EXHIBIT 4.10
NOTE AND WARRANT PURCHASE AGREEMENT
Among
GLOBAL TELECOMMUNICATION SOLUTIONS, INC.
and
PENNSYLVANIA MERCHANT GROUP
and
THE UNDERSIGNED PERSONS AND
ENTITIES LISTED ON SCHEDULE A HERETO
TABLE OF CONTENTS
Page
RECITALS ...........................................................................................................1
ARTICLE I REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GTS
1.1 Organization.......................................................................................1
1.2 Subsidiaries.......................................................................................1
1.3 Authority..........................................................................................2
1.4 Capital Structure..................................................................................2
1.5 No Distributions on Capital Stock..................................................................3
1.6 Financial Statements...............................................................................3
1.7 Material Changes Since September 30, 1997..........................................................3
1.8 Availability of Assets and Legality of Use.........................................................3
1.9 Title to Property..................................................................................3
1.10 Accounts Receivable................................................................................3
1.11 Governmental Permits...............................................................................3
1.12 Real Property and Leases...........................................................................4
1.13 Insurance..........................................................................................4
1.14 No Undisclosed Liabilities.........................................................................4
1.15 No Default, Violation or Litigation................................................................4
1.16 No Omissions.......................................................................................4
1.17 Finders............................................................................................4
ARTICLE II DELIVERIES
2.1 Deliveries by GTS at the Closing...................................................................5
2.2 Deliveries by PMG at the Closing...................................................................6
ARTICLE III COVENANTS OF GTS
3.1 Affirmative Covenants..............................................................................6
3.2 Negative Covenants.................................................................................7
ARTICLE IV ADJUSTMENTS TO EXERCISE PRICE OF THE WARRANTS AND CONVERSION
PRICE OF THE NOTES
4.1 Adjustment to Exercise Price and Conversion Price and Number
of Shares of Common Stock.......................................................................8
4.2 Elimination of Fractional Interests................................................................9
ARTICLE V REGISTRATION AND RELATED RIGHTS
5.1 Piggyback Registration............................................................................10
5.2 Registration Rights...............................................................................11
5.3 Further Obligations of GTS........................................................................11
5.4 Expenses, etc.....................................................................................12
5.5 Indemnification...................................................................................12
5.6 Withdrawal........................................................................................14
(i)
Page
ARTICLE VI SURVIVAL OF OBLIGATIONS; INDEMNIFICATION
6.1 Survival of Obligations...........................................................................14
6.2 Indemnification...................................................................................14
ARTICLE VII INVESTMENT REPRESENTATIONS
7.1 Investment Representations........................................................................15
ARTICLE VIII MISCELLANEOUS
8.1 Notices...........................................................................................17
8.2 Expenses..........................................................................................17
8.3 Governing Law.....................................................................................17
8.4 Successors and Assigns............................................................................17
8.5 Partial Invalidity................................................................................18
8.6 Execution in Counterparts.........................................................................18
8.7 Titles and Headings...............................................................................18
8.8 Entire Agreement; Amendments and Waivers..........................................................18
SIGNATURES...........................................................................................................19
SCHEDULES
Schedule A List of Warrant and Note Holders
Schedule 1.1 Principal Subsidiaries
Schedule 1.2 Subsidiaries
Schedule 1.3 Rights Under Agreements
Schedule 1.5 Distributions on Capital Stock
Schedule 1.7 Material Changes Since September 30, 1997
Schedule 1.14 Liabilities
Schedule 3.2 Compensation
(ii)
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT made and entered into this 8th
day of April, 1998 (the "Agreement") among GLOBAL TELECOMMUNICATION SOLUTIONS,
INC., a Delaware corporation ("GTS"), PENNSYLVANIA MERCHANT GROUP as placement
agent ("PMG"), and the undersigned persons and entities listed on Schedule A
attached hereto (the "Investors").
WITNESSETH:
WHEREAS, PMG has agreed as placement agent to locate investors to
purchase $1,250,000 in aggregate principal amount of convertible subordinated
notes of GTS in substantially the form of Exhibit A hereto (the "Notes"); and
WHEREAS, GTS has agreed to issue to the Investors warrants in
substantially the form of Exhibit B hereto (the "Warrants") which Warrants will
entitle the Investors to purchase an aggregate of 178,571 shares of Common Stock
of GTS at the price set forth in the Warrants in consideration of the purchase
of the Notes by the Investors; and
WHEREAS, GTS intends to raise, with PMG acting as placement agent, not
less than $4.0 million of gross proceeds from a private placement of Common
Stock of GTS pursuant to Regulation D and Regulation S promulgated under the
Securities Act of 1933 (the "Act") on or before May 15, 1998 (the "Qualified
Private Placement"), although no assurance is hereby given to the Investors that
the Qualified Private Placement will be completed as contemplated herein;
NOW, THEREFORE, the Investors, PMG and GTS, in consideration of the
agreements, covenants and conditions contained herein and intending to be
legally bound hereby, hereby make the following representations and warranties,
give the following covenants and agree as follows:
ARTICLE I
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GTS
As an inducement to the Investors and PMG to enter into this Agreement
and to consummate the transactions contemplated herein, GTS represents and
warrants to the Investors and PMG and agrees as follows:
1.1 Organization. Each of GTS and its subsidiaries listed on Schedule 1.1
attached hereto (collectively, the "Subsidiaries") is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and is licensed to transact business in
each jurisdiction where the business transacted by it so requires except where
the failure to be so qualified would not have a material adverse effect on the
business, operations or financial condition of GTS and the Subsidiaries. Each of
GTS and the Subsidiaries has the corporate power and authority and other
authorizations necessary or required in order for it to own or lease and operate
its properties and to carry on its business as now conducted.
1.2 Subsidiaries. Schedule 1.2 hereto contains a list of all of the
subsidiaries of GTS.
1.3 Authority. This Agreement, the Notes and the Warrants (collectively,
the "Transaction Documents") and the transactions contemplated herein and
therein have been duly approved by all necessary action on the part of GTS. The
Transaction Documents, when executed and delivered by GTS and, assuming the due
execution hereof by the Investors and PMG, will constitute the valid, legal and
binding agreements of GTS enforceable in accordance with their respective terms,
except as enforcement of such agreements may be limited by bankruptcy,
insolvency or other similar laws affecting creditors' rights generally and that
the remedy of specific performance is subject to the discretion of the court
before which proceedings therefor are brought and except as enforceability of
any indemnification provision may be limited under federal and state securities
laws. Neither the execution nor the delivery of the Transaction Documents nor
the consummation of the transactions contemplated herein and therein, nor
compliance with nor fulfillment of the terms and provisions hereof and thereof,
will (i) conflict with the conditions or provisions of or constitute a default
under the Certificate of Incorporation or By-laws of GTS, (ii) result in a
breach of the terms, conditions or provisions of any instrument, agreement,
mortgage, judgment, order, award, decree or other restriction to which GTS is a
party or by which it is bound or any statute or regulatory provisions affecting
it; (iii) except as set forth in Schedule 1.3 attached hereto, give any party to
or with rights under any such instrument, agreement, mortgage, judgment, order,
award, decree or other restriction the right to terminate, modify or otherwise
change the rights or obligations of GTS under such instrument, agreement,
judgment, order, award, decree, mortgage or other restriction; or (iv) require
the approval, consent or authorization of or any filing with or notification to
any federal, state or local court, governmental authority or regulatory body,
except, with respect to clauses (ii), (iii) and (iv), if such breaches, rights,
obligations or failure to obtain such approvals, consents or authorizations or
make such filings would not have a material adverse effect on the business,
operations or financial condition of GTS and the Subsidiaries. GTS has full
corporate power and authority to do and perform all acts and things required to
be done by GTS under each of the Transaction Documents. True and complete copies
of the Certificate of Incorporation and By-laws of GTS have been delivered to
PMG.
1.4 Capital Structure.
(a) The authorized capital stock of GTS consists after giving effect
to a one-for-three reverse stock split effected in March 1997 by GTS of (i)
35,000,000 shares of Common Stock, par value $.01 per share, of which 5,991,772
shares have been issued and are outstanding and of which 4,159,626 shares are
reserved for issuance upon the exercise or conversion of outstanding options,
warrants or convertible securities and (ii) 1,000,000 shares of Preferred Stock,
par value $.01 per share, of which no shares are issued and outstanding and of
which no shares are reserved for issuance upon the exercise or conversion of
outstanding options, warrants or convertible securities.
(b) Except for this Agreement and the outstanding options, warrants
and convertible securities for which shares of GTS's Common Stock are reserved
(including options which may be granted under GTS's 1994 Performance Equity
Plan), there are no agreements, arrangements, options, warrants or other rights
or commitments of any character relating to the issuance, sale, purchase or
redemption of any shares of capital stock of GTS. All of the outstanding shares
of Common Stock of GTS are validly issued, fully paid and nonassessable with no
liability attaching to the ownership thereof.
(c) The shares of Common Stock of GTS to be issued upon exercise of
the Warrants or conversion of the Notes will be validly issued, fully paid and
nonassessable shares of GTS.
1.5 No Distributions on Capital Stock. Except as set forth on Schedule 1.5
attached hereto, GTS has not purchased or redeemed any shares of its outstanding
capital stock within the last two years.
1.6 Financial Statements. The financial statements of GTS at and for the
year ended December 31, 1996 and the nine months ended September 30, 1997 as
delivered to PMG (collectively, the "Financial Statements") fairly present the
consolidated financial position of GTS and the Subsidiaries as at the respective
dates thereof and the consolidated results of their operations and their cash
flows for the respective periods covered thereby. Such Financial Statements have
been prepared in conformity with generally accepted accounting principles which,
except as otherwise stated therein, have been consistently applied except to the
extent set forth in the notes contained in the quarterly reports filed after
December 31, 1996.
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1.7 Material Changes Since September 30, 1997. Except as set forth on
Schedule 1.7 attached hereto, since September 30, 1997, the business of GTS and
the Subsidiaries have been operated only in the ordinary course and, whether or
not in the ordinary course of business, there has not been, occurred or arisen
(i) any material adverse change in the financial condition of GTS and the
Subsidiaries from that shown in the Financial Statements; (ii) any damage or
destruction in the nature of a casualty loss, whether covered by insurance or
not, to any property or business of GTS which is material to the financial
condition, operations or business of GTS and the Subsidiaries; (iii) any
amendment or termination of any agreement, or cancellation or reduction of any
debt owing to GTS or any of the Subsidiaries or waiver or relinquishment of any
right of material value to GTS or any of the Subsidiaries or (iv) any other
event, condition or state of facts of any character which materially and
adversely affects the results of operations or business, financial condition or
property of GTS or any of the Subsidiaries.
1.8 Availability of Assets and Legality of Use. The assets owned, licensed
or leased by GTS or any of the Subsidiaries includes the assets which are
necessary for the operation of the business of GTS and the Subsidiaries, and
such assets are in good and serviceable condition, normal wear and tear and
obsolescence excepted, and suitable for the uses for which intended and such
assets and their uses conform in all material respects to all applicable laws.
1.9 Title to Property. Each of GTS and the Subsidiaries has good title to
all of the assets owned by it, including the assets reflected in the Financial
Statements, except to the extent that such assets have been disposed of for fair
value in the ordinary course of business since September 30, 1997, and except
for liens incurred in the ordinary course of business, which do not,
individually or in the aggregate, have a material adverse effect on GTS or any
of the Subsidiaries.
1.10 Accounts Receivable. All accounts receivable reflected on the
Financial Statements arising prior to the date thereof, and not collected at the
date thereof, have arisen from bona fide transactions in the ordinary course of
GTS's business.
1.11 Governmental Permits. Each of GTS and the Subsidiaries possesses all
licenses, permits and other authorizations necessary to own or lease and operate
its properties and to conduct its business as now conducted, except where the
failure to possess such licenses and permits would not have a material adverse
effect on the business, results of operation or financial condition of GTS or
the Subsidiaries. All of such licenses, permits and authorizations of GTS and
the Subsidiaries are hereinafter collectively called the "Permits". All Permits
are in full force and effect and will continue in effect after the date hereof
without the consent, approval or act of, or the making of any filing with, any
governmental or regulatory agency, commission or authority. Neither GTS nor any
of the Subsidiaries is, to the best of GTS's knowledge and belief, in violation
in any material respect of the terms of any Permit, and neither GTS nor any of
the Subsidiaries has received notice of any violation or claimed violation
thereunder.
1.12 Real Property and Leases. Every lease or agreement under which GTS or
any of the Subsidiaries is lessee or sublessee of or holds or operates any real
property owned by any third party is in full force and effect and constitutes a
legal, valid and binding obligation of GTS or the Subsidiary which is a party
thereto, as the case may be, except as enforcement of such agreements may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally and that the remedy of specific performance is subject to the
discretion of the court before which proceedings therefor are brought and, to
the best of the knowledge of GTS, the other parties thereto, neither GTS nor any
of the Subsidiaries is in default under any such lease or agreement nor has any
event occurred which with the passage of time or giving of notice would
constitute such a default except for any defaults which would not have a
material adverse effect on the business, results of operation or financial
condition of GTS and the Subsidiaries.
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1.13 Insurance. Each of GTS and the Subsidiaries maintains policies of fire
and casualty, product and other liability and other forms of insurance in such
amounts and against such risks and losses as are adequate and reasonable for its
business and properties. Each of GTS and the Subsidiaries has complied with each
of such policies and has not failed to give any notice or present any known
claim thereunder, except for any noncompliance or failure to give notice which
would not have a material adverse effect on the business, results of operation
or financial condition of GTS and the Subsidiaries.
1.14 No Undisclosed Liabilities. Except as set forth on Schedule 1.14
hereto, neither GTS nor any of the Subsidiaries is subject to any material
liability (including unasserted claims), absolute or contingent, which is not
shown or which is in excess of amounts shown or reserved for in the Financial
Statements, other than liabilities of the same nature as those set forth in the
balance sheets included in such Financial Statements and reasonably incurred in
the ordinary course of its business after September 30, 1997. Except as set
forth on Schedule 1.14 attached hereto, there is no pending or threatened
litigation outside the ordinary course of business in excess of $25,000.
1.15 No Default, Violation or Litigation. Neither GTS nor any of the
Subsidiaries is in default under any agreement, lease or other document to which
it is a party, or in violation of any law, rule, order, writ, injunction or
decree of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, which default
or violation, individually or in the aggregate, would have a material adverse
effect on the business, results of operation or financial condition of GTS or
any of the Subsidiaries. There is no action, suit, proceeding or investigation
pending, threatened or contemplated which questions the legality, validity or
propriety of the transactions contemplated by this Agreement.
1.16 No Omissions. None of the representations or warranties of GTS
contained herein, and none of the other information or documents furnished to
PMG or the Investors by GTS in connection with this Agreement when taken
together with the SEC Documents (as hereinafter defined), is false or misleading
in any material respect or omits to state a material fact herein or therein
necessary to make the statements herein or therein not misleading in any
material respect.
1.17 Finders. GTS has not paid or become obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement other than PMG.
ARTICLE II
DELIVERIES
2.1 Deliveries by GTS at the Closing. At the closing hereunder (the
"Closing"), which shall occur on April 8, 1998, GTS shall deliver to PMG the
following items:
(a) Notes in a principal amount aggregating $1,250,000, duly executed
by GTS, in substantially the form of Exhibit A hereto and in such amounts and
registrations as PMG shall specify to GTS in writing.
(b) Warrants aggregating rights to purchase 178,571 shares of GTS
Common Stock (after giving effect to the reverse split effected by GTS in March
1997), duly executed by GTS, in substantially the form of Exhibit B hereto and
in such denominations and registrations as PMG shall specify to GTS in writing.
(c) The sum equal to (i) 8% of the aggregate principal amount of the
Notes, which sum represents PMG's fee as placement agent, plus (ii) the
4
amount of out-of-pocket expenses, including legal fees and costs, incurred by
PMG as placement agent hereunder, to the order of PMG by wire transfer or by
bank cashier's check or in such other form as PMG may reasonably request.
(d) The opinion of Xxxxxxxx, Xxxxxx & Xxxxxx, counsel to GTS, dated
the date of the Closing in form and substance satisfactory to PMG and its
counsel and addressed to PMG and the Investors, to the effect that:
(i) Each of GTS and the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and has full corporate power and
authority to own or lease and operate its properties and to carry on its
business as now conducted.
(ii) This Agreement and the transactions contemplated herein have
been duly approved by all necessary corporate action of GTS. This Agreement, the
Notes and the Warrants have been duly and validly executed and delivered by GTS
and the Agreement, assuming due execution thereof by PMG and the Investors, the
Notes and the Warrants are the valid and binding agreements of GTS enforceable
against GTS in accordance with their respective terms, except as enforcement of
such agreements may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and that the remedy of specific
performance is subject to the discretion of the court before which proceedings
therefor are brought and except as enforceability of any indemnification
provision may be limited under federal and state securities laws.
(iii) GTS has full power and authority to execute and deliver
this Agreement, the Notes and the Warrants, as the case may be, and to perform
its obligations thereunder. Neither the execution and delivery of this
Agreement, the Notes and the Warrants, nor the consummation of the transactions
contemplated herein or therein, nor compliance with and fulfillment of the terms
and provisions hereof or thereof (i) conflicts with or results in the breach of
the terms, conditions or provisions of, or constitutes a default under, the
Certificate of Incorporation or the By-laws of GTS or any agreement or
instrument known to such counsel to which GTS is a party or by which it is
bound; (ii) gives any party to or with rights under any such agreement or
instrument the right to terminate, modify or otherwise change the rights or
obligations of GTS under any such agreement or instrument or (iii) requires the
consent, approval or authorization of or any filing with or notification to any
federal, state or local court, governmental authority or regulatory body not
already obtained or made, as the case may be.
In giving such opinion, counsel for GTS may rely, as to matters of fact,
upon certificates of officers of GTS, and as to matters relating to the law of
any state other than the State of Delaware, upon opinions of other counsel
satisfactory to them, provided that such counsel shall state that they believe
that they are justified in relying upon such certificates and opinions and
deliver copies thereof to PMG prior to the Closing Date.
(e) A certificate of the President of GTS, dated the date of the
Closing, that the representations and warranties contained in Article I of this
Agreement are true, complete and correct in all material respects as of the date
of the Closing, and that GTS has performed and complied with all agreements
contained herein required to be performed or complied with by GTS on or before
the Closing.
2.2 Deliveries by PMG at the Closing. At the Closing, PMG shall deliver or
cause to be delivered to GTS the following items:
(a) The sum of $1,250,000 to the order of GTS by wire transfer or by
bank cashier's check or in such other form as GTS may reasonably request.
5
(b) The written acknowledgment of each Investor by execution of this
Agreement that the Notes and the Warrants to be issued at the Closing and the
shares of GTS Common Stock for which such Warrants are exercisable or into which
such Notes are convertible have not been registered under the Act, and each
Investor agrees that as to itself it is acquiring such Notes and the Warrants
purchased by it for investment purposes only and not with a view to any sale or
other distribution thereof in a manner that would violate the Act. Each Investor
consents to the placement of the following legend on the certificate or
certificates representing the Notes and the Warrants to be issued to it:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR SOLD UNLESS (i) A REGISTRATION STATEMENT UNDER
SUCH ACT IS THEN IN EFFECT WITH RESPECT THERETO, (ii) A
WRITTEN OPINION REASONABLY SATISFACTORY TO THE ISSUER FROM
COUNSEL FOR THE ISSUER OR OTHER COUNSEL FOR THE HOLDER
REASONABLY ACCEPTABLE TO THE ISSUER HAS BEEN OBTAINED TO THE
EFFECT THAT NO SUCH REGISTRATION IS REQUIRED OR (iii) A
"NO-ACTION" LETTER OR ITS THEN EQUIVALENT HAS BEEN ISSUED BY
THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION."
ARTICLE III
COVENANTS OF GTS
3.1 Affirmative Covenants. GTS hereby covenants that, so long as the Notes
remain outstanding, GTS shall comply with the following affirmative covenants:
(a) Financial Statements. GTS shall furnish to PMG the following
financial statements, reports and other documents, such financial statements to
be prepared in accordance with generally accepted accounting principles
consistently applied, certified by GTS's chief executive or financial officer:
(i) Promptly after its filing with the Securities and Exchange
Commission (the "Commission"), and in any event within 120 days after the end of
each fiscal year of GTS, a consolidated balance sheet of GTS as of the end of
such fiscal year and related consolidated statements of operations,
stockholders' equity and cash flows for such fiscal year, all in reasonable
detail and setting forth in comparative form the figures as of the end of and
for the previous fiscal year, which financial statements shall have been
audited, and shall be accompanied by an opinion addressed to GTS from its
independent auditors.
(ii) Promptly after its filing with the Commission, and in any
event within 55 days after the end of each fiscal quarter, an unaudited balance
sheet and unaudited statements of operations, stockholders' equity and cash
flows.
(b) Additional Information.
(i) GTS shall, as promptly as possible, but, in any event, within
ten days after sending, making available, or filing the same, furnish PMG with
all reports and financial statements that GTS shall send or make available to
the stockholders of GTS or the Commission.
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(ii) GTS shall furnish PMG with such other nonconfidential
information with respect to the business, properties, assets, or the condition
of operations, financial or otherwise, of GTS or any of the Subsidiaries as PMG
may, from time to time, reasonably request.
(c) Inspection. GTS shall permit, at any reasonable time and from time
to time, upon two business days advance written notice, PMG or its duly
authorized agents or representatives to examine and make extracts from
nonconfidential information contained in GTS's records, books of account,
documents and other materials, to visit its properties, and to discuss the
affairs, finances and accounts of GTS with any of GTS's officers, directors or
independent accountants.
(d) Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Common Stock of GTS to the public without registration, GTS
agrees to:
(i) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Act;
(ii) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of GTS under the Securities
Exchange Act of 1934 (the "1934 Act"); and
(iii) So long as an Investor owns any Warrants or Notes, to furnish
to the Investor forthwith upon request a written statement by GTS as to its
compliance with the reporting requirements of Rule 144, the Act and the 1934
Act, a copy of the most recent annual or quarterly report of GTS, and such other
reports and documents of GTS as the Investor may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Investor to sell
any such securities without registration.
3.2 Negative Covenants. GTS hereby covenants that, so long as the Notes
remain outstanding, GTS shall comply with the following negative covenants:
(a) Compensation. GTS shall not, without the prior written consent of
PMG, pay any bonuses to any executive officer of GTS other than bonuses that GTS
is obligated to grant under existing employment agreements or that are
consistent with past practices of GTS.
(b) Additional Issuances and Repurchases. Until the earlier of May 15,
1998 or the consummation of the Qualified Private Placement or the termination
of the Letter of Intent between PMG and GTS dated March 17, 1998, except as
required or permitted by this Agreement, GTS shall not, without the prior
written consent of PMG, (i) create, authorize or issue any additional shares of
capital stock, or any rights to acquire any shares of capital stock or any other
security (other than the issuance or exercise of options consistent with past
practices of GTS) or (ii) repurchase any shares of its capital stock.
(c) Amendment of Certificate of Incorporation. Without the prior
written consent of PMG, GTS shall not amend its Certificate of Incorporation or
By-laws in a manner which would have a material adverse effect on the interests
of the Investors.
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ARTICLE IV
ADJUSTMENTS TO EXERCISE PRICE OF THE WARRANTS
AND CONVERSION PRICE OF THE NOTES
4.1 Adjustment to Exercise Price and Conversion Price and Number of Shares
of Common Stock. The Exercise Price of the Warrants and the Conversion Price of
the Notes (such Exercise Price or Conversion Price hereinafter referred to as
the "Purchase Price" unless the context otherwise requires) and the number of
shares of Common Stock issuable upon exercise of the Warrants and conversion of
the Notes shall be subject to adjustment from time to time as hereinafter set
forth:
(a) Adjustments for Qualified Private Placement. Concurrently with the
completion of the Qualified Private Placement, in the event the Purchase Price
is greater than the price at which the Common Stock of GTS is sold in the
Qualified Private Placement, (i) the Purchase Price shall be adjusted to the
price per share at which the Common Stock of GTS is sold in the Qualified
Private Placement and (ii) the number of shares of Common Stock issuable upon
exercise of the Warrants shall be adjusted to an amount equal to the principal
amount of the respective Investor's Note divided by the price per share at which
the Common Stock of GTS is sold in the Qualified Private Placement.
(b) Stock Dividends - Recapitalization, Reclassification, Split-Ups.
If, after the date hereof, and subject to the provisions of Section 4.2 hereof,
the number of outstanding shares of Common Stock of GTS is increased by a stock
dividend on the Common Stock of GTS payable in shares of Common Stock of GTS or
by a split-up, recapitalization or reclassification of shares of Common Stock of
GTS or other similar event, then, on the record date therefor, the number of
shares of Common Stock of GTS issuable on exercise of the Warrants and
conversion of the Notes shall be increased in proportion to such increase in
outstanding shares.
(c) Aggregation of Shares. If after the date hereof, and subject to
the provisions of Section 4.2 hereof, the number of outstanding shares of Common
Stock of GTS is decreased by a consolidation, combination or reclassification of
shares of Common Stock of GTS or other similar event, then, upon the record date
therefor, the number of shares of Common Stock of GTS issuable on exercise of
the Warrants and conversion of the Notes shall be decreased in proportion to
such decrease in outstanding shares.
(d) Adjustments in Purchase Price. Whenever the number of shares of
Common Stock of GTS purchasable upon the exercise of the Warrants or conversion
of the Notes is adjusted, as provided in this Section 4.1, the Purchase Price
shall be adjusted (to the nearest cent) by multiplying the Purchase Price
immediately prior to such adjustment by a fraction (x) the numerator of which
shall be the number of shares of Common Stock of GTS purchasable upon the
exercise of the Warrants or conversion of the Notes, as the case may be,
immediately prior to such adjustment, and (y) the denominator of which shall be
the number of shares of Common Stock of GTS so purchasable immediately
thereafter.
(e) Replacement of Securities upon Reorganization, etc. In case of any
reclassification or reorganization of the outstanding shares of Common Stock of
GTS other than a change covered by Subsection 4.1(b) hereof or which solely
affects the par value of such shares of Common Stock of GTS, or in the case of
any merger or consolidation of GTS with or into another corporation (other than
a consolidation or merger in which GTS is the continuing corporation and which
does not result in any reclassification or reorganization of the outstanding
shares of Common Stock of GTS), or in the case of any sale or conveyance to
another corporation or entity of the property of GTS as an entirety or
substantially as an entirety in connection with which GTS is dissolved, each
holder of the Warrants and the Notes shall have the right thereafter (until the
expiration of the right of exercise of the Warrants or conversion of the Notes,
8
as the case may be) to receive upon the exercise or conversion thereof, for the
same aggregate Purchase Price payable thereunder immediately prior to such
event, the kind and amount of shares of Common Stock or other securities or
property (including cash) receivable upon such reclassification, reorganization,
merger or consolidation, or upon a dissolution following any such sale or other
transfer, by a holder of the number of shares of Common Stock of GTS obtainable
upon exercise of the Warrants or conversion of the Notes immediately prior to
such event; and if any reclassification also results in a change in shares of
Common Stock of GTS covered by Subsections 4.1(b) or 4.1(c) hereof, then such
adjustment shall be made pursuant to Subsections 4.1(b), 4.1(c), 4.1(d) and this
Subsection 4.1(e) hereof. The provisions of this Subsection 4.1(e) shall
similarly apply to successive reclassifications, reorganizations, mergers or
consolidations, sales or other transfers.
(f) Changes in Form of Warrant or Note. The form of Warrant or Note
need not be changed because of any change pursuant to this Section 4.1, and
Warrants and Notes issued after such change may state the same Purchase Price
and the same number of shares of Common Stock of GTS as are stated in the
Warrants or Notes initially issued pursuant to this Agreement. The acceptance by
any holder of the issuance of new Warrants or Notes reflecting a required or
permissive change shall not be deemed to waive any rights to a prior adjustment
or the computation thereof.
(g) Notice of Adjustments. Whenever the Purchase Price or the number of
shares of Common Stock issuable upon exercise of the Warrants or conversion of
the Notes shall be adjusted pursuant to this Section 4.1, GTS shall, within ten
calendar days after such event, make a certificate signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of GTS, setting forth, in reasonable detail, a
description of the adjustment, the event requiring the adjustment and the method
by which such adjustment was calculated, and cause copies of such certificate to
be delivered to each registered holder of the Notes and/or the Warrants in
accordance with the provisions of Section 8.1 hereof.
4.2 Elimination of Fractional Interests. GTS shall not be required to issue
certificates representing fractions of shares of Common Stock of GTS upon the
exercise of the Warrants or conversion of the Notes, nor shall it be required to
issue scrip or pay cash in lieu of any fractional interests, it being the intent
of the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock of GTS or
other securities, properties or rights.
ARTICLE V
REGISTRATION AND RELATED RIGHTS
5.1 Piggyback Registration.
(a) As used in this Section 5, the following terms shall have the
following respective meanings:
(i) "Registration Stock" shall mean: (A) any shares of Common
Stock or other securities issued or issuable upon exercise in whole or in part
of the Warrants or upon conversion in whole or in part of the Notes and (B) any
shares of Common Stock or other securities issued in respect of any such
securities upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event; provided, however, that Registration Stock shall
not include any such shares disposed of pursuant to one or more registration
statements under the Act or pursuant to Rule 144 under the Act. For purposes of
this Section 5, any record holder of at least 20% of the securities originally
acquired by any Investor hereunder which are either convertible into or
exercisable for the purchase of Registration Stock or exercisable for securities
which are convertible into Registration Stock shall be deemed to be the holder
of the Registration Stock issuable upon such exercise and/or conversion.
9
(ii) "Additional Registration Stock" shall mean any shares of
Common Stock of GTS which have been issued or shall be issued in the future and
which have rights given in writing to be included in GTS registrations under the
Act.
(b) If, at any time GTS shall seek to register under the Act or
qualify any of the securities holdings of GTS or any of its stockholders except
in connection with any stock option plan, stock purchase plan, savings or
similar plan or an acquisition, merger or exchange of stock and if the form of
registration statement proposed to be used may be used for the registration of
the Registration Stock, then, on each such occasion, GTS shall either include in
such registration statement or furnish the Investors with at least 20 days prior
written notice thereof. At the written request of an Investor (a "Selling
Investor"), given within 10 days after the receipt of such notice, GTS will
cause all of the Registration Stock for which registration shall have been
requested by the Investors to be included in such registration statement. In the
event that GTS offers any of its securities in an offering exempt from
registration under the Act pursuant to Regulation A, GTS will provide to the
Investors rights comparable to those provided herein.
If GTS's legal counsel advises GTS in writing that it is their opinion
that, by reason of Rule 144 or otherwise, a sale of all Registration Stock
proposed to be sold by a Selling Investor may be effected without registration
under the Act, then GTS shall not be obligated to provide registration rights
under this Section 5.1 or Section 5.2 hereof with respect to such Registration
Stock.
GTS' obligation under this Section 5.1 shall be subject to the Selling
Investors' obligation to make such representations or warranties or agreements
with GTS or an underwriter with respect to the Investors, their securities and
their intended methods of distribution as are usual and customary.
In the event the distribution of securities covered by a registration
statement described in this Section 5.1(b) is to be underwritten, GTS's
obligation to include the Registration Stock in such registration statement
shall be subject, at GTS's option, to the following further conditions:
(i) If the underwriters so request, the distribution for the
account of the Selling Investors shall be underwritten by the same underwriters
who are underwriting the distribution of the securities for the account of GTS
and/or any other persons whose securities are covered by such registration
statement, and the Selling Investors shall enter into an agreement with such
underwriters containing customary provisions;
(ii) If the underwriting agreement entered into with the
aforesaid underwriters contains restrictions upon the sale of securities of GTS,
other than the securities which are to be included in the proposed distribution,
for a period not exceeding 180 days from the effective date of the registration
statement, then such restrictions shall be binding upon each of the Selling
Investors and, if requested by GTS, each of the Selling Investors shall enter
into a written agreement to that effect; and
(iii) If the underwriters shall state in writing that they are
unwilling to include any or all of the Selling Investors' securities in the
proposed underwriting because such inclusion will materially interfere with the
orderly sale and distribution of the securities being offered by GTS, then the
number of Selling Investors' securities and securities held by any other
stockholder of GTS to be included shall be reduced pro rata on the basis of the
number of shares owned by such holders, or there shall be no inclusion of
Selling Investors' securities in the registration statement and proposed
distribution, in accordance with such statement by the underwriters.
5.2 Registration Rights. Upon completion of the Qualified Private
Placement, the holders of the Registration Stock shall be granted registration
rights identical to the registration rights granted to the purchasers of Common
Stock in the Qualified Private Placement. It is currently anticipated that such
registration rights will include the agreement of GTS to file a registration
10
statement covering the Common Stock sold in the Qualified Private Placement
within 60 days following the date of the Closing of the Qualified Private
Placement.
5.3 Further Obligations of GTS. Whenever GTS is required to register any
of the Registration Stock pursuant to any of the provisions of this Article V,
GTS shall also be obligated to do the following:
(a) Prepare for filing with the Commission such amendments and
supplements to said registration statement and the prospectus used in connection
therewith as may be necessary to keep said registration statement effective and
to comply with the provisions of the Act with respect to the sale of securities
covered by said registration statement for the period necessary, but in no event
more than nine months, to complete the proposed public offering;
(b) Furnish to each Selling Investor such copies of preliminary and
final prospectuses and such other documents as said Selling Investor may
reasonably request to facilitate the public offering of such Selling Investor's
Registration Stock;
(c) Keep such registration statement current for a period of 180 days
after the effective date thereof;
(d) Provided the Registration Stock is sold pursuant to an
underwritten offering described in Section 5.1(b)(i) hereof, furnish to the
Selling Investors, and any underwriters or broker-dealers through whom the
Registration Stock may be sold, an opinion or opinions of counsel for GTS and a
letter or letters of the independent certified public accountants for GTS, in
form and substance customary for similar offerings;
(e) Provided the Registration Stock is sold pursuant to an
underwritten offering described in Section 5.1(b)(i) hereof, permit each Selling
Investor or his counsel or other representatives, at the Selling Investor's
expense, to inspect and copy such corporate documents and records as may
reasonably be requested by them; and
(f) Furnish to each Selling Investor a copy of all preliminary and
final prospectuses filed in connection with any such offering.
5.4 Expenses, etc. All expenses in connection with the preparation and
filing of any registration statement under this Section 5, any registration or
qualification under the securities or Blue Sky laws of states in which the
offering will be made under such registration statement, and any filing fee of
the National Association of Securities Dealers, Inc. relating to such offering,
shall be borne in full by GTS, except for any underwriters' or brokers'
commissions, fees required to be paid by a selling stockholder rather than GTS
in order to comply with applicable Blue Sky or state securities laws, fees or
expenses expressly applicable to securities being sold by the holders of
securities, and fees or expenses of their counsel.
5.5 Indemnification.
(a) GTS shall indemnify the Selling Investors of Registration Stock,
and, to the extent required in any agreement with any underwriter or
broker-dealer through whom the Registration Stock may be sold, any such
underwriter or broker-dealer and each person, if any, who controls any such
underwriter or broker-dealer (within the meaning of the Act) against all losses,
claims, damages, liabilities, expenses or actions in respect thereof (under the
Act or common law or otherwise) caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement under which
such Registration Stock was registered under the Act, any preliminary or final
prospectus contained therein, or any amendment or supplement thereto, or caused
by any omission or alleged omission to state therein a material fact required to
11
be stated therein or necessary to make the statements therein not misleading;
and will reimburse the Selling Investors of Registration Stock for any legal or
other out-of-pocket expenses reasonably incurred by such Selling Investors in
connection with investigation for defending against such loss, claim, damage,
liability or action; except insofar as such losses, claims, damages, liabilities
or expenses are caused by any untrue statement or omission contained in
information furnished in writing to GTS by such Selling Investors expressly for
use therein. In connection with any such registration statement, the Selling
Investors of Registration Stock will furnish GTS in writing such information as
may reasonably be requested by GTS for use in any such registration statement or
prospectus and will indemnify GTS, its directors and officers, and, to the
extent required in any agreement with any underwriter or broker-dealer, each
such underwriter or broker-dealer and each person, if any, who controls GTS or
any underwriter or broker-dealer (within the meaning of the Act) against any
losses, claims, damages, liabilities, expenses and actions in respect thereof
(under the Act or common law or otherwise) resulting from any untrue statement
or alleged untrue statement of a material fact required to be stated in such
registration statement or prospectus and necessary to make the statements
therein not misleading; and will reimburse GTS or any legal or other
out-of-pocket expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage, liability or
action; but only to the extent that such untrue statement or omission was
contained in information so furnished in writing by the Selling Investors of
Registration Stock expressly for use therein, and only to the extent of proceeds
received by the Selling Investors of Registration Stock in the offering. GTS
further agrees that, in connection with any underwritten public offering, it
also will enter into customary contribution arrangements with the Selling
Investors of Registration Stock and the underwriters or broker-dealers through
whom the Registration Stock may be sold, with respect to situations in which
indemnification is potentially unavailable.
(b) Notice. Promptly after receipt by an indemnified party under this
Section 5.5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if such party desires to make
a claim in respect thereof against any indemnifying party under this Section
5.5, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would not be appropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 5.5, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 5.5.
(c) Defect Eliminated in Final Prospectus. The foregoing indemnity
agreements of GTS and the Selling Investors are subject to the condition that,
insofar as they relate to any untrue statement or omission made in a preliminary
prospectus but eliminated or remedied in the amended prospectus on file with the
Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any person if a copy of the Final
Prospectus was furnished to the indemnified party and was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Act.
(d) Contribution. In order to provide for just and equitable
contribution to joint liability under the Act in any case in which either (i)
any holder exercising rights under this Agreement, or any controlling person of
any such holder, makes a claim of indemnification pursuant to this Section 5.5
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 5.5 provides
12
for indemnification in such case or (ii) contribution under the Act may be
required on the part of any such Selling Investor or any such required on the
part of any such Selling Investor or any such controlling person in
circumstances for which indemnification is provided under this Section 5.5;
then, and in each case, GTS and such holder will contribute to the aggregate
losses, claims, damages or liabilities to which they may be subject (after
contribution from others) (i) in such proportion as is appropriate and equitable
to reflect the relative fault of GTS, on the one hand, and the holder, on the
other hand, (such fault to be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied or withheld by GTS or the holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission) or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
and equitable to reflect not only the relative fault of GTS and the holder, but
also the relative benefits received by GTS on the one hand and the holder, on
the other hand, as well as any other relevant equitable considerations;
provided, however, that, in any such case, no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(e) Survival. The obligations of GTS and Selling Investors under this
Section 5.5 shall survive the completion of any offering of Registration Stock
in a registration statement, and otherwise.
5.6 Withdrawal. GTS reserves the right, at its option, to withdraw or
terminate any registration statement filed by GTS pursuant to Section 5.1 hereof
prior to its effective date without penalty under this Agreement, provided such
withdrawal or termination shall not relieve GTS of its obligations under this
Article V to register the Registration Stock pursuant to Section 5.1 hereof.
ARTICLE VI
SURVIVAL OF OBLIGATIONS; INDEMNIFICATION
6.1 Survival of Obligations. All certifications, representations and
warranties respectively made herein by GTS and the Investors and their
respective obligations to be performed pursuant to the terms hereof, shall
survive the Closing hereunder, notwithstanding any notice of any inaccuracy,
breach or failure to perform not waived in writing and notwithstanding the
consummation of the transactions contemplated herein with knowledge of such
inaccuracy, breach or failure. All representations and warranties contained
herein shall terminate two years after the Closing hereunder.
6.2 Indemnification.
(a) GTS agrees to indemnify and hold harmless PMG and the Investors
and their respective affiliates, successors and assigns from and against any and
all (x) liabilities, losses, costs, deficiencies or damages ("Loss") only to the
extent of the proceeds received by GTS from the sale of the Notes and the
Warrants contemplated hereby, and (y) reasonable attorneys' and accountants'
fees and expenses, court costs and all other reasonable out-of-pocket expenses
("Expense") incurred by PMG or the Investors, in each case net of any insurance
proceeds received and retained by PMG or the Investors, in connection with or
arising from (i) any breach by GTS of any of its covenants in, or failure of GTS
to perform any of its obligations under, this Agreement or (ii) any breach of
any warranty or the inaccuracy of any representation of GTS contained in this
Agreement or in any certificate delivered by or on behalf of GTS pursuant
hereto.
(b) The Investors agree to indemnify and hold harmless GTS and its
successors and assigns from and against any and all Loss and Expense incurred by
GTS in each case net of any insurance received and retained by GTS in connection
with or arising from (i) any breach by the Investors of any of their covenants
in, or any failure of the Investors to perform any of their obligations
13
under, this Agreement or (ii) any breach of any warranty or the inaccuracy of
any representation of the Investors contained in this Agreement or in any
certificate delivered by or on behalf of the Investors pursuant hereto.
(c) No claim shall be made for indemnity pursuant to this Section 6.2
until the aggregate amount of Loss and Expense exceeds $50,000, but if the
aggregate amount of such Loss and Expense exceeds such amount, the person
responsible therefor (an "Indemnifying Person") shall be liable for all Loss and
Expense, including such initial $50,000 amount to the person incurring such loss
or expense (an "Indemnified Person").
(d) If any Indemnified Person has suffered or incurred any Loss or
incurred any Expense, the Indemnified Person shall so notify the Indemnifying
Person promptly in writing describing such Loss or Expense, the amount thereof,
if known, and the method of computation of such Loss or Expense, all with
reasonable particularity and containing a reference to the provisions of this
Agreement or any certificate delivered pursuant hereto in respect of which such
Loss or Expense shall have occurred. If any action at law or suit in equity is
instituted by or against a third party with respect to which any Indemnified
Person intends to claim any liability or expense as Loss or Expense under this
Section 6.2, such Indemnified Person shall promptly notify the Indemnifying
Person of such action or suit.
(e) An Indemnifying Person shall have the right to participate in and,
to the extent the Indemnifying Person so desires, jointly with any other
Indemnifying Person similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
Indemnified Person shall have the right to retain its own counsel, with the fees
and expenses to be paid by the Indemnifying Person, if representation of such
Indemnified Person by the counsel retained by the Indemnifying Person would not
be appropriate due to actual or potential conflict of interests between such
Indemnified Person and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the Indemnifying Person
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such Indemnifying Person of
any liability to the Indemnified Person under this Section 6.2, but the omission
so to deliver written notice to the Indemnifying Person will not relieve it of
any liability that it may have to any Indemnified Person otherwise than under
this Section 6.2.
ARTICLE VII
INVESTMENT REPRESENTATIONS
7.1 Investment Representations. Each Investor hereby severally represents
and warrants as to itself to GTS that:
(a) Purchase for Own Account. The Notes, the Warrants and any shares
of Common Stock purchased upon exercise of the Warrants or issued upon
conversion of the Notes and any other securities of GTS or any other issuer that
may be receivable under the Warrants or Notes (collectively, the "Securities")
are being, and will be, acquired by the Investor for investment purposes only
for the Investor's own account, not as nominee or agent, and not with the view
to the public resale or distribution thereof within the meaning of the Act.
(b) Disclosure of Information. The Investor acknowledges that it has
received and read all information it considers necessary or appropriate for
deciding whether or not to purchase the Securities, including but not limited to
the Form 10-K of GTS for the year ended December 31, 1996, the Form 10-QSB of
GTS for the period ended September 30, 1997, the Prospectus of GTS dated July 9,
1997, in particular the risk factors contained therein, and the two Forms 8-K of
GTS each dated February 23, 1998 (collectively, the "SEC Documents") and the
disclosures reflecting the material events occurring since September 30, 1997
14
contained in this Agreement, and has had an opportunity to ask questions and to
receive answers from GTS and its officers regarding the Securities. The Investor
has received no representation or warranty from GTS or its officers, employees
or agents with respect to its investment and has received no information
relating to the operations or business of GTS and the Subsidiaries other than as
set forth in this Agreement and in the publicly-filed documents of GTS.
(c) Investment Experience. The Investor has experience in investing in
securities of companies in the developmental stage, such as GTS, and
acknowledges that the Investor is able to fend for itself and to assess the
economic risk of investment in any of the Securities and has such knowledge and
experience in financial and business matters that it can be assumed to be
capable of evaluating the merits and risks of an investment in any of the
Securities and of protecting its interests in such an investment. The Investor
has not been organized for the purpose of acquiring any of the Securities.
(d) Residency. The Investor's primary residence is at the address set
forth under such Investor's name on the signature page of this Agreement.
(e) Accredited Investor. The Investor understands that GTS is relying
on its representations and agreements for the purpose of determining that this
transaction meets the requirements of the exemptions granted under federal and
state laws. The Investor is an "Accredited Investor" as defined in Regulation D
promulgated under the Act.
(f) Restricted Securities. The Investor understands that the
Securities are and will be characterized as "restricted securities" under the
Act inasmuch as they are being acquired from GTS in a transaction not involving
a public offering and that under the Act and applicable regulations thereunder,
the Securities may be resold without registration under the Act only in limited
circumstances. In this regard the Investor represents that it is familiar with
the terms and conditions of Rule 144 promulgated under the Act, as presently in
effect, and understands the limitations on resale and transfer of the Securities
imposed thereby and by the Act.
(g) Risk. The Investor understands that its investment involves a
certain degree of risk and that there is no assurance as to the future
performance of GTS.
(h) Automatic Conversion of Notes. The Investor acknowledges that the
entire outstanding principal balance of the Notes and the unpaid accrued
interest on the outstanding principal balance of the Notes shall be
automatically converted into shares of Common Stock of GTS on the date of the
closing of the Qualified Private Placement without any further action on the
part of the Investor.
(i) Legends.
(i) The Investor understands that the Securities will bear
legends in substantially the form of the legend set forth above, together with
any other legends required by applicable securities laws.
(ii)Investor acknowledges the following:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SECURI-
TIES BEING OFFERED HEREBY AGREES NOT TO SELL THOSE SHARES FOR
A PERIOD OF 12 MONTHS AFTER THE DATE OF PURCHASE UNLESS
PERMITTED UNDER PENNSYLVANIA "BLUE SKY" OR SECURITIES LAWS.
PURSUANT TO SECTION 207(M) OF THE PENNSYLVANIA SECURITIES ACT
OF 1972, EACH PENNSYLVANIA RESIDENT WHO ACCEPTS AN OFFER TO
PURCHASE THE SECURITIES MADE PURSUANT TO THIS
15
AGREEMENT, EXEMPTED FROM REGISTRATION, DIRECTLY FROM AN ISSUER
OR AN AFFILIATE OF AN ISSUER, SHALL HAVE THE RIGHT TO WITHDRAW
FROM THIS AGREEMENT AND RECEIVE A FULL REFUND OF ALL MONIES
PAID, WITHOUT INCURRING ANY LIABILITY TO GTS, PMG OR ANY OTHER
PERSON, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY
GTS OF THIS AGREEMENT. IF THE INVESTOR DESIRES TO WITHDRAW IN
ACCORDANCE WITH THE FOREGOING, THE INVESTOR NEED ONLY, WITHIN
THE TIME SPECIFIED ABOVE, (I) CAUSE A WRITTEN NOTICE OF ITS
INTENTION TO WITHDRAW TO BE RECEIVED BY PMG AT XXXX XXXXX
XXXXXXXXX XXXXXX, XXXX XXXXXXXXXXXX, XX 00000, ATTENTION: XXXX
X. XXXXXX, VICE PRESIDENT, ADMINISTRATION, OR (II) DELIVER
SAID NOTICE OF INTENTION TO WITHDRAW TO A TELEGRAPH OFFICE OR
OTHER MESSAGE SERVICE FOR TRANSMITTAL TO PMG AT SAID ADDRESS
OR (III) DEPOSIT SAID NOTICE IN THE UNITED STATES MAILS
(EITHER REGISTERED OR CERTIFIED MAIL) ADDRESSED TO PMG AT SAID
ADDRESS. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND
POST-MARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND
BUSINESS DAY. ALL TELEGRAPH, POSTAGE OR OTHER TRANSMITTAL FEES
SHALL BE PAID BY THE INVESTOR. SHOULD THE INVESTOR MAKE THE
REQUEST ORALLY, IT SHOULD ASK FOR WRITTEN CONFIRMATION THAT
THE REQUEST HAS BEEN RECEIVED.
ARTICLE VII
MISCELLANEOUS
8.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be given by confirmed telex or telecopy
or reputable overnight delivery service addressed, if to GTS, to: Global
Telecommunication Solutions, Inc., 00 Xxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxx Xxxxxx
00000, Attention: Xxxxx Xxxxx, with a copy to Xxxxxxxx, Xxxxxx & Xxxxxx, 000
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxx Xxxx Xxxxxx, Esquire
and, if to PMG or any Investor, to: Pennsylvania Merchant Group, Xxxx Xxxxx
Xxxxxxxxx Xxxxxx, Xxxx Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000, Attention: Xxxx X.
Xxxxxx, Vice President, Administration with a copy to Duane, Morris & Heckscher
LLP, 0000 Xxx Xxxxxxx Xxxxx, Xxxxxxxxxxxx, XX 00000, Attention: Xxxxxxxxx X.
Xxxxxx, Esquire.
8.2 Expenses. Each party hereto shall pay its own expenses including,
without limitation, legal and accounting fees and expenses, incident to its
negotiation and preparation of this Agreement and to its performance and
compliance with the provisions contained herein.
8.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its rules on conflicts of law.
8.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided that the rights of GTS and the rights of any Investor may only
be assigned to such other business organization which shall succeed to
substantially all the assets, liabilities and business of GTS or such Investor,
as the case may be.
8.5 Partial Invalidity. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision or provisions had never been
16
contained herein unless the deletion of such provision or provisions would
result in such a material change as to cause completion of the transactions
contemplated herein to be unreasonable.
8.6 Execution in Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement,
and shall become a binding agreement when one or more counterparts have been
signed by each of the parties and delivered to each of the other parties.
8.7 Titles and Headings. Titles and headings to Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
8.8 Entire Agreement; Amendments and Waivers. This Agreement and the Notes
and the Warrants contain the entire understanding of the parties hereto with
regard to the subject matter contained herein. GTS, on the one hand, and PMG and
Investors holding at least 80% of the remaining outstanding principal balance of
the Notes, on the other hand, may, by written instrument, extend the time for
the performance of any of the obligations or other acts of the other parties and
with respect to this Agreement, (a) waive any inaccuracies in the
representations and warranties of the other parties in this Agreement or in any
document delivered pursuant to this Agreement, (b) waive compliance with any of
the covenants of the other parties contained in this Agreement, (c) waive the
other parties' performance of any of its obligations set out in this Agreement
or (d) amend, modify and supplement this Agreement. The failure of any party
hereto to enforce at any time any provision of this Agreement shall not be
construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of such party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.
17
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto by their duly authorized representatives.
GLOBAL TELECOMMUNICATION INVESTOR (INDIVIDUAL)
SOLUTIONS, INC.
By: _____________________________ _______________________
Xxxxx Xxxxxxx, President (Signature)
________________________
(Name - Please Print)
________________________
(Address)
________________________
(Social Security Number)
PENNSYLVANIA MERCHANT GROUP INVESTOR (ENTITY)
By:________________________ __________________________
(Name - Please Print)
________________________
(Address)
________________________
(Tax Identification Number)
By:_______________________
Name:_____________________
Title:____________________
18
SCHEDULE A
List of Warrant and Note Holders
Number of Shares
of
Number of Shares Common Stock
of Common Stock Initially Issuable on
Principal Amount Initially Issuable on Conversion of
Name and Address of Notes Exercise of Warrants Notes
-------------------- ------------------ ----------------------- --------------------
Total: $1,250,000 __________ __________
==========
19
SCHEDULE 1.1
Principal Subsidiaries
Global Link Telecom Corporation
GTS Marketing, Inc.
Networks Around The World, Inc.
Centerpiece Communications, Inc.
20
SCHEDULE 1.2
Subsidiaries
See Schedule 1.1.
21
SCHEDULE 1.3
Rights under Agreements
None.
22
SCHEDULE 1.5
Distributions on Capital Stock
None.
23
SCHEDULE 1.7
Material Events Since
September 30, 1997
1. The acquisition of two subsidiaries, Networks Around the World, Inc.
("Networks") and Centerpiece Communications, Inc. ("Centerpiece"), and
the consequent liability to Access Telecom.
2. Termination of GTS' relationship with ABC Stores and Von Supermarkets,
each of which was a material customer of GTS.
24
SCHEDULE 1.14
Liabilities
The Company has incurred certain liabilities relating to the cost of
telecommunications usage for prepaid phone cards which had been acquired by
Networks and Centerpiece from Access Telecom, Inc. ("Access"). Prior to the
acquisitions of Networks and Centerpiece, each of Networks and Centerpiece
bought phone cards from Access, i.e., Access served as the telecommunications
provider. Networks and Centerpiece continued to acquire phone cards from Access
after the consummation of the acquisitions. On February 24, 1998, Access advised
GTS, Networks and Centerpiece that it would no longer provide services for the
phone cards acquired by Networks and Centerpiece, despite having been paid for
all or substantially all of those phone cards. Consequently, GTS entered into
agreements with alternative carriers pursuant to which the carriers have agreed
to provide telecommunications services to the phone cards and GTS has agreed to
pay those carriers for any usage associated with the phone cards.
GTS and the former shareholders of Networks and Centerpiece have
agreed to share the liabilities associated with this matter. GTS estimates that
the total liabilities associated with this matter may exceed $1,000,000.
25
