U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
(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. [X]
The Registrant hereby amends items 9, 10, 11 and 12 of its Annual
Report on Form 10-KSB for the year ended December 31, 1999 as set forth in the
pages attached hereto.
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 III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers, key employees and directors of the
Company are as follows:
Name Age Position
Shelly Finkel(2) 55 Chairman of the Board
Lee R. Montellaro 54 Chief Financial Officer, Treasurer and Assistant
Secretary
Donald L. Ptalis(1) 57 Director
Alan W. Kaufman(1) 62 Director
Jack N. Tobin(2) 58 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
Shelly Finkel has been employed by the Company as Chairman of the Board
since April 1993 and was the Chief Executive Officer of the Company from April
1993 through March 1995. Mr. Finkel has been active in the promotional field
since June 1965 and has been the President of Shelly Finkel Management, Inc., a
New York-based personal management firm, since 1980.
Lee R. Montellaro has been the Company's Chief Financial Officer since
June 1999. From February 1998 until May 1999, Mr. Montellaro was the Chief
Financial Officer of Paging Management, Inc., a private reseller of paging
services. From July 1997 to February 1998, Mr. Montellaro was Chief Financial
Officer and Treasurer of Intek Global Corporation, a communications carrier with
divisions in manufacturing, distribution and research and development. From July
1995 to July 1997, Mr. Montellaro was Managing Director of Bonnlee Associates,
Inc., a private consulting organization. From October 1987 to June 1995, Mr.
Montellaro was employed by the Luxcel Group, Inc. ("Luxcel"), a wireless
communications company. From 1987 to 1992, Mr. Montellaro was Chief Financial
Officer of Luxcel and from June 1992 to June 1995, he served as Luxcel's Chief
Executive Officer. Mr. Montellaro is a certified public accountant.
Donald L. Ptalis has been a director of the Company since March 1996
and was its Director of Strategic Development for the period December 1998 to
May 1999. From April 1997 Mr. Ptalis has served as President of PCI, Inc., a
computer consulting company that he founded. From January 1995 to April 1997,
Mr. Ptalis was the President of Masque Sound & Recording Corp., a sound
equipment rental company. From June 1993 to December 1995, Mr. Ptalis managed
his personal investments. From 1987 to June 1993, Mr. Ptalis was the President
and Chief Executive Officer of Desks Inc., an office furniture supply company.
Alan W. Kaufman has been a director of the Company since November 1994.
Mr. Kaufman has been a director since August 1997 of QueryObject Systems
Corporation ("QueryObject"), a developer and marketer of business intelligence
software. Mr. Kaufman served as Chief Executive Officer of QueryObject from
October 1997 to December 1998. From April 1986 to December 1996, Mr. Kaufman
held various positions, including Vice President of Marketing and Vice President
of Sales and Marketing, and Executive Vice President of Sales, at Cheyenne
Software, Inc. Mr. Kaufman was the founding President of the New York Software
Industry Association.
Jack N. Tobin has been a director of the Company since March 1996.
Since March 1989, Mr. Tobin has been the President of Jack Tobin & Associates,
Inc., a marketing, public relations and lobbying firm that he founded. From
November 1982 to November 1998, Mr. Tobin served as a member of the State of
Florida House of Representatives. As a member of the House of Representatives,
Mr. Tobin served as the Chairman of the Health and Rehabilitative Services,
Science Industry and Technologies and Business and Professional Regulation
committees. From November 1989 to November 1996, Mr. Tobin chaired the full
committee or subcommittee that regulates telecommunications companies operating
within the state.
2
<PAGE>
Board of Directors
The Board of Directors of the Company is divided into three classes,
each of which serves for a term of three years, with only one class of directors
being elected in each year. The term of the first class of directors, currently
consisting of Shelly Finkel, will expire at the annual meeting of stockholders
to be held in 2001; the term of the second class of directors, currently
consisting of Alan W. Kaufman and Donald L. Ptalis, will expire at the annual
meeting of stockholders to be held in 2000 as a result of the Company not
holding an annual meeting in 1999; and the term of the third class of directors,
currently consisting of Jack N. Tobin, will expire at the annual meeting of
stockholders to be held in 2000. In each case, each director will hold office
until the next annual meeting of stockholders at which his class of directors is
to be elected or until his successor is duly qualified and appointed. Executive
officers serve at the discretion of the Board.
The members of the Company's Board of Directors receive $500 for
attending each board meeting and $250 for attending each committee meeting. In
addition, on March 31st of each calendar year, each person who is then a
non-employee director of the Company is granted immediately exercisable ten-year
options to purchase 10,000 shares of Common Stock at the fair market value
thereof on the date prior to the date of grant. See "Executive
Compensation--1994 Performance Equity Plan."
The Company has appointed a Compensation Committee and an Audit
Committee of the Board of Directors. The Compensation Committee, consisting of
Shelly Finkel and Jack N. Tobin, reviews the salaries and other compensation of
the Company's executive officers. The role of the Audit Committee, consisting of
Alan W. Kaufman and Donald L. Ptalis, is to review (1) the scope of Company's
annual audit and other services provided by the Company's independent auditors
and (2) the audit results and the auditors' recommendations regarding policies,
systems and controls.
Indemnification and Exculpation Provisions
The Company's certificate of incorporation provides for indemnification
of officers and directors to the fullest extent permitted by Delaware law. In
addition, under the Company's certificate of incorporation, no director shall be
liable personally to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided that the certificate of
incorporation does not eliminate the liability of a director for (1) any breach
of the director's duty of loyalty to the Company or its stockholders; (2) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (4) any transaction
from which such director derives improper personal benefit.
Compliance with Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's directors and officers and persons who
beneficially own more than ten percent of the Company's Common Stock to file
with the Securities and Exchange Commission ("Commission") initial reports of
ownership and reports of changes in ownership of Common Stock in the Company.
Officers, directors and greater-than-ten percent shareholders are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
reports they filed. To the Company's knowledge, based solely on review of the
copies of such reports furnished to the Company and written representation that
no other reports were required, during the fiscal year ended December 31, 1999,
such persons complied with all Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
the past three years ended December 31, 1999 for the Company's Chairman, who
acts in the capacity of the Company's Chief Executive Officer, and four former
executive officers (collectively, the "Named Executive Officers") whose
compensation exceeded $100,000 for the year ended December 31, 1999. None of the
Named Executive Officers received noncash compensation benefits having a value
exceeding 10% of his cash compensation during 1997, 1998 or 1999.
3
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------
Annual Long-Term Compensation
Compensation
- -----------------------------------------------------------------------------------------------------------------
Awards Payouts
- -----------------------------------------------------------------------------------------------------------------
Name and Principal Year Salary ($) Bonus Options All Other
Position During Period ($) (No. of Shares) Compensation
($)
- ----------------------------------------- --------- ------------ ----------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Shelly Finkel 1999 75,000(1) -- 15,000(2)
Chairman of the Board 1998 121,154 -- 54,334(3) --
1997 75,000 -- 103,334(3) --
- ----------------------------------------- --------- ------------ ----------- ------------------ -----------------
Randolph Cherkas 1999 197,629(4) -- 25,000 --
formerly President and director 1998 145,000(4) -- 101,000 --
1997 -- -- -- --
- ----------------------------------------- --------- ------------ ----------- ------------------ -----------------
Cory Eisner 1999 125,000 -- 9,000 --
formerly Vice President of Marketing 1998 125,000 10,050 35,301 --
1997 122,779 -- 25,000 --
- ----------------------------------------- --------- ------------ ----------- ------------------ -----------------
Gary Liguori 1999 140,312(5) -- 21,000 --
formerly Director of Wholesale Sales 1998 88,121 -- 24,999 --
1997 -- -- -- --
- ----------------------------------------- --------- ------------ ----------- ------------------ -----------------
James Franklin 1999 125,000 -- 9,000 --
formerly Chief Operating Officer 1998 131,700 -- 34,533 --
1997 -- -- 25,000 --
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include $24,000 paid Mr. Finkel in connection with the termination
of a lease agreement. See "Certain Relationships and Related Transactions -
General."
(2) Does not include immediately exercisable options to purchase 100,000 shares
of Common Stock granted in connection with the personal guaranty of debt
financing by the Company. See "Certain Relationships and Related Transactions -
General."
(3) Includes immediately exercisable options to purchase 3,334 shares of Common
Stock granted pursuant to the Company's 1994 Performance Equity Plan, which
provided for stock option grants to be made to each director of the Company on
March 31st of 1995 through 1998. See "1994 Performance Equity Plan."
(4) Does not include amount paid to Mr. Cherkas in connection with the NATW
merger described in "Certain Relationships and Related Transactions--The NATW
Merger." Mr. Cherkas resigned as President and director of the Company effective
December, 1999. Includes $64,167 accrued and unpaid salary at December 31, 1999.
See "Certain Relationships and Related Transactions--The NATW Merger."
(5) Does not include amount paid to Mr. Liguori in connection with the NATW
merger described in "Certain Relationships and Related Transactions-The NATW
Merger." Mr. Liguori resigned as Dirctor of Wholesales of the Company effective
March 31, 2000. Includes $15,000 accrued and unpaid salary at December 31, 1999.
See "Certain Relationships and Related Transactions--The NATW Merger."
4
<PAGE>
The following table summarizes the number of shares and the terms of
stock options granted to the Named Executive Officers in 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
OPTION/SHARE GRANTS DURING YEAR ENDED DECEMBER 31, 1999
- ---------------------------------------- --------------------------------------- ------------------------------
Individual Grants
- ---------------------------------------- ------------------ -------------------- -------------- ---------------
Name and Position Options/ % of Total Exercise Expiration
During Period Shares Options/Shares Price Date
Granted Granted to ($/Share)
Employees in
Fiscal Year
- ---------------------------------------- ------------------ -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Shelly Finkel 15,000(1) 1.5% $.50 1/3 3/23/05
Chairman of the Board 1/3 9/23/05
1/3 9/23/06
- ---------------------------------------- ------------------ -------------------- -------------- ---------------
Randolph Cherkas 25,000 2.4% $.50 1/3 3/23/05
formerly President and director 1/3 9/23/05
1/3 9/23/06
- ---------------------------------------- ------------------ -------------------- -------------- ----------------
Cory Eisner 9,000 * $.53 1/3 2/11/05
formerly Vice President of Marketing 1/3 8/11/05
1/3 8/11/06
- ---------------------------------------- ------------------ -------------------- -------------- ----------------
Gary Liguori 18,000 4.5% $.53 1/3 2/11/05
formerly Director of Wholesale Sales 1/3 8/11/05
1/3 8/11/06
10,000 $.16 2/28/05
1,613 $2.25 2/28/05
2,386 $2.06 2/28/05
6,000 $2.25 2/28/05
8,000 $1.00 2/28/05
- ---------------------------------------- ------------------ -------------------- -------------- -----------------
James Franklin 9,000 * $.53 1/3 2/11/05
formerly Chief Operating Officer 1/3 8/11/05
1/3 8/11/06
- ---------------------------------------- ------------------ -------------------- -------------- -----------------
</TABLE>
* less than 1%
(1) Does not include immediately exercisable options to purchase 100,000
shares of Common Stock granted in connection with the personal guaranty of
debt financing by the Company. See "Certain Relationships and Related
Transactions - General."
5
<PAGE>
The following table summarizes the number of exercisable and
unexercisable options held by the Named Executive Officers at December 31, 1999,
and their value at that date if such options were in-the-money.
<TABLE>
<CAPTION>
AGGREGATE YEAR-END OPTION VALUES AT DECEMBER 31, 1999
- ---------------------------------------------------------------------------------------------------------------
Name and Position During Period Number of Unexercised Options Value of Unexercised In-the-Money
at December 31, 1999 Options at December 31, 1999 ($)(1)
- ----------------------------------------- ------------------------------------- -------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------- ------------------ ------------------ ----------------- -------------
<S> <C> <C> <C> <C>
Shelly Finkel 147,336 42,000 -- --
Chairman of the Board
- ----------------------------------------- ------------------ ------------------ ----------------- -------------
Randolph Cherkas 49,000 77,000 -- --
formerly President and director
- ----------------------------------------- ------------------ ------------------ ----------------- -------------
Cory Eisner 58,969 27,000 -- --
formerly Vice President of Marketing
- ----------------------------------------- ------------------ ------------------ ----------------- -------------
Gary Liguori 17,999 28,000 -- --
formerly Director of Wholesale Sales
- ----------------------------------------- ------------------ ------------------ ----------------- -------------
James Franklin 33,200 35,333 -- --
formerly Chief Operating Officer
- ----------------------------------------- ------------------ ------------------ -------------------------------
</TABLE>
(1) Represents the positive difference, if any, between the aggregate market
value at December 31, 1999 of the Common Stock underlying the options (based on
a last sale price of $.094 on that date) and the options' aggregate exercise
price.
6
<PAGE>
1994 Performance Equity Plan
In October 1994, the Board of Directors adopted, and the stockholders
approved, the 1994 Plan. In July 1998, the stockholders approved an amendment to
the 1994 Plan to (1) increase the number of shares of Common Stock available for
issuance under the 1994 Plan from 500,000 shares to 1,500,000 shares and (2)
revise the section of the 1994 Plan that provided for an annual automatic grant
of options to purchase 3,334 shares of Common Stock to each director to (a)
apply to only non-employee directors and (b) increase the number of options
granted annually to each non-employee director from 3,334 shares to 10,000
shares. The 1994 Plan currently authorizes the granting of awards to the
Company's key employees, officers, directors and consultants. Awards consist of
stock options (both nonqualified options and options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended), restricted stock awards, deferred stock awards, stock appreciation
rights and other stock-based awards, as described in the 1994 Plan. The 1994
Plan is administered by the Board of Directors, which determines the persons to
whom awards will be granted, the number of awards to be granted and the specific
terms of each grant, including the vesting thereof, subject to the provisions of
the 1994 Plan.
On March 31st of each calendar year during the term of the 1994 Plan,
assuming there are enough shares then available for grant under the 1994 Plan,
each person who is then a non-employee director of the Company is awarded stock
options to purchase 10,000 shares of the Company's Common Stock at the fair
market value thereof (as determined in accordance with the 1994 Plan), all of
which options are immediately exercisable as of the date of grant and have a
term of ten years. These are the only awards which may be granted to a director
of the Company under the 1994 Plan.
Each stock option may be granted at a price determined by the Board of
Directors, not to be less than 100% of the fair market value of the Common Stock
on the date prior to the date of grant (or 110% of the fair market value in the
case of qualified stock options granted to a holder of more than 10% of the
outstanding stock of the Company). The aggregate fair market value of shares for
which qualified stock options are exercisable for the first time by such
employee during any calendar year may not exceed $100,000. The 1994 Plan also
contains certain change in control provisions, which could cause options and
other awards to become immediately exercisable and restrictions and deferral
limitations applicable to other awards to lapse in the event any person
(excluding certain stockholders of the Company) acquires beneficial ownership of
more than 25% of the Company's outstanding shares of Common Stock.
As of December 31, 1999, options to purchase 996,368 shares of Common
Stock were outstanding under the 1994 Plan. At December 31, 1999, options
outstanding under the 1994 Plan include options to purchase 82,336 shares held
by current executive officers, at exercise prices ranging from $.53 to $17.625
per share. In addition, pursuant to the terms of the 1994 Plan, on March 31,
1995, 1996, 1997 and 1998, the Company granted to each outside director of the
Company immediately exercisable ten-year options to purchase 3,334 shares for
$17.625, $15.75, $11.125 and $7.3125 per share, respectively and at March 31,
1999 options to purchase 10,000 shares at an option price of $.9375. In March
2000, the Company granted to each non-employee director immediately exercisable
ten-year options to purchase 10,000 shares for $1.25 per share. The exercise
prices of all of the foregoing options are equal to the fair market value of the
Common Stock on the date prior to the date of grant.
In December 1999 and March, 2000, the Board of Directors authorized the
replacement of 406,868 stock options issued prior to August 1999 ("Original
Option"), held by employees of the Company whose employment with the Company had
or will terminate, with an aggregate of 274,703 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 in 2005.
Other Options and Warrants
In January 1998, the Company granted options to JEB Partners to
purchase 60,000 shares of Common Stock at an exercise price of $6.125 per share
in consideration of JEB Partners rendering consulting services to the Company.
Such options are currently exercisable and will remain exercisable until January
2003.
7
<PAGE>
In April 1998, the Company completed a private placement, pursuant to
which it derived net proceeds of approximately $1,135,000 through the sale of
$1,250,000 promissory notes and warrants to purchase 178,573 shares of Common
Stock. The warrants are exercisable through April 2001 at an initial exercise
price of $7.00 per share.
In April 1998, the Company issued to an investor, who agreed to
purchase up to $2,000,000 of Common Stock or other securities at a discount to
the market price of such securities, warrants to purchase 100,000 shares of
Common Stock at an exercise price of $7.50 per share. The warrants are
immediately exercisable and will remain exercisable until April 13, 2001. In
connection with introducing this investor to the Company, the Company granted to
each of Messrs. Barry Rubenstein, a stockholder of the Company, and Eli Oxenhorn
options to purchase 50,000 shares of Common Stock at an exercise price of $7.125
per share. The options are currently exercisable and will remain exercisable
until April 1, 2003.
In October 1998, the Company issued to Penn Merchant warrants to
purchase 30,000 shares of Common Stock until October 2003 at an exercise price
of $1.625 per share in lieu of payment for the balance of monthly consulting
fees owed to Penn Merchant, which aggregated approximately $78,000.
In June 1999, in exchange for their personally guarantying a $500,000
debt financing obtained by subsidiaries of the Company, the Company issued
100,000 options to purchase common stock to each of Messrs. Eli Oxenborn and
Barry Rubenstein, a shareholder of the Company, and Mr. Shelly Finkel, Chairman
and 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. As of April 3, 2000 this debt has been
repaid by the subsidiaries.
In June 1999, in connection with his employment as the Company's Chief
Financial Officer, 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 closing price of a share of Common Stock
on 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 sales brokers 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, 6,500 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 were converted to nonqualified options because their expiration
dates had been previously extended through 2004.
In December 1999 and March 2000, the Board of Directors authorized the
replacement of 40,000 non plan options held by employees of the Company whose
employment with the Company had or will terminate, with an aggregate of 35,000
vested stock options which represent 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 options however these options do not terminate within
three months of the employee leaving the employment of the Company but rather in
2005.
At December 31, 1999, 1,781,003 non-plan options were outstanding and
1,283,670 options were exercisable. At December 31, 1999, non-plan options
outstanding to purchase 730,000 shares are held by current executive officers,
at exercise prices ranging from $.25 to $6.563.
8
<PAGE>
Option Repricing
In January 1998, the Company reduced the exercise prices of 196,683
outstanding options to purchase Common Stock from exercise prices ranging from
$7.88 to $18.38, to $6.563, the fair market value of the Common Stock on the
date of such repricing. 10,000 of the repriced options are held by Shelly
Finkel, Chairman of the Board. The exercise price of these options was reduced
from $9.99 per share. 29,303 of the repriced options are held by David Tobin,
former Vice President--Business Affairs and General Counsel. The exercise price
of 16,667 options was reduced from $18.375 per share and the exercise price of
12,636 options was reduced from $7.92 per share. 16,668 of the repriced options
are owned by Cory Eisner, Vice President of Marketing. The exercise price of
8,334 options was reduced from $15.00 per share, the exercise price of 3,334
options was reduced from $17.25 per share and the exercise price of 5,000
options was reduced from $7.875 per share.
Employment Agreements
The Company has entered into employment agreements with each of Shelly
Finkel, its Chairman of the Board and Lee R. Montellaro, its Chief Financial
Officer.
Mr. Finkel's employment agreement, as amended, provides for a term
through December 31, 2000, and requires him to devote at least 50% of his
business time to the management and operations of the Company. The agreement
provides for a base salary of $150,000 per annum, plus an annual cash bonus at
the discretion of the Board of Directors. If Mr. Finkel is terminated without
cause, he will continue to receive his salary through the remainder of his term
of employment, and will be paid a cash bonus equal to the last cash bonus paid
to him. If Mr. Finkel is terminated without cause after (1) the Company is sold
or otherwise acquired, or (2) a party that owns no more than 5% of the voting
securities of the Company acquires in one or more transactions beneficial
ownership of more than 35% of such securities (a "Change of Control"), Mr.
Finkel will receive all salary and bonus payments in a single lump sum payment.
The agreement prohibits Mr. Finkel from competing with the Company during the
term of his employment and for two years thereafter. In August 1998, Mr. Finkel
voluntarily agreed to reduce his salary from $150,000 to $75,000 per annum.
Mr. Montellaro's employment agreement provides for a term through June
1, 2002. The agreement provides for a base salary of $150,000 per annum plus an
annual cash bonus at the discretion of the Board of Directors. If Mr. Montellaro
is terminated without cause, he will continue to receive his base salary for one
year, and will be paid a cash bonus equal to the last cash bonus paid to him.
The agreement prohibits Mr. Montellaro from competing with the Company during
the term of his employment and for one year thereafter. On April 1, 2000 Mr.
Montellaro was awarded a $50,000 bonus by the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 3, 2000,
with respect to (1) those persons or groups known to the Company to beneficially
own more than 5% of the outstanding shares of Common Stock, (2) each director of
the Company, (3) each Named Executive Officer and (4) all directors and
executive officers as a group. The information is determined in accordance with
Rule 13d-3 promulgated under the Exchange Act based upon information furnished
by the persons listed or contained in filings made by them with the Commission.
Under this rule, a person is deemed to own beneficially the number of shares
issuable upon exercise of options, warrants or convertible securities it holds
that are exercisable within 60 days from April 3, 2000. Each beneficial owner's
percentage ownership is determined by assuming that convertible securities,
options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days of April 3, 2000 have
been exercised.
9
<PAGE>
Shares
Beneficially
Name and Address of Beneficial Owner Owned Percent
- --------------------------------------- ------------- -------
Shelly Finkel 770,873(1) 4.7%
c/o Shelly Finkel Management, Inc.
60 East 42nd Street, Suite 464
New York, New York 10165
Randolph Cherkas 1,134,104(2) 6.8%
c/o GTS Prepaid, Inc.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
Donald L. Ptalis 102,614(3) *
16 Ross Avenue
Emerson, New Jersey 07630
Alan W. Kaufman 35,005(4) *
1150 Park Avenue #9A
New York, New York 10177
Jack N. Tobin 30,002(5) *
7759 Highlands Circle
Margate, Florida 33063
Cory Eisner 67,939(6) *
c/o Enticent.com, Inc.
233 7th Street
Garden City, New York
Gary Liguori 66,230(7) *
c/o GTS Prepaid, Inc.
10 Stow Road, Suite 200
Marlton, New Jersey 08053
James Franklin 48,433(8) *
c/o Enticent.com, Inc.
700 East Tahquitz Canyon Way
Palm Springs, CA 92262
All executive officers and 1,259,494(9) 7.5%
directors as a group
(5 persons)
* Less than 1%.
(1) Includes 262,336 shares underlying currently exercisable options. Excludes
27,000 shares underlying options, 7,000 of which become exercisable in
December 2000, 10,000 of which become exercisable in January 2001 and
5,000 of which become exercisable in each of September 2000 and 2001.
(2) Includes 92,333 shares underlying currently exercisable options. Excludes
33,667 shares underlying options, 7,000 of which become exercisable in
December 2000, 10,000 of which become exercisable in January 2001, and
8,333 of which become exercisable in each of September 2000 and 2001.
(3) Includes 40,001 shares underlying currently exercisable options.
(4) Includes 33,336 shares underlying currently exercisable options.
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(5) Represents shares underlying currently exercisable options.
(6) Includes 65,969 shares underlying currently exercisable options.
(7) Includes 33,999 shares underlying currently exercisable options. Excludes
12,000 shares underlying options, 6,000 of which become exercisable in
each of August 2000 and 2001.
(8) Represent shares underlying currently exercisable options.
(9) Includes those shares deemed to be included in the respective beneficial
ownership of Messrs. Finkel, Ptalis, Kaufman, Jack Tobin, as described in
notes 1, 3, 4 and 5 above and other officers. Does not include shares
beneficially owned by Messrs. Cherkas, Eisner, Liqouri and Franklin, each
of whom are no longer employees of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
General
The Company leased space from JilJac Realty Company, a general
partnership owned by Gary Wasserson, the Company's former Chief Executive
Officer, which until August 1998, housed the Company's principal executive
offices. The lease expired in December 1999 and provided for an annual rent of
$58,344 during 1999.
In December 1998, the Company offered holders of $3,050,000 aggregate
principal amount of promissory notes acquired from the Company in December 1996
the opportunity to convert their notes into shares of Common Stock at a
conversion rate of $0.968 per share and to exchange an aggregate of 683,333
common stock purchase warrants for shares of Common Stock at an exchange rate of
4.5555 warrants per share. $3,000,000 of the notes and 666,667 of the warrants
were converted into an aggregate of 3,245,518 shares of Common Stock. In
addition, holders that accepted this conversion offer forgave interest of
approximately $14,000 due on these notes. Among these holders were Shelly
Finkel, Chairman of the Board, and limited partnerships in which Barry
Rubenstein, a stockholder, is either a general partner or an officer and member
of a limited liability company that is a general partner. The remaining $50,000
of notes plus interest accrued were converted pursuant to the terms of the notes
into an aggregate of 71,736 shares of Common Stock at a conversion rate of
$.7025 per share.
In December 1998, the Company offered holders of $2,599,750 aggregate
principal amount of debentures acquired from the Company in June and September
1994 the opportunity to convert their debentures into shares of Common Stock at
a conversion rate of $0.80 per share. In January 1999, holders of $2,524,750
aggregate principal amount of debentures converted their debentures into
3,155,938 shares of Common Stock. Donald Ptalis, a director of the Company,
converted $50,000 of debentures into 62,500 shares of Common Stock. The Company
offered the debenture holders the opportunity to convert their debentures into
shares because the Company anticipated that it would not be able to pay off the
principal amount of the debentures when due in June and September 1999. The
remaining balance of the debentures was paid in December 1999.
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
Company's lease for its sales office in New York and to 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 June 1999, in exchange for their personally guarantying a $500,000
debt financing obtained by subsidiaries of the Company, the Company issued
100,000 options to purchase common stock to each of Messrs. Eli Oxenborn and
Barry Rubenstein, a shareholder of the Company, and Mr. Shelly Finkel, Chairman
and 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. As of April 3, 2000 this debt has been
repaid by the subsidiaries.
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David S. Tobin, son of Jack N. Tobin a director, served as outside
counsel to and Secretary of the Company in 1999. During 1999 Mr. Tobin and the
law firms with which he is affiliated received $152,000 in aggregate
compensation, including $25,000 accrued but unpaid at December 31, 1999, for
legal services rendered and payments required under a severance agreement
entered into with Mr. David Tobin in 1998 in connection with his termination of
employment of the Company. No other amounts are due Mr. David Tobin under the
severance agreement.
In April 2000, the Company borrowed $125,000 from Mr. Shelly Finkel,
Chairman and principal shareholder of the Company at an interest rate of 8% per
annum. Subject to the negotiation of a definitive agreement, including
provisions regarding repayment and security for the loan, the Company borrowed
the money on a demand basis.
The terms of the foregoing transactions were determined without arms'
length negotiations and could create, or appear to create, potential conflicts
of interest which may not necessarily be resolved in the Company's favor. All
future transactions and loans between the Company and its officers, directors
and principal stockholders or their affiliates will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of the then disinterested directors of the Company.
The NATW Merger
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 $2,0000,000 (the "Earn Out") in additional consideration to Randy
Charkas, the Company's former President and a former shareholder of NATW, if
certain sales and financial objectives are achieved. 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 shares 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 accordance with the Assignment Agreement as hereinafter
defined.
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").
On January 31, 2000, the Debtors entered into an agreement ("Purchase
Agreement") to sell substantially all of their assets to J D Services, Inc. ("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
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Agreement, the Company will pay Mr. Liguori $15,000 in unpaid bonus and 50,000
shares of Common Stock. Also, the Company will 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 pay Mr. Liguori
$110,000 in full payment of his portion of the NATW Notes and related interest.
With respect to approximately $1.2 million which remains due Mr.
Cherkas under the Earn Out, under the Assignment Agreement, he has agreed to
release the Company and the Debtors if 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.
In connection with the merger, the Company entered into an employment
agreement with Randolph Cherkas, the President of NATW, who was appointed
President and a director of the Company. Mr. Cherkas resigned these positions in
December, 1999, and his employment with the Company terminated effective the
date of the sale of the Debtors' assets.
The Company also entered into an employment agreement with Gary
Liguori, the Vice President of NATW, who was appointed the Director of Wholesale
Sales of the Company. Mr. Liguori's employment with the Company terminated
effective the date of the sale of the Debtors' assets.
Pursuant to the merger agreement, the Company granted piggyback
registration rights to Messrs. Cherkas and Liguori. Each of them also executed a
lock-up agreement (1) prohibiting the sale of such shares for one year after the
closing date and (2) limiting the number of shares that can be sold by each to
25% of the shares acquired in connection with the NATW merger during any
calendar quarter during the one year period thereafter.
The CCI Merger
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 (1) $1,500,000 in cash, (2) 401,284 shares of Common
Stock, of which 47,891 shares were subsequently contributed back to the Company
(see below) and (3) a $1,000,000 aggregate principal amount promissory note
("CCI Note"), secured by substantially all of the assets of CCI. The CCI Note
accrued interest at a rate of 8% per annum and was originally payable as
follows: (1) $250,000 plus interest accrued thereon on October 31, 1998, (2)
$250,000 plus interest accrued thereon on January 1, 1999 and (3) four equal
payments of $125,000, plus interest accrued thereon, on April 1, 1999, July 1,
1999, October 1, 1999 and January 1, 2000. In April 1998, the former shareholder
of CCI agreed to defer payment of $250,000 of the CCI Note, plus interest, from
October 31, 1998 to January 1999. In November 1998, the CCI Note was converted
into Common Stock as described below.
In connection with the merger, the Company entered into an employment
agreement with Mr. Rubenstein, the President of CCI, who was appointed the Vice
President--Wholesale Sales and a director of the Company. In November 1998, the
Company terminated Mr. Rubenstein's employment agreement, which was to expire on
December 31, 2000. Mr. Rubenstein's annual base compensation at the time his
employment ceased was $150,000. Pursuant to a termination agreement, Mr.
Rubenstein received approximately $150,000 in severance payments.
In connection with Mr. Rubenstein's departure and in full satisfaction
of his and the Company's obligations to each other, Mr. Rubenstein sold an
aggregate of 353,393 shares of Common Stock and the CCI Note for an aggregate
purchase price of $575,000. Among the purchasers were Shelly Finkel, Chairman of
the Board of the Company, Michael Hoppman, former Chief Financial Officer of the
Company, and Barry Rubenstein, a stockholder
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(no relation to J. Mark Rubenstein). Mr. Rubenstein also contributed back to the
Company 47,891 shares of Common Stock with a fair market value of $69,867 in
consideration of $298,364 that he owed to the Company relating to Access Telecom
as described below. The reserve for the loss on the settlement of $229,497 was
recorded in the Company's financial statements for the year ended December 31,
1998. After the group of investors purchased the CCI Note and shares from Mr.
Rubenstein, they accepted the Company's offer to convert the principal amount of
the CCI Note into 813,008 shares of Common Stock at a conversion rate of $1.23
per share.
Agreements Relating to Access Telecom
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, 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 provide
telecommunications services related to such cards aggregated $1,761,097 during
the year ended December 31, 1998. Of this cost, $376,185 and $298,364 of the
estimated costs have been allocated to the former shareholders pursuant to
indemnification arrangements.
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 owned to the Company. The loss on the settlement of $228,497
was recorded as an expense for the year ended December 31, 1998.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Amendment No. 1 to the registrant's Report on Form 10-KSB
for the year ended December 31, 1999 to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
Dated: April 28, 2000
By: /s/ Lee R. Montellaro
------------------------------------
Lee R. Montellaro
Chief Financial Officer
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