operations.
(6) DEBT OBLIGATIONS
APRIL 1998 NOTES
In April 1998, the Company completed a private placement (the "April 1998
Private Placement") pursuant to which it received net proceeds of approximately
$1,135,000 through the sale of $1,250,000 convertible subordinated promissory
notes ("April 1998 Notes") and warrants to purchase 178,573 shares of common
stock ("April 1998 Warrants"). The April 1998 Warrants are exercisable through
April 2001 at an initial exercise price of $7.00 per share. The estimated fair
market value of these warrants of $658,927, along with expenses associated with
the April 1998 Private Placement of $115,000, were recorded as deferred
financing costs and were amortized to interest expense over the term of the
April 1998 Notes. The April 1998 accrued interest at the rate of 10% per annum
and was payable on the earlier of January 15, 1999 or the date of the closing of
a Qualified Private Placement. The holders had the right at any time to convert
all or any portion of the April 1998 Notes into the number of shares of common
stock determined by dividing the unpaid amount of the April 1998 Notes by the
Conversion Price. In October 1998, the notes were repaid with the proceeds from
the October 1998 Private Placement and all remaining deferred financing costs
were expensed.
DECEMBER 1996 NOTES
In December 1996, the Company completed a private placement (the "December
1996 Private Placement") from which the Company derived proceeds of $3,000,000
through the sale of $3,000,000 of promissory notes and warrants to purchase
1,000,000 shares of common stock. Based on negotiations with the note holders in
1998, the notes were payable as follows: $400,000 was due and payable on the
earlier of November 27, 1998 or the date on which the Company
F-12
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
undergoes a change in control; $2,600,000 was due on the earlier of January 15,
1999 or the date on which the Company undergoes a change of control. If the
notes were not paid upon maturity, the outstanding principal was to begin to
accrue interest at the rate of 12% per annum and the principal and accrued
interest was to become convertible into common stock, at the option of the
holders. In addition, the Company issued $50,000 of notes, which matured in
November 1998, and warrants to purchase 16,667 shares of common stock in payment
of certain legal fees associated with the December 1996 Private Placement. The
estimated fair market value of the warrants of $1,542,044, as determined by
independent appraisal, was recorded as a discount and is being amortized over
the term of the notes. During the years ended December 31, 1998 and 1997,
$713,018 and $771,022 of the discount was amortized to interest expense. In
December 1998, the notes were converted into 3,170,912 shares of common stock
CONVERTIBLE NOTES PAYABLE
In connection with the acquisition of Global Link Telecom Corporation
("Global Link") on February 29, 1996. the Company assumed $2,800,000 aggregate
principal amount of convertible debentures ("Convertible Debentures") of which
$1,400,000 were due and payable on June 23, 1999 and $1,400,000 were due and
payable on September 14, 1999. The Convertible Debentures were secured by a
first lien on all assets of the Company. The Convertible Debentures bore
interest at 6% per annum, payable on May 31st and November 30th of each year. At
the option of the holders, the Convertible Debentures were immediately due and
payable upon a change in control of Global Link. The principal amount of the
convertible debentures was convertible at the option of the holders at any time
into shares of common stock at a conversion price of $9.264 per share. . During
the year ended December 31, 1997, $200,250 of the debentures were converted into
21,615 shares of common stock. In January 1999, holders of $2,524,750 aggregate
principal amount of debentures converted the debentures into 3,155,938 shares of
common stock. The remaining balance of the convertible debentures was paid in
December 1999.
NOTES PAYABLE TO RELATED PARTIES
In December 1998, the former shareholders of NATW preliminarily agreed to
offset the amounts due to the Company related to Access against the $1,000,000
of NATW Notes payable owed to the former shareholders of NATW, and to
subsequently convert the net amount due under the NATW Notes into common stock
at a conversion rate of $. 80 per share. In March 2000, after giving effect to
the Access settlement with the NATW note holders in the amount of $376,185, the
NATW Notes were converted in 769,750 shares of Common Stock with the remaining
balance of $110,000 (including accrued interest) payable in April 2000 by the
Debtors. At December 31, 1999 the $628,815 (including interest) is shown as a
long-term liability of the Company and the $110,000 is included in the Debtors'
liabilities as notes payable to related party.
(7) STOCKHOLDERS' EQUITY
JANUARY 1999 DEBT CONVERSION
In December 1998, the Company offered the holders of $2,599,750 aggregate
principal amount of debentures the opportunity to convert the debentures into
shares of common stock at a conversion rate of $.80 per share. In January 1999,
holders of $2,524,750 aggregate principal amount of debentures accepted the
offer and converted the debentures into 3,155,938 shares of common stock. In
connection with the conversion, the Company incurred an extraordinary loss of
$1,420,172 related to the difference between the market value of the shares
issued on the closing date and the conversion value. In January 1999, holders of
$2,524,750 aggregate principal amount of debentures converted the debentures
into 3,155,938 shares of common stock. The remaining balance of the convertible
debentures was paid in December 1999.
DECEMBER 1998 DEBT CONVERSION
In December 1998, holders of $3,050,000 principal amount of promissory
notes converted their notes into an aggregate 3,170,912 shares of common stock.
Certain of the note holders also exchanged 666,667 common stock purchase
warrants for an aggregate of 146,342 shares of common stock. Further, certain
note holders forgave interest of $14,000 due on the notes.
NOVEMBER 1998 DEBT CONVERSION
In November 1998, J. Mark Rubenstein resigned as a director and officer of
the Company. Mr. Rubenstein 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, Mr. Rubenstein sold to certain investors,
including Shelly Finkel, Chairman of the
F-13
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Board of the Company, Michael Hoppman, former Chief Financial Officer of the
Company and Barry Rubenstein, a stockholder (the "Investors") an aggregate of
353,393 shares of common stock and the $1,000,000 CCI Note for an aggregate
purchase price of $575,000.
In November 1998, the Company offered the Investors the opportunity to
convert the $1,000,000 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.
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 the April 1998 Notes and accrued interest of $24,315. In addition, in
lieu of compensating Pennsylvania Merchant Group ("PMG") for serving as
placement agent of the October 1998 Private Placement, the Company reduced the
exercise price of warrants to purchase 100,000 shares issued to PMG in July 1997
in connection with the provision of financial consulting services from $7.00 per
share to $1.625 per share. In addition, deferred finance charges of $289,501
were recorded to interest expense during the year ended December 31, 1998. Also
in October 1998, the Company issued 30,000 warrants with a value of $78,345 to
PMG as consideration for investment advisory services. The warrants are
exercisable at $1.62 per warrant through January 2001.
DEFERRED COMPENSATION
In January 1998, the Company entered into a one-year consulting agreement
with JEB Partners, pursuant to which JEB Partners agreed to provide investor
relations consulting services to the Company. In consideration for providing
such services, the Company agreed to issue JEB Partners warrants to purchase
60,000 shares of common stock. The estimated fair value of these options of
$198,600 was initially recorded as deferred compensation. Expense related to
this agreement of $6,102 and $192,498 was recorded during the years ended
December 31, 1999 and 1998. The value of these warrants was fully expensed as of
December 31, 1998.
In July 1997, the Company issued five-year warrants to an investment bank
to purchase 100,000 shares of common stock in consideration for a one-year
consulting agreement. The estimated fair value of these warrants of $350,000 was
recorded as deferred compensation and the Company has recorded expense related
to this agreement of $204,165. The value of these warrants was fully expensed as
of December 31, 1998.
In January 1997, the Company extended its consulting agreements with two
of its stockholders, pursuant to which the stockholders provided consulting
services to the Company for a two-year period ending December 1998. In
consideration for these services, the Company issued options to purchase 50,000
shares of common stock. The estimated fair market value of these options of
$151,648 was recorded as deferred compensation. The value of these options was
fully expensed as of December 31, 1998.
In January 1996, the Company issued five-year warrants to an underwriter
and/or its designees to purchase an aggregate of 66,667 shares of common stock
in consideration for consulting services. The estimated fair market value of
these warrants of $400,000 was recorded as deferred compensation. The value of
these warrants was fully expensed as of December 31, 1998.
In April and October 1995, the Company issued five-year warrants to
designees of the underwriter to purchase an aggregate of 33,334 shares of common
stock in consideration for providing the Company the right of first refusal to
pursue any prospective acquisition target in the phone card industry that the
underwriter identified through February 1998. The estimated fair market value of
these warrants of $117,000 was recorded as deferred compensation. The value of
these warrants was fully expensed as of December 31, 1998.
(8) INCOME TAXES
The Company had no current federal or state income tax liability for the
years ended December 31, 1999 and 1998 due to the net losses recorded for those
periods.
F-14
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The actual income tax expense differs from the "expected" tax benefit for
1999 and 1998, computed by applying the U.S. federal corporate tax rate of 34
percent to loss before income taxes, as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computed "expected" tax benefit $(5,035,348) $(9,713,730)
Non-deductible impairment of goodwill 728,990 4,378,147
Increase in valuation allowance (net of effect of acquisitions) 4,719,553 6,132,601
State tax benefit (413,195) (797,018)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 is as follows:
1999 1998
---- ----
Deferred tax assets:
Benefit of net operating loss carryforward $ 14,326,722 $ 9,810,499
Depreciation 269,818 288,164
Capital loss carryforward 116,620 116,620
Allowance for uncollectible accounts receivable 161,405 144,318
Deferred revenue 759,953 1,262,487
Deferred compensation 476,203 473,947
Sales and excise tax liability 2,005,242 1,692,164
Other accruals 1,249,660 1,509,262
Less: valuation allowance (19,351,661) (15,286,192)
------------ ------------
Net deferred tax asset 13,962 11,269
Deferred tax liabilities:
Deferred costs (13,962) (11,269)
------------ -------------
Net deferred income taxes $ -- $ --
============ ============
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not some portion or the entire deferred
tax asset will be realized. The ultimate realization of the deferred tax asset
is dependent upon the generation of future taxable income during the periods in
which temporary differences or net operating loss carryforwards become
deductible. Management considers scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies which
can be implemented by the Company in making this assessment. Based upon the
Company's historical operating losses and scheduled reversal of deferred tax
liabilities, the Company has established a valuation allowance of $19,351,661 at
December 31, 1999. At December 31, 1999, the Company had net operating loss
carryforwards ("NOLs") aggregating approximately $38,900,000 expiring in years
2007 through 2019. Under Section 382 of the Internal Revenue Code of 1986, as
amended, utilization of prior NOL's is limited after an ownership change, as
defined in such Section 382, to an amount equal to the value of the loss
corporation's outstanding stock immediately before the date of the ownership
change, multiplied by the federal long-term tax exempt rate in effect during the
month that the ownership change occurred. As a result of the Global Link merger
and equity and financing transactions, the Company is subject to limitations on
the use of its NOL's as provided under Section 382. Accordingly, there can be no
assurance that a significant amount of existing NOL's will be available to the
Company.
(9) STOCK OPTIONS
1994 PLAN
The Company has reserved 1,500,000 shares of common stock under its 1994
incentive and nonqualified stock option plan ("1994 Plan"). The 1994 Plan
authorizes the granting of stock options, restricted stock awards, and deferred
stock awards and stock appreciation rights to key employees, officers, directors
and consultants. All incentive stock options which will be granted by the
Company, with the exception of those options granted to persons holding more
than ten percent of the voting common stock in the Company on the date of grant,
expire ten years after grant and are issued at exercise prices which are not
less than the fair market value of the common stock on the date of grant.
Incentive options
F-15
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
granted to persons holding more than ten percent of the voting common stock of
the Company on the date of grant expire five years after grant and are issued at
exercise prices which are not less than 110 percent of the fair market value of
the stock on the date of grant. Nonqualified stock options granted under the
1994 Plan may be granted at any price determined by the Board of Directors,
however, the price may not be less than the fair market value of the common
stock on the date of grant. Stock options vest over a period determined by the
Board of Directors. The 1994 Plan contains certain change in control provisions,
which include those that could cause options to become immediately exercisable.
In December 1999, the Board of Directors authorized the cancellation of
294,633 stock options issued prior to August 1999 ("Original Option") held by
non-executive employees of the Company whose employment with the Company had or
will terminate as a result of the sales of the Debtors' assets to J D Services.
Concurrently, the Board of Directors authorized the issuance to these employees
an aggregate of 185,934 vested stock options which represents the number of
Original Options that would have vested as of March 1, 2000. The option price
for these stock options is the same price as the Original Option however these
options do not terminate within three months of the employee leaving the
employment of the Company but rather on February 28, 2005.
A summary of activity under the 1994 Plan is as follows:
Weighted Average
Number of Shares Exercise Price
---------------- --------------
Outstanding at January 1, 1998 387,856 $ 5.37
Granted 958,511 2.32
Canceled (97,538) 4.95
Exercised (1,000) .41
--------- --------
Outstanding at December 31, 1998 1,247,829 3.94
Granted 531,034 .77
Canceled (780,630) 1.16
Exercised (1,865) .69
--------- --------
Outstanding at December 31, 1999 996,368 $ 3.29
========= ========
At December 31, 1999, 658,068 options were exercisable and 503,632 options
to purchase shares were available for future grant.
NON-PLAN OPTIONS
In exchange for their personally guarantying a $500,000 debt financing
obtained by the Debtors in June 1999, the Company issued 100,000 options to
purchase common stock to each of Messrs. Eli Oxenhorn and Barry Rubenstein, a
principal shareholder of the Company, and Mr. Shelly Finkel, Chairman and a
principal shareholder of the Company. The exercise price is $.5625, the fair
market value of the common stock at the date of grant of the option, and the
options expire June 17, 2004. The value of the options, calculated using the
Black-Scholes option-pricing model, of $92,792 was charged to additional paid
in capital the year ended December 31, 1999.
In connection with his employment as the Company's Chief Financial
Officer, in June 1999, Mr. Lee R. Montellaro was granted an option to acquire
320,000 shares of common stock. The options vest 120,000 shares at December 1,
1999, 120,000 shares at June 1, 2000, 40,000 shares June 1, 2001 and 40,000
shares June 1, 2002 and the exercise prices are $.75, $1.25, $1.75 and $2.00
respectively. In December 1999, Mr. Montellaro was granted another option,
vesting April 3, 2000, to acquire 200,000 shares of common stock at an option
price of $.25, a price higher than the fair market value of the common stock at
the date of the grant of the option. The options expire five years from date of
vesting.
During the year ended December 31, 1999 the Company granted non-qualified
options to various sales representatives and brokers of the Debtors to purchase
an aggregate of 64,000 shares of common stock at exercise prices ranging from
$.14 to $.75, the fair market value of the common stock at the date of grant of
the option. The options vest at various dates and expire five years from date of
vesting. The value of those options, calculated using the Black-Scholes
option-pricing model, of $2,610 was charged to additional paid in capital in the
year ended December 31, 1999. At December 31, 1999, 8,500 of these options were
exercisable. Also in 1999, previously issued 1994 Plan vested options to acquire
20,000 shares of common stock at exercise prices ranging from $7.88 to $15.00
where converted to nonqualified options because their expiration dates had been
previously extended through 2004.
F-16
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In December 1999, the Board of Directors authorized the cancellation of
15,000 Original Options, that were not issue under the 1994 Plan, held by
non-executive employees of the Company whose employment with the Company had or
will terminate as a result of the sales of the Debtors' assets to J D Services.
Concurrently, the Board of Directors authorized the issuance to these employees
and aggregate of 10,000 vested stock options which represents the number of
Original Options that would have vested as of March 1, 2000. The option price
for these stock options is the same price as the Original Option however these
options do not terminate within three months of the employee leaving the
employment of the Company but rather on February 28, 2005.
In connection with the financing commitment entered into in April 1998,
the Company granted 50,000 options to each of Messrs. Barry Rubenstein, a
shareholder of the Company, and Eli Oxenhorn as consideration for introducing
the investor to the Company. These options are exercisable until April 2003 and
have an exercise price of $7.13 per share.
In January 1998, in connection with a consulting agreement with JEB
Partners, the Company granted options to purchase 60,000 shares of common stock
at an exercise price of $6.13. The options were immediately exercisable and
expire five years from the date of grant.
During the year ended December 31, 1998, previously issued 1994 Plan
options to acquire 72,000 shares of common stock at exercise prices ranging from
$1.00 to $2.25 where converted to nonqualified options because their expiration
dates had been extended through 2005. At December 31, 1999, 46,000 of these
options were exercisable.
During the year ended December 31, 1997, the Company granted non-qualified
options to employees and officers of the Company to purchase an aggregate of
355,000 shares of common stock at exercise prices ranging from $6.44 to $6.56.
The options vest at various dates and expire five years from date of vesting.
During the years ended December 31, 1999 and 1998, 15,000 and 40,000 of these
options were respectively canceled and accordingly 300,000 options remain
outstanding. At December 31, 1999, 291,667 of these options were exercisable.
In July 1997, in connection with the Company's public stock offering the
Company granted to the representative of the underwriters an option to purchase
250,000 shares of common stock at an exercise price of $9.08 per share. The
option is exercisable commencing July 1998 for a period of four years.
In 1996, in connection with the Global Link merger, options and warrants
to purchase 145,000 shares of common stock of Global Link were converted into
options to purchase an aggregate of 36,645 shares of the Company's common stock
at exercise prices ranging from $.40 to $7.92. A total of 1,865 and 1,000 of
these options were exercised during the years ended December 31, 1999 and 1998,
respectively. In January 1998 certain of these options were repriced to $6.56,
the then fair value of the Company's common stock. The remaining balance of
these options expired in April 1999.
In February 1996, the Company granted nonqualified options to purchase an
aggregate of 58,334 shares of common stock at an exercise price of $18.38 per
share to officers of the Company. During the year ended December 31, 1997,
41,667 of these options were canceled. The options vest in three annual
installments commencing in February 1997 and will remain exercisable for a
period of five years from the date of vesting. In January 1998, these options
were repriced to $6.56, the then fair value of the Company's common stock.
In April 1995, the Board of Directors granted to certain consultants
nonqualified stock options to purchase an aggregate of 2,500 shares of common
stock at an exercise price of $16.50 per share. Such options were immediately
exercisable and expire five years from the date of grant.
In March 1995, the Company granted non-qualified options to purchase
33,334 shares of common stock at an exercise price of $15.00 per share to a
former officer of the Company. The options vest 33 1/3% per annum commencing
March 20, 1996 and will remain exercisable for a period of five years from the
date of vesting. At December 31, 1999 all these options were exercisable.
In October 1994, the Board of Directors granted to certain officers and/or
directors immediately exercisable ten-year options to purchase 25,000 shares of
common stock at an exercise price of $9.99 per share. In January 1998, certain
of these options were repriced to $6.56, the then fair value of the Company's
common stock.
At December 31, 1999, 1,781,003 non-plan options were outstanding and
1,283,670 options were exercisable
STOCK OPTION RE-PRICING
In January 1998, the Company reduced the exercise price of 196,683
outstanding options to purchase common stock from exercise prices ranging from
$7.88 to $18.38, to the then fair market value of the common stock of $6.56.
F-17
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
SUMMARIZED INFORMATION FOR 1994 PLAN AND NON-PLAN STOCK OPTIONS
AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------------- -------------------------
Weighted Average Weighted
Number of Remaining Average Number of
Exercisable Price Range Shares Contractual Life Exercise Price Shares Average Price
- - ----------------------- --------- ---------------- -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
$ .14 to $ 6.00 1,628,882 4.97 years $ .81 834,218 $ 1.58
$ 6.00 to $10.00 1,044,309 6.40 $ 7.17 998,340 $ 7.50
$10.01 and over 104,180 7.96 $14.92 104,180 $14.92
--------- ---- ------ --------- ------
2,777,371 5.62 $ 3.73 1,936,738 $ 5.35
========= ==== ====== ========= ======
</TABLE>
As of December 31, 1999, the Company has reserved an aggregate of
3,281,003 shares of common stock for issuance upon the exercise of options.
SFAS NO. 123
The Company applies APB Opinion No. 25 in accounting for stock options
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss would have increased to the
pro forma amounts indicated below:
1999 1998
---- ----
Net loss: As reported $(14,809,847) $ (28,569,796)
Pro forma $(15,428,190) $ (29,829,794)
Net loss per share: As reported $ (1.04) $ (4.41)
Pro forma $ (1.08) $ (4.60)
The per share weighted-average fair value of stock options granted during
1999 and 1998 was $.48 and $1.67 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: 1999
expected dividend yield 0%, risk-free interest rate of 6.00%, expected life of 3
years and volatility of 405%; 1998 expected dividend yield 0%, risk-free
interest rate of 4.15%, expected life of 3 years and volatility of 214%.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of normal publicly traded options, and because changes in
the subjective input assumptions can materially affect fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of fair value of its employees stock options.
Pro forma net loss reflects only options granted after 1994. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net loss amounts presented above
because compensation cost is reflected over the options vesting period and
compensation cost for options granted prior to January 1, 1995 is not
considered.
(11) WARRANTS
The following warrants to purchase common stock were outstanding at
December 31, 1999:
Issue Date Shares Exercise Price Expiration Date
---------- ------ -------------- ---------------
October 1998 30,000 $ 1.63 October 2003
April 1998 178,573 $ 7.00 April 2003
April 1998 100,000 $ 7.50 April 2001
July 1997 100,000 $ 1.63 January 2001
December 1996 66,666 $ 7.50 November 2001
February 1996 7,085 $ 13.64 February 2000
January 1996 66,667 $ 15.38 December 2000
-------
582,325
=======
F-18
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 1995 16,667 $ 15.00 October 2000
April 1995 16,667 $ 15.00 April 2000
During the year ended December 31, 1999 various warrants, including those
issued in connection with the Company's initial public offering, to acquire an
aggregate of 1,720,560 shares of the Company's common stock expired.
As of December 31, 1999, the Company had reserved 582,325 shares of common
stock for issuance upon exercise of warrants.
(10) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company's future minimum annual rental commitments, net of amounts
subleased, at December 31, 1999 under operating leases for office space are as
follows:
Year Amount
---- --------
2000 $123,735
2001 93,152
2002 95,961
2003 81,918
-------- --------
Total $394,766
========
Rent expense for the years ended December 31, 1999 and 1998 amounted
to approximately $138,000 and $369,000, respectively.
Included in the minimum annual rental commitments is rent for the
Company's executive offices in Marlton, New Jersey which it intends to vacate in
connection with the sale of the Debtors' operations to J D Services. For the
years 2000 thorough 2004 the aggregate lease commitment is $361,373. J D
Services has agreed to assume the Company's entire obligation under this lease.
However, as of April 3, 2000, the landlord has not granted to the Company a
release from its obligations under the lease.
In August 1995, the Company entered into a lease for approximately 1,930
square feet of space for its sales offices located at 60 East 42nd Street, New
York, New York. The term of the lease is 62 months and provides for an annual
rent of $45,248. In December 1998, the Company entered into an agreement with
Shelly Finkel Management ("SFM"), a company owned by Shelly Finkel, the
Company's Chairman of the Board, pursuant to which, in consideration of the
Company's $48,000 payment to SFM, SFM agreed to assume all of the obligations
under the lease and indemnify and hold the Company harmless from all losses,
costs and expenses associated with the lease arising after December 31, 1998. To
date, the Company has paid SFM $24,000.
EMPLOYMENT ARRANGEMENTS
The company has entered into employment arrangements with two officers of
the Company which provide for aggregate base salaries of $300,000 per annum. The
arrangements, which expire on varying dates also provide for annual bonuses and
covenants not-to-compete during the employment term and for one year thereafter.
During the year ended December 31, 1999 one officer voluntarily waived $75,000
of base compensation.
LITIGATION
In June 1998, IDB Worldcom Services, Inc. ("Worldcom") commenced an action
against the Company in the Court of Common Pleas of Philadelphia, Pennsylvania.
On September 7, 1999, the Company settled this matter with Worldcom for $400,000
of which $300,000 is payable in cash over 22 months and the $100,000 balance was
paid through this issuance of 239,045 shares of the Company's common stock.
F-19
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On February 7, 2000, Star Telecommunications Inc. ("Star") obtained a
judgment against the Company in the total amount of $233,557 in connection with
litigation styled Star Telecommunications, Inc. v. Global Telecommunications
Solutions, Inc., Case No. 01001478, in the Superior Court, State of California
County of Santa Barbara, Anacapa Division. Star brought an action against the
Company for failure to pay Star for international long-distance
telecommunications services which Star provided to the Company's operating
subsidiaries under a Carrier Service Agreement entered into between Star and the
Company. The Company believes it has adequately accrued for this liability.
On March 17, 1999, Gloria Diaz, Edward Ragar and Charles Ruggieri (all
former sales people for the Company) commenced an action against the Company
claiming in the Superior Court of New Jersey, Somerset County Law Division,
docket No. L-432-99 alleging that the Company owes them approximately $62,000 in
the aggregate for salary, commissions and reimbursement for business expenses.
The Company disputes these claims and is defending this matter. The Company
believes it has adequately accrued for this liability.
On December 3, 1999, MTS Communications, Inc. ("MTS") commenced an action
against the Company in the United States District for the District of New
Jersey. MTS claims that the Company owes it $368,697, together with interest, in
connection with operations of the Company's Canadian subsidiary. The Company
disputes MTS' claims and is defending this matter. The Company believes it has
adequately accrued for this liability.
The Company also is involved in litigation incidental to its business.
Such litigation can be expensive and time consuming to prosecute and defend. The
Company believes that these pending litigation matters, in the aggregate, could
have a material adverse effect on its operating results and financial condition
if resolved against the Company.
LICENSE
In August 1995, the Company obtained a nonexclusive license from a third
party relating to various patents related to telecommunications processes
utilized in the Debtors' operations. The term of the license is through November
2011, when the last patent expires. However the Company ceased utilizing the
technology December 31, 1999.
The Company is obligated to make minimum payments of $50,000 annually over
the term of the agreement. Royalty expense amounted to $390,295 and $537,640 for
the years ended December 31, 1999 and 1998, respectively. No payments were made
during the years ended December 31, 1999 and 1998 and the Company is presently
attempting to negotiation a settlement of the $1,221,979 due under the agreement
at December 31, 1999.
(11) SUBSEQUENT EVENTS
J D SERVICES
On January 31, 2000, the Debtors entered into an agreement ("Purchase
Agreement") to sell substantially all of their assets to J D Services. The sale
transaction is to be consummated in April 2000. Under the terms of the Purchase
Agreement, J D Services will pay an aggregate of $2.1 million as follows: (i)
forgiveness of $750,000 debtor-in-possession financing previously provided to
the Debtors and (ii) assumption of Debtor's obligations to provide
telecommunications services to previously activated phone cards "Deferred
Liability." The Purchase Agreement also provides that should the Deferred
Liability be determined to be less than $1.35 million, the Debtors shall be due
the difference ("True-up Amount".)
A condition of the Purchase Agreement required that certain agreements,
including non-compete agreements among the Company, Debtors and Messrs. Cherkas
and Liguori be assigned to J D Services. These agreements with Messrs. Cherkas
and Liguori where entered into in connection with the Company's acquisition of
NATW in February 1998. To accomplish this assignment, defaults by the Company
and the Debtors under the various agreements had to be cured. With respect to
Messrs. Cherkas and Liguori, the Company and Debtors entered into an Agreement
Regarding The Assignment of Contacts, Cure Amounts and Related Matters on March
7, 2000, which was approved by the Court on March 22, 2000 ("Assignment
Agreement".) Under the terms of the Assignment Agreement, the Company is to pay
Mr. Liguori on April 17, 2000 $15,000 in unpaid bonus and 50,000 shares of
common stock. Also on April 17, 2000 the Company is to pay Mr. Cherkas $94,000;
$64,000 for accrued but unpaid salary and $30,000 for reimbursement of legal
fees. The Assignment Agreement also provides that the Debtors shall on April 28,
2000 pay Mr. Liguori $110,000 in payment of his portion of the NATW Note and
related interest. (See Note 5 with respect to the settlement of Mr. Cherkas'
portion of the NATW Note.)
F-20
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
With respect to approximately $1.2 million due Mr. Cherkas under the Earn
Out, under the Assignment Agreement, he has agreed to release the Company and
Debtors so long as he receives a minimum payment of $700,000, paid as discussed
below, by October 7, 2000. To the extent he does not receive the minimum payment
of $700,000, the amount due him by the Company shall be $1.2 million less any
payments he receives under the Assignment Agreement.
The Assignment Agreement provides that Mr. Cherkas shall receive the
following amounts, if any:
o The True-up Amount not to exceed $500,000
o 70% of the amount of the Debtors' available cash remaining
after deduction amount for unpaid accrued Administrative
Claims.
o At the election of the Company, an amount equal to the
difference between $700,000 and the amounts otherwise paid him
under the Assignment Agreement.
It is impossible to predict the amount of cash, if any, Mr. Cherkas will
receive under the Assignment Agreement and accordingly the Company could be
liable to Mr. Cherkas up to $1.2 million if he does not receive a minimum of
$700,000 from the Debtors and/or the Company, by October 2000. While proceeds
from the sales of assets of the Debtors may satisfy the Earn Out, since the
Company remains liable should the Debtors not satisfy the debt, at December 31,
1999 the entire amount due Mr. Cherkas of $1.2 million is reflected as a
liability of the Company and not the Debtors.
The Debtors have exclusive right, until May 25, 2000, to file with the
Court a plan of liquidation ("Plan"). Such period may be extended at the
discretion of the Court. Subject to certain exceptions in the Bankruptcy Code,
acceptance of a Plan requires approval of Court and the affirmative vote (i.e.
more than 50% of the number and at least 66 2/3% of the dollar amount, both with
regard to claims actually voted) of each class of creditors and equity holders
of the Company, whose claims are impaired by the Plan. If the Debtors fail to
submit a Plan within the exclusive period prescribed or any extension thereof,
any creditor or equity holder will be free to file a Plan with the Court and
solicit acceptances thereof. Until the Plan is approved, the impact on the
Company of the Plan, if any, cannot be predicted. In addition should the assets
of the Debtors not be sufficient to pay Administrative Claims, the Debtors would
not be able to confirm a Plan and a trustee would be appointed by the Court to
administer the Debtors' estate.
ENTICENT
On February 1, 2000, the Company exchanged its investments in its recently
formed subsidiaries Imagine and TalkToGo for an interest in Enticent, also a
startup entity. As a result of the transaction, the Company will be the largest
shareholder of Enticent, owning 44% of the outstanding shares. Accordingly, in
the future, the Company's investment in Enticent will be recorded on the equity
basis.
SPRINT
On March 7, 2000 the Debtors negotiated a settlement with Sprint
Corporation with respect to post-petition indebtedness whereby Sprint
Corporation accepted $675,000 in full settlement of $932,295 due it as reflected
in the balance sheet for the discontinued operations.
F-21
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: April 13, 2000
By: /s/ Shelly Finkel
Shelly Finkel, Chairman of the Board of Directors
In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Shelly Finkel
- - ------------------ Chairman of the Board of Directors April 13, 2000
Shelly Finkel
/s/ Alan W. Kaufman
- - -------------------- Director April 13, 2000
Alan W. Kaufman
/s/ Donald L. Ptalis
- - -------------------- Director April 13, 2000
Donald L. Ptalis
/s/ Jack N. Tobin
- - ------------------ Director April 13, 2000
Jack N. Tobin
/s/ Lee R. Montellaro
- - ---------------------- Chief Financial Officer (and April 13, 2000
Lee R. Montellaro principal accounting officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 A Certificate of Incorporation
3.2 A Amendment to Certificate of Incorporation
3.3 A By-Law
3.4 B Certificate of Merger of Merger Sub into Global Link
3.5 F Certificate of Merger - NATW into NATW Acquisition Corp.
3.6 F Certificate of Merger - CCI into CCI Acquisition Corp.
4.1 A Form of Common Stock Certificate
4.2 E Warrant, dated April 15, 1995 between the Company and Craig
Shapiro
4.3 E Warrant, dated October 26, 1995 between the Company and Frog
Hollow Partners
4.4 E Warrant, dated January 22, 1996 between the Company and Whale
4.5 D Form of Warrant issued in the December 1996 Private Placement
4.6 I Note and Warrant Purchase Agreement dated April 8, 1998 among
The Company, Penn Merchant and each of the investors
4.7 I Form of Series A Convertible Subordinated Note issued in the
April 1998 Private Placement
4.8 I Form of Warrant issued in the April 1998 Private Placement
4.9 I Common Stock Purchase Agreement dated September 17, 1998
between The Company and each of the investors
4.10 I Registration Rights Agreement dated October 1, 1998 among the
Company, Penn Merchant and each of the investors
10.1 A Agreement Regarding the Assignment of Contracts, Cure Amounts
and Related Matters dated March 7, 2000.
10.2 A Stock Option Agreement between the Company and Shelly Finkel
10.3 A 1994 Performance Equity Plan
10.4 J Asset Purchase Agreement Among J D Services, Inc. (as
purchaser) and Global Link Telecom Corporation, GTS Holding
Corp., Inc., TelTime, Inc., Network Services System, Inc.,
Network Services System, L.P., GTS Marketing, Inc., Global
Telecommunication Solutions, L.P., Networks Around the World,
Inc. and Centerpiece Communications, Inc (as sellers)
10.5 B Amended and Restated Securities Purchase Agreement
10.6 B The Company's Guaranty of Debentures
10.7 * Employment Agreement between the Company and Lee R. Montellaro
10.8 B Stock Option Agreement between the Company and David Tobin
10.9 A Sublease for space at 40 Elmont Road, Elmont, New York
10.10 F Merger Agreement by among the Company, NATW Acquisition Corp.,
NATW, Randolph Cherkas and Gary Liguori
10.11 * Shareholders' Agreement dated February 1, 2000 among
Enticent.com, Inc. the Company and various shareholders of
Enticent.com, Inc.
10.12 F Merger Agreement by and among the Company, CCI Acquisition
Corp.,
<PAGE>
10.13 * Stock Option Agreement between the Company and Lee R.
Montellaro dated June 1, 1999
10.14 G Amendment to Employment Agreement between the Company and
Shelly Finkel
10.15 * Stock Option Agreement between the Company and Lee R.
Montellaro dated December 1, 1999
10.16 H Amendment to Merger Agreement by and among the Company, CCI and
J. Mark Rubenstein
10.17 H Agreement between the Company and J. Mark Rubenstein
10.18 H Termination of Employment Agreement between the Company and J.
Mark Rubenstein
21 * Subsidiaries of the Company
23.1 * Consent of Wiss & Company, LLP
* 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 Current Report on Form 8-K,
filed with the SEC on March 15, 1996.
C 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).
D Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the SEC on December 26, 1996.
E Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 333-19005).
F Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the SEC on February 23, 1998.
G Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1998.
H Incorporated by reference to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1998.
I Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1998
J Incorporated by reference to the Company's Current Report on Form 8-K,
filed with the SEC on January 31, 2000.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of June 1, 1999 (the
"Effective Date"), is entered into between LEE R. MONTELLARO, residing at 60
Ticonderoga Boulevard, Freehold, New Jersey 07728 ("Executive"), and GLOBAL
TELECOMMUNICATION SOLUTIONS, INC., a Delaware corporation having its principal
office at 10 Stow Road, Suite 200, Marlton, New Jersey 08053 ("Company").
WHEREAS, Company and Executive desire to provide for the employment of
Executive by the Company on the terms set forth herein.
IT IS AGREED:
1. Employment, Duties and Acceptance.
1.1 The Company hereby employs Executive as its Chief Financial
Officer and Vice President to supervise and control the day-to-day financial
affairs of the Company. In such capacity, Executive shall use his best efforts
to carry out all reasonable orders and resolutions of the Board of Directors
("Board") within the scope of the Executive's supervision and control (unless
any such order or resolution shall provide otherwise), and in general shall
perform all duties incident to the office of Chief Financial Officer and Vice
President. All of Executive's powers and authority in any capacity shall at all
times be subject to the reasonable direction and control of the Company's
President.
1.2 The President may assign to Executive such other executive
duties for the Company or any Affiliate (as defined in Section 5.1) as are
consistent with Executive's status and responsibilities as Chief Financial
Officer and Vice President.
1.3 Executive accepts such employment and agrees to devote
substantially all of his business time, energies and attention to the
performance of his duties. Notwithstanding anything contained in this Agreement
to the contrary, Executive may devote an insignificant amount of time to the
affairs of Paging Management, Inc. its affiliates and their respective
successors, provided that such activity does not interfere or conflict with his
duties and responsibilities as the Chief Financial Officer and Vice President of
the Company.
<PAGE>
1.4 The office from which Executive shall perform his duties under
this Agreement shall at all times be located within 60 miles of Freehold, New
Jersey.
2. Compensation and Benefits.
2.1 Salary. The Company shall pay to Executive a base salary
("Salary") at the aggregate rate of $125,000 per annum commencing on the
Effective Date and terminating on October 15, 1999. In the event this Agreement
is extended after September 30, 1999 as provided in Section 3.1, then
Executive's salary shall be increased to $150,000 per annum effective October
17, 1999. Executive's Salary shall be paid in equal, periodic installments, in
accordance with the Company's normal payroll procedures applicable to its most
senior executive officers and shall be subject to withholding taxes and other
normal payroll deductions.
2.2 Salary Increases/Bonuses.
2.2.1 The Board shall meet at least annually to review
Executive's performance. Based upon such review and such other factors as the
Board may consider, at the sole and absolute discretion of the Board, the Board
may determine to increase but not decrease Executive's Salary and/or to award
Executive a bonus (which bonus may be payable in cash or securities of the
Company, including, without limitation, options to purchase shares of the
Company's Common Stock) and up to $50,000, at the Board's option.
Notwithstanding the foregoing, Executive understands, acknowledges and agrees
that the Board would not be obligated, under any circumstances, to award any
such increase in salary or bonus.
2.3 Stock Options.
2.3.1 (a) As additional compensation for services to be
rendered by Executive hereunder, the Company shall grant to Executive options
(the "Options") to purchase 320,000 shares of Company Common Stock at the per
share exercise prices and vesting dates set forth in the schedule below. These
Options (i) are not granted under any plan, including the Company's 1994
Performance Equity Plan; (ii) are evidenced by a Stock Option Agreement of even
date herewith between the Company and Executive; and (iii) shall remain
exercisable for a period of five years after the date of vesting, except as
otherwise set forth in the Stock Option Agreement.
<PAGE>
Number of Options Exercise Price Date Exercisable
----------------- -------------- ----------------
120,000 $0.75 December 1, 1999
120,000 $1.25 June 1, 2000
40,000 $1.75 June 1, 2001
40,000 $2.00 June 1, 2002
(b) The Company agrees to include the shares underlying the
Option for sale and resale under any Form S-8 registration statement (and, if
necessary, Form S-3) filed by the Company after the execution of this Agreement,
and to maintain such registration for a period of two years longer than the end
of the vesting periods set forth below; provided the Company shall not be
obligated to maintain such registration if the Executive no longer has the right
to exercise the Option or has exercised all of the Option and no longer owns any
of the shares received upon exercise.
2.4 Benefits. Executive shall be entitled to such medical, dental,
disability, life insurance and other benefits (the "Benefits") and perquisites
no less favorable than such as are afforded to other senior executives of the
Company generally. Executive shall be entitled to three weeks of vacation in
each calendar year and to a reasonable number of other days off for religious
and personal reasons.
2.5 Expenses. The Company will pay or reimburse Executive for all
transportation, hotel and other expenses reasonably incurred by Executive on
business trips and for all other ordinary and reasonable out-of-pocket expenses
actually incurred by him in the conduct of the business of the Company against
reasonably detailed vouchers submitted with respect to any such expenses
approved in accordance with the Company's customary procedures applicable to its
most senior executive officers.
2.6 Signing Bonus. The Company shall pay Executive a bonus in the
amount of $5,000 for executing this Agreement (the "Signing Bonus"). The Signing
Bonus shall be included in Executive's next payroll check after the execution of
this Agreement.
3
<PAGE>
3. Term and Termination.
3.1 Employment Term. The term of this Agreement commences as of the
Effective Date and shall expire on September 30, 1999, unless sooner terminated
or extended as herein provided (the "Initial Term"). This Agreement shall
automatically renew for a three-year period unless either party provides the
other with at least thirty days' prior written notice of its intent to not renew
this Agreement (the "Renewal Term"). Thereafter, this Agreement shall
automatically renew for an additional one-year period unless either party
provides the other with at least six months' prior written notice of its intent
to not renew the Agreement.
3.2 Death. If Executive dies during the term of this Agreement, this
Agreement shall thereupon terminate; provided, however, the Company shall pay to
Executive's estate and/or beneficiaries, as the case may be, the Salary earned
but not paid prior to the date of Executive's death.
3.3 Disability. The Company, by notice to Executive, may terminate
this Agreement if Executive shall fail because of illness or incapacity to
render, for six consecutive months, services of the character contemplated by
this Agreement. Notwithstanding such termination, the Company shall pay to
Executive the Salary due Executive pursuant to Section 2.1 hereof through the
date of such notice, payable in the manner set forth in Section 2.1, less any
amount Executive receives for such period from any Company-sponsored or
Company-paid for source of insurance, disability compensation or government
program.
3.4 Termination for Cause. The Company, by notice to Executive, may
terminate this Agreement for Cause. In the event Executive's employment is
terminated for Cause, Executive shall be entitled to the Salary earned but not
paid prior to the date of termination. Additionally, all of the options granted
to Executive hereunder shall immediately terminate. For purposes of this Section
3.4, "Cause" shall be defined as:
(1) habitual absence from work by the Executive, including without
limitation, habitual absence from the Company's offices on
non-Company matters that
4
<PAGE>
interferes with the Executive's duties;
(2) habitual drunkenness by the Executive;
(3) habitual drug abuse or drug addiction by the Executive;
(4) the Executive maliciously denigrating in public the Company or
any officer, director or affiliate thereof;
(5) sexual harassment by the Executive which has been reasonably
substantial if it has been determined that such sexual
harassment, in fact, took place in accordance with the
Company's then existing policy regarding sexual harassment;
(6) physical destruction of substantial property or asset of the
Company by, or caused by, the Executive;
(7) appropriation of business opportunities of the Company by the
Executive for the direct or indirect personal gain of the
Executive or members of his family without the prior written
consent of the Board;
(8) the Executive causing the Company to enter into transactions
or arrangements with the Executive, in his capacity as an
individual and not as an employee of the Company, or a person
or entity affiliated therewith, which results in direct or
indirect personal gain to the Executive or members of his
family without the prior written consent of the Board,
provided, however, that this Section 3.4(8) shall not include
the employment of the Executive by the Company or its
affiliates;
(9) willful and malicious interference with the Company's
operations by the Executive;
5
<PAGE>
(10) engagement by the Executive in any act of fraud, material
misappropriation of funds or assets, or embezzlement,
including without limitation, theft, bribery or the receipt of
kickbacks;
(11) a conviction of the Executive for, or a plea of nolo
contendere by the Executive to, a felony or other criminal act
for which the possible penalties include a prison sentence of
at least 1 year;
(12) a material breach by the Executive of the restrictive
covenants contained in this Agreement, or for disloyal,
dishonest or illegal conduct by the Executive;
(13) a material breach of this agreement by the Executive;
(14) a failure, after written notice to the Executive from the
Company, of the Executive to follow the reasonable directions
or instructions of the Board or the Company's President which
are consistent with the Executive's position and
responsibilities; or
(15) gross negligence by the Executive which results in material
harm to the Company.
3.5 Termination Without Cause.
(a) Company, upon not less than 30 days written notice, may
terminate Executive's employment at any time for any reason. If Executive's
employment is terminated by the Company other than for Cause (as defined in
Section 3.4 hereof) or as a result of Executive's death or Permanent Disability
(as defined in Section 3.2 and 3.3, respectively, hereof) or if Executive
terminates his employment for Good Reason (as defined in Section 3.5(b) hereof)
6
<PAGE>
prior to the end of the Term, Executive shall receive or commence receiving as
soon as practicable in accordance with the terms of this Agreement:
(i) such payments under applicable plans or programs, including
but not limited to those referred to in Section 2 hereof, to
which he is entitled pursuant to the terms of such plans or
programs through the date of termination;
(ii) a severance payment (the "Severance Payment"), which amount
shall be paid in the form of Base Salary continuation through
the one-year period after termination, plus the amount of any
bonus paid by the Company for the calendar year immediately
preceding the calendar year in which termination occurs;
(iii) payment in respect of accrued by unused vacation days (the
"Vacation Payment") and compensation earned but not yet paid
(the "Compensation Payment") which amount shall be paid in a
cash lump sum within thirty (30) days of the date of
termination; and
(iv) continued coverage, at the Company's expense for a period of
12 months from the date of termination under all Employee
health, dental, disability and life insurance plans in which
the Executive participates as of the date of termination in
accordance with the respective terms thereof.
(b) For purposes of this Agreement, "Good Reason" shall mean
any of the following events (without Executive's express prior written consent)
which are not cured by the Company within thirty (30) days after the Company's
receipt of written notice indicating such breach with reasonable particularity:
(i) Any material breach by Company of any provision of this
Agreement, including any material reduction by Company of
Executive's duties or
7
<PAGE>
responsibilities (except in connection with the termination of
Executive's employment for Cause, as a result of Permanent
Disability, as a result of Executive's death or by Executive
other than for Good Reason);
(ii) Moving the principal executive offices of Company or the place
of Executive's employment to a location 60 or more miles
outside of the Freehold, New Jersey area; or
(iii) Upon a Change of Control of Company (as such term is
hereinafter defined), but only if Executive's employment
hereunder is terminated within ninety (90) days after such
Change of Control.
(c) For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if (i) there shall be consummated (A) any consolidation
or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Company, or (ii) at
any time during a period of two consecutive years, individuals who at the
beginning of such period, constituted the Board of Directors of the Company
shall cease for any reason to constitute at least a majority thereof, unless the
election or the nomination for election by the Company's stockholders of each
new director during such two-year period was approved by a vote of at least
two-thirds of the directors then still in office, who were directors at the
beginning of such two-year period.
4. Protection of Confidential Information; Non-Competition.
4.1 Executive acknowledges that:
8
<PAGE>
(1) As a result of his current employment with the Company,
Executive has obtained and will obtain secret and confidential information
concerning the business of the Company and/or its subsidiaries and affiliates,
(referred to collectively in this Section 4 as the "Company"), including,
without limitation, financial information, designs and other proprietary rights,
trade secrets and "know-how," customers and sources of supply ("Confidential
Information").
(2) The Company will suffer substantial damage that will be
difficult to compute if, during the period of his employment with the Company or
thereafter, Executive should enter a business competitive with the Company or
divulge Confidential Information.
(3) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company.
4.2 Executive agrees that he will not at any time, either during the
term of this Agreement or thereafter, divulge to any person or entity any
Confidential Information obtained or learned by him as a result of his
employment with, or prior retention by, the Company, except (a) in the course of
performing his duties hereunder, (b) with the Company's express written consent;
(c) to the extent that any such information is in the public domain other than
as a result of Executive's breach of any of his obligations hereunder; or (d)
where required to be disclosed by court order, subpoena or other government
process. If Executive shall be required to make disclosure pursuant to the
provisions of clause (d) of the preceding sentence, Executive promptly, but in
no event more than 72 hours after learning of such subpoena, court order, or
other government process, shall notify, by personal delivery or by electronic
means, confirmed by mail, the Company and, at the Company's expense, Executive
shall: (i) take all reasonably necessary and lawful steps required by the
Company to defend against the enforcement of such subpoena, court order or other
government process, and (ii) permit the Company to intervene and participate
with counsel of its choice in any proceeding relating to the enforcement
thereof.
4.3 Upon termination of his employment with the Company, Executive
will promptly deliver to the Company (or confirm in writing that all such
information has been destroyed) all confidential memoranda, notes, records,
reports, manuals, drawings, blueprints and
9
<PAGE>
other documents (and all copies thereof) relating to the business of the Company
and all property associated therewith, which he may then possess or have under
his control; provided, however, subject to Executive's obligations under this
Section 4, that Executive shall be entitled to retain copies of such documents
reasonably necessary to document his financial relationship (both past and
future) with the Company.
4.4 During the one-year period following termination of Executive's
employment with the Company for any reason, Executive, without the prior written
permission of the Company, shall not, anywhere in the United States, (a) enter
into the employ of or render any services to any person, firm or corporation
engaged in any Competitive Business, as defined below; (b) engage in any
Competitive Business for his own account; (c) become associated with or
interested in any Competitive Business as an individual, partner, shareholder,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity; (d) employ or retain, or have
or cause any other person or entity to employ or retain, any person who was
employed or retained by the Company while Executive was employed by the Company;
or (e) solicit, interfere with, or endeavor to entice away from the Company, for
the benefit of a Competitive Business, any of its customers or other persons
with whom the Company has a contractual relationship or is otherwise doing
business or has done business during the term of this Agreement. Notwithstanding
the foregoing, nothing in this Agreement shall preclude Executive from investing
his personal assets in the securities of any corporation or other business
entity which is engaged in a Competitive Business if such securities are traded
on a national stock exchange or in the over-the-counter market and if such
investment does not result in his beneficially owning, at any time, more than
4.9% of the publicly-traded equity securities of such Competitive Business. In
the event Executive's employment is terminated by the Company without cause as
provided in Section 3.5(a) or by Executive for Good Reason as provided in
Section 3.5(b), then Executive's obligations under this Section 4.4 shall only
be in effect for so long as the Company complies with its obligation to pay
Executive in accordance with Section 3.5(a) or (b), whichever is applicable.
4.5 If Executive commits a breach, or threatens to commit a breach,
of any of the provisions of Sections 4.2 or 4.4, the Company shall have the
right and remedy:
10
<PAGE>
(1) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed by Executive that the services being rendered hereunder to the Company
are of a special, unique and extraordinary character and that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
(2) to require Executive to account for and pay over to the
Company all monetary damages suffered by the Company as the result of any
transactions constituting a breach of any of the provisions of Sections 4.2 or
4.4, and Executive hereby agrees to account for and pay over such damages to the
Company.
Each of the rights and remedies enumerated in this Section 4.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
In connection with any legal action or proceeding arising out of
Section 4.4, the prevailing party in such action or proceeding shall be entitled
to be reimbursed by the other party for the reasonable attorneys' fees and costs
incurred by the prevailing party.
4.6 If Executive shall violate any covenant contained in Section
4.4, the duration of such covenant so violated shall be automatically extended
for a period of time equal to the period of such violation.
4.7 If any provision of Sections 4.2 or 4.4 is held to be
unenforceable because of the scope, duration or area of its applicability, the
tribunal making such determination shall have the power to modify such scope,
duration, or area, or all of them, and such provision or provisions shall then
be applicable in such modified form.
4.8 The provisions of Section 4.2 shall survive the termination of
this Agreement for any reason.
11
<PAGE>
5. Definitions.
As used in this Agreement:
5.1 "Affiliate" shall mean any entity that, directly or indirectly,
is controlled by, controlling, or under common control with the Company.
5.2 "Competitive Business" shall mean (i) the design, development,
sale and/or marketing of prepaid phone cards; (ii) attempt to solicit, solicit,
interfere with or endeavor to entice away from the Company any of its customers,
business or strategic partners or others with whom the Company is doing
business; or (iii) attempt to solicit or solicit any person employed by or
contracted by the Company, or any of its Affiliates, to leave their employment
or not fulfill their contractual responsibility, whether or not the employment
or contracting is full-time or temporary pursuant to a written or oral
agreement, or for a determined period or at will. Notwithstanding the foregoing,
a "Competitive Business" shall not include the business of Paging Management.
Inc. ("PMI") its affiliates so long as the sale of prepaid phone cards dose not
constitute a material part of PMI's business.
6. Miscellaneous Provisions.
6.1 All notices provided for in this Agreement shall be in writing,
and shall be deemed to have been duly given when delivered personally to the
party to receive the same, when transmitted by electronic means, or when sent by
a nationally recognized next-day courier, addressed to the party to receive the
same at his or its address set forth below, or such other address as the party
to receive the same shall have specified by written notice given in the manner
provided for in this Section 6.1. All notices shall be deemed to have been given
as of the date of personal delivery, transmittal or courier delivery thereof.
12
<PAGE>
If to Executive:
Lee R. Montellaro
60 Ticonderoga Boulevard
Freehold, New Jersey 07728
Marked: "Personal and Confidential"
with a copy to:
Sommer & Schneider LLP
595 Stewart Avenue
Garden City, NY 11530
Attn: Herbert H. Sommer, Esq.
If to the Company:
Global Telecommunication Solutions, Inc.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
Attn: President
with a copy to:
David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
6.2 This Agreement and the Stock Option Agreement set forth the
entire agreement of the parties relating to the employment of Executive and are
intended to supersede all prior negotiations, understandings and agreements. No
provisions of this Agreement or the Stock Option Agreement may be waived or
changed except by a writing by the party against whom such waiver or change is
sought to be enforced. The failure of any party to require performance of any
provision hereof or thereof shall in no manner affect the right at a later time
to enforce such provision.
13
<PAGE>
6.3 All questions with respect to the construction of this
Agreement, and the rights and obligations of the parties hereunder, shall be
determined in accordance with the law of the State of New Jersey.
6.4 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Executive, but shall inure to the benefit of and be binding upon
Executive's heirs and legal representatives.
6.5 Should any provision of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
/s/ Lee R. Montellaro
-------------------------------------
LEE R. MONTELLARO
GLOBAL TELECOMMUNICATION
SOLUTIONS, INC.
By: /s/ Randy Cherkas
---------------------------------
Randy Cherkas, President
14
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of February 1, 2000 by and among
ENTICENT.COM, INC., a Delaware corporation (the "Company"), GLOBAL
TELECOMMUNICATION SOLUTIONS, INC. ("GTS"), DK&G WEBMASTER, INC. ("DK&G"), ROBERT
PREVIDI ("Previdi"), PAUL SILVERSTEIN ("Silverstein"), MENASHE FRANK ("Frank"),
CORY EISNER ("Cory Eisner") and JIM FRANKLIN ("Franklin" and together with GTS,
DK&G, Previdi, Silverstein, the "Consenting Stockholders").
R E C I T A L S:
WHEREAS, the Company is authorized by its Certificate of Incorporation to
issue 1,000,000 shares of Common Stock, $.001 par value. As of the date hereof,
there are 400,000 shares of Common Stock of the Company outstanding of which the
following shares are issued to the following parties hereto:
GTS 176,000
Previdi 54,400
DK&G 45,600
Silverstein 26,000
Frank (Menashe
& Jamie) 17,444
Eisner 24,000
Franklin 24,000
WHEREAS, the Company and the Consenting Stockholders desire to set forth
their agreement concerning the management of the Company and such other matters
as are set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual and
dependent promises set forth in this Agreement, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND OTHER GENERAL MATTERS
SECTION 1.01. Definitions. The following terms shall be used in this
Agreement with the meanings set forth in this Section 1.01:
"Acquisition Offer" means an offer (whether solicited or unsolicited) to
acquire the Company by merger, statutory share exchange, direct purchase of
securities, sale of all of substantially all of the assets of the Company or
other similar transaction.
<PAGE>
"Affiliate" means, with respect to any person or entity, any other person
or entity that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with the first specified
person or entity.
"Board" means the Board of Directors of the Company.
"By-laws" means the by-laws of the Company.
"CEO" means the officer elected by the Board to the post designated in the
By-laws as the chief executive officer of the Company.
"COO" means the officer elected by the Board to the post designated in the
By-laws as Chief Operating Officer.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company.
"Common Stock" means the common stock, $.001 par value, of the Company.
"Consenting Stockholder" means any beneficial owner of shares of Voting
Securities that is a party to this Agreement.
"Management Shareholders" means collectively, Previdi, DK&G, Silverstein,
Frank, Eisner and Franklin.
"Permitted Transfer" means a transfer by a Consenting Shareholder
permitted by and made in accordance with Section 2.02.
"Permitted Transferee" means any individual, trust, entity or other person
who receives Shares is the result of a Permitted Transfer.
"Public Offering" means the offering of Common Stock pursuant to a
registration statement on a form applicable to the sale of securities to the
general public.
"Shares" means the shares of Common Stock now or hereafter owned by a
Consenting Stockholder.
"Tag Along Rights" means the rights of a Consenting Stockholder under
Article II of this Agreement.
2
<PAGE>
"Voting Securities" means, any security of the Company or any rights
therein, beneficially owned, acquired, converted, held, pledged or received by
any Consenting Stockholder entitling or granting such Consenting Stockholder to
vote such security.
SECTION 1.02. Voting; Written Consent. (a) Any agreement by the Consenting
Stockholders herein to vote their shares of Voting Securities in a certain
manner shall be deemed, in each instance, to include an agreement by each
Consenting Stockholder to use such Consenting Stockholder's best efforts and to
take all actions necessary to call, or cause the Company and the appropriate
officers and directors of the Company to call, as promptly as practicable, a
special or annual meeting of stockholders or to act by written consent.
(b) When any action is required to be taken by a Consenting Stockholder
pursuant to this Agreement, such Consenting Stockholder shall take all steps
necessary to implement such action, including, without limitation, executing or
causing to be executed, as promptly as practicable, a consent in writing in lieu
of an annual or special meeting of the stockholders.
(c) Unless expressly stated to the contrary herein, any action requiring
the vote of the directors (or any committee thereof) may be effected by
unanimous written consent in lieu of a meeting of the directors or committee
members, as the case may be.
ARTICLE II
TAG ALONG RIGHTS
SECTION 2.01 Tag Along Rights. Except for (i) a Public Offering; (ii) a
transfer which is part of the transfer of all of the outstanding Shares of the
Company; (iii) the redemption of any Shares by the Company; or (iv) a Permitted
Transfer, if one or more Consenting Stockholders, individually or collectively
(for purposes of Section, the "Selling Shareholders") propose to transfer, in a
bona fide arms-length transaction or series of transactions to any third party
or parties ("Buyer"), a number of Shares equal to or greater than twenty-five
percent (25%) of the outstanding Shares of the Company (or if Previdi or DKG
proposes to make such a transfer of more than one half of his or its
shareholdings as of the date hereof), the Selling Shareholder(s) proposing to do
so shall notify all remaining Consenting Shareholders ("Remaining Shareholders")
in writing (the "Tag along Notice"), describing in such notification the
material terms of the proposed sale. Each Remaining Shareholder shall have the
option (the "Tag Along Option"), exercisable by giving written notice to the
Selling Shareholder(s) within five business days after the Remaining
Shareholder's receipt of the Tag Along Notice, to participate in such
transaction by selling all or a portion of such Remaining Shareholder's Shares
(the "Tag Along Shares") to the Buyer on the same terms and conditions as the
Selling Shareholder. If a Tag Along Option is exercised by one or more Remaining
Shareholders, the Selling Shareholder shall not proceed with such transaction
unless each of the Remaining
3
<PAGE>
Shareholders who have exercised Tag Along Options is given the right to sell his
Tag Along Shares pro rata in proportion to the aggregate number of Shares
proposed to be sold by the Selling Shareholder and all Remaining Shareholders.
SECTION 2.02 Permitted Transfers. Subject to compliance with the second
sentence of this Section 2.02, the following shall be "Permitted Transfers" for
the purposes of its Agreement and may be made without compliance with the
provisions of Section 2.01:
(a) A Consenting Shareholder may transfer Shares to any Affiliate;
and
(b) A Consenting Shareholder which is a corporation, partnership or
trust may transfer Shares to its shareholders, partners or beneficiaries.
Any transfer to be made pursuant to the preceding sentence may only be made if
the transferee shall agree to be subject to the terms of this Agreement and the
Shares so transferred shall be subject to the provisions of this Agreement.
ARTICLE III
FINANCIAL REPORTING
SECTION 3.01 The Company shall retain a firm of certified public
accountants to render an annual certified report of the Company's financial
statements and to assist the Company in preparing quarterly financial
statements. Such quarterly reports shall be provided to each Consenting
Shareholder within 20 days following the end of each calendar quarter and such
annual report shall be provided to each Consenting Shareholder within 45 days
following the end of each fiscal year. The Company shall permit the certified
public accountants retained by GTS to perform such review of the Company's
financial statements and underlying records as shall be necessary for such firm
of certified public accountants to certify the financial statements of GTS, as
the same pertain to the shares of the Company owned by GTS.
ARTICLE IV
SPECIAL RIGHTS AND OBLIGATIONS OF CERTAIN SHAREHOLDERS
SECTION 4.01 Put Rights. If (i) the employment of any individual
Management Shareholder shall terminate for any reason, including without
limitation, death, disability, retirement, voluntary termination or involuntary
termination (whether with or without cause), and (ii) within sixty (60) days
after such termination (180 days in the case of death) (the "Put Notice
Period"), such Management Shareholder (or the legal representative of such
Management Shareholder's estate) shall
4
<PAGE>
request in writing that the Company purchase all or any part of the Shares owned
by him at the time of his termination, then the Company, to the extent permitted
by Section 4.03 below, shall purchase from such Management Shareholder or his
estate all or any part of such Shares as so requested, on the terms and
conditions set forth in this Article IV.
SECTION 4.02 Call Rights. In the event of termination of a Management
Shareholder for cause (as that term is defined in the employment agreement of
such Management Shareholder) and if such Management Shareholder does not
exercise put rights pursuant to Section 4.1 within the Put Notice Period, then
for a period commencing on the first day after the expiration of the Put Notice
Period and ending on the 60th day after the expiration of the Put Notice Period,
the Company shall have the right and option to purchase all or any part of the
Shares owned by the Management Shareholder at the time of his death or other
termination of employment on the terms and conditions set forth in this Article
IV. The Company shall exercise any option under this Section 4.02 by giving
written notice of such exercise to such Management Shareholder or the legal
representative of such Management Shareholder's estate within the sixty-day
period after the expiration of the Put Notice Period.
SECTION 4.03 Limitations on Company's Obligations. If the Company has been
requested pursuant to Section 4.01 to purchase Shares owned by a Management
Shareholder and (a) after giving effect to such purchase of shares, the Company
would be in violation of its Certificate of Incorporation or Bylaws, or of any
law, regulation or judgment promulgated by a governmental authority applicable
to the Company or any of its subsidiaries or any of its or their property (each
such violation being herein called "Violation"), or (b) the purchase of such
Shares would create any non-compliance in any respect with any agreement of the
company with any bank, trust company, insurance company or other financial
institution, relating to indebtedness of the Company, including, without
limitation, any covenant directly prohibition such purchase (which agreements
are hereinafter individually referred to as a "Loan Agreement"), or would, with
the giving of notice or the lapse of time, or both, cause the occurrence of a
default or event of default under a Loan Agreement (any such non-compliance,
default or event of default being herein referred to as a "Default"); then the
Company shall be obligated pursuant to Section 4.01 to purchase only the number
of Shares, if any, which may be purchased without causing a Violation or
Default, and the Company's obligation to purchases the remainder of such Shares
pursuant to Section 4.01 shall automatically be deferred. The Company will use
reasonable efforts to obtain any consent or waiver required by the lender under
any Loan Agreement, provided that such efforts shall not require a refinancing
or prepayment of any loans or the payment of any consideration for such consent
or waiver.
SECTION 4.04 Purchase Price. The purchase price to be paid for a purchase
pursuant to Section 4.01 or 4.02 shall be the appraised fair value ("Appraised
Value") as of the date of death or other terminations as determined by an
independent public accounting or investment banking firm
5
<PAGE>
selected by the Company that is neither related to nor is rendering any service
to the Company as of the date of selection. The appraised value shall reflect
the value of the Company on a going concern basis, but shall not include (i) any
valuation for life insurance proceeds, if any, received or receivable by the
Company upon the death of such Management Shareholder to the extent such
proceeds are applied to purchase Shares pursuant to Section 4.01, or (ii) in the
event of termination of a Management Shareholder's employment by the Company
without cause, any discount in the Appraised Value resulting from the Shares'
limited marketability or minority interest. The appraiser shall give written
notice of the Appraised Value to the Company and to the deceased Management
Shareholder's legal representative. The expenses of appraisal shall be borne by
the Company and shall be taken into account in determining the Appraisal Value.
SECTION 4.05 Closing. The closing of any purchase of Shares pursuant to
Section 4.01 or 4.02 shall take place not later than thirty (30) days after the
determination of Appraised Value upon delivery of the certificates representing
the Shares owned by the Management Shareholder at the time of his termination of
employment in satisfactory form for transfer free and clear of any liens or
encumbrances and delivery by the Company of either (a) a certified or official
bank check in United States funds in payment of the purchase price, net of any
offset for any indebtedness of such Management Shareholder to the Company or (b)
at the sole option of the Company, its note in the amount of the purchase price
payable in thirty-six (36) equal monthly installments bearing interest at the
rate of ten (10%) percent per annum.
SECTION 4.06 Additional Rights to Request Purchase of Shares. If the
Company has been requested by a Management Shareholder or the legal
representative of his estate pursuant to Section 4.01 to purchase Shares owned
by such Management Shareholder and the Company has not been able to purchase all
of such Shares due to the restrictions under Sections 4.03, the Company shall
promptly notify the Management Shareholder or his legal representative of such
restriction and then the Company thereafter shall notify such Management
Shareholder or his legal representative whenever the Company is able under the
provisions of Section 4.03 to purchase Shares owned by such Management
Shareholder and such Management Shareholder or his legal representative shall
have the right to exercise the put rights under Section 4.01 within sixty (60)
days after the receipt of such notice; provided that the put rights under
Section 4.01 and this Section 4.06 shall expire to the extent not exercised
within the exercise period for those rights, and the Company shall thereafter
not be required to give any further notice pursuant to this Section 4.06.
SECTION 4.07 Piggyback Registration.
(a) If, at any time during the period commencing on the date hereof and
ending upon the termination of this Agreement, the Company shall propose to
register any shares of Common Stock or other securities (but excluding any
shares or securities being registered pursuant to Form S-8 or Form S-4 or any
successor form to either of them), the Company shall (i) give each Consenting
6
<PAGE>
Stockholder written notice, or telecopy and telephonic notice followed as soon
as practicable by written confirmation thereof, of such proposed registration at
least thirty (30) days prior to the filing of such registration statement and
(ii) upon written notice, or telecopy or telephonic notice following as soon as
practicable by written confirmation thereof, given to the company by any
Consenting Stockholder within fifteen (15) days after the filing of such written
confirmation or written notice by the Company, the Company shall include or
cause or be included in any such registration statement all or such portion of
the Shares as such Consenting Stockholder may request; provided, however, that
the Company may at any time withdraw or cease proceeding with any such
registration if it shall at the same time withdraw or cease proceeding with the
registration of the Common Stock or other securities originally proposed to be
registered; and provided, further, that in connection with any registered public
offering involving an underwriting, the managing underwriter may (if in its
reasonable opinion marketing factors so require) limit the number of securities
(including any Shares) included in such offering. In the event of any such
limitation, the total number of Shares to be offered for the account of the
Consenting Stockholder participating in the registration shall be reduced pro
rata in proportion to the respective number of Shares requested to be included
therein to the extent necessary to reduce the total number of shares proposed to
be registered to the number of shares recommended by the managing underwriter;
provided, however, that (i) if the amount of Shares to be offered for the
accounts of the Consenting Stockholders shall be reduced in accordance with this
sentence, the Company shall not be permitted to include securities of any person
other than the Company unless the Consenting Stockholder are permitted to
participate on a pro rata basis with other selling securityholders.
(b) If any Consenting Stockholder timely elects to participate in an
offering by including Shares in a registration statement pursuant to Section
4.07(a) above, the Company shall use its best efforts to effect such
registration to permit the sale of Shares in accordance with the intended method
or methods of disposition thereof.
SECTION 4.08 Purchase of Certain Assets. The Company shall endeavor to
negotiate the purchase of the device known as an "apex switch" from Network
Services System L.P. ("Network"), currently a debtor in possession, having filed
a petition under Chapter 11 of the United States Bankruptcy Code, and subject to
reaching agreement with respect to the terms for the purchase for such assets,
the Company shall make prompt application to the United States Bankruptcy Court,
District of Delaware, for an order confirming the sale of the said "apex switch"
to the Company. Upon confirmation of such order, GTS or its designee shall be
solely responsible for the payment of the purchase price for the switch. In the
event that the Company and Network shall for any reason be unable to agree upon
the purchase price for the apex switch, or in the event that the sale of the
apex switch to the Company shall for any reason not be approved by order of the
Bankruptcy Court, GTS or its designee shall pay to the Company an amount equal
to the purchase price for an apex switch, or similar device, which the Company
shall acquire at the lowest market price available to the Company.
7
<PAGE>
SECTION 4.09. Apportionment of Certain Payments on Kraft Contract. GTS
shall pay to the Company all payments due and outstanding from Kraft Foods, Inc.
("Kraft") in connection with a certain agreement entered into between GTS and
Kraft in or about October, 1999, less the sum of $50,000 from which sum GTS
shall pay up to $40,000 due and payable to Qwest with respect to services
provided by Qwest in connection with the performance of the foregoing agreement.
SECTION 4.10 Responsibility for Certain Salaries. GTS shall be responsible
for payment of all salaries and fringe benefits due to Silverstein, Eisner and
Franklin through the period ended December 31, 1999. The Company shall be
responsible for the payment of all such salary and fringe benefits for the
period commencing January 1, 2000.
SECTION 4.11 Loans Made by GTS and Previdi. In consideration of a $50,000
loan made to the Company by Previdi and a $50,000 loan made to the Company by
GTS, the Company shall issue to each of GTS and Previdi a $50,000 convertible
negotiable promissory note in the form annexed hereto.
ARTICLE V
BOARD OF DIRECTORS AND STOCKHOLDERS
SECTION 5.01. Composition of the Board of Directors. (a) General. The
Board shall initially consist of five directors, of which (i) the Management
Shareholders shall have the right to designate two individuals to serve as
directors;(ii) GTS shall have the right to designate two individuals to serve as
directors; and (iii) an additional director (the "Additional Director") shall be
designated in accordance with the joint agreement of the Consenting
Stockholders. Except as otherwise provided in this Section 5.01, the ratio of
directors designated by each of the Management Shareholders shall be maintained
as set forth in this Section 5.01(a) should the Board be increased in number.
(b) Additional Director. The Additional Director shall be Peter R.
Silverman, who shall serve in such capacity until a successor is designated by
mutual agreement of all Consenting Stockholders.
(c) Election of Directors. Each Consenting Stockholder hereby agrees to
vote all shares of Voting Securities owned by such Consenting Stockholder to
cause the election to the Board of Directors of the individuals designated by
the Consenting Stockholders in accordance with this Section 5.01.
SECTION 5.02. Removal of Directors. Each Consenting Stockholder shall vote
all shares of Voting Securities owned by such Consenting Stockholder for the
removal (with or without cause) of any director designated and elected pursuant
to Section 5.01 hereof if the Consenting Stockholders
8
<PAGE>
entitled to designate such director pursuant to Section 5.01 request such
removal by written notice to the other Consenting Stockholders.
SECTION 5.03. Vacancies. If, as a result of death, disability, retirement,
resignation, removal (with or without cause) or otherwise there shall exist or
occur any vacancy on the Board other than as provided in Section 5.01(b), (i)
the Consenting Stockholders entitled to designate (pursuant to Section 5.01
hereof) the director whose death, disability, retirement, resignation or removal
resulted in such vacancy may designate another individual to fill such capacity
and to serve as a director of the Company, and (ii) each Consenting Stockholder
shall vote its respective Voting Securities in favor of the individual
designated in accordance with clause (i) above to fill such vacancy.
SECTION 5.04. Conflicting Charter or By-law Provisions. Each Consenting
Stockholder shall vote its Voting Securities and shall take all other actions
necessary, to ensure that the Certificate of Incorporation and By-laws
facilitate and do not at any time conflict with the provisions of this
Agreement.
SECTION 5.05. Action By the Board of Directors. (a) All actions of the
Board of Directors shall require the affirmative vote of the majority of
directors present at a duly convened meeting of the Board at which a quorum is
present or, in lieu of a meeting, by the unanimous written consent of the
members of the Board of Directors.
(b) In lieu of any other approval provided in the Agreement, the approval
of a majority of disinterested members of the Board of Directors shall be
required to approve any transaction between the Company and a Consenting
Stockholder or an Affiliate of a Consenting Stockholder.
ARTICLE VI
TRANSFERS
SECTION 6.01. First Refusal. (a) Each Consenting Shareholder, pro rata in
accordance with their respective Shareholdings, shall have a right of first
refusal on all shares held by any other Consenting Shareholder. The foregoing
rights of first refusal shall not apply to Permitted Transfers, sales in Public
Offerings, sales in the public market subsequent to such a Public Offering, or
sales pursuant to Article II hereof.
(b) A Consenting Stockholder seeking to transfer ("Transfer") his or its
shares (the "Transferor Stockholder") shall give written notice (the "Sale
Notice") to the Company and the other Consenting Stockholders (the "Remaining
Stockholders") of his or its intention to transfer the Shares. The Sale Notice
shall identify the proposed transferees (the "Buyer") and specify the number
9
<PAGE>
of Shares to be transferred (the "Offered Shares"), the price per share, and the
terms of payment. A Transfer of shares by a Transferor Stockholder pursuant to
the terms of a pledge, hypothecation or security agreement shall not be deemed a
Transfer for purposes of this Article.
(c) The Company shall have the first option to purchase the Offered Shares
at the price and on the same terms and conditions specified in the Sale Notice.
Within fifteen (15) days after delivery of the Sale Notice to the Company, the
Company shall give written notice to the Transferor Stockholder and the
Remaining Stockholders regarding the number of Shares to be purchased by the
Company (the "Company Notice").
(d) If the Company does not elect to purchase all of the Offered Shares,
the Remaining Stockholders shall have the option to purchase all, but not less
than all, of the Shares other than those to be purchased by the Company (the
"Remaining Offered Shares") at the price and on the same terms and conditions
specified in the Sale Notice. Each Remaining Stockholder shall have the right to
purchase that number of Remaining Offered Shares equal to the number of such
Remaining Offered Shares multiplied by a fraction, the numerator of which shall
be the number of Shares then owned by such Remaining Stockholder and the
denominator of which shall be the number of Shares then owned by all of the
Remaining Stockholders (a "Pro Rata Portion"). The Remaining Stockholders may
exercise their rights to purchase Remaining Offered Shares by delivering a
written notice to the Transferor Stockholder and each of the other Remaining
Stockholders (the "Stockholder Notice") indicating the number of Remaining
Offered Shares to be purchased within fifteen (15) days of receipt of the
Company Notice.
(e) The Remaining Stockholders shall also have a right of oversubscription
such that, if any Remaining Stockholder fails to elect to purchase its Pro Rata
Portion of Remaining Offered Shares, the other Remaining Stockholders shall have
the right to purchase up to the balance of the Remaining Offered Shares. The
oversubscription right set forth herein may be exercised by a Remaining
Stockholder by electing in a Stockholder Notice to purchase more than such
Remaining Stockholder's Pro Rata Portion. If all such oversubscriptions exceed
the number of Remaining Offered Shares available for purchase, the
oversubscribing Remaining Stockholders shall be cut back in proportion to their
respective Pro Rata Portions or as they may otherwise agree.
(f) If the Company and/or the Remaining Stockholders elect to purchase
all, and not less than all, of the Shares set forth in the Sale Notice, the
Company and/or the Remaining Stockholders, as applicable, shall purchase all
such Shares at the price and on the same terms and conditions specified in the
Sale Notice. Such purchase shall be made at such time and place as shall be
agreed with the Transferor Stockholder.
(g) If the Company and/or the Remaining Stockholders do not elect to
purchase all of the Offered Shares, the Company shall send written notice
thereof to all Remaining Stockholders and
10
<PAGE>
Transferor Stockholders (the "No-Sale Notice") immediately following the
expiration of the fifteen-day period set forth in Subsection 6.01(d) hereof,
and, subject to Article VI hereof, the Offered Shares may be transferred at any
time prior to the ninetieth (9Oth) day after the date of the Sale Notice to the
transferee identified in the Sale Notice on the terms and conditions specified
in the Sale Notice. No transfer of Offered Shares shall be made after the end of
such ninety (90) day period, nor shall any change in the terms and conditions of
transfer be permitted, without the Transferor Stockholder first giving to the
Company and the other Stockholders a new Sale Notice in compliance with the
requirements of this Article VI.
SECTION 6.03. Legend. Each certificate evidencing outstanding shares of
Voting Securities held by a Consenting Stockholder shall bear the following
legend (until removal thereof is warranted in accordance with the terms of this
Agreement):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF TRANSFER
OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS SUCH
TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT, DATED
AS OF FEBRUARY 1, 2000, AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF
THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED
WITH."
SECTION 6.04 Filing of Agreement. An executed counterpart of this
Agreement shall be put and remain on file at the principal executive office of
the Company.
SECTION 6.05 Written Consent to Agreement. Except for (i) a sale pursuant
to the exercise of any right or obligation under this Agreement, (ii) a
redemption by the Company, or (ii) a sale as part of a Public Offering, no sale,
exchange or other transfer of Shares shall be made by a Consenting Stockholder
or his or its legal representative to any person unless and until such person
shall agree in writing to take such Shares subject to, and shall agree in
writing to the terms and conditions of, this Agreement.
11
<PAGE>
ARTICLE VII
TERMINATION
SECTION 7.01 Termination of Agreement. This Agreement shall terminate upon
the earlier of (a) the closing of a Public Offering, (b) the dissolution of the
Company, or (c) the voluntary written agreement of Consenting Shareholders
owning eighty percent (80%) of the Shares then subject to this Agreement.
SECTION 7.02 Termination of Board Representation. The respective rights of
the Consenting Stockholder under Article V shall terminate (i) as to GTS if at
any time, GTS does not own, in the aggregate, at least 65% of the aggregate
number of Shares which it owns as of the date hereof, or (ii) as to the
Management Shareholders, if at any time such Shareholders do not own at least
65% of the aggregate number of Shares which they own as of the date hereof.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Representations. Each of the parties hereto represents that
this Agreement has been duly authorized, executed and delivered by such party
and constitutes a legal, valid and binding obligation of such party, enforceable
against it in accordance with the terms of this Agreement.
SECTION 8.02. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of their terms hereof, in addition to any other
remedy at law or in equity.
SECTION 8.03. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and Consenting Shareholders owning ninety
percent (90%) of the Shares then subject to this Agreement. Each Consenting
Stockholder shall be bound by any amendment or waiver authorized by this Section
8.03, whether or not such Consenting Stockholder shall have consented thereto.
SECTION 8.04. Notices. All notices and other communications provided for
herein shall be in writing and shall be delivered by hand, Federal Express or
other national overnight delivery service or sent by certified or registered
mail, return receipt requested, postage prepaid, addressed in the manner set
forth on the signature pages of this Agreement (or in such other manner for a
party
12
<PAGE>
as shall be specified in a notice given in accordance with this Section 8.04) or
by facsimile. All such notices shall be conclusively deemed to be received and
shall be effective, if sent by hand delivery or telecopied, upon receipt, or if
sent by registered or certified mail, on the fifth day after the day on which
such notice is mailed.
SECTION 8.05. Benefit: Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any prospective transferee unless such prospective transferee shall have
agreed in writing to be bound by the terms of this Agreement. No Consenting
Stockholder may assign any of its rights hereunder to any person other than a
transferee that has complied with the requirements of this Section 8.05 in all
respects. Nothing in this Agreement either express or implied is intended to
confer on any person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under or
by reason of this Agreement.
SECTION 8.06. Recapitalization, Exchanges, Etc., Affecting the Stock. All
the provisions of this Agreement shall apply, to the full extent set forth
herein with respect to the Shares and any and all securities of the Company or
any successor or assign of the Company (whether by merger, consolidation, sale
or assets or otherwise) which may be issued in respect of, in exchange for, or
in substitution of the Shares or by reason of any stock dividend, split, reverse
split, combination, recapitalization, reclassification, merger, consolidation or
otherwise.
SECTION 8.06. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. If any
term or other provision of this Agreement is held invalid, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect, unless invalidity of the term or provision held invalid shall
substantially impair the benefits of the remaining portions of this Agreement
and shall not limit or otherwise affect the meaning hereof. This Agreement shall
be governed by the law of the State of New York. This Agreement may be executed
in any number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one instrument. This Agreement may be
signed in counterparts.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in their individual capacity or caused it to be duly executed by their
respective authorized signatories hereunto duly authorized as of the day and
year first above written.
ENTICENT.COM, INC. GLOBAL TELECOMMUNICATION,
SOLUTIONS, INC.
By: /s/ Robert Previdi By: /s/ Lee R. Montellaro
---------------------------------- ----------------------------------
Name: Robert Previdi Name: Lee R. Montellaro
Title: President Title: Chief Financial Officer
DK&G WEBMASTER, INC.
By: /s/ [Illegible] /s/ Robert Previdi
---------------------------------- -------------------------------------
Name: Robert Previdi
Title: PRESIDENT
/s/ Paul Silverstein
- - ------------------------------------- -------------------------------------
Paul Silverstein Menashe Frank
- - ------------------------------------- -------------------------------------
Cory Eisner Jim Franklin
-------------------------------------
Jamie Frank
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in their individual capacity or caused it to be duly executed by their
respective authorized signatories hereunto duly authorized as of the day and
year first above written.
ENTICENT.COM, INC. GLOBAL TELECOMMUNICATION,
SOLUTIONS, INC.
By: By: /s/ Lee R. Montellaro
---------------------------------- ----------------------------------
Name: Name: Lee R. Montellaro
Title: Title: Chief Financial Officer
DK&G WEBMASTER, INC.
By:
---------------------------------- -------------------------------------
Name: Robert Previdi
Title:
- - ------------------------------------- -------------------------------------
Paul Silverstein Menashe Frank
- - ------------------------------------- -------------------------------------
Cory Eisner Jim Franklin
-------------------------------------
Jamie Frank
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in their individual capacity or caused it to be duly executed by their
respective authorized signatories hereunto duly authorized as of the day and
year first above written.
ENTICENT.COM, INC. GLOBAL TELECOMMUNICATION,
SOLUTIONS, INC.
By: By: /s/ Lee R. Montellaro
---------------------------------- ----------------------------------
Name: Name: Lee R. Montellaro
Title: Title: Chief Financial Officer
DK&G WEBMASTER, INC.
By:
---------------------------------- -------------------------------------
Name: Robert Previdi
Title:
- - ------------------------------------- -------------------------------------
Paul Silverstein Menashe Frank
/s/ Jim Franklin
- - ------------------------------------- -------------------------------------
Cory Eisner Jim Franklin
-------------------------------------
Jamie Frank
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in their individual capacity or caused it to be duly executed by their
respective authorized signatories hereunto duly authorized as of the day and
year first above written.
ENTICENT.COM, INC. GLOBAL TELECOMMUNICATION,
SOLUTIONS, INC.
By: By: /s/ Lee R. Montellaro
---------------------------------- ----------------------------------
Name: Name: Lee R. Montellaro
Title: Title: Chief Financial Officer
DK&G WEBMASTER, INC.
By:
---------------------------------- -------------------------------------
Name: Robert Previdi
Title:
- - ------------------------------------- -------------------------------------
Paul Silverstein Menashe Frank
/s/ Cory Eisner
- - ------------------------------------- -------------------------------------
Cory Eisner Jim Franklin
-------------------------------------
Jamie Frank
14
STOCK OPTION AGREEMENT
AGREEMENT, made as of June 1, 1999, by and between GLOBAL
TELECOMMUNICATION SOLUTIONS, INC., a Delaware corporation (the "Company"), and
LEE R. MONTELLARO, (the "Employee").
WHEREAS, on June 1, 1999 (the "Grant Date"), the Board of Directors
authorized the employment of the Employee pursuant to the terms of an Employment
Agreement dated as of June 1, 1999, and the grant to the Employee of an option
(the "Option") to purchase an aggregate of 320,000 shares of the authorized but
unissued common stock of the Company, $.01 par value ("Common Stock"),
conditioned upon the Employee's acceptance thereof upon the terms and conditions
set forth in this Agreement; and
WHEREAS, the Employee desires to acquire the Option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants to the Employee
the right and option ("Option") to purchase all or any part of an aggregate of
320,000 shares of Common Stock ("Option Shares") on the terms and conditions set
forth herein. The Option represented hereby is a non-qualified stock option not
intended to qualify under any section of the Internal Revenue Code of 1986, as
amended, and is not granted under any plan' including the Company's 1994
Performance Equity Plan ("Plan"). Certain terms used herein, however, are
defined under the Plan.
2. Exercise Price. The exercise price ("Exercise Price") of the
Option shall be as follows: $0.75 per share for 120,000 shares, $1.25 per share
for 120,000 shares, $1.75 per share for 40,000 shares and $2.00 per share for
40,000 shares, subject to adjustment as hereinafter provided.
3. Exercisability. This Option is exercisable, subject to the terms
and conditions of this Agreement, as follows: (i) Options to purchase 120,000 of
the Option Shares at $0.75 per share shall be exercisable on and after December
1,1999, (ii) Options to purchase 120,000 of the Option Shares at $1.25 per share
shall be exercisable on and after June 1,2000, (iii) Options to purchase 40,000
of the Option Shares at $1.75 per share shall be exercisable on and after June
1,2001, and (iv) Options to purchase 40,000 of the Option
<PAGE>
Shares at $2.00 per share shall be exercisable on and after June 1, 2002. After
each portion of the Option vests, it shall remain exercisable for a period of
five years from the date of vesting, except as otherwise set forth in this
Agreement (the "Exercise Period").
4. Effect of Termination of Employment.
4.1 Termination Due to Death. If Employee's employment by the
Company terminates by reason of death, the Option shall become fully vested and
exercisable and may thereafter be exercised by the legal representative of the
estate or by the legatee of the Employee under the will of the Employee, for a
period of one year from the date of such death or until the expiration of the
Exercise Period, whichever period is shorter.
4.2 Termination Due to Disability. If Employee's employment by
the Company terminates by reason of Disability (as such term is defined under
the Plan), the Option shall become fully vested and exercisable and may
thereafter be exercised by the Employee for a period of one year from the date
of such termination or until the expiration of the Exercise Period, whichever
period is shorter.
4.3 Termination by the Company Without Cause and/or Due to
Retirement. If Employee's employment is terminated by the Company without cause
or due to Normal Retirement (as such term is defined under the Plan), then (i)
the portion of the Option which has vested by the date of termination of
employment may be exercised by the Employee until the expiration of the Exercise
Period and (ii) the portion of the Option that will vest within one year of the
date of termination of employment shall become fully vested and may be exercised
by the Employee until the expiration of the Exercise Period. The portion of the
Option not exercisable within one year of the date of termination of employment
shall immediately expire.
4.4 Other Termination.
(1) If Employee's employment is terminated for any
reason other than (i) death, (ii) Disability, (iii) Normal Retirement, or (iv)
without cause by the Company, the Option shall expire on the date of termination
of employment.
(2) The Board of Directors, in the event the Employee's
employment is terminated for cause, may require the Employee to return to the
Company the economic benefit of any Option Shares purchased hereunder by the
Employee within the
<PAGE>
six month period prior to the date of termination. In such event, the Employee
hereby agrees to remit to the Company, in cash, an amount equal to the
difference between the Fair Market Value (as such term is defined under the
Plan) of the Option Shares on the date of termination (or the sales price of
such Shares if the Option Shares were sold during such six month period) and the
Exercise Price of such Shares.
5. Withholding Tax. Not later than the date as of which an amount
first must be included in the gross income of the Employee for Federal income
tax purposes with respect to the Option, the Employee shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount ("Withholding Tax"). The obligations of the
Company under the Plan and pursuant to this Agreement shall be conditioned upon
such payment or arrangements with the Company and the Company shall, to the
extent permitted by law, have the right to deduct any Withholding Taxes from any
payment of any kind otherwise due to the Employee from the Company.
6. Adjustments. In the event of any change in the number of
outstanding shares of Common Stock of the Company occurring as the result of a
stock split, reverse stock split or stock dividend on the Common Stock, after
the Grant Date, the Company shall proportionately adjust the number of Option
Shares and the Exercise Price of the Option. Any right to acquire a fractional
Option Share resulting from adjustments will be rounded to the nearest whole
Option Share. If the Company shall be the surviving corporation in any merger,
combination or consolidation, this Option shall pertain and apply to the Option
Shares to which the Employee is entitled hereunder, without adjustment. In the
event of a change in the par value of the shares of Common Stock which are
subject to this Option, this Option will be deemed to pertain to the shares
resulting from any such change. To the extent that the foregoing adjustments
relate to Common Stock, the adjustments will be made by the Board of Directors
whose determination will be final, binding and conclusive.
7. Method of Exercise.
7.1 Notice to the Company. The Option maybe exercised in whole
or in part by written notice in the form attached hereto as Exhibit A directed
to the Company at its principal place of business accompanied by full payment as
hereinafter provided of the exercise price for the number of Option Shares
specified in the notice and of the Withholding Taxes, if any.
3
<PAGE>
7.2 Delivery of Option Shares. The Company shall deliver a
certificate for the Option Shares to the Employee as soon as practicable after
payment therefor.
7.3 Payment of Purchase Price.
7.3.1 Cash Payment. The Employee shall make cash
payments by wire transfer, certified or bank check or personal check, in each
case payable to the order of the Company; the Company shall not be required to
deliver certificates for Option Shares until the Company has confirmed the
receipt of good and available funds in payment of the purchase price thereof.
7.3.2 Stock Payment. The Board of Directors, in its sole
discretion, may allow Employee to use Common Stock of the Company owned by him
to make any required payments by delivery of stock certificates in negotiable
form which are effective to transfer good and valid title thereto to the
Company, free of any liens or encumbrances. Shares of Common Stock used for this
purpose shall be valued at the Fair Market Value. Notwithstanding the foregoing,
the Company shall have the right to reject payment in the form of Common Stock
if in the opinion of counsel for the Company, (i) it could result in an event of
"recapture" under Section 16(b) of the Securities Exchange Act of 1934; (ii)
such shares of Common Stock may not be sold or transferred to the Company; or
(iii) such transfer could create legal difficulties for the Company.
8. Nonassignability. The Option shall not be assignable or
transferable, except by will or by the laws of descent and distribution in the
event of the death of the Employee. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and/or such other evidence as the Company may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of the Option.
9. Accelerated Vesting and Exercisability. If (i) any person or
entity other than the Company and/or any officer, director or principal
stockholder (i.e., a holder [beneficially or of record] of more than ten percent
of the Company's voting stock) of the Company acquires securities of the Company
(in one or more transactions) having 25% or more of the total voting power of
all the Company's securities then outstanding and (ii) the Board of Directors of
the Company does not authorize or otherwise approve such
4
<PAGE>
acquisition, then the vesting periods of the Option shall be accelerated and the
Option shall immediately and entirely vest In such event, Employee shall have
the immediate right to purchase all the Option Shares, subject to the provisions
of this Agreement.
10. Company Representations. The Company hereby represents and
warrants to the Employee that:
(i) the Company, by appropriate and all required action,
is duly authorized to enter into this Agreement and consummate all of the
transactions contemplated hereunder; and
(2) the Option Shares, when issued and delivered by the
Company to the Employee in accordance with the terms and conditions
hereof, will be duly and validly issued and fully paid and non-assessable.
11. Employee Representations. The Employee hereby represents and
warrants to the Company that:
(1) he is acquiring the Option and shall acquire the
Option Shares for his own account and not with a view towards the
distribution thereof;
(2) he has received a copy of all reports and documents
required to be filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended,
within the last 24 months and all reports issued by the Company to its
stockholders;
(3) he understands that he must bear the economic risk
of the investment in the Option Shares, which cannot be sold by him unless
they are registered under the Securities Act of 1933 (the "1933 Act") or
an exemption therefrom is available thereunder and that the Company is
under no obligation to register the Option Shares for sale under the 1933
Act;
(4) in his position with the Company, he has had both
the opportunity to ask questions and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning
the terms and conditions of the offer made hereunder and to obtain any
additional information to the extent the Company possesses or may possess
such information or can acquire it
5
<PAGE>
without unreasonable effort or expense necessary to verify the accuracy of
the information obtained pursuant to clause (ii) above;
(5) he is aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the Option
Shares in the absence of registration under the 1933 Actor an exemption
therefrom as provided herein; and
(6) if, at the time of issuance of the Option Shares,
the issuance of such shares have not been registered under the 1933 Act,
the certificates evidencing the Option Shares shall bear the following
legend:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
12. Restriction on Transfer of Options Shares.
12.1 Anything in this Agreement to the contrary
notwithstanding, Employee hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by him without
registration under the 1933 Act, or in the event that they are not so
registered, unless (i) an exemption from the 1933 Act registration requirements
is available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
12.2 Anything in this Agreement to the contrary
notwithstanding, Employee hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by him (i) prior to six
months after the Grant Date and (ii) except in accordance with Company's policy,
if any, regarding the sale and disposition of securities owned by employees
and/or directors of the Company.
13. Miscellaneous.
13.1 Notices. All notices, requests, deliveries, payments,
demands and other communications which are required or permitted to be given
under this Agreement shall be in writing and shall be either delivered
personally, transmitted by electronic means
6
<PAGE>
or sent by a nationally recognized next-day courier to the parties at their
respective addresses set forth herein, or to such other address as either shall
have specified by notice in writing to the other. Notice shall be deemed duly
given hereunder when delivered or transmitted as provided herein.
13.2 Employee and Stockholder Rights. The Employee shall not
have any of the rights of a stockholder with respect to the Option Shares until
such shares have been issued after the due exercise of the Option. Nothing
contained in this Agreement shall be deemed to confer upon Employee any right to
continued employment with the Company or any subsidiary thereof, nor shall it
interfere in any way with the right of the Company to terminate Employee in
accordance with the provisions regarding such termination set forth in
Employee's written employment agreement with the Company, or if there exists no
such agreement, to terminate Employee at will.
13.3 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
13.4 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof This
Agreement may not be amended except by writing executed by the Employee and the
Company.
13.5 Binding Effect: Successors. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and, to the extent not
prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
13.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey (without regard
to choice of law provisions).
13.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above:
GLOBAL TELECOMMUNICATION Address: 10 Stow Road, Suite 200
SOLUTIONS, INC. Marlton, New Jersey 08053
By: /s/ Randy Cherkas
EMPLOYEE: Address: 60 Ticonderoga Boulevard
Freehold, New Jersey 07728
/s/ Lee R. Montellaro
- - -------------------------------
LEE R. MONTELLARO
8
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
____________________________
DATE
GLOBAL TELECOMMUNICATION
SOLUTIONS, INC.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
Attention: Stock Option Committee of the Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of June 1, 1999 with
Global Telecommunication Solutions, Inc. (the "Company"), I hereby irrevocably
elect to exercise the right to purchase ____________ shares of the Company's
common stock, par value $.01 per share ("Common Stock").
As payment for my shares, enclosed is (check and complete applicable
box[es]):
|_| a [personal check] [certified check] [bank check] payable to the
order of "Global Telecommunication Solutions, Inc." in the sum of
$___________
|_| confirmation of wire transfer in the amount of $__________; and/or
|_| with the consent of the Company, a certificate for ___________
shares of the Company s Common Stock, free and clear of any
encumbrances, duly endorsed, having a Fair Market Value (as such
term is defined in the 1994 Performance Equity Plan) of
$______________.
I hereby represent and warrant to, and agree with, the Company that:
(i) I have acquired the Option and shall acquire the Option Shares
for my own account, for investment, and not with a view towards the
distribution thereof;
(ii) I have received a copy of all reports and documents required to
be filed by the Company with the Commission pursuant to the Exchange Act
within the last 24 months and all reports issued by the Company to its
stockholders;
(iii) I understand that I must bear the economic risk of the
investment in the Option Shares, which cannot be sold by me unless they
are registered under the Securities Act of 1933 (the "1933 Act") or an
exemption therefrom is available thereunder and that the Company is under
no obligation to register the Option Shares for sale under the 1933 Act;
(iv) I agree that I will not sell, transfer by any means or
otherwise dispose of the Option Shares acquired by me hereby except in
accordance with Company's policy, if any, regarding the sale and
disposition of securities owned by employees and/or directors of the
Company;
<PAGE>
(v) in my position with the Company, I have had both the opportunity
to ask questions and receive answers from the officers and directors of
the Company and all persons acting on its behalf concerning the terms and
conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such
information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of the information obtained pursuant to
(ii) above;
(vi) I am aware that the Company shall place stop transfer orders
with its transfer agent against the transfer of the Option Shares in the
absence of registration under the 1933 Act or an exemption therefrom as
provided herein; and
(vii) if, at the time of issuance of the Option Shares, the issuance
of such shares have not been registered under the 1933 Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
________________________________ __________________________________
(Signature) (Address)
________________________________ __________________________________
(Print Name)
__________________________________
(Social Security Number)
STOCK OPTION AGREEMENT
AGREEMENT, made as of December 1, 1999, by and between GLOBAL
TELECOMMUNICATION SOLUTIONS, INC., a Delaware corporation (the "Company"), and
LEE R. MONTELLARO, (the "Employee").
WHEREAS, on December 1, 1999 (the "Grant Date"), the Board of Directors
authorized the grant to the Employee of an option (the "Option") to purchase an
aggregate of 200,000 shares of the authorized but unissued common stock of the
Company, $.01 par value ("Common Stock"), conditioned upon the Employee's
acceptance thereof upon the terms and conditions set forth in this Agreement;
and
WHEREAS, the Employee desires to acquire the Option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants to the Employee
the right and option ("Option") to purchase all or any part of an aggregate of
200,000 shares of Common Stock ("Option Shares") on the terms and conditions set
forth herein. The Option represented hereby is a non-qualified stock option not
intended to qualify under any section of the Internal Revenue Code of 1986, as
amended, and is not granted under any plan, including the Company's 1994
Performance Equity Plan ("Plan"). Certain terms used herein, however, are
defined under the Plan.
2. Exercise Price. The exercise price ("Exercise Price") of the
Option shall be $0.25 per share, subject to adjustment as hereinafter provided.
3. Exercisability. If the Company has not filed, or been forced to
file, for protection under the United States Bankruptcy Code as of April 1,
2000, this Option shall become exercisable, subject to the terms and conditions
of this Agreement, on April 3, 2000, and shall remain exercisable until November
30, 2004, except as otherwise set forth in this Agreement (the "Exercise
Period").
4. Effect of Termination of Employment.
4.1 Termination Due to Death. If Employee's employment by the
Company terminates by reason of death prior to the commencement of the Exercise
Period, the Option shall expire on the date of such death. If Employee's
employment by the Company terminates by reason of death during the Exercise
Period, the Option shall remain exercisable and may thereafter be exercised by
the legal representative of the estate or by the legatee of the
<PAGE>
Employee under the will of the Employee, for a period of one year from the date
of such death or until the expiration of the Exercise Period, whichever period
is shorter.
4.2 Termination Due to Disability. If Employee's employment by
the Company terminates by reason of Disability (as such term is defined under
the Plan) prior to the commencement of the Exercise Period, the Option shall
expire on the date of such termination. If Employee's employment by the Company
terminates by reason of Disability during the Exercise Period, the Option shall
remain exercisable and may thereafter be exercised by the Employee for a period
of one year from the date of such termination or until the expiration of the
Exercise Period, whichever period is shorter.
4.3 Termination by the Company Without Cause and/or Due to
Retirement. If Employee's employment is terminated by the Company without cause
or due to Normal Retirement (as such term is defined under the Plan) prior to
the commencement of the Exercise Period, and, at the time of such termination,
the Company has not filed, or been forced to file, for protection under the
United States Bankruptcy Code, then the Option shall not expire and may
thereafter be exercised by the Employee during the Exercise Period. If
Employee's employment is terminated by the Company without cause or due to
Normal Retirement during the Exercise Period, then the Option shall not expire
and may thereafter be exercised by the Employee until the expiration of the
Exercise Period.
4.4 Other Termination.
(a) If Employee's employment is terminated for any
reason other than (i) death, (ii) Disability, (iii) Normal Retirement, or (iv)
without cause by the Company, the Option shall expire on the date of termination
of employment.
(b) The Board of Directors, in the event the Employee's
employment is terminated for cause, may require the Employee to return to the
Company the economic benefit of any Option Shares purchased hereunder by the
Employee within the six month period prior to the date of termination. In such
event, the Employee hereby agrees to remit to the Company, in cash, an amount
equal to the difference between the Fair Market Value (as such term is defined
under the Plan) of the Option Shares on the date of termination (or the sales
price of such Shares if the Option Shares were sold during such six month
period) and the Exercise Price of such Shares.
5. Withholding Tax. Not later than the date as of which an amount
first must be included in the gross income of the Employee for Federal income
tax purposes with respect to the Option, the Employee shall pay to the Company,
or make arrangements satisfactory to the Committee regarding the payment of, any
Federal, state and local taxes of any kind required by law to be withheld or
paid with respect to such amount ("Withholding Tax"). The obligations of the
Company under the Plan and pursuant to this Agreement shall be conditioned upon
such payment
2
<PAGE>
or arrangements with the Company and the Company shall, to the extent permitted
by law, have the right to deduct any Withholding Taxes from any payment of any
kind otherwise due to the Employee from the Company.
6. Adjustments. In the event of any change in the number of
outstanding shares of Common Stock of the Company occurring as the result of a
stock split, reverse stock split or stock dividend on the Common Stock, after
the Grant Date, the Company shall proportionately adjust the number of Option
Shares and the Exercise Price of the Option. Any right to acquire a fractional
Option Share resulting from adjustments will be rounded to the nearest whole
Option Share. If the Company shall be the surviving corporation in any merger,
combination or consolidation, this Option shall pertain and apply to the Option
Shares to which the Employee is entitled hereunder, without adjustment. In the
event of a change in the par value of the shares of Common Stock which are
subject to this Option, this Option will be deemed to pertain to the shares
resulting from any such change. To the extent that the foregoing adjustments
relate to Common Stock, the adjustments will be made by the Board of Directors
whose determination will be final, binding and conclusive.
7. Method of Exercise.
7.1 Notice to the Company. The Option may be exercised in
whole or in part by written notice in the form attached hereto as Exhibit A
directed to the Company at its principal place of business accompanied by full
payment as hereinafter provided of the exercise price for the number of Option
Shares specified in the notice and of the Withholding Taxes, if any.
7.2 Delivery of Option Shares. The Company shall deliver a
certificate for the Option Shares to the Employee as soon as practicable after
payment therefor.
7.3 Payment of Purchase Price.
7.3.1 Cash Payment. The Employee shall make cash
payments by wire transfer, certified or bank check or personal check, in each
case payable to the order of the Company; the Company shall not be required to
deliver certificates for Option Shares until the Company has confirmed the
receipt of good and available funds in payment of the purchase price thereof.
7.3.2 Stock Payment. The Board of Directors, in its sole
discretion, may allow Employee to use Common Stock of the Company owned by him
to make any required payments by delivery of stock certificates in negotiable
form which are effective to transfer good and valid title thereto to the
Company, free of any liens or encumbrances. Shares of Common Stock used for this
purpose shall be valued at the Fair Market Value. Notwithstanding the foregoing,
the Company shall have the right to reject payment in the form of Common Stock
if in the opinion of counsel for the Company, (i) it could result in an event of
"recapture" under Section 16(b) of the
3
<PAGE>
Securities Exchange Act of 1934; (ii) such shares of Common Stock may not be
sold or transferred to the Company, or (iii) such transfer could create legal
difficulties for the Company.
8. Nonassignability. The Option shall not be assignable or
transferable, except by will or by the laws of descent and distribution in the
event of the death of the Employee. No transfer of the Option by the Employee by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and/or such other evidence as the Company may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions of the Option.
9. Accelerated Vesting and Exercisability. If (i) any person or
entity other than the Company and/or any officer, director or principal
stockholder (i.e., a holder [beneficially or of record) of more than ten percent
of the Company's voting stock) of the Company acquires securities of the Company
(in one or more transactions) having 25% or more of the total voting power of
all the Company's securities then outstanding and (ii) the Board of Directors of
the Company does not authorize or otherwise approve such acquisition, then the
vesting periods of the Option shall be accelerated and the Option shall
immediately and entirely vest. In such event, Employee shall have the immediate
right to purchase all the Option Shares, subject to the provisions of this
Agreement.
10. Company Representations. The Company hereby represents and
warrants to the Employee that:
(i) the Company, by appropriate and all required action,
is duly authorized to enter into this Agreement and consummate all of the
transactions contemplated hereunder, and
(ii) the Option Shares, when issued and delivered by the
Company to the Employee in accordance with the terms and conditions
hereof, will be duly and validly issued and filly paid and non-assessable.
11. Employee Representations. The Employee hereby represents and
warrants to the Company that:
(i) he is acquiring the Option and shall acquire the
Option Shares for his own account and not with a view towards the
distribution thereof;
(ii) he has received a copy of all reports and documents
required to be filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended,
within the last 24 months and all reports issued by the Company to its
stockholders;
4
<PAGE>
(iii) he understands that he must bear the economic risk
of the investment in the Option Shares, which cannot be sold by him unless
they are registered under the Securities Act of 1933 (the "1933 Act") or
an exemption therefrom is available thereunder and that the Company is
under no obligation to register the Option Shares for sale under the 1933
Act;
(iv) in his position with the Company, he has had both
the opportunity to ask questions and receive answers from the officers and
directors of the Company and all persons acting on its behalf concerning
the terms and conditions of the offer made hereunder and to obtain any
additional information to the extent the Company possesses or may possess
such information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of the information obtained pursuant to
clause (ii) above;
(v) he is aware that the Company shall place stop
transfer orders with its transfer agent against the transfer of the Option
Shares in the absence of registration under the 1933 Act or an exemption
therefrom as provided herein; and
(vi) if, at the time of issuance of the Option Shares,
the issuance of such shares have not been registered under the 1933 Act,
the certificates evidencing the Option Shares shall bear the following
legend:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
12. Restriction on Transfer of Option Shares.
12.1 Anything in this Agreement to the contrary
notwithstanding, Employee hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by him without
registration under the 1933 Act, or in the event that they are not so
registered, unless (i) an exemption from the 1933 Act registration requirements
is available thereunder, and (ii) the Employee has furnished the Company with
notice of such proposed transfer and the Company's legal counsel, in its
reasonable opinion, shall deem such proposed transfer to be so exempt.
12.2 Anything in this Agreement to the contrary
notwithstanding, Employee hereby agrees that he shall not sell, transfer by any
means or otherwise dispose of the Option Shares acquired by him (i) prior
5
<PAGE>
to six months after the Grant Date and (ii) except in accordance with Company's
policy, if any, regarding the sale and disposition of securities owned by
employees and/or directors of the Company.
13. Miscellaneous.
13.1 Notices. All notices, requests, deliveries, payments,
demands and other communications which are required or permitted to be given
under this Agreement shall be in writing and shall be either delivered
personally, transmitted by electronic means or sent by a nationally recognized
next-day courier to the parties at their respective addresses set forth herein,
or to such other address as either shall have specified by notice in writing to
the other. Notice shall be deemed duly given hereunder when delivered or
transmitted as provided herein.
13.2 Employee and Stockholder Rights. The Employee shall not
have any of the rights of a stockholder with respect to the Option Shares until
such shares have been issued after the due exercise of the Option. Nothing
contained in this Agreement shall be deemed to confer upon Employee any right to
continued employment with the Company or any subsidiary thereof, nor shall it
interfere in any way with the right of the Company to terminate Employee in
accordance with the provisions regarding such termination set forth in
Employee's written employment agreement with the Company, or if there exists no
such agreement, to terminate Employee at will.
13.3 Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
13.4 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof. This
Agreement may not be amended except by writing executed by the Employee and the
Company.
13.5 Binding Effect; Successors. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and, to the extent not
prohibited herein, their respective heirs, successors, assigns and
representatives. Nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto and as provided above, their
respective heirs, successors, assigns and representatives any rights, remedies,
obligations or liabilities.
13.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey (without regard
to choice of law provisions).
13.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above:
GLOBAL TELECOMMUNICATION Address: 10 Stow Road, Suite 200
SOLUTIONS, INC. Marlton, New Jersey 08053
By: /s/ [Illegible]
-------------------------------
EMPLOYEE: Address: 60 Ticonderoga Boulevard
Freehold, New Jersey 07728
/s/ Lee R. Montellaro
- - ----------------------------------
LEE R. MONTELLARO
7
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
____________________________
DATE
GLOBAL TELECOMMUNICATION
SOLUTIONS, INC.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
Attention: Stock Option Committee of the Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of December 1, 1999
with Global Telecommunication Solutions, Inc. (the "Company"), I hereby
irrevocably elect to exercise the right to purchase ________ shares of the
Company's common stock, par value $.01 per share ("Common Stock").
As payment for my shares, enclosed is (check and complete applicable
box[es]):
|_| a [personal check] [certified check] [bank check] payable to the
order of "Global Telecommunication Solutions, Inc." in the sum of
$___________;
|_| confirmation of wire transfer in the amount of $__________; and/or
|_| with the consent of the Company, a certificate for ___________
shares of the Company's Common Stock, free and clear of any
encumbrances, duly endorsed, having a Fair Market Value (as such
term is defined in the 1994 Performance Equity Plan) of
$______________.
I hereby represent and warrant to, and agree with, the Company that:
(i) I have acquired the Option and shall acquire the Option Shares
for my own account, for investment, and not with a view towards the
distribution thereof;
(ii) I have received a copy of all reports and documents required to
be filed by the Company with the Commission pursuant to the Exchange Act
within the last 24 months and all reports issued by the Company to its
stockholders;
(iii) I understand that I must bear the economic risk of the
investment in the Option Shares, which cannot be sold by me unless they
are registered under the Securities Act of 1933 (the "1933 Act") or an
exemption therefrom is available thereunder and that the Company is under
no obligation to register the Option Shares for sale under the 1933 Act;
(iv) I agree that I will not sell, transfer by any means or
otherwise dispose of the Option Shares acquired by me hereby except in
accordance with Company's policy, if any, regarding the sale and
disposition of securities owned by employees and/or directors of the
Company;
<PAGE>
(v) in my position with the Company, I have had both the opportunity
to ask questions and receive answers from the officers and directors of
the Company and all persons acting on its behalf concerning the terms and
conditions of the offer made hereunder and to obtain any additional
information to the extent the Company possesses or may possess such
information or can acquire it without unreasonable effort or expense
necessary to verify the accuracy of the information obtained pursuant to
(ii) above;
(vi) I am aware that the Company shall place stop transfer orders
with its transfer agent against the transfer of the Option Shares in the
absence of registration under the 1933 Act or an exemption therefrom as
provided herein; and
(vii) if, at the time of issuance of the Option Shares, the issuance
of such shares have not been registered under the 1933 Act, the
certificates evidencing the Option Shares shall bear the following legend:
"The shares represented by this certificate have been acquired
for investment and have not been registered under the
Securities Act of 1933. The shares may not be sold or
transferred in the absence of such registration or an
exemption therefrom under said Act."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
________________________________ __________________________________
(Signature) (Address)
________________________________ __________________________________
(Print Name)
__________________________________
(Social Security Number)
AGREEMENT REGARDING THE
ASSIGNMENT OF CONTRACTS,
CURE AMOUNTS AND RELATED MATTERS
AGREEMENT, dated as of February __, 2000 (this "Cure and Assignment
Agreement"), is entered into by and among GLOBAL LINK TELECOM CORPORATION, a
Delaware Corporation ("Global Link"), GTS HOLDING CORP., INC., a Delaware
corporation, TELTIME, INC., a Delaware corporation, NETWORK SERVICES SYSTEM,
INC., a Delaware corporation, NETWORK SERVICES SYSTEM, L.P., a Delaware limited
partnership, GTS MARKETING, INC., a Delaware corporation, GLOBAL
TELECOMMUNICATION SOLUTIONS, L.P., a Delaware limited partnership, NETWORKS
AROUND THE WORLD, INC., a New Jersey corporation ("NAWI"), and CENTERPIECE
COMMUNICATIONS, INC., a New Jersey corporation (each a "Debtor" and collectively
the "Debtors"), GLOBAL TELECOMMUNICATION SOLUTIONS, INC. ("GTS Inc."), RANDOLPH
CHERKAS, an individual ("Cherkas"), and GARY LIGUORI, an individual ("Liguori").
WHEREAS, the Debtors are debtors and debtors-in-possession in joint
proceedings under Chapter 11 of the Bankruptcy Code before the United States
Bankruptcy Court for the District of Delaware, consolidated for administrative
purposes under Case No. 99-3923 (MFW);
WHEREAS, the Debtors have determined that it is in the best
interests of the Debtors' estates to sell the Debtors' prepaid phonecard
business and the assets related thereto (the "Business") and the Debtors have
been negotiating with various parties for the sale of the Business;
WHEREAS, the Debtors wish to sell the Business to JD Services, Inc.
("Purchaser") and are negotiating an agreement with Purchaser for the purchase
and sale of the Business, including the assignment and assumption of certain
contracts, which agreement is subject to (i) "higher and better offers" received
at an auction, and (ii) Bankruptcy Court approval;
<PAGE>
WHEREAS Purchaser requires, as a condition of closing on the
purchase and sale of the Business, that the Non-compete (as hereinafter defined)
be assigned to Purchaser;
WHEREAS, Cherkas was a director of the Debtors, was an officer and
director of the Debtors' parent company, GTS Inc., and Cherkas and Liguori are
employees of the Debtor GTS L.P.;
WHEREAS, Cherkas and Liguori have entered into various agreements
with GTS Inc. or NAWI, including the following:
A. Merger and Reorganization Agreement, dated as of January 31, 1998,
among Global Telecommunication Solutions, Inc., Networks Acquisition
Corp., Networks Around the World, Inc., Randolph Cherkas and Gary
Liguori (the "Merger Agreement");
B. Non-Negotiable Promissory Note, dated January 31, 1998, in the
amount of $900,000 payable to Randolph Cherkas, executed by Global
Telecommunication Solutions, Inc. (the "Cherkas Note");
C. Non-Negotiable Promissory Note, dated January 31, 1998, in the
amount of $100,000 payable to Gary Liguori, executed by Global
Telecommunication Solutions, Inc. (the "Liguori Note");
D. Earn Out Agreement, dated as of January 31, 1998 among Global
Telecommunication Solutions, Inc. and Randolph Cherkas (the "Earn-
out Agreement");
E. Employment Agreement, dated January 31, 1998, between Global
Telecommunication Solutions, Inc. and Randolph Cherkas (the "Cherkas
Employment Agreement");
F. Employment Agreement, dated January 31, 1998, between Global
Telecommunication Solutions, Inc. and Gary Liguori (the "Liguori
Employment Agreement"); and
G. Security Agreement, dated January 31, 1998, between Networks Around
the World, Inc. as Debtor and Randolph Cherkas and Gary Liguori as
the Secured Parties (the "Security Agreement").
2
<PAGE>
The Merger Agreement, Cherkas Note, Liguori Note, Earn-out Agreement, Cherkas
Employment Agreement, and the Liguori Employment Agreement may be referred to
herein as the "Required Contracts".
WHEREAS, the Merger Agreement at (pounds)6.2 contains a provision by
which Cherkas and Liguori have agreed not to compete with the business of GTS
Inc. And affiliates, including the Debtors (the "Non-compete");
WHEREAS the Non-compete provides that if there is a material breach
in payment under the Cherkas Note, Liguori Note, Earn-out Agreement, Cherkas
Employment Agreement, or the Liguori Employment Agreement, then Cherkas'
and Liguori's obligation under the Non-compete shall cease.
WHEREAS, GTS Inc. is an obligor under the Cherkas Note, Liguori
Note, Earn-out Agreement, Cherkas Employment Agreement and the Liguori
Employment Agreement, and the obligations under the Cherkas Note, Liguori Note,
and the Earn-out Agreement have been assigned to and assumed by Global Link,
without releasing GTS Inc. from its obligations to Cherkas and Liguori
thereunder;
WHEREAS, in order to transfer the Non-compete to Purchaser (which is
a condition to Purchaser closing on the purchase and sale of the Business) it
will be necessary for Global Link, NAWI, the Debtors and GTS, Inc. to cure
defaults under the contracts so that the contracts may be assigned to Purchaser;
WHEREAS, Cherkas claims that he is owed $900,000 plus approximately
$90,000 in interest by Global Link and GTS Inc. under the Cherkas Note.
3
<PAGE>
WHEREAS, the Debtors and GTS Inc. believe that there are certain
offsets to the obligations to make payment to Cherkas under the Cherkas Note,
including (I) an offset in the amount of approximately $375,000 based upon an
agreement with Cherkas to allow an offset for a loss sustained by the Debtors
due to the failure of a carrier, Access Telecom, Inc., to provide service to the
Debtors (the "Access Offset"); and (ii) an agreement by Cherkas to convert the
remaining debt under the note to equity in GTS Inc. at the rate of $.80/share
(the "Conversion Offset"). Thus, the Debtors and GTS Inc. believe that the
Access Offset and the Conversion Offset completely offset all amounts due under
the Cherkas Note, and therefore, the Debtors and GTS Inc. believe their
liability to Cherkas under the Cherkas Note can be completely satisfied by the
application of the Access Offset and delivery of the stock under the Conversion
Offset.
WHEREAS, Liguori claims that he is owed $100,000 plus approximately
$10,000 in interest by Global Link and GTS Inc. under the Liguori Note.
WHEREAS, Cherkas alleges that he is owed $876,157.00 by Global Link
and GTS Inc. under the Earn-out Agreement for sales during the periods ending
July 31, 1999, that such amount was payable on October 31, 1999 and now is past
due and accruing interest. Cherkas also alleges that for sales for the period
from August 1, 1999 through January 31, 2000, he will be entitled to an
additional payment, in the estimated amount of approximately $322,000, payable
on April 30, 2000.
WHEREAS, the Debtors and GTS Inc. believe that there are certain
offsets or defenses to the obligations to make certain payments to Cherkas under
the Earn-out
4
<PAGE>
Agreement, including that no payment is or will become due for the period from
August 1, 1999 through January 31, 2000.
WHEREAS, Cherkas claims that he is entitled to approximately $64,167
for unpaid salary under his Employment Agreement and Liguori claims that he is
entitled to approximately $9,000 for unpaid second quarter bonuses and $6,000
for unpaid fourth quarter bonuses under his Employment Agreement.
WHEREAS, Cherkas also alleges that he is entitled to interest,
attorneys' fees and costs relating to his claims under the Earn-out Agreement.
WHEREAS, Cherkas and Liguori are not aware of any other claims which
they may have against GTS Inc. or the Debtors other than the claims set forth
herein.
WHEREAS, the Debtors, GTS Inc., Cherkas and Liguori wish to avoid
litigation over the issues set forth herein, acknowledge that this agreement was
negotiated in good faith with all parties having the advice of counsel, and the
parties believe that the agreements contained herein are in the best interest of
the Debtors' estates and all parties hereto;
NOW THEREFORE, IT IS HEREBY AGREED, by and between the Debtors, GTS
Inc., Cherkas and Liguori that:
1. The Debtors and GTS Inc. shall be entitled to reduce the Cherkas
Note to zero, based upon the Access Offset and the Conversion Offset, and shall
no longer have any liability under the Cherkas Note, upon compliance with
paragraph 4 of this Cure and Assignment Agreement.
5
<PAGE>
2. Three weeks after the Closing of a sale to Purchaser, the Debtors
shall pay to Liguori $110,000 for unpaid obligations under the Liguori Note. At
the Closing of a sale to Purchaser, GTS Inc. shall deliver to Liguori 50,000
shares of GTS common stock subject to trading restrictions and exemptions under
applicable securities laws ("Rule 144 Stock").
3. On the date that the true-up referred to in Section 1.7 of the
Asset Purchase Agreement is finalized, to cure all defaults under the Earn-out
Agreement and to compensate Cherkas for any damages he may have suffered,
Cherkas shall be entitled to receive from the Debtors an amount, up to an
additional $1,198,157, equal to: (a) directly from Purchaser, all of the
proceeds resulting from the true-up from Purchaser with the Debtors up to
$500,000; and (b) 70% of the amount of the Debtors' available cash remaining
after deducting amounts for unpaid administrative expenses accrued and
reasonably expected to be incurred through the effective date of a confirmed
plan. In addition to the amount set forth in subparagraph 3(b) hereof, Cherkas
shall be entitled to an administrative priority claim, subordinate to all other
administrative priority claims, for 70% of the amount of the Debtors' available
cash remaining after payment of all other allowed administrative priority
claims, payable on the effective date of a plan.
4. Within two business days of executing this Agreement, GTS Inc.
shall deliver to Cherkas 769,750 shares of GTS Rule 144 common stock in
consideration of Cherkas' conversion of a portion of the Cherkas Note in
accordance with the Conversion
6
<PAGE>
Offset. Failure to deliver such stock as provided in this paragraph shall be a
material breach of the Required Contracts.
5. At the Closing of a sale to Purchaser, GTS, Inc. shall: (a) pay
$30,000 to Cherkas; and (b) assign (or cause to be assigned) to Cherkas GTS,
Inc.'s interest in the trademarks/tradenames "Networks Around the World, Inc."
and "Centerpiece Communications, Inc." to compensate Cherkas for interest and
other costs incurred in accordance with the provisions of the Earn-out
Agreement. At the Closing the Debtors shall assign to Cherkas the Debtors'
interests in the trademarks/tradenames Networks Around the World, Inc." and
"Centerpiece Communications, Inc." Failure to make such payments and deliver
such assignments as provided in this paragraph shall be a material breach of the
Required Contracts.
6. At the Closing of a sale to Purchaser, GTS, Inc. shall pay to
Cherkas $64,167 for unpaid obligations under the Cherkas Employment Agreement.
Failure to make such payment as provided in this paragraph shall be a material
breach of the Required Contracts.
7. At the Closing of a sale to Purchaser, GTS Inc. shall pay to
Liguori $15,000 for unpaid obligations under the Liguori Employment Agreement.
Failure to make such payment as provided in this paragraph shall be a material
breach of the Required Contracts.
8. At the Closing of a sale to Purchaser, the Debtors will assign to
the Purchaser their rights and interests in all of the Required Contracts,
including, but not
7
<PAGE>
limited to, the Merger Agreement, the Cherkas and Liguori Notes and the Earn-out
Agreement.
9. At the Closing of a sale to Purchaser, GTS Inc. will assign to
the Purchaser its rights, if any, under all of the Required Contracts,
including, but not limited to, the Merger Agreement, the Cherkas Note, the
Liguori Note, the Earn-out Agreement and the Cherkas and Liguori Employment
Agreements.
10. Cherkas and Liguori each acknowledge that compliance with
paragraphs 2, 3, 4, 5, 6 and 7 of this Agreement:
a. cures all of the Debtors' defaults under the Required
Contracts, as required by 365(b)(1)(A) of the Bankruptcy Code;
b. compensates each of them for any actual pecuniary loss
resulting from any of the Debtors' defaults under the Required
Contracts, as required by (pound)365(b)(1)(B) of the
Bankruptcy Code;
c. provides each of them with adequate assurance of future
performance of the obligations under the Required Contracts,
as required by (pound)365(b)(1)(C) of the Bankruptcy Code.
11. Upon full compliance with paragraphs 2, 3, 4, 5, 6 and 7 of this
Cure and Assignment Agreement by the Debtors, GTS Inc., to the extent that any
default remains uncured, any damages have not been paid or assurance of future
performance has not been
8
<PAGE>
given, Cherkas and Liguori each waive any rights they may have against the
Debtors and the Purchaser with respect thereto.
12. Cherkas and Liguori consent to the assignment of the Required
Contracts at the Closing of a sale to Purchaser, subject to and conditioned upon
performance of the terms and conditions set forth in paragraphs 2, 3, 4, 5, 6
and 7 of this Cure and Assignment Agreement.
13. If requested, Cherkas and Liguori will, upon receipt of the
common stock and amounts due under paragraphs 2, 3, 4, 5, 6 and 7 hereof and
receipt of the assumption agreement under paragraph 14 hereof, provide to
Purchaser a writing, in a form reasonably acceptable to Purchaser:
a. consenting to the assignment to and assumption by the
Purchaser of the Required Contracts;
b. acknowledging that the Required Contracts remain in full force
and effect and agreeing to be bound by the provisions of the
Required Contracts, including but not limited to the
Restrictive Covenant contained in (pound)6.2 of the Merger
Agreement;
c. acknowledging that all defaults of the Debtors existing as of
Closing under the Required Contracts have been cured or waived
by each Cherkas and Liguori, except as set forth in paragraph
16 hereof;
9
<PAGE>
d. acknowledging that they each have been compensated for damages
suffered as a result of any breach by the Debtors of the
Required Contracts existing as of Closing or have waived any
such right, except as set forth in paragraph 16 hereof;
e. acknowledging that they each have been provided with adequate
assurance of future performance under the Required Contracts
or have waived any such right;
f. acknowledging and agreeing that the Required Contracts are
modified, and that in consideration of the payments received
and to be received, Cherkas and Liguori waive any rights
against the Debtors they may have under the Required
Contracts, except for the right to receive the following,
which obligations are being assumed by the Purchaser:
(1) The obligations to pay salary and bonuses and to provide
benefits to Cherkas under the Cherkas Employment
Agreement; and
(2) The obligations to pay salary and bonuses and to provide
benefits to Liguori under the Liguori Employment
Agreement.
14. At the Closing of a sale to Purchaser the Debtors' will attempt
to obtain from Purchaser a writing in a form reasonably acceptable to Cherkas
and Liguori
10
<PAGE>
acknowledging and agreeing that Purchaser has assumed liability to
Cherkas and Liguori for the obligations set forth in paragraph 13(f) hereof.
15. At the Closing of a sale to Purchaser, the Debtors (but not GTS,
Inc.) on one side and Cherkas and Liguori on the other shall exchange mutual
releases substantially in the form set forth below:
Cherkas and Liguori, on one side, and the Debtors on the other, for
good and valuable consideration, the receipt and sufficiency whereof is hereby
acknowledged, release and discharge each other and each others' heirs,
executors, administrators, successors and assigns from all actions, causes of
action, suits, debts, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, and
demands whatsoever, in law, admiralty or equity, which against each other and
each others successors and assigns they ever had, now have or hereafter can,
shall or may have, for, upon or by reason of any matter, cause or thing,
including, but not limited to claims arising out of or relating to the Required
Contracts, excepting however, the obligations under this Agreement Regarding The
Assignment of Contracts, Cure Amounts and Related Matters.
16. Conditioned and effective upon receipt of the common stock, the
amounts due under paragraphs 2, 4, 5, 6 and 7 hereof and, in addition to the
amounts under paragraphs 2, 4, 5, 6 and 7 hereof, payment within six (6) months
of the Closing Date of $700,000 of the amount referred to in paragraph 3 hereof
Cherkas and Liguori
11
<PAGE>
release and discharge GTS Inc. and its parents, subsidiaries, affiliates,
officers, directors, agents, shareholders and employees from all obligations
under the Required Contracts, excepting however, the obligations under this
Agreement Regarding The Assignment of Contracts, Cure Amounts and Related
Matters.
17. Conditioned and effective upon the deliveries required under
paragraph 13 hereof, GTS, Inc. releases and discharges Cherkas and Liguori and
their heirs, executors, administrators, successors and assigns from all actions,
causes of action, suits, debts, sums of money, accounts, reckonings, bonds,
bills, specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, and
demands whatsoever, in law, admiralty or equity, which GTS Inc. and its
successors and assigns ever had, now have or hereafter can, shall or may have,
for, upon or by reason of any matter, cause or thing, including, but not limited
to claims arising out of or relating to the Required Contracts, excepting
however, the obligations under this Agreement Regarding The Assignment of
Contracts, Cure Amounts and Related Matters.
18. The parties hereto each acknowledge and agree that Purchaser is
deemed to be an intended third party beneficiary of the agreements contained
herein, but that Cherkas and Liguori do not, by signing this Agreement, consent
to assumption and assignment on these terms by any other buyer.
19. This Cure and Assignment Agreement may not be changed orally but
may be modified by a writing signed by all the parties hereto. If such
modification is made by the parties after they shall have received Bankruptcy
Court approval of this Cure and
12
<PAGE>
Assignment Agreement, any such modification shall have the same force and effect
as if it had been approved by the Bankruptcy Court.
20. This Agreement is conditioned upon and becomes effective only
upon the closing of a sale of the Debtors' business to the Purchaser, which sale
requires the assignment of the Non-compete.
21. Nothing in this Cure and Assignment Agreement shall be deemed a
waiver of any existing defaults under the Required Contracts, except as set
forth in paragraphs 10, 11, 13,15, 16 and 17 hereof.
22. This Agreement is subject to Bankruptcy Court approval.
GLOBAL LINK TELECOM CORPORATION GTS HOLDING CORP., INC.
/s/ Lee R. Montellaro /s/ Lee R. Montellaro
- - ------------------------------- -----------------------------------
By: Lee R. Montellaro By: Lee R. Montellaro
Title:Chief Financial Officer Title:Chief Financial Officer
NETWORK SERVICES SYSTEM, INC. TELTIME, INC.
/s/ Lee R. Montellaro /s/ Lee R. Montellaro
- - ------------------------------- -----------------------------------
By: Lee R. Montellaro By: Lee R. Montellaro
Title:Chief Financial Officer Title:Chief Financial Officer
NETWORK SERVICES SYSTEM, L.P. GTS MARKETING, INC.
/s/ Lee R. Montellaro /s/ Lee R. Montellaro
- - ------------------------------- -----------------------------------
By: Lee R. Montellaro By: Lee R. Montellaro
Title:Chief Financial Officer Title:Chief Financial Officer
13
<PAGE>
GLOBAL TELECOMMUNICATION SOLUTIONS, L.P.
/s/ Lee R. Montellaro
- - -----------------------------------------
By: Lee R. Montellaro
Title:Chief Financial Officer
NETWORKS AROUND THE WORLD, INC. CENTERPIECE COMMUNICATIONS, INC.
/s/ Lee R. Montellaro /s/ Lee R. Montellaro
- - ------------------------------- -----------------------------------
By: Lee R. Montellaro By: Lee R. Montellaro
Title:Chief Financial Officer Title:Chief Financial Officer
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
/s/ Lee R. Montellaro
- - ----------------------------------------
By: Lee R. Montellaro
Title:Chief Financial Officer
RANDOLPH CHERKAS GARY LIGUORI
/s/ RANDOLPH CHERKAS /s/ GARY LIGUORI
- - ------------------------------- -----------------------------------
15
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Jurisdiction of Date of
Name Incorporation Incorporation Status
---- ------------- ------------- ------
<S> <C> <C> <C>
Global Link Telecom Corporation Delaware March 28, 1994 Wholly-owned subsidiary (Note)
GTS Marketing, Inc. Delaware April 3, 1995 Wholly-owned subsidiary (Note)
Winnipeg,
Global Telecommunication Solutions (Canada) Inc. Manitoba December 6, 1995 Wholly-owned subsidiary
Centerpiece Communications, Inc. New Jersey June 16, 1996 Wholly-owned subsidiary (Note)
Networks Around the World, Inc. New Jersey February 1, 1994 Wholly-owned subsidiary (Note)
Global Telecommunications Solutions de Mexico Mexico, DF January 6, 1998 Wholly-owned subsidiary
GTS Holding Corp., Inc. Delaware November 16, 1998 Wholly-owned subsidiary (Note)
Wholly-owned subsidiary of GTS
Teltime, Inc. Delaware November 12, 1998 Holding Corp., Inc. (Note)
Wholly-owned subsidiary of GTS
Network Services System, Inc. Delaware November 17,1998 Holding Corp., Inc. (Note)
Network Services System, Inc. is
the General Partner and GTS
Marketing, Inc is the Limited
Network Services, System, L.P. Delaware December 2,1998 Partner (Note)
GTS Marketing, Inc is the General
Partner and Network Services
System, Inc. is the Limited
Global Telecommunication Solutions, L.P. Delaware December 2, 1998 Partner (Note)
TalkToGo.com, Inc. Delaware June 29, 1999 Subsidiary of Enticent.com, Inc.
Imagine Telecom, Inc. Delaware May 27, 1999 Subsidiary of Enticent.com, Inc.
Enticent.com, Inc. Delaware December 2,1999 44% owned subsidiary
</TABLE>
Note: Company in Chapter 11 bankruptcy
32
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Global Telecommunication Solutions, Inc.:
We consent to incorporation by reference to the registration statements on Form
S-8 (Nos. 333-21339 and 333-59703) and on Form S-3 (Nos. 333-6925, 333-19005 and
333-68577) of Global Telecommunication Solutions, Inc. of our report dated March
20, 2000, relating to the consolidated balance sheets of Global
Telecommunication Solutions, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and comprehensive
loss, stockholders' equity (deficit) and cash flows for each of the years in the
two -year period ended December 31, 1999, which report appears in the December
31, 1999 Annual Report on Form 10-KSB of Global Telecommunication Solutions,
Inc.
Our report dated March 20, 2000, contains an explanatory paragraph that states
that the Company has suffered recurring losses from operations and has a
significant net working capital deficiency at December 31 1999, which raise
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
WISS & COMPANY, LLP
March 20, 2000
Livingston, New Jersey
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Global Telecommunication Solutions, Inc. and
subsidiaries as of December 31, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 305,400
<SECURITIES> 0
<RECEIVABLES> 242,826
<ALLOWANCES> (38,200)
<INVENTORY> 0
<CURRENT-ASSETS> 592,861
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 4,996,065
<BONDS> 0
0
0
<COMMON> 147,278
<OTHER-SE> (24,841,060)
<TOTAL-LIABILITY-AND-EQUITY> 4,353,430
<SALES> 306,963
<TOTAL-REVENUES> 306,963
<CGS> 223,283
<TOTAL-COSTS> 223,283
<OTHER-EXPENSES> 1,781,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,697,801)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,697,801)
<DISCONTINUED> (11,691,874)
<EXTRAORDINARY> (1,420,172)
<CHANGES> 0
<NET-INCOME> (14,809,847)
<EPS-BASIC> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
